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CASE DOCTRINES
JONATHAN D. PAGADUAN
COR JESU COLLEGE OF LAW
CORPORATION LAW
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JDPAGADUAN ii | P a g e
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JDPAGADUAN iii | P a g e
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PART I
CONCEPTS OF CORPORATION
1 Tayag vs. Benguet Consolidated, Inc.
3 Ang Pue & Co. vs. Sec. of Commerce & Industry
5 International Express Travel & Tour Services, Inc. vs. Court of Appeals
7 Torres vs. Court of Appeals
9 Tan Boon Bee & Co., Inc. vs. Jarencio
11 Philippine Stock Exchange, Inc. vs. Court of Appeals
13 Reynoso, IV vs. Court of Appeals
15 San Juan Structural and Steel Fabricators, Inc. vs. Court of Apeals
17 Pioneer Insurance vs. Court of Appeals
18 Kilosbayan, Inc. vs. Guingona, Jr.
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Facts:
In March 1960, Idonah Perkins died in New York. She left behind
properties here and abroad. One property she left behind were two stock
certificates covering 33,002 shares of stocks of the Benguet Consolidated, Inc
(BCI). Said stock certificates were in the possession of the Country Trust
Company of New York (CTC-NY). CTC-NY was the domiciliary
administrator of the estate of Perkins (obviously in the USA). Meanwhile, in
1963, Renato Tayag was appointed as the ancillary administrator (of the
properties of Perkins she left behind in the Philippines).
BCI assailed said order as it averred that it cannot possibly issue new
stock certificates because the two stock certificates declared lost are not
actually lost; that the trial court as well Tayag acknowledged that the stock
certificates exists and that they are with CTC-NY; that according to BCI’s by
laws, it can only issue new stock certificates, in lieu of lost, stolen, or
destroyed certificates of stocks, only after court of law has issued a final and
executory order as to who really owns a certificate of stock.
Issue:
Held:
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Further still, the argument invoked by BCI that it can only issue new
stock certificates in accordance with its bylaws is misplaced. It is worth noting
that CTC-NY did not appeal the order of the court – it simply refused to turn
over the stock certificates hence ownership can be said to have been settled in
favor of estate of Perkins here. Also, assuming that there really is a conflict
between BCI’s bylaws and the court order, what should prevail is the lawful
court order. It would be highly irregular if court orders would yield to the
bylaws of a corporation. Again, a corporation is not immune from judicial
orders.
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Facts:
Ang Pue and Tan Siong organized a partnership for a term of 5 years.
Their agreement provides that they can extend the partnership for another 5
years by mutual consent. In 1954, RA 1180 was enacted to regulate the retail
business. Said law provided that, after its enactment, a partnership not wholly
formed by Filipinos could continue to engage in the retail business until the
expiration of its term so registration of said Ang was refused on the ground
that the extension was in violation of the aforesaid Act.
Issue:
Held:
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time of the enactment of the law is clearly showing by its provision giving
them the right to continue engaging in their retail business until the expiration
of their term or life.
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Facts:
Issue:
Held:
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Since all corporations, big or small, must abide by the provisions of the
Corporation Code, then even a simple family corporation cannot claim an
exemption nor can it have rules and practices other than those established by
law.
Facts:
The late Manuel A. Torres, Jr. was the major stockholder of Tormil
Realty & Development Corporation while private respondents who are the
children of Judge Torres' deceased brother Antonio A. Torres, constituted the
minority stockholders. In particular, their respective shareholdings and
positions in the corporation.
Issue:
Ruling:
NO. The shortage of 972 shares would not be valid ground for
respondent Torres to unilaterally revoke the deeds of assignment he had
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executed on July 13, 1984 and July 24, 1984 wherein he voluntarily assigned
to TORMIL real properties covered by TCT No. 374079 (Makati) and TCT
No. 41527, 41528 and 41529 (Pasay) respectively. A comparison of the
number of shares that respondent Torres received from TORMIL by virtue of
the "deeds of assignment" and the stock certificates issued by the latter to the
former readily shows that TORMIL had substantially performed what was
expected of it. In fact, the first two issuances were in satisfaction to the
properties being revoked by respondent Torres. Hence, the shortage of 972
shares would never be a valid ground for the revocation of the deeds covering
Pasay and Quezon City properties.
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Facts:
Petitioner herein, doing business under the name and style of Anchor
Supply Co., sold on credit to herein private respondent Graphic Publishing,
Inc. (GRAPHIC) paper products amounting to P55,214.73. On December 20,
1972, GRAPHIC made partial payment by check to petitioner in the total
amount of P24,848.74; and on December 21, 1972, a promissory note was
executed to cover the balance of P30,365.99. In the said promissory note, it
was stipulated that the amount will be paid on monthly installments and that
failure to pay any installment would make the amount immediately
demandable with an interest of 12% per annum. On September 6, 1973, for
failure of GRAPHIC to pay any installment, petitioner filed a complaint for
collection of Sum of Money.
A decision was rendered and became final and executory, where one
(1) unit printing machine identified as "Original Heidelberg Cylinder Press"
Type H 222, NR 78048, found in the premises of GRAPHIC was levied.
However, a third party claim was filed by Philippine American Drug
Company (PADCO), hence after trial the levy was rendered to be without
force.
Issue:
Ruling:
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own evidence shows that the printing machine in question had been in the
premises of GRAPHIC since May, 1965, long before PADCO even acquired
its alleged title on July 11, 1966 from Capitol Publishing. That the said
machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966,
even before PADCO purchased it from Capital Publishing on July 11, 1966,
only serves to show that PADCO's claim of ownership over the printing
machine is not only farce and sham but also unbelievable.
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Facts:
The Puerto Azul Land Inc. (PALI), a domestic real estate corporation,
had sought to offer its shares to the public in order to raise funds allegedly to
develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares
through the Philippine Stock Exchange Inc. (PSEi), for which purpose it filed
with the said stock exchange an application to list its shares, with supporting
documents attached pending the approval of the PALI’s listing application, a
letter was received by PSE from the heirs of Ferdinand Marcos to which the
latter claims to be the legal and beneficial owner of some of the properties
forming part of PALI’s assets. As a result, PSE denied PALI’s application
which caused the latter to file a complaint before the SEC. The SEC issued an
order to PSE to grant listing application of PALI on the ground that PALI have
certificate of title over its assets and properties and that PALI have complied
with all the requirements to enlist with PSE.
Issue:
Ruling:
Yes. This is in accord with the “Business Judgement Rule” whereby the
SEC and the courts are barred from intruding into business judgements of
corporations, when the same are made in good faith. The same rule precludes
the reversal of the decision of the PSE, to which PALI had previously agreed
to comply, the PSE retains the discretion to accept of reject applications for
listing. Thus, even if an issuer has complied with the PSE listing rules and
requirements, PSE retains the discretion to accept or reject the issuer’s listing
application if the PSE determines that the listing shall not serve the interests
of the investing public.
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ply. The PSEi’s relevance to the continued operation and filtration of the
securities transaction in the country gives it a distinct color of importance such
that government intervention in its affairs becomes justified, if not
necessarily. Indeed, as the only operational stock exchange in the country
today, the PSE enjoys monopoly of securities transactions, and as such it
yields a monopoly of securities transactions, and as such, it yields an immerse
influence upon the country’s economy.
The SEC’s power to look into the subject ruling of the PSE, therefore,
may be implied from or be considered as necessary or incidental to the
carrying out of the SEC’s express power to insure fair dealing in securities
traded upon a stock exchange or to ensure the fair administration of such
exchange. It is likewise, observed that the principal function of the SEC is the
supervision and control over corporations, partnerships and associations with
the end in view that investment in these entities may be encouraged and
protected and their activities for the promotion of economic development.
The petitioner was in the right when it refused application of PALI, for
a contrary ruling was not to the best interest of the general public.
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Facts:
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for an alias writ of execution. GCC opposed the writ as it argued that it is a
separate and distinct corporation from CCC and CCC-QC, in short, it raises
the defense of corporate fiction.
Issue:
Ruling:
No. Any piercing of the corporate veil has to be done with caution.
However, the Court will not hesitate to use its supervisory and adjudicative
powers where the corporate fiction is used as an unfair device to achieve an
inequitable result, defraud creditors, evade contracts and obligations, or to
shield it from the effects of a court decision. The corporate fiction has to be
disregarded when necessary in the interest of justice.
