Power to Sue and be Sued in Court

Power to Sue and be Sued
TAM WING TAK

vs.
HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the Regional
Trial Court of Manila, Branch 35) and ZENON DE GUIA (in his capacity as Chief
State Prosecutor)
G.R. No. 122452. January 29, 2001
FACTS:
On November 11, 1992, petitioner, in his capacity as director of Concord-World

Properties, Inc., (Concord for brevity), a domestic corporation, filed an affidavit-
complaint with the Quezon City Prosecutor's Office, charging Vic Ang Siong with
violation of B.P. Blg. 22 alleging that a check for the amount of P83,550,000.00,
issued by Vic Ang Siong in favor of Concord, was dishonored when presented for
encashment.
Vic Ang Siong sought the dismissal of the case on two grounds: First, that
petitioner had no authority to file the case on behalf of Concord, the payee of the
dishonored check, since the firm's board of directors had not empowered him to act on
its behalf. Second, he and Concord had already agreed to amicably settle the issue
after he made a partial payment of P19,000,000.00 on the dishonored check.
The City Prosecutor dismissed the case. Petitioner moved for reconsideration but the
City Prosecutor denied such. On November 8, 1994, petitioner appealed the dismissal
of his complaint and the Chief State Prosecutor dismissed the appeal for having been
filed out of time.
ISSUES:
Whether or not petitioner is the proper party to institute the case.
RULING:
NO.
In general, mandamus may be resorted to only where one's right is founded

clearly in law and not when it is doubtful. The exception is to be found in criminal
cases where mandamus is available to compel the performance by the public
prosecutor of an ostensibly discretionary function, where by reason of grave abuse of
discretion on his part, he willfully refuses to perform a duty mandated by law. Thus,
mandamus may issue to compel a prosecutor to file information when he refused to do
so in spite of the prima facie evidence of guilt.
First, with respect to the agreement between Concord and Victor Ang Siong to
amicably settle their difference, we find this resort to an alternative dispute settlement
mechanism as not contrary to law, public policy, or public order. Efforts of parties to
solve their disputes outside of the courts are looked on with favor, in view of the
clogged dockets of the judiciary.
Second, it is not disputed in the instant case that Concord, a domestic
corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord,
as payee of the bounced check, which is the injured party. Since petitioner was neither
a payee nor a holder of the bad check, he had neither the personality to sue nor a
cause of action against Vic Ang Siong.
Petitioner failed to show any proof that he was authorized or deputized or
granted specific powers by Concord's board of director to sue Victor Ang Siong for and
on behalf of the firm. Petitioner as a minority stockholder and member of the board of
directors had no such power or authority to sue on Concord's behalf. Nor can we
uphold his act as a derivative suit. For a derivative suit to prosper, it is required that
the minority stockholder suing for and on behalf of the corporation 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 who may wish to join him in the suit.
NORA A. BITONG
vs.
COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A.
APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION
G. NUYDA
G.R. No. 123553. July 13, 1998
NORA A. BITONG
vs.
COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B. ESPIRITU
(CA-G.R. No. 33873) July 13, 1998
FACTS:
Bitong alleged that she was the treasurer and member of the BoD of Mr. & Mrs.
Corporation. She filed a complaint with the SEC to hold respondent spouses Apostol
liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and
mismanagement in directing the affairs of the corporation to the prejudice of the
stockholders. She alleges that certain transactions entered into by the corporation
were not supported by any stockholder’s resolution. The complaint sought to enjoin
Apostol from further acting as president-director of the corporation and from
disbursing any money or funds.
Apostol contends that Bitong was merely a holder-in-trust of the JAKA shares
of the corporation, hence, not entitled to the relief she prays for. SEC Hearing Panel
issued a writ enjoining Apostol. After hearing the evidence, SEC Hearing Panel
dissolved the writ and dismissed the complaint filed by Bitong. Bitong appealed to the
SEC en banc which reversed SEC Hearing Panel decision. Apostol filed petition for
review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the
owner of any share of stock in the corporation and therefore, not a real party in
interest to prosecute the complaint.
ISSUE:
Whether or not Bitong was the real party in interest.

RULING:
NO.
It could be gleaned that Bitong was not a bona fide stockholder of the
corporation. Several corporate documents disclose that the true party in interest was
JAKA. Although her buying of the shares were recorded in the Stock and Transfer
Book of the corporation, and as provided by Sec. 63 of the Corp Code that no transfer
shall be valid except as between the parties until the transfer is recorded in the books
of the corporation, and upon its recording the corporation is bound by it and is
estopped to deny the fact of transfer of said shares, this provision is not conclusive
even against the corporation but are prima facie evidence only.
Parol evidence may be admitted to supply the omissions in the records, explain
ambiguities, or show what transpired where no records were kept, or in some cases
where such records were contradicted.
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. However, the books and
records of a corporation are not conclusive even against the corporation but are prima
facie evidence only. The effect of entries in the books of the corporation which purport
to be regular records of the proceedings of its board of directors or stockholders can be
destroyed by testimony of a more conclusive character than mere suspicion that there
was an irregularity in the manner in which the books were kept.
SPECIAL SERVICES CORPORATION

vs.
CENTRO LA PAZ (SAMAHANG ESPIRITISTA SA LUNDUYANG LA PAZ), A CHAPTER
OF UNION ESPIRITISTA CRISTIANA DE FILIPINAS, INC.
G.R. No. L-44100. April 28, 1983
FACTS:
On October 10, 1972, judgment was rendered in favor of petitioner against one
Alejandro Estudillo in the amount of P94,727.52, in an action for Replevin with Sum
of Money and a writ of execution was thereafter issued but which has remained
unsatisfied.
By virtue of an alias writ of execution issued on December 15, 1972, the Sheriff
of Manila caused the annotation of a notice of levy on Transfer Certificate of Title No.
51837, in respect of the rights, interest and participation of said Alejandro Estudillo,
one of the registered owners indicated in said title.
On July 23, 1973, "Centro La Paz (Samahang Espiritista sa Lunduyang La Paz)
a Chapter of Union Espiritista Cristiana de Filipinas, Inc.," as plaintiff, instituted for
Damages and Preliminary Injunction against herein petitioner and the Sheriff of
Manila with the Court of First Instance, Branch IV, Manila, the same Court which
rendered judgment in the replevin case. CENTRO reiterated ownership of the
properties in question and emphasized that the registered owners thereof had publicly
acknowledged their possession of said properties in the concept of trustees.
ISSUE:
Whether or not Centro La Paz which is merely a Chapter of Union Espiritista de

Filipinas, Inc. has a juridical personality of its own in accordance with the provisions
of our laws.
RULING:
YES.
Although it was CENTRO that was actively prosecuting the case, in substance,
it was representing the mother organization, the Union Espiritista Cristiana de
Filipinas, Inc., which is the real party in interest and is itself named in the Complaint.
It is an organization that is duly registered with the Securities and Exchange
Commission, and thus possessed of a juridical personality to sue and be sued.
Admittedly, the trust was not registered in accordance with section 65 of Act
496 (the former Land Registration Law). The absence of said registration, however,
cannot be taken against CENTRO inasmuch as, if the public auction sale had actually
been held, with petitioner as the successful buyer, petitioner could not have been
considered a purchaser for value and in good faith at said sale since it had knowledge
of CENTRO's claim, particularly when the latter had filed a third-party-claim with the
Sheriff of Manila before the scheduled auction sale, which knowledge was equivalent
to registration of the several "Acknowledgments" in the Registry of Deeds.
The conclusion follows that inasmuch as Estudillo has no interest in the
properties in question, there is nothing that petitioner can levy upon. The power of a
Court in the execution of its judgment extends only over properties unquestionably
belonging to the judgment debtor.
R. TRANSPORT CORPORATION
vs.
HON. COURT OF APPEALS, Former 15th Division, Manila, HON. SALVADOR S.
ABAD SANTOS, as Presiding Judge, Regional Trial Court of, Metro Manila, Branch
65 and FLOSERIDA L. CASTAÑEDA
G.R. No. 111187. February 1, 1995
FACTS:
On November 22, 1991, private respondent filed a complaint for damages

arising from breach of contract of carriage against petitioner. In an Order dated
January 28, 1991, the trial court upon ex parte motion of private respondent, declared
petitioner in default and appointed a commissioner to receive evidence ex parte.
Petitioner filed a Motion to Dismiss and to Stop Ex Parte Reception of Evidence. It
asserted that it was not properly served with summons and consequently, the trial
court did not acquire jurisdiction over its person. It argued that none of the officers
enumerated in Section 13, Rule 14 of the Revised Rules of Court (namely, the
corporation's president, manager, secretary, cashier, agent or any of its directors)
received any summons. The trial court denied petitioner's motion and allowed private
respondent to adduce its evidence ex parte.
The Court of Appeals dismissed the petitioner’s petition for certiorari ruling that
the trial court did not commit any grave abuse of discretion in declaring the petitioner
in default and in denying petitioner's motion for reconsideration.
ISSUE:
Whether or not there was valid service of summons.
RULING:
YES.
As a general rule, service of summons must be made on the persons named in

Section 13, Rule 14 of the Revised Rules of Court which provides: If the 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.
Thus service on persons other than those mentioned in said Rule has been held
as improper. Through the years, the rule on service of summons has been liberalized.
Such liberalization is to give life to the rationale behind Section 13 of Rule 14. Service
of summons on persons other than those enumerated in Section 13 of Rule 14 have
been held proper on the theory that those persons served were holding positions of
responsibility and could appreciate the importance of the papers handed them, and
could be expected to deliver the papers to the proper officer. These individuals were
considered "agents" within the contemplation of Section 13 of Rule 14. Thus, the
Court holds that service of summons on petitioner's Operations Manager was valid. He
is an officer who may be relied upon to appreciate the importance of the papers served
on him.
The fact that service was made at petitioner's bus terminal at the address
stated in the summons and not at its office in Makati does not render the service of
summons invalid. Petitioner is engaged in the transportation business, operating over
100 buses. Its central bus terminal is located at Sucat, Parañaque, from where it
conducts the bulk of its business. It was at that terminal where petitioner's Operations
Manager was found and upon whom service was made.
Power to Acquire, Dispose, Encumber Property
THE DIRECTOR OF LANDS

vs.
THE HONORABLE COURT OF APPEALS and IGLESIA NI CRISTO
G.R. No. L-56613. March 14, 1988
FACTS:
On November 28, 1973, private respondent Iglesia ni Cristo filed an application
for registration in its name of a parcel of land with an area of 379 square meters
located at Poblacion, Municipality of Amadeo, Cavite. In its application, private
respondent alleged inter alia that it was the owner in fee simple of the land afore-
described, having acquired title thereto by virtue of a Deed of Absolute Sale executed
in 1947 by Aquelina de la Cruz in its favor and that applicant. Private respondent
prayed that should the Land Registration Act not be applicable, the provisions of
Chapter VIII of Commonwealth Act No. 141, as amended by Republic Act No. 6236 be
applied as applicant and its predecessors-in-interest had been in possession of the
land for more than thirty [30] years and had introduced improvements thereon.
The Republic of the Philippines, represented by the Director of Lands, opposed
the application on the following grounds: 1] the applicant and its predecessors-in-
interest did not possess sufficient title to acquire ownership in fee simple of the parcel
of land applied for; 2] neither the applicant nor its predecessors-in-interest have been
in open, continuous, exclusive and notorious possession and occupation of the land in
question; and, 3] the subject parcel of land is a portion of the public domain not
subject to private appropriation.
ISSUES:
Whether or not the respondent is prohibited from acquiring private land as

provided under the Constitution.
RULING:
YES.
Taking the year 1936 as the reckoning point, the 30-year period of open,
continuous, exclusive and notorious possession and occupation required by law was
completed in 1966. The completion by private respondent of this statutory 30-year
period has dual significance in the light of Section 48[b] of Commonwealth Act No.
141, as amended and prevailing jurisprudence: [1] at this point, the land in question
ceased by operation of law to be part of the public domain; and [2] private respondent
could have its title thereto confirmed through the appropriate proceedings as under
the Constitution then in force, private corporations or associations were not prohibited
from acquiring public lands, but merely prohibited from acquiring, holding or leasing
such type of land in excess of 1,024 hectares.
If in 1966, the land in question was converted ipso jure into private land, it
remained so in 1974 when the registration proceedings were commenced. This being
the case, the prohibition under the 1973 Constitution would have no application.
Otherwise construed, if in 1966, private respondent could have its title to the land
confirmed, then it had acquired a vested right thereto, which the 1973 Constitution
can neither impair nor defeat.
Power to Make Donations
MARIA CLARA PIROVANO ET AL.

vs.
THE DE LA RAMA STEAMSHIP CO.
G.R. No. L-5377. December 29, 1954
FACTS:
Plaintiffs herein are the minor children of the late Enrico Pirovano represented
by their mother and judicial guardian Estefania R. Pirovano. They seek to enforce
certain resolutions adopted by the Board of Directors and stockholders of the
defendant company giving to said minor children of the proceeds of the insurance
policies taken on the life of their deceased father Enrico Pirovano with the company as
beneficiary. Defendant's main defense is: that said resolutions and the contract
executed pursuant thereto are ultra vires, and, if valid, the obligation to pay the
amount given is not yet due and demandable.
Plaintiff-appellant Pirovano is the owner of 3424 shares of stocks in defendant-
appellee Corporation which declared a dividend of P100 per share. Appellant wants to
recover from appellee the sum of P221, 975 after deducting the sum of P120, 424
which she had withdrawn or received from appellee for advances she received after the
death of her father, the late Esteban de la Rama.
Appellant’s theory is that the cash advances to her for her personal use and
that of her children were assumed by Esteban de la Rama. She claims that the
advances made to her by appellees were debited from the account of Hijos de I. de la
Rama, another corporation practically owned by Esteban de la Rama. She further
claims that the appellee can only deduct from the amount of dividend she is entitled
to, the amount of cash advances which was not assumed by her father. The
withdrawals by the appellant were made during the period 1940 to 1949 during which
the appellee made a deed of trust with Hijos. The deed of trust was made to
circumvent the prohibition of declaring dividends during the period.
ISSUE:
Whether or not the donation made by the corporation of the proceeds of the
insurance is a valid act.
RULING:
YES.
The Articles of Incorporation of Dela Rama Steamship provided that under (g)
the company may invest and deal with moneys of the company not immediately
required, in such a manner as from time to time may be determined, and under (i)… to
lend money or to aid in any other manner any person association, or corporation of
which any obligation or in which any interest is held by the corporation or in the
affairs of prosperity of which the corporation has a lawful interest.
The corporation was thus given broad and almost unlimited powers to carry out
the purposes for which it was organized. The word “deal” is broad enough to include
any manner of disposition, and thus the donation comes within the scope of this
broad power. The company was in fact very much solvent as it was able to declare and
issue dividends to its stockholders, and shows that the excess funds which were not
needed by the company which was donated to the children was justified under the
AOI. Under the second broad power, the corporation knew well its scope such that
none lifted a finger to dispute its validity. The company gave the donation not only
because it was indebted to him but also because it was fit and proper to make
provisions for the children and out of a sense of gratitude.
To Increase or Decrease Capital Stock
MADRIGAL & COMPANY, INC.

vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS,
THE HON. SECRETARY OF LABOR, and MADRIGAL CENTRAL OFFICE
EMPLOYEES UNION
G.R. No. L-48237. June 30, 1987

vs.
HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES
UNION
No. L-49023. June 30, 1987
FACTS:
The petitioner was engaged, among several other corporate objectives, in the
management of Rizal Cement Co., Inc.Admittedly, the petitioner and Rizal Cement Co.,
Inc. are sister companies.Both are owned by the same or practically the same
stockholders.On December 28, 1973, the respondent, the Madrigal Central Office
Employees Union, sought for the renewal of its collective bargaining agreement with
the petitioner, which was due to expire on February 28, 1974.Specifically, it proposed
a wage increase of P200.00 a month, an allowance of P100.00 a month, and other
economic benefits.The petitioner, however, requested for a deferment in the
negotiations.
On July 29, 1974, by an alleged resolution of its stockholders, the petitioner
reduced its capital stock from 765,000 shares to 267,366 shares.This was effected
through the distribution of the marketable securities owned by the petitioner to its
stockholders in exchange for their shares in an equivalent amount in the
corporation.On August 22, 1975, by yet another alleged stockholders' action, the
petitioner reduced its authorized capitalization from 267,366 shares to 110,085
shares, again, through the same scheme.
ISSUE:
Whether or not the decrease in the ACS of petitioner is valid.

RULING:
NO.
The Court ruled that what clearly emerges from the recorded facts is that the
petitioner, awash with profits from its business operations but confronted with the
demand of the union for wage increases, decided to evade its responsibility towards
the employees by a devised capital reduction. While the reduction in capital stock
created an apparent need for retrenchment, it was, by all indications, just a mask for
the purge of union members, who, by then, had agitated for wage increases.
As such shareholder, the dividends paid to it were its own money, which may
then be available for wage increments. It is not a case of a corporation distributing
dividends in favor of its stockholders, in which case, such dividends would be the
absolute property of the stockholders and hence, out of reach by creditors of the
corporation. Here, the petitioner was acting as stockholder itself, and in that case, the
right to a share in such dividends, by way of salary increases, may not be denied its
employees.
Accordingly, the Court is convinced that the petitioner's capital reduction efforts
were, to begin with, a subterfuge, a deception as it were, to camouflage the fact that it
had been making profits, and consequently, to justify the mass layoff in its employee
ranks, especially of union members.
PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa

Naval Filipina"
vs.
MARCIANO RIVERA
G.R. No. L-19761. January 29, 1923
FACTS:
In 1918 the Cooperativa Naval Filipina was duly incorporated under the laws of
the Philippine Islands, with a capital of P100,000, divided into one thousand shares of
a par value of P100 each. Among the incorporators of this company was numbered the
defendant Mariano Rivera, who subscribed for 450 shares representing a value of
P45,000, the remainder of the stock being taken by other persons.
In the course of time the company became insolvent and went into the hands of
the Philippine Trust Company, as assignee in bankruptcy; and by it this action was
instituted to recover one-half of the stock subscription of the defendant, which
admittedly has never been paid.
The reason given for the failure of the defendant to pay the entire subscription
is a meeting of its stockholders occurred, at which a resolution was adopted to the
effect that the capital should be reduced by 50 per centum and the subscribers
released from the obligation to pay any unpaid balance of their subscription in excess
of 50 per centum of the same.
ISSUE:
Whether or not the reduction of the company’s capital by 50 per centum and
the subscribers released from the obligation to pay any unpaid balance of their
subscription in excess of 50 per centum is valid.
RULING:
NO.
The Court ruled that defendant was still liable for the unpaid balance of his
subscription. It is established doctrine that subscription to the capital of a corporation
constitute a find to which creditors have a right to look for satisfaction of their claims
and that the assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts.
A corporation has no power to release an original subscriber to its capital stock
from the obligation of paying for his shares, without a valuable consideration for such
release; and as against creditors a reduction of the capital stock can take place only in
the manner an under the conditions prescribed by the statute or the charter or the
articles of incorporation. Moreover, strict compliance with the statutory regulations is
necessary. In the case before us the resolution releasing the shareholders from their
obligation to pay 50 per centum of their respective subscriptions was an attempted
withdrawal of so much capital from the fund upon which the company's creditors were
entitled ultimately to rely and, having been effected without compliance with the
statutory requirements, was wholly ineffectual.
To Deny Pre-Emptive Rights
DATU TAGORANAO BENITO

vs.
SECURITIES AND EXCHANGE COMMISSION and JAMIATUL PHILIPPINE-AL
ISLAMIA, INC.
G.R. No. L-56655. July 25, 1983
FACTS:
On February 6, 1959, the Articles of Incorporation of respondent Jamiatul

Philippine-Al Islamia, Inc. (originally Kamilol Islam Institute, Inc.) were filed with the
Securities and Exchange Commission (SEC) and were approved on December 14,
1962. The corporation had an authorized capital stock of P200,000.00 divided into
20,000 shares at a par value of P10.00 each. Of the authorized capital stock, 8,058
shares worth P80,580.00 were subscribed and fully paid for. Petitioner Datu
Tagoranao Benito subscribed to 460 shares worth P4,600.00.
On October 28, 1975, the respondent corporation filed a certificate of increase
of its capital stock from P200,000.00 to P1,000,000.00. Thus, P110,980.00 worth of
shares were subsequently issued by the corporation from the unissued portion of the
authorized capital stock of P200,000.00. Of the increased capital stock of
P1,000,000.00, P160,000.00 worth of shares were subscribed by Mrs. Fatima A.
Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto.
Petitioner Datu Tagoranao filed a petition alleging that the additional issue
(worth P110,980.00) of previously subscribed shares of the corporation was made in
violation of his pre-emptive right to said additional issue and that the increase in the
authorized capital stock of the corporation from P200,000.00 to P1,000,000.00 was
illegal considering that the stockholders of record were not notified of the meeting
wherein the proposed increase was in the agenda.
Respondents denied the material allegations of the petition and claimed that
petitioner has no cause of action and that the stock certificates covering the shares
alleged to have been sold to petitioner were only given to him as collateral for the loan
of Domocao Alonto and Moki-in Alonto. The SEC affirmed the sale.
ISSUE:
Whether or not the issuance of the unissued shares was subject to the pre-
emptive right of the stockholders.
RULING:
NO.
The Court held that the questioned issuance of the unsubscribed portion of the
capital stock worth P110,980.00 is not invalid even if assuming that it was made
without notice to the stockholders as claimed by petitioner. The power to issue shares
of stocks in a corporation is lodged in the board of directors and no stockholders'
meeting is necessary to consider it because additional issuance of shares of stocks
does not need approval of the stockholders.
Petitioner bewails the fact that in view of the lack of notice to him of such
subsequent issuance, he was not able to exercise his right of pre-emption over the
unissued shares. However, the general rule is that pre-emptive right is recognized only
with respect to new issue of shares, and not with respect to additional issues of
originally authorized shares. This is on the theory that when a corporation at its
inception offers its first shares, it is presumed to have offered all of those which it is
authorized to issue. An original subscriber is deemed to have taken his shares
knowing that they form a definite proportionate part of the whole number of
authorized shares. When the shares left unsubscribed are later re-offered, he cannot
therefore claim a dilution of interest.
PEDRO LOPEZ DEE

vs.
SECURITIES AND EXCHANGE COMMISSION, HEARING OFFICER EMMANUEL
SISON, NAGA TELEPHONE CO., INC., COMMUNICATION SERVICES, INC.,
LUCIANO MAGGAY, AUGUSTO FEDERIS, NILDA RAMOS, FELIPA JAVALERA,
DESIDERIO SAAVEDRA
G.R. No. L-60502. July 16, 1991
FACTS:
Naga Telephone Company, Inc. was organized in 1954, the authorized capital
was P100,000.00. In 1974 Naga Telephone Co., Inc. (Natelco) decided to increase its
authorized capital to P3,000,000.00. As required by the Public Service Act, Natelco
filed an application for the approval of the increased authorized capital with the then
Board of Communications on which a decision was rendered approving the application
subject to certain conditions, among which was: That the issuance of the shares of
stocks will be for a period of one year from the date hereof, "after which no further
issues will be made without previous authority from this Board."
Natelco filed its Amended Articles of Incorporation with the Securities and
Exchange Commission. When the amended articles were filed with the SEC, the
original authorized capital of P100,000.00 was already paid. Of the increased capital of
P2,900,000.00 the subscribers subscribed to P580,000.00 of which P145,000 was
fully paid.
ISSUE:
Whether or not Natelco stockholders have a right of preemption to the 113,800

shares in question.
RULING:
NO.
The general rule is that pre-emptive right is recognized only with respect to new
issues of shares, and not with respect to additional issues of originally authorized
shares. This is on the theory that when a corporation at its inception offers its first
shares, it is presumed to have offered all of those which it is authorized to issue. An
original subscriber is deemed to have taken his shares knowing that they form a
definite proportionate part of the whole number of authorized shares. When the shares
left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest.
Thus, the questioned issuance of the 113,800 stocks is not invalid even assuming that
it was made without notice to the stockholders as claimed by the petitioner. The power
to issue shares of stocks in a corporation is lodged in the board of directors and no
stockholders meeting is required to consider it because additional issuance of shares
of stocks does not need approval of the stockholders. Consequently, no pre-emptive
right of Natelco stockholders was violated by the issuance of the 113,800 shares to
CSI.
Accordingly, it is clear that since the trial judge in the lower court did not have
jurisdiction in issuing the questioned restraining order, disobedience thereto did not
constitute contempt, as it is necessary that the order be a valid and legal one. It is an
established rule that the court has no authority to punish for disobedience of an order
issued without authority.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
vs.
HON. BENJAMIN M. AQUINO, JR., as Presiding Judge, Regional Trial Court, NCJR
Branch LXXII Malabon, Metro Manila, and MARCELO FIBERGLASS
CORPORATION
G.R. No. 77816. June 30, 1988
MARCELO FIBERGLASS CORPORATION

vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
G.R. No. 78753. June 30, 1988
FACTS:
On June 18, 1982, Edward T. Marcelo as president of private respondent

Marcelo Fiberglass Corporation [hereinafter referred to as MFC] entered into a Contract
to Buy and Sell with the Philippine Navy represented by Rear Admiral Simeon M.
Alejandro, then Flag Officer in Command, for the construction and delivery by the
former of fifty-five 551 units of fiberglass high-speed patrol boats at P7,200,000 each
plus spare parts amounting to P29,700,000 for a total contract price of P425,700,000.
It was stipulated in the contract that the patrol boats would be delivered within thirty-
six [36] months from the date the Philippine Navy pays to private respondent the
stipulated down payment of thirty per cent [30%] of the contract price.
To facilitate funding of the initial down payment agreed upon under the
contract, MFC through Edward Marcelo, secured presidential approval for the
issuance of a guarantee 'by the national government in acquiring either a foreign
currency loan in behalf of the Philippine Navy with a foreign bank or offshore banking
unit, or a peso term loan to be negotiated by the Philippine National Bank, also, in
behalf of the Philippine Navy.
ISSUES:
Whether or not the issuance and implementation of the writ of

sequestration violates the constitutional rights of private respondent against
impairment of obligation of contracts and deprivation of property without due process
of law.
RULING:
NO.
The Court sustains petitioner's stand and holds that regional trial courts and
the Court of Appeals for that matter have no jurisdiction over the Presidential
Commission on Good Government in the exercise of its powers under the applicable
Executive Orders and Article XVIII, Section 26 of the Constitution and therefore may
not interfere with and restrain or set aside the orders and actions of tile Commission.
Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1986, all
cases of the Commission regarding "the Funds, Moneys, Assets and Properties Illegally
Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda
Romualdez Marcos, then, Close Relatives, Subordinates, Business Associate,
Dummies, Agents or Nominees' whether civil or criminal.
The attempt to remove special civil actions from the Sandiganbayan's exclusive
jurisdiction is of no avail if they similarly involve the powers and functions of the
Presidential Commission on Good Government.
The matters involved in these cases are orders of the PCGG issued in the
exercise of its powers and functions for they involve the sequestration of the assets of
private respondent Marcelo Fiberglass Corporation and Edward T. Marcelo, its
president. The propriety of said sequestration and any incident arising from, incidental
or related to such sequestration is within the exclusive jurisdiction of the
Sandiganbayan.
REPUBLIC OF THE PHILIPPINES

vs.
SANDIGANBAYAN (3RD DIVISION), JOSE L. AFRICA, UNIMOLCO, ROBERTO
BENEDICTO, ANDRES AFRICA and SMART COMMUNICATIONS
G.R. No. 128606. December 4, 2000
FACTS:
Eastern Telecommunications Philippines, Inc. (ETPI) was one of the

corporations sequestered by the Presidential Commission on Good Government
(PCGG). Among its stockholders were Roberto S. Benedicto and Universal Molasses
Corporation (UNIMOLCO).
Sometime in 1990, PCGG and Benedicto entered into a compromise agreement
whereby Benedicto ceded to the government 204,000 shares of stock in ETPI,
representing his fifty-one percent (51%) equity therein. The other forty-nine percent
(49%), consisting of 196,000 shares of stock, were released from sequestration and
adjudicated by final judgment to Benedicto and UNIMOLCO. Furthermore, the
government agreed to withdraw the cases filed against Benedicto and free him from
further criminal prosecution.
Meanwhile, on motion of petitioner, through the PCGG, the Sandiganbayan
issued a Resolution, dated May 7, 1996, authorizing the entry in the Stock and
Transfer Book of ETPI of the transfer of ownership of 204,000 shares of stock to
petitioner, to be taken out of the shareholdings of UNIMOLCO.
PCGG issued Resolution No. 96-142 enjoining all stockholders of ETPI from
selling shares of stock therein without the written conformity of the PCGG.
Subsequently, on July 24, 1996, UNIMOLCO and Smart Communications executed a
Deed of Absolute Sale whereby UNIMOLCO sold its 196,000 shares of stock in ETPI to
Smart. Prior to the sale, Smart was not a stockholder of ETPI.
ISSUE:
Whether or not petitioner was denied of his pre-emptive right because of the
defective notice.
RULING:
NO.
The records of the case clearly show that the written notice by UNIMOLCO, the
Offeror, of its intention to sell its 196,000 shares of stock was duly received on April
24, 1996 by the President and Chairman of the Board of ETPI.
Moreover, the purpose of the notice requirement in Article 10 of the ETPI
Articles of Incorporation is to give the stockholders knowledge of the intended sale of
shares of stock of the corporation, in order that they may exercise their preemptive
right. Where it is shown that a stockholder had actual knowledge of the intended sale
within the period prescribed to exercise the right, the notice requirement had been
sufficiently met.
In the case at bar, PCGG had actual knowledge of UNIMOLCO’s offer to sell its
shares of stock. In fact, it issued Resolution No. 96-142 enjoining the sale of the said
shares of stock to Smart. Petitioner, thus, cannot feign lack of notice. PCGG had no
more authority to enjoin the sale of UNIMOLCO’s 196,000 shares of stock, as it
endeavored to do in Resolution No. 96-142. As correctly found by the Sandiganbayan,
since the 196,000 shares of stock had already been adjudicated by final judgment to
Benedicto and UNIMOLCO, PCGG could no longer exercise power and authority over
the same.
To Sell Or Otherwise Dispose Of All or Substantially All Of Corporate Assets
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT

CORPORATION
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY
G.R. No. 142936. April 17, 2002
FACTS:
The Plaintiff (herein respondent) alleged that it is a partnership duly organized,

existing, and operating under the laws of the Philippines, while the herein petitioner
Philippine National Bank (PNB), is a semi-government corporation duly organized,
existing and operating under the laws of the Philippines; whereas, the other
defendant, the National Sugar Development Corporation (NASUDECO), is also a semi-
government corporation and the sugar arm of the PNB; and the defendant Pampanga
Sugar Mills (PASUMIL), is a corporation organized, existing and operating under the
1975 laws of the Philippines.
The respondent is engaged in the business of general construction for the
repairs and/or construction of different kinds of machineries and buildings. On
August 26, 1975, the defendant PNB acquired the assets of the defendant PASUMIL
that were earlier foreclosed by the Development Bank of the Philippines (DBP) under
LOI No. 311. But prior to October 29, 1971, the defendant PASUMIL engaged the
services of plaintiff for electrical rewinding and repair, most of which were partially
paid by the defendant PASUMIL, leaving several unpaid accounts with the plaintiff;
that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL entered
into a contract.
Out of the total obligation of P777,263.80, the defendant PASUMIL had paid
only P264,000.00, leaving an unpaid balance of P513,263.80. Petitioners herein failed
and refused to pay the plaintiff their just, valid and demandable obligation; that the
President of the NASUDECO is also the Vice-President of the PNB, inasmuch as PNB
and NASUDECO now owned and possessed the assets of the defendant PASUMIL.
Accordingly, the plaintiff prayed that judgment be rendered against the defendants
PNB, NASUDECO, and PASUMIL, jointly and severally.
ISSUE:
Whether or not petitioners should be held liable for the corporate debts of
PASUMIL for taking over of the latter’s foreclosed assets.
RULING:
NO.
As a rule, a corporation that purchases the assets of another will not be liable
for the debts of the selling corporation, provided the former acted in good faith and
paid adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts, (2) where the transaction amounts to a consolidation or merger of
the corporations, (3) where the purchasing corporation is merely a continuation of the
selling corporation, and (4) where the transaction is fraudulently entered into in order
to escape liability for those debts.
Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation. For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.
ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and
SECURITIES & EXCHANGE COMMISSION
vs.
COURT OF APPEALS and IGLESIA NI CRISTO
G.R. No. 117897. May 14, 1997
FACTS:
Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic leaders of

all Muslim major tribal groups in the Philippines headed by Dean Cesar Adib Majul
organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP),
the primary purpose of which is to establish an Islamic Center in Quezon City for the
construction of a "Mosque (prayer place), Madrasah (Arabic School), and other
religious infrastructures" so as to facilitate the effective practice of Islamic faith in the
area.
The Libyan government donated money to the IDP to purchase land at Culiat,
Tandang Sora, Quezon City, to be used as a Center for the Islamic populace. The land,
with an area of 49,652 square meters, was covered by two titles: Transfer Certificate of
Title Nos. RT-26520 (176616) and RT-26521 (170567), both registered in the name of
IDP.
According to the petitioner, in 1972, after the purchase of the land by the
Libyan government in the name of IDP, Martial Law was declared by the late President
Ferdinand Marcos. Thereafter, two Muslim groups sprung, the Carpizo Group and the
Abbas Group, both groups claimed to be the legitimate IDP. Significantly, on October
3, 1986, the SEC, in a suit between these two contending groups, came out with a
Decision in SEC Case No. 2687 declaring the election of both the Carpizo Group and
the Abbas Group as IDP board members to be null and void.
ISSUE:
Whether or not the Deed of Sale executed by Carpizo Group is valid.
RULING:
NO.
This is precisely what the SEC did in SEC Case No. 4012 when it adjudged the
election of the Carpizo Group to the IDP Board of Trustees to be null and void.
Consequently, the Carpizo Group is bereft of any authority whatsoever to bind IDP in
any kind of transaction including the sale or disposition of ID property.
Nothing thus becomes more settled than that the IDP-Carpizo Group with
whom private respondent INC contracted is a fake Board. Premises considered, all acts
carried out by the Carpizo Board, particularly the sale of the Tandang Sora property,
allegedly in the name of the IDP.
The Carpizo Group-INC sale is further deemed null and void ab initio because of
the Carpizo Group's failure to comply with Section 40 of the Corporation Code
pertaining to the disposition of all or substantially all assets of the corporation.
The Tandang Sora property, appears from the records, constitutes the only
property of the IDP. Hence, its sale to a third-party is a sale or disposition of all the
corporate property and assets of IDP falling squarely within the contemplation of the
foregoing section. For the sale to be valid, the majority vote of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the
corporation should have been obtained.
These twin requirements were not met as the Carpizo Group which voted to sell
the Tandang Sora property was a fake Board of Trustees, and those whose names and
signatures were affixed by the Carpizo Group together with the sham Board Resolution
authorizing the negotiation for the sale were, from all indications, not bona fide
members of the IDP as they were made to appear to be. All told, the disputed Deed of
Absolute Sale executed by the fake Carpizo Board and private respondent INC was
intrinsically void ab initio.
THE EDWARD J. NELL COMPANY
vs.
PACIFIC FARMS, INC.
G.R. No. L-20850. November 29, 1965
FACTS:
On October 9, 1958, appellant secured against Insular Farms, Inc. a judgment
for the sum of P1,853.80 representing the unpaid balance of the price of a pump sold
by appellant to Insular Farms with interest on said sum. A writ of execution, issued
after the judgment had become final, was, on August 14, 1959, returned unsatisfied,
stating that Insular Farms had no leviable property. Appellant then filed with said
court the present action against Pacific Farms, Inc. for the collection of the judgment
aforementioned, upon the theory that appellee is the alter ego of Insular Farms, which
appellee has denied.
In due course, the municipal court rendered judgment dismissing petitioner’s
complaint. Defendant appealed, with the same result, to the court of First Instance
and, subsequently, to the Court of Appeals. Hence this appeal by certiorari, upon the
ground that the Court of Appeals had erred in not holding the defendant liable for said
unpaid obligation of the Insular Farms.
ISSUE:
Whether or not the defendant is liable for the unpaid obligation of the Insular
Farms.
RULING:
NO.
Generally where one corporation sells or otherwise transfers all of its assets to
another corporation, the latter is not liable for the debts and liabilities of the
transferor, except: (1) where the purchaser expressly or impliedly agrees to assume
such debts; (2) where the transaction amounts to a consolidation or merger of the
corporations; (3) where the purchasing corporation is merely a continuation of the
selling corporation; and (4) where the transaction is entered into fraudulently in order
to escape liability for such debts."
In the case at bar, there is neither proof nor allegation that defendant had
expressly or impliedly agreed to assume the debt of Insular Farms in favor of
petitioner, or that the defendant is a continuation of Insular Farms, or that the sale of
either the shares of stock or the assets of Insular Farms to the defendant had been
entered into fraudulently, in order to escape liability for the debt of the Insular Farms
in favor of petitioner. Moreover, defendant purchased the shares of stock of Insular
Farms as the highest bidder at an auction sale held at the instance of a bank to which
said shares had been pledged as security for an obligation of Insular Farms in favor of
said bank. It has also been established that the defendant had paid P285,126.99 for
said shares of stock, apart from the sum of P10,000.00 it, likewise, paid for other
assets of Insular Farms.
JULIETA V. ESGUERRA
vs.
COURT OF APPEALS and SURESTE PROPERTIES, INC.
G.R. No. 119310. February 3, 1997
FACTS:
Julieta Esguerra filed a complaint for administration of conjugal partnership or

separation of property against her husband Vicente Esguerra, Jr. and V. Esguerra
Construction Co., Inc. (VECCI) and other family corporations as defendants before the
trial court.
The parties entered into a compromise agreement. By virtue of said agreement,
Esguerra Bldg. I was sold and the net proceeds distributed according to the
agreement. The controversy arose with respect to Esguerra Building II. Herein
petitioner started claiming one-half of the rentals of the said building which VECCI
refused. Thus, petitioner filed a motion with respondent court praying that VECCI be
ordered to remit one-half of the rentals to her. The trial court ruled in favor of
petitioner.
Meanwhile, Esguerra Bldg. II was sold to private respondent Sureste Properties.
Inc. for P150,000,000.00 prompting Julieta V. Esguerra to file a motion seeking the
nullification of the sale on the ground that VECCI is not the lawful and absolute owner
thereof and that she has not been notified nor consulted as to the terms and
conditions of the sale. The trial court ruled that the sale to Sureste was valid.
ISSUES:
Whether or not the sale of Esguerra Building II is a valid exercise of corporate

power.
RULING:
YES.
VECCI's sale of all the properties mentioned in the judicially-approved

compromise agreement was done on the basis of its Corporate Secretary's Certification
of these two resolutions. The partial decision did not require any further board or
stockholder resolutions to make VECCI's sale of these properties valid. Being regular
on its face, the Secretary's Certification was sufficient for private respondent Sureste
Properties, Inc. to rely on. It did not have to investigate the truth of the facts contained
in such certification. Otherwise, business transactions of corporations would become
tortuously slow and unnecessarily hampered. Ineluctably, VECCI's sale of Esguerra
Building II to private respondent was not ultra vires but a valid execution of the trial
court's partial decision.
Based on the foregoing, the sale is also deemed to have satisfied the
requirements of Section 40 of the Corporation Code.
LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES

vs.
FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS
COMMISSION
G.R. No. 76801. August 11, 1995
FACTS:
Lopez Realty, Inc., is a corporation engaged in real estate business, while

petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Sometime in
1978, Arturo Lopez submitted a proposal relative to the distribution of certain assets
of Petitioner Corporation among its three (3) main shareholders. The proposal had
three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2)
the transfer of certain assets of the company to its three (3) main shareholders, while
some other assets shall remain with the company; and (3) the reduction of employees
with provision for their gratuity pay. The proposal was deliberated upon and approved
in a special meeting of the board of directors held on April 17, 1978.
It appears that petitioner corporation approved two (2) resolutions providing for
the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980 resolving to
set aside, twice a year, a certain sum of money for the gratuity pay of its retiring
employees and to create a Gratuity Fund for the said contingency; and (b) Resolution
No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund
covering the period from 1950 up to 1980.
On August 17, 1981, the remaining members of the Board of Directors, namely:
Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting
and passed a resolution which provides that: (a) Those who will be laid off be given the
full amount of gratuity; (b) Those who will be retained will receive 25% of their gratuity
(pay) due on September 1, 1981, and another 25% on January 1, 1982, and 50% to be
retained by the office in the meantime.
Private respondents were the retained employees of petitioner corporation. In a
letter, dated August 31, 1981, private respondents requested for the full payment of
their gratuity pay. Their request was granted in a special meeting held on September
1, 1981.
ISSUES:
Whether or not the subject resolutions requires for their validity stockholders’
approval.
RULING:
YES.
The Court is not persuaded that the subject resolutions had no force and effect
in view of the non-approval thereof during the Annual Stockholders' Meeting held on
March 1, 1982. To strengthen their position, petitioners cite section 28 1/2 of the
Corporation Law (Section 40 of the Corporation Code).
The cited provision is not applicable to the case at bench as it refers to the sale,
lease, exchange or disposition of all or substantially all of the corporation's assets,
including its goodwill. In such a case, the action taken by the board of directors
requires the authorization of the stockholders on record.
It will be observed that, except for Arturo Lopez, the stockholders of petitioner
corporation also sit as members of the board of directors. Under the circumstances in
field, it will be illogical and superfluous to require the stockholders' approval of the
subject resolutions. Thus, even without the stockholders' approval of the subject
resolutions, petitioners are still liable to pay private respondents' gratuity pay.
Petition is dismissed.
To Invest Corporate Funds In Another Corporation or Business
JOHN GOKONGWEI, JR.

vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE
B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION,
EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA
G.R. No. L-45911. April 11, 1979
FACTS:
On October 22, 1976, petitioner, as stockholder of respondent San Miguel

Corporation, filed with the Securities and Exchange Commission (SEC) a petition for
"declaration of nullity of amended by-laws, cancellation of certificate of filing of
amended by- laws, injunction and damages with prayer for a preliminary injunction"
against the majority of the members of the Board of Directors and San Miguel
Corporation as an unwilling petitioner.
Petitioner alleged that on September 18, 1976, individual respondents amended
by bylaws of the corporation, basing their authority to do so on a resolution of the
stockholders adopted on March 13, 1961, when the outstanding capital stock of
respondent corporation was only P70,139.740.00, divided into 5,513,974 common
shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the
time of the amendment, the outstanding and paid up shares totalled 30,127,047 with
a total par value of P301,270,430.00. It was contended that according to section 22 of
the Corporation Law and Article VIII of the by-laws of the corporation, the power to
amend, modify, repeal or adopt new by-laws may be delegated to the Board of
Directors only by the affirmative vote of stockholders representing not less than 2/3 of
the subscribed and paid up capital stock of the corporation, which 2/3 should have
been computed on the basis of the capitalization at the time of the amendment. Since
the amendment was based on the 1961 authorization, petitioner contended that the
Board acted without authority and in usurpation of the power of the stockholders.
ISSUES:
Whether or not respondent SEC committed grave abuse of discretion in allowing

discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10,
1977, and the ratification of the investment in a foreign corporation of the corporate
funds, allegedly in violation of section 17-1/2 of the Corporation Law.
RULING:
NO.
Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds
in any other corporation or business or for any purpose other than the main purpose
for which it was organized" provided that its Board of Directors has been so authorized
by the affirmative vote of stockholders holding shares entitling them to exercise at
least two-thirds of the voting power. If the investment is made in pursuance of the
corporate purpose, it does not need the approval of the stockholders. It is only when
the purchase of shares is done solely for investment and not to accomplish the
purpose of its incorporation that the vote of approval of the stockholders holding
shares entitling them to exercise at least two-thirds of the voting power is necessary.
As stated by Respondent Corporation, the purchase of beer manufacturing facilities by
SMC was an investment in the same business stated as its main purpose in its
Articles of Incorporation, which is to manufacture and market beer. It appears that the
original investment was made in 1947-1948, when SMC, then San Miguel Brewery,
Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for
the manufacture and marketing of San Miguel beer thereat. Restructuring of the
investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax
free reorganization.
RAMON DE LA RAMA et.al
vs.
MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, MRS. RAMON S.
ARANETA, ROMUALDO M. ARANETA, and RAMON A. YULO
G.r.No. L-17504 & l-17506; February 28, 1969
FACTS:
In 1950 the MSCCI through its President, J. Amado, subscribed for P300k
worth of capital stock of the Philippine Fiber Processing Co., Inc. (PFPC). Payments of
the subscription were made on 3 installments, but at the time the first two payments
were made there was no board resolution authorizing the investment; and that it was
only on November 26, 1951, that J. Amado was so authorized by the BOD, by the way,
making the third payment made in March 1952 authorized.
In addition, 355k shares of PFPC, owned by Luzon Industrial Corporation (LIC)
were transferred on May 31, 1952, to MSCCI. Again, the investment was made without
prior board resolution, the authorizing resolution having been subsequently approved
only on June 4, 1952. A derivative suit was filed by 4 minority SHs of MSCCI which
stated 5 causes of action: (1) for alleged illegal and ultra-vires acts consisting of self-
dealing, irregular loans, and unauthorized investments; (2) for alleged gross
mismanagement; (3) for alleged forfeiture of corporate rights warranting dissolution;
(4) for alleged damages and attorney's fees; and (5) for receivership.
ISSUE:
Whether or not a corporation can invest in another corporation.
RULING:
YES.
The law requiring the votes does not apply in the case because of MSCCI’s
contention that since said PFPC was engaged in the manufacture of sugar bags it was
perfectly legitimate for MSCCI either to manufacture sugar bags or invest in another
corporation engaged in said manufacture.
SC also quoted the interpretation of Professor Guevara, a well-known authority
in Commercial Law: A private corporation, in order to accomplish its purpose as stated
in its articles of incorporation, and subject to the limitations imposed by the
Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of
shares, bonds, securities, and other evidences of indebtedness of any domestic or
foreign corporation. Such an act, if done in pursuance of the corporate purpose, does
not need the approval of the stockholders; but when the purchase of shares of another
corporation is done solely for investment and not to accomplish the purpose of its
incorporation, the vote of approval of the stockholders is necessary. In any case, the
purchase of such shares or securities must be subject to the limitations established by
the Corporation Law; namely, (a) that no agricultural or mining corporation shall in
anywise be interested in any other agricultural or mining corporation; or (b) that a
non-agricultural or non-mining corporation shall be restricted to own not more than
15% of the voting stock of any agricultural or mining corporation; and (c) that such
holdings shall be solely for investment and not for the purpose of bringing about a
monopoly in any line of commerce or combination in restraint of trade."
Power to invest corporate funds - A private corporation has the power to invest
its corporate funds 'in any other corporation or business, or for any purpose other
than the main purpose for which it was organized,' provided that 'its board of directors
has been so authorized in a resolution by the affirmative vote of stockholders holding
shares in the corporation entitling them to exercise at least two-thirds of the voting
power on such a proposal at a stockholders' meeting called for that purpose,' and
provided further, that no agricultural or mining corporation shall in anywise be
interested in any other agricultural or mining corporation. When the investment is
necessary to accomplish its purpose or purposes as stated in its articles of
incorporation, the approval of the stockholders is not necessary."
To Acquire Own Shares
BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION

vs.
HON. COURT OF APPEALS and NILCAR Y. FAJILAN
G.R. No. 77860. November 22, 1988
FACTS:
On May 7, 1984, respondent Nilcar Y. Fajilan offered in writing to resign as

President and Member of the Board of Directors of petitioner, Boman Environmental
Development Corporation (BEDECO), and to sell to the company all his shares, rights,
and interests therein for P 300,000 plus the transfer to him of the company's Isuzu
pick-up truck which he had been using.
At a meeting of the Board of Directors of BEDECO, Fajilan's resignation as
president was accepted and new officers were elected. Fajilan's offer to sell his shares
back to the corporation was approved, the Board promising to pay for them on a
staggered basis from July 15, 1984 to December 15, 1984.
A promissory note was signed by BEDECO'S new president, Alfredo Pangilinan,
in the presence of two directors, committing BEDECO to pay him P300,000 over a six-
month period from July 15, 1984 to December 15, 1984. However, BEDECO paid only
P50,000 on July 15, 1984 and another P50,000 on August 31, 1984 and defaulted in
paying the balance of P200,000. On April 30, 1985, Fajilan filed a complaint in the
Regional Trial Court of Makati for collection of that balance from BEDECO.
ISSUES:
Whether or not Petitioner Corporation can acquire its own shares.
RULING:
YES.
The provisions of the Corporation Code should be deemed written into the
agreement between the corporation and the stockholders even if there is no express
reference to them in the promissory note. The principle is well settled that an existing
law enters into and forms part of a valid contract without need for the parties'
expressly making reference to it.
The requirement of unrestricted retained earnings to cover the shares is based
on the trust fund doctrine which means that the capital stock, property and other
assets of a corporation are regarded as equity in trust for the payment of corporate
creditors. The reason is that creditors of a corporation are preferred over the
stockholders in the distribution of corporate assets. There can be no distribution of
assets among the stockholders without first paying corporate creditors. Hence, any
disposition of corporate funds to the prejudice of creditors is null and void.
C. H. STEINBERG, as Receiver of the Sibuguey Trading Company, Incorporated

vs.
GREGORIO VELASCO, ET AL.
G.R. No. L-30460. March 12, 1929
FACTS:
Plaintiff is the receiver of the Sibuguey Trading Company, a domestic

corporation. The defendants are residents of the Philippine Islands. It is alleged that
the defendants, Gregorio Velasco, as president, Felix del Castillo, as vice-president,
Andres L. Navallo, as secretary-treasurer, and Rufino Manuel, as director of Trading
Company, at a meeting of the board of directors, approved and authorized various
lawful purchases already made of a large portion of the capital stock of the company
from its various stockholders with total amount of the capital stock unlawfully
purchased was P3,300. At the time of such purchase, the corporation had accounts
payable amounting to P13,807.50, most of which were unpaid at the time petition for
the dissolution of the corporation was its financial condition, in contemplation of an
insolvency and dissolution. That on September 11, 1923, when the petition was filed
for its dissolution upon the ground that it was insolvent, its accounts payable
amounted to P9,241.19, and its accounts receivable P12,512.47, or an apparent asset
of P3,271.28 over and above its liabilities.
ISSUE:
Whether or not the Petition Corporation can acquire its own shares.
RULING:
NO.
It is, indeed, peculiar that the action of the board in purchasing the stock from
the corporation and in declaring the dividends on the stock was all done at the same
meeting of the board of directors, and it appears in those minutes that the both
Ganzon and Mendaros were formerly directors and resigned before the board approved
the purchase and declared the dividends, and that out of the whole 330 shares
purchased, Ganzon, sold 100 and Mendaros 200, or a total of 300 shares out of the
330, which were purchased by the corporation, and for which it paid P3,300.
In other words, the directors were permitted to resign so that they could sell
their stock to the corporation. As stated, the authorized capital stock was P20,000
divided into 2,000 shares of the par value of P10 each, which only P10,030 was
subscribed and paid. Deducting the P3,300 paid for the purchase of the stock, there
would be left P7,000 of paid up stock, from which deduct P3,000 paid in dividends,
there would be left P4,000 only. In this situation and upon this state of facts, it is very
apparent that the directors did not act in good faith or that they were grossly ignorant
of their duties.
Creditors of a corporation have the right to assume that so long as there are
outstanding debts and liabilities, the board of directors will not use the assets of the
corporation to purchase its own stock, and that it will not declare dividends to
stockholders when the corporation is insolvent.
Dividend: Kinds: Cash, Stock, Property, Scrip
Declaration, Payment and Record Dates
IMELDA O. COJUANGCO, PRIME HOLDINGS, INC., AND THE ESTATE OF RAMON

U. COJUANGCO
vs.
SANDIGANBAYAN, REPUBLIC OF THE PHILIPPINES, AND THE SHERIFF OF
SANDIGANBAYAN
G.R. No. 183278. April 24, 2009
FACTS:
On July 16, 1987, respondent Republic of the Philippines filed before the
Sandiganbayan a "Complaint for Reconveyance, Reversion, Accounting, Restitution
and Damages," praying for the recovery of alleged ill-gotten wealth from the late
President Marcos and former First Lady Imelda Marcos and their cronies, including
some 2.4 million shares of stock in the Philippine Long Distance Telephone Company
(PLDT) allegedly registered in the name of Prime Holdings, Inc. (Prime Holdings).
The Sandiganbayan dismissed the complaint with respect to the recovery of the
PLDT shares, hence, the Republic appealed to this Court, docketed as G.R. No.
153459, which appeal was later consolidated with pending cases of similar import –
G.R. Nos. 149802, 150320, and 150367.
The Decision became final and executory on October 26, 2006, hence, the
Republic filed on November 20, 2006 with the Sandiganbayan a Motion for the
Issuance of a Writ of Execution, praying for the cancellation of the 111,415
shares/certificates of stock registered in the name of Prime Holdings and the
annotation of the change of ownership on PTIC’s Stock and Transfer Book. The
Republic further prayed for the issuance of an order for PTIC to account for all cash
and stock dividends declared and/or issued by PLDT in favor of PTIC from 1986 up to
the present including compounded interests appurtenant thereto.
The Sandiganbayan granted the Motion for the Issuance of a Writ of Execution
with respect to the reconveyance of the shares, but denied the prayer for accounting of
dividends. On Motion for Reconsideration of the Republic, the Sandiganbayan, by the
first assailed Resolution dated November 7, 2007, directed PTIC to deliver the cash
and stock dividends pertaining to the 111,415 shares, including compounded
interests, ratiocinating that the same were covered by this Court’s Decision in G.R. No.
153459, since the Republic was therein adjudged the owner of the shares and,
therefore, entitled to the fruits thereof.
ISSUES:
Whether or not the Sandiganbayan gravely abused its discretion in ordering the
accounting, delivery, and remittance to the Republic of the stock, cash, and property
dividends pertaining to the 111,415 PTIC shares of Prime Holdings.
Whether or not the Republic, having transferred the shares to a third party, is
entitled to the dividends, interests, and earnings thereof.
RULING:
NO.
The term "dividend" in its technical sense and ordinary acceptation is that part
or portion of the profits of the enterprise which the corporation, by its governing
agents, sets apart for ratable division among the holders of the capital stock. It is a
payment to the stockholders of a corporation as a return upon their investment and
the right thereto is an incident of ownership of stock.
In directing the reconveyance to the Republic of the 111,415 shares of PLDT
stock owned by PTIC in the name of Prime Holdings, the Court declared the Republic
as the owner of said shares and, necessarily, the dividends and interests accruing
thereto.
Contrary to petitioners’ contention, while the general rule is that the portion of
a decision that becomes the subject of execution is that ordained or decreed in the
dispositive part thereof, there are recognized exceptions to this rule, viz: (a).where
there is ambiguity or uncertainty, the body of the opinion may be referred to for
purposes of construing the judgment, because the dispositive part of a decision must
find support from the decision’s ratio decidendi; and (b).where extensive and explicit
discussion and settlement of the issue is found in the body of the decision.
In G.R. No. 153459, although the inclusion of the dividends, interests, and
earnings of the 111,415 PTIC shares as belonging to the Republic was not mentioned
in the dispositive portion of the Court’s Decision, it is clear from its body that what
was being adjudicated in favor of the Republic was the whole block of shares and the
fruits thereof, said shares having been found to be part of the Marcoses’ ill-gotten
wealth, and therefore, public money.
It would be absurd to award the shares to the Republic as their owner and not
include the dividends and interests accruing thereto. An owner who cannot exercise
the "juses" or attributes of ownership -- the right to possess, to use and enjoy, to
abuse or consume, to accessories, to dispose or alienate, to recover or vindicate, and
to the fruits - is a crippled owner.
Limitation on Retention of Surplus Profits
C. H. STEINBERG, as Receiver of the Sibuguey Trading Company, Incorporated

vs.
GREGORIO VELASCO, ET AL.
G.R. No. L-30460. March 12, 1929
FACTS:
Plaintiff is the receiver of the Sibuguey Trading Company, a domestic

corporation. The defendants are residents of the Philippine Islands. It is alleged that
the defendants, Gregorio Velasco, as president, Felix del Castillo, as vice-president,
Andres L. Navallo, as secretary-treasurer, and Rufino Manuel, as director of Trading
Company, at a meeting of the board of directors, approved and authorized various
lawful purchases already made of a large portion of the capital stock of the company
from its various stockholders with total amount of the capital stock unlawfully
purchased was P3,300. At the time of such purchase, the corporation had accounts
payable amounting to P13,807.50, most of which were unpaid at the time petition for
the dissolution of the corporation was its financial condition, in contemplation of an
insolvency and dissolution. That on September 11, 1923, when the petition was filed
for its dissolution upon the ground that it was insolvent, its accounts payable
amounted to P9,241.19, and its accounts receivable P12,512.47, or an apparent asset
of P3,271.28 over and above its liabilities.
ISSUE:
Whether or not the Corporation acted in bad faith in acquiring its own shares of
stocks.
RULING:
YES.
There is no stipulation or finding of facts as to what was the actual cash value
of its accounts receivable. Neither is there any stipulation that those accounts or any
part of them ever have been or will be collected, and it does appear that after his
appointment on February 28, 1924, the receiver made a diligent effort to collect them,
and that he was unable to do so, and it also appears from the minutes of the board of
directors that the president and manager "recommended that P3,000 — out of the
surplus account to be set aside for dividends payable, and that payments be made in
installments so as not to effect the financial condition of the corporation."
It is very apparent that on June 24, 1922, the board of directors acted on
assumption that, because it appeared from the books of the corporation that it had
accounts receivable of the face value of P19,126.02, therefore it had a surplus over
and above its debts and liabilities. Thus, in the purchase of its own stock to the
amount of P3,300 and in declaring the dividends to the amount of P3,000, the real
assets of the corporation were diminished P6,300. The corporation did not then have
an actual bona fide surplus from which the dividends could be paid, and that the
payment of them in full at the time would "affect the financial condition of the
corporation."
Creditors of a corporation have the right to assume so long as there are
outstanding debts and liabilities, the board of directors will not use the assets of the
corporation to purchase its own stock, and that it will not declare dividends to
stockholders when the corporation is insolvent.
NIELSON & COMPANY, INC.

