CORPO CASE DIGESTS 6 Association] and herein Petitioner Loyola Grand Villas Homeowners (South)
Association, Inc.["South Association].
Loyola Grand Villas (South) Association Inc. v. CA
FACTS: In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was incorporated
by the homeowners of the Loyola Grand Villas (LGV), a subdivision. The Securities
and Exchange Commission (SEC) issued a certificate of incorporation under its
official seal to LGVAI in the same year. LGVAI was likewise recognized by the Home
Insurance and Guaranty Corporation (HIGC), a government-owned-and-controlled
corporation whose mandate is to oversee associations like LGVAI.
Later, LGVAI later found out that there are two homeowners associations within LGV,
namely: Loyola Grand Villas Homeowners (South) Association, Inc. (LGVAI-South)
and Loyola Grand Villas Homeowners (North) Association, Inc. (LGVAI-North). The
two associations asserted that they have to be formed because LGVAI is inactive.
When LGVAI inquired about its status with HIGC, HIGC advised that LGVAI was
already terminated; that it was automatically dissolved when it failed to submit it By-
Laws after it was issued a certificate of incorporation by the SEC.
ISSUE: Whether or not a corporations failure to submit its by-laws results to its
automatic dissolution.
HELD: No. A private corporation like LGVAI commences to have corporate existence
and juridical personality from the date the Securities and Exchange Commission
(SEC) issues a certificate of incorporation under its official seal. The submission of its
by-laws is a condition subsequent but although it is merely such, it is a MUST that it
be submitted by the corporation. Failure to submit however does not warrant
automatic dissolution because such a consequence was never the intention of the
law. The failure is merely a ground for dissolution which may be raised in a quo
warranto proceeding. It is also worthwhile to note that failure to submit cant result to
automatic dissolution because there are some instances when a corporation does not
require a by-laws.
***
Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was organized on 8
February 1983 as the homeoenwers' association for Loyola Grand Villas. It was also
registered as the sole homeowners' association in the said village with the Home
Financing Corporation (which eventually became Home Insurance Guarantee
Corporation ["HIGC"]). However, the association was not able file its corporate by-
laws.
The LGVHAI officers then tried to registered its By-Laws in 1988, but they failed to do
so. They then discovered that there were two other homeowners' organizations within
the subdivision - the Loyola Grand Villas Homeowners (North) Association, Inc. [North
Upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI was dissolved
for its failure to submit its by-laws within the period required by the Corporation Code
and for its non-user of corporate charter because HIGC had not received any report
on the association's activities. These paved the way for the formation of the North and
South Associations.
LGVHAI then lodged a complaint with HIGC Hearing Officer Danilo Javier, and
questioned the revocation of its registration. Hearing Officer Javier ruled in favor of
LGVHAI, revoking the registration of the North and South Associations.
Petitioner South Association appealed the ruling, contending that LGVHAI's failure to
file its by-laws within the period prescribed by Section 46 of the Corporation Code
effectively automatically dissolved the corporation. The Appeals Board of the HIGC
and the Court of Appeals both rejected the contention of the Petitioner affirmed the
decision of Hearing Officer Javier.
Issue: W/N LGVHAI's failure to file its by-laws within the period prescribed by Section
46 of the Corporation Code had the effect of automatically dissolving the said
corporation.
Ruling: No. The pertinent provision of the Corporation Code that is the focal point of
controversy in this case states:
Sec. 46. Adoption of by-laws. - Every corporation formed under this Code, must within
one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission, adopt a code of by-laws
for its government not inconsistent with this Code.
Ordinarily, the word "must" connotes an imposition of duty which must be enforced.
However, the word "must" in a statute, like "shall," is not always imperative. It may be
consistent with an ecercise of discretion. If the language of a statute, considered as a
whole with due regard to its nature and object, reveals that the legislature intended to
use the words "shall" and "must" to be directory, they should be given that meaning.
The legislative deliberations of the Corporation Code reveals that it was not the
intention of Congress to automatically dissolve a corporation for failure to file the By-
Laws on time.
Moreover, By-Laws may be necessary to govern the corporation, but By-Laws are still
subordinate to the Articles of Incorporation and the Corporation Code. In fact, there
are cases where By-Laws are unnecessary to the corporate existence and to the valid
exercise of corporate powers.
The Corporation Code does not expressly provide for the effects of non-filing of By-
Laws. However, these have been rectified by Section 6 of PD 902-A which provides
that SEC shall possess the power to suspend or revoke, after proper notice and
hearing, the franchise or certificate of registration of corporations upon failure to file
By-Laws within the required period.
This shows that there must be notice and hearing before a corporation is dissolved for
failure to file its By-Laws. Even assuming that the existence of a ground, the penalty
is not necessarily revocation, but may only be suspension.
By-Laws are indispensable to corporations, since they are required by law for an
orderly management of corporations. However, failure to file them within the period
prescribed does not equate to the automatic dissolution of a corporation.
Grace Christian Highschool vs. Court of Appeals
Grace Christian High School (GCHS) is an educational institution in Grace Village
(QC?). Grace Village Association, Inc. (GVAI)is the homeowners association in Grace
Village. GVAI has an existing by-laws which was already in effect since 1968. But in
1975, the board of directors made a draft amending the by-laws whereby the
representative of GCHS shall have a permanent seat in the 15-seat board. The draft
however was never presented to the general membership for approval. But
nevertheless, the representative of GCHS held a seat in the board for 15 years until in
1990 when a proposal was made to the board to reconsider the practice of allowing
the GCHS representative in taking a permanent seat. Thereafter, an election was
scheduled for the 15 seat in the board. GCHS opposed the election as it insists that
the election should only be for 14 directors because it has a permanent seat. GVAI
argued that GCHS claim has no basis because the 1975 proposed amendment was
never ratified. GCHS averred that it was ratified when it was allowed to take the seat
for 15 years and as such its right has already vested.
ISSUE: Whether or not the representative from Grace Christian High School should
be allowed to have a permanent seat in the board of directors.
HELD: No. The Corporation Code is clear when it provides that members of the
board of a corporation must be elected by the stockholders (stock corporation) or the
members (non-stock corporation). Admittedly, there are corporations who allow some
of their directors to sit in the board without being elected but such practice cannot
prevail over provisions of law. Practice, no matter how long continued, cannot give
rise to any vested right if it is contrary to law. Further, there is no reason as to why a
representative from GCHS should be given an automatic seat. It should therefore go
through the process of election. It cannot also be argued that the draft of the by-laws
in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an
election. In the first place, the proposal was merely a draft and even if passed and
approved by the general membership, it cannot be given effect because it is void and
contrary to the law. GCHS seat in the corporate board is at best merely tolerated by
GVAI.
***
Petitioner Grace Christian High School is an educational institution located at the
Grace Village in Quezon City, while Private respondent Grace Village Association,
Inc. ["Association'] is an organization of lot and/or building owners, lessees and
residents at Grace Village.