Also in the above-cited case, we stated that this Court has pierced the veil of
corporate fiction in numerous cases where it was used, among others, to avoid
a judgment credit; to avoid inclusion of corporate assets as part of the estate
of a decedent; to avoid liability arising from debt; when made use of as a
shield to perpetrate fraud and/or confuse legitimate issues; or to promote
unfair objectives or otherwise to shield them.
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Facts:
Issue:
Ruling:
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corporation was formed, or that it is operated, for the purpose of shielding any
alleged fraudulent or illegal activities of its officers or stockholders; or that
the said veil was used to conceal fraud, illegality or inequity at the expense of
third persons, like petitioner.
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Facts:
Issue:
Ruling:
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Facts:
Before August 1993, the PCSO formally issued a Request for Proposal
(RFP) for the Lease Contract of an on-line lottery system for the PCSO. On
15 August 1993, PGMC submitted its bid to the PCSO. On 21 October 1993,
the Office of the President announced that it had given the respondent PGMC
the go-signal to operate the country’s on-line lottery system and that the
corresponding implementing contract would be submitted not later than 8
November 1993 “for final clearance and approval by the Chief Executive.”
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Issues:
Ruling:
Undoubtedly, from the very inception, the PCSO and the PGMC
mutually understood that any arrangement between them would necessarily
leave to the PGMC the technical, operations, and management aspects of the
on-line lottery system while the PSCO would, primarily, provide the
franchise. The so-called Contract of Lease is not, therefore, what it purports
to be. Woven therein are provisions which negate its title and betray the true
intention of the parties to be in or to have a joint venture for a period of eight
years in the operation and maintenance of the on-line lottery system.
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PART II
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Facts:
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under
the laws of the Philippine Islands. A majority of its stockholders are British
subjects. It is the owner of a motor vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen tons gross The Bato was
brought to Cebu in the present year for the purpose of transporting plaintiff's
merchandise between ports in the Islands. Application (Certificate of
Philippine Regitry) was made at Cebu, the home port of the vessel, to the
Collector of Customs for a certificate of Philippine registry. The Collector
refused to issue the certificate, giving as his reason that all the stockholders of
Smith, Bell & Co., Ltd., were not citizens either of the United States or of the
Philippine Islands under Act No. 2761 which provides:
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the
equal protection of the laws because it, in effect, prohibits the corporation
from owning vessels, and because classification of corporations based on the
citizenship of one or more of their stockholders is capricious, and that Act No.
2761 deprives the corporation of its properly without due process of law
because by the passage of the law company was automatically deprived of
every beneficial attribute of ownership in the Bato and left with the naked title
to a boat it could not use.
Issue:
Whether the legislature through Act no. 2761 can deny registry of
vessel with foreign stockholders.
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Ruling:
Yes. We are inclined to the view that while Smith, Bell & Co. Ltd., a
corporation having alien stockholders, is entitled to the protection afforded by
the due-process of law and equal protection of the laws clause of the
Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine
Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the
right to register vessels in the Philippines coastwise trade, does not belong to
that vicious species of class legislation which must always be condemned, but
does fall within authorized exceptions, notably, within the purview of the
police power, and so does not offend against the constitutional provision.
One of the exceptions to the general rule, most persistent and far
reaching in influence is, broad and comprehensive as it is, nor any other
amendment, "was designed to interfere with the power of the State, sometimes
termed its `police power,' to prescribe regulations to promote the health,
peace, morals, education, and good order of the people, and legislate so as to
increase the industries of the State, develop its resources and add to its wealth
and prosperity. From the very necessities of society, legislation of a special
character, having these objects in view, must often be had in certain districts.
This is the same police power which the United States Supreme Court say
"extends to so dealing with the conditions which exist in the state as to bring
out of them the greatest welfare in of its people." For quite similar reasons,
none of the provision of the Philippine Organic Law could have had the effect
of denying to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and illimitable
of powers, the sovereign police power, in the promotion of the general welfare
and the public interest.
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Facts:
This case arose from a sequestration order issued by the PCGG under
authority given by the president. Such sequestration order was sent and
received by petitioner. Pursuant to this sequestration orders, take over orders
were also issued to protect public interest and to prevent the disposal or
dissipation of business enterprises and properties taken over by the
government of the Marcos Administration or by entities or persons close to
former President Marcos, until the transactions leading to such acquisition by
the latter can be disposed of by the appropriate authorities. However, among
other facts, the petitioner questions the exercise of PCGGs right of ownership
and management when it terminated several contracts without the consent of
both parties, to enter contracts, and to operate its quarry business, and
especially its right of vote during stockholders’ meetings.
Issue:
Ruling:
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However, the Board of Directors wanted to raise the price to P3.00 per
picul. This Tuazon does not want hence he backed out from the agreement.
This resulted to Tapnio not being able to realize profit and at the same time
rendered her unable to pay her P2,000.00 crop loan which would have been
covered by her agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and Tapnio filed a
third party complaint against PNB where she alleged that her failure to pay
her debts was because of PNB’s negligence and unreasonableness.
Issue:
Held:
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is the fact that the P2.80 was recommended both by the bank manager and
PNB’s VP yet it was disapproved by the board. Further, the P2.80 per picul
rate is the minimum allowable rate pursuant to prevailing market trends that
time. This unreasonable stand reflects PNB’s lack of the reasonable degree of
care and vigilance in attending to the matter. PNB is therefore negligent.
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There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA
and Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and
PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
Facts:
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Issue:
Held:
As a general rule, a bank is liable for the negligent or tortuous act of its
employees within the course and apparent scope of their employment or
authority. Hence, PCIB is liable for the fraudulent act of its employee who set
up the savings account under a fictitious name.
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failing to examine its passbook in a timely manner which could have avoided
further loss. But this negligence is not the proximate cause of the loss but is
merely contributory. Nevertheless, this mitigates the liability of PCIB and
Citibank hence the rate of interest, with which PCIB and Citibank is to pay
Ford, is lowered from 12% to 6% per annum.
JDPAGADUAN 28 | P a g e
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Facts:
Petitioner, Jose O. Sia, was the president and general manager of Metal
Manufacturing of the Philippines (MEMAP). He was convicted of estafa for
his failure to return the cold rolled steel sheets or account for the proceeds of
those which were sold, to Continental Bank, herein complainant. Petitioner
contended that he cannot be made liable for the crime charged as he only acted
for and in behalf of MEMAP as its president.
Issue:
Ruling:
The Court ruled in the negative. The case of People vs. Tan Boon Kong
(54 Phil. 607) provides for the general principle that for crimes committed by
a corporation, the responsible officers thereof would personally bear the
criminal liability as a corporation is an artificial person, an abstract being.
However, the Court ruled that such principle is not applicable in this case
because the act alleged to be a crime is not in the performance of an act
directly ordained by law to be performed by the corporation.
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Facts:
Plaintiff applied for an industrial loan of P155, 000.00 with the PNB
and the former offered real estate, machinery, logging and transportation
equipment as collaterals. The application was approved for a loan of P100,
000.00 only. To secure the payment of the loan, the plaintiff mortgaged to
defendant PNB a parcel of land, together with the buildings and improvements
existing thereon, situated in the province of Camarines Norte, and covered by
TCT No. 381 of the land records of said province, as well as various sawmill
equipment, rolling unit and other fixed assets of the plaintiff, all situated in its
compound in the aforementioned municipality.
PNB released from the approved loan the sum of P27, 500.00, for which
the plaintiff signed a promissory note wherein it promised to pay to the PNB.
PNB made another release of P15, 500.00 as part of the approved loan granted
to the plaintiff and so on the said date, the latter executed another promissory
note. Plaintiff failed to pay the amortization on the amounts released to and
received by it. Repeated demands were made upon the plaintiff to pay its
obligation but it failed or otherwise refused to do so. Upon inspection and
verification made by employees of the PNB, it was found that the plaintiff had
already stopped operation.
Issue:
Ruling:
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wounded feelings, moral shock or social humiliation which are basis or moral
damages.
But for the wrongful acts of herein appellee bank and the deputy sheriff
of Camarines Norte in proceeding with the sale in utter disregard of the
agreement to have the chattels sold in Manila as provided for in the mortgage
contract, to which their attentions were timely called by herein appellant, and
in disposing of the chattels in gross for the miserable amount of P4, 200.00,
herein appellant should be awarded exemplary damages in the sum of P10,
000.00. The circumstances of the case also warrant the award of P3, 000.00
as attorney's fees for herein appellant.