vs.
LEPANTO CONSOLIDATED MINING COMPANY
G.R. NO. L-21601 DECEMBER 28, 1968
FACTS:
Lepanto entered into a contract with Nielson wherein the latter was to manage
and operate the mining properties of the former claiming to be a contract of agency.
However, Nielson claims that the agreement is not one of agency.The phrase "Both
parties to this agreement fully recognize that the terms of this agreement are made
possible only because of the faith and confidence of the officials of each company have
in the other" in paragraph XI of the management contract does not qualify the relation
between Lepanto and Nielson as that of principal and agent based on trust and
confidence, such that the contractual relation may be terminated by the principal at
any time that the principal loses trust and confidence in the agent. Rather, that
phrase simply implies the circumstance that brought about the execution of the
management contract. In the annual report for 1936, submitted by Mr. C. A. Dewit,
President of Lepanto, to its stockholders, under date of March 15, 1937, it states that
instead of giving a monthly compensation to Nielson such was modified by giving the
amount of P2,500 plus 10% of cash value of the dividends declared and paid by
Lepanto.
The Court ruled that from the foregoing statements in the annual report for
1936, and from the provision of paragraph XI of the Management contract, that the
employment by Lepanto of Nielson to operate and manage its mines was principally in
consideration of the know-how and technical services that Nielson offered Lepanto.
The contract thus entered into pursuant to the offer made by Nielson and accepted by
Lepanto was a "detailed operating contract".
ISSUE:
Whether or not Nielson is entitled to receive shares of stock forming part of the
stock dividend of Lepanto in lieu of the cash value of the dividends declared by
Lepanto during the Japanese occupation.
RULING:
NO.
Shares of stock are given the special name "stock dividends" only if they are
issued in lieu of undistributed profits. If shares of stocks are issued in exchange of
cash or property then those shares do not fall under the category of "stock dividends".
A corporation may legally issue shares of stock in consideration of services rendered to
it by a person not a stockholder, or in payment of its indebtedness. A share of stock
issued to pay for services rendered is equivalent to a stock issued in exchange of
property, because services are equivalent to property.Likewise a share of stock issued
in payment of indebtedness is equivalent to issuing a stock in exchange for cash.
In other words, it is the shares of stock that are originally issued by the
corporation and forming part of the capital that can be exchanged for cash or services
rendered, or property; that is, if the corporation has original shares of stock unsold or
unsubscribed, either coming from the original capitalization or from the increased
capitalization. Those shares of stock may be issued to a person who is not a
stockholder, or to a person already a stockholder in exchange for services rendered or
for cash or property. But a share of stock coming from stock dividends declared
cannot be issued to one who is not a stockholder of a corporation.
Thus, stock dividends cannot be issued to a person who is not a stockholder in
payment of services rendered. And so, in the case at bar, Nielson cannot be paid in
shares of stock which form part of the stock dividends of Lepanto for services it
rendered under the management contract.
COMMISSIONER OF INTERNAL REVENUE

vs.
MANNING, MCDONALD, SIMMONS
AUGUST 06, 1975
FACTS:
In 1952 the MANTRASCO had an authorized capital stock of P2,500,000

divided into 25,000 common shares; 24,700 of these were owned by Julius S. Reese,
and the rest, at 100 shares each, by the three respondents.
In view of Reese's desire that upon his death MANTRASCO and its two
subsidiaries, MANTRASCO (Guam), Inc. and the Port Motors, Inc., would continue
under the management of the respondents, a trust agreement was executed by and
among Reese, MANTRASCO ,the law firm of Ross, Selph, Carrascoso and Jand ,and
the respondents .
On October 19, 1954 Reese died. In 1955, after MANTRASCO made a partial
payment of Reese's shares, the certificate for the 24,700 shares in Reese's name was
cancelled and a new certificate was issued in the name of MANTRASCO, which was
endorsed to the law firm of Ross, Selph, Carrascoso and Janda, as trustees for and in
behalf of MANTRASCO.
In 1963 the entire purchase price of Reese's interest in MANTRASCO was
finally paid in full by the latter, In 1964 the trust agreement was terminated and the
trustees delivered to MANTRASCO all the shares which they were holding in trust.
ISSUE:
Whether or not the issuance of the notices of assessment for deficiency income
taxes to the respondents for the year 1958 was proper.
RULING:
YES.
“A stock dividend always involves a transfer of surplus (or profit) to capital

stock. A stock dividend is a conversion of surplus or undivided profits into capital
stock, which is distributed to stockholders in lieu of a cash dividend.' Congress itself
has defined the term 'dividend' in No. 115(a) of the Act as meaning any distribution
made by a corporation to its shareholders, whether in money or in other property, out
of its earnings or profits.
The declaration by the respondents and Reese's trustees of MANTRASCO's
alleged treasury stock dividends in favor of the former, brings the ultimate purpose
which the parties to the trust instrument aimed to realize: to make the respondents
the sole owners of Reese's interest in MANTRASCO by utilizing the periodic earnings of
that company and its subsidiaries to directly subsidize their purchase of the said
interests, and by making it appear outwardly, through the formal declaration of non-
existent stock dividends in the treasury, that they have not received any income from
those firms when, in fact, by that declaration they secured to themselves the means to
turn around as full owners of Reese's shares. In other words, the respondents, using
the trust instrument as a convenient technical device, bestowed unto themselves the
full worth and value of Reese's corporate holdings with the use of the very earnings of
the companies. Such package device, obviously not designed to carry out the usual
stock dividend purpose of corporate expansion reinvestment, e.g. the acquisition of
additional facilities and other capital budget items, but exclusively for expanding the
capital base of the respondents in MANTRASCO, cannot be allowed to deflect the
respondents' responsibilities toward our income tax laws. The conclusion is thus
ineluctable that whenever the companies involved herein parted with a portion of their
earnings "to buy" the corporate holdings of Reese, they were in ultimate effect and
result making a distribution of such earnings to the respondents.
All these amounts are consequently subject to income tax as being, in truth and
in fact, a flow of cash benefits to the respondents.

vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS,
THE HON. SECRETARY OF LABOR, and MADRIGAL CENTRAL OFFICE
EMPLOYEES UNION
G.R. No. L-48237. June 30, 1987

vs.
HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES
UNION
No. L-49023. June 30, 1987
FACTS:
The petitioner was engaged, among several other corporate objectives, in the
management of Rizal Cement Co., Inc.Admittedly, the petitioner and Rizal Cement Co.,
Inc. are sister companies.Both are owned by the same or practically the same
stockholders.On December 28, 1973, the respondent, the Madrigal Central Office
Employees Union, sought for the renewal of its collective bargaining agreement with
the petitioner, which was due to expire on February 28, 1974.Specifically, it proposed
a wage increase of P200.00 a month, an allowance of P100.00 a month, and other
economic benefits.The petitioner, however, requested for a deferment in the
negotiations.
After the petitioner's failure to sit down with the respondent union, the latter,
commenced a complaint for unfair labor practice.Pending the resolution of the case,
the petitioner, in a letter informed the Secretary of Labor that Rizal Cement Co., Inc.,
"from which it derives income" had "ceased operating temporarily."In addition, because
of the desire of the stockholders to phase out the operations of the Madrigal & Co.,
Inc. due to lack of business incentives and prospects, and in order to prevent further
losses,it had to reduce its capital stock on two occasions, the Madrigal & Co., Inc. is
without substantial income to speak of, necessitating a reorganization, by way of
retrenchment, of its employees and operations.
ISSUE:
Whether or not the profits earned by the Corporation were in the nature of
dividends declared on its shareholdings in other companies in the earning of which
the employees had no participation whatsoever.
RULING:
NO.
The Court agreed with the National Labor Relations Commission that "the
dividends received by the company are corporate earnings arising from corporate
investment."Indeed, as found by the Commission, the petitioner had entered such
earnings in its financial statements as profits, which it would not have done if they
were not in fact profits.
Moreover, it is incorrect to say that such profits — in the form of dividends —
are beyond the reach of the petitioner's creditors since the petitioner had received
them as compensation for its management services in favor of the companies it
managed as a shareholder thereof. As such shareholder, the dividends paid to it were
its own money, which may then be available for wage increments. It is not a case of a
corporation distributing dividends in favor of its stockholders, in which case, such
dividends would be the absolute property of the stockholders and hence, out of reach
by creditors of the corporation. Here, the petitioner was acting as stockholder itself,
and in that case, the right to a share in such dividends, by way of salary increases,
may not be denied its employees.
REPUBLIC PLANTERS BANK

vs.
HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First Instance of
Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT
CORPORATION and ADALIA F. ROBES
G.R. No. 51765. March 3, 1997
FACTS:
On September 18, 1961, private respondent Corporation secured a loan from

petitioner in the amount of P120,000.00. Instead of giving the legal tender totaling to
the full amount of the loan, which is P120,000.00, petitioner lent such amount
partially in the form of money and partially in the form of stock certificates numbered
3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of
private respondent Adalia F. Robes and Carlos F. Robes, who subsequently, however,
endorsed his shares in favor of Adalia F. Robes.
On January 31, 1979, private respondents proceeded against petitioner and
filed a Complaint anchored on private respondents' alleged rights to collect dividends
under the preferred shares in question and to have petitioner redeem the same under
the terms and conditions of the stock certificates.
The trial court rendered the herein assailed decision in favor of private
respondents ordering petitioner to pay private respondents the face value of the stock
certificates as redemption price, plus 1% quarterly interest thereon until full payment.
ISSUES:
Whether or not the corporation can declare dividends.
RULING:
YES.
Under the old Corporation Law in force at the time the contract between the
petitioner and the private respondents was entered into, it was provided that "no
corporation shall make or declare any dividend except from the surplus profits arising
from its business, or distribute its capital stock or property other than actual profits
among its members or stockholders until after the payment of its debts and the
termination of its existence by limitation or lawful dissolution."Similarly, the present
Corporation Codeprovides that the board of directors of a stock corporation may
declare dividends only out of unrestricted retained earnings.
Thus, the declaration of dividends is dependent upon the availability of surplus
profit or unrestricted retained earnings, as the case may be. Dividends are thus
payable only when there are profits earned by the corporation and as a general rule,
even if there are existing profits, the board of directors has the discretion to determine
whether or not dividends are to be declared.
Redeemable shares, on the other hand, are shares usually preferred, which by
their terms are redeemable at a fixed date, or at the option of either issuing
corporation, or the stockholder, or both at a certain redemption price.A redemption by
the corporation of its stock is, in a sense, a repurchase of it for cancellation.The
present Code allows redemption of shares even if there are no unrestricted retained
earnings on the books of the corporation.
However, while redeemable shares may be redeemed regardless of the existence
of unrestricted retained earnings, this is subject to the condition that the corporation
has, after such redemption, assets in its books to cover debts and liabilities inclusive
of capital stock. Redemption, therefore, may not be made where the corporation is
insolvent or if such redemption will cause insolvency or inability of the corporation to
meet its debts as they mature.
NORA A. BITONG
vs.
COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A.
APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION
G. NUYDA
G.R. No. 123553. July 13, 1998
NORA A. BITONG
vs.
COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B. ESPIRITU
(CA-G.R. No. 33873) July 13, 1998
FACTS:
Bitong alleged that she was the treasurer and member of the BoD of Mr. & Mrs.
Corporation. She filed a complaint with the SEC to hold respondent spouses Apostol
liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and
mismanagement in directing the affairs of the corporation to the prejudice of the
stockholders. She alleges that certain transactions entered into by the corporation
were not supported by any stockholder’s resolution. The complaint sought to enjoin
Apostol from further acting as president-director of the corporation and from
disbursing any money or funds.
Apostol contends that Bitong was merely a holder-in-trust of the JAKA shares
of the corporation, hence, not entitled to the relief she prays for. SEC Hearing Panel
issued a writ enjoining Apostol. After hearing the evidence, SEC Hearing Panel
dissolved the writ and dismissed the complaint filed by Bitong. Bitong appealed to the
SEC en banc which reversed SEC Hearing Panel decision. Apostol filed petition for
review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the
owner of any share of stock in the corporation and therefore, not a real party in
interest to prosecute the complaint.
ISSUE:
Whether or not petitioner validly declared dividends.
RULING:
YES.
The records show that the original stock and transfer book and the stock
certificate book of Mr. & Ms. were in the possession of petitioner before their custody
was transferred to the Corporate Secretary, Atty. Augusto San Pedro. On 25 May
1988, Assistant Corporate Secretary Renato Jose Unson wrote Mr.& Ms. about the lost
stock and transfer book which was also noted by the corporation's external auditors,
Punongbayan and Araullo, in their audit. Atty. Unson even informed respondent
Eugenia D. Apostol as President of Mr. & Ms. that steps would be undertaken to
prepare and register a new Stock and Transfer Book with the SEC. Incidentally,
perhaps strangely, upon verification with the SEC, it was discovered that the general
file of the corporation with the SEC was missing. Hence, it was even possible that the
original Stock and Transfer Book might not have been registered at all.
This simply shows that as of 1988 there still existed certain issues affecting the
ownership of the JAKA shares, thus raising doubts whether the alleged transactions
recorded in the Stock and Transfer Book were proper, regular and authorized. JAKA
retained its ownership of Mr.& Ms. shares as clearly shown by its receipt of the
dividends issued in December 1986. This only means, very obviously, that Mr.& Ms.
shares in question still belonged to JAKA and not to petitioner. For, dividends are
distributed to stockholders pursuant to their right to share in corporate profits. When
a dividend is declared, it belongs to the person who is the substantial and beneficial
owner of the stock at the time regardless of when the distribution profit was earned.
COMMISSIONER OF INTERNAL REVENUE,

vs.
THE COURT OF APPEALS, COURT OF TAX APPEALS AND A. SORIANO
CORPORATION
G.R. NO. 108576; JANUARY 20, 1999
FACTS:
Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the
United States, formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR,
with a P1,000,000.00 capitalization divided into 10,000 common shares at a par value
of P100/share. In 1937, Don Andres subscribed to 4,963 shares of the 5,000 shares
originally issued. On September 12, 1945, ANSCOR's authorized capital stock was
increased to P2,500,000.00 divided into 25,000 common shares with the same par
value of the additional 15,000 shares, only 10,000 was issued which were all
subscribed by Don Andres. A month later, Don Andres transferred 1,250 shares each
to his two sons, Jose and Andres, Jr., as their initial investments in ANSCOR. Both
sons are foreigners. By 1947, ANSCOR declared stock dividends.
As of that date, the records revealed that he has total shareholdings of 185,154
shares, 50,495 of which are original issues and the balance of 134.659 shares as
stock dividend declarations. Correspondingly, one-half of that shareholdings or 92,577
shares were transferred to his wife, Doña Carmen Soriano, as her conjugal share. The
other half formed part of his estate.
A day after Don Andres died, ANSCOR increased its capital stock to P20M and
in 1966 further increased it to P30M. In the same year (December 1966), stock
dividends worth 46,290 and 46,287 shares were respectively received by the Don
Andres estate and Doña Carmen from ANSCOR. Hence, increasing their accumulated
shareholdings to 138,867 and 138,864 common shares each.
ISSUE:
Whether or not ANSCOR's redemption of stocks from its stockholder as well as

the exchange of common with preferred shares can be considered as "essentially
equivalent to the distribution of taxable dividend" making the proceeds thereof
taxable.
RULING:
YES.
Stock dividends, strictly speaking, represent capital and do not constitute

income to its recipient. So that the mere issuance thereof is not yet subject to income
tax as they are nothing but enrichment through increase in value of capital
investment." As capital, the stock dividends postpone the realization of profits because
the "fund represented by the new stock has been transferred from surplus to capital
and no longer available for actual distribution." In a loose sense, stock dividends
issued by the corporation, are considered unrealized gain, and cannot be subjected to
income tax until that gain has been realized. Before the realization, stock dividends
are nothing but a representation of an interest in the corporate properties. As capital,
it is not yet subject to income tax.
However, if a corporation cancels or redeems stock issued as a dividend at such
time and in such manner as to make the distribution and cancellation or redemption,
in whole or in part, essentially equivalent to the distribution of a taxable dividend, the
amount so distributed in redemption or cancellation of the stock shall be considered
as taxable income to the extent it represents a distribution of earnings or profits
accumulated after March first, nineteen hundred and thirteen.
It is not the stock dividends but the proceeds of its redemption that may be
deemed as taxable dividends.
To Enter into a Management Contract
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES

CHAMSAY
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL
A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ
G.R. No. 75875. December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, et.al

vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR
G.R. No. 75951 December 15, 1989
FACTS:
In 1961, Saniwares, a domestic corporation was incorporated for the primary

purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans.
On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United
States entered into an Agreement with Saniwares and some Filipino investors whereby
ASI and the Filipino investors agreed to participate in the ownership of an enterprise
which would engage primarily in the business of manufacturing in the Philippines and
selling here and abroad vitreous china and sanitary wares. The parties agreed that the
business operations in the Philippines shall be carried on by an incorporated
enterprise in the name of "Sanitary Wares Manufacturing Corporation."
Later, the 30% capital stock of ASI was increased to 40%. The corporation was
also registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.
ISSUES:
Whether or not the ASI group may vote their additional equity during elections
of Saniwares' board of directors.
RULING:
YES.
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors. As in other joint
venture companies, the extent of ASI's participation in the management of the
corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the
nine directors shall be designated by ASI and the remaining six by the other
stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously
in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that
the parties should honor and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any allocation of board seats, even in
joint venture corporations, are null and void to the extent that such may interfere with
the stockholder's rights to cumulative voting as provided in Section 24 of the
Corporation Code.
On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats cannot be disregarded. On the other hand, the
rights of the stockholders to cumulative voting should also be protected.
PHILIPPINE NATIONAL BANK

vs.
PRODUCERS' WAREHOUSE ASSOCIATION
G.R. No. L-16510. January 9, 1922
FACTS:
The plaintiff is a corporation organized under the banking laws of the Philippine
while defendant is a domestic corporation doing a general warehouse business and the
Philippine Fiber and Produce Company, to which hereafter refer as the Produce
Company, is another domestic corporation.
In May, 1916, the defendant, as party of the first part, entered into a written
contract with the Produce Company, as party of the second part, in and by which "the
above-named party of the second part is hereby named, constituted, and appointed as
the general manager of the business of the party of the first part, in all of the branches
thereof, with the duties, powers, authority and compensation hereinafter provided." It
shall exercise a general and complete supervision over and management of the
business of the party of the first part," and "shall direct, manage, promote and
advance the said business, subject only to the control and instructions of the board of
directors of the party of the first part."
It is also alleged that in January, 1919, with the consent of the plaintiff, the
Produce Company removed from the warehouse of the defendant 1,112.15 piculs of
copra described in receipt No. 1255, of the declared value of P18,350.
ISSUE:
Whether or not the corporation has the power to enter into management
contract.
RULING:
YES.
Under the written contract between them, the Produce Company was the
general manager of the defendant's warehouse business, and that it had authority to
issue quedans in its name, and as its corporate act and deed. That the quedans in
question are duly authenticated, and were duly issued by the defendant to, and in the
name of, the Produce Company, and when issued were duly endorsed, and delivered to
the plaintiff for value. For aught that appears in the record, the bank was acting in
good faith, and the quedans were duly issued, endorsed and delivered to it as
collateral in the ordinary course of business. Although there may have been fraud,
there is no allegation or proof that the bank was a party to it, or had any knowledge of
it, and this court has no right to assume that the bank was a party to a fraud. Giving
to the quedans their legal force and effect, it must follow that at the time the demand
was made; the bank was the owner and entitled to the possession of the copra therein
described. The receipts call for 15,699.34 piculs of copra, but plaintiff admits that,
with its consent, 1,112.15 piculs of copra, of the declared value of P18,350, were
delivered to the Produce Company from and out of receipt No. 1255. This would leave
14,587.19 piculs of copra evidenced by the quedans.
NIELSON & COMPANY, INC.

vs.
LEPANTO CONSOLIDATED MINING COMPANY
G.R. NO. L-21601 DECEMBER 28, 1968
FACTS:
Lepanto entered into a contract with Nielson wherein the latter was to manage
and operate the mining properties of the former claiming to be a contract of agency.
However, Nielson claims that the agreement is not one of agency.The phrase "Both
parties to this agreement fully recognize that the terms of this agreement are made
possible only because of the faith and confidence of the officials of each company have
in the other" in paragraph XI of the management contract does not qualify the relation
between Lepanto and Nielson as that of principal and agent based on trust and
confidence, such that the contractual relation may be terminated by the principal at
any time that the principal loses trust and confidence in the agent. Rather, that
phrase simply implies the circumstance that brought about the execution of the
management contract. In the annual report for 1936, submitted by Mr. C. A. Dewit,
President of Lepanto, to its stockholders, under date of March 15, 1937, it states that
instead of giving a monthly compensation to Nielson such was modified by giving the
amount of P2,500 plus 10% of cash value of the dividends declared and paid by
Lepanto.
Thus, the contention of Lepanto that it had terminated the management
contract in 1945, following the liberation of the mines from Japanese control, because
the relation between it and Nielson was one of agency and as such it could terminate
the agency at will, is, therefore, untenable.
ISSUE:
Whether or not the nature of the management contracta contract of agency.
RULING:
NO.
By the contract of agency a person binds himself to render some service or to do

something in representation or on behalf of another, with the consent or authority of
the latter.
Under the contract, Nielson had agreed, for a period of five years, with the right
to renew for a like period, to explore, develop and operate the mining claims of
Lepanto, and to mine, or mine and mill, such pay ore as may be found therein and to
market the metallic products recovered therefrom which may prove to be marketable,
as well as to render for Lepanto other services specified in the contract.
Moreover, the contract thus entered into pursuant to the offer made by Nielson
and accepted by Lepanto was a "detailed operating contract". It was not a contract of
agency. Nowhere in the record is it shown that Lepanto considered Nielson as its agent
and that Lepanto terminated the management contract because it had lost its trust
and confidence in Nielson.
In the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect to all,
and if some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.
Thus, by express stipulation of the parties, the management contract in
question is not revocable at the will of Lepanto. The Court ruled that this management
contract is not a contract of agency as defined in Article 1709 of the old Civil Code, but
a contract of lease of services as defined in Article 1544 of the same Code.
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA

ARANETA, INC.
vs.
QUIRINO BOLAÑOS
G.R. No. L-4935. May 28, 1954
FACTS:
The complaint described the land as a portion of a lot registered in the name of
the plaintiff and as containing an area of 13 hectares more or less. But the complaint
was amended by reducing the area of 6 hectares after the defendant had indicated the
plaintiff’s surveyors the portion of the land claimed and occupied by him. The
defendant set up the defense of prescription.
After trial, the lower court rendered judgment for plaintiff, declaring defendant
to be without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent.
ISSUE:
Whether or not the trial court erred in not dismissing the case on the ground
that the case was not brought by the real party in interest.
RULING:
NO.
There is nothing to the contention that the persent action is not brought by the
real party in interest, that is, by J. Tuason & Co., Inc. The Rules of Court requires that
action must be brought in the name of the real party in interest.
The practice is for an attorney-at-law to bring the action that is to file the
complaint, in the name of the plaintiff. That practice appears to have been followed in
this case, since the case is signed by the law firm of Araneta and Araneta, “counsel for
plaintiff” and commences with the statement “comes plaintiff, through its undersigned
counsel”. It is true that the complaint also states that the plaintiff is “represented
herein by its Managing Partner Gregorio Araneta, Inc. “ another corporation, but there
is nothing against one corporation being represented by another person, natural or
juridical, in suit in court.
The contention that Gregorio Araneta, Inc. cannot act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into partnership is
without merit, for the true rule is that “through a corporation has no power to enter
into a partnership, it nevertheless enter into a joint venture with the another where
the nature of that venture is in line with the business authorized by its charter.”
Ultra Vires Acts

HEIRS OF ANTONIO PAEL and ANDREA ALCANTARA and CRISANTO PAEL
vs.
COURT OF APPEALS, JORGE H. CHIN and RENATO B. MALLARI
G.R. No. 133547. December 7, 2001
MARIA DESTURA
vs.
COURT OF APPEALS, JORGE H. CHIN and RENATO B. MALLARI
G.R. No. 133843. December 7, 2001
FACTS:
PFINA acquired the properties from the Heirs of Pael by virtue of a deed of
assignment dated January 25, 1983. It filed a motion to intervene before the Court of
Appeals; however, before it filed its motion for intervention, or for a long period of
fifteen (15) years, PFINA and the Heirs of Pael were totally silent about the alleged deed
of assignment. No steps were taken by either of them to register the deed or secure
transfer certificate of title evidencing the change of ownership during this long period
of time.
At the time PFINA acquired the disputed properties in 1983, its corporate name
was PFINA Mining and Exploration, Inc., a mining company which had no valid
grounds to engage in the highly speculative business of urban real estate
development.
ISSUE:
Whether or not the title could produce legal effect.
RULING:
YES.
Notwithstanding its belated filing, the motion for intervention of U.P. is granted,
albeit the adjudication thereof shall be limited to a determination of the alleged
overlapping or encroachment between U.P.’s title, on the one hand, and respondents’
TCT Nos. 52928 and 52929, on the other hand.
The Court highlighted the citation in the comment of Intervenor U.P.,
specifically citing the decision in Roberto A. Pael et al. v. Court of Appeals, et al.,
supra, wherein the title of the Paels was declared to be of dubious origin and a
fabrication. Hence, since respondents derive their titles from a defective title, their
titles should also be null and void.
Considering the conflicting claims by U.P. and respondents, the ascertainment
of boundaries of the lands they respectively claim becomes imperative. The instant
cases have altogether taken more than eight (8) years. The boundaries of the
properties covered by the disputed titles of respondents and the boundaries of the
lands covered by the title of U.P. are not discussed therein. Thus, in order to avoid the
institution of new cases and thus obviate further litigation, the case should be
remanded to the Court of Appeals for reception of evidence relevant to determining the
boundaries of the conflicting claims between U.P. and respondents Chin and Mallari
over the property in dispute.
PILIPINAS LOAN COMPANY, INC.
vs.
HON. SECURITES AND EXCHANGE COMMISSION AND FILIPINAS PAWNSHOP,
INC.
G.R. No. 104720. April 4, 2001
FACTS:
Private respondent Filipinas Pawnshop, Inc. (private respondent) is a duly

organized corporation registered with the Securities and Exchange Commission (SEC)
on February 9, 1959. The articles of incorporation of private respondent states that its
primary purpose is to extend loans at legal interest on the security of either personal
properties or on the security of real properties, and to finance installment sales of
motor vehicles, home appliances and other chattels.
On September 11, 1990, private respondent filed a complaint against petitioner
with the Prosecution and Enforcement Department (PED) of the SEC and alleged that
petitioner, contrary to the restriction set by the Commission, has been operating and
doing business as a pawnbroker, pawnshop or "sanglaan" in the same neighborhood
where private respondent has had its own pawnshop for 30 years in violation of its
primary purpose and without the imprimatur of the Central Bank to engage in the
pawnshop business thereby causing unjust and unfair competition with private
respondent.
On October 18, 1990, petitioner filed its Comment/Answer questioning the
power of the SEC to take cognizance of the complaint involving (1) a supposed
violation of the Pawnshop Regulations Act which is more properly within the
jurisdiction of the Central Bank; and (2) the determination of whether a corporate
name is confusingly similar to another which is within the jurisdiction of the regular
courts. Petitioner denied that it is engaged in the pawnshop business, alleging that it
is a lending investor duly registered with the Central Bank.
ISSUE:
Whether or not Pilipinas Loan was acting beyond its authority.
RULING:
YES.
A corporation, under the Corporation Code, has only such powers as are
expressly granted to it by law and by its articles of incorporation,those which may be
incidental to such conferred powers, those reasonably necessary to accomplish its
purposes and those which may be incident to its existence. In the case at bar, the limit
of the powers of petitioner as a corporation is very clear, it is categorically prohibited
from "engaging in pawnbroking as defined under PD 114". Hence, in determining what
constitutes pawnbrokerage, the relevant law to consider is PD 114. This reference to
PD 114 is also in line with Article 2123 of the Civil.
Clearly, the recital in the complaint of Filipinas Pawnshop that Pilipinas Loan is
engaged in the pawnshop business when it is not authorized to do so by its articles of
incorporation amounts to fraud, detrimental not only to the corporation but also to the
stockholders and the public. The billboards of Pilipinas loan uses the word
“SANGLAAN” which cannot but give the impression to the public that its
establishment is more of a pawnshop than a lending institution servicing different
kinds of loans. The use of such word by petitioner was more calculated to attract
customers who will acquire loans on the security of personal properties alone.
ERNESTINA CRISOLOGO-JOSE
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-
President for Sales of Mover Enterprises, Inc
G.R. No. 80599. September 15, 1989
FACTS:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover

Enterprises, Inc. in-charge of marketing and sales; and the president of the said
corporation was Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in
accommodation of his clients, the spouses Jaime and Clarita Ong, issued Check No.
093553 drawn against Traders Royal Bank, dated June 14, 1980, in the amount of
P45,000.00 payable to defendant Ernestina Crisologo-Jose. Since the check was under
the account of Mover Enterprises, Inc., the same was to be signed by its president,
Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at
that time, the treasurer of Mover Enterprises was not available, Atty. Benares
prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check as an
alternate story. Plaintiff Ricardo S. Santos, Jr. did sign the check.
It appears that the check was issued to defendant Ernestina Crisologo-Jose in
consideration of the waiver or quitclaim by said defendant over a certain property
which the Government Service Insurance System (GSIS) agreed to sell to the clients of
Atty. Oscar Benares, the spouses Jaime and Clarita Ong. However, since the
compromise agreement was not approved within the expected period of time, the
aforesaid check for P45,000.00 was replaced by Atty. Benares with another Traders
Royal Bank check dated August 10, 1980, in the same amount.
ISSUE:
Whether or not the accommodation party is Mover Enterprises, Inc. and hence
should be made liable.
RULING:
NO.
The provision of the Negotiable Instruments Law which holds an

accommodation party liable on the instrument to a holder for value, although such
holder at the time of taking the instrument knew him to be only an accommodation
party, does not include nor apply to corporations which are accommodation parties.
This is because the issue or indorsement of negotiable paper by a corporation
without consideration and for the accommodation of another is ultra vires. Hence, one
who has taken the instrument with knowledge of the accommodation nature thereof
cannot recover against a corporation where it is only an accommodation party. If the
form of the instrument, or the nature of the transaction, is such as to charge the
indorsee with knowledge that the issue or indorsement of the instrument by the
corporation is for the accommodation of another, he cannot recover against the
corporation thereon.
By way of exception, an officer or agent of a corporation shall have the power to
execute or indorse a negotiable paper in the name of the corporation for the
accommodation of a third person only if specifically authorized to do so. Corollarily,
corporate officers, such as the president and vice-president, have no power to execute
for mere accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot thus
be enforced against the corporation, especially since it is not involved in any aspect of
the corporate business or operations, the inescapable conclusion in law and in logic is
that the signatories thereof shall be personally liable therefor, as well as the
consequences arising from their acts in connection therewith.
IRINEO G. CARLOS
vs.
MINDORO SUGAR CO., ET AL.
G.R. No. L-36207. October 26, 1932
FACTS:
The Mindoro Sugar Company is a corporation constituted in accordance with

the laws of the country and registered on July 30, 1917. According to its articles of
incorporation, one of its principal purposes was to acquire and exercise the franchise
granted by Act No. 2720 to George H. Fairchild, to substitute the organized
corporation, the Mindoro Company, and to acquire all the rights and obligations of the
latter and of Horace Havemeyer and Charles J. Welch in the so-called San Jose Estate
in the Province of Mindoro.
The Philippine Trust Company is another domestic corporation, registered on
October 21, 1917. In its articles of incorporation, some of its purposes are expressed
thus: "To acquire by purchase, subscription, or otherwise, and to invest in, hold, sell,
or otherwise dispose of stocks, bonds, mortgages, and other securities, or any interest
in either, or any obligations or evidences of indebtedness, of any other corporation or
corporations, domestic or foreign.
In pursuance of this resolution, the Mindoro Sugar Company executed in favor
of the Philippine Trust Company the deed of trust transferring all of its property to it
in consideration of the bonds it had issued to the value of P3,000,000.
The Philippine Trust Company sold thirteen bonds, Nos. 1219 to 1231, to
Ramon Diaz for P27,300, at a net profit of P100 per bond. The four bonds Nos. 1219,
1220, 1221, and 1222, here in litigation, are included in the thirteen sold to Diaz. The
Philippine Trust Company paid the appellant, upon presentation of the coupons, the
stipulated interest from the date of their maturity until the 1st of July, 1928, when it
stopped payments; and thenceforth it alleged that it did not deem itself bound to pay
such interest or to redeem the obligation because the guarantee given for the bonds
was illegal and void.
ISSUE:
Whether or not Philippine Trust Company bound itself legally and acted within
its corporate powers in guaranteeing the four bonds in question.
RULING:
YES.
The Philippine Trust Company has full powers to acquire personal property
such as the bonds in question. Being authorized to acquire the bonds, it was given
implied power to guarantee them in order to place them upon the market under better,
more advantageous conditions, and thereby secure the profit derived from their sale. It
is not, however, ultra vires for a corporation to enter into contracts of guaranty or
suretyship where it does so in the legitimate furtherance of its purposes and business.
And it is well settled that where a corporation acquires commercial paper or bonds in
the legitimate transaction of its business it may sell them, and in furtherance of such
a sale it may, in order to make them the more readily marketable, indorse or
guarantee their payment.
Guaranties of payment of bonds taken by a loan and trust company in the
ordinary course of its business, made in connection with their sale, are not ultra vires,
and are binding.
MARIA CLARA PIROVANO ET AL.

vs.
THE DE LA RAMA STEAMSHIP CO.
G.R. No. L-5377. December 29, 1954
FACTS:
Plaintiffs herein are the minor children of the late Enrico Pirovano represented
by their mother and judicial guardian Estefania R. Pirovano. They seek to enforce
certain resolutions adopted by the Board of Directors and stockholders of the
defendant company giving to said minor children of the proceeds of the insurance
policies taken on the life of their deceased father Enrico Pirovano with the company as
beneficiary. Defendant's main defense is: that said resolutions and the contract
executed pursuant thereto are ultra vires, and, if valid, the obligation to pay the
amount given is not yet due and demandable.
Plaintiff-appellant Pirovano is the owner of 3424 shares of stocks in defendant-
appellee Corporation which declared a dividend of P100 per share. Appellant wants to
recover from appellee the sum of P221, 975 after deducting the sum of P120, 424
which she had withdrawn or received from appellee for advances she received after the
death of her father, the late Esteban de la Rama.
Appellant’s theory is that the cash advances to her for her personal use and
that of her children were assumed by Esteban de la Rama. She claims that the
advances made to her by appellees were debited from the account of Hijos de I. de la
Rama, another corporation practically owned by Esteban de la Rama. She further
claims that the appellee can only deduct from the amount of dividend she is entitled
to, the amount of cash advances which was not assumed by her father. The
withdrawals by the appellant were made during the period 1940 to 1949 during which
the appellee made a deed of trust with Hijos. The deed of trust was made to
circumvent the prohibition of declaring dividends during the period.
ISSUE:
Whether or not the donation made by the corporation of the proceeds of the
insurance is a valid act.
RULING:
YES.
Even assuming that the donation was ultra vires, still it cannot be invalidated
or declared legally ineffective for that reason alone, it appearing that the donation
represents not only the act of the Board but also that of the stockholders themselves
since they expressly ratified the resolution. By this ratification, the infirmity of the
corporate act, if any, has been obliterated thereby making the act perfectly valid and
enforceable, especially so if the donation is not merely executory but consummated.
The defense of ultra vires cannot be set up against completed or consummated
transactions.
An ultra vires act may either be an act performed merely outside the scope of
the powers granted to the corporation by its AOI or one which is contrary to law or
violative of any principle which would void any contract. A distinction has to be made
with respect to corporate acts which are illegal and those merely ultra vires. The
former are contrary to law, morals, public order or policy, while the latter are not void
ab initio, but merely go beyond the scope of the powers in the AOI, and which renders
the act merely voidable and thus can be ratified by the stockholders.
The defendant corporation, therefore, is now prevented or estopped from
contesting the validity of the donation. This is especially so in this case when the very
directors who conceived the idea of granting said donation are practically the
stockholders themselves, with few nominal exceptions.

vs.
ACOJE MINING COMPANY, INC.
G.R. No. L-18062. February 28, 1963
FACTS:
On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts
requesting the opening of a post, telegraph and money order offices at its mining camp
at Sta. Cruz, Zambales, to service its employees and their families that were living in
said camp. Acting on the request, the Director of Posts wrote in reply stating that if
aside from free quarters the company would provide for all essential equipment and
assign a responsible employee to perform the duties of a postmaster without
compensation from his office until such time as funds therefor may be available he
would agree to put up the offices requested. The company in turn replied signifying its
willingness to comply with all the requirements.
On April 11, 1949, the Director of Posts again wrote a letter to the company
stating among other things that "In cases where a post office will be opened under
circumstances similar to the present, it is the policy of this office to have the company
assume direct responsibility for whatever pecuniary loss may be suffered by the
Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the
part of the employee of the company who is assigned to take charge of the post office,"
thereby suggesting that a resolution be adopted by the board of directors of the
company expressing conformity to the above condition relative to the responsibility to
be assumed buy it in the event a post office branch is opened as requested.
On September 2, 1949, the company informed the Director of Posts of the
passage by its board of directors of a resolution The letter further states that the
company feels that that resolution fulfills the last condition imposed by the Director of
Posts and that, therefore, it would request that an inspector be sent to the camp for
the purpose of acquainting the postmaster with the details of the operation of the
branch office.
ISSUE:
Whether or not the act of the Board in issuing the said resolution of conformity
was ultra vires.
RULING:
NO.
The corporate act was a necessary corollary to promote the interest and welfare
of the corporation. This is further bolstered by the fact that the opening of the post
was upon the request of the company for the convenience and benefit of its employees,
and not an idea of the Director of Posts. Thus, having benefited from the agreement,
the corporation is estopped from raising the defense that the said corporate act by its
board in conforming to the condition imposed by the Director of Posts is ultra vires.
Neither can the corporation interpose the defense that its liability is only that of
a guarantor. A mere reading of the resolution of the Board of Directors dated August
31, 1949, upon which the plaintiff based its claim, would show that the responsibility
of the defendant company is not just that of a guarantor. The phraseology and the
terms employed are so clear and sweeping and that the defendant assumed 'full
responsibility for all cash received by the Postmaster.' Here the responsibility of the
defendant is not just that of a guarantor. It is clearly that of a principal."

vs.
SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO,
PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA,
PILAR G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO
TANJUTCO JR.
G.R. No. L-20583. January 23, 1967
FACTS:
The Articles of Incorporation of defendant corporation were registered with the

Securities and Exchange Commission on March 27, 1961. Thereafter, the Board of
Directors of the corporation adopted a set of by-laws which were filed with said
Commission on April 5, 1961
On September 19, 1961, the Superintendent of Banks of the Central Bank of
the Philippines asked its legal counsel an opinion on whether or not said corporation
is a banking institution, within the purview of Republic Act No. 337; that, acting upon
this request, on October 11, 1961, said legal counsel rendered an opinion resolving
the query in the affirmative
On March 9, 1961, the corporation had applied with the Securities and
Exchange Commission for the registration and licensing of its securities under the
Securities Act. However, SCAC’s registration of its Articles of Incorporation was denied
on the ground that it has not complied with the requirements under the General
Banking Act (RA No. 337). Later, a Search Warrant was issued against SCAC where
documents and records relative to its business operation were seized.
Even when SCAC was duly advised of the findings, SCAC and its BOD and
Officers still continued operations prompting the Solicitor General to file a quo
warranto proceedings for the dissolution of SCAC.
ISSUE:
Whether or not SCAC was illegally engaged in the business of banking.
RULING:
YES.
In dissolving SCAC, the Court held that the corporation was indeed engaged in
the business of banking without first securing the administrative authority required by
RA No. 337.
Although, admittedly, SCAC has not secured the requisite authority to engage
in banking, defendants deny that its transactions partake of the nature of banking
operations. Note however that, in consequence of their propaganda campaign, a total
of 59,463 savings account deposits have been made by the public with SCAC and its
74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to
such persons as SCAC deemed suitable. It is clear that these transactions partake of
the nature of banking, as the term is used in Section 2 of RA No. 337. Indeed, a bank
has been defined as: A moneyed institute founded to facilitate the borrowing, lending,
and safe-keeping of money and to deal in notes, bills of exchange, and credits; an
investment company which loans out the money of its customers, collects the
interests, and charges a commission to both lender and borrower is a bank; any
person engaged in the business carried on by banks of deposit, of discount, or of
circulation is doing a banking business, although but one of these functions is
exercised.
The illegal transactions thus undertaken by SCAC to warrant its dissolution is
apparent from the fact that the foregoing misuser of the corporate funds and franchise
affects the essence of its business, that it is willful and has been repeated 59,643
times, and that its continuance inflicts injury upon the public, owing to the number of
persons affected thereby.
BY-LAWS
Function
DILY DANY NACPIL

vs.
INTERNATIONAL BROADCASTING CORPORATION
G.R. No. 144767. March 21, 2002
FACTS:
Petitioner was Assistant General Manager for Finance/Administration and

Comptroller of private respondent Intercontinental Broadcasting Corporation (IBC)
from 1996 until April 1997. According to petitioner, when Emiliano Templo was
appointed to replace IBC President Tomas Gomez III sometime in March 1997, the
former told the Board of Directors that as soon as he assumes the IBC presidency, he
would terminate the services of petitioner. Apparently, Templo blamed petitioner,
along with a certain Mr. Basilio and Mr. Gomez, for the prior mismanagement of IBC.
Upon his assumption of the IBC presidency, Templo allegedly harassed, insulted,
humiliated and pressured petitioner into resigning until the latter was forced to retire.
However, Templo refused to pay him his retirement benefits, allegedly because he had
not yet secured the clearances from the Presidential Commission on Good Government
and the Commission on Audit.
IBC filed a motion to dismiss contending that petitioner was a corporate officer
who was duly elected by the Board of Directors of IBC; hence, the case qualifies as an
intra-corporate dispute falling within the jurisdiction of the SEC.
On the other hand, petitioner argues that he is not a corporate officer of IBC
but an employee thereof since he had not been elected nor appointed as Comptroller
and Assistant Manager by the IBC's Board of Directors but by an IBC General
Manager. This is also because the IBC's By-Laws do not even include the position of
comptroller in its roster of corporate officers.He therefore contends that his dismissal
is a controversy falling within the jurisdiction of the labor courts.
ISSUE:
Whether or not petitioner is a corporate officer although the position of

comptroller is not expressly mentioned in the by-laws.
RULING:
NO.
The fact that the position of Comptroller is not expressly mentioned among the
officers of the IBC in the By-Laws is of no moment, because the IBC's Board of
Directors is empowered under Section 25 of the Corporation Code and under the
corporation's By-Laws to appoint such other officers as it may deem necessary.
The by-laws may and usually do provide for such other officers," and that where
a corporate office is not specifically indicated in the roster of corporate offices in the
by-laws of a corporation, the board of directors may also be empowered under the by-
lawsto create additional officers as may be necessary. Furthermore, as petitioner's
appointment as comptroller required the approval and formal action of the IBC's
Board of Directors to become valid, it is clear therefore holds that petitioner is a
corporate officer whose dismissal may be the subject of a controversy cognizable by
the SEC under Section 5(c) of P.D. 902-A which includes controversies involving both
election and appointmentof corporate directors, trustees, officers, and managers. Had
petitioner been an ordinary employee, such board action would not have been
required.
PMI COLLEGES
vs.
THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVA N
G.R. No. 121466. August 15, 1997
FACTS:
On July 7, 1991, petitioner, an educational institution offering courses on basic

seaman's training and other marine-related courses, hired private respondent as
contractual instructor with an agreement that the latter shall be paid at an hourly rate
of P30.00 to P50.00, depending on the description of load subjects and on the
schedule for teaching the same. Pursuant to this engagement, private respondent then
organized classes in marine engineering.
Initially, private respondent and other instructors were compensated for
services rendered during the first three periods of the abovementioned contract.
However, for reasons unknown to private respondent, he stopped receiving payment
for the succeeding rendition of services. This claim of non-payment was embodied in a
letter dated March 3, 1992, written by petitioner's Acting Director, Casimiro A.
Aguinaldo, addressed to its President, Atty. Santiago Pastor, calling attention to and
appealing for the early approval and release of the salaries of its instructors including
that of private respondent.
Private respondent's claims, were resisted by petitioner. Later in the
proceedings, PMI Colleges manifested that Mr. Tomas Cloma Jr., a member of the
board of trustees write a letter to the Chairman of the Board, clarifying the case of
Galvan and stating therein, inter alia, that under PMI’s by-laws only the Chairman is
authorized to sign any contract and that Galvan, in any event, failed to submit
documents on the alleged shipyard and plant visits in Cavite Naval Base.
ISSUE:
Whether or not the contract of employment of Galvan valid even if the signatory
therein was not the Chairman of the Board.
RULING:
YES.
The contract of employment is valid. The contract remained valid even if the
signatory thereon was not the chairman of the board which allegedly violated
petitioner’s by-laws. Since by-laws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same. No proof appears on record that
private respondent ever knew anything about the provisions of the said by-laws. In
fact, petitioner itself merely asserts the same without even bothering to attach a copy
or excerpt thereof to show that there is such provision. That this allegation has never
been denied to private respondent nor necessarily signify admission of its existence
because technicalities of law and procedure and the rules obtaining in the courts of
law do not strictly apply to proceeding of this nature.
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC.
vs.
CA, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION
and HORATIO AYCARDO
G.R. No. 117188 August 7, 1997
FACTS:
Loyola Grand Villas Homeowners Association (LGVHA) was organized on

February 8, 1983 as the association of homeowners and residents of the Loyola Grand
Villas. It was registered with the Home Financing Corporation, the predecessor of
herein respondent Home Insurance and Guaranty Corporation (HIGC), as the sole
homeowners' organization in the said subdivision. It was organized by the developer of
the subdivision and its first president was Victorio V. Soliven, himself the owner of the
developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws but failed to
do so. Then the officers that there were two other organizations within the subdivision
the Loyola Grand Villas homeowners North Association Incorporated (North
Association) and the Loyola Grand Villas homeowners South Association Incorporated
(South Association). According to private respondents, a non-resident and Soliven
himself, respectively headed these associations. They also discovered that these
associations had five (5) registered homeowners each who were also the incorporators,
directors and officers thereof. None of the members of the LGVHAI was listed as
member of the North Association while three (3) members of LGVHAI were listed as
members of the South Association. When Soliven inquired about the status of
LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of the HIGC,
informed him that LGVHAI had been automatically dissolved because it did not submit
its by-laws within the period required by the Corporation Code and there was non-
user of corporate charter because HIGC had not received any report on the
association's activities. Apparently, this information resulted in the registration of the
North and South Association.
ISSUE:
Whether or not failure of LGVHAI to file its by-laws within one month from the
date of its incorporation result in its automatic dissolution.
RULING:
NO.
The Supreme Court ruled that the non-filing of the by-laws within the period of
1 month from the issuance by SEC of the Certificate of Incorporation will not result to
the automatic dissolution of the corporation because the word “MUST” in Sec 46 of the
Corporation Code is merely directory not mandatory in meaning. In fact the second
paragraph allows the filing of by-laws even prior to incorporation.
This provision of the Code rules out mandatory compliance with the
requirement of filing the by-laws "within one (1) month after receipt of official notice of
the issuance of its certificate of incorporation by the Securities and Exchange
Commission." It necessarily follows that failure to file the by-laws within that period
does not imply the "demise" of the corporation. By-laws may be necessary for the
"government" of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related statutes.
CITIBANK, N.A.
vs.
HON. SEGUNDINO G. CHUA, SANTIAGO M. KAPUNAN and LUIS L. VICTOR,
ASSOCIATE JUSTICES OF THE HON. COURT OF APPEALS, THIRD DIVISION,
MANILA, HON. LEONARDO B. CANARES, Judge of Regional, Trial Court of Cebu,
Branch 10, and SPOUSES CRESENCIO AND ZENAIDA VELEZ
G.R. No. 102300. March 17, 1993
FACTS:
Citibank is a foreign commercial banking corporation duly licensed to do

business in the Philippines. Private respondents, spouses Cresencio and Zenaida
Velez, who were good clients alleged that the petitioner bank extended to them credit
lines sufficiently secured with real estate and chattel mortgages on equipment. They
claim that a restructuring agreement has been entered into between them and the
bank. However, the bank failed to comply thereto thus spouses Velez sued for specific
performance and damages.
On March 30, 1990, the date of the pre-trial conference, counsel for petitioner
bank appeared, presenting a special power of attorney executed by Citibank officer
Florencia Tarriela in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to
represent and bind petitioner bank at the pre-trial conference of the case at bar.
Inspite of this special power of attorney, counsel for spouses Velez orally moved to
declare petitioner bank as in default on the ground that the special power of attorney
was not executed by the Board of Directors of Citibank. Thus petitioner bank executed
another special power of attorney made by William W. Ferguson, Vice President and
highest ranking officer of Citibank, Philippines, constituting and appointing the J.P.
Garcia & Associates to represent and bind the BANK. Unsatisfied, private respondents
moved again for declaration of default. Though the bank again executed
anotherspecial power of attorney through William W. Ferguson in favor of Citibank
employees, the court issued an order declaring petitioner bank as in default. The CA
dismissed the petition filed by the bank. The CA relied on Section 46 of the
Corporation Code to support its conclusion that the by-laws in question are without
effect because they were not approved by the SEC.
ISSUE:
Whether or not petitioner bank's by-laws, which constitute the basis for
Ferguson's special power of attorney in favor of petitioner bank's legal counsel are
effective, considering that petitioner bank has been previously granted a license to do
business in the Philippines.
RULING:
YES.
Section 46 (which was relied upon by the CA) starts with the phrase "Every
corporation formed under this Code", which can only refer to corporations
incorporated in the Philippines. Hence, Section 46, in so far as it refers to the
effectivity of corporate by-laws, applies only to domestic corporations and not to
foreign corporations. On the other hand, Section 125 of the same Code requires that a
foreign corporation applying for a license to transact business in the Philippines must
submit, among other documents, to the SEC, a copy of its articles of incorporation and
by-laws, certified in accordance with law. Unless these documents are submitted, the
application cannot be acted upon by the SEC.
Since the SEC will grant a license only when the foreign corporation has
complied with all the requirements of law, it follows that when it decides to issue such
license, it is satisfied that the applicant's by-laws, among the other documents, meet
the legal requirements. This, in effect, is an approval of the foreign corporations’ by-
laws. It may not have been made in express terms; still it is clearly an approval.
Therefore, petitioner bank's by-laws, though originating from a foreign jurisdiction, are
valid and effective in the Philippines.
When to Adopt and File
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC.

vs.
CA, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION
and HORATIO AYCARDO
G.R. No. 117188 August 7, 1997
FACTS:
Loyola Grand Villas Homeowners Association (LGVHA) was organized on

February 8, 1983 as the association of homeowners and residents of the Loyola Grand
Villas. It was registered with the Home Financing Corporation, the predecessor of
herein respondent Home Insurance and Guaranty Corporation (HIGC), as the sole
homeowners' organization in the said subdivision. It was organized by the developer of
the subdivision and its first president was Victorio V. Soliven, himself the owner of the
developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws but
failed to do so. Then the officers that there were two other organizations within the
subdivision the Loyola Grand Villas homeowners North Association Incorporated
(North Association) and the Loyola Grand Villas homeowners South Association
Incorporated (South Association). According to private respondents, a non-resident
and Soliven himself, respectively headed these associations. They also discovered that
these associations had five (5) registered homeowners each who were also the
incorporators, directors and officers thereof. None of the members of the LGVHAI was
listed as member of the North Association while three (3) members of LGVHAI were
listed as members of the South Association. When Soliven inquired about the status of
LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of the HIGC,
informed him that LGVHAI had been automatically dissolved because it did not submit
its by-laws within the period required by the Corporation Code and there was non-
user of corporate charter because HIGC had not received any report on the
association's activities. Apparently, this information resulted in the registration of the
North and South Association.
ISSUE:
Whether or not failure of LGVHAI to file its by-laws within one month from the
date of its incorporation result in its automatic dissolution.
RULING:
NO.
The Supreme Court ruled that the non-filing of the by-laws within the period of
1 month from the issuance by SEC of the Certificate of Incorporation will not result to
the automatic dissolution of the corporation because the word “MUST” in Sec 46 of the
Corporation Code is merely directory not mandatory in meaning. In fact the second
paragraph allows the filing of by-laws even prior to incorporation.
This provision of the Code rules out mandatory compliance with the
requirement of filing the by-laws "within one (1) month after receipt of official notice of
the issuance of its certificate of incorporation by the Securities and Exchange
Commission." It necessarily follows that failure to file the by-laws within that period
does not imply the "demise" of the corporation. By-laws may be necessary for the
"government" of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related statutes.
Authority to Elect Additional By-Laws Officers
HENRY FLEISCHER
vs.
BOTICA NOLASCO CO., INC.
G.R. No. L-23241. March 14, 1925
FACTS:
On November 15, 1923, the plaintiff filed an amended complaint against the
Botica Nolasco, Inc., alleging that he became the owner of five shares of stock of said
corporation, by purchase from their original owner, one Manuel Gonzalez; that the
said shares were fully paid; and that the defendant refused to register said shares in
his name in the books of the corporation in spite of repeated demands to that effect
made by him upon said corporation, which refusal caused him damages amounting to
P500. The defendant filed a demurrer on the ground that the amended complaint did
not state facts sufficient to constitute a cause of action, and that said amended
complaint was ambiguous, unintelligible, uncertain, which demurrer was overruled by
the court.
The defendant answered the amended complaint denying generally and
specifically each and every one of the material allegations thereof, and, as a special
defense, alleged that the defendant, pursuant to article 12 of its by-laws, had
preferential right to buy from the plaintiff said shares at the par value of P100 a share,
plus P90 as dividends corresponding to the year 1922, and that said offer was refused
by the plaintiff. The defendant prayed for a judgment absolving it from all liability
under the complaint and directing the plaintiff to deliver to the defendant the five
shares of stock in question, and to pay damages.
ISSUE:
Whether or not article 12 of the by-laws of the corporation is in conflict with the
provisions of the Corporation Law (Act No. 1459).
RULING:
YES.
The holder of shares, as owner of personal property, is at liberty, under said

section, to dispose of them in favor of whomsoever he pleases, without any other
limitation in this respect, than the general provisions of law.
Therefore, a stock corporation in adopting a by-law governing transfer of shares
of stock should take into consideration the specific provisions of section 35 of Act No.
1459, and said by-law should be made to harmonize with said provisions. It should
not be inconsistent therewith.
The by-law now in question was adopted under the power conferred upon the
corporation by section 13, paragraph 7, above quoted; but in adopting said by-law the
corporation has transcended the limits fixed by law in the same section, and has not
taken into consideration the provisions of section 35 of Act No. 1459.
As a general rule, the by-laws of a corporation are valid if they are reasonable
and calculated to carry into effect the objects of the corporation, and are not
contradictory to the general policy of the laws of the land
The only restraint imposed by the Corporation Law upon transfer of shares is
found in section 35 of Act No. 1459, quoted above, as follows: "No transfer, however,
shall be valid, except as between the parties, until the transfer is entered and noted
upon the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate, and the number of
shares transferred." This restriction is necessary in order that the officers of the
corporation may know who are the stockholders, which is essential in conducting
elections of officers, in calling meeting of stockholders, and for other purposes. but
any restriction of the nature of that imposed in the by-law now in question, is ultra
vires, violative of the property rights of shareholders, and in restraint of trade.
JOHN GOKONGWEI, JR., petitioner
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO et.al.
respondents.
G.R. No. L-45911 April 11, 1979.
FACTS:
Petitioner alleged that on September 18, 1976, individual respondents amended

the by-laws of the corporation, basing their authority to do so on a resolution of the
stockholders adopted on March 13, 1961. It was contended that according to section
22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power
to amend, modify, repeal or adopt new by-laws may be delegated to the Board of
Directors only by the affirmative vote of stockholders representing not less than 2/3 of
the subscribed and paid up capital stock of the corporation, which 2/3 should have
been computed on the basis of the capitalization at the time of the amendment. Since
the amendment was based on the 1961 authorization, petitioner contended that the
Board acted without authority and in usurpation of the power of the stockholders.
Petitioner averred that the membership of the Board of Directors had changed since
the authority was given in 1961, there being six (6) new directors.
It was claimed that prior to the questioned March 13, 1961 amendment,
petitioner had all the qualifications to be a director of respondent corporation, being a
substantial stockholder thereof; that as a stockholder, petitioner had acquired rights
inherent in stock ownership, such as the rights to vote and to be voted upon in the
election of directors; and that in amending the by-laws, respondents purposely
provided for petitioner's disqualification and deprived him of his vested right as afore-
mentioned, hence the amended by-laws are null and void.
ISSUE:
Whether or not the disqualification of Gokongwei Jr. to run for directorship of

the corporation valid, as such was only provided in the amended by-laws of the
corporation.
RULING:
YES.
It is recognized by all authorities that 'every corporation has the inherent power
to adopt by-laws 'for its internal government, and to regulate the conduct and
prescribe the rights and duties of its members towards itself and among themselves in
reference to the management of its affairs.'" At common law, the rule was "that the
power to make and adopt by-laws was inherent in every corporation as one of its
necessary and inseparable legal incidents.
Any person "who buys stock in a corporation does so with the knowledge that
its affairs are dominated by a majority of the stockholders and that he impliedly
contracts that the will of the majority shall govern in all matters within the limits of
the act of incorporation and lawfully enacted by-laws and not forbidden by law."
Under section 22 of the same law, the owners of the majority of the subscribed
capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said,
therefore, that petitioner has a vested right to be elected director, in the face of the fact
that the law at the time such right as stockholder was acquired contained the
prescription that the corporate charter and the by-law shall be subject to amendment,
alteration and modification.
It is a settled that corporations have the power to make by-laws declaring a
person employed in the service of a rival company to be ineligible for the corporation's
Board of Directors. ".An amendment which renders ineligible, or if elected, subjects to
removal, a director if he be also a director in a corporation whose business is in
competition with or is antagonistic to the other corporation is valid."
THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on relation of the Attorney-

