NEW CASE LIST

64. [G.R. No. 36930. June 30, 1933.]In the matter of the
Voluntary Dissolution of George, OFarrell & Cie., Inc.
CHINA BANKING CORPORATION and LEOPOLDO KAHN,
claimants-appellants,
v.
M. MICHELIN & CIE., claimants-appellee.
OSTRAND, J.:
This is a joint appeal of the China Banking Corporation and
Leopoldo Kahn from the order of the CFI of Manila, denying the
appellant banks motion for reconsideration of the order of the
said court of November 8, 1930, allowing the claim of the
appellee, M. Michelin & Cie., as a preferred claim against the
corporation in dissolution, George, OFarrell & Cie., Inc.
The appellant, China Banking Corporation, is a claimant against
the corporation as the holder of a note for P8,5000 signed jointly
and severally by the corporation and the other appellant,
Leopoldo Kahn, who has joined the appeal to protect his interest.
George OFarrell & Cie., Inc., is a domestic corporation organized
in 1925 and registered in the same year in the mercantile
register of the Bureau of Commerce and Industry, one of its
purposes being that of acting as the agent and representative of
foreign firms for the sale and distribution of their products in the
Philippines.
FACTS: For a number of years prior to its dissolution the
corporation had been acting as the representative of the
appellee, M. Michelin & Cie., in the Philippine Islands for the sale
and distribution of the rubber tires for motor cars produced by
the appellee and broadly known as "Michelin tires." These
business relations between the appellee decided to discontinue
them, and upon settlement of accounts between both concerns it
was found that the corporation failed to account for the sum of
P23,268.83, the sale price of a number of rubber tires sold by the

corporation. This amount according to appellees claim and

taking appellees own words "was disposed of by the corporation
for its own use and benefit and without the authority or consent"
of the appellee.
Gaston OFarrell, personally, and one Rosario Sanchez,
represented by Gaston OFarrell as her attorney-in-fact, executed
a mortgage in favor of the appellee of a house belonging to
Gaston OFarrell and of a number of shares of stock of the
corporation owned by OFarrell and Rosario Sanchez to guarantee
payment of the said amount to the appellee in five monthly
installments, and prior to the filing of the petition for dissolution
the corporation made a partial payment of P1,300 leaving an
unpaid balance of P21,968.83, which is the amount claimed by
the appellee and allowed by the court below as a preferred
claim.
The board of directors filed the petition for its dissolution and for
the appointment of its president and general manager, Gaston
OFarrell, as receiver and liquidator to wind up the affairs of the
corporation which, according to the petition, had a balance of
P57,601.24 over and above its just debts and liabilities, and upon
publication of the notices required by law and hearing of the
petition the trial court decreed the dissolution of the corporation
on August 22, 1930, and appointed the said Gaston OFarrell as
receiver and liquidator to wind up the affairs of the corporation,
pay all its liabilities, collect all debts and obligations and dispose
of all the remaining assets and property of the corporation
subject to the order of the court and as the law may permit and
justice may require.
The appellee, M. Michelin & Cie., is a foreign "sociedad annima"
organized under the laws of France and domiciled in said country
filed its claim against the corporation for the aforesaid balance of
P21,968.83 with a prayer that the claim be allowed as a preferred
one against the corporation on the ground that the said amount
represented the proceeds from the sale of a number of rubber
tires which were on deposit with and sold by the corporation. The
attorney for the corporation, Jesus O. Serrano, gave his

conformity to the petition by signing at the foot thereof.

Notice setting the hearing of the claim for Saturday, November 8,
1930, was likewise served on said Jesus O. Serrano as attorney
for the corporation. No notice appears to have been given to
anybody else neither of the claim nor of the hearing thereof, and
on the same date set for the hearing, that is, November 8, 1930,
the court rendered a judgment allowing the claim as a preferred
claim against the corporation and directing the receiver to pay
the amount thereof out of any funds in his possession. Nobody
except the claimant and the attorney for the receiver was notified
of such order. Under date of November 26, 1930, was likewise
served on said Jesus O. Serrano as attorney for the corporation.
No notice appears to have been given to anybody else neither of
the claim nor of the hearing thereof. Under date of November 26,
1930, the appellee filed an "ex parte petition", praying for an
order directing the liquidator, Gaston OFarrell, to pay appellees
claim within three days, and acting on said petition the court
granted the same and directed the liquidator to pay the claim
within three days with preference to all other claims. Again
nobody was served with notice of this order, and pursuant
thereto, the receiver paid the appellee on December 9, 1930, the
sum of P5,000 on account which was receipted for by appellees
attorney.
The appellant, China Banking Corporation, filed a motion praying
that the orders of November 8 and November 26, 1930, be set
aside as null and void, that appellees claim be allowed as an
ordinary claim and that the sum of P5,000 paid by the receiver to
the appellee on account of the latters claim be refunded to the
funds of the corporation in liquidation for the benefit of the rest
of the creditors.
In support of said motion and with the permission of the court the
appellant, Leopoldo Kahn, submitted a memorandum, arguing on
the nullity of the said orders on the ground of want of notice and
on the proposition that under the provisions of the Insolvency
Law appellees claim could not and should not have been allowed
as a preferred claim under the allegations contained therein.

ISSUE: Whether or not the claims against the said corporation in

the hands of a receiver should be approved and paid
HELD: No. In so far as the service of notice is concerned, we
adhere to the rule laid down in Whalen v. Pasig Iron Works (13
Phil., 417), where this court held that." . . claims against a
corporation in the hands of a receiver should not be approved
and paid without some formal and regular proceeding whereby
their justice and correctness may be inquired into after a
reasonable opportunity has been given to all the parties in
interest to present objections and submit evidence in support of
such objections." The said case is a parallel of the case at bar in
that the receiver in that case, together with the claimant,
appeared in open court and without previous notice to any of the
other parties in interest, the claim was submitted upon the
favorable recommendation of the receiver and allowed by the
court, and upon appeal to this court it was held that the trial
court erred in rendering judgment in such a summary manner.
The appointment of a receiver by the court to wind up the affairs
of the corporation upon petition of voluntary dissolution does not
empower the court to hear and pass on the claims of the
creditors of the corporation at first hand. In such cases the
receiver does not act as a receiver of an insolvent corporation.
Since "liquidation" as applied to the settlement of the affairs of a
corporation consists of adjusting the debts and claims, that is, of
collecting all that is due the corporation, the settlement and
adjustment of claims against it and the payment of its just debts,
all claims must be presented for allowance to the receiver or
trustee or other proper persons during the winding up
proceedings which in this jurisdiction would be within the three
years provided by sections 77 and 78 of the Corporation Law as
the term for the corporate existence of the corporation, and if a
claim is disputed or unliquidated so that the receiver cannot
safely allow the same, it should be transferred to the proper court
for trial and allowance, and the amount so allowed then
presented to the receiver or trustee for payment. The rulings of

the receiver on the validity of claims submitted are subject to

review by the court appointing such receiver though no appeal is
taken to the latters ruling (8 Thompson on Corp., 718), and
during the winding up proceedings after dissolution, no creditor
will be permitted by legal process or otherwise to acquire priority,
or to enforce his claim against the property held for distribution
as against the rights of other creditors.
The decree of dissolution in the case at bar having been entered
on August 22, 1930, and the motion of the appellant, China
Banking Corporation, appearing to have been filed on September
30, 1931, or about thirteen months later, it follows that the
motion was filed on time to have the appellees claim reviewed
by the court under the provisions of the said sections of the
Corporation Law, and the trial court, therefore, erred in finding
that the order of November 8, 1930, allowing appellees claim
was final and unappealable under the provisions of section 113 of
the Code of Civil Procedure.
The record in this case shows that Gaston OFarrell, the receiver
herein, besides being the principal promoter of the corporation
and the holder of the largest number of shares was elected
president and general manager and that he held the said offices
ever since the organization of the corporation and his conduct in
executing a mortgage on his own house and giving a pledge on
his shares of stock and on those of Rosario Sanchez represented
by him as attorney in fact, in favor of the appellee to guarantee
the latters claim, lends itself to a serious suspicion. The facts
appearing of record leave no room for doubt that his
administration of the business of the corporation left much to be
desired and that he alone ought to be blamed for the shortage
claimed by the appellee, but to save himself from personal
liability he made the corporation shoulder the burden of the
obligation in exchange for a simulated conveyance of his house
to the corporation. No sooner had the corporation become
delinquent in the payment of the obligation under the terms of
the written agreement than he resorted to a judicial proceeding
of voluntary dissolution in an attempt to settle appellees claim

and to free himself from all harm, but fearing that the alleged
preference of appellees claim might be defeated, in collusion
with the appellee they had the claim allowed summarily as a
preferred claim ignoring the rest of the world.
Appellants contention that appellees claim cannot be allowed as
a preferred claim is well taken for even admitting for the sake of
argument that the merchandise which sale price is the subject of
appellees claim was shipped to the corporation under a
commission agreement or any other agreement carrying the
obligation to return either the goods or its price, the fact is that
the merchandise in the case at bar was no longer in the
corporations possession nor could the appellee trace the
proceeds from its sale, and this is made manifest by the very fact
of the written agreement entered into between the appellee and
the corporation whereby the appellee accepted payment of the
obligation by installments duly secured with a mortgage of
property to guarantee its payment. But such is not the case,
however, for the very agreement of May 31, 1930, mentioned in
paragraph 5 of appellees claim, shows that the rubber tires
consigned to the corporation were to be sold by the latter "por
orden, cuenta y riesgo de los Sres. M. Michelin & Cie." and that
the customers accounts were opened "por orden, cuenta y
riesgo de M. Michelin & Cie.", and so much is this true that the
uncollected accounts were turned over to and received by the
appellee, M. Michelin & Cie. Under such circumstances the
amount of appellees claim appears to be in the nature of a
balance of a current account between the two firms more than
anything else.
65. G.R. No. L-18956 April 27, 1972
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
MARSMAN DEVELOPMENT COMPANY and/or F.H. BURGESS, in
his capacity as Liquidator of the Marsman Development
Company, defendants-appellants.
FACTS
Defendant corporation was a timber licensee holding Timber

Licensee Agreement. Sometime before October 15, 1953 an

investigation was conducted on the business operation and
activities of the corporation leading to the discovery that certain
taxes were due (from) it on logs produced from its concession. On
October 15, 1953, the Deputy Collector of Internal Revenue
demanded the payment of P13,136.00 representing forest
charges due from May 18, 1950 to September 30, 1953, and a
surcharge of 25%. On September 13, 1954, after further
investigation another assessment was sent to the defendant
corporation by the Bureau of Internal Revenue demanding from it
the total sum of P45,541.66 representing deficiency sales tax,
forest charges, surcharges and penalties. On November 8, 1954
another assessment was addressed to the defendant corporation
for the payment of P456.12 as 25% surcharge for discharging
lumber without permit (Exh. P). The three assessments totalling
P59,133.78 are the subject matter of the instant case for
collection.
According to the Record on Appeal, and as additionally stated
also by the trial court, the original complaint filed on September
5, 1958 prayed for the payment of only P13,695.96, and it was
only in an amended complaint filed on August 26, 1959 and
admitted on September 23, 1959 that, for the first time, the
amount of P59,133.78 was judicially demanded to be paid.
Upon these facts, appellants now complain that
THE LOWER COURT ERRED IN NOT DECLARING THAT SUIT
AGAINST F.H. BURGESS IN HIS CAPACITY AS LIQUIDATOR OF
MARSMAN DEVELOPMENT COMPANY HAS PRESCRIBED AND IN
ORDERING HIM TO PAY THE SUMS CONTAINED IN ITS DECISION.
ISSUE: Whether the suit against the appellant corporation has
already prescribed
RULING
NO.
Appellants' last assignment of error was disposed of by the trial
court this wise:
The defendants further contend that the present action is already
barred under section 77 of the Corporation Law, Act No. 1459, as
amended, which allows the corporate existence of a corporation
to continue only for three years after its dissolution, for the

purpose of presenting or defending suits by or against it, and to

settle and close its affairs. They point out that inasmuch as the
Marsman Development Co. was extra-judicially dissolved on April
23, 1954, a fact admitted in the amended complaint, the filing of
both the original complaint on September 8, 1958 and the
amended complaint on August 26, 1956 was beyond the
aforesaid three-year period.
The record shows that the filing of the amended complaint was
intended, among others, to include as a party defendant, in an
alternative capacity, Mr. F.H. Burgess, who is the liquidator of the
Marsman Development Co. Although it is an admitted fact that
the defendant corporation was extrajudicially dissolved on April
23, 1954, there is no claim that the affairs of said corporation had
already been finally liquidated or settled. Evidently, Mr. F.H.
Burgess is still continuing in his aforesaid capacity as liquidator of
the Marsman Development Co. While section 77 of the
Corporation Law provides for a three-year period for the
continuation of the corporate existence of the corporation for
purposes of liquidation, there is nothing in said provision which
bars an action for the recovery of the debts of the corporation
against the liquidator thereof, after the lapse of the said threeyear period.
We agree with His Honor. The stress given by appellants to the
extinction of the corporate and juridical personality as such of
appellant corporation by virtue of its extra-judicial dissolution
which admittedly took place on April 23, 1954 is misdirected.
While Section 77 of the Corporation Law does provide that:
Every corporation whose charter expires by its own limitation or
is annulled by forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in any other manner,
shall nevertheless be continued as a body corporate for three
years after the time when it would have been so dissolved, for
the purpose of prosecuting and defending suits by or against it
and of enabling it gradually to settle and close its affairs, to
dispose of and convey its property and to divide its capital stock,
but not for the purpose of continuing the business for which it
was established.
the next provision, Section 78, adds for clarification:

At any time during said three years said corporation is authorized

and empowered to convey all of its property to trustees for the
benefit of members, stock-holders, creditors, and others
interested. From and after any such conveyance by the
corporation of its property in trust for the benefit of its members,
stockholders, creditors, and others in interest, all interest which
the corporation had in the property terminates, the legal interest
vests in the trustee, and the beneficial interest in the members,
stockholders, creditors, or other persons in interest.
It is to be recalled that the assessments against appellant
corporation for deficiency taxes due for its operations since 1947
were made by the Bureau of Internal Revenue on October 15,
1953, September 13, 1954 and November 8, 1954, such that the
first was before its dissolution and the last two not later than six
months after such dissolution. Thus, in whatever way the matter
may be viewed, the Government became the creditor of the
corporation before the completion of its dissolution by the
liquidation of its assets. Appellant F.H. Burgess, whom it chose as
liquidator, became in law the trustee of all its assets for the
benefit of all persons enumerated in Section 78, including its
creditors, among whom is the Government, for the taxes herein
involved. To assume otherwise would render the extra-judicial
dissolution illegal and void, since, according to Section 62 of the
Corporation Law, such kind of dissolution is permitted only when
it "does not affect the rights of any creditor having a claim
against the corporation." It is immaterial that the present action
was filed after the expiration of three years after April 23, 1954,
for at the very least, and assuming that judicial enforcement of
taxes may not be initiated after said three years despite the fact
that the actual liquidation has not been terminated and the one
in charge thereof is still holding the assets of the corporation,
obviously for the benefit of all the creditors thereof, the
assessment aforementioned, made within the three years,
definitely established the Government as a creditor of the
corporation for whom the liquidator is supposed to hold assets of
the corporation. And since the suit at bar is only for the collection
of taxes finally assessed against the corporation within the three
years invoked by appellants, their fourth assignment of error

cannot be sustained. As to the allegation that appellant Burgess

has not in fact received any property or asset of the corporation,
that is a matter that can well be taken care of in the execution of
the judgment which may be rendered herein, albeit it seems
some kind of fraud would be perceptible, if the corporation had
been dissolved without leaving any assets whatsoever with the
liquidator.
ACCORDINGLY, the judgment of the trial court is affirmed with
costs against the appellants.
66. TAN TIONG BIO VS CIR BERNABE
GR No. L-15778. April 23, 1962.
FACTS
Central Syndicate (Syndicate for short) a corporation, sent
a letter to the CIR advising the latter that (1) it purchased from
Dee Hong Lue the surplus properties which the latter had bought
from the Foreign Liquidation Commission; (2) that it assumed
Dee Hong Lue's obligation and would pay a portion of the sales
tax on said surplus goods; (3) it was paying P43,750.00 in behalf
of Dee Hong Lue as deposit to answer for the payment of said
sales tax. The syndicate again wrote the Collector requesting a
refund but the Collector decided that the Syndicate was the
importer and original seller of the surplus goods in question and,
therefore, the one liable to pay the sales tax. Hence, the
Collector denied the request of the syndicate for the refund. The
Syndicate elevated the case to the CTA. The Collector filed a
motion requiring the syndicate to file a bond to guarantee the
payment of the tax assessed against it.
CTA:
(1)Denied Collectors motion. On the ground that cannot be
legally done it appearing that the syndicate is already a nonexisting entity due to the expiration of its corporate existence
(2) Dismissing syndicates appeal primarily on the ground that
the Central Syndicate has no personality to maintain the action
then pending before it. From this order the syndicate appealed to

the Supreme Court wherein it intimated that the appeal should

not be dismissed because it could be substituted by its
successors-in-interest.
The syndicate was later substituted by its officers and
directors (petitioners herein). CTA proceeded to hear the case
and ordered petitioners to pay jointly and severally, to the
Collector of Internal Revenue deficiency sales tax and surcharge
on the surplus goods purchased by them from the Foreign
Liquidation Commission. Petitioners filed appeal.
ISSUE:

WON the sales tax in question can be enforced against the

corporations successors-in-interest who are the present
petitioners since the Central Syndicate has already been
dissolved because of the expiration of its corporate existence?
SC RULING:
The Court ruled in the affirmative. It held that the creditor
of a dissolved corporation may follow its assets once they passed
into the hands of the stockholders. Net profit of the corporation
(from the sale of the surplus goods) and was distributed among
the stockholders when the corporation liquidated and distributed
its assets immediately after the sale of the said surplus goods.
Petitioners are therefore the beneficiaries of the defunct
corporation and as such should be held liable to pay the taxes in
question.
The dissolution of a corporation does not extinguish the debts
due or owing to it because a creditor of a dissolved corporation
may follow its assets, as in the nature of a trust fund, into the
hands of its stockholders.
With reference to the effect of dissolution upon taxes due
from a corporation, "that the hands of the government cannot, of
course, collect taxes from a defunct corporation, it loses thereby
none of its rights to assess taxes which had been due from the
corporation, and to collect them from persons, who by reason of
transactions with the corporation, hold property against which

the tax can be enforced and that the legal death of the
corporation no more prevents such action than would the
physical death of an individual prevent the government from
assessing taxes against him and collecting them from his
administrator, who holds the property which the decedent had
formerly possessed".
OLD CASE LIST
93. PIROVANO VS DE LA RAMA STEAMSHIP COMPANY, INC.
No. L-5377. December 29, 1954
DOCTRINE:
POWERS OF A CORPORA TION; ACTS PERFORMED WITHIN THE
POWERS GRANTED ARE NOT "ULTRA VIRES".Where the
corporation was given broad and almost unlimited powers to
carry out the purposes for which it was organized among them,
to aid in any other manner any person in the affairs and
prosperity of whom it has a lawful interest, a donation made to
the heirs of its late president in recognition of the valuable
services rendered by the latter which had immensely contributed
to its growth, comes within this broad grant of power and can not
be considered an ultra vires act.
ID.; ID.; "ULTRA VIRES" ILLEGAL ACTS DISTINGUISHED; EFFECT OF
RATIFICATION BY STOCKHOLDERS.Illegal acts of a corporation
contemplate the doing of an act which is contrary to law, morals,
or public order, or contravene some rules of public policy or
public duty, and are, like similar transactions between
individuals, void. They can not serve as basis of a court action,
nor acquire validity by performance, ratification, or estoppel. On
the other hand, ultra vires acts or those which are not illegal and
void ab initio but are merely within the scope of the article of
incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders.
ID.; ID.; "UL TRA VIRES" ACTS; RA TIFICA TION BY STOCKHOLDERS

OF "UL TRA VIRES" ACTS CURES INFIRMITY.The ratification by

the stockholders of an ultra vires act which is not illegal cures the
infirmity of the corporate act and makes it perfectly valid and
enforceable, specially so if it is not merely executory but
executed and consummated and no creditors are prejudiced
thereby.
FACTS: Plaintiffs herein are the minor children of the late Enrico
Pirovano represented by their mother and judicial guardian
Estefania R. Pirovano. They seek to enforce certain resolutions
adopted by the Board of Directors and stockholders of the
defendant company giving to said minor children the proceeds of
the insurance policies taken 011 the life of their deceased father
Enrico Pirovano with the company as beneficiary.
Defendant's main defense is: that said resolutions and the
contract executed pursuant thereto are ultra vires, and, if valid,
the obligation to pay the amount given is not yet due and
demandable.
Q

Enrico Pirovano, president of the defendant company, managed

the company until it became a multi-million corporation by the
time Pirovano was executed by the Japanese during the
occupation.
The first resolution granting to the Pirovano children the proceeds
of the insurance policies taken on his life by the defendant
company was adopted by the Board of Directors at a meeting
held on July 10, 1946 and was submitted to the stockholders of
the De la Rama company at a meeting properly convened, and
on that same date, July 10, 1946, the same was duly approved.
It appears that, although Don Esteban and the Members of his
family were agreeable to giving to the Pirovano children the
amount of P400,000 out of the proceeds of the insurance policies
taken on the life of Enrico Pirovano, they did not realize that
when they provided in the above referred two resolutions that
said amount should be paid in the form of shares of stock, they

would be actually giving to the Pirovano children more than what

they intended to give.
He further explained that if the Pirovano children would be given
shares of stock in lieu of the amount to be donated, the voting
strength of the five daughters of Don Esteban in the company
would be adversely affected in the sense that Mrs. Pirovano
would have a voting power twice as much as that of her sisters.
This caused Lourdes de la Rama to write to the secretary of the
corporation, Atty. Marcial Lichauco, asking him to cancel the
waiver she supposedly gave of her pre-emptive rights.
On June 24, 1947, the Board of Directors approved a resolution
providing therein that instead of the interest on the loan being
payable, together with the principal, only after the company shall
have first settled in full its bonded indebtedness, said interest
may be paid to the Pirovano children "whenever the company is
in a position to meet said obligation" (Exhibit D), and on February
26, 1948, Mrs. Pirovano executed a public document in which she
formally accepted the donation.
On September 14, 1950, another meeting was held to discuss the
propriety of the donation. At this meeting the president
expressed the view that, since the corporation was not
authorized by its charter to make the donation to the Pirovano
children and the majority of the stockholders was in favor of
making provision for said children, the manner he believed this
could be done would be to declare a cash dividend in favor of the
stockholders in the exact amount of the insurance proceeds and
thereafter have the stockholders make the donation to the
children in their individual capacity.
Notwithstanding this proposal of the president, the board took no
action on the matter, and on March 8, 1951, at a stockholders'
meeting convened on that date, the majority of the stockholders
voted to revoke the resolution approving the donation to the
Pirovano children.

