CORPORATION LAW CASE MATRIX 5

Section 32 TITLE
Mead v. McCulloug

FACTS
- Mead, McCullough and three others organized the Philippine Engineering and Construction Company. The 5 of them were the only stockholders and also the directors of the company, with general ordinary powers. - Mead was elected as the general manager of the company. Under him, the company failed in their undertaking to raise sunken panish fleet. !t "ecame a losing concern and a financial failure. - #fter $ mos. as general manager, Mead resigned to accept the position of engineer of the Canton and hanghai %ailway Company and thus left for China. - Thereafter, realizing that continuing the operations of the company would mean more losses, the remaining directors unanimously assigned all the rights and interests of the company to McCullough for &alue, who also assigned the same for &alue to other people who with McCullough su"se'uently formed the Manila al&age #ssociation. - Mead is now alleging that he is entitled to recei&e his salary as general manager, profits made "efore the assignment and the &alue of his personal property which he ha&e left and sold "y the defendants. (main issue "ut impertinent to the lesson). - Prime *hite (thru its President 1 023 Chair) and Te (also a director of Prime *hite) entered into a dealership agreement wherein the former will supply Te with 45,555 "ags of cement per month at Php $.65 per "ag. - Te would open an irre&oca"le letter of credit in a "ank each time he recei&ed a deli&ery. - Te then started to ad&ertise that he was the e7clusi&e dealer of the white cement, and

ISSUE/S
- *hether or not the remaining directors ha&e the power to sell or transfer to one of its mem"ers the assets of the corporation.

HELD
- +es. !t has to "e remem"ered that the 5 directors herein are also the only stockholders. *hen the four remaining directors met to resol&e for the assignment, there was a 'uorum not only of the directors "ut also of the stockholders. - McCullough, while he was the president of the corporation, did not sit in the said meeting as a representati&e of the corporation. The corporation was represented "y the , directors who "y themsel&es already constituted a 'uorum. - -ence, McCullough.s &ote was not necessary in this case, nor was his presence needed to ha&e a 'uorum. - The contact was also fair and reasona"le as the company was already in "ad shape.

DOCTRINE
- # ma/ority of the stockholders or directors ha&e the power to sell or transfer to one of its mem"ers the corporate property, where the stockholders or directors ha&e general ordinary powers, and where there is nothing in the articles of incorporation which prohi"it such a sale. - *hether a pri&ate corporation remains sol&ent or is insol&ent, there is no reason why a director or officer, "y authority of the ma/ority of its stockholders or "oard of managers, may not deal with the corporation, loan it money, or "uy property from it in like manner as a stranger. 0ut in all cases, such officer or director must act in good faith and pay an ade'uate consideration.

P!"#e W "$e Ce#e%$ v. IAC

- *28 the dealership agreement was a &alid and enforcea"le contract

- 82. *hile it is true that the 0oard may delegate its powers to the President or any of its officers and that contracts entered into "y such officers are "inding upon the corporation, C held that such general rules apply when the corporation deals with a third person. - !n this case, Te was also a director of Prime *hite. -e holds a position of trust and as such, he owes a duty of loyalty to his corporation.

- # contract of a director with his corporation, if fair and reasona"le, may "e ratified "y the stockholders pro&ided a full disclosure of his ad&erse interest is made. - See Section 32 also

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

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entered into se&eral written agreements to supply the said cement with third parties. - Te was later on informed "y the corporate secretary of Prime *hite that the 023 decided to impose the ff. conditions= deli&ery shall start at the end 8o&. <$65 only >555 "ags would "e deli&ered for a period of , months price will "e Php <,.,5 per "ag price may "e unilaterally ad/usted "y Prime *hite deli&ery place is #ustutias (sic) letter of credit to "e opened with the Makati "ranch of Prudential 0ank - 3espite demands to enforce the dealership agreement, Prime *hite refused, forcing Te to cancel the agreements with third parties. - %TC ad/udged Prime *hite lia"le for damages. C# affirmed

C held that the contract was neither fair nor reasona"le. The &ery low price of the cement was meant to "enefit Te. -e was a "usinessman and knew of the real market prices of cement. (at that time, the price was at least Php <?.55 and "ecame Php ,6.55 in <$65)

Section 36 TITLE
Mo%$el"&a%o v. 'acolod ( Mu!c"a M"ll"%g Co.

FACTS
- The Monteli"anos and some others are sugar planters with identical milling contracts with 0acolod milling. - The Monteli"anos were originally granted a share in the resulting product at a ratio of ?5@: 55@. (the 55@ pertaining to the farmers.) the contract has a ,5:year period. - ometime in <$,;, the farmers and the Milling Company entered into a modified Milling Contract which increased the former.s share to ;5@ "ut also with the condition that the period of their contract will "e e7tended for an additional <5 years., - !n the same year a resolution was passed "y the 0oard of the milling company granting the farmers further concessions o&er and a"o&e the pro&isions of the Proposed #mended Milling Contract. - !t was only days after the passing of the said

ISSUE/S
- *hether or not the re'uested increase in the annual production should "e granted the farmers.

HELD
- The C held in the affirmati&e. - The resolution is supported "y a &alid consideration and is therefore not a donation ultra &ires. - !t is to "e noted that the contract is signed only after the resolution. Thus, such resolution shall "e deemed as a modification to the proposed #mended Contract. Therefore, that resolution is considered integrated with the contract, without which, the farmers would not ha&e assented to the said #mended Contract. #s such, the consideration for the main contract is deemed to "e the consideration for the grant of further concessions in the resolution (e.g. the e7tended period of the contract.) - The directors. lack of power to amend would "e rele&ant if the resolution was passed after the farmers had already "ound themsel&es to the terms of the printed milling contract. !n this

DOCTRINE
- The test to "e applied is whether the act in 'uestion is in immediate furtherance of the corporation.s "usiness, fairly incident to the e7press powers and reasona"ly necessary to their e7ercise. - The acts must ha&e a logical relation to the corporate purpose e7pressed in the charter.

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

resolution that the proposed milling contract was signed "y "oth parties. ometime in <$55, , of the ma/or sugar centrals granted an increase in the share of their workers to the product yield. Monteli"anos et.al wanted to a&ail of similar increase "ased on the pro&ision of the <$,; resolution. The Milling company denied such lia"ility "y contending that the resolution was granted without consideration and is therefore a donation ultra &ires. The resolution "eing ultra &ires, it is contended to "e &oid a" initio.

case, the resolution was adopted 4< days "efore the farmers. assented to the contract or while the latter were not yet "ound. - !t could not also "e seen as a no&ation, since the resolution modified only a proposal, not yet "inding "etween the parties. - !n this light, it cannot "e gainsaid that the "oard has the power to modify the terms of the proposal. The standard for such &alidity is whether the act is in immediate furtherance of the corporation.s "usiness, fairly incident to the e7press powers and reasona"ly necessary to their e7ercise. %egardless if it will cause losses. - This standard is met in the adoption of the resolution.