The original 1968 by-laws provide that the Board of Directors, composed of eleven
(11) members, shall serve for one (1) year until their successors are duly elected and
have qualified.
On 20 December 1975, a committee of the board of directors prepared a draft of an
amendment to the by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL
representative is a permanent Director of the ASSOCIATION."
However, this draft was never presented to the general membership for approval.
Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board
of directors of the association.
On 13 February 1990, the association's committee on election sought to change the
by-laws and informed the Petitioner's school principal "the proposal to make the
Grace Christian High School representative as a permanent director of the
association, although previously tolerated in the past elections should be
reexamined."
Following this advice, notices were sent to the members of the association that the
provision on election of directors of the 1968 by-laws of the association would be
observed. Petitioner requested the chairman of the election committee to change the
notice to honor the 1975 by-laws provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and Guaranty
Corporation (HIGC) to compel the board of directors to recognize its right to a
permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered
an opinion to the effect that the practice of allowing unelected members in the board
was contrary to the existing by-laws of the association and to 92 of the Corporation
Code (B.P. Blg. 68). This was adopted by the association in its Answer in the
mandamus filed with the HIGC.
The HIGC hearing officer ruled in favor of the association, which decision was
affirmed by the HIGC Appeals Board and the Court of Appeals.
Issue: W/N the 1975 provision giving the petitioner a permanent board seat was
valid.
Ruling: No. Section 23 of the Corporation Code (and its predecessor Section 28 and
29 of the Corporation Law) leaves no room for doubt that the Board of Directors of a
Corporation must be elected from among the stockholders or members.
There may be corporations in which there are unelected members in the board but it
is clear that in these instances, the unelected members sit as ex officio members, i.e.,
by virtue of and for as long as they hold a particular office (e.g. whoever is the
Archbishop of Manila is considered a member of the board of Cardinal Santos
Memorial Hospital, Inc.)
But in the case of petitioner, there is no reason at all for its representative to be given
a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office
held. In fact it was not given such seat in the beginning. It was only in 1975 that a
proposed amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the fact that it has gone
unchallenged for fifteen years cannot forestall a later challenge to its validity. Neither
can it attain validity through acquiescence because, if it is contrary to law, it is beyond
the power of the members of the association to waive its invalidity.
It is more accurate to say that the members merely tolerated petitioner's
representative and tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of "practice."
Practice, no matter how long continued, cannot give rise to any vested right if it is
contrary to law.
China Banking Corporation vs. Court of Appeals
[GR 117604, 26 March 1997]
First Division, Kapunan (J): 4 concur
Facts: On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf &
Country Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to China Banking
Corporation (CBC). On 16 September 1974, CBC wrote VGCCI requesting that the
pledge agreement be recorded in its books. In a letter dated 27 September 1974,
VGCCI replied that the deed of pledge executed by Calapatia in CBC's favor was duly
noted in its corporate books. On 3 August 1983, Calapatia obtained a loan of
P20,000.00 from CBC, payment of which was secured by the pledge agreement still
existing between Calapatia and CBC. Due to Calapatia's failure to pay his obligation,
CBC, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary
Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction
sale of the pledged stock. On 14 May 1985, CBC informed VGCCI of the foreclosure
proceedings and requested that the pledged stock be transferred to its name and the
same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote
CBC expressing its inability to accede to CBC's request in view of Calapatia's
unsettled accounts with the club. Despite the foregoing, Notary Public de Vera held a
public auction on 17 September 1985 and CBC emerged as the highest bidder at
P20,000.00 for the pledged stock. Consequently, CBC was issued the corresponding
certificate of sale. On 21 November 1985, VGCCI sent Calapatia a notice demanding
full payment of his overdue account in the amount of P18,783.24. Said notice was
followed by a demand letter dated 12 December 1985 for the same amount and
another notice dated 22 November 1986 for P23,483.24. On 4 December 1986,
VGCCI caused to be published in the newspaper Daily Express a notice of auction
sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00
a.m. Included therein was Calapatia's own share of stock (Stock Certificate 1219).
Through a letter dated 15 December 1986, VGCCI informed Calapatia of the
termination of his membership due to the sale of his share of stock in the 10
December 1986 auction. On 5 May 1989, CBC advised VGCCI that it is the new
owner of Calapatia's Stock Certificate 1219 by virtue of being the highest bidder in the
17 September 1985 auction and requested that a new certificate of stock be issued in
its name. On 2 March 1990, VGCCI replied that "for reason of delinquency"
Calapatia's stock was sold at the public auction held on 10 December 1986 for
P25,000.00. On 9 March 1990, CBC protested the sale by VGCCI of the subject
share of stock and thereafter filed a case with the Regional Trial Court of Makati for
the nullification of the 10 December 1986 auction and for the issuance of a new stock
certificate in its name. On 18 June 1990, the Regional Trial Court of Makati dismissed
the complaint for lack of jurisdiction over the subject matter on the theory that it
involves an intra-corporate dispute and on 27 August 1990 denied CBC's motion for
reconsideration. On 20 September 1990, CBC filed a complaint with the Securities
and Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock
by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for
the issuance of a new certificate in petitioner's name; and for damages, attorney's
fees and costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P. Perea
rendered a decision in favor of VGCCI, stating in the main that considering that the
said share is delinquent, VGCCI had valid reason not to transfer the share in the
name of CBC in the books of VGCCI until liquidation of delinquency. Consequently,
the case was dismissed. On 14 April 1992, Hearing Officer Perea denied CBC's
motion for reconsideration. CBC appealed to the SEC en banc and on 4 June 1993,
the Commission issued an order reversing the decision of its hearing officer; holding
that CBC has a prior right over the pledged share and because of pledgor's failure to
pay the principal debt upon maturity, CBC can proceed with the foreclosure of the
pledged share; declaring that the auction sale conducted by VGCCI on 10 December
1986 is declared NULL and VOID; and ordering VGCCI to issue another membership
certificate in the name of CBC. VGCCI sought reconsideration of the order. However,
the SEC denied the same in its resolution dated 7 December 1993. The sudden turn
of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994,
the Court of Appeals rendered its decision nullifying and setting aside the orders of
the SEC and its hearing officer on ground of lack of jurisdiction over the subject
matter and, consequently, dismissed CBC's original complaint. The Court of Appeals
declared that the controversy between CBC and VGCCI is not intra-corporate;
nullifying the SEC orders and dismissing CBCs complaint. CBC moved for
reconsideration but the same was denied by the Court of Appeals in its resolution
dated 5 October 1994. CBC filed the petition for review on certiorari.
Issue: Whether CBC is bound by VGCCI's by-laws.