In view of the resolution declaring that the corporation failed to

comply with the condition set for the effectivity of the donation
and revoking at the same time the approval given to it by the
corporation, and considering that the corporation can no longer
set aside said donation because it had long been perfected and
consummated, the minor children of the late Enrico Pirovano,
represented by their mother and guardian, Estefania R. de
Pirovano, demanded the payment of the credit due them as of
December 31, 1951, amounting to P564,980.89, and this
payment having been refused, they instituted the present action
111 the Court of First Instance of Rizal wherein they prayed that
they be granted an alternative relief.
ISSUE: Can defendant corporation give by way of donation the
proceeds of said insurance policies to the minor children of the
late Enrico Pirovano under the law or its articles of incorporation,
or is that donation an ultra vires act?
HELD: YES. Donation is not ultra vires act. To answer this question
it is important for us to examine the articles of incorporation of
the De la Rama company to see if the act or donation is outside
of their scope. After a careful perusal of the provisions above
quoted we find that the corporation was given broad and almost
unlimited powers to carry out the purposes for which it was
organized among them, (1) "To invest and deal with the moneys
of the company not immediately required, in such manner as
from time to time may be determined" and, (2) "to aid in any
other manner any person, association, or corporation of which
any obligation or in which any interest is held by this corporation
or in the affairs or prosperity of which this corporation has a
lawful interest." The world deal is broad enough to include any
manner of disposition, and ref ers to moneys not immediately
required by the corporation, and such disposition may be made
in such manner as from time to time may be deter-mined by the
corporations. The donation in question undoubtedly comes within
the scope of this broad power f or it is a fact appearing in the
evidence that the insurance proceeds were not immediately
required when they were given away.

Under the second broad power we have above stated, that is, to
aid in any other manner any person in the affairs and prosperity
of whom the corporation has a lawful interest, the record of this
case is replete with instances which clearly show that the
corporation knew well its scope and meaning so much so that,
with the exception of the instant case, no one has lifted a finger
to dispute their validity.
We don't see much distinction between these acts of generosity
or of benevolence extended to some employees -of the
corporation, and even to some in whom the corporation was
merely interested because of certain moral or political
considerations, and the donation which the corporation has seen
fit to give to the children of the late Enrico Pirovano from the
point of view of the power of the corporation as expressed in its
articles of incorporation. And if the former had been sanctioned
and had been considered valid and intra vires, we see no
plausible reason why the latter should now be deemed ultra
vires. It may perhaps be argued that the donation given to the
children of the late Enrico Pirovano is so large and
disproportionate that it can hardly be considered a pension or
gratuity that can be placed on a par with the instances above
mentioned, but this argument overlooks one consideration: the
gratuity here given was not merely motivated by pure liberality
or act of generosity, but by a deep sense of recognition of the
valuable services rendered by the late Enrico Pirovano which had
immensely contributed to the growth of the corporation to the
extent that from its humble capitalization it blossomed into a
multi-million corporation that it is today. In the words of the very
resolutions granting the donation or gratuity, said donation was
given not only because the company was so indebted to him that
it saw fit and proper to make provisions for his children, but it did
so out of a sense of gratitude. Another factor that we should bear
in mind is that Enrico Pirovano was not only a high official of the
company but was at the same time a member of the De la Rama
family, and the recipient of the donation are the grandchildren of
Don Esteban de la Rama. This, we may say, is the motivating root
cause behind the grant of this bounty.

Granting arguendo that the donation given to the Pirovano

children is outside the scope of the powers of the defendant
corporation, or the scope of the powers that it may exercise
under the law, or it is an ultra vires act, still it may be said that
the same cannot be invalidated, or declared legally ineffective for
that reason alone, it appearing that the donation represents not
only the act of the Board of Directors but of the stockholders
themselves as shown by the fact that the same has been
expressly ratified in a resolution duly approved by the latter. By
this ratification, the infirmity of the corporate act, if any has been
obliterated thereby making the act perfectly valid and
enforceable. This is specially so if the donation is not merely
executory but executed and consummated and no creditors are
prejudiced, or if there are creditors affected, the later have
expressly given their conformity.

In 1927, Benguet Consolidated Mining Company, registered as a

sociedad anonima under the Spanish Law, agreed to invest and
build capital equipments in favor of Balatoc Mining Company, a
corporation registered under the then relatively new Corporation
Law of 1925. In exchange, Balatoc Mining agreed to give Benguet
Mining 600,000 shares.
The venture proved to be profitable and Balatoc Mining earned
and so did its stockholders, and of course, Benguet Mining was
earning big too because it now owns 600k shares. This prompted,
Fred Harden a stockholder of Balatoc Mining who also owns
thousands of shares to sue Benguet Mining on the ground that
under the Corporation Law a corporation like Benguet Mining
which is engaged in the mining industry is prohibited from being
interested in other corporations which are also engaged in the
mining industry like Balatoc Mining.

Other issues:
Is the donation perfected? YES. Where the donation made by the
corporation has not only been granted in several resolutions duly
adopted by its board of directors but also it has been formally
ratified by its stockholders, with the concurrence of its only
creditor, and accepted by the donee, the donation -has reached
the stage of perfection which is valid and binding upon the
corporation and as such cannot be rescinded unless there exist
legal grounds for doing so. While a donation may technically be
different from a gratuity, in substance they are the same. They
are even similar to a pension. Thus, it was said that "A pension is
a gratuity only when it is granted for services previously
rendered, and which at the time they were rendered gave rise to
no legal obligation."
94. Harden, et. al. vs. Benguet Consolidated Mining
Company, et. al.
G.R. No. L-37331; March 18, 1933
FACTS:

Sec 28 of the Act of Congress provides that xxx it shall be

unlawful for any member of a corporation engaged in agriculture
or mining and for any corporation organized for any purpose
except irrigation to be in any wise interested in any other
corporation engaged in agriculture or in mining.
ISSUE: Whether or not Hardens suit should prosper.
HELD: No. The Corporation Law of 1925 subjects sociedad
anonima to its provisions so far as such provisions may be
applicable. In 1929, the Corporation Law was amended and the
prohibition cited by Harden was so modified as merely to prohibit
any such corporation from holding more than fifteen per centum
of the outstanding capital stock of another such corporation. The
provision referred to was adopted by the lawmakers with a sole
view to the public policy that should control in the granting of
mining rights.
Further and more importantly, the Corporation Law of 1925
provides that if the person who allegedly violated the provisions
of said law is a corporation, the proper action is a quo warranto

which should be initiated by the Attorney-General or its deputized

provincial fiscal and not a private action as the one filed by
Harden.

especially that they could not legally, either separately or jointly,

acquire the possession and use of a connecting road in the State
of Illinois and undertake to carry passengers or freight over the

95. BISSELL V. THE MICHIGAN SOUTHERN N. IND. RD.

same.

COMPANIES
They do not deny that their boards of directors and agents, duly
COMSTOCK, Ch. J.

authorized to wield all the powers which the corporations

themselves possessed, entered into the arrangements which

FACTS: The two corporations-defendants were jointly engaged in

have been mentioned, nor that, in the execution of those

the business of carrying passengers and freight between Chicago

arrangements, they made the contract with the plaintiff to carry

and Lake Erie, through a part of the State of Illinois, and through

him as a passenger; nor do they deny that they received the

the States of Indiana and Michigan, by three connected railroads

benefit of that contract in the customary fare which he paid.

which they owned or controlled, and the business of which was

Their defense is, simply and purely, that they transcended their

managed under a consolidated arrangement which had been in

own powers and violated their own organic laws. On this ground

force between the defendants for some time previous to the

they insist that their business was not, in judgment of law,

injury complained of.

consolidated; that they did not use and operate a road in Illinois;

They undertook and assumed to carry the plaintiff as a passenger

from Chicago, or a point near that place, that he took his seat in
their cars accordingly, and that during the transit he was injured
by an accident which happened through their carelessness and
neglect.
Defendants deny liability on the ground that one of the
companies was chartered by the legislature of Michigan, with
power to build a road in that State, and the other by the

that they did not undertake to carry the plaintiff over it; and did
not, by their negligence, cause the injury of which he complains;
but

that

all

these

acts

and

proceedings

were,

in

legal

contemplation, the acts and proceedings of the natural persons

who were actually engaged in promoting the same.
ISSUE: WON respondents may interpose the violation of their
own charters to shield them from responsibility?
HELD: NO. Such a defense is shocking to the moral sense.

legislature of Indiana, with power to build one in that State. They

both insist that they had no right or power under their respective

This doctrine of theoretical perfection in corporations would

charters to consolidate their business in the manner stated, and

convert them practically into most mischievous monsters.

Doctrine of theoretical perfection - Every violation of

their charter or assumption of unauthorized power on the
part of their officers, although with the full approbation of
their directors, is to be considered the act of the officers,
and is not to prejudice the corporation itself. There would
be no possibility of ever convicting a corporation of
exceeding its powers.
Corporations are said to be clothed with certain powers
enumerated in their charters or incidental to those which are
enumerated, and it is also said they cannot exceed those powers.
When we speak of the powers of a corporation, the term only
expresses the privileges and franchises which are bestowed in
the charter; and when we say it cannot exercise other powers,
the just meaning of the language is, that as the attempt to do so
is without authority of law, the performance of unauthorized acts
is a usurpation which may be a wrong to the State, or, perhaps,
to the shareholders. But the usurpation is possible. In the same
sense, natural persons are under the restraints of law, but they
may transgress the law, and when they do so they are
responsible for their acts. From this consequence corporations
are not wholly exempt.
The contract of the defendants to transport the plaintiffs from
Chicago to Toledo was illegal and void, they having, as we have
seen, no power under their charters to enter into the
engagement for running their cars on joint account between
those two places. It does not follow, however, that they are not
liable to the plaintiff in this action.
The plaintiff's claim, rests not upon his contract, but upon the
right which every man has to be protected from injury through
the carelessness of others, whether artificial or natural person.
96. Ramirez vs. Orientalist Co.-PEDROZO

J. F. RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON
defendants-appellant
G.R. No. 11897; September 24, 1918

J.

FERNANDEZ,

FACTS:
Orientalist Co. engaged in the theatre business,
desired to be the exclusive agent of Ramirez, who is
based in Paris, for two film outfitsclair Films and
Milano films. Through the active involvement and negotiations
of Ramon El Presidente Fernandez, a director of Orientalist and
also its treasurer, Orientalist was able to secure an offer, the
terms of which were acceptable to the Board as well as to
the stockholders. It appears that this acceptance of the
terms of the offer was decided during an informal
meeting of the board, and conveyed to Ramirez in two
letters signed only by Fernandez, both in his individual
and his capacity as treasurer of Orientalist.
It turns out that the company was not financially capable
to comply with the obligations set forth in the agency contract,
and about this time films had already been delivered to the
company. Two stockholders meetings were organized, the
first adopted a resolution approving the action of the board on
the offer, the second raising the contingency of the lack of funds
and the proviso that the four officers involved, including
Fernandez would continue importing the films using their own
funds.
Thereafter, the stockholders adopted a resolution to
the effect that the agencies of the Eclair and Milano films
should be accepted, if the corporation could obtain the
money with which to meet the expenditure involved, and
to this end appointed a committee to apply to the bank
for a credit. The evidence shows that an attempt was made, on
behalf of the corporation, to obtain a credit of P10,000 from the
Bank of the Philippine Islands for the purpose indicated, but the
bank declined to grant his credit. Thereafter another special

meeting of the shareholders of the defendant corporation was

called at which the failure of their committee to obtain a credit
from the bank was made known.
A resolution was thereupon passed to the effect
that the company should pay to Hernandez, Fernandez,
Monroy, and Papa an amount equal to 10 per cent of their
outlay in importing the films, said payment to be made in
shares of the company in accordance with the suggestion made
at the previous meeting. At the time this meeting was held three
shipment of the films had already been received in Manila.
Ramirez sues Orientalist and Fernandez for what is due on
the contract. RTC ruled Oriental as the principal debtor while
Fernandez is subsidiarily liable.
ISSUE:
(1) WON the treasurer has an independent authority to
bind the respondent company by signing its name to the
letters in questioned.
(2) WON the stockholders ratify the abovementioned
contract?
(3) WON Fernandez is liable jointly with the Orientalists
Company as a principal obligor, or whether his liability is
that of a guarantor merely.
HELD:
(1) NO. It is declared in Section 28 of the Corporation
Law that corporate power shall be exercised, and
all corporate business conducted by the board
of directors; and this principle is recognized in the
by-laws of the corporation in question which contain a
provision declaring that the power to make
contracts shall be vested in the board of
directors. It is true that it is also declared in the same
by-laws that the president shall have the power, and it
shall be his duty, to sign contract; but this has
reference rather to the formality of reducing to proper
form the contract which are authorized by the board

and is not intended to confer an independent power to

make contract binding on the corporation.
(2) NO.
It thus appears that the board of directors,
before the financial inability of the corporation to
proceed with the project was revealed, had already
recognized the contract as being in existence and
had proceeded to take the steps necessary to
utilize the films.
Particularly suggestive is the direction given at this
meeting for the publication of announcements in the
newspapers to the effect that the company was engaged
in importing films. 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
company's 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.
The subsequent action by the stockholders in not
ratifying the contract must be ignored. The functions of
the stockholders are limited of nature. The theory
of a corporation is that the stockholders may have
all the profits but shall return over the complete
management
of
the
enterprise
to
their
representatives and agents, called directors.
Accordingly, there is little for the stockholders to do
beyond electing directors, making by-laws, and exercising
certain other special powers defined by law. In conformity
with this idea, it is settled that contracts between a
corporation and a third person must be made by
directors and not stockholders. It results that where a
meeting of the stockholders is called for the purpose
of passing on the propriety of making a corporate
contract, its resolutions are at most advisory and not
in any wise binding on the board.

(3) NO. As appears upon the face of the contracts, the

signature of Fernandez, in his individual capacity, is
not in line with the signature of the Orientalist
Company, but is set off to the left of the company's
signature and somewhat who sign contracts in some
capacity other than that of principal obligor to place
their signature alone would justify a court in holding
that Fernandez here took upon himself the
responsibility of a guarantor rather than that of a
principal obligor.
The SC however, think, that the form in which
the contract is signed raises a doubt as to what the
real intention was; and we feel justified, in looking to
the evidence to discover that intention. In this
connection it is entirely clear, from the testimony
of both Ramirez and Ramon J. Fernandez, that
the responsibility of the latter was intended to
be that of guarantor. There is, to be sure, a certain
difference between these witnesses as to the nature of
this guaranty, inasmuch as Fernandez would have us
believe that his name was signed as a guaranty that
the contract would be approved by the corporation,
while Ramirez says that the name was put on the
contract for the purpose of guaranteeing, not the
approval of the contract, but its performance. We are
convinced that the latter was the real intention of the
contracting parties.
Judgement appealed from
equally against the two appellants.
97. G.R. No. 152392

affirmed.

Costs

May 26, 2005

EXPERTRAVEL & TOURS, INC., petitioner, vs. COURT OF

APPEALS and KOREAN AIRLINES, respondent.
CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of

the Court of Appeals (CA) in CA-G.R. SP No. 61000 dismissing the
petition for certiorari and mandamus filed by Expertravel and
Tours, Inc. (ETI).
FACTS:
Korean Airlines (KAL) is a corporation established and registered
in the Republic of South Korea and licensed to do business in the
Philippines. Its general manager in the Philippines is Suk Kyoo
Kim, while its appointed counsel was Atty. Mario Aguinaldo and
his law firm.
On September 6, 1999, KAL, through Atty. Aguinaldo, filed a
Complaint2 against ETI with the Regional Trial Court (RTC) of
Manila, for the collection of the principal amount of P260,150.00,
plus attorneys fees and exemplary damages. The verification
and certification against forum shopping was signed by Atty.
Aguinaldo, who indicated therein that he was the resident agent
and legal counsel of KAL and had caused the preparation of the
complaint.
ETI filed a motion to dismiss the complaint on the ground that
Atty. Aguinaldo was not authorized to execute the verification and
certificate of non-forum shopping as required by Section 5, Rule 7
of the Rules of Court. KAL opposed the motion, contending that
Atty. Aguinaldo was its resident agent and was registered as such
with the Securities and Exchange Commission (SEC) as required
by the Corporation Code of the Philippines. It was further alleged
that Atty. Aguinaldo was also the corporate secretary of KAL.
Appended to the said opposition was the identification card of
Atty. Aguinaldo, showing that he was the lawyer of KAL.
During the hearing of January 28, 2000, Atty. Aguinaldo claimed
that he had been authorized to file the complaint through a
resolution of the KAL Board of Directors approved during a special
meeting held on June 25, 1999. Upon his motion, KAL was given a
period of 10 days within which to submit a copy of the said
resolution. The trial court granted the motion. Atty. Aguinaldo

subsequently filed other similar motions, which the trial court

granted.

a special meeting of the Board of Directors of the

Corporation held on June 25, 1999 at which a quorum was
present, the said Board unanimously passed, voted upon
and approved the following resolution which is now in full
force and effect, to wit:

Finally, KAL submitted on March 6, 2000 an Affidavit 3 of even

date, executed by its general manager Suk Kyoo Kim, alleging
that the board of directors conducted a special teleconference on
June 25, 1999, which he and Atty. Aguinaldo attended. It was also
averred that in that same teleconference, the board of directors
approved a resolution authorizing Atty. Aguinaldo to execute the
certificate of non-forum shopping and to file the complaint. Suk
Kyoo Kim also alleged, however, that the corporation had no
written copy of the aforesaid resolution.

RESOLVED, that Mario A. Aguinaldo and his law

firm M.A. Aguinaldo & Associates or any of its
lawyers are hereby appointed and authorized to
take with whatever legal action necessary to effect
the collection of the unpaid account of Expert
Travel & Tours. They are hereby specifically
authorized to prosecute, litigate, defend, sign and
execute any document or paper necessary to the
filing and prosecution of said claim in Court, attend
the Pre-Trial Proceedings and enter into a
compromise agreement relative to the abovementioned claim.