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Facts:
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Later, Solid Homes filed an action against State Financing seeking the
annulment of said Memorandum and the consequent reinstatement of the
mortgages over the same properties. The trial court held that the Memorandum
of Agreement/Dacion En Pago executed by the parties was valid and binding.
Both parties appealed from the trial court's decision. Solid Homes
raised a lone question contesting the denial of its claim for damages. Such
damages allegedly resulted from the bad faith and malice of State Financing
in deliberately failing to annotate Solid Homes' right to repurchase the subject
properties in the former's consolidated titles thereto. As a result of the non-
annotation, Solid Homes claimed to have been prevented from generating
funds from prospective buyers to enable it to comply with the Agreement and
to redeem the subject properties. Solid Homes among others is claiming for
payment of moral damages.
Issue:
Ruling:
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Facts:
The foreclosed assets were sold to PNB as the lone bidder and were
assigned to the newly formed corporations namely Nonoc Mining
Corporation, Maricalum Mining and Industrial Corporation and Island
Cement Corporation. In 1986, these assets were transferred to the asset
privatization trust. On February 28, 1985, Jesus S. Cabarrus Sr. together with
the other stockholders of MMIC, filed a derivative suit against DBP and PNB
before the RTC of Makati branch 62, for annulment of foreclosures, specific
performance and damages. The suit docketed as civil case no. 9900, prayed
that the court: 1.) Annul the foreclosures, restore the foreclosed assets to
MMIC, and require the banks to account for their use and operation in the
interim; 2.) Direct the banks to honor and perform their commitments under
the alleged FRP; 3.) Pay moral and exemplary damages, attorney’s fees,
litigation expenses and costs. A compromise and arbitration agreement was
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Issue:
Held:
No. Civil case no. 9900 filed before the RTC being a derivative suit,
MMIC should have been impleaded as a party. It was not joined as a part
plaintiff or party defendant at any stage before of the proceedings as it is, the
award for damages to MMIC, which was not party before the arbitration
committee is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party
in interest while the stockholder filing suit for the corporation’s behalf is only
a nominal party. The corporation should be included a party in the suit.
The reasons given for not allowing direct individual suit are:
1. That the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista vs Santos that 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
2. The universally recognized doctrine that a stockholder in a corporation
has no title legal or equitable to the corporate property; that both of
these are in the corporation itself for the benefit of the stockholders. In
other words, to allow shareholders to sue separately would conflict with
the separate corporate entity principle.
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Issues:
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Rulings:
1. No. There is no proof that a contract was perfected in the said meeting.
Lopez’ testimony about the contract being written in a napkin is not
corroborated because the napkin was never produced in court. Further, there
is no meeting of the minds because Del Rosario’s offer was of 104 films for
P60 million was not accepted. And that the alleged counter-offer made by
Lopez on the same day was not also accepted because there’s no proof of such.
The counter offer can only be deemed to have been made days after the April
2 meeting when Santos-Concio sent a letter to Del Rosario containing the
counter-offer. Regardless, there was no showing that Del Rosario accepted.
But even if he did accept, such acceptance will not bloom into a perfected
contract because Del Rosario has no authority to do so.
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While it is true that a criminal case can only be filed against the officers
of a corporation and not against the corporation itself, it does not follow from
this, however, that the corporation cannot be a real-party-in-interest for the
purpose of bringing a civil action for malicious prosecution for the damages
incurred by the corporation for the criminal proceedings brought against its
officer.
Facts:
GIDC took out a loan from SITI and secured the loan by mortgaging
some of its properties to SITI. GIDC defaulted in paying and so SITI
foreclosed the mortgaged assets. GIDC later sued SITI as it alleged that the
foreclosure was irregular. While the case was pending, the parties entered into
a compromise agreement where GIDC accepted HBI’s offer to purchase the
mortgaged assets. But SITI did not approve of said proposal.
GIDC then filed a request for clarification with the trial court and the
latter directed SITI to accept the proposal. Meanwhile, HBI filed a request
with the HLURB asking the latter to grant them the right to develop the
mortgaged assets. HBI submitted an affidavit allegedly signed by Cometa.
The affidavit purported that Cometa and SITI is not opposing HBI’s petition
with the HLURB.
The case was dismissed. In turn, Guevara filed a civil case for malicious
prosecution against Cometa. Guevara, in his complaint, included HBI as a co-
plaintiff.
Issue:
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Ruling:
Yes. It is true that a criminal case can only be filed against the officers
of a corporation and not against the corporation itself. But it does not follow
that the corporation cannot be a real-party-in-interest for the purpose of
bringing a civil action for malicious prosecution. As pointed out by the trial
judge, and as affirmed by the Court of Appeals, the allegation by Cometa that
Guevara has no cause of action with HBI not being a real party in interest is a
matter of defense which can only be decisively determined in a full blown
trial.
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Facts:
Issue:
Ruling:
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rights of the faithful, inherent or acquired under the laws of their country, are
affected by that relationship with the Pope. The fact that the Roman Catholic
Church in almost every country springs from that society that saw its
beginning in Europe and the fact that the clergy of this faith derive their
authorities and receive orders from the Holy See do not give or bestow the
citizenship of the Pope upon these branches.
To allow theory that the Roman Catholic Churches all over the world
follow the citizenship of their Supreme Head, the Pontifical Father, would
lead to the absurdity of finding the citizens of a country who embrace the
Catholic faith and become members of that religious society, likewise citizens
of the Vatican or of Italy. And this is more so if We consider that the Pope
himself may be an Italian or national of any other country of the world. The
same thing be said with regard to the nationality or citizenship of the
corporation sole created under the laws of the Philippines, which is not altered
by the change of citizenship of the incumbent bishops or head of said
corporation sole.
It has been shown before that: (1) the corporation sole, unlike the
ordinary corporations which are formed by no less than 5 incorporators, is
composed of only one persons, usually the head or bishop of the diocese, a
unit which is not subject to expansion for the purpose of determining any
percentage whatsoever; (2) the corporation sole is only the administrator and
not the owner of the temporalities located in the territory comprised by said
corporation sole; (3) such temporalities are administered for and on behalf of
the faithful residing in the diocese or territory of the corporation sole; and (4)
the latter, as such, has no nationality and the citizenship of the incumbent
Ordinary has nothing to do with the operation, management or administration
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of the corporation sole, nor effects the citizenship of the faithful connected
with their respective dioceses or corporation sole.
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Nature:
Ordinary appeal with defendant claiming: (1) that the acquisition of the
land in question, for religious purposes, is authorized and permitted by Act
No. 271 of the old Philippine Commission, and (2) that the refusal of the
Register of Deeds violates the freedom of religion clause of the Constitution.
Facts:
The Register of Deeds for the province of Rizal refused to accept for
record a deed of donation executed in due form on January 22, 1953, by Jesus
Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan,
Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No.
11267, in favor of the unregistered religious organization "Ung Siu Si
Temple", operating through three trustees all of Chinese nationality. The
donation was duly accepted by Yu Juan, of Chinese nationality, founder and
deaconess of the Temple, acting in representation and in behalf of the latter
and its trustees. The refusal of the Registrar was elevated en Consulta to the
IVth Branch of the Court of First Instance of Manila.
Upon finding out that the trustees of Ung Sui Si Temple were all
Chinese citizens, the Register of Deeds of Rizal refused to accept for record a
deed of donation by Filipino Jesus Dy, conveying a parcel of residential land
in favor of said unregistered religious organization.
Issue:
Ruling:
JDPAGADUAN 45 | P a g e
CORPORATION LAW
JDPAGADUAN 46 | P a g e
CORPORATION LAW
The Constitution does not prohibit the mere formation of a public utility
corporation without the required proportion of Filipino capital. What it does
prohibit is the granting of a franchise or other form of authorization for the
operation of a public utility to a corporation already in existence but without
the requisite proportion of Filipino capital.
Facts:
The lower court found Quasha guilty, and ruled that Baylon was a mere
trustee of the shares. Hence, this appeal.
Issue:
Held:
What need is there then for a corporation that intends to operate a public
utility to have, at the time of its formation, 60% of its capital owned by
Filipinos alone? That condition may anytime be attained thru the necessary
transfer of stocks. The moment for determining whether a corporation is
entitled to operate as a public utility is when it applies for a franchise,
certificate, or any other form of authorization for that purpose. And that can
JDPAGADUAN 47 | P a g e
CORPORATION LAW
be done after the corporation has already come into being and not while it is
still being formed. And at that moment, the corporation must show that it has
complied not only with the requirement of the Constitution as to the
nationality of its capital, but also with the requirements of the Civil Aviation
Law if it is a common carrier by air, the Revised Administrative Code if it is
a common carrier by water, and the Public Service Law if it is a common
carrier by land or other kind of public service.