Section 37 TITLE
Al a#&!a C"ga! v. SEC

FACTS
- The term of e7istence of #lham"ra Cigar 1 Cigarette Manufacturing Co., (#lham"ra) !nc. for fifty (55) years from incorporation had e7pired on Aanuary <5, <$;4. - Bollowing the e7piration of its term as pro&ided in its articles of incorporation, the company commenced its li'uidation and a new corporation, #lham"ra !ndustries, !nc., was formed to carry on the "usiness of #lham"ra. - 2n Aune 45, <$;,, within #lham"ra.s three:year statutory period for li'uidation, %epu"lic #ct ,5,< was enacted into law, amending ection <> of the Corporation Caw to the effect that domestic pri&ate corporations were empowered to e7tend their corporate life "eyond the period fi7ed "y the articles of incorporation for a term not to e7ceed fifty (55) years in any one instance. - Thereafter, #lham"ra.s "oard of directors amended their articles of incorporation to e7tend its corporate life for an additional fifty years. - #lham"ra.s stockholders, representing more than two:thirds of the company.s outstanding

ISSUE/S
- *hether or not #lham"ra could e7tend the term of its corporate e7istence pursuant to %# ,5,<.

HELD
- 82. *hen #lham"ra made its attempt to e7tend its corporate e7istence, its original term of fifty hyears had already e7piredD it was in the midst of the three:year grace period for li'uidation. - #s pro&ided in ection 66 of the Corporation Caw, continuance of a Edissol&edF corporation as a "ody corporate for three years has for its purpose the final closure of its affairs, and no otherD the corporation is specifically en/oined from Econtinuing the "usiness for which it was esta"lished.F - Ci'uidation of the corporation.s affairs had "ecome necessary precisely "ecause its life had ended, hence, the corporate e7istence and /uridical personality of that corporation to do "usiness may no longer "e e7tended. - The moment a corporation.s right to e7ist as an Eartificial personF ceases, its corporate powers are terminated E/ust as the powers of a natural person to take part in mundane affairs cease to e7ist upon his deathFD there is nothing left "ut to conduct, as it were, the settlement of the estate of a deceased /uridical person. - Under ection 66, no corporation in a state of -

DOCTRINE
ec. ,6, Corporation Code G # pri&ate corporation may e7tend or shorten its term as stated in the articles of incorporation when appro&ed "y a ma/ority &ote of the "oard of directors or trustees and ratified at a meeting "y the stockholders representing at least two:thirds (49,) of the outstanding capital stock or "y at least two: thirds (49,) of the mem"ers in case of non:stock corporations. - #s pro&ided in ection 66 of the Corporation Caw, continuance of a Edissol&edF corporation as a "ody corporate for three years has for its purpose the final closure of its affairs, and no otherD the corporation is specifically en/oined from Econtinuing the "usiness for which it was esta"lished.F - To !e%e) a charter is to re&i&e a charter which has e7pired, or, in
,

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

capital stock, &oted to appro&e the resolution. - The amended articles of incorporation were file with the ecurities and E7change Commission ( EC) which re/ected the same as it a&erred that #lham"ra could not a&ail of %# ,5,< as its term of e7istence had already e7pired when the law took effectD in short, said law had no retroacti&e effect.

li'uidation can act in any way, much less amend its articles, Efor the purpose of continuing the "usiness for which it was esta"lished.F 8owhere in %# ,5,< could "e found the word ErenewF in reference to the authority gi&en to corporations to protract their li&esD the law limits itself to e7tension of corporate e7istenceD as such e7tension may "e made only "efore the term pro&ided in the corporate charter e7pires. #llowing #lham"ra to e7tend its corporate e7istence in &iew of he circumstances would open the gates for all defunct corporations G whose charters ha&e e7pired e&en long "efore %# ,5,< came into "eing G to resuscitate their corporate e7istence. #t the time of the passage of %# ,5,<, #lham"ra.s corporate life had already e7pired. !t had o&erstepped the limits of its limited e7istenceD no life there is to prolong. *ith the creation of #lham"ra !ndustries, !nc., the word #lham"ra, the name that counts (it has goodwill), remains.

other words, Hto gi&e a new e7istence to one which has "een forfeited, or which has lost its &itality "y lapse of time.. - To e*$e%d a charter is Hto increase the time for the e7istence of one which would otherwise reach its limit at an earlier period.

Section 38 TITLE
P "l. T!u+$ v. R"ve!a

FACTS
- Cooperati&a 8a&al Bilipina was duly incorporated under the laws of the Philippine !slands, with a capital of P<55,555, di&ided into one thousand shares of a par &alue of P<55 each. #mong the incorporators of this company was Mariano %i&era, who su"scri"ed for ?55 shares representing a &alue of P?5,555, the remainder of the stock "eing taken "y other persons. - The articles of incorporation were duly registered in the 0ureau of Commerce and !ndustry on 2cto"er ,5 of the same year. - !n the course of time the company "ecame insol&ent and went into the hands of the Philippine Trust Company, as assignee in "ankruptcyD and "y it this action was instituted to reco&er one:half of the stock su"scription of

ISSUE/S
- Whether or not the resolution was ineffectual

HELD
- +E . The resolution releasing the shareholders from their o"ligation to pay 55 per centum of their respecti&e su"scriptions was an attempted withdrawal of so much capital from the fund upon which the companyIs creditors were entitled ultimately to rely and, ha&ing "een effected without compliance with the statutory re'uirements, was wholly ineffectual.

DOCTRINE
- !t is esta"lished doctrine that su"scription to the capital of a corporation constitute a find to which creditors ha&e a right to look for satisfaction of their claims and that the assignee in insol&ency can maintain an action upon any unpaid stock su"scription in order to realize assets for the payment of its de"ts. - # corporation has no power to release an original su"scri"er to its capital stock from the o"ligation of paying for his shares, without a &alua"le consideration for such releaseD and as against creditors a reduction of the capital stock can
?

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

Mad!"gal , Co. v. -a#o!a

%i&era , which admittedly has ne&er "een paid. - The reason gi&en for the failure of the %i&era to pay the entire su"scription is, that not long after the Cooperati&a 8a&al Bilipina had "een incorporated, a meeting of its stockholders occurred, at which a resolution was adopted to the effect that the capital should "e reduced "y 55 per centum and the su"scri"ers released from the o"ligation to pay any unpaid "alance of their su"scription in e7cess of 55 per centum of the same. #s a result of this resolution it seems to ha&e "een supposed that the su"scription of the &arious shareholders had "een cancelled to the e7tent statedD and fully paid certificate were issued to each shareholders for one:half of his su"scription. - !t does not appear that the formalities prescri"ed in section <6 of the Corporation Caw, as amended, relati&e to the reduction of capital stock in corporations were o"ser&ed, and in particular it does not appear that any certificate was at any time filed in the 0ureau of Commerce and !ndustry, showing such reduction. - Petitioner was engaged in the mgmt. of Rizal Cement Co., Inc. In fact, the 2 are sister companies because both are owned by the same or practically the same stoc holders. - Respondent !amora of the "adrigal Central #ffice $mployees %nion sought for the renewal of its C&' with petitioner( but the latter re)uested for a deferment in the negotiations. - *hen, petitioner on 2 se+eral occasions had its capitalization reduced from ,-.,/// to 2-,,0-to 11/,/2. shares by effecting distribution of mar etable securities owned by petitioner to its stoc holders in e3change for their shares in an e)ui+alent amount in the corporation. - 'fter the failure of the petitioner to sit down with respondent union, the latter commenced with the 45RC a complaint for %5P, but petitioner filed its position paper alleging operational losses( the Rizal had ceased

take place only in the manner an under the conditions prescri"ed "y the statute or the charter or the articles of incorporation. Moreo&er, strict compliance with the statutory regulations is necessary.