General)
vs.
EL HOGAR FILIPINO
G.R. No. L-26649 July 13, 1927
FACTS:
This case has 17 causes of action proceeded by the Government of the

Philippines through Quo Warranto alleging that El Hogar Filipino, a corporation
organized as a mutual building and loan association under the provisions of the
Corporation Law, has violated or went beyond its stated primary purposes for mutual
building and loan associations. Under Corporation Law Section 171 to 190, inclusive,
of this Act are devoted to the subject of building and loan associations, defining their
objects making various provisions governing their organization and administration,
and providing for the supervision to be exercised over them.. The respondent, El Hogar
Filipino, was apparently the first corporation organized in the Philippine Islands under
the provisions cited, and the association has been favored with extraordinary success.
The articles of incorporation bear the date of December 28, 1910, at which time capital
stock in the association had been subscribed to the amount of P150,000 of which the
sum of P10,620 had been paid in. Under the law as it then stood, the capital of the
Association was not permitted to exceed P3,000,000, but by Act No. 2092, passed
December 23, 1911, the statute was so amended as to permit the capitalization of
building and loan associations to the amount of ten millions. Soon thereafter the
association took advantage of this enactment by amending its articles so as to provide
that the capital should be in an amount not exceeding the then lawful limit. From the
time of its first organization the number of shareholders has constantly increased,
with the result that on December 31, 1925, the association had 5,826 shareholders
holding 125,750 shares, with a total paid-up value of P8,703,602.25. During the
period of its existence prior to the date last above-mentioned the association paid to
withdrawing stockholders the amount of P7,618,257,.72; and in the same period it
distributed in the form of dividends among its stockholders the sum of P7,621,565.81.
As one of the causes of action, the respondent is charged with having a
provision in its by-laws stating that “The board of directors of the association, by the
vote of an absolute majority of its members, is empowered to cancel shares and to
return to the owner thereof the balance resulting from the liquidation thereof
whenever, by reason of their conduct, or for any other motive, the continuation as
members of the owners of such shares is not desirable”.
ISSUE:
Whether or not the provision of the by-laws valid.

RULING:
YES.
The by-law is of course a patent nullity, since it is in direct conflict with the
latter part of section 187 of the Corporation Law, which expressly declares that the
board of directors shall not have the power to force the surrender and withdrawal of
unmatured stock except in case of liquidation of the corporation or of forfeiture of the
stock for delinquency. It is agreed that this provision of the by-laws has never been
enforced, and in fact no attempt has ever been made by the board of directors to make
use of the power therein conferred. It appears, however, that no annual meeting of the
shareholders called since that date has been attended by a sufficient number of
shareholders to constitute a quorum, with the result that the provision referred to has
no been eliminated from the by-laws, and it still stands among the by-laws of the
association, notwithstanding its patent conflict with the law.
Amendment and/or Rejection of By Laws
ENRIQUE SALAFRANCA
vs.
PHILAMLIFE (PVHA VILLAGE, HOMEOWNERS ASSOCIATION, INC.,et al.,
respondents.
G.R. No. 121791 December 23, 1998
FACTS:
Salafranca was hired as Administrative Officer by PVHA on May 1, 1981 and

was extended successive appointments. Sometime in 1987, PVHA decided to amend
its by-laws. Included therein was a provision regarding officers, specifically, the
position of administrative officer under which said officer shall hold office at the
pleasure of the Board of Directors. In a letter dated December 7, 1992, PVHA and
Dazo informed Salafranca that they had decided to discontinue his services. Claiming
that his services had been unlawfully and unceremoniously dispensed with,
Salafranca filed a complaint for illegal dismissal with money claims and for damages.
The LA held that respondents’ contention that complainant’s term of
employment was co-terminous with the term of Office of the Board of Directors, is
wanting in merit. The 1987 Amendment would not be applicable to the case of
complainant who had become a regular employee long time before the Amendment
took place. Moreover, the Amendment should be applied prospectively and not
retroactively. On appeal, the NLRC reversed the decision of the LA.
ISSUE:
Whether or not Salafranca was legally dismissed by private respondents

pursuant to the 1987 amendment in the By-laws.
RULING:
NO.
Salafranca had already attained the status of a regular employee, as evidenced

by his eleven years of service with PVHA. Accordingly, petitioner enjoys the right to
security of tenure and his services may be terminated only for causes provided by law.
While PVHA has the right to terminate the services of Salafranca, this is subject to
both substantive and procedural grounds. PVHA failed to substantiate petitioner’s
dismissal, rendering the latter’s termination illegal.
In an effort to validate the dismissal of Salafranca, respondents posit the theory
that the latter’s position is co-terminous with that of the Board of Directors, as
provided for in its amended by-laws. Admittedly, the right to amend the by-laws lies
solely in the discretion of the employer, this being in the exercise of management
prerogative or business judgment. However this right, extensive as it may be, cannot
impair the obligation of existing contracts or rights.
PVHA’s insistence that it can legally dismiss Salafranca on the ground that his
tenure has expired is untenable. Salaranca, being a regular employee, is entitled to
security of tenure; hence, his services may only be terminated for causes provided by
law. A contrary interpretation would not find justification in the laws or the
Constitution. If the Court was to rule otherwise, it would enable an employer to
remove any employee from his employment by the simple expediency of amending its
by-laws and providing that his/her position shall cease to exist upon the occurrence of
a specified event.
If PVHA wanted to make the Salafranca’s position co-terminous with that of the
Board of Directors, then the amendment must be effective after Salafranca’s stay with
PVHA, not during his term. Obviously, the measure taken by the private respondent
in amending its by-laws is nothing but a devious, but crude, attempt to circumvent
Salafranca’s right to security of tenure as a regular employee guaranteed under the
Labor Code.
MEETINGS OF STOCKHOLDERS AND THE BOARD OF DIRECTORS

Notice Required
ROSITA PEÑA
vs.
COURT OF APPEALS
G.R. No. 91478 February 7, 1991
FACTS:
Pampanga Bus Co. (PAMBUSCO), original owners of the lots in question,

mortgaged the same to the Development Bank of the Philippines (DBP) in
consideration of P935,000.00. This mortgage was foreclosed. In the foreclosure, the
said properties were awarded to Peña as highest bidder. Thereafter, the board of
directors of PAMBUSCO, through (3) out of its (5) directors, resolved to assign its right
of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin
Briones "to execute and sign a Deed of Assignment for and in behalf of PAMBUSCO in
favor of any interested party. Consequently, Briones executed a Deed of Assignment of
PAMBUSCO's redemption right over the subject lots in favor of Enriquez. Thereafter,
Enriquez executed a deed of absolute sale of the subject properties in favor of
plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, for the sum of
P140,000.00.
Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the
registered owners of the lots in question. In the complaint filed, appellants sought to
recover possession over the subject lands from defendants Rosita Peña and
Washington Distillery on the ground that being registered owners, they have to enforce
their right to possession against defendants who have been allegedly in unlawful
possession thereof since October 1974 "when the previous owners assigned (their)
right to collect rentals in favor of plaintiffs. After trial, a decision was rendered by the
court in favor of the defendants.
ISSUE:
Whether or not the board resolution of PAMBUSCO is valid.
RULING:
NO.
Under Section 25 of the Corporation Code of the Philippines, the articles of

incorporation or by-laws of the corporation may fix a greater number than the majority
of the number of board members to constitute the quorum necessary for the valid
transaction of business. Any number less than the number provided cannot constitute
a quorum and any act therein would not bind the corporation; all that the attending
directors could do is to adjourn.
Records show that PAMBUSCO ceased to operate as of November 15, 1949.
Being a dormant corporation for several years, it was highly irregular, if not
anomalous, for a group of three (3) individuals representing themselves to be the
directors of PAMBUSCO to pass a resolution disposing of the only remaining asset of
the corporation in favor of a former corporate officer. As a matter of fact, the three (3)
alleged directors who attended the said meeting were not listed as directors of
respondent PAMBUSCO. Furthermore, PAMBUSCO was insolvent and its only
remaining asset was its right of redemption over the subject properties. Since the
disposition of said redemption right of respondent PAMBUSCO by virtue of the
questioned resolution was not approved by the required number of stockholders under
the law, the said resolution, as well as the subsequent assignment to respondent
Enriquez should be struck down as null and void.
Who Could Attend and Vote
JULIO E. T. SALES and GEORGE V. AGONIAS and SMEC

vs.
SEC, SIHI and ATCO, represented by its President, ANSELMO TRINIDAD; VIMC,
represented by its President, et al.
G.R. No. 54330 January 13, 1989
FACTS:
SMEC sold 200M common shares of its capital stock in the amount of P2.6M to
SIHI under a Sales Agreement providing that the sale shall be only up to 5m shares
per buyer. SIHI requested for the transfer of the 200M shares to ATCO to which SMEC
complied. During the time that ATCO held the shares, it voted them in the SHs'
meetings of SMEC. ATCO in turn sold 198,500,000 of the shares to respondent VIMC.
Upon request, SMEC BOD issued a resolution directing its President to sign the
certificate of stock that would effect the transfer. Before the 1979 annual SH meeting
of SMEC, petitioners sought to nullify the sales of the shares to VIMC with the SEC
and to enjoin VIMC from voting the said shares. VIMC was temporarily restrained and
the meeting was held without the participation of VIMC’s shares and BODs were
elected only from the group of petitioners. In VIMC’s answer, it questioned the said
election. SEC denied the petition as well as motion to dismiss and lifted the
Restraining it issued earlier and allowed the shares of VIMC to be counted in
determining the quorum of the 1980 annual SHs meeting, which was already near,
and the same shares were allowed to vote and be voted for. Before the SC, petitioners
contended that the SEC gravely abused its discretion in not enjoining the participation
of VIMC in the 1980 election considering that the sale of the shares to VIMC was null
and void as it was done in violation of the Sales Agreement on the limit of shares to be
sold to each buyer and that VIMC’s ownership of the shares is contrary to Sec. 13 (5-
A) of the old corporation law.
ISSUE:
Whether or not SEC acted with grave abuse of discretion in not permanently
enjoining VIMC in voting.
RULING:
NO.
SC found no grave abuse of discretion on the part of the SEC in not restraining
VIMC. It adopted the SEC resolution stating that the sale of the shares of stock had
long been perfected and is presumed valid until declared otherwise. As against this
presumption, petitioners' prayer for injunction cannot prevail as the issue of the
validity of the sale is still to be resolved by the SEC.
Considering that the shares constitute the majority, it is more equitable that
the same be allowed to vote rather than be enjoined. As it has been ruled the removal
of a majority SH from the management of the corporation and/or the dissolution of a
corporation in a suit filed by a minority SH is a drastic measure. It should be resorted
to only when the necessity is clear. With more reason, the Court will not deprive a SH
of his right to vote his shares in the annual SHs' meeting, except upon a clear showing
of its lawful denial under the articles of incorporation or by-laws of the corporation, as
it is a right inherent in stock ownership.
DOMINGO PONCE AND BUHAY PONCE
vs.
DEMETRIO B. ENCARNACION AND POTENCIANO GAPOL
G.R. NO. L-5883 NOVEMBER 28, 1953
FACTS:
Daguhoy Enterprises, Inc., was duly registered as such on 24 June 1948. On

16 April 1951 at a meeting duly called, the voluntary dissolution of the corporation
and the appointment of Gapol as receiver were agreed upon and to that end a petition
for voluntary dissolution was drafted which was sent to, and signed by, the petitioner
Domingo Ponce. Instead of filing the petition for voluntary dissolution of the
corporation as agreed upon, Gapol, who is the largest stockholder, changed his mind
and filed a complaint in the CFI of Manila to compel the petitioners to render an
accounting of the funds and assets of the corporation, to reimburse it, jointly and
severally, a total sum of P18,690, plus interest, which have been converted by the
petitioner Domingo Ponce to his own use and benefit.
On 18 May 1951 Gapol filed a motion praying that the petitioners be removed
as members of the board of directors which was denied by the court. On 3 January
1952 Gapol filed a petition praying for an order directing him to call a meeting of the
stockholders of the corporation and to preside at such meeting in accordance with
section 26 of the Corporation Law. Two-days later, without notice to the petitioners
and to the other members of the board of directors and in violation of the Rules of
Court which require that the adverse parties be notified of the hearing of the motion
three days in advance, the respondent court issued the order as prayed for.
ISSUE:
Whether or not under and pursuant to section 26 of the Corporation Law, the
respondent court may issue the order complained of.
RULING:
NO.
Article 9 of the by-laws of the Daguhoy Enterprises, Inc., provides: The Board of
Directors shall compose of five (5) members who shall be elected by the stockholders
in a general meeting called for that purpose which shall be held every even year during
the month of January. Article 22 of the by-laws provides: The Chairman shall have the
right to fix the date, the time and the place where the general meeting shall be held,
either special or general.
Section 26 of the Corporation Code provides: - Whenever, from any cause, there
is no person authorized to call a meeting, or when the officer authorized to do so
refuses, fails, or neglects to call a meeting, any judge of a Court of First Instance, on
the showing of good cause therefor, may issue an order to any stockholder or member
of a corporation, directing him to call a meeting of the corporation by giving the proper
notice required by this Act or the by-laws; and if there be no person legally authorized
to preside at such meeting, the judge of the Court of First Instance may direct the
person calling the meeting to preside at the same until a majority of the members or
stockholders representing a majority of the stock present and permitted by law to be
voted have chosen one of their number to act as presiding officer for the purposes of
the meeting.
Petitioners were not deprived of their right without due process of law. They had
no right to continue as directors of the corporation unless reelected by the
stockholders in a meeting called for that purpose every even year.
SALVADOR P. LOPEZ
vs.
ERICTA
G.R. No. L-32991 June 29, 1972
FACTS:
The first such appointment was extended on April 27, 1970, "effective May 1,
1970 until April 30, 1971, unless sooner terminated and subject to the appproval of
the Board of Regents and to pertinent University regulations." Pursuant thereto Dr.
Blanco assumed office as ad interim Dean on May 1, 1970.
The Board of Regents met on May 26, 1970, and President Lopez submitted to it
the ad interim appointment of Dr. Blanco for reconsideration. The minutes of that
meeting disclose that "the Board voted to defer action on the matter in view of the
objections cited by Regent Kalaw based on the petition against the appointment,
addressed to the Board, from a majority of the faculty and from a number of alumni
Dr. Blanco's appointment had lapsed.
On May 26, 1970, President Lopez extended another ad interim appointment to
her, effective from May 26, 1970 to April 30, 1971, with the same conditions as the
first.However, such ad interim appointment had not been confirmed by the Board of
Regents. Due to the following votes: 5-yes, 3-no and 4-abstain.
On August 18, 1970 Dr. Blanco wrote the President of the University, protesting
the appointment of Oseas A. del Rosario as Officer-in-Charge of the College of
Education. Neither communication having elicited any official reply, Dr. Blanco went
to the Court of First Instance of Quezon City on a petition for certiorari and prohibition
with preliminary injunction.
ISSUE:
Whether or not respondent Dr. Consuelo S. Blanco was duly elected Dean of the
College of Education, University of the Philippines, in the meeting of the Board of
Regents on July 9, 1970.
RULING:
NO.
The votes of abstention, viewed in their setting, can in no way be construed as

votes for confirmation of the appointment. There can be no doubt whatsoever as to the
decision and recommendation of the three members of the Personnel Committee: it
was for rejection of the appointment. No inference can be drawn from this that the
members of the Personnel Committee, by their abstention, intended to acquiesce in
the action taken by those who voted affirmatively. Neither, for that matter, can such
inference be drawn from the abstention that he was abstaining because he was not
then ready to make a decision.
Dr. Blanco was clearly not the choice of a majority of the members of the Board
of Regents, as unequivocally demonstrated by the transcript of the proceedings. This
fact cannot be ignored simply because the Chairman, in submitting the question to
the actual vote, did not frame it as accurately as the preceding discussion called for,
such that two of the Regents present (Silva and Kalaw) had to make some kind of
clarification.
VOTING
Who May Exercise
Wilson P. Gamboa
vs.
Finance Secretary Margarito Teves, et al.,
G.R. No. 176579, June 28, 2011
FACTS:
This is a petition to nullify the sale of shares of stock of Philippine

Telecommunications Investment Corporation (PTIC) by the government of the Republic
of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to
Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific), a Hong Kong-based investment management and holding
company and a shareholder of the Philippine Long Distance Telephone Company
(PLDT). The petitioner questioned the sale on the ground that it also involved an
indirect sale of 12 million shares (or about 6.3 percent of the outstanding common
shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacific’s
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the total common shareholdings of foreigners in PLDT to about
81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign ownership of the capital of a public utility
to not more than 40%, thus: Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens; nor
shall such franchise, certificate, or authorization be exclusive in character or for a
longer period than fifty years. Neither shall any such franchise or right be granted
except under the condition that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines. (Emphasis supplied)
ISSUE:
Whether or not the term “capital” in Section 11, Article XII of the Constitution
refer to the total common shares only, or to the total outstanding capital stock
(combined total of common and non-voting preferred shares) of PLDT, a public utility.
HELD:
YES.
Considering that common shares have voting rights which translate to control,
as opposed to preferred shares which usually have no voting rights, the term “capital”
in Section 11, Article XII of the Constitution refers only to common shares. However, if
the preferred shares also have the right to vote in the election of directors, then the
term “capital” shall include such preferred shares because the right to participate in
the control or management of the corporation is exercised through the right to vote in
the election of directors. In short, the term “capital” in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors.
To construe broadly the term “capital” as the total outstanding capital stock,
including both common and non-voting preferred shares, grossly contravenes the
intent and letter of the Constitution that the “State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos.” A broad definition
unjustifiably disregards who owns the all-important voting stock, which necessarily
equates to control of the public utility.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the
election of directors. PLDT’s Articles of Incorporation expressly state that “the holders
of Serial Preferred Stock shall not be entitled to vote at any meeting of the
stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive
notice of any meeting of stockholders.” On the other hand, holders of common shares
are granted the exclusive right to vote in the election of directors. PLDT’s Articles of
Incorporation state that “each holder of Common Capital Stock shall have one vote in
respect of each share of such stock held by him on all matters voted upon by the
stockholders, and the holders of Common Capital Stock shall have the exclusive right
to vote for the election of directors and for all other purposes.”
It must be stressed, and respondents do not dispute, that foreigners hold a
majority of the common shares of PLDT. In fact, based on PLDT’s 2010 General
Information Sheet (GIS), which is a document required to be submitted annually to the
Securities and Exchange Commission, foreigners hold 120,046,690 common shares of
PLDT whereas Filipinos hold only 66,750,622 common shares. In other words,
foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos
hold only 35.73%. Since holding a majority of the common shares equates to control,
it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public
utilities expressly mandated in Section 11, Article XII of the Constitution.
As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT
common shares is P5.00 per share, whereas the par value of preferred shares
is P10.00 per share. In other words, preferred shares have twice the par value of
common shares but cannot elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos
while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred
shares constitute 77.85% of the authorized capital stock of PLDT while common
shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT
is not with the non-voting preferred shares but with the common shares, blatantly
violating the constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.
PHILIPPINE COCONUT PRODUCERS FEDERATION, INC. (COCOFED), et al.

vs.
G.R. Nos. 177857-58 February 11, 2010
FACTS:
The Court, in its earlier resolution adverted to, approved, upon motion of
petitioner Philippine Coconut Producers Federation, Inc. (COCOFED), the conversion
of the sequestered 753,848,312 Class "A" and "B" common shares of San Miguel
Corporation (SMC), registered in the name of Coconut Industry Investment Fund (CIIF)
Holding Companies (hereunder referred to as SMC Common Shares), into 753,848,312
SMC Series 1 Preferred Shares. The oppositors herein made the following arguments:
(1) economic disadvantage and harm that government might suffer by such proposed
conversion; (2) they question the wisdom of PCGG in converting those sequestered
shares; (3) that the conversion is invalid in view of the Commission on Audit Circular
No. 89- 296 which provides that disposal of government property must be undertaken
via public Auction; (4) that the conversion thereof needs the acquiescence of the 14
CIIF companies; (5) As to the Motion to Intervene by UCPB, that it should be the sole
depositary of the proceeds of the dividends.
ISSUE:
Whether or not the arguments of the Oppositors herein have merits.
RULING:
NO.
Anent the 1st contention, it is not tenable because in fact this conversion is a
business strategy to preserve and conserve the value of the Government’s interest in
the CIIF SMC shares. As to the 2 nd argument, it is also untenable because it is not
within the Courts to determine wisdom of other agencies of the government. As to the
3rd argument, likewise untenable because FIRST, there is really no disposal of SMC
shares and SECOND, there is no yet government assets to talk about because the
ownership thereto is still to be determined, hence, those shares are akin to properties
subject of attachment. As to the 4th contention, PCGG need not obtain the
acquiescence of the owners of those sequestered shares with respect to any of its acts
intended to preserve such assets. Otherwise, it would be impossible for it to perform
its function as provided by law. And as to the 5 th argument, it is also of no merit
because the Court has the discretion where to deposit those net dividends, whether it
be on Development Bank of the Philippines/ Land Bank of the Philippines or the
UCPB.
REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT (PCGG)
vs.
COCOFED, ET AL. and BALLARES, ET AL., EDUARDO M. COJUANGCO JR. and
the SANDIGANBAYAN (First Division)
G.R. No. 147062-64 December 14, 2001
FACTS:
On the explicit premise that 'vast resources of the government have been
amassed by former President Ferdinand E. Marcos, his immediate family, relatives,
and close associates both here and abroad,' the Presidential Commission on Good
Government (PCGG) was created by Executive Order No. 1 to assist the President in
the recovery of the ill-gotten wealth thus accumulated whether located in the
Philippines or abroad. Several executive orders were then issued describing the
properties to be recovered.Among the properties sequestered by the Commission were
shares of stock in the United Coconut Planters Bank (UCPB) registered in the names
of the alleged "one million coconut farmers," the so-called Coconut Industry
Investment Fund companies (CIIF companies) and Private Respondent Eduardo
Cojuangco Jr.
Six years later, on February 13, 2001, the Board of Directors of UCPB received
from the ACCRA Law Office a letter written on behalf of the COCOFED and the alleged
nameless one million coconut farmers, demanding the holding of a stockholders'
meeting for the purpose of, among others, electing the board of directors. In response,
the board approved a Resolution calling for a stockholders' meeting on March 6, 2001
at three o'clock in the afternoon. However, the same was meted by a Class Action
Omnibus Motion seeking to enjoin PCGG from voting the UCPB shares of stock
registered in the respective names of the more than one million coconut farmers; and
to enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIF
holding companies including those registered in the name of the PCGG.
ISSUE:
Whether or not PCGG may vote the sequestered UCPB shares while the main
case for their reversion to the State is pending in the Sandiganbayan.
RULING:
YES.
The SC holds that the government should be allowed to continue voting those
shares inasmuch as they were purchased with coconut levy funds since those are
prima facie public in character or, at the very least, are "clearly affected with public
interest."
The general rule is that the registered owner of the shares of a corporation
exercises the right and the privilege of voting. This principle applies even to shares
that are sequestered by the government, over which the PCGG as a mere conservator
cannot, as a general rule, exercise acts of dominion. On the other hand, it is
authorized to vote these sequestered shares registered in the names of private persons
and acquired with allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test.
Unfortunately, this test is not applicable under the circumstances of this case.
Hence, the Court granted PCGG the right to vote the sequestered shares because they
appeared to be assets belonging to the government itself.
RAMON C. LEE and ANTONIO DM. LACDAO

vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO
GONZALES, JR. and THOMAS GONZALES
G.R. No. 93695 February 4, 1992
FACTS:
In 1985, a complaint for sum of money was filed by the International Corporate
Bank, Inc. against the private respondents who, in turn, filed a third party complaint
against Alfa Integrated Textile Mills (ALFA) and the petitionersRamon C. Lee and
Antonio Dm. Lacdao who were officers of ALFA. Meanwhile, in 1988, the trial court
issued an order requiring the issuance of an alias summons upon ALFA through the
DBP as a consequence of the petitioners' letter informing the court that the summons
for ALFA was erroneously served upon them considering that the management of ALFA
had been transferred to the Development Bank of the Philippines (DBP).
In a manifestation, the DBP claimed that it was not authorized to receive
summons on behalf of ALFA since the DBP had not taken over the company which has
a separate and distinct corporate personality and existence.
ISSUE:
Whether or not despite the execution of the Voting Trust Agreement, the
summons be served upon the petitioners who were officers and directors of ALFA (the
trustor).
RULING:
NO.
There is no dispute as to the most immediate effect of a voting trust agreement
on the status of a stockholder who is a party to its execution from legal titleholder or
owner of the shares subject of the voting trust agreement, he becomes the equitable or
beneficial owner.
Note that in order to be eligible as a director, what is material is the legal title
to, not beneficial ownership of, the stock as appearing on the books of the corporation
Considering that the voting trust agreement between ALFA and the DBP transferred
legal ownership of the stocks covered by the agreement to the DBP as trustee, the
latter became the stockholder of record with respect to the said shares of stocks. In
the absence of a showing that the DBP had caused to be transferred in their names
one share of stock for the purpose of qualifying as directors of ALFA, the petitioners
can no longer be deemed to have retained their status as officers of ALFA which was
the case before the execution of the subject voting trust agreement. There appears to
be no dispute from the records that DBP has taken over full control and management
of the firm.
Republic of the Philippines (Presidential Commission on Good Government),

vs.
Sandiganbayan
GR 107789 30 April 2003
FACTS:
On 7 August 1991, the PCGG conducted an Eastern Telecommunications,