Held: In order to be bound, the third party must have acquired knowledge of the
pertinent by-laws at the time the transaction or agreement between said third party
and the shareholder was entered into. Herein, at the time the pledge agreement was
executed. VGCCI could have easily informed CBC of its by-laws when it sent notice
formally recognizing CBC as pledgee of one of its shares registered in Calapatia's
name. CBC's belated notice of said by-laws at the time of foreclosure will not suffice.
By-laws signifies the rules and regulations or private laws enacted by the corporation
to regulate, govern and control its own actions, affairs and concerns and its
stockholders or members and directors and officers with relation thereto and among
themselves in their relation to it. In other words, by-laws are the relatively permanent
and continuing rules of action adopted by the corporation for its own government and
that of the individuals composing it and having the direction, management and control
of its affairs, in whole or in part, in the management and control of its affairs and
activities. The purpose of a by-law is to regulate the conduct and define the duties of
the members towards the corporation and among themselves. They are self-imposed
and, although adopted pursuant to statutory authority, have no status as public law.
Therefore, it is the generally accepted rule that third persons are not bound by by-
laws, except when they have knowledge of the provisions either actually or
constructively. For the exception to the general accepted rule that third persons are
not bound by by-laws to be applicable and binding upon the pledgee, knowledge of
the provisions of the VGCCI By-laws must be acquired at the time the pledge
agreement was contracted. Knowledge of said provisions, either actual or
constructive, at the time of foreclosure will not affect pledgee's right over the pledged
share. Article 2087 of the Civil Code provides that it is also of the essence of these
contracts that when the principal obligation becomes due, the things in which the
pledge or mortgage consists maybe alienated for the payment to the creditor. Further,
VGCCI's contention that CBC is duty-bound to know its by-laws because of Article
2099 of the Civil Code which stipulates that the creditor must take care of the thing
pledged with the diligence of a good father of a family, fails to convince. CBC was
never informed of Calapatia's unpaid accounts and the restrictive provisions in
VGCCI's by-laws. Furthermore, Section 63 of the Corporation Code which provides
that "no shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation" cannot be utilized by VGCCI. The term
"unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to
any indebtedness which a subscriber or stockholder may owe the corporation arising
from any other transaction." Herein, the subscription for the share in question has
been fully paid as evidenced by the issuance of Membership Certificate 1219. What
Calapatia owed the corporation were merely the monthly dues. Hence, Section 63
does not apply.
PMI Colleges vs National Labor Relations Commission
In 1991, PMI Colleges hired the services of Alejandro Galvan for the latter to teach in
said institution. However, for unknown reasons, PMI defaulted from paying the
remunerations due to Galvan. Galvan made demands but were ignored by PMI.
Eventually, Galvan filed a labor case against PMI. Galvan got a favorable judgment
from the Labor Arbiter; this was affirmed by the National Labor Relations
Commission. On appeal, PMI reiterated, among others, that the employment of
Galvan is void because it did not comply with its by-laws. Apparently, the by-laws
require that an employment contract must be signed by the Chairman of the Board of
PMI. PMI asserts that Galvans employment contract was not signed by the Chairman
of the Board.
ISSUE: Whether or not Galvans employment contract is void.
HELD: No. PMI Colleges never even presented a copy of the by-laws to prove the
existence of such provision. But even if it did, the employment contract cannot be
rendered invalid just because it does not bear the signature of the Chairman of the
Board of PMI. By-Laws operate merely as internal rules among the stockholders, they
cannot affect or prejudice third persons who deal with the corporation, unless they
have knowledge of the same. In this case, PMI was not able to prove that Galvan
knew of said provision in the by-laws when he was employed by PMI.
***
FACTS:
1. On July 7, 1991, petitioner hired private respondent as contractual instructor.
Pursuant to this engagement, private respondent then organized classes in
marine engineering.
2. Initially, private respondent and other instructors were compensated for
services rendered during the first three periods of the abovementioned
contract.
3. However, for reasons unknown to private respondent, he stopped receiving
payment for the succeeding rendition of services.
4. This claim of nonpayment was embodied in a letter. However the salary of
private respondent corresponding to the shipyard and plant visits and the
ongoing on the job training of Class 41 on board MV Sweet Glory of Sweet
Lines, Inc. was not yet included.
5. Private respondents claims, as expected, were resisted by petitioner.
 6. It alleged that classes in the courses offered which complainant claimed to
have remained unpaid were not held or conducted in the school premises of
PMI Colleges.
7. Petitioner maintained that it exercised no appropriate and proper supervision
of the said classes which activities allegedly violated certain rules and
regulations of the DECS.
8. Later in the proceedings, petitioner manifested that Mr. Tomas G. Cloma, Jr.,
a member of the petitioners Board of Trustees wrote a letter to the Chairman
of the Board on May 23, 1994, clarifying the case of private respondent and
stating therein, inter alia, that under petitioners bylaws only the Chairman is
authorized to sign any contract and that private respondent, in any event,
failed to submit documents on the alleged shipyard and plant visits in Cavite
Naval Base.
ISSUE: Whether or not the contract of employment is invalid
RULING: The court cannot concede that such contract would be invalid just because
the signatory thereon was not the Chairman of the Board which allegedly violated
petitioners bylaws. Since bylaws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same. No proof appears on record
that private respondent ever knew anything about the provisions of said bylaws.
In fact, petitioner itself merely asserts the same without even bothering to attach a
copy or excerpt thereof to show that there is such a provision. How can it now expect
the Labor Arbiter and the NLRC to believe it? That this allegation has never been
denied by private respondent does not necessarily signify admission of its existence
because technicalities of law and procedure and the rules obtaining in the courts of
law do not strictly apply to proceedings of this nature.
Enrique Salafranca vs Philamlife (Pamplona) Village Homeowners Association,
Inc.
In 1981, Enrique Salafranca was hired as an administrative officer by the Philamlife
Village Homeowners Associaiton, Inc. (PVHAI). Salafranca was tasked to manage the
villages day to day activities. His employment was originally for 6 months only but his
contract was renewed multiple times until 1983. But even after 1983, he was still
allowed to continue work even without a renewed contract. In 1987, PVHAI amended
its by-laws. Among the amendment was a provision that the administrative officer
(Salafranca) shall have a tenure which is co-terminus with the Board of Directors
which appointed him. In 1992, the tenure of said Board of Directors expired and so
Salafranca was terminated.
ISSUE: Whether or not Salafranca was illegally dismissed.
HELD: Yes. At that time, Salafranca already enjoys security of tenure because he is
already a regular employee. It is true that PVHAI has the right to amend its by-laws
but such amendment must not impair existing contracts or rights. In this case, the
provision that Salafrancas position shall be co-terminus with the appointing Board
impairs his right to security of tenure which has already vested even prior to the
amendment of the by-laws in 1987.