- W#4 the 45RC was incorrect with its findings.

- 4o. 's a general rule, findings of administrati+e agencies are accorded not only respect but e+en finality. In no way can the )uestioned decisions be seen as arbitrary. *he decisions themsel+es show why. - *here was no substantial compliance with the clearance re)uirement to terminate. *he letter was un+erified, not e+en a single document submitted in support thereof, the same failed to specify the indi+idual employees to be affected by the intended retrenchment. It was not clear. - *hat6s why it was correctly concluded that the letter was insufficient in form and substance to constitute a +alid compliance with the clearance re)uirement. - What clearly emerges from the recorded facts is that the petitioner, awash with profits its business operations but confronted with the demand of the union for wage increases,

- 7ection 02 of the corporation code tal s about the power of the corporation to increase or decrease capital stoc or create or increase bonded indebtedness. 8or such to happen, it needs the +ote of the ma9ority of the &oard, appro+ed by 2:0 of outstanding stoc or members and appro+ed by the 7$C. - In the case at bar, petitioner, wanting to e+ade the pains of dealing with union6s as ing for wage and benefits increase, decided to reduce its capital stoc to ma e it appear that they were operating at a loss though in reality they weren6t.
5

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

operating temporarily( that because of the desire of stoc holders to phase out the operations of "adrigal it has effected reduction in capitalization, and had turned to retrenching employees for reorganization. *hey then as ed that they may be allowed to effect reorganization gradually. *he letter howe+er was not +erified neither was it accompanied by the proper supporting documents thus ;#5$ too no action. 5abor 'rbiter then rendered a decision granting a general wage increase plus a monthly li+ing allowance in fa+or of the employees. Petitioner then applied for clearance to terminate a number of employees but this was denied. 'lso, the other case was affirmed by the 45RC. <ence this appeal

decided to e+ade its responsibility towards the employees by a de+ised capital reduction. - While the reduction in capital stoc created an apparent need for retrenchment, it was, by all indications 9ust a mas for the purge of union members, who, by then, had agitated for wage increases. - *herefore the petitions are dismissed. 8indings of 5' affirmed.

Section 39 TITLE
'e%"$o v. SEC

FACTS
- Aamiatul Philippine #l !slamia !nc. had an authorized capital stock of P455,555.55 di&ided into 45,555 shares at par &alue of P<5.55. >,55> shares were fully paid for. 0enito su"scri"ed to ?;5 shares. - !n <$65, the corporation filed a certificate of increase of its capital stock from P455,555.55 to P<,555,555.55. !t was shown in the certificate that P<$<,5;5.55 worth of shares were represented. - Thus, P<<5,$>5.55 worth of shares were su"se'uently issued "y the corporation from the unissued portion of the authorized capital stock of P455,555.55. 2f the increased capital stock of P<,555,555.55, P<;5,555.55 worth of shares were su"scri"ed "y %amos, Cucman and #lonto. - 0enito filed a petition with the EC praying that the additional issue of shares of pre&iously authorized capital stock as well as the shares issued from the increase of capital stock "e

ISSUE/S
- *hether or not a stockholders. meeting is necessary for the issuance of the unsu"scri"ed portion of the capital stock

HELD
- 82. The power to issue shares of stocks in the corporation is lodged in the 023 and no stockholders. meeting is necessary to consider it "ecause additional issuance of shares of stock does not need the appro&al of the stockholders. - The "y:laws of the corporation itself states that Ethe 0oard of Trustees shall, in accordance with law, pro&ide for the issue and transfer of shares of stock of the !nstitute and shall prescri"e the form of the certificate of stock of the !nstituteF. - 82. The general rule is that the pre:empti&e 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 ha&e offered all of those which it is authorized to issue. #n original su"scri"er is deemed to ha&e taken his shares knowing that they form a definite proportionate part of the whole num"er of authorized shares. -

DOCTRINE

- *hether or not a stockholder en/oys pre: empti&e right to "uy unissued shares of originally authorized capital stock.

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

cancelled on the following grounds= - the stockholders were not notified of the meeting wherein the proposed increase was in the agenda - the additional issue of pre&iously su"scri"ed shares was made in &iolation of his pre:empti&e right to said additional issue

- *hen the shares left unsu"scri"ed are later reoffered, he cannot therefore claim a dilution of interest.

Section 40 TITLE
I+la#"c D"!ec$o!a$e v. CA

FACTS
- *he Islamic ;irectorate of the Philippines =I;P> is composed of all ma9or tribal groups in the Phils. - When martial law was declared, most of the members of the &oard of *rustees went into hiding to escape political persecution. - *hereafter, 2 "uslim groups sprung ? the Carpizo group and the *amano group. &oth claim to be the legitimate I;P. - In a suit between them, howe+er, the 7$C declared that neither of them are I;P board members and further ordered the election of a new board members. - Without ha+ing been elected as &oard "embers, the Carpizo group sold a parcel of land owned by the I;P to the Iglesia ni Cristo =I4C>. - *he I;P now see s to ha+e the contract of sale declared null and +oid because the Carpizo group is bereft of any authority to bind I;P in any ind of transaction. - 8ell Company sued !nsular Barms for the unpaid "alance of the purchase price of the pump that it sold to the latter. #fter the writ of e7ecution was returned unsatisfied "ecause the !nsular Barms has no le&ia"le property, 8ell Company sued against Pacific Barms to claim the amount upon the theory that the latter company is an alter ego of !nsular Barms. - Pacific Barms "ought <,555 shares of !nsular and then sold them to a group of indi&iduals

ISSUE/S
- W:4 the contract of sale entered into between the Carpizo group and I4C is +alid

HELD
- 4#. - *he Corporation Code pro+ides that for the sale to be +alid, the ma9ority +ote of the legitimate &oard of "embers:*rustees must be obtained and concurred in by the +ote of at least 2:0 of the bona fide members of the corporation. - 7ince the 7C had earlier ruled that the election of the Carpizo group as board members is null and +oid, the latter is bereft of any authority to bind the I;P in any ind of transaction.