JDPAGADUAN 48 | P a g e
CORPORATION LAW
Facts:
Under the agreement, EDSA LRT Consortium shall build the facilities,
i.e., railways, and shall supply the train cabs. Every phase that is completed
shall be turned over to the DOTC and the latter shall pay rent for the same for
25 years. By the end of 25 years, it was projected that the government shall
have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium
shall sell the facilities to the government for $1.00.
Issue:
Held:
NO. The Supreme Court made a clarification. The SC ruled that EDSA
LRT Consortium, under the agreement, does not and will not become the
owner of a public utility hence, the question of its nationality is misplaced. It
is true that a foreign corporation cannot own a public utility but in this case
what EDSA LRT Consortium will be owning are the facilities that it will be
building for the EDSA railway project. There is no prohibition against a
foreign corporation to own facilities used for a public utility.
JDPAGADUAN 49 | P a g e
CORPORATION LAW
Further, it cannot be said that EDSA LRT Consortium will be the one
operating the public utility for it will be DOTC that will operate the railway
transit. DOTC will be the one exacting fees from the people for the use of the
railway and from the proceeds, it shall be paying the rent due to EDSA LRT
Consortium. All that EDSA LRT Consortium has to do is to build the facilities
and receive rent from the use thereof by the government for 25 years – it will
not operate the railway transit.
JDPAGADUAN 50 | P a g e
CORPORATION LAW
Since stockholders own the shares of stock, they may dispose of the
same as they see fit. They may not, however, transfer or assign the property
of a corporation, like its franchise. In other words, even if the original
stockholders had transferred their shares to another group of shareholders,
the franchise granted to the corporation subsists as long as the corporation,
as an entity, continues to exist. The franchise is not thereby invalidated by the
transfer of the shares.
Facts:
On 22 June 1958, RA 2090 was enacted granting Felix Alberto & Co.
(later ETCI) a franchise to establish radio stations for domestic and
transoceanic telecommunications. On 13 May 1987, ETCI filed an application
with the NTC for the issuance of a certificate of public convenience and
necessity to operate, etc. a Cellular Mobile Telephone System and an alpha
numeric paging system in Metro Manila and in the Southern Luzon regions,
with a prayer for provisional authority to operate within Metro Manila. PLDT
filed an opposition with a motion to dismiss.
PLDT filed a motion to set aside order which was denied by the NTC.
PLDT challenged the NTC orders before the Supreme Court.
Issues:
Held:
JDPAGADUAN 51 | P a g e
CORPORATION LAW
JDPAGADUAN 52 | P a g e
CORPORATION LAW
It is true that a criminal case can only be filed against the officers of a
corporation and not against the corporation itself. It does not follow from this,
however, that the corporation cannot be a real-party-in-interest for bringing
a civil action for malicious prosecution.
Facts:
GIDC took out a loan from SITI and secured the loan by mortgaging
some of its properties to SITI. GIDC defaulted in paying and so SITI
foreclosed the mortgaged assets. GIDC later sued SITI as it alleged that the
foreclosure was irregular. While the case was pending, the parties entered into
a compromise agreement where GIDC accepted HBI’s offer to purchase the
mortgaged assets. But SITI did not approve of said proposal.
GIDC then filed a request for clarification with the trial court and the
latter directed SITI to accept the proposal. Meanwhile, HBI filed a request
with the HLURB asking the latter to grant them the right to develop the
mortgaged assets. HBI submitted an affidavit allegedly signed by Cometa.
The affidavit purported that Cometa and SITI is not opposing HBI’s petition
with the HLURB.
The case was dismissed. In turn, Guevara filed a civil case for malicious
prosecution against Cometa. Guevara, in his complaint, included HBI as a co-
plaintiff.
Issue:
Held:
YES. It is true that a criminal case can only be filed against the officers
of a corporation and not against the corporation itself. But it does not follow
JDPAGADUAN 53 | P a g e
CORPORATION LAW
JDPAGADUAN 54 | P a g e
CORPORATION LAW
Facts:
The petitioner refused to pay the claim on the ground that the policy in
favor of the respondent had ceased to be in force on the date the U.S. declared
war on Germany with the respondent Corporation being controlled by German
subjects and the petitioner being a company under American jurisdiction
(though organized by Philippine laws) when the policy was issued on October
1, 1941. The petitioner, however, paid to the respondent the sum of P92,650
on April 19, 1943 under orders from the military government.
The insurer filed for a suit to recover the sum. The contention was that
the policy ceased to be effective because of the outbreak of the war and that
the payment made by the petitioner to the respondent corporation during the
Japanese military occupation was under pressure.
The tiral and the appellate courts dismissed the action. The Court of
Appeals claimed that a corporation is a citizen of the country or state by and
under the laws of which it was created or organized.
Hence this appeal.
Issue:
JDPAGADUAN 55 | P a g e
CORPORATION LAW
The property of all foreign interest was placed within the reach of the
vesting power (of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded under those
innocent fronts. The power of seizure and vesting was extended to all property
of any foreign country or national so that no innocent appearing device could
become a Trojan horse.
JDPAGADUAN 56 | P a g e
CORPORATION LAW
Facts:
It was alleged that the entire proceeds of the sale of said securities will
be devoted or used exclusively to finance the operations of San Jose Oil
Company, Inc. (Domestic Mining Oil Company). It was an express condition
of the sale that every purchaser of the securities shall not receive a stock
certificate, but a registered or bearer-voting-trust certificate from the voting
trustees James L. Buckley and Austin G.E. Taylor.
1. tie-up between the issuer, SJP, a Panamanian corp. and San Jose Oil
(SJO), a domestic corporation, violates the Constitution of the
Philippines, the Corporation Law and the Petroleum Act of 1949
2. issuer has not been licensed to transact business in the Philippines
3. sale of the shares of the issuer is fraudulent, and works or tends to work
a fraud upon Philippine purchasers
4. issuer as an enterprise, as well as its business, is based upon unsound
business principles
Issue:
Held:
YES. The meat of the controversy is the "tie-up" between SAN JOSE
OIL on the one hand, and SAN JOSE PETROLEUM and its associates, on the
other. The relationship of these corporations involved or affected in this case
JDPAGADUAN 57 | P a g e
CORPORATION LAW
is admitted and established through the papers and documents which are parts
of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the
outstanding capital stock of which is owned by SAN JOSE PETROLEUM, a
foreign (Panamanian) corporation, the majority interest of which is owned by
OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This
latter corporation in turn is wholly (100%) owned by PANTEPEC OIL
COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A.,
both organized and existing under the laws of Venezuela.
JDPAGADUAN 58 | P a g e
CORPORATION LAW
For, to what extent must the word "indirectly" be carried? Must we trace
the ownership or control of these various corporations ad infinitum for the
purpose of determining whether the American ownership-control-requirement
is satisfied? Add to this the admitted fact that the shares of stock of the
PANTEPEC and PANCOASTAL which are allegedly owned or controlled
directly by citizens of the United States, are traded in the stock exchange in
New York, and you have a situation where it becomes a practical impossibility
to determine at any given time, the citizenship of the controlling stock
required by the law.
JDPAGADUAN 59 | P a g e
CORPORATION LAW
PART III
JDPAGADUAN 21 | P a g e
CORPORATION LAW
Facts:
Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose
estate is the subject of probate proceedings.
Issue:
Held:
JDPAGADUAN 60 | P a g e
CORPORATION LAW
Piercing the veil of corporate entity requires the court to see through
the protective shroud which exempts its stockholders from liabilities that
ordinarily, they could subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing corporate fiction.
The corporate mask may be lifted and the corporate veil may be pierced
when a corporation is just but the alter ego of a person or of another
corporation. Where badges of fraud exist, where public convenience is
defeated; where a wrong is sought to be justified thereby, the corporate fiction
or the notion of the legal entity should come to naught.
JDPAGADUAN 61 | P a g e
CORPORATION LAW
Facts:
In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan)
alleged that it entered into a contract of sale with Motorich Sales Corporation
(Motorich) through the latter’s treasurer, Nenita Gruenberg. The subject of the
sale was a parcel of land owned by Motorich. San Juan advanced P100k to
Nenita as earnest money.