Philippines, Inc. (ETPI) stockholders meeting during which a PCGG controlled board of
directors was elected. A special stockholders meeting was later convened by the
registered ETPI stockholders wherein another set of board of directors was elected, as
a result of which two sets of such board and officers were elected. Victor Africa, a
stockholder of ETPI, alleging that the PCGG had since been "illegally 'exercising' the
rights of stockholders of ETPI," especially in the election of the members of the board
of directors, filed a motion before the Sandiganbayan, prayed that said court order the
"calling and holding of the ETPI annual stockholders meeting for 1992 under the
court's control and supervision and prescribed guidelines." The PCGG did not object to
Africa's motion provided that "(1) An Order be issued upholding the right of PCGG to
vote all the Class "A" shares of ETPI; (2) In the alternative, in the remote event that
PCGG's right to vote the sequestered shares be not upheld, an Order be issued (a)
disregarding the Stock and Transfer Book and Booklet of Stock Certificates of ETPI in
determining who can vote the shares in an Annual Stockholders Meeting of ETPI, (b)
allowing PCGG to vote 23.9% of the total subscription in ETPI, and (c) directing the
amendment of the Articles of Incorporation and By-laws of ETPI providing for the
minimum safeguards for the conservation of assets prior to the calling of a
stockholders meeting. The Sandiganbayan resolved Africa's motion, ordering the
conduct of an annual stockholders meeting of ETPI, for 1992. Assailing the foregoing
resolution, the PCGG filed before the Supreme Court a petition for Certiorari,
Mandamus and Prohibition.
ISSUE:
Whether or notthe PCGG can vote the sequestered ETPI Class "A" shares in the
stockholders meeting for the election of the board of directors.
RULING:
YES.
The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors
or to amend the Articles of Incorporation for the purpose of increasing the authorized
capital stock unless there is a prima facie evidence showing that said shares are ill-
gotten and there is an imminent danger of dissipation. (2)The ETPI Stock and Transfer
Book should be the basis for determining which persons have the right to vote in the
stockholders meeting for the election of the ETPI Board of Directors. (3) The PCGG is
entitled to vote the shares ceded to it by Roberto S. Benedicto and his controlled
corporations under the Compromise Agreement, provided that the shares are first
registered in the name of the PCGG. The PCGG may not register the transfer of the
Malacañang and the Nieto shares in the ETPI Stock and Transfer Book; however, it
may vote the same as conservator provided that the PCGG satisfies the two-tiered test
devised by the Court in Cojuangco v. Calpo. (4) The safeguards laid down in the case
of Cojuangco v. Roxas shall be incorporated in the ETPI Articles of Incorporation
substantially contemporaneous to, but not before, the election of the ETPI Board of
Directors. (5) Members of the Sandiganbayan shall not participate in the stockholders
meeting for the election of the ETPI Board of Directors.
Voting Trust Agreement
ROSAURA P. CORDON
vs.
JESUS BALICANTA
A.C. No. 2797 October 4, 2002
FACTS:
Sometime in the early part of 1981, respondent enticed complainant and her
daughter to organize a corporation that would develop the said real properties into a
high-scale commercial complex with a beautiful penthouse for complainant. Relying
on these apparently sincere proposals, complainant and her daughter assigned 19
parcels of land to Rosaura Enterprises, Incorporated, and a newly-formed and duly
registered corporation in which they assumed majority ownership. The subject
parcels of land were then registered in the name of the corporation.
Thereafter, respondent single-handedly ran the affairs of the corporation in his
capacity as Chairman of the Board, President, General Manager and Treasurer. The
respondent also made complainant sign a document which turned out to be a voting
trust agreement. Respondent likewise succeeded in making complainant sign a
special power of attorney to sell and mortgage some of the parcels of land she
inherited from her deceased husband. She later discovered that respondent
transferred the titles of the properties to a certain Tion Suy Ong who became the new
registered owner thereof. Respondent never accounted for the proceeds of said
transfers. Other spurious transactions not approved by the Board were entered into by
the defendant through spurious board resolutions.
ISSUE:
Whether or not there was really a voting trust agreement made by the
complainant in favor of the defendant.
RULING:
NO.
The claim is baseless. The voting trust referred to by respondent, even if it were
assumed to be valid, covered only 266 shares of complainants yet she owned a total of
1,039 shares after she and her daughter ceded in favor of the corporation 19 parcels of
land. Being a former lawyer to complainant, respondent should have ensured that her
interest was safeguarded. Yet, complainant was apparently and deliberately left it on
the pretext that, she had executed a voting trust agreement in favor of respondent. It
is suspicious that complainant was made to sign a voting trust agreement on 21
August 1981 and immediately thereafter, the resolutions authorizing respondent to
obtain a loan and to mortgage the 9 parcels of land were passed and approved. It is
further worth noting that complainant’s voting trust where she allegedly entrusted 266
shares to respondent on August 21, 1981 had only a validity of 5 years. Thus, she
should have had her entire holdings of 1,283 shares back in her name in August
1986.“Respondent’s purported minutes of stockholders’ meeting do not reflect this.
“There was no explanation whatsoever from respondent on how complainant and her
daughter lost their 97% control holding in the corporation. Respondent cannot take
refuge in the contested voting trust agreement supposedly executed by complainant
and her daughter for the reason that it authorized respondent to represent
complainant for such matters.
Moreover the factual findings of the investigating commission, affirmed by the
IBP Board, disclosed that complainant and her daughter own 1,711 out of 1,750
shares of the outstanding capital stock of the corporation, based on the Articles of
Incorporation and deeds of transfer of the properties. But respondent’s evidence
showed that complainant had only 266 shares of stock in the corporation while her
daughter had none, notwithstanding the fact that there was nothing to indicate that
complainant and her daughter ever conveyed their shares to others.
NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, EUSEBIO
VILLATUYA MARIO Y. CONSING and ROBERTO S. BENEDICTO
vs.
HON. BENJAMIN AQUINO, et al.
G.R. No. L-34192 June 30, 1988
FACTS:
Batjak, is a Filipino-American corporation which has indebtedness to Philippine

National Bank (PNB) amounted to P11,915,000.00, As security for the payment of its
obligations and advances against shipments, Batjak mortgaged its three (3) coco-
processing oil mills to Manila Bank, Republic Bank , and PCIB, respectively. In need
for additional operating capital to place the three (3) coco-processing mills at their
optimum capacity and maximum efficiency and to settle, pay or otherwise liquidate
pending financial obligations with the different private banks, Batjak applied to PNB
for additional financial assistance. A Financial Agreement was submitted by PNB to
Batjak for acceptance which was duly accepted by Batjak. Upon receiving payment,
RB, PCIB, and MBTC released in favor of PNB the first and any mortgages they held on
the properties of Batjak. Batjak executed a first mortgage in favor of PNB on all its
properties A Voting Trust Agreement was executed in favor of NIDC by the
stockholders representing 60% of the outstanding paid-up and subscribed shares of
Batjak. This agreement was for a period of five (5) years and, upon its expiration, was
to be subject to negotiation between the parties. Forced by the insolvency of Batjak,
PNB instituted extrajudicial foreclosure proceedings against the oil mills of Batjak. The
properties were sold to PNB as the highest bidder. Three years thereafter, Batjak wrote
a letter to NIDC inquiring if the latter was still interested in negotiating the renewal of
the Voting Trust Agreement. Batjak wrote another letter to NIDC informing the latter
that Batjak would now safely assume that NIDC was no longer interested in the
renewal of said Voting Trust Agreement.
ISSUE:
Whether or not the NIDC and PNB acquired ownership over the assets of Batjak
despite a voting trust agreement between Batjak’s stockholders and NIDC.
RULING:
YES.
What was assigned to NIDC was the power to vote the shares of stock of the
stockholders of Batjak, representing 60% of Batjak's outstanding shares, and who are
the signatories to the agreement. The power entrusted to NIDC also included the
authority to execute any agreement or document that may be necessary to express the
consent or assent to any matter, by the stockholders. Nowhere in the said provisions
or in any other part of the Voting Trust Agreement is mention made of any transfer or
assignment to NIDC of Batjak's assets, operations, and management. NIDC was
constituted as trustee only of the voting rights of 60% of the paid-up and outstanding
shares of stock in Batjak. Under the provision on termination what was to be returned
by NIDC as trustee to Batjak's stockholders, upon the termination of the agreement,
are the certificates of shares of stock belonging to Batjak's stockholders, not the
properties or assets of Batjak itself which were never delivered, in the first place to
NIDC, under the terms of said Voting Trust Agreement. A voting trust transfers only
voting or other rights pertaining to the shares subject of the agreement or control over
the stock hence the acquisition by PNB-NIDC of the properties in question was not
made or effected under the capacity of a trustee but as a foreclosing creditor for the
purpose of recovering on a just and valid obligation of Batjak.
LEON J. LAMBERT
vs.
T. J. FOX
G.R. No. L-7991 January 29, 1914
FACTS:
Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail
book and stationery business, found itself in such condition financially that its
creditors, including the plaintiff and the defendant, together with many others, agreed
to take over the business, incorporate it and accept stock therein in payment of their
respective credits. This was done, the plaintiff and the defendant becoming the two
largest stockholders in the new corporation called John R. Edgar & Co., Incorporated.
A few days after the incorporation was completed plaintiff and defendant entered into
an agreement whereby the shockholders mutually and reciprocally agree not to sell,
transfer, or otherwise dispose of any part of their present holdings of stock in said
John R. Edgar & Co. Inc., till after one year from the date hereof and that Either party
violating this agreement shall pay to the other the sum of one thousand (P1,000) pesos
as liquidated damages, unless previous consent in writing to such sale, transfer, or
other disposition be obtained.
Notwithstanding this contract the defendant Fox on October 19, 1911, sold his
stock in the said corporation to E. C. McCullough of the firm of E. C. McCullough &
Co. of Manila, a strong competitor of the said John R. Edgar & Co., Inc. This sale was
made by the defendant against the protest of the plaintiff and with the warning that he
would be held liable under the contract hereinabove set forth and in accordance with
its terms. In fact, the defendant Foz offered to sell his shares of stock to the plaintiff
for the same sum that McCullough was paying them less P1,000, the penalty specified
in the contract.
ISSUE:
Whether or not the suspension of the power to sell the stock is valid and legal.
RULING:
YES.
The suspension of the power to sell has a beneficial purpose, results in the
protection of the corporation as well as of the individual parties to the contract, and is
reasonable as to the length of time of the suspension. We do not here undertake to
discuss the limitations to the power to suspend the right of alienation of stock,
limiting ourselves to the statement that the suspension in this particular case is legal
and valid.
CAPITAL STRUCTURE STOCKS AND STOCKHOLDERS

As Legal/Stated Capital: Trust Fund Doctrine
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY

vs.
NATIONAL TELECOMMUNICATIONS COMMISSION, JOSEPH A.SANTIAGO, in his
capacity as NTC Commissioner, and EDGARDO CABARRIOS
G.R. No. 152685 4 December 2007
FACTS:
Case pertains to Section 40 (e) the Public Service Act (PSA), as amended on
March 15, 1984, pursuant to Batas Pambansa Blg This. 325, which authorized the
NTC to collect from public telecommunications companies Supervision and Regulation
Fees (SRF) of PhP 0.50 for every PhP 100 or a fraction of the capital and stock
subscribed or paid for of a stock corporation, partnership or single proprietorship of
the capital invested, or of the property and equipment, whichever is higher. Under
Section 40 (e) of the PSA, the NTC sent SRF assessments to petitioner Philippine Long
Distance Telephone Company (PLDT) starting sometime in 1988. The SRF
assessments were based on the market value of the outstanding capital stock,
including stock dividends, of PLDT. PLDT protested the assessments contending that
the SRF ought to be based on the par value of its outstanding capital stock. Its protest
was denied by the NTC and likewise, its motion for reconsideration. PLDT appealed
before the CA. The CA modified the disposition of the NTC by holding that the SRF
should be assessed at par value of the outstanding capital stock of PLDT, excluding
stock dividends.
ISSUE:
Whether or not the value transferred from the unrestricted retained earnings of
PLDT to the capital stock account pursuant to the issuance of stock dividends is the
proper basis for the assessment of the SRF.
RULING:
NO.
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 therefore.
When stock dividends are distributed, the amount declared ceases to belong to
the corporation but is distributed among the shareholders. Consequently, the
unrestricted retained earnings of the corporation are diminished by the amount of the
declared dividend while the stockholders equity is increased. Furthermore, the actual
payment is the cash value from the unrestricted retained earnings that each
shareholder foregoes for additional stocks/shares which he would otherwise receive as
required by the Corporation Code to be given to the stockholders subject to the
availability and conditioned on a certain level of retained earnings.
In essence, therefore, the stockholders by receiving stock dividends are forced
to exchange the monetary value of their dividend for capital stock, and the monetary
value they forego is considered the actual payment for the original issuance of the
stocks given as dividends. Therefore, stock dividends acquired by shareholders for the
monetary value they forego are under the coverage of the SRF and the basis for the
latter is such monetary value as declared by the board of directors.
NATIONAL TELECOMMUNICATIONS COMMISSION
vs.
HONORABLE COURT OF APPEALS and PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY
G.R. No. 127937 July 28, 1999
FACTS:
Sometime in 1988, the NTC served on the PLDT the following assessment
notices and demands for payment: 1. the amount of P7,495,161.00 as supervision and
regulation fee under Section 40 (e) of the PSA for the said year, 1988, computed at
P0.50 per P100.00 of the Protestant's (PLDT) outstanding capital stock as at December
31, 1987 which then consisted of Serial Preferred Stock amounting to
P1,277,934,390.00 and Common Stock of P221,097,785 (Million) or a total of
P1,499,032,175.00; 2. the amount of P9.0 Million as permit fee under Section 40 (f) of
the PSA for the approval of the protestant's increase of its authorized capital stock
from P2.7 Billion to P4.5 Billion; and the amounts of P12,261,600.00 and
P33,472,030.00 as permit fees under Section 40(g) of the PSA in connection with the
Commission's decisions in NTC Cases Nos. 86-13 and 87-008 respectively, approving
the Protestant's equity participation in the Fiber Optic Interpacific Cable systems and
X-5 Service Improvement and Expansion Program.
ISSUE:
Whether or not the Court of Appeals erred in holding that the computation of
supervision and regulation fees under section 40 (f) of the public service act should be
based on the par value of the subscribed capital stock.
RULING:
NO.
The basis for computation of the fee to be charged by NTC on PLDT, is the
capital stock subscribed or paid and not, alternatively, the property and equipment.
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 be, 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 loosely be 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
consideration therefor.
Voting Control Test v. Beneficial Control Test

Wilson P. Gamboa
vs.
Finance Secretary Margarito Teves, et al.,
G.R. No. 176579, June 28, 2011
FACTS:
This is a petition to nullify the sale of shares of stock of Philippine

Telecommunications Investment Corporation (PTIC) by the government of the Republic
of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to
Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific), a Hong Kong-based investment management and holding
company and a shareholder of the Philippine Long Distance Telephone Company
(PLDT). The petitioner questioned the sale on the ground that it also involved an
indirect sale of 12 million shares (or about 6.3 percent of the outstanding common
shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacific’s
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the total common shareholdings of foreigners in PLDT to about
81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign ownership of the capital of a public utility
to not more than 40%.
ISSUE:
Whether or not the term “capital” in Section 11, Article XII of the Constitution
refer to the total common shares only, or to the total outstanding capital stock
(combined total of common and non-voting preferred shares) of PLDT, a public utility.
RULING:
NO.
The Court partly granted the petition and held that the term “capital” in Section
11, Article XII of the Constitution refers only to shares of stock entitled to vote in the
election of directors of a public utility, i.e., to the total common shares in PLDT.
It must be stressed, and respondents do not dispute, that foreigners hold a
majority of the common shares of PLDT. In fact, based on PLDT’s 2010 General
Information Sheet (GIS), which is a document required to be submitted annually to the
Securities and Exchange Commission, foreigners hold 120,046,690 common shares of
PLDT whereas Filipinos hold only 66,750,622 common shares. In other words,
foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos
hold only 35.73%. Since holding a majority of the common shares equates to control,
it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public
utilities expressly mandated in Section 11, Article XII of the Constitution.
As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT
common shares is P5.00 per share, whereas the par value of preferred shares
is P10.00 per share. In other words, preferred shares have twice the par value of
common shares but cannot elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos
while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred
shares constitute 77.85% of the authorized capital stock of PLDT while common
shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT
is not with the non-voting preferred shares but with the common shares, blatantly
violating the constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.

Voting v. Non-Voting
CECILIA CASTILLO, et al., and MEDICAL CENTER PARAÑAQUE, INC.

vs.
ANGELES BALINGHASAY, et al.
G.R. No. 150976 October 18, 2004
FACTS:
Petitioners are stockholders of MCPI holding Class “B” shares while the
respondents are also stockholders owning Class “A” shares. In a 1992 amendment of
the Articles of Incorporation of MCPI, the Articles of incorporation of the MCPI provides
that, “except when otherwise provided by law, only holders of Class “A” shares are
entitled to vote and to have the right to be elected as directors and corporate officers.
During the 2001meeting, petitioners raised an objection to the fact that only Class “A”
shares are allowed to vote and to be elected. They contended that the Class “B” share
holders right to vote is violated in violation of law.
ISSUE:
Whether or not holders of Class “B” shares of MCPI may be deprives of the right
to vote and be voted for as directors.
RULING:
NO.
The 1992 amendment contains a proviso “except as otherwise provided for by

law” the law being referred to by the proviso is that which is in force at the time of the
amendment, in this case, was the Corporation Code.
Under Sec. 6 of the Corporation Code, it provides that no share may be deprived
of voting rights except those classified and issued as “preffered” or “redeemable”
shares unless otherwise provided in this code.there is nothing in the articles of
incorporation or an iota of evidence on record that shows that Class “B” shares were
categorized as either preffered or redeemable shares.
JULIO E. T. SALES and GEORGE V. AGONIAS and SMEC, petitioners,
vs.
SEC, SIHI and ATCO, represented by its President, ANSELMO TRINIDAD; VIMC,
represented by its President, et al., respondents;
G.R. No. 54330 January 13, 1989
FACTS:
SMEC sold 200M common shares of its capital stock in the amount of P2.6M to
SIHI under a Sales Agreement providing that the sale shall be only up to 5m shares
per buyer. SIHI requested for the transfer of the 200M shares to ATCO to which SMEC
complied. During the time that ATCO held the shares, it voted them in the SHs'
meetings of SMEC. ATCO in turn sold 198,500,000 of the shares to respondent VIMC.
Upon request, SMEC BOD issued a resolution directing its President to sign the
certificate of stock that would effect the transfer. Before the 1979 annual SH meeting
of SMEC, petitioners sought to nullify the sales of the shares to VIMC with the SEC
and to enjoin VIMC from voting the said shares. VIMC was temporarily restrained and
the meeting was held without the participation of VIMC’s shares and BODs were
elected only from the group of petitioners. In VIMC’s answer, it questioned the said
election. SEC denied the petition as well as motion to dismiss and lifted the
Restraining it issued earlier and allowed the shares of VIMC to be counted in
determining the quorum of the 1980 annual SHs meeting, which was already near,
and the same shares were allowed to vote and be voted for. Before the SC, petitioners
contended that the SEC gravely abused its discretion in not enjoining the participation
of VIMC in the 1980 election considering that the sale of the shares to VIMC was null
and void as it was done in violation of the Sales Agreement on the limit of shares to be
sold to each buyer and that VIMC’s ownership of the shares is contrary to Sec. 13 (5-
A) of the old corporation law.
ISSUE:
Whether or not SEC acted with grave abuse of discretion in not permanently
enjoining VIMC in voting.
RULING:
YES.
SC found no grave abuse of discretion on the part of the SEC in not restraining
VIMC. It adopted the SEC resolution stating that the sale of the shares of stock had
long been perfected and is presumed valid until declared otherwise. As against this
presumption, petitioners' prayer for injunction cannot prevail as the issue of the
validity of the sale is still to be resolved by the SEC.
Considering that the shares constitute the majority, it is more equitable that
the same be allowed to vote rather than be enjoined. As it has been ruled the removal
of a majority SH from the management of the corporation and/or the dissolution of a
corporation in a suit filed by a minority SH is a drastic measure. It should be resorted
to only when the necessity is clear. With more reason, the Court will not deprive a SH
of his right to vote his shares in the annual SHs' meeting, except upon a clear showing
of its lawful denial under the articles of incorporation or by-laws of the corporation, as
it is a right inherent in stock ownership.
Redeemable Preferred
REPUBLIC PLANTERS BANK

vs.
HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First Instance of
Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT
CORPORATION and ADALIA F. ROBES
G.R. No. 51765. March 3, 1997
FACTS:
On September 18, 1961, private respondent Corporation secured a loan from

petitioner in the amount of P120,000.00. Instead of giving the legal tender totaling to
the full amount of the loan, which is P120,000.00, petitioner lent such amount
partially in the form of money and partially in the form of stock certificates numbered
3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of
private respondent Adalia F. Robes and Carlos F. Robes, who subsequently, however,
endorsed his shares in favor of Adalia F. Robes.
On January 31, 1979, private respondents proceeded against petitioner and
filed a Complaint anchored on private respondents' alleged rights to collect dividends
under the preferred shares in question and to have petitioner redeem the same under
the terms and conditions of the stock certificates.
The trial court rendered the herein assailed decision in favor of private
respondents ordering petitioner to pay private respondents the face value of the stock
certificates as redemption price, plus 1% quarterly interest thereon until full payment.
ISSUES:
Whether or not the respondent court was correct in ordering petitioner to pay
private respondents the face value of the stock certificates as redemption price.
RULING:
NO.
A preferred share of stock is one which entitles the holder thereof to certain
preferences over the holders of common stock. The preferences are designed to induce
persons to subscribe for shares of a corporation.
Preferred shares take a multiplicity of forms. The most common forms may be
classified into two: (1) preferred shares as to assets; and (2) preferred shares as to
dividends. The former is a share which gives the holder thereof preference in the
distribution of the assets of the corporation in case of liquidation;the latter is a share
the holder of which is entitled to receive dividends on said share to the extent agreed
upon before any dividends at all are paid to the holders of common stock.There is no
guaranty, however, that the share will receive any dividends.
The redemption of said shares cannot be allowed. As pointed out by the
petitioner, the Central Bank made a finding that said petitioner has been suffering
from chronic reserve deficiency, and that such finding resulted in a directive, issued
on January 31, 1973 by then Gov. G.S. Licaros of the Central Bank, to the President
and Acting Chairman of the Board of the petitioner bank prohibiting the latter from
redeeming any preferred share, on the ground that said redemption would reduce the
assets of the Bank to the prejudice of its depositors and creditors.Redemption of
preferred shares was prohibited for a just and valid reason. The directive issued by the
Central Bank Governor was obviously meant to preserve the status quo, and to
prevent the financial ruin of a banking institution that would have resulted in adverse
repercussions, not only to its depositors and creditors, but also to the banking
industry as a whole.
Treasury
COMMISSIONER OF INTERNAL REVENUE

vs.
MANNING, MCDONALD, SIMMONS
No. L-28398 6 August 1975
FACTS:
In 1952 the MANTRASCO had an authorized capital stock of P2,500,000

divided into 25,000 common shares; 24,700 of these were owned by Julius S. Reese,
and the rest, at 100 shares each, by the three respondents.
On October 19, 1954 Reese died. In 1955, after MANTRASCO made a partial
payment of Reese's shares, the certificate for the 24,700 shares in Reese's name was
cancelled and a new certificate was issued in the name of MANTRASCO, which was
endorsed to the law firm of Ross, Selph, Carrascoso and Janda, as trustees for and in
behalf of MANTRASCO. In 1958, at a special meeting of MANTRASCO stockholders,
the following resolution was passed:"RESOLVED, that the 24,700 shares in the
Treasury be reverted back to the capital account of the company as a stock dividend to
be distributed to shareholders of record."
In 1963 the entire purchase price of Reese's interest in MANTRASCO was
finally paid in full by the latter, In 1964 the trust agreement was terminated and the
trustees delivered to MANTRASCO all the shares which they were holding in trust. On
the basis of their examination, the BIR examiners concluded that the distribution of
Reese's shares as stock dividends was in effect a distribution of the "asset or property
of the corporation as may be gleaned from the payment of cash for the redemption of
said stock and distributing the same as stock dividend." On April 14, 1965 the CIR
issued notices of assessment for deficiency income taxes to the respondents for the
year 1958.
ISSUE:
Whether or not the issuance of the notices of assessment for deficiency income
taxes to the respondents for the year 1958 was proper.
RULING:
YES.
The declaration by the respondents and Reese's trustees of MANTRASCO's

alleged treasury stock dividends in favor of the former, brings, however, into clear
focus the ultimate purpose which the parties to the trust instrument aimed to realize:
to make the respondents the sole owners of Reese's interest in MANTRASCO by
utilizing the periodic earnings of that company and its subsidiaries to directly
subsidize their purchase of the said interests, and by making it appear outwardly,
through the formal declaration of non-existent stock dividends in the treasury, that
they have not received any income from those firms when, in fact, by that declaration
they secured to themselves the means to turn around as full owners of Reese's shares.
In other words, the respondents, using the trust instrument as a convenient technical
device, bestowed unto themselves the full worth and value of Reese's corporate
holdings with the use of the very earnings of the companies. Such package device,
obviously not designed to carry out the usual stock dividend purpose of corporate
expansion reinvestment, e.g. the acquisition of additional facilities and other capital
budget items, but exclusively for expanding the capital base of the respondents in
MANTRASCO, cannot be allowed to deflect the respondents' responsibilities toward
our income tax laws. The conclusion is thus ineluctable that whenever the companies
involved herein parted with a portion of their earnings "to buy" the corporate holdings
of Reese, they were in ultimate effect and result making a distribution of such
earnings to the respondents. All these amounts are consequently subject to income
tax as being, in truth and in fact, a flow of cash benefits to the respondents.
SAN MIGUEL CORPORATION

vs.
SANDIGANBAYAN (First Division), EDUARDO M. COJUANGCO, JR., et al.,
G.R. No. 118661 SEPTEMBER 14, 2000
FACTS:
CIIF sold 33,133,266 shares of the outstanding capital stock of SMC to Andres
Soriano III of the SMC Group payable in 4 installments. April 1, 1986, Soriano paid
the initial 500M to the UCPB as administrator of CIIF. The sale was transacted
through the stock exchange and the shares were registered in the name of AHSI. On
April 7, 1986, PCGG sequestered the shares subject of the sale, thus SMC suspended
payment of the balance. UCPB, filed a complaint for rescission and damages with the
RTC Makati. SMC assailed the RTC jurisdiction on the ground that primary
jurisdiction was vested with the PCGG since the SMC shares were sequestered shares.
SC dismissed the complaint for rescission without prejudice to the ventilation of the
parties’ claims before the Sandiganbayan (SBN).
The Republic, thru the OSG opposed the Agreement contending that the
involved coco-levy funds, whether in the form of earnings or dividends therefrom, or in
the form of the value of liquidated corporate assets represented by all sequestered
share (like the value of assets sold/mortgaged to finance the 500M 1 st installment), or
in the form of cash, or, as in the case of subject Settlement, in the form of proceeds of
sale or of payments of certain alleged obligations are public funds and are beyond or
outside the commerce and not within the private disposition of private individuals.
ISSUE:
Whether or not there is a valid delivery of certificates of stock of smc shares and
the dividends thereon to the PCGG.
RULING:
YES.
No grave abuse of discretion on the part of SBN when it ordered petitioners to

deliver the treasury shares to the PCGG and pay their corresponding dividends for the
following reasons: Under the Corporation Code, Treasury shares are shares of stocks
which have been issued and fully paid for, but subsequently reacquired by, the
issuing corporation by purchase, redemption, donation or through some lawful means.
These 26.45M shares or any portion thereof can, therefore, become treasury shares,
i.e., property of SMC, only if the sale between the UCPB Group and the SMC Group is
allowed; otherwise these shares cannot even begin to be deemed to have been re-
acquired by the issuing corporation, the SMC.
What is a “Subscription”
ONG YONG, et al., petitioner

vs.
TIU, et al., respondent
G.R. No. 144476 8 April 2003
FACTS:
In 1994, the construction of the Masagana Citimall in Pasay City was