On April 12, 2000, the trial court issued an Order 4 denying the
motion to dismiss, giving credence to the claims of Atty.
Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors
indeed conducted a teleconference on June 25, 1999, during
which it approved a resolution as quoted in the submitted
affidavit.
ETI filed a motion for the reconsideration of the Order,
contending that it was inappropriate for the court to take judicial
notice of the said teleconference without any prior hearing. The
trial court denied the motion in its Order5 dated August 8, 2000.
ETI then filed a petition for certiorari and mandamus, assailing
the orders of the RTC. In its comment on the petition, KAL
appended a certificate signed by Atty. Aguinaldo dated January
10, 2000, worded as follows:
SECRETARYS/RESIDENT AGENTS CERTIFICATE
KNOW ALL MEN BY THESE PRESENTS:
I, Mario A. Aguinaldo, of legal age, Filipino, and duly
elected and appointed Corporate Secretary and Resident
Agent of KOREAN AIRLINES, a foreign corporation duly
organized and existing under and by virtue of the laws of
the Republic of Korea and also duly registered and
authorized to do business in the Philippines, with office
address at Ground Floor, LPL Plaza Building, 124 Alfaro St.,
Salcedo Village, Makati City, HEREBY CERTIFY that during

IN WITNESS WHEREOF, I have hereunto affixed my

signature this 10th day of January, 1999, in the City of
Manila, Philippines.
(Sgd.)
MARIO
Resident Agent

A.

AGUINALDO

SUBSCRIBED AND SWORN to before me this 10 th day of

January, 1999, Atty. Mario A. Aguinaldo exhibiting to me
his Community Tax Certificate No. 14914545, issued on
January 7, 2000 at Manila, Philippines.
Doc.
Page
Book
Series of 2000.

No.
No.
No.

119; (Sgd.)
25; ATTY.
HENRY
D.
XXIV Notary
Public
Until
December
31,
PTR #889583/MLA 1/3/20006

On December 18, 2001, the CA rendered judgment dismissing

the petition, ruling that the verification and certificate of non-

ADASA

2000

forum shopping executed by Atty. Aguinaldo was sufficient

compliance with the Rules of Court. According to the appellate
court, Atty. Aguinaldo had been duly authorized by the board
resolution approved on June 25, 1999, and was the resident
agent of KAL. As such, the RTC could not be faulted for taking
judicial notice of the said teleconference of the KAL Board of
Directors.
ETI filed a motion for reconsideration of the said decision, which
the CA denied.
ISSUES:
1

WHETHER OR NOT Atty. Aguinaldo, the resident agent and

appointed counsel of the corporation, can execute the
verification and certification on non-forum shopping for
the corporation.

Whether or not teleconferencing can be a means to

approve board resolutions.

RULING:
1

NO.

Section 5, Rule 7 of the Rules of Court provides:

SEC. 5. Certification against forum shopping. The
plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim for
relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not
theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasijudicial agency and, to the best of his knowledge, no such
other action or claim is pending therein; (b) if there is
such other pending action or claim, a complete statement
of the present status thereof; and (c) if he should
thereafter learn that the same or similar action or claim

has been filed or is pending, he shall report that fact

within five (5) days therefrom to the court wherein his
aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall
not be curable by mere amendment of the complaint or
other initiatory pleading but shall be cause for the
dismissal of the case without prejudice, unless otherwise
provided, upon motion and after hearing. The submission
of a false certification or non-compliance with any of the
undertakings therein shall constitute indirect contempt of
court,
without
prejudice
to
the
corresponding
administrative and criminal actions. If the acts of the party
or his counsel clearly constitute willful and deliberate
forum shopping, the same shall be ground for summary
dismissal with prejudice and shall constitute direct
contempt, as well as a cause for administrative sanctions.
It is settled that the requirement to file a certificate of non-forum
shopping is mandatory8 and that the failure to comply with this
requirement cannot be excused. The certification is a peculiar
and personal responsibility of the party, an assurance given to
the court or other tribunal that there are no other pending cases
involving basically the same parties, issues and causes of action.
Hence, the certification must be accomplished by the party
himself because he has actual knowledge of whether or not he
has initiated similar actions or proceedings in different courts or
tribunals. Even his counsel may be unaware of such facts. 9
Hence, the requisite certification executed by the plaintiffs
counsel will not suffice.10
In a case where the plaintiff is a private corporation, the
certification may be signed, for and on behalf of the said
corporation, by a specifically authorized person, including its
retained counsel, who has personal knowledge of the facts
required to be established by the documents. The reason was
explained by the Court in National Steel Corporation v. Court of
Appeals,11 as follows:

Unlike natural persons, corporations may perform physical

actions only through properly delegated individuals;
namely, its officers and/or agents.

partys counsel to execute a certificate of non-forum shopping is

disputed by the adverse party, the former is required to show
proof of such authority or representation.

In this case, the petitioner, as the defendant in the RTC, assailed

the authority of Atty. Aguinaldo to execute the requisite
verification and certificate of non-forum shopping as the resident
agent and counsel of the respondent. It was, thus, incumbent
upon the respondent, as the plaintiff, to allege and establish that
Atty. Aguinaldo had such authority to execute the requisite
verification and certification for and in its behalf. The respondent,
however, failed to do so.

The corporation, such as the petitioner, has no powers

except those expressly conferred on it by the Corporation
Code and those that are implied by or are incidental to its
existence. In turn, a corporation exercises said powers
through its board of directors and/or its duly-authorized
officers and agents. Physical acts, like the signing of
documents, can be performed only by natural persons
duly-authorized for the purpose by corporate by-laws or
by specific act of the board of directors. "All acts within
the powers of a corporation may be performed by agents
of its selection; and except so far as limitations or
restrictions which may be imposed by special charter, bylaw, or statutory provisions, the same general principles of
law which govern the relation of agency for a natural
person govern the officer or agent of a corporation, of
whatever status or rank, in respect to his power to act for
the corporation; and agents once appointed, or members
acting in their stead, are subject to the same rules,
liabilities and incapacities as are agents of individuals and
private persons."

For who else knows of the circumstances required in

the Certificate but its own retained counsel. Its regular
officers, like its board chairman and president, may not
even know the details required therein.
Indeed, the certificate of non-forum shopping may be
incorporated in the complaint or appended thereto as an integral
part of the complaint. The rule is that compliance with the rule
after the filing of the complaint, or the dismissal of a complaint
based on its non-compliance with the rule, is impermissible.
However, in exceptional circumstances, the court may allow
subsequent compliance with the rule.12 If the authority of a

In the verification and certificate of non-forum shopping which

was incorporated in the complaint and signed by Atty. Aguinaldo,
there was no allegation that Atty. Aguinaldo had been authorized
to execute the certificate of non-forum shopping by the
respondents Board of Directors; moreover, no such board
resolution was appended thereto or incorporated therein.
While Atty. Aguinaldo is the resident agent of the respondent in
the Philippines, this does not mean that he is authorized to
execute the requisite certification against forum shopping. Under
Section 127, in relation to Section 128 of the Corporation Code,
the authority of the resident agent of a foreign corporation with
license to do business in the Philippines is to receive, for and in
behalf of the foreign corporation, services and other legal
processes in all actions and other legal proceedings against such
corporation, thus:
SEC. 127. Who may be a resident agent. A resident
agent may either be an individual residing in the
Philippines or a domestic corporation lawfully transacting
business in the Philippines: Provided, That in the case of
an individual, he must be of good moral character and of
sound financial standing.
SEC. 128. Resident agent; service of process. The
Securities and Exchange Commission shall require as a
condition precedent to the issuance of the license to
transact business in the Philippines by any foreign

corporation that such corporation file with the Securities

and Exchange Commission a written power of attorney
designating some persons who must be a resident of the
Philippines, on whom any summons and other legal
processes may be served in all actions or other legal
proceedings against such corporation, and consenting
that service upon such resident agent shall be admitted
and held as valid as if served upon the duly-authorized
officers of the foreign corporation as its home office.14
Under the law, Atty. Aguinaldo was not specifically authorized to
execute a certificate of non-forum shopping as required by
Section 5, Rule 7 of the Rules of Court. This is because while a
resident agent may be aware of actions filed against his principal
(a foreign corporation doing business in the Philippines), such
resident may not be aware of actions initiated by its principal,
whether in the Philippines against a domestic corporation or
private individual, or in the country where such corporation was
organized and registered, against a Philippine registered
corporation or a Filipino citizen.
2

YES.

In this age of modern technology, the courts may take judicial

notice that business transactions may be made by individuals
through teleconferencing. Teleconferencing is interactive group
communication (three or more people in two or more locations)
through an electronic medium. In general terms, teleconferencing
can bring people together under one roof even though they are
separated by hundreds of miles. 18 This type of group
communication may be used in a number of ways, and have
three basic types: (1) video conferencing - television-like
communication
augmented
with
sound;
(2)
computer
conferencing - printed communication through keyboard
terminals, and (3) audio-conferencing-verbal communication via
the telephone with optional capacity for telewriting or
telecopying.19

Indeed, teleconferencing can only facilitate the linking of people;

it does not alter the complexity of group communication.
Although it may be easier to communicate via teleconferencing,
it may also be easier to miscommunicate. Teleconferencing
cannot satisfy the individual needs of every type of meeting.23
In the Philippines, teleconferencing and videoconferencing of
members of board of directors of private corporations is a reality,
in light of Republic Act No. 8792. The Securities and Exchange
Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied with
related to such conferences.24 Thus, the Court agrees with the
RTC that persons in the Philippines may have a teleconference
with a group of persons in South Korea relating to business
transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondents
Board of Directors, the Court is not convinced that one was
conducted; even if there had been one, the Court is not inclined
to believe that a board resolution was duly passed specifically
authorizing Atty. Aguinaldo to file the complaint and execute the
required certification against forum shopping.
The records show that the petitioner filed a motion to dismiss the
complaint on the ground that the respondent failed to comply
with Section 5, Rule 7 of the Rules of Court. The respondent
opposed the motion on December 1, 1999, on its contention that
Atty. Aguinaldo, its resident agent, was duly authorized to sue in
its behalf. The respondent, however, failed to establish its claim
that Atty. Aguinaldo was its resident agent in the Philippines.
Even the identification card25 of Atty. Aguinaldo which the
respondent appended to its pleading merely showed that he is
the company lawyer of the respondents Manila Regional Office.
The respondent, through Atty. Aguinaldo, announced the holding
of the teleconference only during the hearing of January 28,
2000; Atty. Aguinaldo then prayed for ten days, or until February
8, 2000, within which to submit the board resolution purportedly
authorizing him to file the complaint and execute the required

certification against forum shopping. The court granted the

motion.26 The respondent, however, failed to comply, and instead
prayed for 15 more days to submit the said resolution,
contending that it was with its main office in Korea. The court
granted the motion per its Order27 dated February 11, 2000. The
respondent again prayed for an extension within which to submit
the said resolution, until March 6, 2000. 28 It was on the said date
that the respondent submitted an affidavit of its general manager
Suk Kyoo Kim, stating, inter alia, that he and Atty. Aguinaldo
attended the said teleconference on June 25, 1999, where the
Board of Directors supposedly approved the following resolution:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A.
Aguinaldo & Associates or any of its lawyers are hereby
appointed and authorized to take with whatever legal
action necessary to effect the collection of the unpaid
account of Expert Travel & Tours. They are hereby
specifically authorized to prosecute, litigate, defend, sign
and execute any document or paper necessary to the
filing and prosecution of said claim in Court, attend the
Pre-trial Proceedings and enter into a compromise
agreement relative to the above-mentioned claim.29
But then, in the same affidavit, Suk Kyoo Kim declared that the
respondent "do[es] not keep a written copy of the aforesaid
Resolution" because no records of board resolutions approved
during teleconferences were kept. This belied the respondents
earlier allegation in its February 10, 2000 motion for extension of
time to submit the questioned resolution that it was in the
custody of its main office in Korea. The respondent gave the trial
court the impression that it needed time to secure a copy of the
resolution kept in Korea, only to allege later (via the affidavit of
Suk Kyoo Kim) that it had no such written copy. Moreover, Suk
Kyoo Kim stated in his affidavit that the resolution was embodied
in the Secretarys/Resident Agents Certificate signed by Atty.
Aguinaldo. However, no such resolution was appended to the said
certificate.
The respondents allegation that its board of directors conducted
a teleconference on June 25, 1999 and approved the said

resolution (with Atty. Aguinaldo in attendance) is incredible, given

the additional fact that no such allegation was made in the
complaint. If the resolution had indeed been approved on June
25, 1999, long before the complaint was filed, the respondent
should have incorporated it in its complaint, or at least appended
a copy thereof. The respondent failed to do so. It was only on
January 28, 2000 that the respondent claimed, for the first time,
that there was such a meeting of the Board of Directors held on
June 25, 1999; it even represented to the Court that a copy of its
resolution was with its main office in Korea, only to allege later
that no written copy existed. It was only on March 6, 2000 that
the respondent alleged, for the first time, that the meeting of the
Board of Directors where the resolution was approved was held
via teleconference.
Worse still, it appears that as early as January 10, 1999, Atty.
Aguinaldo had signed a Secretarys/Resident Agents Certificate
alleging that the board of directors held a teleconference on June
25, 1999. No such certificate was appended to the complaint,
which was filed on September 6, 1999. More importantly, the
respondent did not explain why the said certificate was signed by
Atty. Aguinaldo as early as January 9, 1999, and yet was
notarized one year later (on January 10, 2000); it also did not
explain its failure to append the said certificate to the complaint,
as well as to its Compliance dated March 6, 2000. It was only on
January 26, 2001 when the respondent filed its comment in the
CA that it submitted the Secretarys/Resident Agents Certificate 30
dated January 10, 2000.
The Court is, thus, more inclined to believe that the alleged
teleconference on June 25, 1999 never took place, and that the
resolution allegedly approved by the respondents Board of
Directors during the said teleconference was a mere concoction
purposefully foisted on the RTC, the CA and this Court, to avert
the dismissal of its complaint against the petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED.
The Decision of the Court of Appeals in CA-G.R. SP No. 61000 is
REVERSED and SET ASIDE. The Regional Trial Court of Manila is

hereby ORDERED to dismiss, without prejudice, the complaint of

the respondent.
SO ORDERED.
98. CITIBANK, N.A. v CHUA
GR NO. 102300
March 17, 1993
FACTS:
-Petitioner is a foreign banking corporation duly licensed to do
business in the Philippines. Private respondent spouses Velez
were good clients of petitioner banks branch in Cebu until they
filed a complaint for specific performance and damages.
- Private respondents alleged in their complaint that the
petitioner bank extended to them credit lines sufficiently secured
with real estate and chattel mortgages on equipment. They claim
that petitioner offered them special additional accommodation of
Five Million Pesos (P5,000,000.00) to be availed of in the
following manner:
a. The bank would and did purchase check or checks from the
spouses by exchanging it with the banks manager's check on a
regular daily basis as reflected in the banks own ledger furnished
to spouses;
b. It was further agreed that on the following day, defendant
CITIBANK would again purchase from the plaintiffs, check or
checks, by exchanging the same with defendant's manager's
check, which check, however, will be deposited by the plaintiffs
with their other banks to cover the check or checks previously
issued by the plaintiffs mentioned above;

c. The same regular and agreed activity would be undertaken by

the plaintiffs and defendant CITIBANK herein every banking day
thereafter.
This arrangement continued for about six months until March
1986 when private respondents tried to exchange with petitioner
bank 6 checks which the latter refused. Instead, petitioner bank
suggested that the total amount covered by the arrangement be
restructured, in which the respondents agreed. However, the
bank failed to comply with this agreement, thus, the spouses
filed a case for specific performance and damages.
-The petitioner bank presented a different set of facts. According
to the bank, the personal checks deposited were not funded.
When private respondent felt that sooner or later he would be
caught, he decided to run with petitioners banks money. Thus,
respondents personal checks deposited with the bank bounced.
Thus, petitioner bank filed a criminal complaint against private
respondents for violation of BP 22 and estafa.
-On the date of pre-trial conference, counsel for the bank
appeared, presenting a special power of attorney executed by
Citibank officer Florencia Tarriela in favour of petitioner banks
counsel, the JP Garcia & Associates, to represent and bind the
bank at the pre-trial conference of the case.
-In spite of the SPA, counsel for private respondents orally moved
to declare petitioner bank in default on the ground that the SPA
was not executed by the BOD of Citibank.
-In its opposition, petitioner bank attached another SPA made by
William Ferguson, VP and highest ranking officer of Citibank PH,
constituting and appointing JP Garcia & Associates to represent
and bind the bank at the pre-trial conference and/or trial of the
case.
-The respondent judge issued an order declaring petitioner bank
in default. According to him, the defendant bank, although a

foreign corporation, is bound by Philippine laws when doing and

conducting business in the Philippines and its corporate powers
could only be exercised by the BOD. The exercise by the BOD of
such power could only be valid if it bears the approval of the
majority of the Board. The record does not show the requisite
document.
-Upon appeal, the CA dismissed the petition based on the
following grounds:
a. The bank could not present a Board Resolution concerning the
appointment of its counsel
b. The by-laws of the bank has not been approved by the SEC
c. No SPA was presented authorizing JP Garcia Associates to
appear for and in behalf of petitioner during pre-trial. Only a
general power of attorney was presented. Such general power
cannot authorize JP Garcia Associates to enter into any
compromise agreement.
-Petitioners contended that no Board Resolution was necessary
for its legal counsel or Citibank employees to act as its attorneyin-fact because petitioner banks by-laws grant to its Executing
Officer and Secretary Pro-Term the power to delegate a Citibank
Officer (Ferguson), the authority to represent and defend the
bank and its interests.
ISSUES:
(1) Whether the resolution of the BOD of a corporation is always
necessary for granting authority to an agent to represent the
corporation in court cases
(2) Whether the by-laws of the petitioner which has been
previously granted to do business in the Philippines, are effective
in this jurisdiction

HELD:
(1) NO.
Although as a general rule, all corporate powers are to be
exercised by the BOD (Sec. 23), exceptions are made where the
Code provides otherwise (eg Sec. 25, Sec. 47).
Corporate powers may be directly conferred upon corporate
officers or agents by statute, the AOI, the by-laws or by resolution
or other act of the BOD. In addition, an officer who is not a
director may also appoint other agents when so authorized by
the by-laws or by the board of directors. Such are referred to as
express powers. There are also powers incidental to express
powers conferred. It is a fundamental principle in the law of
agency that every delegation of authority, whether general or
special, carries with it, unless the contrary be expressed, implied
authority to do all of those acts, naturally and ordinarily done in
such cases, which are reasonably necessary and proper to be
done in order to carry into effect the main authority conferred.
Since the by-laws are a source of authority for corporate officers
and agents of the corporation, a resolution of the Board of
Directors of Citibank appointing an attorney in fact to represent
and bind it during the pre-trial conference of the case at bar is
not necessary because its by-laws allow its officers, the Executing
Officer and the Secretary Pro-Tem, ** to execute a power of
attorney to a designated bank officer, William W. Ferguson in this
case, clothing him with authority to direct and manage corporate
affairs.
(2) YES.
-Sec. 46, Corporation Code
- When the third paragraph of the above provision mentions "in
all cases", it can only refer to these two options; i.e., whether
adopted prior to incorporation or within one month after

incorporation, the by-laws shall be effective only upon the

approval of the SEC. But even more important, said provision
starts with the phrase "Every corporation formed under this
Code", which can only refer to corporations incorporated in the
Philippines. Hence, Section 46, in so far as it refers to the
effectivity of corporate by-laws, applies only to domestic
corporations and not to foreign corporations.
On the other hand, Section 125 of the same Code requires that a
foreign corporation applying for a license to transact business in
the Philippines must submit, among other documents, to the SEC,
a copy of its articles of incorporation and by-laws, certified in
accordance with law. Unless these documents are submitted, the
application cannot be acted upon by the SEC. In the following
section, the Code specifies when the SEC can grant the license
applied for. Section 126 provides in part:
"SEC. 126. Issuance of a license. If the Securities and
Exchange Commission is satisfied that the applicant has
complied with all the requirements of this Code and other special
laws, rules and regulations, the Commission shall issue a license
to the applicant to transact business in the Philippines for the
purpose or purposes specified in such license . . ."
Since the SEC will grant a license only when the foreign
corporation has complied with all the requirements of law, it
follows that when it decides to issue such license, it is satisfied
that the applicant's by-laws, among the other documents, meet
the legal requirements. This, in effect, is an approval of the
foreign corporations by-laws. It may not have been made in
express terms, still it is clearly an approval. Therefore, petitioner
bank's by-laws, though originating from a foreign jurisdiction, are
valid and effective in the Philippines.
99. Boyer Roxas vs CA