DOCTRINE

Ed)a!d Nell v. Pac"."c Fa!#+

- *hether or not Pacific Barms is lia"le to 8ell Company.

- C held that it is not lia"le "ecause= - The sale was not entered into to defraud 8ell "ecause the sale happened < month "efore the filing of the case. - Pacific purchased the shares as the highest "idder at an auction sale held at the instance of "ank to which the shares were pledged. - Pacific paid for the shares separately from the su"se'uent sale of assets. - 8o consolidation or merger "ecause the

- Jenerally where a corporation sells or otherwise transfers all of its assets to another corporation, the latter is not lia"le for the de"ts and lia"ilities of the transferor, e7cept= <. *here the purchaser e7pressly or impliedly agrees to assume such de"ts, 4. *here the transaction amounts
6

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

who reorganized the corporation, then the 023 sold the reorganized company and all of its assets to 8ell for <5,555.

allegations of "eing an alter ego clearly negates such. - The inade'uacy of the P<5,555 is untena"le "ecause the sale was appro&ed "y the EC, hence, price was fair and reasona"le.

to a consolidation or merger of the corporation, ,. *here the purchasing corporation is merely a continuation of the selling corporation, ?. *here the transaction is entered into fraudulently in order to escape lia"ility for such de"ts.

Section 41 TITLE
S$e"%&e!g v. /ela+co -

FACTS
tein"erg is the recei&er of the i"uguey Trading Company. !t is alleged that the defendants (president, &ice president, secretary:treasurer and director), at a meeting, appro&ed and authorized &arious unlawful purchases already made of a large portion of the capital stock of i"uguey from its &arious stockholders, there"y di&erting its funds to the in/ury, damage, and in fraud of the creditors of the corporation. 0Sec. 12 a33l"ca&le4 That when the capital stock amounting to Php ,,,55 was purchased, i"uguey had accounts paya"le to a"out Php <?K. #s another cause of action, it is also alleged that the officers and directors of the corporation appro&ed a resolution for the payment of Php ,K di&idends to its stockholders when during that time i"uguey had accounts paya"le of a"out Php $K. 0Sec. 15 a33l"ca&le4 tein"erg prayed that the defendants "e lia"le for the amount of the capital stock purchased and the amount of the di&idends paid. The lower court dismissed the complained and rendered /udgment in fa&or of the defendants.

ISSUE/S
- *hether i"uguey could legally purchase its own stock. 0Sec. 124

HELD
- 82. !n this issue, the C held that the directors did not act in good faith or that they were grossly ignorant of their duties. - !t appeared that the action of the "oard in purchasing the stock and in declaring di&idends was all done at the same meeting of the "oard of directors. #t that time, Janzon and Mendaros were formally directors and resigned "efore the "oard appro&ed the purchase and declared di&idends. - !n other words, they were permitted to resign so that they could sell their stock to the corporation. - 82. !t seemed that the "oard of directors acted on the assumption that, "ecause it appeared from the "ooks that it had accounts recei&a"le, therefore it had a surplus o&er and a"o&e its de"ts and lia"ilities. - -owe&er, the C noted that there was no stipulation as to the actual cash &alue of those accounts. Thus, that in the purchase of its own stock and in declaring di&idends, the real assets of the corporation were diminished "y Php ;,,55. - !n other words, the corporation did not ha&e then an actual bona fide surplus from which di&idends could "e paid, and that eh payment of them in full at that time would Eaffect the financial condition of the corporation.F

DOCTRINE
- See Section 41 - The creditors of a corporation ha&e the right to assume that so long as there are de"ts and lia"ilities, the "oard of directors of the corporation will not use its assets to purchase its own stock or to declare di&idends to its stockholders when the corporation is insol&ent. - !f the directors of a corporation do acts clearly "eyond their power, "y reason of which a loss ensued, or dispose of its property without authority, they will "e re'uired to make good the loss out of their pri&ate estate.

- *hether the 0oard of 3irectors of i"uguey could legally declare a di&idend. 0Sec. 154

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

>

- The C re&ersed the decision of the lower court and held the defendants lia"le.

Section 42 TITLE
De la Ra#a v. Ma6 ao Suga! Ce%$!al Co.7 I%c.

FACTS
- This case was filed "y four minority stockholders against the Ma:ao ugar Central and four of its directors. - !t is alleged that Ma:ao ugar Central, through its President (#raneta), su"scri"ed for Php ,55K worth of capital stock of the Philippine Bi"er Processing Co. - #t that at the time the first two payments were made, there was no "oard resolution authorizing such in&estment. !t was only a few months after that #raneta was authorized "y the 0oard of 3irectors. - !t was also alleged that ,55,555 shares of stock of Philippine Bi"er, owned "y Cuzon !ndustrial, were transferred to Ma:ao without prior "oard resolution. uch transfer howe&er was su"se'uently appro&ed. - The lower court held that the in&estment of corporate funds was not a &iolation of the Corporation Caw. !t considered the defendants correct in contending that since the company was engaged in the manufacture of sugar "ags it was legitimate for Ma:ao to either manufacture sugar "ags or in&est in another corporation engaged in said manufacture. - -owe&er, the lower court ordered Ma:ao to refrain from making in&estments in any other companied whose purpose is not connected with sugar central "usiness. - Jokongwei Ar. is a stockholder of an Miguel Corporation ( MC). -e seeks to ha&e the court nullify the amended "y:laws which dis'ualifies any person for nomination or election to the 0oard of 3irectors (023) if he is engaged in any "usiness whose interests are ad&erse to the MC. - !t was enacted "y the ma/ority of the 023.

ISSUE/S
- *hether the in&estment of the corporate funds "y Ma:ao in Philippine Bi"er constitutes a &iolation of the Corporation Caw.

HELD
- 82. The C agreed with the finding of the lower court that the in&estment in 'uestion does not fall under the pur&iew of the ection <6 L of the Corporation Caw. - The C 'uoted Prof. Jue&ara in e7plaining the said pro&ision. E uch an act, if done in pursuance of the corporate purpose, does not need the appro&al of the stockholders. 0ut when the purchase of shares of another corporation is done solely for in&estment and not to accomplish the purpose of its incorporation, the &ote of appro&al of the stockholders is necessary.F - #lso, Ewhen the in&estment is necessary to accomplish its purpose or purposes as stated in the articles of incorporation, the appro&al of stockholders is not necessary. - +E . The C re&ersed the order of the lower court refraining Ma:ao from making in&estments in other company whose purpose not connected with the sugar central "usiness. - !t reasoned that the Corporation Caw allows a corporation to in&est its funds in any other corporation or "usiness, or for any purpose other than the main purpose for which it was organized, pro&ided that its "oard of directors has "een so authorized "y the affirmati&e &ote of stockholders holding shares entitling them to e7ercise at lease 49, of the &oting power. - 82. The law allows a corporation to in&est its funds in any other corporation or "usiness or for any other purpose other than the main purpose for which it was organized. - The purchase of the "eer manufacturing facilities was in furtherance of the corporate purpose and as such, no prior appro&al of the stockholders was necessary.