***
FACTS: Petitioner Enrique Salafranca started working with the private respondent
Philamlife Village Homeowners Association on May 1, 1981 as administrative officer
for a period of six months. As administrative officer, petitioner was generally
responsible for the management of the villages day to day activities. After petitioners
term of employment expired on December 31, 1983, he still continued to work in the
same capacity, albeit, without the benefit of a renewed contract. Sometime in 1987,
private respondent decided to amend its bylaws. Included therein was a provision
regarding officers, specifically, the position of administrative officer under which said
officer shall hold office at the pleasure of the Board of Directors. He continued
working until his termination in December 1992. Claiming that his services had been
unlawfully and unceremoniously dispensed with, petitioner filed a complaint for illegal
dismissal with money claims and for damages.
ISSUE: Whether or not petitioner is illegally dismissed
RULING: There is illegal dismissal.
On the outset, there is no dispute that petitioner had already attained the status of a
regular employee, as evidenced by his eleven years of service with the private
respondent. Accordingly, petitioner enjoys the right to security of tenure and his
services may be terminated only for causes provided by law.
Viewed in this light, while private respondent has the right to terminate the services of
petitioner, this is subject to both substantive and procedural grounds. The substantive
causes for dismissal are those provided in Articles 282 and 283 of the Labor Code,
while the procedural grounds refer to the observance of the requirement of due
process. In all these instances, it is the private respondent, being the employer, who
must prove the validity of the dismissal.
The right to amend the bylaws lies solely in the discretion of the employer, this being
in the exercise of management prerogative or business judgment. However this right,
extensive as it may be, cannot impair the obligation of existing contracts or rights.
It would enable an employer to remove any employee from his employment by the
simple expediency of amending its bylaws and providing that his/her position shall
cease to exist upon the occurrence of a specified event.
SAN MIGUEL CORP. VS. MANDAUE PACKING PRODUCTS UNION-FFW
Facts: On 15 June 1998, respondent, identifying itself as an affiliate of Federation of
Free Workers (FFW), filed a petition for certification election with the DOLE Regional
Office. In the petition, respondent stated that it sought to be certified and to represent
the permanent rank-and-file monthly paid employees of the petitioner. A set of
documents were attached to the petition, including a (1) Charter Certificate issued by
FFW certifying that respondent was a duly certified local chapter of FFW, (2) copy of
the constitution of respondent, (3) a list of respondents officers, (4) a certification
signifying that respondent had just been organized and no amount had yet been
collected from its members and (5) a list of all the rank-and-file monthly paid
employees of the Mandaue Packaging Products Plants and Mandaue Glass Plant
On 27 July 1998, petitioner filed a motion to dismiss the petition for certification
election on the sole ground that herein respondent is not listed or included in the
roster of legitimate labor organizations based on the certification issued by the
Officer-In-Charge, Regional Director of the DOLE Regional Office.
Undersecretary Baldoz concluded that respondent acquired legal personality as early
as 15 June 1998, the date it submitted the required documents, citing Section 3, Rule
VI of the New Rules Implementing the Labor Code (Implementing Rules) which
deems that a local/chapter acquires legal personality from the date of filing of the
complete documentary requirements as mandated in the Implementing Rules.
These two conclusions of the DOLE were affirmed in the assailed Decision of the
Court of Appeals
Issue: Whether or not respondent has acquired legal personality
Held: YES. It could be properly said that at the exact moment respondent was filing
the petition for certification, it did not yet possess any legal personality, since the
requisites for acquisition of legal personality under Section 3, Rule VI of Department
Order No. 9 had not yet been complied with. It could also be discerned that the
intention of the Labor Code and its Implementing Rules that only those labor
organizations that have acquired legal personality are capacitated to file petitions for
certification elections. Such is the general rule. Yet there are peculiar circumstances
in this case that allow the Court to rule that respondent acquired the requisite legal
personality at the same time it filed the petition for certification election. In doing so,
the Court acknowledges that the strict letter of the procedural rule was not complied
with. However, labor laws are generally construed liberally in favor of labor, especially
if doing so affirms the constitutionally guaranteed right to self-organization.
Under Section 3, Rule VI of Department Order No. 9, it is the submission of these
same documents to the Regional Office or Bureau that operates to vest legal
personality on the local/chapter. There is no doubt that on 15 June 1998, or the date
respondent filed its petition for certification election, attached thereto were
respondents constitution, the names and addresses of its officers, and the charter
certificate issued by the national union FFW.
However, respondent never submitted a separate by-laws, nor does it appear that
respondent ever intended to prepare a set thereof. Section 1(c), Rule VI, Book V of
Department Order No. 9 provides that the submission of both a constitution and a set
of by-laws is required, or at least an indication that the local/chapter is adopting the
constitution and by-laws of the federation or national union. A literal reading of the
provision might indicate that the failure to submit a specific set of by-laws is fatal to
the recognition of the local/chapter. However, a critical examination of respondents
constitution reveals that it is sufficiently comprehensive in establishing the necessary
rules for its operation. These premises considered, there is clearly no need for a
separate set of by-laws to be submitted by respondent.
***
FACTS: On 15 June 1998, respondent MPPP-SMPP-SMAMRFU-FFW, identifying
itself as an affiliate of Federation of Free Workers (FFW), filed a petition for
certification election with the DOLE Regional Office. In the petition, respondent stated
that it sought to be certified and to represent the permanent rank-and-
file monthly paid employees of the petitioner. A set of documents were attached to
the petition, including a (1) Charter Certificate issued by FFW certifying that
respondent was a duly certified local chapter of FFW, (2) copy of the constitution of
respondent, (3) a list of respondents officers, (4) a certification signifying that
respondent had just been organized and no amount had yet been collected from its
members and (5) a list of all the rank-and-file monthly paid employees of the
Mandaue Packaging Products Plants and Mandaue Glass Plant
On 27 July 1998, petitioner filed a motion to dismiss the petition for certification
election on the sole ground that herein respondent is not listed or included in the
roster of legitimate labor organizations.
On July 29, the respondents submitted the same documents to the BLR in
compliance for the creation of a local chapter and the BLR certified that respondents
as a legitimate labor organization as of July 30 1998.
In turn, petitioner filed a Comment, wherein it reiterated that respondent was not a
legitimate labor organization at the time of the filing of the petition. Petitioner also
propounded that contrary to respondents objectives of establishing an organization
representing rank-and-file employees, two of respondents officers, namely Vice-
President Emannuel L. Rosell and Secretary Bathan, were actually supervisory
employees.
Med Arbiter initially dismissed the PCE but DOLE USec reversed. Undersecretary
Baldoz concluded that respondent acquired legal personality as early as 15 June
1998, the date it submitted the required documents, citing Section 3, Rule VI of the
New Rules Implementing the Labor Code (Implementing Rules) which deems that a
local/chapter acquires legal personality from the date of filing of the
complete documentary requirements as mandated in the Implementing Rules.
These two conclusions of the DOLE were affirmed in the assailed Decision of
the Court of Appeals.
