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CASE #14 Benguet Consolidated Mining Co.

vs Mariano Pineda
FACTS: Benguet Consolidated Mining Company was organized in 1903 under the
Spanish Code of Commerce of 1886 as a sociedad anonima. It was agreed by the
incorporators that Benguet Mining was to exist for 50 years.
In 1906, Act 1459 (Corporation Law) was enacted which superseded the Code of
Commerce of 1886. Act 1459 essentially introduced the American concept of a
corporation. The purpose of the law, among others, is to eradicate the Spanish Code
and make sociedades anonimas obsolete.
In 1953, the board of directors of Benguet Mining submitted to the Securities and
Exchange Commission an application for them to be allowed to extend the life span
of Benguet Mining. Then Commissioner Mariano Pineda denied the application as it
ruled that the extension requested is contrary to Section 18 of the Corporation Law
of 1906 which provides that the life of a corporation shall not be extended by
amendment beyond the time fixed in their original articles.
Benguet Mining contends that they have a vested right under the Code of
Commerce of 1886 because they were organized under said law; that under said
law, Benguet Mining is allowed to extend its life by simply amending its articles of
incorporation; that the prohibition in Section 18 of the Corporation Code of 1906
does not apply to sociedades anonimas already existing prior to the Laws
enactment; that even assuming that the prohibition applies to Benguet Mining, it
should be allowed to be reorganized as a corporation under the said Corporation
Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No. Benguet Mining has no vested right to extend its life. It is a well settled
rule that no person has a vested interest in any rule of law entitling him to insist
that it shall remain unchanged for his benefit. Had Benguet Mining agreed to extend
its life prior to the passage of the Corporation Code of 1906 such right would have
vested. But when the law was passed in 1906, Benguet Mining was already deprived
of such right.
To allow Benguet Mining to extend its life will be inimical to the purpose of the law
which sought to render obsolete sociedades anonimas. If this is allowed, Benguet
Mining will unfairly do something which new corporations organized under the new
Corporation Law cant do that is, exist beyond 50 years. Plus, it would have reaped
the benefits of being a sociedad anonima and later on of being a corporation.
Further, under the Corporation Code of 1906, existing sociedades anonimas during
the enactment of the law must choose whether to continue as such or be organized
as a corporation under the new law. Once a sociedad anonima chooses one of these,
it is already proscribed from choosing the other. Evidently, Benguet Mining chose to
exist as a sociedad anonima hence it can no longer elect to become a corporation
when its life is near its end.

CASE #38 Pedro Palting vs San Jose Petroleum, Inc.


FACTS: In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized
under the laws of Panama, was allowed by the Securities and Exchange Commission
(SEC) to sell its shares of stocks in the Philippines. Apparently, the proceeds of such
sale shall be invested in San Jose Oil Company, Inc. (SJO), a domestic mining
corporation. Pedro Palting opposed the authorization granted to SJP because said tie
up between SJP and SJO is violative of the constitution; that SJO is 90% owned by
SJP; that the other 10% is owned by another foreign corporation; that a mining
corporation cannot be interested in another mining corporation. SJP on the other
hand invoked that under the parity rights agreement (Laurel-Langley Agreement),
SJP, a foreign corporation, is allowed to invest in a domestic corporation.
ISSUE: Whether or not SJP is correct.
HELD: No. The parity rights agreement is not applicable to SJP. The parity rights are
only granted to American business enterprises or enterprises directly or indirectly
controlled by US citizens. SJP is a Panamanian corporate citizen. The other owners of
SJO are Venezuelan corporations, not Americans. SJP was not able to show contrary
evidence. Further, the Supreme Court emphasized that the stocks of these
corporations are being traded in stocks exchanges abroad which renders their
foreign ownership subject to change from time to time. This fact renders a practical
impossibility to meet the requirements under the parity rights. Hence, the tie up
between SJP and SJO is illegal, SJP not being a domestic corporation or an American
business enterprise contemplated under the Laurel-Langley Agreement.