In the case of petitioner Rebecca Boyer-Roxas, the respondent

corporation alleged that Rebecca is in possession of two (2)
houses, one of which is still under construction, built at the
expense of the respondent corporation; and that her occupancy
on the two (2) houses was only upon the tolerance of the
respondent corporation.
In the case of petitioner Guillermo Roxas, the respondent
corporation alleged that Guillermo occupies a house which was
built at the expense of the former during the time when
Guillermo's father, Eriberto Roxas, was still living and was the
general manager of the respondent corporation; that the house
was originally intended as a recreation hall but was converted for
the residential use of Guillermo; and that Guillermo's possession
over the house and lot was only upon the tolerance of the
respondent corporation.
Originally, the questioned properties belonged to Eugenia V.
Roxas. After her death, the heirs of Eugenia V. Roxas, among
them the petitioners herein, decided to form a corporation
Heirs of Eugenia V. Roxas, Incorporated with the inherited
properties as capital of the corporation. The corporation was
incorporated on December 4, 1962 with the primary purpose of
engaging in agriculture to develop the inherited properties. The
Articles of Incorporation of the respondent corporation were
amended in 1971 to allow it to engage in the resort business.
Accordingly, the corporation put up a resort known as Hidden
Valley Springs Resort where the questioned properties are
located.
Issue:
Whether or not the Respondent Court erred when it refused to
pierce the veil of corporate fiction over private respondent
Held:

Facts:
The respondent corporation has a distinct personality separate

from its members. The corporation transacts its business only

through its officers or agents. Whatever authority these officers
or agents may have is derived from the board of directors or
other governing body unless conferred by the charter of the
corporation. An officer's power as an agent of the corporation
must be sought from the statute, charter, the by-laws or in a
delegation of authority to such officer, from the acts of the board
of directors, formally expressed or implied from a habit or custom
of doing business.
In the present case, the record shows that Eufrocino V. Roxas who
then controlled the management of the corporation, being the
majority stockholder, consented to the petitioners' stay within
the questioned properties. Eufrocino Roxas gave his consent to
the conversion of the recreation hall to a residential house, now
occupied by petitioner Guillermo Roxas. The Board of Directors
did not object to the actions of Eufrocino Roxas. The petitioners
were allowed to stay within the questioned properties until the
Board of Directors approved a Resolution ejecting the petitioners.
The Court finds nothing irregular in the adoption of the Resolution
by the Board of Directors. The petitioners' stay within the
questioned properties was merely by tolerance of the respondent
corporation in deference to the wishes of Eufrocino Roxas, who
during his lifetime, controlled and managed the corporation.
Eufrocino Roxas' actions could not have bound the corporation
forever. The petitioners have not cited any provision of the
corporation by-laws or any resolution or act of the Board of
Directors which authorized Eufrocino Roxas to allow them to stay
within the company premises forever. We rule that in the absence
of any existing contract between the petitioners and the
respondent corporation, the corporation may elect to eject the
petitioners at any time it wishes for the benefit and interest of
the respondent corporation.
The petitioners' suggestion that the veil of the corporate fiction
should be pierced is untenable. The separate personality of the
corporation may be disregarded only when the corporation is

used "as a cloak or cover for fraud or illegality, or to work

injustice, or where necessary to achieve equity or when
necessary for the protection of the creditors." The circumstances
in the present cases do not fall under any of the enumerated
categories.
100. G.R. No. 151969
September 4, 2009
VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA,
RAY GAMBOA, AMADO M. SANTIAGO, JR., FORTUNATO DEE,
AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III,
ERIC ROXAS, in their capacities as members of the Board
of Directors of Valle Verde Country Club, Inc., and JOSE
RAMIREZ,Petitioners,
vs.
VICTOR AFRICA, Respondent.
BRION, J.:
On February 27, 1996, during the Annual Stockholders Meeting
of petitioner Valle Verde Country Club, Inc. (VVCC), the following
were elected as members of the VVCC Board of Directors:
Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo
Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado
M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray
Gamboa. In the years 1997, 1998, 1999, 2000, and 2001,
however, the requisite quorum for the holding of the
stockholders meeting could not be obtained. Consequently, the
above-named directors continued to serve in the VVCC Board in a
hold-over capacity.
On September 1, 1998, Dinglasan resigned from his position as
member of the VVCC Board. In a meeting held on October 6,
1998, the remaining directors, still constituting a quorum of
VVCCs nine-member board, elected Eric Roxas (Roxas) to fill in
the vacancy created by the resignation of Dinglasan.
A year later, or on November 10, 1998, Makalintal also resigned
as member of the VVCC Board. He was replaced by Jose Ramirez
(Ramirez), who was elected by the remaining members of the
VVCC Board on March 6, 2001.

Respondent Africa, a member of VVCC, questioned the election of

Roxas and Ramirez as members of the VVCC Board with the SEC
and the RTC.. Africa alleged that the election of Roxas was
contrary to Section 29, in relation to Section 23, of the
Corporation Code of the Philippines.
Africa claimed that a year after Makalintals election as member
of the VVCC Board in 1996, his [Makalintals] term as well as
those of the other members of the VVCC Board should be
considered to have already expired. Thus, according to Africa, the
resulting vacancy should have been filled by the stockholders in
a regular or special meeting called for that purpose, and not by
the remaining members of the VVCC Board, as was done in this
case.
Africa additionally contends that for the members to exercise the
authority to fill in vacancies in the board of directors, Section 29
requires, among others, that there should be an unexpired term
during which the successor-member shall serve. Since
Makalintals term had already expired with the lapse of the oneyear term provided in Section 23, there is no more "unexpired
term" during which Ramirez could serve.
RTC ruled in favor of Africa and declared the election of Ramirez,
as Makalintals replacement, to the VVCC Board as null and void.
ISSUE: Whether or not the remaining directors of a corporations
Board, still constituting a quorum, can elect another director to
fill in a vacancy caused by the resignation of a hold-over director.
HELD: NO. The resolution of this legal issue is significantly hinged
on the determination of what constitutes a directors term of
office.
The holdover period is not part of the term of office of a member
of the board of directors.
The word "term" has acquired a definite meaning in
jurisprudence. In several cases, we have defined "term" as the
time during which the officer may claim to hold the office as of
right, and fixes the interval after which the several incumbents

shall succeed one another. The term of office is not affected by

the holdover. The term is fixed by statute and it does not change
simply because the office may have become vacant, nor because
the incumbent holds over in office beyond the end of the term
due to the fact that a successor has not been elected and has
failed to qualify.
Term is distinguished from tenure in that an officers "tenure"
represents the term during which the incumbent actually holds
office. The tenure may be shorter (or, in case of holdover, longer)
than the term for reasons within or beyond the power of the
incumbent.
Based on the above discussion, when Section 23 of the
Corporation Code declares that "the board of directorsshall hold
office for one (1) year until their successors are elected and
qualified," we construe the provision to mean that the term of the
members of the board of directors shall be only for one year;
their term expires one year after election to the office. The
holdover period that time from the lapse of one year from a
members election to the Board and until his successors election
and qualification is not part of the directors original term of
office, nor is it a new term; the holdover period, however,
constitutes part of his tenure. Corollary, when an incumbent
member of the board of directors continues to serve in a holdover
capacity, it implies that the office has a fixed term, which has
expired, and the incumbent is holding the succeeding term.
After the lapse of one year from his election as member of the
VVCC Board in 1996, Makalintals term of office is deemed to
have already expired. That he continued to serve in the VVCC
Board in a holdover capacity cannot be considered as extending
his term. To be precise, Makalintals term of office began in 1996
and expired in 1997, but, by virtue of the holdover doctrine in
Section 23 of the Corporation Code, he continued to hold office
until his resignation on November 10, 1998. This holdover period,
however, is not to be considered as part of his term, which, as
declared, had already expired.
With the expiration of Makalintals term of office, a vacancy
resulted which, by the terms of Section 29 of the Corporation

Code, must be filled by the stockholders of VVCC in a regular or

special meeting called for the purpose. To assume as VVCC
does that the vacancy is caused by Makalintals resignation in
1998, not by the expiration of his term in 1997, is both illogical
and unreasonable. His resignation as a holdover director did not
change the nature of the vacancy; the vacancy due to the
expiration of Makalintals term had been created long before his
resignation.
The powers of the corporations board of directors emanate from
its stockholders.
The underlying policy of the Corporation Code is that the
business and affairs of a corporation must be governed by a
board of directors whose members have stood for election, and
who have actually been elected by the stockholders, on an
annual basis. Only in that way can the directors' continued
accountability to shareholders, and the legitimacy of their
decisions that bind the corporation's stockholders, be assured.
The shareholder vote is critical to the theory that legitimizes the
exercise of power by the directors or officers over properties that
they do not own.
This theory of delegated power of the board of directors
similarly explains why, under Section 29 of the
Corporation Code, in cases where the vacancy in the
corporations board of directors is caused not by the
expiration of a members term, the successor "so elected
to fill in a vacancy shall be elected only for the unexpired
term of the his predecessor in office." The law has
authorized the remaining members of the board to fill in a
vacancy only in specified instances, so as not to retard or
impair the corporations operations; yet, in recognition of
the stockholders right to elect the members of the board,
it limited the period during which the successor shall
serve only to the "unexpired term of his predecessor in
office."
It also bears noting that the vacancy referred to in

Section 29 contemplates a vacancy occurring within the

directors term of office. When a vacancy is created by
the expiration of a term, logically, there is no more
unexpired term to speak of. Hence, Section 29 declares
that it shall be the corporations stockholders who shall
possess the authority to fill in a vacancy caused by the
expiration of a members term.
As correctly pointed out by the RTC, when remaining members of
the VVCC Board elected Ramirez to replace Makalintal, there was
no more unexpired term to speak of, as Makalintals one-year
term had already expired. Pursuant to law, the authority to fill in
the vacancy caused by Makalintals leaving lies with the VVCCs
stockholders, not the remaining members of its board of
directors.
101. YU CHUCK, MACK YUENG, and DING MOON, plaintiffsappellees,
vs.
"KONG LI PO," defendant-appellant.
OSTRAND, J.:
FACTS:
The defendant is a domestic corporation organized in accordance
with the laws of the Philippine Islands and engaged in the
publication of a Chinese newspaper styled Kong Li Po. Its articles
of incorporation and by-laws are in the usual form and provide for
a board of directors and for other officers among them a
president whose duty it is to "sign all contracts and other
instruments of writing." No special provision is made for a
business or general manager.
Some time during the year 1919 one C. C. Chen or T. C. Chen was
appointed general business manager of the newspaper. During

the month of December of that year he entered into an

agreement with the plaintiffs by which the latter bound
themselves to do the necessary printing for the newspaper for
the sum of P580 per month as alleged in the complaint. Under
this agreement the plaintiffs worked for the defendant from
January 1, 1920, until January 31, 1921, when they were
discharged by the new manager, Tan Tian Hong, who had been
appointed in the meantime, C. C. Chen having left for China. The
letter of dismissal stated no special reasons for the discharge of
the plaintiffs.
The plaintiffs thereupon brought the present action alleging,
among other things, in the complaint that their contract of
employment was for a term of three years from the first day of
January, 1920; that in the case of their discharge by the
defendant without just cause before the expiration of the term of
the contract, they were to receive full pay for the remaining
portion of the term; that they had been so discharged without
just cause and therefore asked judgment for damages in the sum
of P20,880.
In its amended answer the defendant denies generally and
specifically the allegations of the complaint and sets up five
special defenses and counterclaims. The first of these is to the
effect that C. C. Chen, the person whose name appears to have
been signed to the contract of employment was not authorized
by the defendant to execute such a contract in its behalf.
At the trial of the case the plaintiffs presented in evidence Exhibit
A which purports to be a contract between Chen and the plaintiffs
and which provides that in the event the plaintiffs should be
discharged without cause before the expirations of the term of
three years from January 1, 1920, they would be given full pay for
the unexpired portion of the term "even if the said paper has to
fall into bankruptcy." The contract is signed by the plaintiffs and
also bears the signature "C. C. Chen, manager of Kong Li Po."
ISSUE:

Whether. Chen had the power to bind the corporation by a

contract of the character indicated.
RULING: NO. It is conceded that he had no express authority to
do so, but the evidence is conclusive that he, at the time the
contract was entered into, was in effect the general business
manager of the newspaper Kong Li Po and that he, as such, had
charge of the printing of the paper, and the plaintiff maintain that
he, as such general business manager, had implied authority to
employ them on the terms stated and that the defendant
corporation is bound by his action. The general rule is that the
power to bind a corporation by contract lies with its board of
directors or trustees, but this power may either expressly or
impliedly be delegated to other officers or agents of the
corporation, and it is well settled that except where the authority
of employing servants and agent is expressly vested in the board
of directors or trustees, an officer or agent who has general
control and management of the corporation's business, or a
specific part thereof, may bind the corporation by the
employment of such agent and employees as are usual and
necessary in the conduct of such business. But the contracts of
employment must be reasonable.
In regard to the length of the term of employment, Corpus Juris
says:
In the absence of express limitations, a manager has authority to
hire an employee for such a period as is customary or proper
under the circumstances, such as for a year, for the season, or
for two season. But unless he is either expressly authorized, or
held out as having such authority, he cannot make a contract of
employment for a long future period, such as for three years,
although the contract is not rendered invalid by the mere fact
that the employment extends beyond the term of the manager's
own employment. . . . (14a C. J., 431.)
From what has been said, there can be no doubt that Chen, as
general manager of the Kong Li Po, had implied authority to bind

the defendant corporation by a reasonable and usual contract of

employment with the plaintiffs, but we do not think that the
contract here in question can be so considered. Not only is the
term of employment unusually long, but the conditions are
otherwise so onerous to the defendant that the possibility of the
corporation being thrown into insolvency thereby is expressly
contemplated in the same contract. This fact in itself was, in our
opinion, sufficient to put the plaintiffs upon inquiry as to the
extent of the business manager's authority; they had not the
rights to presume that he or any other single officer or employee
of the corporation had implied authority to enter into a contract
of employment which might bring about its ruin.

appears to have placed some weight on a notice inserted in the

January 14th issue of the Kong Li Po by T. C. Chen and which, in
translation, reads as follows:

Neither do we think that the contention that the corporation

impliedly ratified the contract is supported by the evidence. The
contention is based principally on the fact that Te Kim Hua, the
president of the corporation for the year 1920, admitted on the
witness stand that he saw the plaintiffs work as printers in the
office of the newspaper. He denied, however, any knowledge of
the existence of the contract and asserted that it was never
presented neither to him nor to the board of directors. Before a
contract can be ratified knowledge of its existence must, of
course, be brought home to the parties who have authority to
ratify it or circumstances must be shown from which such
knowledge may be presumed. No such knowledge or
circumstances have been shown here. That the president of the
corporation saw the plaintiffs working in its office is of little
significance; there were other printers working there at that time
and as the president had nothing to do with their employment, it
was hardly to be expected that be would inquire into the terms of
their contracts. Moreover, a ratification by him would have been
of no avail; in order to validate a contract, a ratification by the
board of directors was necessary. The fact that the president was
required by the by-laws to sign the documents evidencing
contracts of the corporation, does not mean that he had power to
make the contracts.

(The evidence shows that Chen You Man and T. C. Chen is one
and the same person.)

In his decision his Honor, the learned judge of the court below

To Whom It May Concern: Announcement is hereby given that

thereafter all contracts, agreements and receipts are considered
to be null and void unless duly signed by T. C. Chen, General
Manager of this paper.
(Sgd.) CHEN YOU MAN
General Manager of this paper

His Honor evidently overestimated the importance of this notice.

It was published nearly a month after the contract in question is
alleged to have been entered into and can therefore not have
been one of the circumstances which led the plaintiffs to think
that Chen had authority to make the contract. It may further be
observed that the notice confers no special powers, but is, in
effect, only an assertion by Chen that he would recognize no
contracts, agreements, and receipts not duty signed by him. It
may be presumed that the contracts, agreements, and receipts
were such as were ordinarily made in the course of the business
of managing the newspaper. There is no evidence to show that
the notice was ever brought to the attention of the officers of the
defendant corporation.
The judgment appealed from is reversed and the defendant
corporation is absolved from the complaint. No costs will be
allowed. So ordered.
102. WOODCHILD HOLDINGS, INC vs ROXAS ELECTRIC
AND CONSTRUCTION COMPANY, INC - BERNABE
G.R. No. 140667/ August 12, 2004

FACTS:
Roxas Electric and Construction Company, Inc. (RECCI), was
the owner of two parcels of land, identified as:
Lot No. 491-A-3-B-1 covered by Transfer Certificate of Title (TCT)
No. 78085 and
Lot No. 491-A-3-B-2 covered by TCT No. 78086.
On May 17, 1991, the respondents Board of Directors approved a
resolution authorizing the corporation, through its president,
Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No.
78086 (lot no. 2) Roxas sold the lot (no.2) to Woodchild (WHI)
and the following provision was incorporated in the Deed of
Absolute Sale:
The Vendor agree (sic), as it hereby agrees and binds
itself to give Vendee the beneficial use of and a right of
way from Sumulong Highway to the property herein
conveyed consists of 25 square meters wide to be used as
the latters egress from and ingress to and an additional 25
square meters in the corner of Lot No. 491-A-3-B-1, as
turning and/or maneuvering area for Vendees vehicles.

agreed upon in the said deed but RECCI rejected it. WHI filed a
complaint against RECCI for specific performance and damages

The Vendor agrees that in the event that the right of way
is insufficient for the Vendees use (exit & entry of a 45foot container) the Vendor agrees to sell additional square
meters from its current adjacent property to allow the
Vendee full access and full use of the property.

SC RULING:
Generally, the acts of the corporate officers within the
scope of their authority are binding on the corporation. However,
under Article 1910 of the New Civil Code, acts done by such
officers beyond the scope of their authority cannot bind the
corporation unless it has ratified such acts expressly or tacitly, or
is estopped from denying them. Thus, contracts entered into by
corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the
corporation. Roxas was not specifically authorized under the said
resolution to grant a right of way in favor of the petitioner on a
portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner
a portion thereof. The authority of Roxas, under the resolution, to
sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include
the authority to sell a portion of the adjacent lot, Lot No. 491-A-3B-1, or to create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas to sell
Lot No. 491-A-3-B-2 to the petitioner on such terms and

WHI already contracted with a construction company for

the construction of its warehouse and a lessee. In the meantime,
WHI complained to Roberto Roxas that the vehicles of RECCI were
parked on a portion of the property over which WHI had been
granted a right of way.Roxas promised to look into the matter. Dy
and Roxas discussed the need of the WHI to buy a 500-squaremeter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085
(lot no. 1) as provided for in the deed of absolute sale. However,
Roxas died soon thereafter. WHI wrote the RECCI, reiterating its
verbal requests to purchase a portion of the said lot as provided
for in the deed of absolute sale, and complained about the latters
failure to eject the squatters within the three-month period