ISSUES:
1) WON respondent union acquired legal personality - YES
2) WON the inclusion of the two alleged supervisory employees in appellee
unions membership amounts to fraud, misrepresentation, or false statement
within the meaning of Article 239(a) and (c) of the Labor Code - NO
HELD:
1) YES. It could be properly said that at the exact moment respondent was filing the
petition for certification, it did not yet possess any legal personality, since the
requisites for acquisition of legal personality under Section 3, Rule VI of
Department Order No. 9 had not yet been complied with. It could also be
discerned that the intention of the Labor Code and its Implementing Rules that
only those labor organizations that have acquired legal personality are
capacitated to file petitions for certification elections. Such is the general rule. Yet
there are peculiar circumstances in this case that allow the Court to rule that
respondent acquired the requisite legal personality at the same time it filed the
petition for certification election. In doing so, the Court acknowledges that the
strict letter of the procedural rule was not complied with. However, labor laws are
generally construed liberally in favor of labor, especially if doing so affirms the
constitutionally guaranteed right to self-organization.
Under Section 3, Rule VI of Department Order No. 9, it is the submission of these
same documents to the Regional Office or Bureau that operates to vest legal
personality on the local/chapter. There is no doubt that on 15 June 1998, or the date
respondent filed its petition for certification election, attached thereto were
respondents constitution, the names and addresses of its officers, and the charter
certificate issued by the national union FFW.
However, respondent never submitted a separate by-laws, nor does it appear that
respondent ever intended to prepare a set thereof. Section 1(c), Rule VI, Book V of
Department Order No. 9 provides that the submission of both a constitution and a set
of by-laws is required, or at least an indication that the local/chapter is adopting the
constitution and by-laws of the federation or national union. A literal reading of the
provision might indicate that the failure to submit a specific set of by-laws is fatal to
the recognition of the local/chapter. However, a critical examination of respondents
constitution reveals that it is sufficiently comprehensive in establishing the necessary
rules for its operation. These premises considered, there is clearly no need for a
separate set of by-laws to be submitted by respondent.
2) No. Rossell - his functions are more routinary than recommendatory; Bathan
his recommendations may carry some weight on higher management but other
functions not presented. Even assuming Bathan is a supervisory employee, this
does not prove fraud since good faith is presumed in all representations.
Appellants reliance on the Toyota case must be tempered by the peculiar
circumstances of the case. Even assuming that Bathan, or Rossel for that matter, are
supervisory employees, the Toyota case cannot certainly be given an interpretation
that emasculates the right to self-organization and the promotion of free trade
unionism.
We take administrative notice of the realities in union organizing, during which the
organizers must take their chances, oftentimes unaware of the fine distinctions
between managerial, supervisory and rank and file employees.
The grounds for cancellation of union registration are not meant to be applied
automatically, but indeed with utmost discretion. Where a remedy short of
cancellation is available, that remedy should be preferred. In this case, no party will
be prejudiced if Bathan were to be excluded from membership in the union. The
vacancy he will thus create can then be easily filled up through the succession
provision of appellee unions constitution and by-laws. What is important is that there
is an unmistakeable intent of the members of appellee union to exercise their right to
organize. We cannot impose rigorous restraints on such right if we are to give
meaning to the protection to labor and social justice clauses of the Constitution.
RELEVANT TO SYLLABUS CHANGES IN COMPOSITION
In its Memorandum, petitioner alleges that the bargaining unit that respondent sought
to represent is no longer the same because of the dynamic nature of petitioners
business, a lot of changes having occurred in the work environment, and that four of
respondents officers are no longer connected with petitioner. Assuming that these
manifestations are true, they have no effect on the Courts ruling that a certification
election should be immediately conducted with respondent as one of the available
choices. Petitioners bare manifestations adduce no reason why the certification
election should not be conducted forthwith. If there are matters that have arisen since
the filing of the petition that serve to delay or cancel the election, these can be
threshed out during the pre-election conferences. Neither is the fact that some of
respondents officers have since resigned from petitioner of any moment. The
local/chapter retains a separate legal personality from that of its officers or members
that remains viable
TAN VS. SYCIP
FACTS: Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with 15 regular members, who also constitute the board of trustees.
During the annual members meeting, there were only 11 living member-trustees, as 4
have already died. Out of the 11, 7 attended the meeting through their respective
proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the
objection of Atty. Antonio C. Pacis, who argued that there was no quorum. In the
meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were
voted to replace the four deceased member-trustees. The controversy reached SEC
and the petitioners maintained that the deceased member-trustees should not be
counted in the computation of the quorum because, upon their death, members
automatically lost all their rights (including the right to vote) and interests in the
corporation. SEC declared the meeting null and void and ruled that the phrase
entitled to vote under Sec 24 should be read with Sec 89 of Corpo Code.
ISSUE: In a non-stock corporation, should dead members still be counted in
determination of quorum for purposed of conducting the Annual Members Meeting?
HELD: For stock corporations, the "quorum" referred to in Section 52 of the
Corporation Code is based on the number of outstanding voting stocks. For nonstock
corporations, only those who are actual, living members with voting rights shall be
counted in determining the existence of a quorum during members meetings. Dead
members shall not be counted.
One of the most important rights of a qualified shareholder or member is the right
to vote -- either personally or by proxy -- for the directors or trustees who are to
manage the corporate affairs. The right to vote is inherent in and incidental to the
ownership of corporate stocks. In nonstock corporations, the voting rights attach to
membership. The principle for determining the quorum for stock corporations is
applied by analogy to nonstock corporations, only those who are actual members with
voting rights should be counted. Under Section 52, the majority of the members
representing the actual number of voting rights, not the number or numerical constant
that may originally be specified in the articles of incorporation, constitutes the quorum.
Having thus determined that the quorum in a members meeting is to be reckoned as
the actual number of members of the corporation, the next question to resolve is what
happens in the event of the death of one of them. In stock corporations, the executor
or administrator duly appointed by the Court is vested with the legal title to the stock
and entitled to vote it. Until a settlement and division of the estate is effected, the
stocks of the decedent are held by the administrator or executor. On the other hand,
membership in and all rights arising from a nonstock corporation are personal and
non-transferable, unless the articles of incorporation or the bylaws of the corporation
provide otherwise. In other words, the determination of whether or not "dead
members" are entitled to exercise their voting rights (through their executor or
administrator), depends on those articles of incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall, among others, be
terminated by the death of the member. Applying Section 91, dead members who are
dropped from the membership roster in the manner and for the cause provided for in
the By-Laws of GCHS are not to be counted in determining the requisite vote in
corporate matters or the requisite quorum for the annual members meeting. With 11
remaining members, the quorum in the present case should be 6. Therefore, there
being a quorum, the annual members meeting was valid.
***
FACTS:
Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation w/ 15 regular members, who also constitute the board of
trustees.
April 6, 1998: During the annual members meeting only 11 living member-
trustees, as 4 had already died.
7 attended the meeting through their respective proxies.