DOCTRINE
- #n in&estment of corporate funds in another corporation, if done in pursuance of the corporate purpose, does not need the appro&al of the stockholders. - 0ut when the purchase of shares of another corporation is done solely for in&estment and not to accomplish the purpose of its incorporation, the &ote of appro&al of the stockholders is necessary. - Burther, when the purpose is as stated in its articles of incorporation, the appro&al of the stockholders is not necessary. - The Corporation Caw allows a corporation to in&est its funds in any other corporation or "usiness, or for any purpose other than the main purpose for which it was organized, pro&ided that its "oard of directors has "een so authorized "y the affirmati&e &ote of stockholders holding shares entitling them to e7ercise at lease 49, of the &oting power.

- *hether Ma:ao may make in&estments in any other company whose purpose is not connected with the sugar central "usiness.

8o9o%g)e" v. SEC

- *28 the transaction was in&alid

- !f the in&estment is made in the pursuance of the corporate purpose, it does not need the appro&al of the stockholders. - 0ut when the purchase of shares is done solely for in&estment and not to accomplish the purpose of its incorporation, the &ote of appro&al
$

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

8o9o%g)e" v. SEC 0MR4

- Jokongwei is also owner9stockholder of Uni&ersal %o"ina Corp. and CBC. 0oth "usinesses are engaged in agriculture, ice cream, coffee which are also "usinesses engaged in "y MC. - #s one of his causes of action, Jokongwei, 'uestions the in&estment of MC corporate funds without prior authority of the stockholders. - The transaction that he 'uestions is the purchase of "eer manufacturing facilities. - This purchase was later ratified "y the stockholders. - Petitioner seeks to nullify the en "anc decision of the EC upholding the findings of the an Miguel Corporation ( MC) 023 that Jokongwei is engaged in a "usiness competiti&e to that of MC. - Thus, he is ineligi"le to run for election as director, pursuant to the "y:laws. - Petitioner contends that the matter of his dis'ualification has not yet "een heard since an M% is pending "efore the C. - #ccording to the petitioner, EC failed to consider that MC cannot dis'ualify Jokongwei "ecause they were in pari delicto since some of the "oard mem"ers were also dis'ualified "eing similarly situated like the petitioner. - #lso, petitioner claims that the 023 of MC o&er e7erted its corporate power for them to remain in position.

- *28 the purchase was ultra &ires

- 82. The mere fact that MC su"mitted the in&estment for ratification at the annual meeting cannot "e construed as an admission that MC committed an ultra &ires act.

of the stockholders is needed. #t least 49, of the outstanding stock is needed.

- *28 the petition for re&iew should "e granted

- 82. - C already ruled on the &alidity of the "y:laws and such cannot "e re:litigated "eing the law of the case. - The alleged dis'ualification of some of the "oard mem"ers was not an issue during the hearingD nor has petitioner su"mitted e&idence to pro&e this contention. - The "asis of the EC.s order was "ased on se&eral testimonial e&idence as well as documentary e&idence su"mitted showing that petitioner is engaged in agricultural and poultry "usiness competiti&e with that of MC. 8o e&idence was offered "y the petitioner to re"ut such e&idence.

Section 43 TITLE
N"el+o% , Co. v. Le3a%$o Co%+ol"da$ed

FACTS
- 8ielson 1 Company entered into a management contract with Cepanto, where 8ielson was gi&en the right for fi&e years (renewa"le for the same period) to de&elop and operate the mining claims of Cepanto. - aid contract was modified and one of the contested pro&isions of which is that which

ISSUE/S
- *hether or not 8ielson should "e entitled to P,55,555 worth of stocks as compensation for its ser&ices.

HELD
- The C o&erruled its earlier decision, - !t is recognized that stocks can "e issued in e7change of cash, property or as undistri"uted profits. - The upreme Court then distinguished the legal implications of issuing stocks as di&idends and issuing of stocks in e7change for cash or

DOCTRINE
- E8o corporation shall issue stocks or "ond e7cept in e7change for actual cash paid to the corporation or for property actually received "y itMor for profits earned "y it "ut not distri"uted among its stockholders
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grants 8ielson as compensation for its ser&ices E<5@ of any di&idends declared and paid.F - The C ruled "efore that the import of this pro&ision is that 8ielson will "e gi&en <5@ of what is actually going to "e declared and distri"uted as di&idends "y Cepanto. - Thus, since Cepanto declared a total of P,M of di&idends during the period of e7tension of the contract, the C ordered Cepanto to grant P,55,555 worth of its stocks to 8ielson. - Cepanto contests this /udgment primarily "ecause such pro&ision, as alleged, is contrary to the Corporation Code.

S$e"%&e!g v.

tein"erg is the recei&er of the i"uguey

- *hether i"uguey could

property. - 2n the one hand, issuing stocks in payment of ser&ices is considered as to "e one in e7change of property since ser&ices are deemed as property. - #nd the Court enunciated that issuance of stocks in e7change of cash or property is culled from the original capitalization of the company or from the increased capitalization. They are done in order to generate capital. Thus, they can "e issued to persons not yet stockholders of the company. - This is not howe&er the case with stock di&idends. # di&idend is defined as the portion of the profits of the enterprise which the corporation sets apart for rata"le di&ision among the holders of the capital stock. - Brom this definition, it can "e easily gleaned that stocks issued as di&idend can only "e issued to e7isting stockholders, since they are the only ones entitled to a proportional share in that part of the surplus which is declared as di&idends. - Brom this conclusion, it is not right to gi&e 8ielson a corresponding <5@ of the stocks di&idend declared since this amounts to issuance of stocks to someone not yet a stockholder. - Burthermore, since di&idends are distri"uted rata"ly, issuance of stock di&idends to Cepanto in payment of his compensation will depri&e other stockholders to their rightful share of the profits. - Binally, The Court also looked upon the minutes held "y "oth parties to interpret the contested pro&ision of the contract. !t was seen that the intention was only to tie the computation of 8ielson.s compensation with <5@ of the declared di&idends, in what form they might "e. The di&idend is only the "asis "ut not the source for such payment. - #s such, the C modified its ruling entitling 8ielson with P,55,555 in cash and ;@ legal interest of such amount. - 82. !n this issue, the C held that the directors

or mem"ers.F tocks issued in e7change for cash or property are issued for capital generation and can "e issued to a non:stockholder. - tock di&idends should "e considered as <.) a di&idend, and 4.) an enforced use of the di&idend money to purchase additional shares at par. - # di&idend is defined as the portion of the profits of the enterprise which the corporation sets apart for rata"le di&ision among the holders of the capital stock. - #s such, stock di&idends can only "e granted to e7isting stockholders in proportion to their shares. -

- See Section 43
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al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