RTC: Ruled in favor of WHI. Ordered RECCI to deliver to WHI the

beneficial use of the stipulated 25 and 55 sqm and to sell to WHI
additional 25 & 100sqm to allow it full access and use of the
purchased property pursuant to paragraph 5 of the Deed of
Absolute Sale. It ruled that the RECCI was estopped from
disowning the apparent authority of Roxas
CA: reversed RTC
ISSUE:
WON respondent is bound by the provisions in the deed of
absolute sale granting to the petitioner beneficial use and a right
of way over a portion of Lot No. 491-A-3-B-1 and granting the
option to the petitioner to buy a portion thereof? - NO
WON the corporate officers gave Roxas apparent authority to
grant right of way and to grant an option for the respondent to
sell a portion thereof to the petitioner? - NO

conditions
which
he
deems
most
reasonable
and
advantageous. Under paragraph 12, Article 1878 of the New Civil
Code, a special power of attorney is required to convey real rights
over immovable property. Article 1358 of the New Civil Code
requires that contracts which have for their object the creation of
real rights over immovable property must appear in a public
document. The petitioner cannot feign ignorance of the need for
Roxas to have been specifically authorized in writing by the
Board of Directors to be able to validly grant a right of way and
agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if
the act of the agent is one which requires authority in writing,
those dealing with him are charged with notice of that fact.
Powers of attorney are generally construed strictly and courts will
not infer or presume broad powers from deeds which do not
sufficiently include property or subject under which the agent is
to deal. The general rule is that the power of attorney must be
pursued within legal strictures, and the agent can neither go
beyond it; nor beside it. The act done must be legally identical
with that authorized to be done. In sum, then, the consent of the
respondent to the assailed provisions in the deed of absolute sale
was not obtained; hence, the assailed provisions are not binding
on it.
Absent estoppel or ratification, apparent authority cannot
remedy the lack of the written power required under the
statement of frauds. Apparent authority is based on estoppel and
can arise from two instances: first, the principal may knowingly
permit the agent to so hold himself out as having such authority,
and in this way, the principal becomes estopped to claim that the
agent does not have such authority; second, the principal may so
clothe the agent with the indicia of authority as to lead a
reasonably prudent person to believe that he actually has such
authority. There can be no apparent authority of an agent without
acts or conduct on the part of the principal and such acts or
conduct of the principal must have been known and relied upon
in good faith and as a result of the exercise of reasonable
prudence by a third person as claimant and such must have
produced a change of position to its detriment. The apparent

power of an agent is to be determined by the acts of the principal

and not by the acts of the agent.
For the principle of apparent authority to apply, the petitioner
was burdened to prove the following:
(a) the acts of the respondent justifying belief in the agency by
the petitioner;
(b) knowledge thereof by the respondent which is sought to be
held; and,
(c) reliance thereon by the petitioner consistent with ordinary
care and prudence.
In this case, there is no evidence on record of specific acts made
by the respondent showing or indicating that it had full
knowledge of any representations made by Roxas to the
petitioner that the respondent had authorized him to grant to the
respondent an option to buy a portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085, or to create a burden or lien thereon,
or that the respondent allowed him to do so.
As to the issue on SQUATTERS SC ruled in favor of WHI and
ordered RECCI to pay the difference between the original and
increased cost of construction materials. (1.7M) RECCI was also
held responsible to pay 3.9M by way of unearned income from
the lease of the property
103. Board of Liquidators vs. Kalaw
No. L-18805. August 14, 1967
FACTS: The National Coconut Corporation (NACOCO, for short)
was chartered as a non-profit governmental organization on May
7, 1940 by Commonwealth Act 518. On August 1, 1946,
NACOCO's charter was amended [Republic Act 5] to grant that
corporation the express power "to buy, sell, barter, export, and in
any other manner deal in, coconut, copra, and dessicated
coconut, as well as their by- products, and to act as agent, broker

or commission merchant of the producers, dealers or merchants"

thereof.
General manager and board chairman was Maximo M. Kalaw;
defendants Juan Bocar and Casimiro Garcia were members of the
Board; defendant Leonor Moll became director only on December
22, 1947. NACOCO, after the passage of Republic Act 5,
embarked on copra trading activities. Amongst the scores of
contracts executed by general manager Kalaw are the disputed
contracts, for the delivery of copra
Four devastating typhoons visited the Philippines. Copra
production decreased. Prices spiralled. When it became clear that
the contracts would be unprofitable, Kalaw submitted them to the
board for approval. It was not until December 22, 1947 when the
membership was completed. Defendant Moll took her oath on
that date. A meeting was then held. Kalaw made a full disclosure
of the situation, apprised the board of the impending heavy
losses. No action was taken on the contracts.
The buyers threatened damage suits. These cases culminated in
an out-of-court amicable settlement when the Kalaw
management was already out. The corporation thereunder paid
Dreyfus P567,024.52 representing 70% of the total claims. With
particular reference to the Dreyfus claims, NACOCO put up the
defenses that: (1) the contracts were void because Louis Dreyfus
& Co. (Overseas) Ltd. did not have license to do business here;
and (2) failure to deliver was due to force majeure, the typhoons.
NACOCO seeks to recover the sum of P1,343,274.52 from general
manager and board chairman Maximo M. Kalaw, and directors
Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw
with negligence under Article 1902 of the old Civil Code (now
Article 2176, new Civil Code); and defendant board members,
including Kalaw, with bad faith and/or breach of trust for having
approved the contracts.
The lower court came out with a judgment dismissing the

complaint without costs as well as defendants' counterclaims,

except that plaintiff was ordered to pay the heirs of Maximo
Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit
due the deceased Kalaw from NACOCO.
ISSUE: Whether or not the acts of the respondents as General
Manager without prior approval of the Board are valid corporate
acts?
HELD: YES. A corporate officer, entrusted with the general
management and control of its business, has implied authority to
make any contract or do any other act which is necessary or
appropriate to the conduct of the ordinary business of the
corporation. As such officer, he may, without any special
authority from the Board of Directors, perform all acts of an
ordinary nature, which by usage or necessity are incident to his
office, and may bind the corporation by contracts in matters
arising in the usual course of business.Same;
Where similar acts have been approved by the directors as a
matter of general practice, custom, and policy, the general
manager may bind the company without formal authorization of
the board of directors. In varying language, existence of such
authority is established by proof of the course of business, the
usages and practices of the company and by the knowledge
which the board of directors has, or must be presumed to have,
of acts and doings of its subordinates in and about the affairs of
the corporation. Where the practice of the corporation has been
to allow its general manager to negotiate and execute contracts
in its copra trading activities for and in Nacoco's behalf without
prior board approval, and the board itself, by its acts and through
acquiescence, practically laid aside the by-law requirement of
prior approval, the contracts of the general manager, under the
given circumstances, are valid corporate acts.
Ratification by a corporation of an unauthorized act or contract
by its officers or others relates back to the time of the act or
contract ratified and is equivalent to original authority. The

corporation and the other party to the transaction are in precisely

the same position as if the act or contract had been authorized at
the time. The adoption or ratif ication of a contract by a
corporation is nothing more nor less than the making of an
original contract. The theory of corporate ratification is
predicated on the right of a corporation to contract, and any
ratification or adoption is equivalent to a grant of prior authority.

Hayes was a director and president of respondent company.

Claiming a salary as such president, he secured payment thereof,
and this suit was brought to recover the same on the ground that
no salary was established. Corporation also sued to recover
payment of a room in Boston which purpose was not
substantiated. The corporation secured a verdict and judgment
for both sums, Hayes sued out this writ of error.

As we have earlier expressed, Kalaw had authority to execute the

contracts without need of prior approval. Everybody, including
Kalaw himself, thought so, and for a long time. Doubts were first
thrown on the way only when the contracts turned out to be
unprofitable for NACOCO.

In this case, the Executive Committee: (a) removed the Treasurer

and appointed a new one; (b) fixed the annual salary of the
members of the Executive Committee; (c) amended the by-laws
by giving the President the sole authority to call a stockholder's
meeting and a board of directors meeting; and (d) amended the
composition of the Executive Committee by limiting it to just 2
persons.

On top of all these, is that no assertion is made and no proof is

presented which would link Kalaw's actsratified by the board
to a matrix for defraudation of the government. Kalaw is clear of
the stigma of bad faith. Plaintiff's corporate counselconcedes that
Kalaw all along thought that he had authority to enter into the
contracts; that he did so in the best interests of the corporation;
that he entered into the contracts in pursuance of an overall
policy to stabilize prices, to free the producers from the clutches
of the middlemen.
Kalaw's acts were not the result of haphazard decisions either.
Kalaw invariably consulted with NACOCO's Chief Buyer,
Sisenando Barretto, or the Assistant General Manager. The dailies
and quotations from abroad were guideposts to him. Of course,
Kalaw could not have been an insurer of profits. He could not be
expected to predict the coming of unpredictable typhoons. And
even as typhoons supervened, Kalaw was not remissed in his
duty.
104. Hayes vs. Canada Atlantic & Plant Steamship Co.
181 F. 289; 1910
FACTS:

The formal by-laws of the corporation provides as follows:

"Sec. 8. The directors shall annually appoint from among
themselves two directors, who, with the president, shall form an
executive committee, and said committee shall have full powers
of the board of directors when said board is not in session."
Hayes maintains that this expression "full powers" has no
limitation whatever,
ISSUE:
Were these actions valid?
HELD:
No, because the Executive Committee usurped the powers
vested in the board and the stockholders. If their actions were
valid, it would put the corporation in a situation wherein only two
men, acting in their own pecuniary interests, would have
absorbed the powers of the entire corporation.

Neither the notices for the alleged meetings of the executive

committee nor that for the alleged meeting of the directors were
sufficient in law, and that, therefore, meetings were invalid.
We should here observe, for the general purposes of this opinion,
that, so far as appears in this record, the law of the domicile of
the corporation is the common law established alike in the United
States and in England, in that neither the president nor any
director of a corporation is entitled to any salary unless there is
an authoritative vote granting it and establishing the amount of
the same.
"Full powers" should be interpreted only in the ordinary conduct
of business and not total abdication of board and stockholders'
powers to the Executive Committee. "Full powers" does not mean
unlimited or absolute power.
105. G.R. No. 89070 May 18, 1992
BENGUET ELECTRlC COOPERATIVE, INC., petitioner,
vs.
NATIONAL
LABOR
RELATIONS
COMMISSION,
PETER
COSALAN and BOARD OF DIRECTORS OF BENGUET
ELECTRIC COOPERATIVE, INC., * respondents.
FELICIANO, J.:
FACTS: Private respondent Peter
Manager of Petitioner Benguet
("Beneco"), having been elected
Directors of Beneco, with the
Electrification Administrator.

Cosalan was the General

Electric Cooperative, Inc.
as such by the Board of
approval of the National

Petitioner Beneco received the COA Audit Report on the financial

status and operations of Beneco for the eight (8) month period
ended 30 September 1982. This Audit Report noted and
enumerated irregularities in the utilization of funds amounting to
P37 Million released by NEA to Beneco, and recommended that

appropriate remedial action be taken.

Having been made aware of the serious financial condition of
Beneco and what appeared to be mismanagement, respondent
Cosalan initiated implementation of the remedial measures
recommended by the COA.
The respondent members of the Board of Beneco reacted by
adopting a series of resolutions which abolished the housing
allowance of respondent Cosalan; reduced his salary and his
representation and commutable allowances; directed him to hold
in abeyance all pending personnel disciplinary actions; and struck
his name out as a principal signatory to transactions of petitioner
Beneco. Another series of resolutions were adopted which
resulted in the ouster of respondent Cosalan as General Manager
of Beneco and his exclusion from performance of his regular
duties as such, as well as the withholding of his salary and
allowances.
Cosalan filed a motion for reinstatement which was granted.
NLRC rendered petitioner Beneco alone, and not respondent
Board members, was liable for respondent Cosalan's backwages
and allowances.
ISSUE: WON petitioner alone is liable for payment of the
backwages and allowances due to Cosalan, releasing respondent
Board members from liability therefor.
HELD: NO.
The Board members and officers of a corporation who purport to
act for and in behalf of the corporation, keep within the lawful
scope of their authority in so acting, and act in good faith, do not
become liable, whether civilly or otherwise, for the consequences
of their acts. Those acts, when they are such a nature and are
done under such circumstances, are properly attributed to the
corporation alone and no personal liability is incurred by such

officers and Board members.

The Solicitor General has urged that respondent Board members
may be held liable for damages under the foregoing
circumstance under Section 31 of the Corporation Code:
Directors or trustees who willfully and knowingly vote for
or assent to patently unlawful acts of the corporation or
who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such
directors or trustees shall be jointly liable and severally
for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other
persons . . .
We agree with the Solicitor General, firstly, that Section 31 of the
Corporation Code is applicable in respect of Beneco and other
electric cooperatives similarly situated. Section 4 of the
Corporation Code renders the provisions of that Code applicable
in a supplementary manner to all corporations, including those
with special or individual charters so long as those provisions are
not inconsistent with such charters. We find no provision in P.D.
No. 269, as amended, that would exclude expressly or by
necessary implication the applicability of Section 31 of the
Corporation Code in respect of members of the boards of
directors of electric cooperatives.
Secondy, that respondent Board members were guilty of "gross
negligence or bad faith in directing the affairs of the corporation"
in enacting the series of resolutions noted earlier indefinitely
suspending and dismissing respondent Cosalan from the position
of General Manager of Beneco. Respondent Board members, in
doing so, acted belong the scope of their authority as such Board
members. The dismissal of an officer or employee in bad faith,
without lawful cause and without procedural due process, is an
act that is contra legem. It cannot be supposed that members of
boards of directors derive any authority to violate the express

mandates of law or the clear legal rights of their officers and

employees by simply purporting to act for the corporation they
control.
Not only are Beneco and respondent Board members properly
held solidarily liable for the awards made by the Labor Arbiter,
but also that petitioner Beneco which was controlled by and
which could act only through respondent Board members, has a
right to be reimbursed for any amounts that Beneco may be
compelled to pay to respondent Cosalan. Such right of
reimbursement is essential if the innocent members of Beneco
are not to be penalized for the acts of respondent Board
members which were both done in bad faith and ultra vires. The
liability-generating acts here are the personal and individual acts
of respondent Board members, and are not properly attributed to
Beneco itself.
106. Prime White v. IAC- PEDROZO
PRIME WHITE CEMENT CORPORATION, petitioner, vs.
HONORABLE INTERMEDIATE APPELLATE COURT and
ALEJANDRO TE, respondents.
CAMPOS, JR., J.:
FACTS:
Plaintiff Alejandro Te and defendant corporation
Prime White Cement Corporation thru its President, Mr.
Zosimo Falcon and Justo C. Trazo, as Chairman of the Board,
entered into a dealership agreement whereby said plaintiff
was obligated to act as the exclusive dealer and/or
distributor of the said defendant corporation of its
cement products in the entire Mindanao area for a term of
five (5) years and providing among others that:
a. The corporation shall, sell to and supply the plaintiff, as
dealer with 20,000 bags (94 lbs/bag) of white cement per
month;
b. The plaintiff shall pay the defendant corporation P9.70,
Philippine Currency, per bag of white cement

c. The plaintiff shall, every time the defendant corporation

is ready to deliver the good, open with any bank or
banking institution a confirmed, unconditional, and
irrevocable letter of credit in favor of the corporation and
that upon certification by the boat captain on the bill of
lading that the goods have been loaded on board the
vessel bound for Davao the said bank or banking
institution shall release the corresponding amount as
payment of the goods so shipped.
Plaintiff entered into a written agreement with
several hardware stores dealing in buying and selling
white cement in the Cities of Davao and Cagayan de Oro
which would thus enable him to sell his allocation of
20,000 bags regular supply of the said commodity, by
September, 1970. After the plaintiff was assured by his
supposed buyer that his allocation of 20,000 bags of white
cement can be disposed of, he informed the defendant
corporation in his letter dated August 18, 1970 that he is
making the necessary preparation for the opening of the
requisite letter of credit to cover the price of the due
initial delivery for the month of September, 1970 (Exhibit
B), looking forward to the defendant corporation's duty to comply
with the dealership agreement. In reply to the aforesaid letter of
the plaintiff, the defendant corporation thru its corporate
secretary, replied that the board of directors of the said
defendant decided to impose the following conditions:
a. Delivery of white cement shall commence at the end of
November, 1970;
b. Only 8,000 bags of white cement per month for only a
period of three (3) months will be delivered;
c. The price of white cement was priced at P13.30 per
bag;
d. The price of white cement is subject to readjustment
unilaterally on the part of the defendant;
e. The place of delivery of white cement shall be Austurias
(sic);
f. The letter of credit may be opened only with the

Prudential Bank, Makati Branch;

g. Payment of white cement shall be made in advance and
which payment shall be used by the defendant as
guaranty in the opening of a foreign letter of credit to
cover costs and expenses in the procurement of materials
in the manufacture of white cement. (Exhibit C).
Several demands to comply with the dealership
agreement were made by the plaintiff to the defendant,
however, defendant refused to comply with the same, and
plaintiff by force of circumstances was constrained to
cancel his agreement for the supply of white cement with
third parties, which were concluded in anticipation of, and
pursuant to the said dealership agreement. Te sued Prime White.
After trial, the trial court adjudged the corporation liable to
Alejandro Te in the amount of P3,302,400.00 as actual damages,
P100,000.00 as moral damages, and P10,000.00 as and for
attorney's fees and costs. The appellate court affirmed the said
decision.
ISSUE: WON the "dealership agreement" referred by the
President and Chairman of the Board of petitioner corporation is a
valid and enforceable contract.
HELD: NO.
Under the Corporation Law, which was then in force at the
time this case arose, as well as under the present Corporation
Code, all corporate powers shall be exercised by the Board
of Directors, except as otherwise provided by law.
Although it cannot completely abdicate its power and
responsibility to act for the juridical entity, the Board may
expressly delegate specific powers to its President or any
of its officers.
In the absence of such express delegation, a contract
entered into by its President, on behalf of the corporation,
may still bind the corporation if the board should ratify
the same expressly or impliedly.
Implied ratification

a. Silence or acquiescence- by acts showing approval

or adoption of the contract
b. Acceptance and retention of benefits flowing
therefrom.
Even in the absence of express or implied authority by
ratification, the President as such may, as a general rule,
bind the corporation by a contract in the ordinary course
of business, provided the same is reasonable under the
circumstances. These rules are basic, but are all general and
thus quite flexible. They apply where the President or other
officer, purportedly acting for the corporation, is dealing with a
third person, i. e., a person outside the corporation.
The situation is quite different where a director or
officer is dealing with his own corporation. In the instant
case respondent Te was not an ordinary stockholder; he
was a member of the Board of Directors and Auditor of
the corporation as well. He was what is often referred to as a
"self-dealing" director.
A director of a corporation holds a position of trust and as
such, he owes a duty of loyalty to his corporation. In case his
interests conflict with those of the corporation, he cannot
sacrifice the latter to his own advantage and benefit. As
corporate managers, directors are committed to seek the
maximum amount of profits for the corporation. This trust
relationship "is not a matter of statutory or technical law. It
springs from the fact that directors have the control and
guidance of corporate affairs and property and hence of the
property interests of the stockholders."
On the other hand, a director's contract with his
corporation is not in all instances void or voidable. If the
contract is fair and reasonable under the circumstances,
it may be ratified by the stockholders provided a full
disclosure of his adverse interest is made
Sec. 32. Dealings of directors, trustees or officers with
the corporation. A contract of the corporation with one
or more of its directors or trustees or officers is voidable,

at the option of such corporation, unless all the following

conditions are present:
1. That the presence of such director or trustee in the
board meeting in which the contract was approved was
not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not
necessary for the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances; and
4. That in the case of an officer, the contract with the
officer has been previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the
preceding paragraph is absent, in the case of a contract
with a director or trustee, such contract may be ratified
by the vote of the stockholders representing at least twothirds (2/3) of the outstanding capital stock or of twothirds (2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the adverse
interest of the directors or trustees involved is made at
such meeting: Provided, however, That the contract is fair
and reasonable under the circumstances.
Although the old Corporation Law which governs
the instant case did not contain a similar provision, yet
the cited provision substantially incorporates well-settled
principles in corporate law.
Granting arguendo that the "dealership agreement"
involved here would be valid and enforceable if entered into
with a person other than a director or officer of the corporation,
the fact that the other party to the contract was a Director and
Auditor of the petitioner corporation changes the whole situation.
First of all, the SC believe that the contract was neither fair
nor reasonable. The "dealership agreement" entered into in
July, 1969, was to sell and supply to respondent Te 20,000 bags
of white cement per month, for five years starting September,
1970, at the fixed price of P9.70 per bag. Respondent Te is a

businessman himself and must have known, or at least must be

presumed to know, that at that time, prices of commodities in
general, and white cement in particular, were not stable and
were expected to rise. At the time of the contract, petitioner
corporation had not even commenced the manufacture of white
cement, the reason why delivery was not to begin until 14
months later. He must have known that within that period of six
years, there would be a considerable rise in the price of white
cement. In fact, respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and by the
middle of 1975, it was already P37.50 per bag. Despite this, no
provision was made in the "dealership agreement" to allow for an
increase in price mutually acceptable to the parties. Instead, the
price was pegged at P9.70 per bag for the whole five years of the
contract. Fairness on his part as a director of the corporation
from whom he was to buy the cement, would require such a
provision. In fact, this unfairness in the contract is also a basis
which renders a contract entered into by the President, without
authority from the Board of Directors, void or voidable, although
it may have been in the ordinary course of business. We believe
that the fixed price of P9.70 per bag for a period of five years
was not fair and reasonable.
Te did not protect the corporation in the same manner
when he entered into the "dealership agreement." As director,
especially since he was the other party in interest, respondent
Te's bounden duty was to act in such manner as not to
unduly prejudice the corporation. In the light of the
circumstances of this case, it is to Us quite clear that he
was guilty of disloyalty to the corporation; he was
attempting in effect, to enrich himself at the expense of
the corporation. There is no showing that the stockholders
ratified the "dealership agreement" or that they were fully aware
of its provisions. The contract was therefore not valid and this
Court cannot allow him to reap the fruits of his disloyalty.
No moral damages for goodwill are awardable to
the corporation under Article 2217 and succeeding articles on
Section1 of Chpter 3 Title XVIII of the Civil Code in favor of the
corporation, since it was not proven with legal basis that the

corporations reputation and goodwill have been prejudiced.

107. JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES
AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE
M.
SORIANO,
ENRIQUE
ZOBEL,
ANTONIO
ROXAS,
EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL
ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION,
EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA,
respondents.

FACTS:
PLEASE REFER TO THE EARLIER DIGESTED CASE.

ISSUE: Whether or not Gokongwei may be allowed to inspect the

books of the corporation.

RULING:
YES.
Respondent San Miguel Corporation stated in its memorandum
that petitioner's claim that he was denied inspection rights as
stockholder of SMC "was made in the teeth of undisputed facts
that, over a specific period, petitioner had been furnished
numerous documents and information," to wit: (1) a complete list
of stockholders and their stockholdings; (2) a complete list of
proxies given by the stockholders for use at the annual
stockholders' meeting of May 18, 1975; (3) a copy of the minutes

of the stockholders' meeting of March 18,1976; (4) a breakdown

of SMC's P186.6 million investment in associated companies and
other companies as of December 31, 1975; (5) a listing of the
salaries, allowances, bonuses and other compensation or
remunerations received by the directors and corporate officers of
SMC; (6) a copy of the US $100 million Euro-Dollar Loan
Agreement of SMC; and (7) copies of the minutes of all meetings
of the Board of Directors from January 1975 to May 1976, with
deletions of sensitive data, which deletions were not objected to
by petitioner.
Further, it was averred that upon request, petitioner was
informed in writing on September 18, 1976; (1) that SMC's
foreign investments are handled by San Miguel International, Inc.,
incorporated in Bermuda and wholly owned by SMC; this was
SMC's first venture abroad, having started in 1948 with an initial
outlay of ?500,000.00, augmented by a loan of Hongkong $6
million from a foreign bank under the personal guaranty of SMC's
former President, the late Col. Andres Soriano; (2) that as of
December 31, 1975, the estimated value of SMI would amount to
almost P400 million (3) that the total cash dividends received by
SMC from SMI since 1953 has amount to US $ 9.4 million; and (4)
that from 1972-1975, SMI did not declare cash or stock dividends,
all earnings having been used in line with a program for the
setting up of breweries by SMI
These averments are supported by the affidavit of the Corporate
Secretary, enclosing photocopies of the afore-mentioned
documents. 51
Pursuant to the second paragraph of section 51 of
Corporation Law, "(t)he record of all business transactions of
corporation and minutes of any meeting shall be open to
inspection of any director, member or stockholder of
corporation at reasonable hours."

the
the
the
the

The stockholder's right of inspection of the corporation's books

and records is based upon their ownership of the assets and
property of the corporation. It is, therefore, an incident of
ownership of the corporate property, whether this ownership or
interest be termed an equitable ownership, a beneficial
ownership, or a ownership. 52 This right is predicated upon the
necessity of self-protection. It is generally held by majority of the
courts that where the right is granted by statute to the
stockholder, it is given to him as such and must be exercised by
him with respect to his interest as a stockholder and for some
purpose germane thereto or in the interest of the corporation. 53
In other words, the inspection has to be germane to the
petitioner's interest as a stockholder, and has to be proper and
lawful in character and not inimical to the interest of the
corporation. 54 In Grey v. Insular Lumber, 55 this Court held that
"the right to examine the books of the corporation must be
exercised in good faith, for specific and honest purpose, and not
to gratify curiosity, or for specific and honest purpose, and not to
gratify curiosity, or for speculative or vexatious purposes. The
weight of judicial opinion appears to be, that on application for
mandamus to enforce the right, it is proper for the court to
inquire into and consider the stockholder's good faith and his
purpose and motives in seeking inspection. 56 Thus, it was held
that "the right given by statute is not absolute and may be
refused when the information is not sought in good faith or is
used to the detriment of the corporation." 57 But the "impropriety
of purpose such as will defeat enforcement must be set up the
corporation defensively if the Court is to take cognizance of it as
a qualification. In other words, the specific provisions take from
the stockholder the burden of showing propriety of purpose and
place upon the corporation the burden of showing impropriety of
purpose or motive. 58 It appears to be the general rule that
stockholders are entitled to full information as to the
management of the corporation and the manner of expenditure
of its funds, and to inspection to obtain such information,
especially where it appears that the company is being
mismanaged or that it is being managed for the personal benefit

of officers or directors or certain of the stockholders to the

exclusion of others." 59
While the right of a stockholder to examine the books and
records of a corporation for a lawful purpose is a matter of law,
the right of such stockholder to examine the books and records of
a wholly-owned subsidiary of the corporation in which he is a
stockholder is a different thing.
Some state courts recognize the right under certain conditions,
while others do not. Thus, it has been held that where a
corporation owns approximately no property except the shares of
stock of subsidiary corporations which are merely agents or
instrumentalities of the holding company, the legal fiction of
distinct corporate entities may be disregarded and the books,
papers and documents of all the corporations may be required to
be produced for examination, 60 and that a writ of mandamus,
may be granted, as the records of the subsidiary were, to all
incontents and purposes, the records of the parent even though
subsidiary was not named as a party. 61 mandamus was likewise
held proper to inspect both the subsidiary's and the parent
corporation's books upon proof of sufficient control or dominion
by the parent showing the relation of principal or agent or
something similar thereto. 62
On the other hand, mandamus at the suit of a stockholder was
refused where the subsidiary corporation is a separate and
distinct corporation domiciled and with its books and records in
another jurisdiction, and is not legally subject to the control of
the parent company, although it owned a vast majority of the
stock of the subsidiary. 63 Likewise, inspection of the books of an
allied corporation by stockholder of the parent company which
owns all the stock of the subsidiary has been refused on the
ground that the stockholder was not within the class of "persons
having an interest." 64

In the Nash case, 65 The Supreme Court of New York held that the
contractual right of former stockholders to inspect books and
records of the corporation included the right to inspect
corporation's subsidiaries' books and records which were in
corporation's possession and control in its office in New York."
In the Bailey case, 66 stockholders of a corporation were held
entitled to inspect the records of a controlled subsidiary
corporation which used the same offices and had Identical
officers and directors.
In his "Urgent Motion for Production and Inspection of
Documents" before respondent SEC, petitioner contended that
respondent corporation "had been attempting to suppress
information for the stockholders" and that petitioner, "as
stockholder of respondent corporation, is entitled to copies of
some documents which for some reason or another, respondent
corporation is very reluctant in revealing to the petitioner
notwithstanding the fact that no harm would be caused thereby
to the corporation." 67 There is no question that stockholders are
entitled to inspect the books and records of a corporation in order
to investigate the conduct of the management, determine the
financial condition of the corporation, and generally take an
account of the stewardship of the officers and directors. 68
In the case at bar, considering that the foreign subsidiary is
wholly owned by respondent San Miguel Corporation and,
therefore, under its control, it would be more in accord with
equity, good faith and fair dealing to construe the statutory right
of petitioner as stockholder to inspect the books and records of
the corporation as extending to books and records of such wholly
subsidiary which are in respondent corporation's possession and
control.
--WHEREFORE, judgment is hereby rendered as follows:

The Court voted unanimously to grant the petition insofar as it

prays that petitioner be allowed to examine the books and
records of San Miguel International, Inc., as specified by him.
On the matter of the validity of the amended by-laws of
respondent San Miguel Corporation, six (6) Justices, namely,
Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, voted to sustain the validity per se of the amended bylaws in question and to dismiss the petition without prejudice to
the question of the actual disqualification of petitioner John
Gokongwei, Jr. to run and if elected to sit as director of
respondent San Miguel Corporation being decided, after a new
and proper hearing by the Board of Directors of said corporation,
whose decision shall be appealable to the respondent Securities
and Exchange Commission deliberating and acting en banc and
ultimately to this Court. Unless disqualified in the manner herein
provided, the prohibition in the afore-mentioned amended bylaws shall not apply to petitioner.
The afore-mentioned six (6) Justices, together with Justice
Fernando, voted to declare the issue on the validity of the foreign
investment of respondent corporation as moot.
Chief Justice Fred Ruiz Castro reserved his vote on the validity of
the amended by-laws, pending hearing by this Court on the
applicability of section 13(5) of the Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject
amendment to the by-laws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr.,
Fernandez and Guerrero filed a separate opinion, wherein they
voted against the validity of the questioned amended bylaws and
that this question should properly be resolved first by the SEC as
the agency of primary jurisdiction. They concur in the result that
petitioner may be allowed to run for and sit as director of
respondent SMC in the scheduled May 6, 1979 election and

subsequent elections until disqualified after proper hearing by

the
respondent's
Board
of
Directors
and
petitioner's
disqualification shall have been sustained by respondent SEC en
banc and ultimately by final judgment of this Court.
In resume, subject to the qualifications aforestated judgment is
hereby rendered GRANTING the petition by allowing petitioner to
examine the books and records of San Miguel International, Inc.
as specified in the petition. The petition, insofar as it assails the
validity of the amended by- laws and the ratification of the
foreign investment of respondent corporation, for lack of
necessary votes, is hereby DISMISSED. No costs.
108. Strong and Strong vs. Repide
FACTS:
Among the lands comprising the friar lands are the Dominican
lands, the only valuable asset owned by the corporation
Philippine Sugar Estates Development Company Limited
(Philippine Sugar Estates). Francisco Gutierrez Repide (Repide),
defendant, was the majority stockholder and one of the five
directors of Philippine Sugar Estates. He was likewise elected by
the board as the agent and administrator general of such
company.
The factual backdrop being during US occupation, the US
Government wanted to secure title over the friar lands. To
accomplish this objective, Governor for the Philippines entered
into negotiations for the purchase of the Dominican lands, during
which Repide represented Philippine Sugar Estates. The first offer
of the Governor was to purchase the subject lands in the amount
of $6,043,219.47. As the majority stockholder of Philippine Sugar
Estates and without prior consultation with the other
stockholders, Repide rejected the offer. For the second offer, the
purchase price was increased to $7,535,000.
While negotiations for the second offer were ongoing and while
still holding out for a higher price of the Dominican lands, Repide
took steps to purchase the 800 shares of stock of Philippine
Sugar Estates. These shares were owned by Mrs. Eleanor Strong
(Strong) which were then in the possession of her agent, F. Stuart

Jones (Jones). Repide, instead of seeing Jones, employed

Kauffman who later on employed Sloan, a broker, to purchase the
shares of Strong. Jones sold the 800 shares of Strong for 16,000
Mexican currency. For this sale transaction a check of one Rueda
Ramos was issued.
Later on, the negotiations for the purchase of the Dominican
lands were concluded and a contract of sale was subsequently
executed. This sale transaction increased the value of the shares
of stocks originally owned by Strong from 16,000 Mexican
currency to 76,256 US currency. During the negotiations
regarding the purchase of the shares of stock of Strong, not one
word of the facts affecting the value of this stock was made
known to her nor her agent, Jones. After the sale of Dominican
lands and after the purchase of the 800 shares of Strong, Repide
became the owner of 30,400 out of the 42,030 shares of
Philippine Sugar Estates.
Strong filed a complaint for the recovery of her 800 shares. She
argued that her agent Jones had no authority to sell her shares
and that Repide fraudulently concealed the facts affecting their
value.
ISSUE: Was there fraud in effecting the purchase of Strongs
shares?
HELD: Yes. With the factual circumstances of this case, it became
the duty of Repide, acting in good faith, to state the facts before
making the purchase of Strongs shares. That Repide was one of
the directors of Philippine Sugar Estates was but one of the facts
upon which liability is asserted. He was not only a director, but he
owned three-fourths of the shares of its stock, and was, at the
time of the purchase of the stock, administrator general of the
company with large powers and engaged in the negotiations
which finally led to the sale of the companys lands at a price
which greatly enhanced the value of the stock. He was the
negotiator for the sale of the Dominican lands and was acting
substantially as the agent of the shareholders of Philippine Sugar
Estates by reason of his ownership of the shares in the company.
Because of such ownership and agency, no one knew as well as
he does about the exact condition of the negotiations. He was the
only one who knew of the probability of the sale of the Dominican

lands to the government and of the probable purchase price.

Under these circumstances, Repide employed an agent to
purchase the stock of Strong, concealed his own identity and his
knowledge of the state of negotiations and their probable result.
The concealment of his identity while procuring the purchase of
the stock, by his agent, was in itself strong evidence of fraud on
the part of Repide. By such means, the more easily was he able
to avoid questions relative to the negotiations for the sale of
Dominican lands and actual misrepresentations regarding that
subject. He kept up the concealment as long as he could by
giving the check of a third person Rueda Ramos, for the purchase
money. This move of Repide was a studied and intentional
omission to be characterized as part of the deceitful
machinations to obtain the purchase without giving any
information whatever as to the state and probable result of the
negotiations and to obtain a lower price for the shares of Strong.
After the purchase of stock, he continued negotiations for the
sale of the Dominican lands as the administrator general and
eventually entered into a contract of sale. The whole transaction
gives conclusive evidence of the overwhelming influence Repide
had in the negotiations and it is clear that the final
consummation was in his hands at all times.
109. Steinberg vs Velasco
Facts
It is alleged that the defendants, Gregorio Velasco, as president,
Felix del Castillo, as vice-president, Andres L. Navallo, as
secretary-treasurer, and Rufino Manuel, as director of Trading
Company, at a meeting of the board of directors held on July 24,
1922, approved and authorized various lawful purchases already
made of a large portion of the capital stock of the company from
its various stockholders, thereby diverting its funds to the injury,
damage and in fraud of the creditors of the corporation. That the
total amount of the capital stock unlawfully purchased was
P3,300. That at the time of such purchase, the corporation had
accounts payable amounting to P13,807.50, most of which were
unpaid at the time petition for the dissolution of the corporation

was financial condition, in contemplation of an insolvency and

dissolution.
As a second cause of action, plaintiff alleges that the officers and
directors of the corporation approved a resolution for the
payment of P3,000 as dividends to its stockholders, which was
wrongfully done and in bad faith, and to the injury and fraud of
its creditors. That at the time the petition for the dissolution of
the corporation was presented it had accounts payable in the
sum of P9,241.19, "and practically worthless accounts
receivable."
Whether or not the directors acted in good faith
Held
It is very apparent that the board of directors acted on
assumption that, because it appeared from the books of the
corporation that it had accounts receivable of the face value of
P19,126.02, therefore it had a surplus over and above its debts
and liabilities. But as stated there is no stipulation as to the
actual cash value of those accounts, and it does appear from the
stipulation that P12,512.47 of those accounts had but little, if
any, value, and it must be conceded that, in the purchase of its
own stock to the amount of P3,300 and in declaring the dividends
to the amount of P3,000, the real assets of the corporation were
diminished P6,300. It also appears from paragraph 4 of the
stipulation that the corporation had a "surplus profit" of
P3,314.72 only. It is further stipulated that the dividends should
"be made in installments so as not to effect financial condition of
the corporation."
In other words, that the corporation did not then have an actual
bona fide surplus from which the dividends could be paid, and
that the payment of them in full at the time would "affect the
financial condition of the corporation."
It is, indeed, peculiar that the action of the board in purchasing
the stock from the corporation and in declaring the dividends on
the stock was all done at the same meeting of the board of
directors, and it appears in those minutes that the both Ganzon
and Mendaros were formerly directors and resigned before the
board approved the purchase and declared the dividends, and
that out of the whole 330 shares purchased, Ganzon, sold 100

and Mendaros 200, or a total of 300 shares out of the 330, which
were purchased by the corporation, and for which it paid P3,300.
In other words, that the directors were permitted to resign so that
they could sell their stock to the corporation. As stated, the
authorized capital stock was P20,000 divided into 2,000 shares of
the par value of P10 each, which only P10,030 was subscribed
and paid. Deducting the P3,300 paid for the purchase of the
stock, there would be left P7,000 of paid up stock, from which
deduct P3,000 paid in dividends, there would be left P4,000 only.
In this situation and upon this state of facts, it is very apparent
that the directors did not act in good faith or that they were
grossly ignorant of their duties.
Creditors of a corporation have the right to assume that so long
as there are outstanding debts and liabilities, the board of
directors will not use the assets of the corporation to purchase its
own stock, and that it will not declare dividends to stockholders
when the corporation is insolvent.
The amount involved in this case is not large, but the legal
principles are important, and we have given them the
consideration which they deserve.
110. G.R. No. L-22442
ANTONIO PARDO, petitioner,
vs.
THE HERCULES LUMBER
FERRER, respondents.

August 1, 1924
CO.,

INC.,

and

IGNACIO

STREET, J.:
The petitioner, Antonio Pardo, a stockholder in the Hercules
Lumber Company, Inc., one of the respondents herein, seeks by
this original proceeding in the SC t to obtain a writ of
mandamus to compel the respondents to permit the plaintiff and
his duly authorized agent and representative to examine the
records and business transactions of said company.
To this petition the respondents interposed an answer, in which,
after admitting certain allegations of the petition, the
respondents set forth the facts upon which they mainly rely as a

defense to the petition. To this answer the petitioner in turn

interposed a demurrer.
FACTS: Petitioner is a stockholder in the Hercules Lumber
Company, Inc., and that the respondent, Ignacio Ferrer, as acting
secretary of the said company, has refused to permit the
petitioner or his agent to inspect the records and business
transactions of the said Hercules Lumber Company, Inc., at times
desired by the petitioner. No serious question is of course made
as to the right of the petitioner, by himself or proper
representative, to exercise the right of inspection conferred by
section 51 of Act No. 1459. Said provision was under the
consideration of this court in the case of Philpotts vs. Philippine
Manufacturing Co., and Berry (40 Phil., 471), where we held that
the right of examination there conceded to the stockholder may
be exercised either by a stockholder in person or by any duly
authorized agent or representative.
The main ground upon which the defense appears to be rested
has reference to the time, or times, within which the right of
inspection may be exercised. In this connection the answer
asserts that in article 10 of the By-laws of the respondent
corporation it is declared that "Every shareholder may examine
the books of the company and other documents pertaining to the
same upon the days which the board of directors shall annually
fix." It is further averred that at the directors' meeting of the
respondent corporation held on February 16, 1924, the board
passed a resolution to the following effect:
The board also resolved to call the usual general (meeting of
shareholders) for March 30 of the present year, with notice to the
shareholders that the books of the company are at their
disposition from the 15th to 25th of the same month for
examination, in appropriate hours.
The contention for the respondent is that this resolution of the
board constitutes a lawful restriction on the right conferred by
statute; and it is insisted that as the petitioner has not availed
himself of the permission to inspect the books and transactions
of the company within the ten days thus defined, his right to

inspection and examination is lost, at least for this year.