The meeting was convened and chaired by Atty. Sabino Padilla Jr.
over the objection of Atty. Antonio C. Pacis, who argued that there
was no quorum.
In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia
Khoo, and Judith Tan were voted to replace the 4 deceased
member-trustees.
SEC: meeting void due to lack of quorum (NOT living but based on AIC)
Sec 24 read together with Sec 89
CA: Dismissed due to technicalities
ISSUE: W/N dead members should still be counted in the quorum - NO based on by-
laws
HELD: NO. remaining members of the board of trustees of GCHS may convene and
fill up the vacancies in the board
Except as provided, the vote necessary to approve a particular corporate act
as provided in this Code shall be deemed to refer only to stocks with voting
rights:
1. Amendment of the articles of incorporation;
 2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of
all or substantially all of the corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or business
in accordance with this Code; and
8. Dissolution of the corporation.
quorum in a members meeting is to be reckoned as the actual number of
members of the corporation
stock corporations - shareholders may generally transfer their shares
on the death of a shareholder, the executor or administrator duly
appointed by the Court is vested with the legal title to the stock and
entitled to vote it
Until a settlement and division of the estate is effected, the stocks
of the decedent are held by the administrator or executor
nonstock corporation - personal and non-transferable unless the articles of
incorporation or the bylaws of the corporation provide otherwise
Section 91 of the Corporation Code: termination extinguishes all the
rights of a member of the corporation, unless otherwise provided in
the articles of incorporation or the bylaws.
whether or not "dead members" are entitled to exercise their voting
rights (through their executor or administrator), depends on those
articles of incorporation or bylaws
By-Laws of GCHS: membership in the corporation shall be
terminated by the death of the member
With 11 remaining members, the quorum = 6.
SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy
occurring in the board of directors or trustees other than by removal by the
stockholders or members or by expiration of term, may be filled by the vote
of at least a majority of the remaining directors or trustees, if still constituting
a quorum; otherwise, said vacancies must be filled by the stockholders in a
regular or special meeting called for that purpose. A director or trustee so
elected to fill a vacancy shall be elected only for the unexpired term of his
predecessor in office.
the filling of vacancies in the board by the remaining directors or
trustees constituting a quorum is merely permissive, not mandatory
either by the remaining directors constituting a quorum, or
by the stockholders or members in a regular or special
meeting called for the purpose
By-Laws of GCHS prescribed the specific mode
of filling up existing vacancies in its board of
directors; that is, by a majority vote of the
remaining members of the board
remaining member-trustees must sit as a board
(as a body in a lawful meeting) in order to validly
elect the new ones
LAO VS. LAO
Nature: Petition for review on certiorari of the Amended Decision of the Court of
Appeals affirming the Decision of the Regional Trial Court
Facts:
1. David and Jose Lao filed a petition with the SEC against Dionisio (President
of PFSC). They prayed for:
a. To be declared as stockholders and directors of PFSC
b. The issuance of certificates of shares in their name
c. To be allowed to examine the corporate books of PFSC
2. David and Jose claimed that they are stockholders of PFSC based on the
General Information Sheet filed with the SEC by PFSC wherein it was
indicated in the General Information Sheet that they were stockholders and
directors of the PFSC.
 3. David said that he inherited his shares while Jose said that he purchased the
stocks directly from Dionisio.
4. Dionisio denied David and Joses claim. He said that the inclusion of the
petitioners name in the General Information Sheet was inadvertently made.
5. Before the case was tried with the SEC, RA 8799 was enacted. This law
transferred the jurisdiction on intra-corporate disputes from the SEC to the
RTC. So pursuant to the law the case was transferred to the RTC in Cebu.
a. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other person legally authorized
to make the transfer. No transefer, however, shall be valid, except
as between the parties, until the transfer is recorded in the books of
the corporation so as to show the names of the parties to the
transaction, the date of transfer, the number of the certificate or
certificates and the number of shares transferred. (Sec. 63,
Corporation Code)

6. RTC ruled in favor of Dionisio on the ground that; 3. In contrast, Dionision was able to prove that he is the owner of the disputed
shares.
a. David and Jose have no stock certificates in their names.
4. While it may be true that David and Joses name were in the General
b. Their shares was not registered in the Stock and Transfer Book of
Information Sheet, this document alone does not conclusively prove that
the Corporation
they are shareholders of PFSC. The information in the document will still
7. The CA, however, reversed the RTCs decision. have to be correlated with the corporate books of PFSC.

8. Dionisio filed a motion for reconsideration with the CA. This motion was
granted. However, this time the justice who penned the previous CA decision
inhibited himself from deciding the case. Thus, a different justice penned the
decision.
9. The CA then reversed its previous ruling. This time it ruled in favor of
Dionisio.
Issue: Is the fact that the name of Jose and David in the General Information Sheet
that the PFSC submitted to the SEC, recognized them as the stockholder of the
corporation?
Held: No.
1. Records show that petitioners have no certificates of stock in their name. A
certificate of stock is the evidence of a holders interest and status in a
corporation.
a. As between the General Information Sheet and Corporate Books, it
is the latter that is controlling.
LANUZA VS. CA
Facts:
Petitioners seek to nullify the Court of Appeals Decision in CAG.R. SP No.
414731 promulgated on 18 August 1997, affirming the SEC Order dated 20 June
1996, and the Resolution2 of the Court of Appeals dated 31 October 1997 which
denied petitioners motion for reconsideration.
In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was
incorporated, with seven hundred (700) founders shares and seventy-six (76)
common shares as its initial capital stock subscription reflected in the articles of
incorporation

a. It is a written instrument signed by the proper officer of a Onrubia et. al, who were in control of PMMSI registered the companys stock
corporation stating and acknowledging that the person named in and transfer book for the first time in 1978, recording thirty-three (33) common shares
the document is the owner of a designated number of shares of its as the only issued and outstanding shares of PMMSI.
stock.
In 1979, a special stockholders meeting was called and held on the basis of
b. It is a prima facie evidence that the holder is a shareholder of a what was considered as a quorum of twenty-seven (27) common shares,
corporation. representing more than two-thirds (2/3) of the common shares issued and
outstanding.
2. Neither was there any written document with regards to the sale of stocks to
the petitioners.
 In 1982, Juan Acayan, one of the heirs of the incorporators filed a petition for
the registration of their property rights was filed before the SEC over 120 founders
shares and 12 common shares owned by their father
SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and
called for a special stockholders meeting to elect a new set of officers.
SEC en banc: affirmed the decision
As a result, the shares of Acayan were recorded in the stock and transfer book.
