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Category Archives: Corporation Law

Chung Ka Bio vs Intermediate Appellate Court (1988)


Facts: Philippine Blooming Mills Company, Inc. was incorporated for a term of 25 years. The members of its board of
directors executed a deed of assignment of all of the accounts receivables, properties, obligations and liabilities of the
old PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM, then in the process of
reincorporation. The new PMB was issued a certificate of incorporation by the Securities and Exchange Commission.
Chung Ka Bio and the other petitioners herein, all stockholders of the old PBM, filed with the SEC a petition for
liquidation of both the old PBM and the new PBM. The allegation was that the former had become legally non-existent
for failure to extend its corporate life and that the latter had likewise beenipso facto dissolved for non-use of the
charter and continuous failure to operate within 2 years from incorporation.

Issue: WON, The new corporation has not substantially complied with the two-year requirement of Section 22 of the
new Corporation Code on non-user because its stockholders never adopted a set of by-laws.

Held: No. Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(i) of PD
902-A, the SEC is empowered to suspend or revoked, after proper notice and hearing, the franchise or certificate of
registration of a corporation on the ground inter alia of failure to file by-laws within the required period. It is clear
from this provision that there must first of all be a hearing to determine the existence of the ground, and secondly,
assuming such finding, the penalty is not necessarily revocation but may be only suspension of the charter. In fact,
under the rules and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the
imposition of an administrative fine without affecting the corporate existence of the erring firm.
Loyola Grand Villas Homeowners (South) Association vs Court of Appeals (1997)

Facts: LGVHAI was organized as the association of homeowners and residents of the Loyola Grand Villas. 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. The officers of the LGVHAI tried
to register its by-laws. They failed to do so. To the officers consternation, they discovered that there were two other
organizations within the subdivision the North Association and the South Association. When one of the officers
inquired about the status of LGVHAI, the head of the legal department of the HIGC, informed him that LGVHAI had
been automatically dissolved for two reasons. First, it did not submit its by-laws within the period required by the

Corporation Code and, second, there was non-user of corporate charter because HIGC had not received any report
on the associations activities.

Issue: WON the LGVHAIs failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code
had the effect of automatically dissolving the said corporation?

Held: No. There can be no automatic corporate dissolution simply because the incorporators failed to abide by the
required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright demise of corporate
existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or
society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy
the same. Non-filing of the by-laws will not result in automatic dissolution of the corporation. In fact, under the rules
and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition of an
administrative fine without affecting the corporate existence of the erring firm.
Crisologo-Jose vs Court of Appeals (1989)

Facts: 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. Atty. Benares, in accommodation of his
clients, the spouses Jaime and Clarita Ong, issued check against Traders Royal Bank, 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. 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 spouses Jaime and Clarita Ong, with the understanding that upon approval by the GSIS
of the compromise agreement with the spouses Ong, the check will be encashed accordingly. Since the compromise
agreement was not approved within the expected period of time, the aforesaid check was replaced by Atty. Benares.
This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When
defendant deposited this replacement check with her account at Family Savings Bank, Mayon Branch, it was
dishonored for insufficiency of funds. The petitioner filed an action against the corporation for accommodation party.
Issue: WON the corporation can be held liable as accommodation party?
Held: No. 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 vicepresident, 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.
Francisco vs GSIS (1963)

Facts: The plaintiff, Trinidad J. Francisco, in consideration of a loan mortgaged in favor of the defendant, Government
Service Insurance System a parcel of land known as Vic-Mari Compound, located at Baesa, Quezon City. The
System extrajudicially foreclosed the mortgage on the ground that up to that date the plaintiff-mortgagor was in
arrears on her monthly instalments. The System itself was the buyer of the property in the foreclosure sale. The
plaintiffs father, Atty. Vicente J. Francisco, sent a letter to the general manager of the defendant corporation, Mr.
Rodolfo P. Andal. And latter the System approved the request of Francisco to redeem the land through a telegram.
Defendant received the payment and it did not, however, take over the administration of the compound. The System
then sent a letter to Francisco informing of his indebtedness and the 1 year period of redemption has been expired.
And the System argued that the telegram sent to Francisco saying that the System has approved the request in
redeeming the property is incorrect due to clerical problems.
Issue: WON the System is liable for the acts of its employees regarding the telegram?
Held: Yes. There was nothing in the telegram that hinted at any anomaly, or gave ground to suspect its veracity, and
the plaintiff, therefore, can not be blamed for relying upon it. There is no denying that the telegram was within Andals
apparent authority. Hence, even if it were the board secretary who sent the telegram, the corporation could not evade
the binding effect produced by the telegram. Knowledge of facts acquired or possessed by an officer or agent of a
corporation in the course of his employment, and in relation to matters within the scope of his authority, is notice to
the corporation, whether he communicates such knowledge or not. Yet, notwithstanding this notice, the defendant
System pocketed the amount, and kept silent about the telegram not being in accordance with the true facts, as it now
alleges. This silence, taken together with the unconditional acceptance of three other subsequent remittances from
plaintiff, constitutes in itself a binding ratification of the original agreement.
Ramirez vs Orientalist Co. (1918)