ISSUE: WON plaintiff and his duly authorized agent and
representative can examine the records and business
transactions of said company.
HELD: YES. We are entirely unable to concur in the contention of
the respondent. The general right given by the statute may not
be lawfully abridged to the extent attempted in this resolution. It
may be admitted that the officials in charge of a corporation may
deny inspection when sought at unusual hours or under other
improper conditions; but neither the executive officers nor the
board of directors have the power to deprive a stockholder of the
right altogether. A by-law unduly restricting the right of
inspection is undoubtedly invalid. Authorities to this effect are too
numerous and direct to require extended comment. Under a
statute similar to our own it has been held that the statutory
right of inspection is not affected by the adoption by the board of
directors of a resolution providing for the closing of transfer
books thirty days before an election.
It will be noted that our statute declares that the right of
inspection can be exercised "at reasonable hours." This
means at reasonable hours on business days throughout
the year, and not merely during some arbitrary period of a
few days chosen by the directors.
In addition to relying upon the by-law, to which reference is
above made, the answer of the respondents calls in question the
motive which is supposed to prompt the petitioner to make
inspection; and in this connection it is alleged that the
information which the petitioner seeks is desired for ulterior
purposes in connection with a competitive firm with which the
petitioner is alleged to be connected. It is also insisted that one
of the purposes of the petitioner is to obtain evidence
preparatory to the institution of an action which he means to
bring against the corporation by reason of a contract of
employment which once existed between the corporation and
himself. These suggestions are entirely apart from the issue, as,
generally speaking, the motive of the shareholder exercising the

right is immaterial.
We are of the opinion that, upon the allegations of the petition
and the admissions of the answer, the petitioner is entitled to
relief. The demurrer is, therefore, sustained; and the writ of
mandamus will issue as prayed, with the costs against the
respondent. So ordered.
111. G.R. No. L-33320 May 30, 1983
RAMON A. GONZALES, petitioner,
vs.
THE PHILIPPINE NATIONAL BANK, respondent.
FACTS
Previous to the present action, the petitioner instituted several
cases in this Court questioning different transactions entered into
by the Bark with other parties. First among them is Civil Case No.
69345 filed on April 27, 1967, by petitioner as a taxpayer versus
Sec. Antonio Raquiza of Public Works and Communications, the
Commissioner of Public Highways, the Bank, Continental Ore
Phil., Inc., Continental Ore, Huber Corporation, Allis Chalmers and
General Motors Corporation In the course of the hearing of said
case on August 3, 1967, the personality of herein petitioner to
sue the bank and question the letters of credit it has extended for
the importation by the Republic of the Philippines of public works
equipment intended for the massive development program of the
President was raised. In view thereof, he expressed and made
known his intention to acquire one share of stock from
Congressman Justiniano Montano which, on the following day,
August 30, 1967, was transferred in his name in the books of the
Bank.
Subsequent to his aforementioned acquisition of one share of
stock of the Bank, petitioner, in his dual capacity as a taxpayer
and stockholder, filed the following cases involving the bank or
the members of its Board of Directors to wit:
l. On October l8,1967, Civil Case No. 71044 versus the Board of
Directors of the Bank; the National Investment and Development
Corp., Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or Saravia;

2. On May 11, 1968, Civil Case No. 72936 versus Roberto

Benedicto and other Directors of the Bank, Passi (Iloilo) Sugar
Central, Inc., Calinog-Lambunao Sugar Mill Integrated Farming,
Inc., Talog sugar Milling Co., Inc., Safary Central, Inc., and
Batangas Sugar Central Inc.;
3. On May 8, 1969, Civil Case No. 76427 versus Alfredo
Montelibano and the Directors of both the PNB and DBP;
On January 11, 1969, however, petitioner addressed a letter to
the President of the Bank (Annex A, Pet.), requesting submission
to look into the records of its transactions covering the purchase
of a sugar central by the Southern Negros Development Corp. to
be financed by Japanese suppliers and financiers; its financing of
the Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc. and
the construction of the Passi Sugar Mills in Iloilo. On January 23,
1969, the Asst. Vice-President and Legal Counsel of the Bank
answered petitioner's letter denying his request for being not
germane to his interest as a one-share stockholder and for the
cloud of doubt as to his real intention and purpose in acquiring
said share. In view of the Bank's refusal the petitioner instituted
this action.'
The court a quo denied the prayer of the petitioner that he be
allowed to examine and inspect the books and records of the
respondent bank regarding the transactions mentioned on the
grounds that the right of a stockholder to inspect the record of
the business transactions of a corporation granted under Section
51 of the former Corporation Law (Act No. 1459, as amended) is
not absolute, but is limited to purposes reasonably related to the
interest of the stockholder, must be asked for in good faith for a
specific and honest purpose and not gratify curiosity or for
speculative or vicious purposes; that such examination would
violate the confidentiality of the records of the respondent bank
as provided in Section 16 of its charter, Republic Act No. 1300, as
amended; and that the petitioner has not exhausted his
administrative remedies.
Assailing the conclusions of the lower court, the petitioner has
assigned the single error to the lower court of having ruled that
his alleged improper motive in asking for an examination of the
books and records of the respondent bank disqualifies him to

exercise the right of a stockholder to such inspection under

Section 51 of Act No. 1459, as amended. Said provision reads in
part as follows:
Sec. 51. ... The record of all business transactions of the
corporation and the minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the
corporation at reasonable hours.
Petitioner maintains that the above-quoted provision does not
justify the qualification made by the lower court that the
inspection of corporate records may be denied on the ground
that it is intended for an improper motive or purpose, the law
having granted such right to a stockholder in clear and
unconditional terms. He further argues that, assuming that a
proper motive or purpose for the desired examination is
necessary for its exercise, there is nothing improper in his
purpose for asking for the examination and inspection herein
involved.
ISSUE: Whether the inspection of corporate records was correctly
denied by the lower court
RULING: YES
Petitioner may no longer insist on his interpretation of Section 51
of Act No. 1459, as amended, regarding the right of a stockholder
to inspect and examine the books and records of a corporation.
The former Corporation Law (Act No. 1459, as amended) has
been replaced by Batas Pambansa Blg. 68, otherwise known as
the "Corporation Code of the Philippines."
The right of inspection granted to a stockholder under Section 51
of Act No. 1459 has been retained, but with some modifications.
The second and third paragraphs of Section 74 of Batas
Pambansa Blg. 68 provide the following:
The records of all business transactions of the corporation and
the minutes of any meeting shag be open to inspection by any
director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in
writing, for a copy of excerpts from said records or minutes, at his
expense.
Any officer or agent of the corporation who shall refuse to allow
any director, trustee, stockholder or member of the corporation

to examine and copy excerpts from its records or minutes, in

accordance with the provisions of this Code, shall be liable to
such director, trustee, stockholder or member for damages, and
in addition, shall be guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the board of directors
or trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such
refusal; and Provided, further, That it shall be a defense to any
action under this section that the person demanding to examine
and copy excerpts from the corporation's records and minutes
has improperly used any information secured through any prior
examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand.
As may be noted from the above-quoted provisions, among the
changes introduced in the new Code with respect to the right of
inspection granted to a stockholder are the following the records
must be kept at the principal office of the corporation; the
inspection must be made on business days; the stockholder may
demand a copy of the excerpts of the records or minutes; and the
refusal to allow such inspection shall subject the erring officer or
agent of the corporation to civil and criminal liabilities. However,
while seemingly enlarging the right of inspection, the new Code
has prescribed limitations to the same. It is now expressly
required as a condition for such examination that the one
requesting it must not have been guilty of using improperly any
information through a prior examination, and that the person
asking for such examination must be "acting in good faith and for
a legitimate purpose in making his demand."
The unqualified provision on the right of inspection previously
contained in Section 51, Act No. 1459, as amended, no longer
holds true under the provisions of the present law. The argument
of the petitioner that the right granted to him under Section 51 of
the former Corporation Law should not be dependent on the
propriety of his motive or purpose in asking for the inspection of
the books of the respondent bank loses whatever validity it might
have had before the amendment of the law. If there is any doubt

in the correctness of the ruling of the trial court that the right of
inspection granted under Section 51 of the old Corporation Law
must be dependent on a showing of proper motive on the part of
the stockholder demanding the same, it is now dissipated by the
clear language of the pertinent provision contained in Section 74
of Batas Pambansa Blg. 68.
Although the petitioner has claimed that he has justifiable
motives in seeking the inspection of the books of the respondent
bank, he has not set forth the reasons and the purposes for which
he desires such inspection, except to satisfy himself as to the
truth of published reports regarding certain transactions entered
into by the respondent bank and to inquire into their validity. The
circumstances under which he acquired one share of stock in the
respondent bank purposely to exercise the right of inspection do
not argue in favor of his good faith and proper motivation.
Admittedly he sought to be a stockholder in order to pry into
transactions entered into by the respondent bank even before he
became a stockholder. His obvious purpose was to arm himself
with materials which he can use against the respondent bank for
acts done by the latter when the petitioner was a total stranger
to the same. He could have been impelled by a laudable sense of
civic consciousness, but it could not be said that his purpose is
germane to his interest as a stockholder.
We also find merit in the contention of the respondent bank that
the inspection sought to be exercised by the petitioner would be
violative of the provisions of its charter. (Republic Act No. 1300,
as amended.) Sections 15, 16 and 30 of the said charter provide
respectively as follows:
Sec. 15. Inspection by Department of Supervision and
Examination of the Central Bank. The National Bank shall be
subject to inspection by the Department of Supervision and
Examination of the Central Bank'
Sec. 16. Confidential information. The Superintendent of Banks
and the Auditor General, or other officers designated by law to
inspect or investigate the condition of the National Bank, shall
not reveal to any person other than the President of the
Philippines, the Secretary of Finance, and the Board of Directors
the details of the inspection or investigation, nor shall they give

any information relative to the funds in its custody, its current

accounts or deposits belonging to private individuals,
corporations, or any other entity, except by order of a Court of
competent jurisdiction,'
Sec. 30. Penalties for violation of the provisions of this Act. Any
director, officer, employee, or agent of the Bank, who violates or
permits the violation of any of the provisions of this Act, or any
person aiding or abetting the violations of any of the provisions of
this Act, shall be punished by a fine not to exceed ten thousand
pesos or by imprisonment of not more than five years, or both
such fine and imprisonment.
The Philippine National Bank is not an ordinary corporation.
Having a charter of its own, it is not governed, as a rule, by the
Corporation Code of the Philippines. Section 4 of the said Code
provides:
SEC. 4. Corporations created by special laws or charters.
Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or charter
creating them or applicable to them. supplemented by the
provisions of this Code, insofar as they are applicable.
The provision of Section 74 of Batas Pambansa Blg. 68 of the new
Corporation Code with respect to the right of a stockholder to
demand an inspection or examination of the books of the
corporation may not be reconciled with the abovequoted
provisions of the charter of the respondent bank. It is not correct
to claim, therefore, that the right of inspection under Section 74
of the new Corporation Code may apply in a supplementary
capacity to the charter of the respondent bank.
WHEREFORE, the petition is hereby DISMISSED, without costs.
112. EUGENIO VERAGUTH V ISABELA SUGAR COMPANY,
INC.- BERNABE
G.R. No. L-37064 / October 4, 1932
FACTS:
Veraguth is a director and stockholder of the Isabela Sugar
Company, Inc. He filed a petition with the lower court praying
that : a final and absolute writ of mandamus be issued to each
and all of the respondent directors to notify him within the

reglementary period, of all regular and special meetings of the

board of directors of the Company, and to place at his disposal
at reasonable hours the minutes, documents, and books of said
corporation for his inspection as director and stockholder. It
appears that Veraguth has not been informed of previous
meetings.
He likewise contends that when asked that he be permitted to
inspect the books of the Corp, he was denied access on the
ground that the board of directors adopted a resolution providing
for inspection of the books and the taking of copies only "by
authority of the President of the corporation previously obtained
in each case."
ISSUES:
WON Veraguth entitled to receive notification before meetings
are held?
WON he is entitled to inspect the books of the corporation?
SC RULING:
1st ISSUE - The meeting in question is in the past and, therefore,
now merely presents an academic question; that no damage was
caused to Veraguth by the action taken at the special meeting
which he did not attend, since his interests were fully protected
by the Philippine National Bank; and that as to meetings in the
future it is to be presumed that the secretary of the company will
fulfill the requirements of the resolutions of the company
pertaining to regular and special meetings. It will, of course, be
incumbent upon Veraguth to give formal notice to the secretary
of his post-office address if he desires notice sent to a particular
residence. 1awph
2nd ISSUE - . Directors of a corporation have the unqualified
right to inspect the books and records of the corporation at all
reasonable times. Pretexts may not be put forward by officers of
corporations to keep a director or shareholder from inspecting
the books and minutes of the corporation, and the right of
inspection is not to be denied on the ground that the director or
shareholder is on unfriendly terms with the officers of the
corporation whose records are sought to be inspected. A director
or stockholder can of course make copies, abstracts, and
memoranda of documents, books, and papers as an incident to

the right of inspection, but cannot, without an order of a court, be

permitted to take books from the office of the corporation. We do
not conceive, however, that a director or stockholder has any
absolute right to secure certified copies of the minutes of the
corporation until these minutes have been written up and
approved by the directors.
The Corporation Law, section 51, provides that:
All business corporations shall keep and carefully preserve
a record of all business transactions, and a minute of all
meetings of directors, members, or stockholders, in which
shall be set forth in detail the time and place of holding
the meeting was regular or special, if special its object,
those present and absent, and every act done or ordered
done at the meeting. . . .
The record of all business transactions of the corporation
and the minutes of any meeting shall be open to the
inspection of any director, member, or stockholder of the
corporation at reasonable hours.
113. GOKONGWEI VS SEC ET. AL. 89 SCRA 336 (CASE 107)
114. Evangelista vs. Santos
G.R. No. L-1721; May 19, 1950
FACTS:
Plaintiffs, minority stockholders of Vitali Lumber Company,
alleges in their complaint that defendant as president, manager
and treasurer of their company, through fault, neglect and
abandonment allowed it lumber concession to lapse and its
properties and assets (among them are machines, buildings,
warehouses, trucks, etc.) to disappear, thus causing the
complete ruin of the corporations operation and total
depreciation of its stocks.
The complainant therefore prays for an accounting from the
defendant of the corporate affairs and assets, payment to them
of the value of their respective participation in said assets on the
basis of the value of the stocks held by each of them and to pay
the cost of the suit.

Defendant filed motion for dismissal on the ground of improper

venue and failure to state cause of action
LC: Granted the motion for dismissal, denied also the motion for
reconsideration
ISSUE:
WON the plaintiff-stockholders has the right to bring suit in their
benefit.
HELD:
NO. The complaint shows that the action is for damages resulting
from mismanagement of the affairs and assets of the corporation
by its principal officer, it being alleged that defendant's
maladministration has brought about the ruin of the corporation
and the consequent loss of value of its stocks. The injury
complained of is thus primarily to the corporation, so that the suit
for the damages claimed should be by the corporation rather
than by the stockholders. The stockholders may not directly
claim those damages for themselves for that would result in the
appropriation by and the distribution among them of part of the
corporate assets before the dissolution of the corporation and the
liquidation of its debts and liabilities something which cannot be
legally done.
But while it is to the corporation that the action should pertain in
cases of this nature, however, if the officers of the corporation,
who are the ones called upon to protect their rights, refuse to
sue, or where a demand upon them to file the necessary suit
would be futile because they are the very ones to be sued or
because they hold the controlling interest in the corporation, then
in that case any of the stockholders is allowed to bring suit. It is a
derivative suit brought by a stockholder as the nominal party
plaintiff for the benefir of the corporation, which is the real party
in interest.
Plaintiffs complaint shows no COA in ther favour so the LC did
not err in dismissing the case. While plaintiffs ask for a remedy to
which they are not entitled unless sec 15 is complied with, we
note that the action stated in their complaint is susceptible of
being converted into a derivative suit for he benfit of the
corporation by a mere change in prayer.

115. G.R. No. L-22399

March 30, 1967
REPUBLIC BANK, represented in this action by DAMASO P.
PEREZ, etc., plaintiff-appellant,
vs.
MIGUEL CUADERNO, BIENVENIDO DIZON, PABLO ROMAN,
THE BOARD OF DIRECTORS OF THE REPUBLIC BANK AND
THE MONETARY BOARD OF THE CENTRAL BANK OF THE
PHILIPPINES, defendants-appellees.
Crispin D. Baizas and Associates and Halili, Bolinao and
REYES, J.B.L., J.:
FACTS: Damaso Perez, a stockholder of the Republic Bank, a
Philippine banking corporation domiciled in Manila, instituted a
derivative suit for and in behalf of said Bank, against Miguel
Cuaderno, Bienvenido Dizon, the Board of Directors of the
Republic Bank, and the Monetary Board of the Central Bank of
the Philippines.
Plaintiff alleged, inter alia, that Damaso Perez had complained to
the Monetary Board of the Central Bank against certain frauds
allegedly committed by defendant Pablo Roman, in that being
chairman of the Board of Directors of the Republic Bank, and of
its Executive Loan Committee, in 1957 to 1959, "in grave abuse
of his fiduciary duty and taking advantage of his said positions
and in connivance with other officials of the Republic Bank",
Roman had fraudulently granted or caused to be granted loans to
fictitious and non-existing persons and to their close friends,
relatives and/or employees, who were in reality their dummies,
on the basis of fictitious and inflated appraised values of real
estate properties; that said loans amounted to almost 4 million
pesos; that to neutralize the impending action against him, Pablo
Roman engaged Miguel Cuaderno as technical consultant at a
compensation of P12,500.00 per month, and selected Bienvenido
Dizon as chairman of the Board of Directors of the Republic Bank;
that the Board of Directors composed of individuals personally
selected and chosen by Roman, connived and confederated in
approving the appointment and selection of Cuaderno and Dizon;

that such action was motivated by bad faith and without

intention to protect the interest of the Republic Bank but were
prompted to protect Pablo Roman from criminal prosecution.
The complaint, therefore, prayed for a writ of preliminary
injunction against the Monetary Board to prevent its confirmation
of the appointments of Dizon and Cuaderno.
The court dismissed the case. The court in effect suggested that
the matter at issue in the case may be presented in any of the
pending eight cases by means of amended and supplemental
pleadings.
ISSUE: Whether or not the Court below erred in dismissing the
complaint
HELD: YES. They mainly controvert the right of plaintiff to
question the appointment and selection of defendants Cuaderno
and Dizon, which they contend to be the result of corporate acts
with which plaintiff, as stockholder, cannot interfere.
Normally, this is correct, but Philippine jurisprudence is settled
that an individual stockholder is permitted to institute a
derivative or representative suit on behalf of the corporation
wherein he holds stock in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a nominal
party, with the corporation as the real party in interest. Plaintiffappellant's action here is precisely in conformity, with these
principles. He is neither alleging nor vindicating his own
individual interest or prejudice, but the interest of the Republic
Bank and the damage caused to it. The action he has brought is a
derivative one, expressly manifested to be for and in behalf of
the Republic Bank, because it was futile to demand action by the
corporation, since its Directors were nominees and creatures of
defendant Pablo Roman. The frauds charged by plaintiff are
frauds against the Bank that redounded to its prejudice.

Defendants urge that the action is improper because the plaintiff

was not authorized by the corporation to bring suit in its behalf.
Any such authority could not be expected as the suit is aimed to
nullify the action taken by the manager and the board of
directors of the Republic Bank; and any demand for intracorporate remedy would be futile, as expressly pleaded in the
complaint. These circumstances permit a stockholder to bring a
derivative suit. That no other stockholder has chosen to make
common cause with plaintiff Perez is irrelevant, since the
smallness of plaintiff's holdings is no ground for denying him
relief. At any rate, it is yet too early in the proceedings for the
absence of other stockholders to be of any significance, no issues
having even been joined.
There remains the procedural question whether the corporation
itself must be made party defendant. The English practice is to
make the corporation a party plaintiff, while in the United States,
the usage leans in favor of its being joined as party defendant
Objections can be raised against either method. Absence of
corporate authority would seem to militate against making the
corporation a party plaintiff, while joining it as defendant places
the entity in the awkward position of resisting an action instituted
for its benefit. What is important is that the corporation' should
be made a party, in order to make the Court's judgment binding
upon it, and thus bar future relitigation of the issues. On what
side the corporation appears loses importance when it is
considered that it lay within the power of the trial court to direct
the making of such amendments of the pleadings, by adding or
dropping parties, as may be required in the interest of justice
(Revised Rule 3, sec. 11). Misjoinder of parties is not a ground to
dismiss an action.

116. SAN MIGUEL CORPORATION v. KAHN et al.-PEDROZO

SAN MIGUEL CORPORATION, represented by EDUARDO DE
LOS ANGELES, petitioners,

vs.
ERNEST KAHN, ANDRES SORIANO III, BENIGNO TODA, JR.,
ANTONIO
ROXAS,
ANTONIO
PRIETO,
FRANCISCO
EIZMENDI, JR., EDUARDO SORIANO, RALPH KAHN and
RAMON DEL ROSARIO, JR., respondents.
G.R. No. 85339; August 11, 1989; Narvasa, J.

FACTS:
In 1983, 33,133,266 shares of the outstanding capital
stock of the San Miguel Corporation (SMC) were
acquired by 14 corporations, and were placed under a
Voting Trust in favor of Andres Soriano, Jr. (Soriano)
When Soriano died, Eduardo Cojuanco (Cojuanco) was elected
as the substitute trustee, with the power to delegate the
trusteeship in writing to Andres Soriano III.
However, after the 1986 Revolution, Conjuanco fled out of the
country amid reports of huge and unusual cash
disbursements from SMC funds had been made, and its
resources used in support of Marcos during the 1986 snap
elections.
Subsequently, an Agreement was entered into between
the 14 corporations as Sellers and Andres Soriano III
as Buyers(as an agent of several persons) for the
purchase of the shares held by the Cojuanco at the
price of P100 per share, or an aggregate sum of
P3,313,326,600.
The Agreement revoked the abovementioned Voting
Trust, and expressed the desire of the 14 corporations to sell
the shares of stock for the payment of outstanding debts, and
the desire of Soriano III to stabilize the management of the
company.
Despite what is written in the Agreement, the actual buyer
of the said shares was Neptunia Corporation Limited
(of Hongkong), a foreign corporation and whollyowned subsidiary of San Miguel International, which
is, in turn, a wholly-owned subsidiary of SMC. Neptunia
paid the down payment of P500,000,000.