On May 6, 1992, a special stockholders meeting was held to elect a new set of
directors
Onrubia et al filed a petition with SEC questioning the validity of said
meeting alleging that the quorum for the said meeting should not be based on the
165 issued and outstanding shares as per the stock and transfer book, but on the
initial subscribed capital stock of seven hundred seventy-six (776) shares, as
reflected in the 1952 Articles of Incorporation
Petition was dismissed
SC en banc: shares of the deceased incorporators should be duly represented
by their respective administrators or heirs concerned. Called for a stockholders
meeting on the basis of the stockholdings reflected in the articles of incorporation for
the purpose of electing a new set of officers for the corporation
Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review
with the CA, raising the following issues:
1. whether the basis the outstanding capital stock and accordingly also for
determining the quorum at stockholders meetings it should be the 1978 stock and
transfer book or if it should be the 1952 articles of incorporation
(They contended that the basis is the stock and transfer book, not articles of
incorporation in computing the quorum)
2. whether the Espejo decision (decision of SEC en banc ordering the recording
of the shares of Jose Acayan in the stock and transfer book) is applicable to the
benefit of Onrubia et al
CA decision:
1. For purposes of transacting business, the quorum should be based on the
outstanding capital stock as found in the articles of incorporation
2. To require a separate judicial declaration to recognize the shares of the original
incorporators would entail unnecessary delay and expense. Besides. the
incorporators have already proved their stockholdings through the provisions of the
articles of incorporation.
Appeal was made by Lanuza et al before the SC
Lanuza et al contention:
a. 1992 stockholders meeting was valid and legal
b. Reliance on the 1952 articles of incorporation for determining the quorum
negates the existence and validity of the stock and transfer book Onrubia et
al prepared
c. Onrubia et al must show and prove entitlement to the founders and common
shares in a separate and independent action/proceeding in order to avail of
the benefits secured by the heirs of Acayan
Onrubia et als contention, based on the Memorandum: petition should be
dismissed on the ground of res judicata
Another appeal was made
Lanuza et als contention: instant petition is separate and distinct from G.R.
No. 131315, there being no identity of parties, and more importantly, the parties in the
two petitions have their own distinct rights and interests in relation to the subject
matter in litigation
Onrubia et als manifestation and motion: moved for the dismissal of the case
Issue: What should be the basis of quorum for a stockholders meetingthe
outstanding capital stock as indicated in the articles of incorporation or that contained
in the companys stock and transfer book?
Ruling:
Articles of Incorporation
- Defines the charter of the corporation and the contractual relationships between
the State and the corporation, the stockholders and the State, and between the
corporation and its stockholders.
- Contents are binding, not only on the corporation, but also on its shareholders.
Stock and transfer book
- Book which records the names and addresses of all stockholders arranged
alphabetically, the installments paid and unpaid on all stock for which subscription has
been made, and the date of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom made; and such other
entries as may be prescribed by law
- necessary as a measure of precaution, expediency and convenience since it
provides the only certain and accurate method of establishing the various corporate
acts and transactions and of showing the ownership of stock and like matters
- Not public record, and thus is not exclusive evidence of the matters and things
which ordinarily are or should be written therein
In this case, the articles of incorporation indicate that at the time of
incorporation, the incorporators were bona fide stockholders of 700 founders shares
and 76 common shares. Hence, at that time, the corporation had 776 issued and
outstanding shares.
According to Sec. 52 of the Corp Code, a quorum shall consist of the
stockholders representing a majority of the outstanding capital stock. As such,
quorum is based on the totality of the shares which have been subscribed and issued,
whether it be founders shares or common shares
To base the computation of quorum solely on the obviously deficient, if not
inaccurate stock and transfer book, and completely disregarding the issued and
outstanding shares as indicated in the articles of incorporation would work injustice to
the owners and/or successors in interest of the said shares.
The stock and transfer book of PMMSI cannot be used as the sole basis for
determining the quorum as it does not reflect the totality of shares which have been
subscribed, more so when the articles of incorporation show a significantly larger
amount of shares issued and outstanding as compared to that listed in the stock and
transfer book.
One who is actually a stockholder cannot be denied his right to vote by the
corporation merely because the corporate officers failed to keep its records
accurately. A corporations records are not the only evidence of the ownership of stock
in a corporation.
It is no less than the articles of incorporation that declare the incorporators to
have in their name the founders and several common shares. Thus, to disregard the
contents of the articles of incorporation would be to pretend that the basic document
which legally triggered the creation of the corporation does not exist and accordingly
to allow great injustice to be caused to the incorporators and their heirs
***
FACTS: The Philippine Merchant Marine School (PMMI) was incorporated in 1952
with 700 founders shares and 76 common shares as its initial stock subscription
reflected in the articles of incorporation. it was only in 1978 when the companys stock
and transfer book was registered, recording 33 common shares as the only issued
and outstanding shares of PMMI. In a dispute over the basis of a quorum in a
stockholders meeting, private respondents contend that the same should be based
on the initial subscribed capital stock as reflected in the 1052 articles of incorporation,
and not on the number of issued and outstanding shares as recorded in 1978 in the
compnanys stock and transfer book. Petitioners contend otherwise. Both the SEC en
banc and the Court of Appeals ruled in favor of private respondents. Hence, this
petition seeking to nullify the assailed decision.
ISSUE: What should be the basis in determining the quorum in the stockholders
meeting?
HELD: The initial subscribed capital stock as reflected in the articles of incorporation
should be made the basis in the determination of a quorum. The articles of
incorporation defines the charter of the corporation and its contractual relations with
the state and the stockholders. The contents thereof are binding not only on the
corporation but also on its shareholders. In the instant case, the articles of
incorporation indicate that the company had 776 issued and outstanding shares. On
the other hand, the stock and transfer book is not in any sense a public record and
only constitutes prima facie evidence. Hence, it may be impeached by other
competent evidence. Therefore, the same cannot be used as the sole basis for
determining the quorum as it does not reflect the totality of shares which have been
subscribed, more so when the articles of incorporation show a significantly larger
amount of shares issued and outstanding.
LEE VS. CA
FACTS: On November 15, 1985, a complaint for a sum of money was filed by the
International Corporate Bank, Inc. against the private respondents SACOBA
MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES
who, in turn, filed a third party complaint against ALFA and the petitioners RAMON C.