Facts: Orientalist Company was engaged in the business of maintaining and conducting a theatre in the city of Manila
for the exhibition of cinematographic films. engaged in the business of marketing films for a manufacturer or
manufacturers, there engaged in the production or distribution of cinematographic material. In this enterprise the
plaintiff was represented in the city of Manila by his son, Jose Ramirez. The directors of the Orientalist Company
became apprised of the fact that the plaintiff in Paris had control of the agencies for two different marks of films,
namely, the Eclair Films and the Milano Films; and negotiations were begun with said officials of the Orientalist
Company by Jose Ramirez, as agent of the plaintiff. The defendant Ramon J. Fernandez, one of the directors of the
Orientalist Company and also its treasure, was chiefly active in this matter. Ramon J. Fernandez had an informal
conference with all the members of the companys board of directors except one, and with approval of those with
whom he had communicated, addressed a letter to Jose Ramirez, in Manila, accepting the offer contained in the
memorandum the exclusive agency of the Eclair films and Milano films. In due time the films began to arrive in Manila,
it appears that the Orientalist Company was without funds to meet these obligations. Action was instituted by the
plaintiff to Orientalist Company, and Ramon J. Fernandez for sum of money.
Issue: WON the Orientalist Co. is liable for the acts of its treasurer, Fernandez?
Held: Yes. It will be observed that Ramon J. Fernandez was the particular officer and member of the board of
directors who was most active in the effort to secure the films for the corporation. The negotiations were conducted by
him with the knowledge and consent of other members of the board; and the contract was made with their prior
approval. In the light of all the circumstances of the case, we are of the opinion that the contracts in question were
thus inferentially approved by the companys board of directors and that the company is bound unless the subsequent
failure of the stockholders to approve said contracts had the effect of abrogating the liability thus created.
Carlos vs Mindoro Sugar Co. (1932)

Facts: This is an action to recover from the defendants the value of four bonds with due and unpaid interest thereon,
issued by the Mindoro Sugar Company and placed in trust with the Philippine Trust Company. Mindoro Sugar
Company is a corporation constituted in accordance with the laws of the country. 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. Philippine Trust Company is another domestic
corporation its principal purpose, then, as its name indicates, is to engage in the trust business. The board of
directors of the Philippine Trust Company, adopted a resolution authorizing its president, among other things, to
purchase the bonds in the Mindoro Sugar Company that 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 Philippine National Bank the
payment of the indebtedness to said bank by the Mindoro Sugar Company. 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. Philippine Trust Company sold thirteen bonds, to Ramon Diaz. The
Philippine Trust Company paid the appellant, upon presentation of the coupons, the stipulated interest from the date

of their maturity then 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: WON PTC has the power to guarantee and does this act constitute an ultra vires act?
Held: No. It is not 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.
Whenever a corporation has the power to take and dispose of the securities of another corporation, of whatsoever
kind, it may, for the purpose of giving them a marketable quality, guarantee their payment, even though the amount
involved in the guaranty may subject the corporation to liabilities in excess of the limit of indebtedness which it is
authorized to incur. A corporation which has power by its charter to issue its own bonds has power to guarantee the
bonds of another corporation, which has been taken in payment of a debt due to it, and which it sells or transfers in
payment of its own debt, the guaranty being given to enable it to dispose of the bond to better advantage. And so
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.
When 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 to be valid.
Montelibano vs Bacolod-Murcia Milling (1962)

Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and
Company, had been and are sugar planters adhered to the defendant-appellees sugar central mill under identical
milling contracts. Originally executed in 1919, said contracts were stipulated to be in force for 30 years starting with
the 1920-21 crop, and provided that the resulting product should be divided in the ratio of 45% for the mill and 55%
for the planters. Sometime in 1936, it was proposed to execute amended milling contracts, increasing the planters
share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending the
operation of the milling contract from the original 30 years to 45 years. The Board of Directors of the appellee
Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the planters over and above
those contained in the printed Amended Milling Contract. The appellants initiated the present action, contending that
three Negros sugar centrals with a total annual production exceeding one-third of the production of all the sugar
central mills in the province, had already granted increased participation (of 62.5%) to their planters, and that under
the resolution the appellee had become obligated to grant similar concessions to the plaintiffs. The appellee BacolodMurcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained in the resolution
were made without consideration; that the resolution in question was, therefore, null and void ab initio, being in effect
a donation that was ultra vires and beyond the powers of the corporate directors to adopt.
Issue: WON the board resolution is an ultra vires act and in effect a donation from the board of directors?

Held: No. There can be no doubt that the directors of the appellee company had authority to modify the proposed
terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting
parties. As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and
whether or not it will cause losses or decrease the profits of the central, the court has no authority to review them.
Whether the business of a corporation should be operated at a loss during depression, or close down at a smaller
loss, is a purely business and economic problem to be determined by the directors of the corporation and not by the
court. The appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20, 1936, duty
bound to grant similar increases to plaintiffs-appellants herein.
Apodaca vs NLRC (1989)

Facts: Petitioner was employed in respondent corporation. 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. Petitioner was appointed President and General Manager of the respondent
corporation. However, he resigned. 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. 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. The labor arbiter ruled in favor of the petitioner. Then, 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: WON the corporation can validly offset the unpaid shared in lieu of the wages?

Held: 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. 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, the NLRC has no
jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation as in the matter of
unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange Commission.
Western Institute of Technology vs Salas (1997)

Facts: Private respondents are the majority and controlling members of the Board of Trustees of Western Institute of
Technology, Inc. a stock corporation engaged in the operation, among others, of an educational institution. Then, the

board of directors amended their by laws giving the members of board of directors a compensation. The ten per
centum of the net profits shall be distributed equally among the ten members of the Board of Trustees. Few years
later, the private respondents were charged of falsification of public documents and estafa. The charge for falsification
of public document was anchored on the private respondents submission of WITs income statement for the fiscal
year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate
funds making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was
actually passed on June 1, 1986, a date not covered by the corporations fiscal year 1985-1986. After a full-blown
hearing TC handed down a verdict of acquittal on both counts without imposing any civil liability against the accused

Issue: WON the compensation of the board of directors as stated in their by laws violates the corporation code?

Held: NO. There is no argument that directors or trustees, as the case may be, are not entitled to salary or other
compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded
upon a presumption that directors/trustees render service gratuitously, and that the return upon their shares
adequately furnishes the motives for service, without compensation.
Under the foregoing section, there are only two (2) ways by which members of the board can be granted
compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation;
and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special
stockholders meeting agree to give it to them. In the case at bench, Resolution No. 48, s. 1986 granted monthly
compensation to private respondents not in their capacity as members of the board, but rather as officers of the
corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of
Technology. Clearly, therefore, the prohibition with respect to granting compensation to corporate directors/trustees as
such under Section 30 is not violated in this particular case.
Lopez vs Ericta (1972)

Facts: The case is about the ad interim appointment of the Dean of the College of Education in the UP. Pursuant
thereto Dr. Blanco assumed office as ad interim Dean on May 1, 1970. The Board of Regents met and President
Lopez submitted to it the ad interim appointment of Dr. Blanco for reconsideration. 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. President Lopez extended another ad
interim appointment to her with the same conditions as the first, namely, unless sooner terminated, and subject to the
approval of the Board of Regents and to pertinent University regulations. Then, the election was held. The roll-call
voting on which the Chairman of the Board of Regents based his ruling aforesaid gave the following results: five (5)
votes in favor of Dr. Blancos ad interim appointment, three (3) votes against, and four (4) abstentions all the twelve

constituting the total membership of the Board of the time. The next day Dr. Blanco addressed a letter to the Board
requesting a reconsideration of the interpretation made by the Board as to the legal effect of the vote of five in favor,
three against and four abstentions on my ad interim appointment. 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.