On the day agreed upon on which Nenita was supposed to deliver the
title of the land to Motorich, Nenita did not show up. Nenita and Motorich did
not heed the subsequent demand of San Juan to comply with the contract
hence San Juan sued Motorich. Motorich, in its defense, argued that it is not
bound by the acts of its treasurer, Nenita, since her act in contracting with San
Juan was not authorized by the corporate board.
San Juan raised the issue that Nenita was actually the wife of the
President of Motorich; that Nenita and her husband owns 98% of the
corporation’s capital stocks; that as such, it is a close corporation and that
makes Nenita and the President as principal stockholders who do not need any
authorization from the corporate board; that in this case, the corporate veil
may be properly pierced.
Issues:
Whether or not the corporation’s treasurer act can bind the corporation.
Is the doctrine of piercing the veil of corporate entity applicable?
JDPAGADUAN 62 | P a g e
CORPORATION LAW
Held:
As a general rule, the acts of corporate officers within the scope of their
authority are binding on the corporation. But when these officers exceed their
authority, their actions, cannot bind the corporation, unless it has ratified such
acts as is estopped from disclaiming them.
We stress that the corporate fiction should be set aside when it becomes
a shield against liability for fraud, or an illegal act on inequity committed on
third person. The question of piercing the veil of corporate fiction is
essentially, then a matter of proof. In the present case, however, the court finds
no reason to pierce the corporate veil of respondent Motorich. Petitioner
utterly failed to establish the said corporation was formed, or that it is operated
for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud,
illegality or inequity at the expense of third persons like petitioner.
JDPAGADUAN 63 | P a g e
CORPORATION LAW
Facts:
Issue:
Whether or not DBP, as foreclosing creditor can be held liable for the unpaid
wages, 13th moth pay, incentive leave pay, and separation pay of the
employees of PSC.
Held:
JDPAGADUAN 64 | P a g e
CORPORATION LAW
Article 110 of the labor code does not purport to create a lien in favor
of workers or on employees for unpaid wages either upon all of the properties
or upon any particular property owned b their employer. Claims for unpaid
wages do not therefore fall within the category of specially preferred claims
established under articles 2241 and 2242 of the civil code, except to the extent
that such claims for unpaid wages are already covered by article 2241 number
6; claims for laborer’s wages, on the goods manufactured or the work done;
or by article 2242 number 3; claims of laborers and other workers engaged in
the construction, reconstruction or repair of buildings, canals and other works,
upon said buildings, canals or other works. To the extent that claims for
unpaid wages fall outside the scope of article 2241, number 6 and article 2242
number 3, they would come within the ambit of the category of ordinary
preferred credits under article 2244.
JDPAGADUAN 65 | P a g e
CORPORATION LAW
Time and again it has been reiterated that mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality.
Facts:
While the case was pending, Gutierrez died, and Rita Mejia, being the
executrix of the will of Gutierrez took over the affairs of the estate.
JDPAGADUAN 66 | P a g e
CORPORATION LAW
Issue:
Held:
NO. Only Francisco shall be held liable to pay the indebtedness to the
Gutierrez estate. What was only proven was that Francisco defrauded the
Gutierrez estate as clearly shown by the dubious circumstances which caused
the encumbered properties to be auctioned. By not disclosing the tax
delinquency, Francisco left Gutierrez in the dark. She obviously acted in bad
faith. Francisco’s elaborate act of defaulting payment, disregarding the case,
not paying realty taxes (since as treasurer of Cardale, she’s responsible for
paying the real estate taxes for Cardale), and failure to advise Gutierrez of the
tax delinquencies all constitute bad faith. The attendant fraud and bad faith on
the part of Francisco necessitates the piercing of the veil of corporate fiction
in so far as Cardale and Francisco are concerned. Cardale and Francisco
cannot escape liability now that Cardale has been dissolved. Francisco shall
then pay Guttierez estate the outstanding balance with interest.
JDPAGADUAN 67 | P a g e
CORPORATION LAW
Facts:
They also agreed that until balance is fully paid, the down payment of
P 50,000 shall accrue as rentals and failure to pay the balance within 60 days,
then the balance shall constitute as a chattel mortgage lien covering the cargo
trucks and the parties may allow an extension of 30 days and Marcha may ask
for a revocation of the contract and the reconveyance of all trucks.
After the lapse of 90 days, Marsha tried to collect from Coprada but the
Coprada promised to pay only upon the release of the DBP loan. Coprada
reiterated that he was applying for a loan from the DBP from the proceeds of
which payment of the obligation shall be made.
JDPAGADUAN 68 | P a g e
CORPORATION LAW
Marsha found that no loan application was ever filed by Akron with
DBP. Akron paid rentals of P 500/day pursuant to a subsequent agreement,
from April 27, 1978 (the end of the 90-days to pay the balance) to May 31,
1978. Thereafter, no more rental payments were made.
Coprada wrote Marsha begging for a grace period of until the end of
the month to pay the balance of the purchase price; that he will update the
rentals within the week; and in case he fails, then he will return the 13 units
should Marsha elect.
Coprada asked for another grace period of to pay the balance, stating as
well that he is expecting the approval of his loan application from a financing
company, and that 10 trucks have been returned to Bagbag, Novaliches.
In due time, Marsha filed a compliant for the recovery of P 525K or the
return of the 13 trucks with damages against Akron and its officers and
directors
Remo Jr. sold all his shares in Akron to Coprada. It also appears that
Akron amended its articles of incorporation thereby changing its name to
Akron Transport International, Inc. which assumed the liability of Akron to
Marsha.
Issue:
Held:
NO. The environmental facts of this case show that there is no cogent
basis to pierce the corporate veil of Akron and hold petitioner personally
liable.
JDPAGADUAN 69 | P a g e
CORPORATION LAW
As to the sale through pacto de retro of the two units to a third person
by the corporation by virtue of a board resolution, Remo Jr. asserts that he
never signed the resolution. Be that as it may, the sale is not inherently
fraudulent as the 13 units were sold through a deed of absolute sale to Akron
so that the corporation is free to dispose of the same. Of course, it was
stipulated that in case of default, a chattel mortgage lien shall be constituted
on the 13 units.
The new corporation confirmed and assumed the obligation of the old
corporation. There is no indication of an attempt on the part of Akron to evade
payment of its obligation. It is his inherent right as a stockholder to dispose of
his shares of stock anytime he so desires.
JDPAGADUAN 70 | P a g e
CORPORATION LAW
Facts:
The NLRC ruled in favor of the workers, and held Frank Yih jointly
and solidarily liable with API for the payment of separation pay on the ground
that he was API’s President and a majority stockholder in the corporation. On
appeal, API and Yih argue that the employees’ termination were caused by a
shortage of work, and not of union-busting.
Issue:
Ruling:
Corporate officers may be held liable for corporate obligations when the
corporate veil is “disregarded”
Nevertheless, being a mere fiction of law, peculiar situations or valid
grounds can exist to warrant, albeit done sparingly, the disregard of its
independent being and the lifting of the corporate veil. As a rule, this situation
might arise when a corporation is used to evade a just and due obligation or
JDPAGADUAN 71 | P a g e
CORPORATION LAW
The SC held that there was nothing on record to indicate that Frank Yih
acted in bad faith or with malice in carrying out the retrenchment
program of the company, and thus his being held solidarily liable with
API was legally unjustified.
JDPAGADUAN 72 | P a g e
CORPORATION LAW
Facts:
Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y.
Lim whose estate is the subject of probate proceedings. Private respondents
Auto Truck Corporation, Alliance Marketing Corporation, Speed
Distributing, Inc., Active Distributing, Inc. and Action Company are
corporations formed, organized and existing under Philippine laws and which
owned real properties covered under the Torrens system.
JDPAGADUAN 73 | P a g e
CORPORATION LAW
Issue:
Ruling:
JDPAGADUAN 74 | P a g e
CORPORATION LAW
Facts:
Issue:
Ruling:
No. The SC noted that the aspects of the case happened in 2 foreign
jurisdictions. The only link to the Philippines was that the private respondent
was a Filipino citizen. The SC ruled against Santos and the NLRC, holding
that the NLRC had no power to determine or adjudicate the law governing an
employment contract perfected in foreign soil (in Oman).