At this point, PCGG then sequestered the shares subject

of the sale, on the grounds that:
1. The stocks belonged to Cojuanco, allegedly a close
associate and dummy of Pres. Marcos so SMC suspended
all the other installments of the price to the sellers; and
2. The sale was in direct contravention of EO 1 and 2, which
prohibit the transfer
The 14 corporations then sued for rescission and damages.
Meanwhile, PCGG directed SMC to issue qualifying
shares to 7 individuals, including Eduardo de los
Angeles, from the sequestered shares for them to hold
in trust.
Then, the SMCs Board passed a Resolution assuming
the loans incurred by Neptunia for the down payment.
De los Angeles assailed the resolution, alleging that it
was not passed by the Board, and that it had deleterious
effects on the corporations interest. Subsequently, he filed
this action with the SEC.
o The complaint was described as a derivative suit in
behalf of SMC against 10 of the 15-member Board,
who had either voted to approve and/or refused to
reconsider and revoke said Resolution.
Director Kahn alleged that de los Angeles has no legal
standing having been merely imposed by the PCGG and
that the 20 shares owned by him personally cannot
fairly and adequately represent the interest of the
minority of the corporation. The motion to dismiss of one
of its directors was denied.
o Since de los Angeles holds only 20 shares of stock, he
cannot even be remotely said to adequately represent the
interest of the minority stockholders, especially so when
he was put by the PCGG to vote the majority stock
(conflict of interest).
o Baseco v. PCGG: (a) PCGG cannot exercise acts of
dominion over sequestered property, (b) it only has
powers of administration, and (c) its voting of sequestered
stock must be done only in pursuant to its power of

administration.
Director Kahn filed a petition for certiorari and prohibition with
the CA, seeking to annul the Resolution, but the CA ruled that
de los Angeles had no legal capacity to institute a derivative
suit.
In addition his earlier arguments, Director Kahn and the rest
of the Directors allege that SEC had no jurisdiction over the
dispute, which involves the ownership of the shares of SMC
stock.

ISSUES:
1. WON SEC has jurisdiction over the dispute - YES.
2. WON de los Angeles had the personality to bring
suit in behalf of the corporation - YES.
3. WON a sequestered stock may be voted by the
PCGG to elect a director in the company in which
such stock is held YES.
RATIO:
1. WON SEC has jurisdiction over the dispute - YES.

The complaint is confined to the issue of the validity of the

assumption by the corporation of the indebtedness of
Neptunia allegedly for the benefit of certain of its officers and
stockholders, an issue evidently distinct from, and not even
remotely requiring inquiry into the matter of whether or not
the 33,133,266 SMC shares sequestered by the PCGG belong
to Marcos and his cronies or dummies.

De los Angeles' dispute, as stockholder and director of SMC,

with other SMC directors, an intra-corporate one, is of no
concern to the Sandiganbayan, having no relevance whatever
to the ownership- of the sequestered stock.

The dispute concerns acts of the board of directors

claimed to amount to fraud and misrepresentation
which may be detrimental to the interest of the
stockholders, or is one arising out of intra-corporate

relations between and among stockholders, or

between any or all of them and the corporation of
which they are stockholders.

2. WON de los Angeles had the personality to bring suit

in behalf of the corporation - YES.
The bona fide ownership by a stockholder in his own right
suffices to invest him with the standing to bring a derivative
suit for the benefit of the corporation. The number of his
shares is immaterial since he is not suing in his own behalf, or
for the protection or vindication of his own particular right, or
the redress of a wrong committed against him individually but
in behalf and for the benefit of the corporation.
The requisites of a derivative suit:
1. The party bringing the suit should be a stockholder
as of the time of the act or transactions complained of,
the number of shares not being material;
2. Exhaustion of intra-corporate remedies (has made a
demand on the board of directors for the appropriate
relief but the latter has failed or refused to heed his plea);
and
3. The cause of action actually devolves on the
corporation and not to the particular stockholder
bringing the suit.
The proposition that de los Angeles is legally obliged to vote
as the PCGG would have him do, that he cannot legitimately
take a position inconsistent with that of the PCGG, or that, not
having been elected by the minority stockholders, his vote
would necessarily never consider their interests - is plainly
contrary to a director's duty to vote according to his own
independent judgment and his own conscience as to what is
in the best interests of the company. Moreover, it is
undisputed that apart from the qualifying shares given to him
by the PCGG, he owns 20 shares in his own right, as regards

which he cannot from any aspect be deemed to be

"beholden" to the PCGG.
3. WON a sequestered stock may be voted by the PCGG
to elect a director in the company in which such stock
is held YES.
It is also theorized, on the authority of the BASECO decision,
that the PCGG has no power to vote sequestered shares of
stock as an act of dominion but only in pursuance to its
power of administration.
But the SC said that there is nothing in the Baseco decision
which can be interpreted that way. On the contrary, that it
held such act permissible is evident from the context
of its reference to the Presidential Memorandum of
June 26, 1986 authorizing the PCGG, "pending the outcome
of proceedings to determine the ownership of .. sequestered
shares of stock,"' to vote such shares .. at all stockholders'
meetings called for the election of directors ..,".
o The only caveat is, that the stock is not to be voted simply
because the power to do so exists, whether it be to oust
and replace directors or to effect substantial changes in
corporate policy, programs or practice, but only "for
demonstrably weighty and defensible grounds" or "when
essential to prevent disappearance or wastage of
corporate property."
PETITION GRANTED.

117. ANTHONY S. YU, ROSITA G. YU and JASON G. YU,

Petitioners,
vs. JOSEPH S. YUKAYGUAN, NANCY L.
YUKAYGUAN, JERALD NERWIN L. YUKAYGUAN, and JILL
NESLIE L. YUKAYGUAN, [on their own behalf and on behalf
of] WINCHESTER INDUSTRIAL SUPPLY, INC., Respondents.

CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari 1 under Rule 45 of
the Rules of Court, which seeks to reverse and set aside the
Resolutions dated 18 July 20062 and 19 April 20073 of the Court of
Appeals in CA-G.R. SP No. 00185. Upon herein respondents
motion, the Court of Appeals rendered the assailed Resolution
dated 18 July 2006, reconsidering its Decision 4 dated 15 February
2006; and remanding the case to the Regional Trial Court (RTC) of
Cebu City, Branch 11, for necessary proceedings, in effect,
reversing the Decision5 dated 10 November 2004 of the RTC
which dismissed respondents Complaint in SRC Case No. 022CEB. Herein petitioners Motion for Reconsideration of the
Resolution dated 18 July 2006 was denied by the appellate court
in the other assailed Resolution dated 19 April 2007.
Herein petitioners are members of the Yu Family, particularly, the
father, Anthony S. Yu (Anthony); the wife, Rosita G. Yu (Rosita);
and their son, Jason G. Yu (Jason).
Herein respondents composed the Yukayguan Family, namely, the
father, Joseph S. Yukayguan (Joseph); the wife, Nancy L.
Yukayguan (Nancy); and their children Jerald Nerwin L. Yukayguan
(Jerald) and Jill Neslie Yukayguan (Jill).
Petitioner Anthony is the older half-brother of respondent Joseph.
Petitioners and the respondents were all stockholders of
Winchester Industrial Supply, Inc. (Winchester, Inc.), a domestic
corporation engaged in the operation of a general hardware and
industrial supply and equipment business.

FACTS:

The case at bar was initiated before the RTC by respondents as a

derivative suit, on their own behalf and on behalf of Winchester,
Inc., primarily in order to compel petitioners to account for and
reimburse to the said corporation the corporate assets and funds
which the latter allegedly misappropriated for their personal
benefit. During the pendency of the proceedings before the court
a quo, the parties were able to reach an amicable settlement
wherein they agreed to divide the assets of Winchester, Inc.
among themselves. This amicable settlement was already
partially implemented by the parties, when respondents
repudiated the same, for which reason the RTC proceeded with
the case on its merits. On 10 November 2004, the RTC
promulgated its Decision dismissing respondents Complaint for
failure to comply with essential pre-requisites before they could
avail themselves of the remedies under the Interim Rules of
Procedure Governing Intra-Corporate Controversies; and for
inadequate substantiation of respondents allegations in said
Complaint after consideration of the pleadings and evidence on
record.

In accordance with respondents allegation in their Position Paper

that the parties subsequently filed with the SEC, and the SEC
already approved, a petition for dissolution of Winchester, Inc.,
the Court of Appeals remanded the case to the RTC so that all the
corporate concerns between the parties regarding Winchester,
Inc. could be resolved towards final settlement.

In its Decision dated 15 February 2006, the Court of Appeals

affirmed, on appeal, the findings of the RTC that respondents did
not abide by the requirements for a derivative suit, nor were they
able to prove their case by a preponderance of evidence.
Respondents filed a Motion for Reconsideration of said judgment
of the appellate court, insisting that they were able to meet all
the conditions for filing a derivative suit. Pending resolution of
respondents Motion for Reconsideration, the Court of Appeals
urged the parties to again strive to reach an amicable settlement
of their dispute, but the parties were unable to do so. The parties
were not able to submit to the appellate court, within the given
period, any amicable settlement; and filed, instead, their Position
Papers. This effectively meant that the parties opted to submit
respondents Motion for Reconsideration of the 15 February 2006
Decision of the Court of Appeals, and petitioners opposition to
the same, for resolution by the appellate court on the merits.

RULING: NO.

It was at this point that the case took an unexpected turn.

In one stroke, with the use of sweeping language, which utterly

lacked support, the Court of Appeals converted the derivative suit
between the parties into liquidation proceedings.

ISSUE: Whether or not the mandatory requirements under the

Interim
Rules
of
Procedure
Governing
Intra-Corporate
Controversies for derivative suits have been met.

The Court has recognized that a stockholders right to institute a

derivative suit is not based on any express provision of the
Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate
directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary
duties. Hence, a stockholder may sue for mismanagement, waste
or dissipation of corporate assets because of a special injury to
him for which he is otherwise without redress. In effect, the suit is
an action for specific performance of an obligation owed by the
corporation to the stockholders to assist its rights of action when
the corporation has been put in default by the wrongful refusal of
the directors or management to make suitable measures for its
protection. The basis of a stockholders suit is always one in
equity. However, it cannot prosper without first complying with
the legal requisites for its institution.48

Section 1, Rule 8 of the Interim Rules of Procedure Governing

Intra-Corporate
Controversies
lays
down
the
following
requirements which a stockholder must comply with in filing a
derivative suit:
Sec. 1. Derivative action. A stockholder or member may bring
an action in the name of a corporation or association, as the case
may be, provided, that:
(1) He was a stockholder or member at the time the acts
or transactions subject of the action occurred and at the
time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same
with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws
or rules governing the corporation or partnership to obtain
the relief he desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
A perusal of respondents Complaint before the RTC would reveal
that the same did not allege with particularity that respondents
exerted all reasonable efforts to exhaust all remedies available
under the articles of incorporation, by-laws, laws or rules
governing Winchester, Inc. to obtain the relief they desire.
Respondents assert that their compliance with said requirement
was contained in respondent Josephs Affidavit, which was
attached to respondents Complaint. Respondent Joseph averred
in his Affidavit that he tried for a number of times to talk to
petitioner Anthony to settle their differences, but the latter would
not listen. Respondents additionally claimed that taking further
remedies within the corporation would have been idle ceremony,

considering that Winchester, Inc. was a family corporation and it

was impossible to expect petitioners to take action against
themselves who were the ones accused of wrongdoing.
The Court is not persuaded.
The wordings of Section 1, Rule 8 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies are simple
and do not leave room for statutory construction. The second
paragraph thereof requires that the stockholder filing a derivative
suit should have exerted all reasonable efforts to exhaust all
remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain
the relief he desires; and to allege such fact with particularity in
the complaint. The obvious intent behind the rule is to make the
derivative suit the final recourse of the stockholder, after all other
remedies to obtain the relief sought had failed.
The allegation of respondent Joseph in his Affidavit of his
repeated attempts to talk to petitioner Anthony regarding their
dispute hardly constitutes "all reasonable efforts to exhaust all
remedies available." Respondents did not refer to or mention at
all any other remedy under the articles of incorporation or bylaws of Winchester, Inc., available for dispute resolution among
stockholders,
which
respondents
unsuccessfully
availed
themselves of. And the Court is not prepared to conclude that the
articles of incorporation and by-laws of Winchester, Inc.
absolutely failed to provide for such remedies.
Neither can this Court accept the reasons proffered by
respondents to excuse themselves from complying with the
second requirement under Section 1, Rule 8 of the Interim Rules
of Procedure Governing Intra-Corporate Controversies. They are
flimsy and insufficient, compared to the seriousness of
respondents accusations of fraud, misappropriation, and
falsification of corporate records against the petitioners. The fact
that Winchester, Inc. is a family corporation should not in any

way exempt respondents from complying with the clear

requirements and formalities of the rules for filing a derivative
suit. There is nothing in the pertinent laws or rules supporting the
distinction between, and the difference in the requirements for,
family corporations vis--vis other types of corporations, in the
institution by a stockholder of a derivative suit.
The Court further notes that, with respect to the third and fourth
requirements of Section 1, Rule 8 of the Interim Rules of
Procedure
Governing
Intra-Corporate
Controversies,
the
respondents Complaint failed to allege, explicitly or otherwise,
the fact that there were no appraisal rights available for the acts
of petitioners complained of, as well as a categorical statement
that the suit was not a nuisance or a harassment suit.
WHEREFORE, premises considered, the Petition for Review under
Rule 45 of the Rules of Court is hereby GRANTED. The assailed
Resolutions dated 18 July 2006 and 19 April 2007 of the Court of
Appeals in CA-G.R. SP No. 00185 are hereby REVERSED AND SET
ASIDE. The Decision dated 15 February 2006 of the Court of
Appeals is hereby AFFIRMED. No costs.
SO ORDERED.
118. Global Business Holdings, Inc v Surecomp Software,
B.V.
GR NO. 173463
October 13, 2010
FACTS:
-Respondent Surecomp is a foreign corporation organize and
existing under the laws of the Netherlands. In 1999, it entered
into a software license agreement with Asian Bank Corporation, a
domestic corporation, for the use of its IMEX Software System in
the banks computer system for a period of 20 years.
-In 2000, Asian Bank merged with petitioner Global Business
Holdings, with Global as the surviving corporation. When Global
took over the operations of ABC, it found the System unworkable

for its operations, and informed Surecomp of its decision to

discontinue with the agreement and to stop further payments
thereon. Consequently, for failure of Global to pay its obligations
under the agreement despite demands, Surecomp filed a
complaint for breach of contract with damages before the
Regional Trial Court (RTC) of Makati.
-In its complaint, Surecomp alleged that it is a foreign corporation
not doing business in the Philippines and is suing on an isolated
transaction. ABC also undertook to pay Surecomp professional
services, which included on-site support and development of
interfaces, and annual maintenance fees for five (5) subsequent
anniversaries, and committed to purchase one (1) or two (2)
Remote Access solutions at discounted prices. In a separate
transaction, ABC requested Surecomp to purchase on its behalf a
software called MF Cobol Runtime with a promise to reimburse its
cost. Notwithstanding the delivery of the product and the
services provided, Global failed to pay and comply with its
obligations under the agreement. Thus, Surecomp demanded
payment of actual damages for Globals unilateral pretermination
of the agreement, exemplary damages, attorneys fees and costs
of suit.
-Instead of filing an answer, Global filed a motion to dismiss
based on two grounds: that Surecomp had no capacity to sue
because it was doing business in the Philippines without a
license; and (2) that the claim on which the action was founded
was unenforceable under the IP Code.
-The RTC denied the motion to dismiss. According to the RTC,
there is a prima facie showing that petitioner entered into a
contract with respondent and having done so, willingly, it cannot
now be made to issue the raise of capacity to sue.
ISSUE: Whether or not Global is estopped from questioning
Surecomps capacity to sue
HELD: YES.
-The determination of a corporations capacity is a factual
question that requires the elicitation of a preponderant set of
facts.[22] As a rule, unlicensed foreign non-resident corporations
doing business in the Philippines cannot file suits in the

Philippines.[23] This is mandated under Section 133 of the

Corporation Code, which reads:
Sec. 133. Doing business without a license. - No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines, but such
corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
-A corporation has a legal status only within the state or territory
in which it was organized. For this reason, a corporation
organized in another country has no personality to file suits in the
Philippines. In order to subject a foreign corporation doing
business in the country to the jurisdiction of our courts, it must
acquire a license from the Securities and Exchange Commission
and appoint an agent for service of process. Without such license,
it cannot institute a suit in the Philippines.[24]
-The exception to this rule is the doctrine of estoppel. Global is
estopped from challenging Surecomps capacity to sue.
-A foreign corporation doing business in the Philippines without
license may sue in Philippine courts a Filipino citizen or a
Philippine entity that had contracted with and benefited from it.
[25] A party is estopped from challenging the personality of a
corporation after having acknowledged the same by entering into
a contract with it.[26] The principle is applied to prevent a person
contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in
cases where such person has received the benefits of the
contract. [27]
-Due to Globals merger with ABC and because it is the surviving
corporation, it is as if it was the one which entered into contract
with Surecomp. In the merger of two existing corporations, one of
the corporations survives and continues the business, while the
other is dissolved, and all its rights, properties, and liabilities are
acquired by the surviving corporation.[28] This is particularly true
in this case. Based on the findings of fact of the RTC, as affirmed
by the CA, under the terms of the merger or consolidation, Global

assumed all the liabilities and obligations of ABC as if it had

incurred such liabilities or obligations itself. In the same way,
Global also has the right to exercise all defenses, rights,
privileges, and counter-claims of every kind and nature which
ABC may have or invoke under the law. These findings of fact
were never contested by Global in any of its pleadings filed
before this Court.
119. National Abaca vs Pore
Facts
Plaintiff filed with the Municipal Court of Tacloban, Leyte, a
complaint, against Apolonia Pore, for the recovery of P1,213.34,
allegedly advanced to her for the purchase of hemp for the
account of the former and for which she had allegedly failed to
account. In due course, said court rendering judgment finding
that the defendant had not accounted for cash advances in the
sum of P272.49, which she was, accordingly, sentenced to pay to
the plaintiff, with legal interest.
Said court having subsequently denied a reconsideration of this
decision, as well a new trial prayed for the plaintiff, the latter
appealed to the Court of First Instance of Leyte, in which
defendant moved to dismiss the complaint upon the ground that
plaintiff has no legal capacity to sue, it having abolished by
Executive Order No. 372 of the President of the Philippines.
Plaintiff objected thereto upon the ground that pursuant to said
executive order, plaintiff "shall nevertheless be continued as a
body corporate for a period of three (3) years from the effective
date" of said executive order, which was November 30, 1950, "for
the purpose of prosecuting and defending suits by or against it
and of enabling the Board of Liquidators" thereby created
"gradually to settle and close its affairs", . . . and that this case
was begun on November 14, 1953, or before the expiration of the
period aforementioned.
Issue: whether an action, commenced within three (3) years after
the abolition of plaintiff, as a corporation, may be continued by
the same after the expiration of said period
Held

The rule appears to be well settled that, in the absence of

statutory provision to the contrary, pending actions by or against
a corporation are abated upon expiration of the period allowed by
law for the liquidation of its affairs.
It is generally held, that where a statute continues the existence
of a corporation for a certain period after its dissolution for the
purpose of prosecuting and defending suits, etc., the corporation
becomes defunct upon the expiration of such period, at least in
the absence of a provision to the contrary, so that no action can
afterwards be brought by or against it, and must be dismissed.
Actions pending by or against the corporation when the period
allowed by the statute expires, ordinarily abate.
. . . This time limit does not apply unless the circumstances are
such as to bring the corporation within the provision of the
statute. However, the wording of the statutes, in some
jurisdictions authorize suits after the expiration of the time limit,
where the statute provides that for the purpose of any suit
brought by or against the corporation shall continue beyond such
period for a further named period after final judgment.
Our Corporation Law contains no provision authorizing a
corporation, after three (3) years from the expiration of its

lifetime, to continue in its corporate name actions instituted by it

within said period of three (3) years. in fact, section 77 of said
law provides that the corporation shall "be continued as a body
corporate for three (3) years after the time when it would have
been . . . dissolved, for the purposed of prosecuting and
defending suits by or against it . . .", so that, thereafter, it shall
no longer enjoy corporate existence for such purpose. For this
reason, section 78 of the same law authorizes the corporation,
"at any time during said three years . . . to convey all of its
property to trustees for the benefit of members, stockholders,
creditors and other interested", evidently for the purpose, among
others, of enabling said trustees to prosecute and defend suits by
or against the corporation begun before the expiration of said
period.
Obviously, the complete loss of plaintiff's corporate existence
after the expiration of the period of three (3) years for the
settlement of its affairs is what impelled the President to create a
Board of Liquidators, to continue the management of such
matters as may then be pending. The first question must,
therefore, be answered in the negative.