Issue: What is the legal effect of abstention in the board meetings?

Held: In case of abstention in board meeting on vote taken on any issue, the general rule is that the abstention is
counted in favour of the issue that won a majority vote; since their act of abstention, the abstaining directors are
deemed to abide the rule of majority.
Ponce vs Encarnacion (1953)

Facts: This is a petition for a writ of certiorari to annul an order of the respondent court granting Potenciano Gapol
authority, pursuant to section 26, Act No. 1459, otherwise known as the Corporation Law, to call a meeting of the
stockholders of the Dagunoy Enterprises, Inc. and to preside at such meeting by giving proper notice to the
stockholders, as required by law or by laws of the corporation, until after the majority of the stockholders present and
qualified to vote shall have chosen one of them to act as presiding officer of the meeting; another order denying a
motion of the petitioners to have the previous order set aside; and a third order denying a motion to the same effect as
the one previously filed. Daguhoy Enterprises, Inc., was duly registered at a meeting duly called, the voluntary
dissolution of the corporation and the appointment of Potenciano Gapol as receiver were agreed upon. The
respondent Potenciano Gapol, who is the largest stockholder, charged his mind and filed a complaint
to compel the petitioners to render an accounting of the funds and assets of the corporation, to reimburse it, jointly
and severally because the contended that Domingo Ponce, the president of the company, used the company funds for
his own benefit. The petitioner filed an action with the TC and prayed for an order directing him to a call a meeting of
the stockholders of the corporation and to preside at such meeting in accordance with section 26 of the Corporation
law. TC granted their petition.
Issue: WON under the corporation code, the TC can validly call for a stockholders meeting? / Are the officers
deprived of due process in the action of the TC?
Held: Yes. On the showing of good cause therefor, the court may authorize a stockholder to call a meeting and to
preside threat until the majority stockholders representing a majority strockholders representing a majority of the stock
present and permitted to be voted shall have chosen one among them to preside it. And this showing of good cause
therefor exists when the court is apprised of the fact that the by-laws of the corporation require the calling of a general
meeting of the stockholders to elect the board of directors but call for such meeting has not been done.

With persistency petitioners claim that they have been deprived of their right without due process of law. They had no
right to continue as directors of the corporation unless reflected by the stockholders in a meeting called for that
purpose every even year. They had no right to a hold-over brought about by the failure to perform the duty incumbent
upon one of them. If they felt that they were sure to be reelected, why did they fail, neglect, or refuse to call the
meeting to elect the members of the board? Or, why did they not seek their reelection at the meeting called to elect
the directors pursuant to the order of the respondent court.
Grace Christian Highschool vs Court of Appeals (1997)

Facts: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and
secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., is an
organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents
Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election. It appears that
a committee of the board of directors prepared a draft of an amendment to the by-laws which says that Grace
Christian High school will have a permanent director of the association. This draft was never presented to the general
membership for approval. Nevertheless, the petitioner was given a permanent seat in the board of directors of the
association. The association committee on election informed that the petitoners permanent seat in board is invalid
because it was never approved by the majority of its members. Hence they will have an election. The petitioner school
requested the cancellation of the election, the association denied. So the petitioner school instituted an action to the
Home Insurance Guaranty Corporation but their action was denied. The board adopted a resolution declaring the
1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective.
The petitioner school appealed to the CA but CA ruled that the amended by laws in 1975 is null and void.
Issue: WON Grace Christian High school can have permanent seat in board as director?
Held: No. The former and present corporation law leave no room for doubt as to their meaning: the board of directors
of corporations must be elected from among the stockholders or members. There may be corporations in which there
are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit
as ex officio members, i.e., by virtue of and for as long as they hold a particular office. Nor can petitioner claim a
vested right to sit in the board on the basis of practice. Practice, no matter how long continued, cannot give rise to
any vested right if it is contrary to law. Even less tenable is petitioners claim that its right is coterminus with the
existence of the association.