Even if MHICL was held liable for retrenchment, MHC may not be held liable
for its liabilities
JDPAGADUAN 75 | P a g e
CORPORATION LAW
JDPAGADUAN 76 | P a g e
CORPORATION LAW
Facts:
During the pendency of the rescission case, Gutierrez died and was
subsittuted by Mejia. Cardale Realty at this point represented by its
VP/Treasurer Fransisco, lost interest in the case. The case was inactive for 14
years. During this time the property became delinquient in the payment of
taxes, so that in 1983 several lots were sold in a delinquency sale. The highest
bidders in this sale was Merryland Corp. Fransisco (VP/Treasurer of Cardale
in the rescission case) is the President and majority stockholder of Merryland.
JDPAGADUAN 77 | P a g e
CORPORATION LAW
Issue:
Whether or not the piercing of the corporate veil was proper in this case.
Ruling:
NO.
Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the corporation
will be considered as the corporation, that is, liability will attach directly to
the officers and stockholders. The doctrine applies when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, or when it is made as a shield to confuse the legitimate issues, or where
a corporation is the merealter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
General rule: officers cannot be held personally liable with the corporation,
whether civilly or otherwise if he acted in good faith
With specific regard to corporate officers, the general rule is that the
officer cannot be held personally liable with the corporation, whether civilly
or otherwise, for the consequences of his acts, if he acted for and in behalf of
the corporation, within the scope of his authority and in good faith. In
such cases, the officer's acts are properly attributed to the corporation.
JDPAGADUAN 78 | P a g e
CORPORATION LAW
However, if it is proven that the officer has used the corporate fiction
to defraud a third party, or that he has acted negligently, maliciously or in bad
faith, then the corporate veil shall be lifted and he shall be held personally
liable for the particular corporate obligation involved.
Time and again it has been reiterated that mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality. Neither has it been alleged or proven that Merryland is
so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of Cardale. Even
assuming that the businesses of Cardale and Merryland are interrelated, this
alone is not justification for disregarding their separate personalities, absent
any showing that Merryland was purposely used as a shield to defraud
creditors and third persons of their rights. Thus, Merryland's separate juridical
personality must be upheld.
JDPAGADUAN 79 | P a g e
CORPORATION LAW
Facts:
JDPAGADUAN 80 | P a g e
CORPORATION LAW
April, and treated April and Well World as two distinct corporations.
Petitioners appealed before the National Labor Relations Commission
(NLRC), but to no avail. Hence, this petition, supported by the Office of the
Solicitor General, anchored solely on the NLRC’s purported grave abuse of
discretion in not finding April and Well World as one corporation liable for
their grievances.
Issue:
Whether or not April and Well World are one and the same corporation
liable for the claims.
Ruling:
No. The two corporations have two different set of officers managing
their respective affairs in two separate offices. It is basic that a corporation is
invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it
may be related. Mere substantial identity of the incorporators of the two
corporations does not necessarily imply fraud, nor warrant the piercing of the
veil of corporation fiction. In the absence of clear and convincing evidence
that April and Well World’s corporate personalities were used to perpetuate
fraud, or circumvent the law said corporations were rightly treated as distinct
and separate from each other. ACCORDINGLY, finding no grave abuse of
discretion on the part of respondent NLRC in rendering the assailed
resolution, the instant petition is hereby DISMISSED for lack of merit.
JDPAGADUAN 81 | P a g e
CORPORATION LAW
Facts:
Issue:
Ruling:
No. The general rule is that officers of a corporation are not personally
liable for their official acts unless it is shown that they have exceeded their
authority. On the basis hereof, petitioner Molina could not be held jointly and
severally liable for any obligation which petitioner ARBC may be held
accountable for, absent any proof of bad faith or malice on his part.
Corollarily, it is also incorrect on the part of the Court of Appeals to conclude
JDPAGADUAN 82 | P a g e
CORPORATION LAW
that there was a sufficient cause of action against Molina as to make him
personally liable for his actuations as Vice President for Operations of ARBC.
A cursory reading of the records of the instant case would reveal that Molina
did not summarily withhold certain amounts from the payroll of TBSS.
Instead, he enumerated instances which in his view were enough bases to do
so.
JDPAGADUAN 83 | P a g e
CORPORATION LAW
Facts:
Good Earth Emporium Inc (GEE) was the lessee of Roces-Reyes Realty
(RRR), who filed an ejectment suit when GEE defaulted in the payment of
rentals. The suit was adjudged in favor of RRR, ordering GEE to pay the
judgment obligation of 2m, and eventually a writ of execution was issued by
the lower court.
GEE subsequently moved to quash the writ, on the ground that they had
already paid the judgment debt. Apparently GEE presented two receipts:
Issue:
Whether or not the payments made by GEE to the Roces brothers fully
satisfied their judgment debt in favor of RRR.
Ruling:
In the case at bar, the supposed payments were not made to Roces-
Reyes Realty, Inc. or to its successor in interest nor is there positive evidence
that the payment was made to a person authorized to receive it. (Article 1240,
Civil Code)
JDPAGADUAN 84 | P a g e
CORPORATION LAW
JDPAGADUAN 85 | P a g e
CORPORATION LAW
Facts:
JDPAGADUAN 86 | P a g e
CORPORATION LAW
derivative suit on their own behalf and on behalf of Gochan Realty, rhe failure
to comply with the jurisdictional requirement on derivative action necessarily
result in the dismissal of the complaint. The Youngs filed a Petition for
Review with the Court of Appeals. On 28 February 1996, the Court of Appeals
ruled that the SEC had no jurisdiction over the case as far as the heirs of Alice
Gochan were concerned, because they were not yet stockholders of the
corporation. On the other hand, it upheld the capacity of Cecilia Gochan Uy
and her spouse Miguel Uy. It also held that the Intestate Estate of John Young
Sr. was an indispensable party. The appellate court further ruled that the
cancellation of the notice of lis pendens on the titles of the corporate real estate
was not justified. Moreover, it declared that the Youngs' Motion for
Reconsideration before the SEC was not pro forma; thus, its filing tolled the
appeal period. The Gochans moved for reconsideration but were denied in a
Resolution dated 18 December 1997. The Gochans filed the Petition for
Review on Certiorari.
Issue:
Whether the action filed by the Spouses Uy was not a derivative suit,
because the spouses and not the corporation were the injured parties.
Ruling:
JDPAGADUAN 87 | P a g e
CORPORATION LAW
JDPAGADUAN 88 | P a g e
CORPORATION LAW
PART IV
JDPAGADUAN 89 | P a g e
CORPORATION LAW
The corporate debt or credit is not the debt or credit of the stockholder
nor is the stockholder's debt or credit that of the corporation.
Facts:
Left with no other recourse, TRB filed a special civil action for
mandamus against the Central Bank in the Regional Trial Court of Manila
raising the issue that since Philfinance owns 90% of Filriters equity and the
two corporations have identical corporate officers, thus demanding the
application of the doctrine or piercing the veil of corporate fiction, as to give
validity to the transfer of the CBCI from registered owner to petitioner TRB.
Hence, the same shall render the payment by TRB to Philfinance of CBCI, as
actual payment to Filriters. Failing to get a favorable judgment. TRB now
comes to this Court on appeal.
Issue:
Ruling:
No. Piercing the veil of corporate entity requires the court to see
through the protective shroud which exempts its stockholders from liabilities
that ordinarily, they could be subject to, or distinguished one corporation from
a seemingly separate one, were it not for the existing corporate fiction. But to
do this, the court must be sure that the corporate fiction was misused, to such
JDPAGADUAN 89 | P a g e
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In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness from
Philfinance. On its face the subject certificates states that it is registered in the
name of Filriters. This should have put the petitioner on notice, and prompted
it to inquire from Filriters as to Philfinance's title over the same or its authority
to assign the certificate. As it is, there is no showing to the effect that petitioner
had any dealings whatsoever with Filriters, nor did it make inquiries as to the
ownership of the certificate.
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Facts:
Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y.
Lim whose estate is the subject of probate proceedings. Private respondents
Auto Truck Corporation, Alliance Marketing Corporation, Speed
Distributing, Inc., Active Distributing, Inc. and Action Company are
corporations formed, organized and existing under Philippine laws and which
owned real properties covered under the Torrens system.
JDPAGADUAN 91 | P a g e
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Issue:
Ruling:
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Facts:
Avelina Ramoso and several others are investors and majority stock
holders of the franchise branches of Commercial Credit Corporation (CCC).