CASE #63 Traders Royal Bank vs Court of Appeals


FACTS: Filriters Guaranty Assurance Corporation (FGAC) is the owner of several
Central Bank Certificates of Indebtedness (CBCI). These certificates are actually
proof that FGAC has the required reserve investment with the Central Bank to
operate as an insurer and to protect third persons from whatever liabilities FGAC
may incur. In 1979, FGAC agreed to assign said CBCI to Philippine Underwriters
Finance Corporation (PUFC). Later, PUFC sold said CBCI to Traders Royal Bank (TRB).
Said sale with TRB comes with a right to repurchase on a date certain. However,
when the day to repurchase arrived, PUFC failed to repurchase said CBCI hence TRB
requested the Central Bank to have said CBCI be registered in TRBs name. Central
Bank refused as it alleged that the CBCI are not negotiable; that as such, the
transfer from FGAC to PUFC is not valid; that since it was invalid, PUFC acquired no
valid title over the CBCI; that the subsequent transfer from PUFC to TRB is likewise
invalid.
TRB then filed a petition for mandamus to compel the Central Bank to register said
CBCI in TRBs name. TRB averred that PUFC is the alter ego of FGAC; that PUFC
owns 90% of FGAC; that the two corporations have identical sets of directors; that
payment of said CBCI to PUFC is like a payment to FGAC hence the sale between
PUFC and TRB is valid. In short, TRB avers that that the veil of corporate fiction,
between PUFC and FGAC, should be pierced because the two corporations allegedly
used their separate identity to defraud TRD into buying said CBCI.
ISSUE: Whether or not Traders Royal Bank is correct.
HELD: No. Traders Royal Bank failed to show that the corporate fiction is used by
the two corporations to defeat public convenience, justify wrong, protect fraud or
defend crime or where a corporation is a mere alter ego or business conduit of a
person. TRB merely showed that PUFC owns 90% of FGAC and that their directors
are the same. The identity of PUFC cant be maintained as that of FGAC because of
this mere fact; there is nothing else which could lead the court under the
circumstance to disregard their corporate personalities. Further, TRB cant argue
that it was defrauded into buying those certificates. In the first place, TRB as a
banking institution is not ignorant about these types of transactions. It should know
for a fact that a certificate of indebtedness is not negotiable because the payee
therein is inscribed specifically and that the Central Bank is obliged to pay the
named payee only and no one else.

CASE #88 HENRY FLEISCHER vs. BOTICA NOLASCO CO., INC.,


FACTS: Manuel Gonzalez was the original owner of the five shares of stock in
question, of Botica Nolasco, Inc. On March 11, 1923, he assigned and delivered said
five shares to the plaintiff, Henry Fleischer, by accomplishing the form of
endorsement provided on the back thereof, together with other credits, in
consideration of a large sum of money owed by Gonzalez to Fleischer. Two days
after, Dr. Eduardo Miciano, who was the secretary-treasurer of said corporation,
offered to buy from Henry Fleischer, on behalf of the corporation, said shares of
stock, at their par value of P100 a share, for P500 by virtue of article 12 of the bylaws of Botica Nolasco, Inc., said corporation had the preferential right to buy from
Manuel Gonzalez said shares. Fleischer refused to sell them to the corporation and
instead requested Doctor Miciano to register said shares in his name. Doctor
Miciano refused to do so, saying that it would be in contravention of the by-laws of
the corporation. However, It also appears from the record that on the same day,
Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting
that the five shares of stock sold by him to Henry Fleischer be noted transferred to
Fleischer's name. He also acknowledged in said written statement the preferential
right of the corporation to buy said five shares. On June 14, 1923, Gonzalez wrote a
letter to the Botica Nolasco, withdrawing and cancelling his written statement of
March 13, 1923 (Exhibit C), to which letter the Botica Nolasco on June 15, 1923,
replied, declaring that his written statement was in conformity with the by-laws of
the corporation, that his letter of June 14th was of no effect, and that the shares in
question had been registered in the name of the Botica Nolasco, Inc. Fleischer now
prays for the board of directors to be ordered to register in the books of the
corporation five shares of its stock in his name.
ISSUE: WON article 12 of the by-laws of the corporation, giving the corporation a
preferential right to buy its shares from retiring stockholders, is in conflict with the
provisions of the Corporation Law (Act No. 1459).
RULING: Yes. Under the Corporation Law (Act No. 1459), Section 13, paragraph 7, a
corporation is empowered to make by-laws, not inconsistent with any existing law,
for the transferring of its stock. It follows from said provision that a by-law adopted
by a corporation relating to transfer of stock should be in harmony with the law on
the subject of transfer of stock. Section 35 contemplates no restriction as to whom
they may be transferred or sold. It does not suggest that any discrimination may be
created by the corporation in favor or against a certain purchaser. The holder of
shares, as owner of personal property, is at liberty, under said section, to dispose of
them in favor of whomsoever he pleases, without any other limitation in this
respect, than the general provisions of law. Therefore, a stock corporation in
adopting a by-law governing transfer of shares of stock should take into
consideration the specific provisions of section 35 of Act No. 1459, and said by-law
should be made to harmonize with said provisions. It should not be inconsistent

therewith. And moreover, the by-laws now in question cannot have any effect on the
appellee. He had no knowledge of such by-law when the shares were assigned to
him. He obtained them in good faith and for a valuable consideration. He was not a
privy to the contract created by said by-law between the shareholder Manuel
Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his
rights as a purchaser.

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