threatened with stoppage and incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned by David S. Tiu, Cely Y. Tiu,
Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius),
encountered dire financial difficulties. It was heavily indebted to the Philippine
National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the
two lots where the mall was being built, the Tius invited Ong Yong, Juanita Tan Ong,
Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest
in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the
Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to
1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe to
an additional 549,800 shares at P100.00 each in addition to their already existing
subscription of 450,200 shares. Furthermore, they agreed that the Tius were entitled
to nominate the Vice-President and the Treasurer plus 5 directors while the Ongs were
entitled to nominate the President, the Secretary and 6 directors (including the
chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right
to manage and operate the mall. Accordingly, the Ongs paid P100 million in cash for
their subscription to 1,000,000 shares of stock while the Tius committed to contribute
to FLADC a four-storey building and two parcels of land respectively valued at P20
million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for
49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs
paid in another P70 million 3 to FLADC and P20 million to the Tius over and above
their P100 million investment, the total sum of which (P190 million) was used to settle
the P190 million mortgage indebtedness of FLADC to PNB.
ISSUE:
Whether or not the pre-Subscription Agreement executed by the Ongs is

actually a subscription contract.
RULING:
YES.
FLADC was originally incorporated with an authorized capital stock of 500,000

shares with the Tius owning 450,200 shares representing the paid-up capital. When
the Tius invited the Ongs to invest in FLADC as stockholders, an increase of the
authorized capital stock became necessary to give each group equal (50-50)
shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized
capital stock was thus increased from 500,000 shares to 2,000,000 shares with a par
value of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius to
549,800 more shares in addition to their 450,200 shares to complete 1,000,000
shares. Thus, the subject matter of the contract was the 1,000,000 unissued shares of
FLADC stock allocated to the Ongs. Since these were unissued shares, the parties'
Pre-Subscription Agreement was in fact a subscription contract as defined under
Section 60, Title VII of the Corporation Code. A subscription contract necessarily
involves the corporation as one of the contracting parties since the subject matter of
the transaction is property owned by the corporation — its shares of stock. Thus, the
subscription contract (denominated by the parties as a Pre-Subscription Agreement)
whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the
viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the
Tius.
BAYLA, et al., petitioner
vs.
SILANG TRAFFIC CO., INC., respondent
G.R. Nos. L-48195 and 48196 May 1, 1942
FACTS:
Petitioners in G.R. No. 48195 instituted this action in the Court of First
Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross-petitioner in
G.R. No. 48196), to recover certain sums of money which they had paid severally to
the corporation on account of shares of stock they individually agreed to take and pay
for under certain specified terms and conditions. The agreements signed by the other
petitioners were of the same date (March 30, 1935) and in identical terms as the
foregoing except as to the number of shares and the corresponding purchase price.
The petitioners agreed to purchase a total of 46 shares and, up to April 30, 1937, had
paid the corresponding amount on account thereof.Petitioners' action for the recovery
of the sums above mentioned is based on a resolution by the board of directors of the
respondent corporation on August 1, 1937.
The respondent corporation set up the following defenses: (1) That the above-
quoted resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval,
and Paz Toledo because on the date thereof "their subscribed shares of stock had
already automatically reverted to the defendant, and the installments paid by them
had already been forfeited"; and (2) that said resolution of August 1, 1937, was
revoked and cancelled by a subsequent resolution of the board of directors of the
defendant corporation dated August 22, 1937.
ISSUE:
Whether or not the agreement was a contract of subscription to the capital

stock of the respondent corporation.
RULING:
NO.
Whether a particular contract is a subscription or a sale of stock is a matter of

construction and depends upon its terms and the intention of the parties. In the
Unson case just cited, this Court held that a subscription to stock in an existing
corporation is, as between the subscriber and the corporation, simply a contract of
purchase and sale.
It seems clear from the terms of the contracts in question that they are
contracts of sale and not of subscription. The lower courts erred in overlooking the
distinction between subscription and purchase "A subscription, properly speaking, is
the mutual agreement of the subscribers to take and pay for the stock of a
corporation, while a purchase is an independent agreement between the individual
and the corporation to buy shares of stock from it at stipulated price." In some
particulars the rules governing subscriptions and sales of shares are different. For
instance, the provisions of our Corporation Law regarding calls for unpaid
subscription and assessment of stock do not apply to a purchase of stock. Likewise
the rule that corporation has no legal capacity to release an original subscriber to its
capital stock from the obligation to pay for his shares, is inapplicable to a contract of
purchase of shares.
SALMON, DEXTER & Co., plaintiff
vs.
TIMOTEO UNSON, defendant
G.R. No. L-23608 March 17, 1925
FACTS:
The plaintiff seeks to recover of the defendant the sum of P1,000 with legal
interest on a subscription for capital stock contract. The defense is that the defendant
is released from his obligation on the subscription agreement by virtue of the increase
of the capital stock of the plaintiff from P250,000, the amount mentioned in the
agreement, to P500,000, the amount agreed upon the stockholders prior to the
defendant's signing the agreement. On this issue, judgment in the lower court was
with the plaintiff.
The plaintiff is Salmon, Dexter and Company, a domestic corporation. It was
organized under the name of C.S. Salmon and Company on May 28, 1918, with a
capital stock of P250,000. Thereafter, pursuant to a resolution of the board of
directors of the corporation of June 24, 1920, a meeting of the stockholders was had
on July 14, 1920, at which the capital stock of C.S. Salmon and Company was
increased to P500,000. The certificate of increase of capital stock from P250,000 to
P500,000, and articles of incorporation, as amended, of Salmon, Dexter and Company
were filed with the Mercantile Registry of the Bureau of Commerce and Industry on
September 16, 1920.
On July 28, 1920, Timoteo Unson, the defendant, to follow the allegation in the
third paragraph of the complaint, "became a subscriber of C.S. Salmon and Company,
by signing an agreement in writing and delivering the same to C.S. Salmon and
Company, the name of which company was later changed to Salmon, Dexter and
Company."
ISSUE:
Whether or not the contract entered into by the parties is a Subscription

contract.
RULING:
YES.
After incorporation, one may become a shareholder by subscription, or by

purchasing stock directly from the corporation, or from individual owners thereof. A
distinction is drawn by the authorities between a subscription to the capital stock of
the corporation after its organization and a sale of shares by it. Whether a particular
contract is a subscription or a sale of stock is a matter of construction, and depends
upon its terms and the intention of the parties. It has been held that a subscription to
stock in an existing corporation is, as between the subscriber and the corporation,
simply a contract of purchase and sale.
Admitting that the terminology of the agreement is not conclusive, and
admitting that it is a contract between a subscriber and the corporation, and thus
simply a contract of purchase and sale, then under the last hypothesis we have to
determine if the contract is avoided by misrepresentation.
In our opinion, a contract different from that which was entered into cannot be
made for the parties and imposed upon Unson. Unson has the right to stand upon the
contract he has made. In our opinion also, there was such a non-disclosure of a
material fact as was equivalent to false representation. This representation was of a
character that the party to whom it was made had a right to rely upon it.
SUNSET VIEW CONDOMINIUM CORPORATION, petitioner

vs.
CAMPOS, respondent
G.R. No. L-52361 April 27, 1981
FACTS:
The private respondent, Aguilar-Bernares Realty, a sole proprietorship with

business name registered with the Bureau of Commerce, owned and operated by the
spouses Emmanuel G. Aguilar and Zenaida B. Aguilar, is the assignee of a unit,
"Solana", in the Sunset View Condominium Project with La Perla Commercial,
Incorporated, as assignor. 3 The La Perla Commercial, Incorporated bought the
"Solana" unit on installment from the Tower Builders, Inc. 4 The petitioner, Sunset
View Condominium Corporation, filed for the collection of assessments levied on the
unit against Aguilar-Bernares Realty, private respondent herein, a complaint dated
June 22, 1979 docketed as Civil Case No. 7303-P of the Court of First Instance of
Pasay City, Branch XXX. The private respondent filed a Motion to Dismiss the
complaint on the grounds (1) that the complaint does not state a cause of action: (2)
that the court has no jurisdiction over the subject or nature other action; and (3) that
there is another action pending between the same parties for the same cause. The
petitioner filed its opposition thereto. The motion to dismiss was granted on December
11, 1979 by the respondent Judge who opined that the private respondent is,
pursuant to Section 2 of Republic Act No. 4726, a "holder of a separate interest" and
consequently, a shareholder of the plaintiff condominium corporation; and that "the
case should be properly filed with the Securities & Exchange Commission which has
exclusive original jurisdiction on controversies arising between shareholders of the
corporation." the motion for reconsideration thereof having been denied, the petitioner,
alleging grave abuse of discretion on the part of respondent Judge, filed the instant
petition for certiorari praying that the said orders be set aside.
ISSUE:
Whether or not a purchaser of a condominium unit in the condominium project

managed by the petitioner, who has not yet fully paid the purchase price thereof,
automatically a stockholder of the petitioner Condominium Corporation.
RULING:
NO.
The share of stock appurtenant to the unit win be transferred accordingly to the
purchaser of the unit only upon full payment of the purchase price at which time he
will also become the owner of the unit. Consequently, even under the contract, it is
only the owner of a unit who is a shareholder of the Condominium Corporation.
Inasmuch as owners is conveyed only upon full payment of the purchase price, it
necessarily follows that a purchaser of a unit who has not paid the full purchase price
thereof is not The owner of the unit and consequently is not a shareholder of the
Condominium Corporation.
That only the owner of a unit is a stockholder of the Condominium Corporation
is inferred from Section 10 of the Condominium Act. Pursuant to such statutory
provision, ownership of a unit is a condition sine qua non to being a shareholder in
the condominium corporation. It follows that a purchaser of a unit who is not yet the
owner thereof for not having fully paid the full purchase price, is not a shareholder By
necessary implication, the "separate interest" in a condominium, which entitles the
holder to become automatically a share holder in the condominium corporation, as
provided in Section 2 of the Condominium Act, can be no other than ownership of a
unit. This is so because nobody can be a shareholder unless he is the owner of a unit
and when he ceases to be the owner, he also ceases automatically to be a shareholder.
The private respondents, therefore, who have not fully paid the purchase price of their
units and are consequently not owners of their units are not members or shareholders
of the petitioner condominium corporation.
VELASCO, petitioner
vs.
POIZAT, respondent
G.R. No. L-11528 March 15, 1918
FACTS:
From the amended complaint filed in this cause upon February 5, 1915, it
appears that the plaintiff, as assignee in insolvency of "The Philippine Chemical
Product Company" (Ltd.) is seeking to recover of the defendant, Jean M. Poizat, the
sum of P1,500, upon a subscription made by him to the corporate stock of said
company. It appears that the corporation in question was originally organized by
several residents of the city of Manila, where the company had its principal place of
business, with a capital of P50,000, divided into 500 shares. The defendant
subscribed for 20 shares of the stock of the company, an paid in upon his
subscription the sum of P500, the par value of 5 shares . The action was brought to
recover the amount subscribed upon the remaining shares.
It appears that the defendant was a stock holder in the company from the
inception of the enterprise, and for sometime acted as its treasurer and manager.
While serving in this capacity he called in and collected all subscriptions to the capital
stock of the company, except the aforesaid 15 shares subscribed by himself and
another 15 shares owned by Jose R. Infante.
Upon July 13, 1914, a meeting of the board of directors of the company was
held at which a majority of the stock was presented. Upon this occasion two
resolutions, important to be here noted, were adopted. The first was a proposal that
the directors, or shareholders, of the company should make good by new
subscriptions, in proportion to their respective holdings, 15 shares which had been
surrendered by Infante.
ISSUE:
Whether or not Poizat is liable for his unpaid subscription.
RULING:
YES.
A stock subscription is a contract between the corporation on one side, and the
subscriber on the other, and courts will enforce it for or against either. It is a rule,
accepted by the Supreme Court of the United States that a subscription for shares of
stock does not require an express promise to pay the amount subscribed, as the law
implies a promise to pay on the part of the subscriber. Section 36 of the Corporation
Law clearly recognizes that a stock subscription is subsisting liability from the time
the subscription is made, since it requires the subscriber to pay interest quarterly
from that date unless he is relieved from such liability by the by-laws of the
corporation. The subscriber is as much bound to pay the amount of the share
subscribed by him as he would be to pay any other debt, and the right of the company
to demand payment is no less incontestable.
The provisions of the Corporation Law (Act No. 1459) give recognition of two
remedies for the enforcement of stock subscriptions. The first and most special remedy
given by the statute consists in permitting the corporation to put up the unpaid stock
for sale and dispose of it for the account of the delinquent subscriber. In this case the
provisions of section 38 to 48, inclusive, of the Corporation Law are applicable and
must be followed.
It is generally accepted doctrine that the statutory right to sell the subscriber's
stock is merely a remedy in addition to that which proceeds by action in court; and it
has been held that the ordinary legal remedy by action exists even though no express
mention thereof is made in the statute.
Acquisition and Ownership of Shares in a Corporation; Extent of Proprietary

Right/Doctrine of Limited Liability
Conjuangco
vs
Republic
12 April 2011 GR NO. 166859
FACTS:
Last April 12, 2011, the Supreme Court en banc rendered its ruling on one of
the most crucial case against the ill-gotten wealth of the Marcoses and their associates
dating back from the Martial Law era involving the shares in San Miguel Corporation
(SMC) allegedly bought with coconut levy funds exacted from the poor marginal
coconut farmers all over the country. This block of shares was purportedly owned by
businessman Eduardo “Danding” Cojuangco and is one of many cases filed way back
in 1987 by the Presidential Commission on Good Government, as part of its mandate
to recover illgotten wealth.
In a nutshell, four justices of the Supreme Court ruled that the Government of
the Philippines (dubbed as the Republic of the Philippines or Republic, for short, in
this case) failed to submit further evidence to prove that the loans from United
Coconut Planters Bank (UCPB) and the Coconut Industry Investment Fund (CIIF)
secured by Eduardo “Danding” Cojuangco to purchase the shares of SMC, were public
in character. A dissenting opinion by Justice Conchita CarpioMorales held the view
that it was Dganding who has failed in his burden of showing that such funds were
not taken from public funds, while another dissenting opinion, by Justice Brion, takes
the view of the majority handing a loss to the Government but urging instead a
prosecution of the government lawyers handling the case of Danding, for their
mishandling of the case, citing several instances when they could have presented
stronger evidence and have taken other steps to bolster their case, but didn't.
ISSUE :
Whether or not Cojuangco breach his “fiduciary duties” as an officer and

member of the Board of Directors of the UCPB? Did his acquisition and holding of the
contested SMC shares come under a constructive trust in favor of the Republic.
RULING:
NO.
The thrust of the Republic that the funds were borrowed or lent might even

preclude any consequent trust implication. In a contract of loan, one of the parties
(creditor) delivers money or other consumable thing to another (debtor) on the
condition that the same amount of the same kind and quality shall be paid.
To say that a relationship is fiduciary when existing laws do not provide for
such requires evidence that confidence is reposed by one party in another who
exercises dominion and influence. Absent any special facts and circumstances proving
a higher degree of responsibility, any dealings between a lender and borrower are not
fiduciary in nature. This explains why, for example, a trust receipt transaction is not
classified as a simple loan and is characterized as fiduciary, because the Trust
Receipts Law punishes the dishonesty and abuse of confidence in the handling of
money or goods to the prejudice of another regardless of whether the latter is the
owner.
Based on the foregoing, a debtor can appropriate the thing loaned without any
responsibility or duty to his creditor to return the very thing that was loaned or to
report how the proceeds were used. Nor can he be compelled to return the proceeds
and fruits of the loan, for there is nothing under our laws that compel a debtor in a
contract of loan to do so. As owner, the debtor can dispose of the thing borrowed and
his act will not be considered misappropriation of the thing.
MANUEL C. ESPIRITU, JR., AUDIE LLONA, FREIDA F. ESPIRITU, CARLO F.

ESPIRITU, RAFAEL F. ESPIRITU, ROLANDO M. MIRABUNA, HERMILYN A.
MIRABUNA, KIM ROLAND A. MIRABUNA, KAYE ANN A. MIRABUNA, KEN RYAN A.
MIRABUNA, JUANITO P. DE CASTRO, GERONIMA A. ALMONITE and MANUEL C.
DEE, who are the officers and directors of BICOL GAS REFILLING PLANT
CORPORATION
vs.
PETRON CORPORATION and CARMEN J. DOLOIRAS, doing business under the
name "KRISTINA PATRICIA ENTERPRISES,
G.R. No. 170891 November 24, 2009
FACTS:
Petron sold and distributed LPG in cylinder tanks that carried its trademark
"Gasul."1 Respondent Carmen J. Doloiras owned and operated Kristina Patricia
Enterprises, the exclusive distributor of Gasul LPGs in the whole of Sorsogon. Jose
Nelson Doloiras served as KPE’s manager. Bicol Gas Refilling Plant Corporation was
also in the business of selling and distributing LPGs in Sorsogon but theirs carried the
trademark "Bicol Savers Gas." Petitioner Audie Llona managed Bicol Gas.
On August 4, 2001 KPE’s Jose saw a particular Bicol Gas truck on the
Maharlika Highway. While the truck carried mostly Bicol Savers LPG tanks, it had on
it one unsealed 50-kg Gasul tank and one 50-kg Shellane tank. He offered to make a
swap for these but Llona declined, saying the Bicol Gas owners wanted to send those
tanks to Batangas. Later Bicol Gas told Jose that it had no more Gasul tanks left in its
possession.
ISSUE:
Whether or not all the Petitioners are liable.
RULING:
NO.
The "owners" of a corporate organization are its stockholders and they are to be
distinguished from its directors and officers. The petitioners here, with the exception
of Audie Llona, are being charged in their capacities as stockholders of Bicol Gas. But
the Court of Appeals forgets that in a corporation, the management of its business is
generally vested in its board of directors, not its stockholders. Stockholders are
basically investors in a corporation. They do not have a hand in running the day-to-
day business operations of the corporation unless they are at the same time directors
or officers of the corporation. Before a stockholder may be held criminally liable for
acts committed by the corporation, therefore, it must be shown that he had knowledge
of the criminal act committed in the name of the corporation and that he took part in
the same or gave his consent to its commission, whether by action or inaction.
The finding of the Court of Appeals that the employees "could not have
committed the crimes without the consent, [abetment], permission, or participation of
the owners of Bicol Gas" is a sweeping speculation especially since, as demonstrated
above, what was involved was just one Petron Gasul tank found in a truck filled with
Bicol Gas tanks. Although the KPE manager heard petitioner Llona say that he was
going to consult the owners of Bicol Gas regarding the offer to swap additional
captured cylinders, no indication was given as to which Bicol Gas stockholders Llona
consulted. It would be unfair to charge all the stockholders involved, some of whom
were proved to be minors. No evidence was presented establishing the names of the
stockholders who were charged with running the operations of Bicol Gas. The
complaint even failed to allege who among the stockholders sat in the board of
directors of the company or served as its officers.
CRISOSTOMO, petitioner
vs.
S.E.C, respondent
G.R. Nos. 89095 & 89555 November 6, 1989
FACTS:
Sixto Crisostomo, Felipe Crisostomo (deceased), Veronica Palanca, Juanito

Crisostomo, Carlos Crisostomo, Ricardo Alfonso, Regino Crisostomo and Ernesto
Crisostomo (known as the Crisostomo group) were the original stockholders of the
United Doctors Medical Center (UDMC) which was organized in 1968 with an
authorized capital stock of P1,000,000 (later increased to P15,000,000 in 1972). They
owned approximately 40% of UDMC's outstanding capital stock, while the 60%
majority belonged to the members of the United Medical Staff Association (UMSA),
numbering approximately 150 doctors and medical personnel of UDMC.
In 1988, UDMC defaulted in paying its loan obligation of approximately P55
million to the DBP. In the last quarter of 1987, UDMC's assets (principally its hospital)
and those of the Crisostomos which had been given as collateral to the DBP, faced
foreclosure by the Asset Privatization' rust (APT), which had taken over UDMC's loan
obligation to the DBP.
To stave off the threatened foreclosure, UDMC, through its principal officers,
Ricardo Alfonso and Juanito Crisostomo, persuaded the Yamadas and Enatsu (Shoji
Yamada and Tomotada Enatsu are Japanese doctors) to invest fresh capital in UDMC.
The wife of Tomotada Enatsu, Edita Enatsu, is a Filipina. They invested approximately
P57 million in UDMC.
The investment was effected by means of: (1) a Stock Purchase Agreement; and
(2) an Amended Memorandum of Agreement whereby the group subscribed
to 82.09% of the outstanding shares of UDMC. Upon the completion of the
governmental approval process, shares of stock, duly signed by UDMC's authorized
officers, were issued to the Yamadas and Enatsus.
As it had been agreed in the Amended Memorandum of Agreement between
UDMC and the Japanese group that upon the latter's acquisition of the controlling
interest in UDMC, the corporation would be reorganized, a special stockholders'
meeting and board of directors' meeting were scheduled to be held on August 20,
1988.
ISSUE:
Whether or not the investment of the Japanese group in UDMC is

unconstitutional.
RULING:
NO.
While 82% of UDMC's capital stock is indeed subscribed by the Japanese

group, only 30% (equivalent to 171,721 shares or P17,172.00) is owned by the
Japanese citizens, namely, the Yamada spouses and Tomotada Enatsu. 52% is owned
by Edita Enatsu, who is a Filipino. Accordingly, in its application for
approval/registration of the foreign equity investments of these investors, UDMC
declared that 70% of its capital stock is owned by Filipino citizens, including Edita
Enatsu. That application was approved by the Central Bank on August 3, 1988.
The investments in UDMC of Doctors Yamada and Enatsu do not violate the
Constitutional prohibition against foreigners practising a profession in the Philippines
(Section 14, Article XII, 1987 Constitution) for they do not practice their profession
(medicine) in the Philippines, neither have they applied for a license to do so. They
only own shares of stock in a corporation that operates a hospital. No law limits the
sale of hospital shares of stock to doctors only. The ownership of such shares does not
amount to engaging (illegally,) in the practice of medicine, or, nursing. If it were
otherwise, the petitioner's stockholding in UDMC would also be illegal.
GARCIA, petitioner
vs.
LIM CHU SING, respondent
G.R. No. L-39427 February 24, 1934
FACTS:
On June 20, 1930, the defendant-appellant Lim Chu Sing executed and
delivered to the Mercantile Bank of China promissory note for the sum of P19,605.17
with interest thereon at 6 per cent per annum, payable monthly as follows: P1,000 on
July 1, 1930; P500 on August 1, 1930; and P500 on the first of every month thereafter
until the amount of the promissory note together with the interest thereon is fully paid
(Exhibit A). One of the conditions stipulated in said promissory note is that in case of
defendant's default in the payment of any of the monthly installments, as they become
due, the entire amount or the unpaid balance thereof together with interest thereon at
6 per cent per annum, shall become due and payable on demand. The defendant had
been, making several partial payments thereon, leaving an unpaid balance of
P9,105.17. However, he defaulted in the payment of several installments by reason of
which the unpaid balance of P9,105.17 on the promissory note has ipso facto become
due and demandable.
ISSUE:
Whether or not it is proper to compensate the defendant-appellant's

indebtedness of P9,105.17, which is claimed in the complaint, with the sum of
P10,000 representing the value of his shares of stock with the plaintiff entity, the
Mercantile Bank of China.
RULING:
NO.
According to the weight of authority, a share of stock or the certificate thereof is

not indebtedness to the owner or evidence of indebtedness and, therefore, it is not a
credit. Stockholders, as such, are not creditors of the corporation. It is the prevailing
doctrine of the American courts, repeatedly asserted in the broadest terms, that the
capital stock of a corporation is a trust fund to be used more particularly for the
security of creditors of the corporation, who presumably deal with it on the credit of its
capital stock. Therefore, the defendant-appellant Lim Chu Sing not being a creditor of
the Mercantile Bank of China, although the latter is a creditor of the former, there is
no sufficient ground to justify compensation.
MAGSAYSAY-LABRADOR, petitioner
vs.
COURT OF APPEALS, respondent
G.R. No. 58168 December 19, 1989
FACTS:
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special

administratix of the estate of the late Senator Genaro Magsaysay, brought before the
then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic
Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the
Register of Deeds of Zambales. In her complaint, she alleged that in 1958, she and her
husband acquired, thru conjugal funds, a parcel of land with improvements, known as
"Pequena Island", covered by TCT No. 3258; that after the death of her husband, she
discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired
by her husband from his separate capital;" [b] the registration of a Deed of Assignment
dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a
result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of
SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the
amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the
foregoing acts were void and done in an attempt to defraud the conjugal partnership
considering that the land is conjugal, her marital consent to the annotation on TCT
No. 3258 was not obtained, the change made by the Register of Deeds of the
titleholders was effected without the approval of the Commissioner of Land
Registration and that the late Senator did not execute the purported Deed of
Assignment or his consent thereto, if obtained, was secured by mistake, violence and
intimidation. She further alleged that the assignment in favor of SUBIC was without
consideration and consequently null and void. She prayed that the Deed of
Assignment and the Deed of Mortgage be annulled and that the Register of Deeds be
ordered to cancel TCT No. 22431 and to issue a new title in her favor.
ISSUE:
Whether or not petitioner’s ownership in the outstanding capital stock of SUBIC

entitles them to a significant vote in the corporate affairs.
RULING:
NO.
The words "an interest in the subject" mean a direct interest in the cause of
action as pleaded, and which would put the intervenor in a legal position to litigate a
fact alleged in the complaint, without the establishment of which plaintiff could not
recover.
Here, the interest, if it exists at all, of petitioners-movants is indirect,
contingent, remote, conjectural, consequential and collateral. At the very least, their
interest is purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets thereof
on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the
property of the corporation, it does not vest the owner thereof with any legal right or
title to any of the property, his interest in the corporate property being equitable or
beneficial in nature. Shareholders are in no legal sense the owners of corporate
property, which is owned by the corporation as a distinct legal person.
NICOLAS, petitioner
vs.
G.R. No. 122857 March 27, 1998
FACTS:
On February 19, 1987, petitioner Roy Nicolas and private respondent Blesito
Buan entered into a Portfolio Management Agreement, wherein the former was to
manage the stock transactions of the latter for a period of three months with an
automatic renewal clause. However, upon the initiative of the private respondent the
agreement was terminated on August 19, 1987, and thereafter he requested for an
accounting of all transactions made by the petitioner.
Three weeks after the termination of the agreement, petitioner demanded from
the private respondent the amount of P68,263.67 representing his alleged
management fees covering the periods of June 30, July 31 and August 19, 1987 as
provided for in the Portfolio Management Agreement. But the demands went
unheeded, much to the chagrin of the petitioner.
Rebuffed, petitioner filed a complaint for collection of sum of money against the
private respondent before the trial court. In his answer, private respondent contended
that petitioner mismanaged his transactions resulting in losses, thus, he was not
entitled to any management fees.
ISSUE:
Whether or not petitioner is entitled to management fees.
RULING:
NO.
To begin with, petitioner has the burden to prove that the transaction realized
gains or profits to entitle him to said management fees, as provided in the
Agreement. Accordingly, petitioner submitted the profit and loss statements for the
period of June 30, July 31 and August 19, 1987, showing a total profit
of P341,318.34, of which 20% would represent his management fees amounting
to P68,263.70.
Unfortunately, the profit and loss statements presented by the petitioner are
nothing but bare assertions, devoid of any concrete basis or specifics as to the method
of arriving at the amounts indicated in the documents. In fact, it did not even state
when the stocks were purchased, the type of stocks (whether Class “A” or “B” or
common or preferred) bought, when the stocks were sold, the acquisition and selling
price of each stock, when the profits, if any, were delivered to the private respondent,
the cost of safekeeping or custody of the stocks, as well as the taxes paid for each
transaction. With respect to the alleged losses, it has been held that where a profit or
loss statement shows a loss, the statement must show income and items of expense to
explain the method of determining such loss. However, in the instant petition,
petitioner hardly elucidated the reasons and the factors behind the losses incurred in
the course of the transactions.
In short, no evidentiary value can be attributed to the profit and loss
statements submitted by the petitioner. These documents can hardly be considered a
credible or true reflection of the transactions. It is an incomplete record yielding easily
to the inclusion or deletion of certain matters. The contents are subject to suspicion
since they are not reflective of all pertinent and relevant data. Thus, even assuming
the admissibility of these alleged profit and loss statements, they are devoid of any
evidentiary weight, for the amounts are conclusions without premises, its bases left to
speculation, conjectures, assertions and guesswork.
RAMOS, petitioner
vs.
G.R. No. L-41295 December 4, 1989
FACTS:
On August 14 and 26, 1969, CMS Stock Brokerage, Inc. (or CMS) sold to Lopez,
Locsin, Ledesma & Co., Inc. (or LLL) on the floor of the Makati Stock Exchange (or
MSE) 2,650 shares of Benguet Consolidated Corporation for P297,650 on a delayed
delivery basis of 10 to 20 days, evidenced by Exchange Contracts Nos. B-11807 and B-
11814 both dated August 14, 1969 and B-13084 dated August 26, 1969. LLL bought
the shares for the account of its clients, the third-party defendants, Rene Ledesma,
Jose Maria Lopez, Cesar A. Lopez, Jr. and Alfredo Ramos. CMS failed to deliver the
shares of stocks within the agreed period, but LLL did not demand delivery.
On January 6, 1970, CMS informed LLL that it would deliver the shares the
next day. LLL wrote CMS that it would not accept the shares because its principals
had cancelled their orders. In its reply, CMS insisted that LLL take delivery of the
Benguet shares.
In CMS's Clearing House Report of January 9, 1970, the disposition of the
shares in favor of LLL appeared, but the latter refused to acknowledge receipt of the
covering disposal letter. CMS then deposited the letter in the Office of the Exchange
Executive, Secretary with the notation "Refused acceptance pending decision of the
Exchange".
When the controversy was submitted to the Board of Governors of the Exchange
for determination, the Board issued Resolution No. 523 on August 10, 1970 advising
the parties to litigate the matter in court.
Accordingly, CMS filed in the Court of First Instance of Rizal a complaint to
compel LLL to accept the Benguet shares, to pay the price of P297,650, as well as
P25,000 as attorney's fees and costs. LLL's motion to dismiss the complaint was
denied.
ISSUE:
Whether or not appellate court erred in rendering a summary judgment, in

failing to find that CMS has no right to damages against the petitioner there being no
privity of contract between them, and in refusing to exonerate the petitioner from
personal liability for the orders he placed with LLL for the account of the Alakor
Corporation.
RULING:
NO.
In the case at bar, the stock purchases of LLL were on a 10-20 day delayed
delivery basis. Accordingly, after that period lapsed, the Buying Member (LLL) should
have advised the Selling Member CMS in writing.
As observed by the trial court, Section 1, Article V of the Exchange Rules does
not vest on the buyer, respondent LLL, a right to rescind its contract with CMS upon
the latter's default. The Exchange Rules obligate the buyer to make a demand, and if
the selling member fails to deliver the ordered shares despite the demand, the buyer is
further obligated to deliver a copy of his demand letter to the Chairman of the Floor
Trading and Arbitration Committee so that the latter may purchase the shares for the
selling member's account. Said rules were held binding on members of the Exchange.
Inasmuch as petitioner placed his order for Benguet shares through a member of the
Exchange (LLL), he is indirectly bound by the rules of the Exchange.
The defendants' lack of knowledge regarding the truth of the allegation in the
complaint, that the failure of CMS to deliver the Benguet shares on time was due to
oversight, did not constitute an obstacle to the rendition of a summary judgment by
the trial court, for although an averment of lack of knowledge has the effect of a
denial, it does not raise a genuine issue.
SAW, petitioner
vs.
G.R. No. 90580 April 8, 1991
FACTS:
A collection suit with preliminary attachment was filed by Equitable Banking