Issue:
Ruling:
No. Ramoso et al did not properly plead their cause. They merely
alleged that CCC Equity is a conduit of GCC. As found by the SEC en banc,
Ramoso et al were not able to prove that CCC Equity was incorporated in
order to perpetrate fraud against them. Whether the existence of the
corporation should be pierced depends on questions of facts, appropriately
pleaded. Mere allegation that a corporation is the alter ego of the individual
JDPAGADUAN 93 | P a g e
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JDPAGADUAN 94 | P a g e
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Piercing the veil of corporate fiction is remedy of last resort and is not
available when other remedies are still available.
Facts:
While all this was going on, Mauricia died. Her successor-
administratrix, Buenaflor Umali, questioned the foreclosure made by ICP.
Umali alleged that all the transactions are void and simulated hence they were
defrauded; that through Bormaheco’s machinations, Mauricia was fooled into
entering into a surety agreement with ICP; that Bormaheco even made the
premium payments to ICP for said surety bond; that the president of
Bormaheco is a director of PMPMC; that the counsel who assisted in all the
transactions, Atty. Martin De Guzman, was the legal counsel of ICP,
Bormaheco, and PMPMC.
Issue:
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Ruling:
No. There is no clear showing of fraud in this case. The mere fact that
Bormaheco paid said premium payments to ICP does not constitute fraud per
se. As it turned out, Bormaheco is an agent of ICP. SRC, through Rivera,
agreed that part of the payment of the mortgage shall be paid for the insurance.
Naturally, when Rivera was paying some portions of the mortgage to
Bormaheco, Bormaheco is applying some parts thereof for the payment of the
premium – and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper remedy
in order that the foreclosure conducted by ICP be declared a nullity. The
nullity may be attacked directly without disregarding the separate identity of
the corporations involved. Further still, Umali et al are not enforcing a claim
against the individual members of the corporations. They are not claiming said
members to be liable. Umali et al are merely questioning the validity of the
foreclosure.
The veil of corporate fiction can’t be pierced also by the simple reason
that the businesses of two or more corporations are interrelated, absent
sufficient showing that the corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights. In this case, there is no
justification for disregarding their separate personalities.
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Piercing is not allowed unless the remedy sought is to make the officer
or another corporation pecuniarily liable for corporate debts.
Facts:
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Issue:
Ruling:
Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders
may be disregarded.
The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made
as a shield to confuse the legitimate issues, or where a corporation is the mere
alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation.
In the case at bar, the union seeks to pierce the veil of corporate entity
of Acrylic, alleging that the creation of the corporation is a devise to evade
the application of the CBA between the Union and Indophil Textile. While
the Court does not discount the possibility of the similarities of the businesses
of Indophil Textile Mills and Acrylic, neither is it inclined to apply the
doctrine invoked by the union in granting the relief sought.
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The fact that the businesses of Indophil Textile and Acrylic are related,
that some of the employees of Indophil Textile are the same persons manning
and providing for auxiliary services to the units of Acrylic, and that the
physical plants, offices and facilities are situated in the same compound, it is
the Court’s opinion that these facts are not sufficient to justify the piercing of
the corporate veil of Acrylic.
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The tests in determining whether the corporate veil may be pierced are:
(1) the defendant must have control or complete domination of the other
corporation’s finances, policy and business practices with regard to the
transaction attached; (2) control must be used by the defendant to commit
fraud or wrong; and (3) the aforesaid control or breach of duty must be the
proximate cause of the injury or loss complained of.
Facts:
Issue:
Ruling:
No. The NLRC is a very inconvenient forum for the following reasons:
The only link that the Philippines has in this case is the fact that Santos
is a Filipino.
Even if we assume two things: (1) that the NLRC had jurisdiction over
the case, and (2) that MHICL was liable for Santos' retrenchment, still MHC,
as a separate and distinct juridical entity cannot be held liable.
JDPAGADUAN 100 | P a g e
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Santos’ contract with the Palace Hotel was not entered into in the
Philippines.
Santos’ contract was entered into without the intervention of the POEA
(had POEA intervened, NLRC still does not have jurisdiction because it will
be the POEA which will hear the case).
MHIL and the Palace Hotel are not doing business in the Philippines;
their agents/officers are not residents of the Philippines.
Due to the foregoing, the NLRC cannot possibly determine all the
relevant facts pertaining to the case. It is not competent to determine the facts
because the acts complained of happened outside our jurisdiction. It cannot
determine which law is applicable. And in case a judgment is rendered, it
cannot be enforced against the Palace Hotel (in the first place, it was not
served any summons).
The Supreme Court emphasized that under the rule of forum non conveniens,
a Philippine court or agency may assume jurisdiction over the case if it
chooses to do so provided:
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(1) that the Philippine court is one to which the parties may conveniently
resort to;
(3) that the Philippine court has or is likely to have power to enforce its
decision.
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Facts:
Issue:
Ruling:
JDPAGADUAN 103 | P a g e
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honest business judgment, when the corporate device is used by the parent to
avoid its liability for legitimate obligations of the subsidiary, and when the
corporate fiction is used to perpetrate fraud or promote injustice, the law steps
in to remedy the problem. When that happens, the corporate character is not
necessarily abrogated. It continues for legitimate objectives. However, it is
pierced in order to remedy injustice, such as that inflicted in this case.
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Facts:
Issue:
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Ruling:
2. The mere fact that a corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their being treated as one
entity. If used to perform legitimate functions, a subsidiary’s separate
existence may be respected, and the liability of the parent corporation as well
as the subsidiary will be confined to those arising in their respective business.
The courts may, in the exercise of judicial discretion, step in to prevent the
abuses of separate entity privilege and pierce the veil of corporate entity.
b. Such control must have been used by the defendant to commit fraud
or wrong
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JDPAGADUAN 107 | P a g e
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PART V
CLASSIFICATION OF CORPORATIONS
108 National Coal Co. vs. Collector of Internal Revenue
110 Boy Scouts of the Philippines vs. NLRC
112 Bliss Dev’t. Corp. Employees Union vs. Calleja
114 Benguet Electric Cooperative, Inc. vs. NLRC
116 Director of Land vs. IAC, 146 SCRA 509
JDPAGADUAN 108 | P a g e
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Facts:
The plaintiff corporation was created on the 10th day of March 1917,
by Act No. 2705, for the purpose of developing the coal industry in the
Philippine Islands , in harmony with the general plan of the government to
encourage the development of natural resources of the country, and to provide
facilities therefore.
By the said act, the company was granted the general powers of a
corporation and such other powers as may be necessary to enable it to
prosecute the business of developing coal deposits in the Philippine Islands of
mining, extracting, transporting, and selling the coal contained in said
deposits.
By the same law, the government of the Philippine Islands is made the
majority stockholder, evidently in order to ensure proper government
supervision and control and thus to place the government in a position to
render all possible encouragement, assistance, and help in the prosecution and
furtherance of the company’s business.
On May 14, 1917, two months after the passage of Act no. 2705,
creating the national coal company, the Philippine legislature passed Act
2719, “to provide for the leasing and development of coal lands in the
Philippine islands.”
On October 18, 1917, upon petition of the national coal company, the
governor-general, by proclamation no. 39, withdrew from settlement, entry,
sale or other deposition, all coal-bearing public lands within the province of
Zamboanga, Department of Mindanao and Sulu, and the island of Polillo,
Province of Tayabas.
Issue:
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Ruling:
Yes. The plaintiff is a private corporation. The mere fact that the
government happens to the majority stockholder does not make it a public
corporation. Act 2705, as amended by Act 2822, makes it subject to all the
provisions of the corporation law, in so far as they are not inconsistent with
said act. No provisions of Act 2705 are found to be inconsistent with the
provisions of the corporation law.
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Although Boy Scouts of the Philippines does not receive any monetary
or financial subsidy from the Government, and that its funds and assets are
not considered government in nature and not subject to audit by the COA, the
fact that it received a special charter from the government, that its governing
board are appointed by the Government, and that its purpose are of public
character, for they pertain to the educational, civic and social development of
the youth which constitute a very substantial and important part of the nation,
it is not a public corporation in the same sense that municipal corporation or
local governments are public corporation since its does not govern a portion
of the state, but it also does not have proprietary functions in the same sense
that the functions or activities of government-owned or controlled
corporations
Facts:
Issue:
Ruling:
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in the selection of members of the National Executive Board of the BSP, the
BSP, as presently constituted under its charter, is a government-controlled
corporation within the meaning of Article IX. (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the Administrative
Code of 1987 designates the BSP as one of the attached agencies of the
Department of Education, Culture and Sports ("DECS").