/ela+co

Trading Company. - !t is alleged that the defendants (president, &ice president, secretary:treasurer and director), at a meeting, appro&ed and authorized &arious unlawful purchases already made of a large portion of the capital stock of i"uguey from its &arious stockholders, there"y di&erting its funds to the in/ury, damage, and in fraud of the creditors of the corporation. 0Sec. 12 a33l"ca&le4 - That when the capital stock amounting to Php ,,,55 was purchased, i"uguey had accounts paya"le to a"out Php <?K. - #s another cause of action, it is also alleged that the officers and directors of the corporation appro&ed a resolution for the payment of Php ,K di&idends to its stockholders when during that time i"uguey had accounts paya"le of a"out Php $K. 0Sec. 15 a33l"ca&le4 - tein"erg prayed that the defendants "e lia"le for the amount of the capital stock purchased and the amount of the di&idends paid. - The lower court dismissed the complained and rendered /udgment in fa&or of the defendants.

legally purchase its own stock. 0Sec. 124 -

- *hether the 0oard of 3irectors of i"uguey could legally declare a di&idend. 0Sec. 154 -

did not act in good faith or that they were grossly ignorant of their duties. !t appeared that the action of the "oard in purchasing the stock and in declaring di&idends was all done at the same meeting of the "oard of directors. #t that time, Janzon and Mendaros were formally directors and resigned "efore the "oard appro&ed the purchase and declared di&idends. !n other words, they were permitted to resign so that they could sell their stock to the corporation. 82. !t seemed that the "oard of directors acted on the assumption that, "ecause it appeared from the "ooks that it had accounts recei&a"le, therefore it had a surplus o&er and a"o&e its de"ts and lia"ilities. -owe&er, the C noted that there was no stipulation as to the actual cash &alue of those accounts. Thus, that in the purchase of its own stock and in declaring di&idends, the real assets of the corporation were diminished "y Php ;,,55. !n other words, the corporation did not ha&e then an actual bona fide surplus from which di&idends could "e paid, and that eh payment of them in full at that time would Eaffect the financial condition of the corporation.F The C re&ersed the decision of the lower court and held the defendants lia"le.

- The creditors of a corporation ha&e the right to assume that so long as there are de"ts and lia"ilities, the "oard of directors of the corporation will not use its assets to purchase its own stock or to declare di&idends to its stockholders when the corporation is insol&ent. - !f the directors of a corporation do acts clearly "eyond their power, "y reason of which a loss ensued, or dispose of its property without authority, they will "e re'uired to make good the loss out of their pri&ate estate.

Section 45 TITLE
P"!ova%o v. dela Ra#a

FACTS
- Enrico Piro&ano was e7ecuted "y the Aapanese. - The 0oard of 3irectors of 3e la %ama teamship Co., composed chiefly of mem"ers of the 3e la %ama family, adopted a resolution donating the proceeds of the life insurance policies of said Enrico Piro&ano, hus"and of Estefania de la %ama, to his minor children. - The donation was made in recognition of Piro&ano.s contri"ution to the great success of

ISSUE/S
- *hether or not the corporation.s donation was ultra vires and therefore in&alid.

HELD
- 82. # re&iew of the corporation.s articles of incorporation manifested that the corporation had "road powers to= a) deal with the moneys of the company not immediately required, in such manner as from time to time may be determined; and ") to aid in any other manner any person, association, or corporation of which any

DOCTRINE
- *ith respect to the meaning, e7tent, and scope of an ultra vires act, many authorities are uniform and unanimous that the same may "e either an act performed merely outside the scope of the powers granted to corporation "y its articles of incorporation, or one which is
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the company when he was president and general manager thereof. !t was earlier resol&ed that P?55,555 worth of shares, or ?,555 shares with a par &alue of P<55 per share, will "e issued in fa&or of Piro&ano.s children where each of the four children will get <,555 shares. -owe&er, this was later nullified upon showing "y Courdes de la %ama, wife of ergio 2smeNa, Ar., that the &alue of the stocks then was ,.; times their par &alue, thus P<.?? million was the amount in fact donated. #nother resolution was adopted where"y the company renounced its rights to the proceeds of the life insurance policies "ut were retained as a loan drawing interest paya"le after its 8ational 3e&elopment Co. o"ligation shall ha&e "een settled. # 8ew +ork property owned "y 3emwood %ealty, upon appro&al "y the 0oard of 3irectors, was purchased "y Mrs. Piro&ino from the proceeds of the insurance policies. The latter resolution with some clarifying modifications, including the purchase of the 8ew +ork property, was ratified "y the stockholders ergio 2smeNa, Ar. as the new President and Jeneral Manager challenged the &alidity of the donation with the EC which decided that the act was &oid as "eing ultra vires "ecause the corporation could not dispose of its assets "y gift. # measure was thus considered to circum&ent the prohi"ition "y way of declaring cash di&idends and asking the shareholders to donate the same to the minor children "ut did not materialize. Ma/ority of the stockholders thereafter re&oked the donation. The minor children thus "rought an action demanding payment of he credit due them.

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

obligation of in which any interest is held by this corporation or in the affairs or prosperity of which this corporation has a lawful interest. Under the first power, the word deal is "road enough to include any manner of disposition, and refers to moneys not immediately re'uired "y the corporation, and such disposition may "e made in such manner as from time to time may "e determined "y the corporation. The donation in 'uestion is within the scope of said "road power for it is a fact appearing in the e&idence that the insurance proceeds were not immediately re'uired when they were gi&en away. Under the second "road power, the record of the case is replete with instances which clearly show that the corporation knew well its scope and meaning as many similar donations were made to former employees and e&en non: employees "y reason of certain moral or political considerations. #n issue could "e raised as to the size of the donation "ut aside from "eing similar to the past donations, gratuities or pensions, the gratuity here was gi&en not merely moti&ated "y pure li"erality "ut also "y a deep sense of recognition of Enrico Piro&ano.s contri"utions to the corporation. !t is also to "e considered that Enrico Piro&ano is a mem"er of the de la %ama family, ha&ing "een married to one of the de la %ama scions. #lso, granting innuendo that the donation was ultra vires, the resolution was adopted "y the 0oard of 3irectors and was later on ratified "y the stockholders, thus o"literating any infirmity and making the act perfectly &alid and enforcea"le. The corporation is thus now pre&ented or estopped from contesting the &alidity of the donation. !t is not contended that donation was illegal or contrary to any of the e7press pro&isions of the

contrary to law or &iolati&e of any principle which would &oid any contract whether done indi&idually or collecti&ely. - !llegal corporate acts contemplate the doing of an act contrary to law, morals, or pu"lic order, etc. and are &oid. - Mere ultra vires acts which are not illegal or &oid a" initio "ut are not merely within the scope of the articles of incorporation, are merely &oida"le and may "ecome "inding and enforcea"le when ratified "y the stockholders. - (#s deduced) ultra vires acts are &alid when they are appro&ed "y the 0oard and ratified "y the stockholders. They are not merely e7ecutory "ut e7ecuted and consummated, and no creditors are pre/udiced, or if there are creditors affected, the latter ha&e e7pressly gi&en their conformity.