LEE and ANTONIO DM. LACDAO on March 17, 1986. On September 17, 1987, the
petitioners filed a motion to dismiss the third party complaint which the Regional Trial
Court of Makati, Branch 58 denied in an Order dated June 27, 1988. Meanwhile, on
July 12, 1988, the trial court issued an order requiring the issuance of
an alias summons upon ALFA through the DBP as a consequence of the petitioner's
letter informing the court that the summons for ALFA was erroneously served upon
them considering that the management of ALFA had been transferred to the DBP. On
August 16, 1988, the private respondents filed a Manifestation and Motion for the
Declaration of Proper Service of Summons which the trial court granted. On motion
for reconsideration, petitioners contend that Rule 14, section 13 of the Revised Rules
of Court is not applicable since they were no longer officers of ALFA and that the
private respondents should have availed of another mode of service under Rule 14,
Section 16 of the said Rules, i.e.,through publication to effect proper service upon
ALFA. In their Comment to the Motion for Reconsideration dated September 27,
1988, the private respondents argued that the voting trust agreement dated March 11,
1981 did not divest the petitioners of their positions as president and executive vice-
president of ALFA so that service of summons upon ALFA through the petitioners as
corporate officers was proper. On January 2, 1989, the trial court upheld the validity of
the service of summons on ALFA through the petitioners. On second motion for
reconsideration, petitioners reiterate their stand that by virtue of the voting trust
agreement they ceased to be officers and directors of ALFA, hence, they could no
longer receive summons or any court processes for or on behalf of ALFA. On April 25,
1989, the trial court reversed itself by setting aside its previous Order and declared
that service upon the petitioners who were no longer corporate officers of ALFA
cannot be considered as proper service of summons on ALFA. On May 15, 1989, the
private respondents moved for a reconsideration of the above Order which was
affirmed by the court in its Order dated August 14, 1989 denying the private
respondent's motion for reconsideration. On September 18, 1989, a petition
for certiorari was belatedly submitted by the private respondent before the public
respondent. Meanwhile, the trial court, not having been notified of the pending petition
for certiorari with public respondent issued an Order declaring as final the Order
dated April 25, 1989. The filed petition for certiorari before the CA was given due
course setting aside the orders of respondent judge dated April 25, 1989 and August
14, 1989. Motion for reconsideration was likewise denied. Hence, this petition for
certiorari.
ISSUE: Whether or not the creation of voting trust agreement divests the petitioners
of their positions as president and executive vice-president of ALFA.
RULING: A voting trust agreement results in the separation of the voting rights of a
stockholder from his other rights such as the right to receive dividends, the right to
inspect the books of the corporation, the right to sell certain interests in the assets of
the corporation and other rights to which a stockholder may be entitled until the
liquidation of the corporation. However, in order to distinguish a voting trust
agreement from proxies and other voting pools and agreements, it must pass three
criteria or tests, namely: (1) that the voting rights of the stock are separated from the
other attributes of ownership; (2) that the voting rights granted are intended to be
irrevocable for a definite period of time; and (3) that the principal purpose of the grant
of voting rights is to acquire voting control of the corporation.
Both under the old and the new Corporation Codes there is no dispute as to the most
immediate effect of a voting trust agreement on the status of a stockholder who is a
party to its execution from legal titleholder or owner of the shares subject of the
voting trust agreement, he becomes the equitable or beneficial owner.
Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot
be adversely affected by the simple act of such director being a party to a voting trust
agreement inasmuch as he remains owner (although beneficial or equitable only) of
the shares subject of the voting trust agreement pursuant to which a transfer of the
stockholder's shares in favor of the trustee is required (section 36 of the old
Corporation Code). No disqualification arises by virtue of the phrase "in his own right"
provided under the old Corporation Code.
With the omission of the phrase "in his own right" the election of trustees and other
persons who in fact are not beneficial owners of the shares registered in their names
on the books of the corporation becomes formally legalized. Hence, this is a clear
indication that in order to be eligible as a director, what is material is the legal title to,
not beneficial ownership of, the stock as appearing on the books of the corporation.
The facts of this case show that the petitioners, by virtue of the voting trust agreement
executed in 1981 disposed of all their shares through assignment and delivery in
favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one
share standing in their names on the books of ALFA as required under Section 23 of
the new Corporation Code. They also ceased to have anything to do with the
management of the enterprise. The petitioners ceased to be directors. Hence, the
transfer of the petitioners' shares to the DBP created vacancies in their respective
positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to
the DBP is the essence of the subject voting trust agreement.
***
FACTS:
November 15, 1985: a complaint for a sum of money was filed by the
International Corporate Bank, Inc. (ICB) against the private respondents
March 17, 1986: private respondents, in turn, filed a 3rd-party complaint
against ALFA and ICB
September 17, 1987: petitioners filed a motion to dismiss the third party
complaint - denied
July 12, 1988: trial court issued an order requiring the issuance of
an alias summons upon ALFA through the DBP
consequence of the petitioner's letter that ALFA management was
transferred to DBP
July 22, 1988: DBP claimed that it was not authorized to receive summons
on behalf of ALFA
August 4, 1988: trial court issued an order advising the private respondents
to take the appropriate steps to serve the summons to ALFA
 September 12, 1988: petitioners filed a motion for reconsideration submitting
that Rule 14, section 13 of the Revised Rules of Court is not applicable since
they were no longer officers of ALFA and that the private respondents should
have availed of another mode of service under Rule 14, Section 16 of the
said Rules, i.e., through publication to effect proper service upon ALFA -
denied
January 19, 1989: 2nd motion for reconsideration was filed by the petitioners
reiterating their stand that by virtue of the voting trust agreement they
ceased to be officers and directors of ALFA
attached a copy of the voting trust agreement between all the
stockholders of ALFA and the DBP whereby the management and
control of ALFA became vested upon the DBP
April 25, 1989: trial court reversed itself by setting aside its previous Order
dated January 2, 1989 and declared that service upon the petitioners who
were no longer corporate officers of ALFA cannot be considered as proper
service of summons on ALFA
Sec. 59. Voting Trusts One or more stockholders of a stock
corporation may create a voting trust for the purpose of conferring
upon a trustee or trustees the right to vote and other rights
pertaining to the share for a period rights pertaining to the shares
for a period not exceeding 5 years at any one time: Provided, that
in the case of a voting trust specifically required as a condition in a
loan agreement, said voting trust may be for a period exceeding 5
years but shall automatically expire upon full payment of the loan. A
voting trust agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified copy of such
agreement shall be filed with the corporation and with the Securities
and Exchange Commission; otherwise, said agreement is
ineffective and unenforceable. The certificate or certificates of stock
covered by the voting trust agreement shall be cancelled and new
ones shall be issued in the name of the trustee or trustees stating
that they are issued pursuant to said agreement. In the books of the
corporation, it shall be noted that the transfer in the name of the
trustee or trustees is made pursuant to said voting trust agreement.

October 17, 1989: trial court (NOT notified of the petition for certiorari)
declared final its decision on April 25, 1989

ISSUE: W/N the voting trust agreement is valid despite being contrary to the general
principle that a corporation can only be bound by such acts which are within the
scope of its officers' or agents' authority

HELD:

voting trust

trust created by an agreement between a group of the stockholders

of a corporation and the trustee or by a group of identical
agreements between individual stockholders and a common
trustee, whereby it is provided that for a term of years, or for a
period contingent upon a certain event, or until the agreement is
terminated, control over the stock owned by such stockholders,
either for certain purposes or for all purposes, is to be lodged in the
trustee, either with or without a reservation to the owners, or
persons designated by them, of the power to direct how such
control shall be used (Ballentine's Law Dictionary)