Corporation against Freeman, Inc. and Saw Chiao Lian, its President and General
Manager. The petitioners moved to intervene, alleging that (1) the loan transactions
between Saw Chiao Lian and Equitable Banking Corp. were not approved by the
stockholders representing at least 2/3 of corporate capital; (2) Saw Chiao Lian had no
authority to contract such loans; and (3) there was collusion between the officials of
Freeman, Inc. and Equitable Banking Corp. in securing the loans. The motion to
intervene was denied, and the petitioners appealed to the Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered into a compromise
agreement which they submitted to and was approved by the lower court. But because
it was not complied with, Equitable secured a writ of execution, and two lots owned by
Freeman, Inc. were levied upon and sold at public auction to Freeman Management
and Development Corp.
The Court of Appeals sustained the denial of the petitioners' motion for
intervention, holding that "the compromise agreement between Freeman, Inc., through
its President, and Equitable Banking Corp. will not necessarily prejudice petitioners
whose rights to corporate assets are at most inchoate, prior to the dissolution of
Freeman, Inc. And intervention under Sec. 2, Rule 12 of the Revised Rules of Court is
proper only when one's right is actual, material, direct and immediate and not simply
contingent or expectant."
It also ruled against the petitioners' argument that because they had already
filed a notice of appeal, the trial judge had lost jurisdiction over the case and could no
longer issue the writ of execution.
ISSUE:
Whether or not the Honorable Court of Appeals erred in holding that the
petitioners cannot intervene in Civil Case No. 88-44404 because their rights as
stockholders of Freeman are merely inchoate and not actual, material, direct and
immediate prior to the dissolution of the corporation.
RULING:
NO.
The petitioners base their right to intervene for the protection of their interests
as stockholders on Everett v. Asia Banking Corp. where it was held: 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, has its
exceptions.
Equitable demurs, contending that the collection suit against Freeman, Inc, and
Saw Chiao Lian is essentially in personam and, as an action against defendants in
their personal capacities, will not prejudice the petitioners as stockholders of the
corporation. The Everett case is not applicable because it involved an action filed by
the minority stockholders where the board of directors refused to bring an action in
behalf of the corporation. In the case at bar, it was Freeman, Inc. that was being sued
by the creditor bank.
On the second assignment of error, Equitable maintains that the petitioners'
appeal could only apply to the denial of their motion for intervention and not to the
main case because their personality as party litigants had not been recognized by the
trial court.
After examining the issues and arguments of the parties, the Court finds that
the respondent court committed no reversible error in sustaining the denial by the
trial court of the petitioners' motion for intervention.
Consideration for Stocks
APODACA, petitioner
vs.
NATIONAL LABOR RELATIONS COMMISSION, respondent
G.R. No. 80039 April 18, 1989
FACTS:
Petitioner was employed in respondent corporation. On August 28, 1985,

respondent Jose M. Mirasol persuaded petitioner to subscribe to 1,500 shares of
respondent corporation at P100.00 per share or a total of P150,000.00. He made an
initial payment of P37,500.00. On September 1, 1975, petitioner was appointed
President and General Manager of the respondent corporation. However, on January
2, 1986, he resigned.
On December 19, 1986, petitioner instituted with the NLRC a complaint against
private respondents for the payment of his unpaid wages, his cost of living allowance,
the balance of his gasoline and representation expenses and his bonus compensation
for 1986. Petitioner and private respondents submitted their position papers to the
labor arbiter. Private respondents admitted that there is due to petitioner the amount
of P17,060.07 but this was applied to the unpaid balance of his subscription in the
amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call
or notice for the payment of the unpaid subscription and that, accordingly, the alleged
obligation is not enforceable.
In a decision dated April 28, 1987, the labor arbiter sustained the claim of
petitioner for P17,060.07 on the ground that the employer has no right to withhold
payment of wages already earned under Article 103 of the Labor Code. Upon the
appeal of the private respondents to public respondent NLRC, the decision of the labor
arbiter was reversed in a decision dated September 18, 1987. The NLRC held that a
stockholder who fails to pay his unpaid subscription on call becomes a debtor of the
corporation and that the set-off of said obligation against the wages and others due to
petitioner is not contrary to law, morals and public policy.
ISSUE:
Whether or not an obligation arising from non-payment of stock subscriptions

to a corporation can be offset against a money claim of an employee against the
employer.
RULING:
NO.
The unpaid subscriptions are not due and payable until a call is made by the
corporation for payment. Private respondents have not presented a resolution of the
board of directors of respondent corporation calling for the payment of the unpaid
subscriptions. It does not even appear that a notice of such call has been sent to
petitioner by the respondent corporation.
What the records show is that the respondent corporation deducted the amount
due to petitioner from the amount receivable from him for the unpaid
subscriptions. No doubt such set-off was without lawful basis, if not premature. As
there was no notice or call for the payment of unpaid subscriptions, the same is not
yet due and payable.
Lastly, assuming further that there was a call for payment of the unpaid
subscription, the NLRC cannot validly set it off against the wages and other benefits
due petitioner. Article 113 of the Labor Code allows such a deduction from the wages
of the employees by the employer, only in three instances, to wit: No employer, in his
own behalf or in behalf of any person, shall make any deduction from the wages of his
employees, except in certain cases.
FUA CUN, petitioner

vs.
SUMMERS, respondent
G.R. No. L-19441 March 27, 1923
FACTS:
It appears from the evidence that on August 26, 1920, one Chua Soco
subscribed for five hundred shares of stock of the defendant Banking Corporation at a
par value of P100 per share, paying the sum of P25,000, one-half of the subscription
price, in cash, for which a receipt was issued.
On May 18, 1921, Chua Soco executed a promissory note in favor of the
plaintiff Fua Cun for the sum of P25,000 payable in ninety days and drawing interest
at the rate of 1 per cent per month, securing the note with a chattel mortgage on the
shares of stock subscribed for by Chua Soco, who also endorsed the receipt above
mentioned and delivered it to the mortgagee. The plaintiff thereupon took the receipt
to the manager of the defendant Bank and informed him of the transaction with Chua
Soco, but was told to await action upon the matter by the Board of Directors.
In the meantime Chua Soco appears to have become indebted to the China
Banking Corporation in the sum of P37,731.68 for dishonored acceptances of
commercial paper and in an action brought against him to recover this amount, Chua
Soco's interest in the five hundred shares subscribed for was attached and the receipt
seized by the sheriff. The attachment was levied after the defendant bank had received
notice of the facts that the receipt had been endorsed over to the plaintiff. Fua Cun
thereupon brought the present action maintaining that by virtue of the payment of the
one-half of the subscription price of five hundred shares Chua Soco in effect became
the owner of two hundred and fifty shares and praying that his, the plaintiff's, lien on
said shares, by virtue of the chattel mortgage, be declared to hold priority over the
claim of the defendant Banking Corporation; that the defendants be ordered to deliver
the receipt in question to him; and that he be awarded the sum of P5,000 in damages
for wrongful attachment.
ISSUE:
Whether or not the trial court erred in declaring that Chua Soco, through the
payment of the P25,000, acquired the right to two hundred and fifty shares fully paid
up, upon which shares the plaintiff holds a lien superior to that of the defendant
Banking Corporation and ordering that the receipt be returned to said plaintiff.
RULING:
YES.
The claim of the defendant Banking Corporation upon which it brought the
action in which the writ of attachment was issued, was for the non-payment of drafts
accepted by Chua Soco and had no direct connection with the shares of stock in
question. At common law a corporation has no lien upon the shares of stockholders
for any indebtedness to the corporation and our attention has not been called to any
statute creating such lien here. On the contrary, section 120 of the Corporation Act
provides that "no bank organized under this Act shall make any loan or discount on
the security of the shares of its own capital stock, nor be the purchaser or holder of
any such shares, unless such security or purchase shall be necessary to prevent loss
upon a debt previously contracted in good faith, and stock so purchased or acquired
shall, within six months from the time of its purchase, be sold or disposed of at public
or private sale, or, in default thereof, a receiver may be appointed to close up the
business of the bank in accordance with law."
The reasons for this doctrine are obvious; if banking corporations were given a
lien on their own stock for the indebtedness of the stockholders, the prohibition
against granting loans or discounts upon the security of the stock would become
largely ineffective.
NATIONAL EXCHANGE CO., INC., petitioner

vs.
I.B. DEXTER, respondent
G.R. No. L-27872 February 25, 1928
FACTS:
This action was instituted in the Court of First Instance of Manila by the
National Exchange Co., Inc., as assignee (through the Philippine National Bank) of C.
S. Salmon & Co., for the purpose of recovering from I. B. Dexter a balance of P15,000,
the par value of one hundred fifty shares of the capital stock of C. S. Salmon & co.,
with interest and costs. Upon hearing the cause the trial judge gave judgment for the
plaintiff to recover the amount claimed, with lawful interest from January 1, 1920,
and with costs. From this judgment the defendant appealed.
It appears that on August 10, 1919, the defendant, I. B. Dexter, signed a
written subscription to the corporate stock of C. S. Salmon & Co. in the following form:
I hereby subscribe for three hundred (300) shares of the capital stock of C. S. Salmon
and Company, payable from the first dividends declared on any and all shares of said
company owned by me at the time dividends are declared, until the full amount of this
subscription has been paid.
Upon this subscription the sum of P15,000 was paid in January, 1920, from a
dividend declared at about that time by the company, supplemented by money
supplied personally by the subscriber. Beyond this nothing has been paid on the
shares and no further dividend has been declared by the corporation. There is
therefore a balance of P15,000 still paid upon the subscription.
ISSUE:
Whether or not the stipulation contained in the subscription to the effect that
the subscription is payable from the first dividends declared on the shares has the
effect of relieving the subscriber from personal liability in an action to recover the
value of the shares.
RULING:
NO.
In discussing this problem we accept as sound law the proposition propounded

by the appellant's attorneys and taken from Fletcher's Cyclopedia as follows: In the
absence of restrictions in its character, a corporation, under its general power to
contract, has the power to accept subscriptions upon any special terms not prohibited by
positive law or contrary to public policy, provided they are not such as to require the
performance of acts which are beyond the powers conferred upon the corporation by its
character, and provided they do not constitute a fraud upon other subscribers or
stockholders, or upon persons who are or may become creditors of the corporation.
Pursuant to such, we find that the Philippine Commission inserted in the
Corporation Law, enacted March 1, 1906, the following provision: "no corporation
shall issue stock or bonds except in exchange for actual cash paid to the corporation
or for property actually received by it at a fair valuation equal to the par value of the
stock or bonds so issued."
The prohibition against the issuance of shares by corporations except for actual
cash to the par value of the stock to its full equivalent in property is thus enshrined in
both the organic and statutory law of the Philippine; Islands; and it would seem that
our lawmakers could scarely have chosen language more directly suited to secure
absolute equality stockholders with respect to their liability upon stock subscriptions.
Now, if it is unlawful to issue stock otherwise than as stated it is self-evident that a
stipulation such as that now under consideration, in a stock subcription, is illegal, for
this stipulation obligates the subcriber to pay nothing for the shares except as
dividends may accrue upon the stock. In the contingency that dividends are not paid,
there is no liability at all. This is discrimination in favor of the particular subcriber,
and hence the stipulation is unlawful.
NIELSON & CO., INC., plaintiff
vs.
LEPANTO CONSOLIDATED MINING CO., defendant
G.R. No. L-21601 December 17, 1966
FACTS:
An operating agreement was executed before World War II (on 30 January 1937)
between Nielson & Co. Inc. and the Lepanto Consolidated Mining Co. whereby the
former operated and managed the mining properties owned by the latter for a
management fee of P2,500.00 a month and a 10% participation in the net profits
resulting from the operation of the mining properties, for a period of 5 years. In 1940,
a dispute arose regarding the computation of the 10% share of Nielson in the profits.
The Board of Directors of Lepanto, realizing that the mechanics of the contract was
unfair to Nielson, authorized its President to enter into an agreement with Nielson
modifying the pertinent provision of the contract effective 1 January 1940 in such a
way that Nielson shall receive (1) 10% of the dividends declared and paid, when and as
paid, during the period of the contract and at the end of each year, (2) 10% of any
depletion reserve that may be set up, and (3) 10% of any amount expended during the
year out of surplus earnings for capital account. In the latter part of 1941, the parties
agreed to renew the contract for another period of 5 years, but in the meantime, the
Pacific War broke out in December 1941. In January 1942 operation of the mining
properties was disrupted on account of the war. In February 1942, the mill, power
plant, supplies on hand, equipment, concentrates on hand and mines, were destroyed
upon orders of the United States Army, to prevent their utilization by the invading
Japanese Army. The Japanese forces thereafter occupied the mining properties,
operated the mines during the continuance of the war, and who were ousted from the
mining properties only in August 1945. Shortly after the mines were liberated from the
Japanese invaders in 1945, a disagreement arose between NIELSON and LEPANTO
over the status of the operating contract which as renewed expired in 1947.
ISSUE:
Whether or not the management contract is a contract of agency.
RULING:
NO.
In the performance of this principal undertaking Nielson was not in any way
executing juridical acts for Lepanto, destined to create, modify or extinguish business
relations between Lepanto and third persons. In other words, in performing its
principal undertaking Nielson was not acting as an agent of Lepanto, in the sense that
the term agent is interpreted under the law of agency, but as one who was performing
material acts for an employer, for a compensation. It is true that the management
contract provides that Nielson would also act as purchasing agent of supplies and
enter into contracts regarding the sale of mineral, but the contract also provides that
Nielson could not make any purchase, or sell the minerals, without the prior approval
of Lepanto. It is clear, therefore, that even in these cases Nielson could not execute
juridical acts which would bind Lepanto without first securing the approval of
Lepanto. Nielson, then, was to act only as an intermediary, not as an agent. Further,
from the statements in the annual report for 1936, and from the provision of
paragraph XI of the Management contract, that the employment by Lepanto of Nielson
to operate and manage its mines was principally in consideration of the know-how and
technical services that Nielson offered Lepanto. The contract thus entered into
pursuant to the offer made by Nielson and accepted by Lepanto was a "detailed
operating contract". It was not a contract of agency. Nowhere in the record is it shown
that Lepanto considered Nielson as its agent and that Lepanto terminated the
management contract because it had lost its trust and confidence in Nielson.
TRILLANA, petitioner
vs.
QUEZON COLLEGE, INC., respondent
G.R. No. L-5003 June 27, 1953
FACTS:
Damasa Crisostomo sent a letter to the Board of Trustees of the Quezon College
subscribing to 200 shares of its capital stock at par value of Php100 each. Damasa
Crisostomo died on October 26, 1948. As no payment appears to have been made on
the subscription mentioned in her letter, the Quezon College, Inc. presented a claim
before the Court of First Instance of Bulacan in her testate proceeding, for the
collection of the sum of P20,000, representing the value of the subscription to the
capital stock of the Quezon College, Inc. This claim was opposed by the administrator
of the estate, and the Court of First Instance of Bulacan, after hearing issued an order
dismissing the claim of the Quezon College, Inc. on the ground that the subscription
in question was neither registered in nor authorized by the Securities and Exchange
Commission. From this order the Quezon College, Inc. has appealed.
ISSUE:
Whether or not the subscription applied for by Damasa Crisostomo is an

enforceable contract.
RULING:
NO.
It appears that the application sent by Damasa Crisostomo to the Quezon

College, Inc. was written on a general form indicating that an applicant will enclose an
amount as initial payment and will pay the balance in accordance with law and the
regulations of the College. On the other hand, in the letter actually sent by Damasa
Crisostomo, the latter (who requested that her subscription for 200 shares be entered)
not only did not enclose any initial payment but stated that "babayaran kong lahat
pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show
that the Quezon College, Inc. accepted the term of payment suggested by Damasa
Crisostomo, or that if there was any acceptance the same came to her knowledge
during her lifetime. As the application of Damasa Crisostomo is obviously at variance
with the terms evidenced in the form letter issued by the Quezon College, Inc., there
was absolute necessity on the part of the College to express its agreement to Damasa's
offer in order to bind the latter. Conversely, said acceptance was essential, because it
would be unfair to immediately obligate the Quezon College, Inc. under Damasa's
promise to pay the price of the subscription after she had caused fish to be caught. In
other words, the relation between Damasa Crisostomo and the Quezon College, Inc.
had only thus reached the preliminary stage whereby the latter offered its stock for
subscription on the terms stated in the form letter, and Damasa applied for
subscription fixing her own plan of payment, — a relation, in the absence as in the
present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa
Crisostomo, that had not ripened into an enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc.
becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the
value of the subscription after she has harvested fish, a condition obviously dependent
upon her sole will and, therefore, facultative in nature, rendering the obligation void,
under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of
the condition should depend upon the exclusive will of the debtor, the conditional
obligation shall be void. If it should depend upon chance, or upon the will of a third
person, the obligation shall produce all its effects in accordance with the provisions of
this code." It cannot be argued that the condition solely is void, because it would have
served to create the obligation to pay, wherein only the potestative condition was held
void because it referred merely to the fulfillment of an already existing indebtedness.
Unpaid Subscriptions: Call: When necessary
GARCIA, plaintiff
vs.
SUAREZ, defendant
G.R. No. L-45493 April 21, 1939
FACTS:
On October 4, 1924, the appellant subscribed to sixteen shares of the capital

stock of the Compañia Hispano-Filipina, Inc., a corporation which is duly formed and
organized. Of the sixteen subscribed shares, at the par value of P100 each, the
appellant only paid P400, the value of four shares. On June 5, 1931, the plaintiff-
appellee was appointed by the court receiver of the Compañia Hispano-Filipina, Inc.,
to collect all the credits of said corporation, pay its debts and dispose of the remainder
of its assets and of its properties. On June 18, 1931, the plaintiff-appellee in vain
made demand upon the defendant-appellant to pay the balance of his subscription.
On July 10, 1933, the plaintiff, as receiver, brought an action in the Court of First
Instance of Manila to recover from the defendant-appellant and other shareholders the
balance of their subscriptions, but the complaint was dismissed for lack of
prosecution. On October 10, 1935, a similar complaint was filed against the appellant,
and after trial, judgment was rendered therein ordering the said defendant to pay to
the plaintiff, as receiver of Compañia Hispano-Filipina, Inc., the sum of P1,200, with
legal interest thereon from October 4, 1924, and the costs. The defendant appealed
and in this instance contends that the trial court erred in holding that the action of
the plaintiff-appellee has not prescribed, and that the appellant has not been released
from his obligation to pay the balance of his subscription.
ISSUE:
Whether or not the obligation contracted by the appellant to pay the value of his
subscription was demandable from the date of subscription in the absence of any
stipulation to the contrary.
RULING:
NO.
Section 37 of the Corporation Law provides when the obligation to pay interest
arises and when payment should be made, but it is absolutely silent as to when the
subscription to a stock should be paid. Of course, the obligation to pay arises from the
date of the subscription, but the coming into being of an obligation should not be
confused with the time when it becomes demandable. In a loan for example, the
obligation to pay arises from the time the loan is taken; but the maturity of that
obligation, the date when the debtor can be compelled to pay, is not the date itself of
the loan, because this would be absurd. The date when payment can be demanded is
necessarily distinct from and subsequent to that the obligation is contracted.
By the same token, the subscription to the capital stock of the corporation,
unless otherwise stipulation, is not payable at the moment of the subscription but on
a subsequent date which may be fixed by the corporation. Hence, section 38 of the
Corporation Law, amended by Act No. 3518, provides that: The board of directors or
trustees of any stock corporation formed, organized, or existing under this Act may at
any time declare due and payable to the corporation unpaid subscriptions to the capital
stock.
The board of directors of the Compañia Hispano-Filipino, Inc., not having
declared due and payable the stock subscribed by the appellant, the prescriptive
period of the action for the collection thereof only commenced to run from June 18,
1931 when the plaintiff, in his capacity as receiver and in the exercise of the power
conferred upon him by the said section 38 of the Corporation Law, demanded of the
appellant to pay the balance of his subscription. The present action having been filed
on October 10, 1935, the defense of prescription is entirely without basis.
PHILIPPINE NATIONAL BANK, plaintiff
vs.
BITULOK SAWMILL INC., defendant
G.R. Nos. L-24177-85 June 29, 1968
FACTS:
The Philippine Lumber Distributing Agency, Inc., according to the lower court,
"was organized sometime in the early part of 1947 upon the initiative and insistence of
the late President Manuel Roxas of the Republic of the Philippines who for the
purpose, had called several conferences between him and the subscribers and
organizers of the Philippine Lumber Distributing Agency, Inc." The purpose was
praiseworthy, to insure a steady supply of lumber, which could be sold at reasonable
prices to enable the war sufferers to rehabilitate their devastated homes. At the
beginning, the lumber producers were reluctant to organize the cooperative agency as
they believed that it would not be easy to eliminate from the retail trade the alien
middlemen who had been in this business from time immemorial, but because the late
President Roxas made it clear that such a cooperative agency would not be successful
without a substantial working capital which the lumber producers could not entirely
shoulder, and as an inducement he promised and agreed to finance the agency by
making the Government invest P9.00 by way of counterpart for every peso that the
members would invest therein."
Accordingly, "the late President Roxas instructed the Hon. Emilio Abello, then
Executive Secretary and Chairman of the Board of Directors of the Philippine National
Bank, for the latter to grant said agency an overdraft in the original sum of
P250,000.00 which was later increased to P350,000.00, which was approved by said
Board of Directors of the Philippine National Bank on July 28, 1947, payable on or
before April 30, 1958, with interest at the rate of 6% per annum, and secured by the
chattel mortgages on the stock of lumber of said agency." The Philippine Government
did not invest the P9.00 for every peso coming from defendant lumber producers. The
loan extended to the Philippine Lumber Distributing Agency by the Philippine National
Bank was not paid.
ISSUE:
Whether or not the non-compliance with a plain statutory command,

considering the persuasiveness of the plea that defendants-appellees would "not have
subscribed to the capital stock" of the Philippine Lumber Distributing Agency "were it
not for the assurance of the then President of the Republic that the Government would
back it up by investing P9.00 for every peso" subscribed, a condition which was not
fulfilled, such commitment not having been complied with, be justified.
RULING:
NO.
It would be unwarranted to ascribe to the late President Roxas the view that the
payment of the stock subscriptions, as thus required by law, could be condoned in the
event that the counterpart fund to be invested by the Government would not be
available. Even if such were the case, however, and such a promise were in fact made,
to further the laudable purpose to which the proposed corporation would be devoted
and the possibility that the lumber producers would lose money in the process, still
the plain and specific wording of the applicable legal provision as interpreted by this
Court must be controlling. It is a well-settled principle that with all the vast powers
lodged in the Executive, he is still devoid of the prerogative of suspending the
operation of any statute or any of its terms.

Power to Sue and be Sued in Court

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Power to Sue and be Sued in Court

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Power to Sue and be Sued

TAM WING TAK

On November 11, 1992, petitioner, in his capacity as director of Concord-World

Whether or not petitioner is the proper party to institute the case.

In general, mandamus may be resorted to only where one's right is founded

Whether or not Bitong was the real party in interest.

SPECIAL SERVICES CORPORATION

Whether or not Centro La Paz which is merely a Chapter of Union Espiritista de

On November 22, 1991, private respondent filed a complaint for damages

Whether or not there was valid service of summons.

As a general rule, service of summons must be made on the persons named in

Power to Acquire, Dispose, Encumber Property

THE DIRECTOR OF LANDS

Whether or not the respondent is prohibited from acquiring private land as

MARIA CLARA PIROVANO ET AL.

To Increase or Decrease Capital Stock

MADRIGAL & COMPANY, INC.

MADRIGAL & COMPANY, INC.

Whether or not the decrease in the ACS of petitioner is valid.

PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa

To Deny Pre-Emptive Rights

DATU TAGORANAO BENITO

On February 6, 1959, the Articles of Incorporation of respondent Jamiatul

PEDRO LOPEZ DEE

Whether or not Natelco stockholders have a right of preemption to the 113,800

MARCELO FIBERGLASS CORPORATION

On June 18, 1982, Edward T. Marcelo as president of private respondent

Whether or not the issuance and implementation of the writ of

REPUBLIC OF THE PHILIPPINES

Eastern Telecommunications Philippines, Inc. (ETPI) was one of the

To Sell Or Otherwise Dispose Of All or Substantially All Of Corporate Assets

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT

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Whether or not the Deed of Sale executed by Carpizo Group is valid.

Julieta Esguerra filed a complaint for administration of conjugal partnership or

Whether or not the sale of Esguerra Building II is a valid exercise of corporate

VECCI's sale of all the properties mentioned in the judicially-approved

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Lopez Realty, Inc., is a corporation engaged in real estate business, while

To Invest Corporate Funds In Another Corporation or Business

JOHN GOKONGWEI, JR.

On October 22, 1976, petitioner, as stockholder of respondent San Miguel

Whether or not respondent SEC committed grave abuse of discretion in allowing

Whether or not a corporation can invest in another corporation.

BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION

On May 7, 1984, respondent Nilcar Y. Fajilan offered in writing to resign as

Whether or not Petitioner Corporation can acquire its own shares.

C. H. STEINBERG, as Receiver of the Sibuguey Trading Company, Incorporated

Plaintiff is the receiver of the Sibuguey Trading Company, a domestic

IMELDA O. COJUANGCO, PRIME HOLDINGS, INC., AND THE ESTATE OF RAMON

C. H. STEINBERG, as Receiver of the Sibuguey Trading Company, Incorporated

Plaintiff is the receiver of the Sibuguey Trading Company, a domestic

NIELSON & COMPANY, INC.

COMMISSIONER OF INTERNAL REVENUE

In 1952 the MANTRASCO had an authorized capital stock of P2,500,000

“A stock dividend always involves a transfer of surplus (or profit) to capital

MADRIGAL & COMPANY, INC.

MADRIGAL & COMPANY, INC.

REPUBLIC PLANTERS BANK

On September 18, 1961, private respondent Corporation secured a loan from

Whether or not the corporation can declare dividends.

Whether or not petitioner validly declared dividends.