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Re3u&l"c v. Aco:e M"%"%g

- #co/e Mining Company, !nc. wrote the 3irector of Posts re'uesting the opening of a post, telegraph and money order offices at its mining camp at ta. Cruz, Oam"ales, to ser&ice its employees and their families that were li&ing in said camp. - #cting on the re'uest, the 3irector of Posts wrote in reply stating that if aside from free 'uarters the company would pro&ide for all essential e'uipment and assign a responsi"le employee to perform the duties of a postmaster without compensation from his office until such time as funds therefor may "e a&aila"le he would agree to put up the offices re'uested. - The company in turn replied signifying its willingness to comply with all the re'uirements outlined in the letter of the 3irector of Posts re'uesting at the same time that it "e furnished with the necessary forms for the early esta"lishment of a post office "ranch. - The 3irector of Posts again wrote a letter to the company stating among other things that P!n cases where a post office will "e opened under circumstances similar to the present, it is the policy of this office to ha&e the company assume direct responsi"ility for whate&er pecuniary loss may "e suffered "y the 0ureau of Posts "y 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,P there"y suggesting that a resolution "e adopted "y the "oard of directors of the company e7pressing conformity to the a"o&e condition relati&e to the responsi"ility to "e assumed "uy it in the e&ent a post office "ranch is opened as re'uested.

- W#4 the resolution is ultra +ires

articles of incorporation, nor pre/udicial to the creditors of the corporation. - To allow the corporation to re&oke the donation would not only "e unfair "ut would also contra&ene the well:settled doctrine that the defense of ultra vires cannot "e set up or a&ailed of in completed transactions. - 82. The contention that the resolution adopted "y the "oard is ultra &ires in the sense that it has no authority to act on a matter which may render the company lia"le as a guarantor has no factual or legal "asis. !n the first place, it should "e noted that the opening of a post office "ranch at the mining camp the corporation was undertaken "ecause of a re'uest su"mitted "y it to promote the con&enience and "enefit of its employees. The idea did not come from the go&ernment, and the 3irector of Posts was pre&ailed upon to agree to the re'uest only after studying the necessity for its esta"lishment and after imposing upon the company certain re'uirements intended to safeguard and protect the interest of the go&ernment. - Thus, after the company had signified its willingness to comply with the re'uirement of the go&ernment that it furnish free 'uarters and all the essential e'uipment that may "e necessary for the operation of the office including the assignment of an employee who will perform the duties of a postmaster, the 3irector of Posts agreed to the opening of the post office stating that P!n cases where a post office will "e opened under circumstances similar to the present, it is the policy of this office to ha&e the company assume direct responsi"ility for whate&er pecuniary loss may "e suffered "y the 0ureau of Posts "y 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,P and accepting this condition, the company, thru its "oard of directors, adopted forthwith a resolution of the following tenor=

- The weight of authority in the state courts is to the effect that a transaction which is merely ultra &ires and not malum in se or malum prohi"itum, is, if performed "y one party, not &oid as "etween the parties to all intents and purposes, and that an action may "e "rought directly on the transaction and relief had according to its terms. - This rule is "ased on the consideration that as "etween pri&ate corporations, one party cannot recei&e the "enefits which are em"raced in total performance of a contract made with it "y another party and then set up the in&alidity of the transaction as a defense.P - The defense of ultra &ires rests on &iolation of trust or duty toward stockholders, and should not "e entertained where its allowance will do greater wrong to innocent parties dealing with corporation. - The acceptance of "enefits arising from the performance "y the other party may gi&e rise to an estoppel precluding repudiation of the transaction. - The current of modern authorities fa&ors the rule that where the ultra &ires transaction has "een e7ecuted "y the other party and the corporation has recei&ed the
<?

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

- The company informed the 3irector of Posts of the passage "y its "oard of directors of a resolution of the following tenor= PThat the re'uirement of the 0ureau of Posts that the Company should accept full responsi"ility for all cash recei&ed "y the Postmaster "e complied with, and that a copy of this resolution "e forwarded to the 0ureau of Posts.P - The letter further states that the company feels that that resolution fulfills the last condition imposed "y the 3irector of Posts and that, therefore, it would re'uest that an inspector "e sent to the camp for the purpose of ac'uainting the postmaster with the details of the operation of the "ranch office. - The post office "ranch was opened at the camp with anchez as postmaster. - The postmaster went on a three:day lea&e "ut ne&er returned. The company immediately informed the officials of the Manila Post 2ffice and the pro&incial auditor of Oam"ales of anchezI disappearance with the result that the accounts of the postmaster were checked and a shortage was found in the amount of P<,,>;6.4?. - The se&eral demands made upon the company for the payment of the shortage in line with the lia"ility it has assumed ha&ing failed, the go&ernment commenced the action seeking to reco&er the amount of Pl,,>;6.4?. The company in its answer denied lia"ility for said amount contending that the resolution of the "oard of directors wherein it assumed responsi"ility for the act of the postmaster is ultra &ires, and in any e&ent its lia"ility under said resolution is only that of a guarantor who answers only after the e7haustion of the properties of the principal, aside from the fact that the loss claimed "y the plaintiff is not supported "y the office record.

PThat the re'uirement of the 0ureau of Posts that the company should accept full responsi"ility for all cash recei&ed "y the Postmaster, "e complied with, and that a copy of this resolution "e forwarded to the 0ureau of Posts.P - The claim that the resolution adopted "y the "oard of directors of appellant company is an ultra &ires act cannot also "e entertained it appearing that the same co&ers a su"/ect which concerns the "enefit, con&enience and welfare of its employees and their families. *hile as a rule an ultra &ires act is one committed outside the o"/ect for which a corporation is created as defined "y the law of its organization and therefore "eyond the powers conferred upon it "y law, there are howe&er certain corporate acts that may "e performed outside of the scope of the powers e7pressly conferred if they are necessary to promote the interest or welfare of the corporation. Thus, it has "een held that Palthough not e7pressly authorized to do so a corporation may "ecome a surety where the particular transaction is reasona"ly necessary or proper to the conduct of its "usiness,P and here it is undisputed that the esta"lishment of the local post office is a reasona"le and proper ad/unct to the conduct of the "usiness of appellant company. !ndeed, such post office is a &ital impro&ement in the li&ing condition of its employees and la"orers who came to settle in its mining camp which is far remo&ed from the postal facilities or means of communication accorded to people li&ing in a city or municipality. - E&en assuming that the resolution in 'uestion constitutes an ultra &ires act, the same howe&er is not &oid for it was appro&ed not in contra&ention of law, customs, pu"lic order or pu"lic policy. The term ultra &ires should "e distinguished from an illegal act for the former is merely &oida"le which may "e enforced "y performance, ratification, or estoppel, while the

"enefit of it, the law interposes an estoppel, and will not permit the &alidity of the transaction or contract to "e 'uestioned, and this is especially true where there is nothing in the circumstances to put the other party to the transaction on notice that the corporation has e7ceeded its powers in entering into it and has in so doing o&erstepped the line of corporate pri&ileges.

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

<5

Ca!lo+ v. M"%do!o Suga!

- *his is an action to reco+er the +alue of @ bonds issued by "indanao 7ugar Company and placed in trust with the Philippine *rust Company. - "indanao is a corporation incorporated here in the Phils. - #n the other hand, Phil. *rust Company is another domestic corporation with the principal purpose is to engage in the trust business. - #n 4o+. 1,, 1A1,, the &#;6s of Phil. *rust adopted a resolution authorizing its president, among others, to purchase at par and in the name and for the use of the trust corporation all or such part as he may deem e3pedient, of the bonds in the +alue of P0,///,/// that "indoro was about to issue, and to resell them, with or without the guarantee of said trust corporation, at a price not less than par, and to guarantee to the P4& the payment of the indebtedness to said ban by "indoro up to P2,///,///. - Pursuant to this, "indoro e3ecuted in fa+or of Phil. *rust Co. the deed of trust, transferring all of its property to it in consideration of the bonds it had issued to the +alue of P0,///,/// - Phil. *rust sold 10 bonds to a certain Ramon ;iaz at a net profit of P1// per bond. *he four bonds in dispute are included here.

- W#4, the lower court erred in saying that the Phil. *rust Co. has no power to guarantee the obligation of another 9uridical personality, for +alue recei+ed.

latter is &oid and cannot "e &alidated. !t "eing merely &oida"le, an ultra &ires act can "e enforced or &alidated if there are e'uita"le grounds for taking such action. -ere it is fair that the resolution "e upheld at least on the ground of estoppel. 8either can we entertain the claim of appellant that its lia"ility is only that of a guarantor. # mere reading of the resolution of the 0oard of 3irectors would show that the responsi"ility of the defendant company is not /ust that of a guarantor. 8otice that the phraseology and the terms employed are so clear and sweeping and that the defendant assumed Ifull responsi"ility for all cash recei&ed "y the Postmaster. -ere the responsi"ility of the defendant is not /ust that of a guarantor. !t is clearly that of a principal. Bes. Phil. *rust although secondarily engaged in ban ing, was primarily organized as a trust corporation with full power to ac)uire personal property such as the bonds in )uestion according to the Corporation 5aw. *hus, being authorized to ac)uire the bonds, it was gi+en implied power to guarantee them in order to place them upon the mar et under better, more ad+antageous conditions, and thereby secure the profit deri+ed from their sale. ' corporation which has power by its charter to issue its own bonds has power to guarantee the bonds of another corporation, which has been ta en in payment of its own debt, the guaranty being gi+en to enable it to dispose of the bond to better ad+antage, 'nd so, guarantee of payment of bonds ta en by a loan and trust company in the ordinary course of its business, made in connection with their sale, are not ultra +ires, and are binding. 'lso, although it is not clear that "indoro transferred the bonds to Phil. *rust, ne+ertheless, the president of Phil. *rust was e3pressly authorized to purchase all or some of the bonds and to guarantee them. *here are other considerations leading to the

- CIt is not, howe+er ultra-+ires for a corporation to enter into contracts of guaranty or suretyship where it does so in the legitimate furtherance of its purposes and business. 'nd it is well settled that where a corporation ac)uires 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 ma e them the more readily mar etable indorse or guarantee their payment. - CWhen a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the absence of proof to the contrary, be presumed +alid. Corporations are presumed to contract within their powers. *he doctrine of ultra vires, when in+o ed for or against a corporation, should not be allowed to pre+ail where it would
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al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

;a3a%e+e Wa! No$e+ v. SEC

C!"+ologo6;o+e v. CA

- Phil. *rust paid appellant upon presentation of the coupons the stipulated interest until when it stopped payments when it alleged that it did not deem itself bound to pay such interest or to redeem the obligation because the guarantee gi+en for the bonds was illegal and +oid. - <ence this appeal by the appellant. - #"cede, President of A*8C#! , a non:stock non profit corporation, was issued an order to show cause why it should not "e proceeded against for= - <) making misrepresentations to the pu"lic a"out the need for registering and depositing Aapanese war notes, with a &iew to their possi"le redemptionD - 4) recei&ing deposits of such notes and charging fees thereforD - ,) accepting and collecting fees for reparation claims for ci&ilian casualties and other in/uries. - :#"cede claims that these acts are not prohi"ited "y the Corporation Caw, and the corporation.s authority to engage in such acts is implied from its #rticles of !ncorporation. - This is a case for the &iolation of 0P44. - #tty. 0enares and %icardo antos are the signatories of the check in 'uestion. They are the president and &ice:president, respecti&ely, of Mo&er Enterprises. The check was under the account of Mo&er Enterprises and drawn against Traders %oyal 0ank. - 0enares and antos issued a check to Ernestina Crisologo:Aose as consideration for her wai&er o&er a certain property w9c the J ! agreed to sell to their client, spouses 2ng, w9 the understanding that upon appro&al of the J ! of the compromise agreement, the check will "e encashed accordingly. ince the agreement was not appro&ed within the e7pected time, it was replaced. Upon deposit, howe&er, said check was dishonored for insufficiency of funds. Thus, this case for &iolation of 0P 44 fiels "y Crisologo:Aose against 0enares and antos. - 0enares and antos contends that the check was

same conclusion that Phil. *rust didn6t ac)uire the bonds but 9ust guaranteed them. - In such a case, the guarantee would be +alid and Phil. *rust would be bound to pay the Carlos their +alue with the accrued interest. - *hether or nor A*8C#! had the right to continue with the a"o&ementioned acti&ities. - 82. - Under its articles of !ncorporation, A*8C#! is a non:profit corporation. Thus, it must not engage in "usiness for profit. - A*8C#! has the pri&ilege to work for the redemption of war notes of its mem"ers alone, "ut it cannot offer its ser&ices to the pu"lic for a consideration. - #s to the third acti&ity, C held that it has no relation to the a&owed purpose of the corporation.

defeat the ends of 9ustice or wor as a legal wrong.D

- *98 0enares and antos are personally lia"le for the check issued under the account of Mo&er Enterprises

- +es. - The law pro&ides that an officer or an agent of a corporation shall ha&e the power to e7ecute or indorse a negotia"le paper in the name of the corporation for the accommodation of a third person only if he is specifically authorized to do so. #"sent such authority, such act is ultra &ires. -ence, it cannot "e enforced against the corporation "ut only against the signatories thereof who shall "e personally lia"le thereofr. -

- Ultra &ires acts done "y agents of the corporation cannot "e enforced against the corporation e&en if made in the name of the latter.

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

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issued for accommodation purposes "y Mo&er Enterprises and they merely signed it in a representati&e capacity. -ence, they are not lia"le.

al&in, cecille, c/, dianne, irish, /ulie, lea, mars, nina, ryan 9 ateneo law 9 4C .55:.5;

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