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Facts:
Issue:
Ruling:
JDPAGADUAN 112 | P a g e
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Only upon such compliance will the corporation come into being and
acquire a juridical personality, thus giving rise to its right to exist and act as a
legal entity. On the other hand, a government corporation is normally created
by special law, referred to often as a charter.
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Board members and officers 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.
Facts:
Issue:
Ruling:
No. The act of the Board Members is ultra vires. There was no legal
basis for them to suspend Cosalan indefinitely for under the Implementing
Rules of the Labor Code the maximum period form preventive suspension
should not go beyond 30 days. Further, it was found that Cosalan was never
informed of the charges against him nor was he afforded the opportunity to
present his case. He was deprived of due process. Nor was Cosalan’s
suspension approved by the NEA, which is also required for due process
purposes.
JDPAGADUAN 114 | P a g e
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These acts by the Board Members are tainted with bad faith. A very
strong presumption arises that the Board Members are acting in reprisal
against the reforms sought to be introduced by Cosalan in order to address the
irregularities within BENECO. The Board Members are therefore liable for
damages under Section 31 of the Corporation Code. And even though
BENECO is a cooperative, it is still covered by the Corporation Code because
under PD 269, cooperatives are considered as corporations.
The Supreme Court ruled that BENECO and the BENECO Board
Members are liable for the damages caused against Cosalan. However
BENECO can seek reimbursement from the Board Members so as not to
unduly penalize the innocent members of BENECO.
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Facts:
Acme Plywood & Veneer Co., Inc., a corporation represented by Mr.
Rodolfo Nazario, acquired from Mariano and Acer Infiel, members of the
Dumagat tribe 5 parcels of land. The possession of the Infiels over the land
dates back before the Philippines was discovered by Magellan. This land
sought to be registered is a private land pursuant to RA 3872 granting absolute
ownership to members of the non-Christian Tribes on land occupied by them
or their ancestral lands, whether with the alienable or disposable public land
or within the public domain. Thereafter, Acme Plywood & Veneer Co. Inc.,
has introduced more than P45M worth of improvements and ownership and
possession of the land sought to be registered was duly recognized by the
government when the Municipal Officials of Maconacon, Isabela donated
part of the land as the townsite of Maconacon Isabela.
The Director of Lands takes no issue with any of these findings except
as to the applicability of the 1935 Constitution to the matter at hand.
Concerning this, he asserts that, the registration proceedings have been
commenced only on July 17, 1981, or long after the 1973 Constitution had
gone into effect, the latter is the correctly applicable law; and since section 11
of its Article XIV prohibits private corporations or associations from holding
alienable lands of the public domain, except by lease not to exceed 1,000
hectares (a prohibition not found in the 1935 Constitution which was in force
in 1962 when Acme purchased the lands in question from the Infiels), it was
reversible error to decree registration in favor of Acme.
Issue:
Whether or not the constitutional prohibition against the acquisition by
private corporations or associations applies.
Ruling:
NO. If it is accepted-as it must be-that the land was already private land
to which the Infiels had a legally sufficient and transferable title on October
29, 1962 when Acme acquired it from said owners, it must also be conceded
that Acme had a perfect right to make such acquisition. The only limitation
then extant was that corporations could not acquire, hold or lease public
agricultural lands in excess of 1,024 hectares. The purely accidental
circumstance that confirmation proceedings were brought under the aegis of
JDPAGADUAN 116 | P a g e
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the 1973 Constitution which forbids corporations from owning lands of the
public domain cannot defeat a right already vested before that law came into
effect, or invalidate transactions then perfectly valid and proper. This Court
has already held, in analogous circumstances, that the Constitution cannot
impair vested rights.
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PART VI
JDPAGADUAN 118 | P a g e
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Facts:
Petitoners filed an action in the CFI against Silang Traffic Co. Inc to
recover certain sum of money w/c they had paid severally to the corporation
on account of shares of stock they individually agreed to take and pay for
under certain conditions. On the other hand, Silang Co. contended that the
resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval,
and Paz Toledo because on the date thereof "their subscribed shares of stock
had already automatically reverted to the defendant, and the installments paid
by them had already been forfeited" and that said resolution of August 1, 1937,
was revoked and cancelled by a subsequent resolution.
Issue:
Whether or not under the contract between the parties the failure of the
purchaser to pay any of the quarterly installments on the purchase price
automatically gave rise to the forfeiture of the amounts already paid and the
reversion of the shares to the corporation.
Ruling:
JDPAGADUAN 118 | P a g e
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construction and depends upon its terms and the intention of the parties.
Subscription is a mutual agreement of the subscribers to take and pay for the
stock of a corporation while purchase is an independent agreement between
the individual and the corp. to buy shares of stock from it at stipulated price.
Rules governing subscriptions and sales of shares are different. Moreover,
Corporation Law regarding calls for unpaid subscription and assessment of
stock (sections 37-50) do not apply to a purchase of stock. The Corporation
has no legal capacity to release an original subscriber to its capital stock from
the obligation to pay for his shares, is inapplicable to a contract of purchase
of shares.
JDPAGADUAN 119 | P a g e
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This case emphasized once again the doctrine of separate judicial entity
which states that a corporation has a personality separate and distinct from
the persons composing it.
Facts:
A certain Barretto initiated the incorporation of a company called
Filipinas Orient Airways (FOA). Barretto was referred to as the “moving
spirit” of said corporation because it was through his effort that it was created.
Before FOA’s creation though, Barretto contracted with a third party, Alberto
Arellano, for the latter to prepare a project study for the feasibility of creating
a corporation like FOA. The project study was then presented to the would-
be incorporators and investors. On the basis of said project study, Fermin
Caram, Jr. and Rosa Caram agreed to be incorporators of FOA. Later however,
Arellano filed a collection suit against FOA, Barretto, and the Carams.
Arellano claims that he was not paid for his work on the project study.
Issue:
Whether or not the Carams are personally and solidarily liable
considering that the project study was contracted before FOA became a
corporation.
Ruling:
No. The Carams cannot be solidarily liable with FOA. The FOA is now
a bona fide corporation. As such, FOA alone should be liable for its corporate
acts as duly authorized by its officers and directors. This includes acts which
ultimately led to its incorporation i.e., the project study made by Arellano.
FOA has a separate and distinct personality from its incorporators. It is not
justified to make the Carams, as principal stockholders, to be responsible for
FOA’s obligations.
JDPAGADUAN 120 | P a g e
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Facts:
On 28 May 1947, C. Arnold Hall and Bradley P. Hall, and Fred Brown,
Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and
acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber
and Commercial Co., Inc., organized to engage in a general lumber business
to carry on as general contractors, operators and managers, etc. Attached to
the article was an affidavit of the treasurer stating that 23,428 shares of stock
had been subscribed and fully paid with certain properties transferred to the
corporation described in a list appended thereto. Immediately after the
execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.
After hearing the parties, the Hon. Edmund S. Piccio ordered the
dissolution of the company; and at the request of Brown, et. al., appointed
Pedro A. Capuciong as the receiver of the properties thereof, upon the filing
of a P20,000 bond. Hall and Hall offered to file a counter-bond for the
discharge of the receiver, but Judge Piccio refused to accept the offer and to
discharge the receiver. Whereupon, Hall and Hall instituted the present special
civil action with the Supreme Court.
JDPAGADUAN 121 | P a g e
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Issue:
Whether or not Brown, et. al. may file an action to cause the dissolution
of the Far Eastern Lumber and Commercial Co., without State intervention.
Ruling:
JDPAGADUAN 122 | P a g e
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Facts:
Issue:
Ruling:
JDPAGADUAN 123 | P a g e
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JDPAGADUAN 124 | P a g e
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Facts:
Issue:
Rulings:
No. The regular courts have jurisdiction over the case. The case
between Lozano and Anda is not an intra-corporate dispute. UMAJODA is
not yet incorporated. It is yet to submit its articles of incorporation to the SEC.
It is not even a dispute between KAMAJDA or SAMAJODA. The controversy
between Lozano and Anda does not arise from intra-corporate relations but
rather from a mere conflict from their plan to merge the two associations.
JDPAGADUAN 125 | P a g e
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Facts:
Issue:
Ruling:
JDPAGADUAN 126 | P a g e
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JDPAGADUAN 127 | P a g e
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PART VII
ARTICLES OF INCORPORATION
128 Gov’t of the Philippin Islands vs. Manila Railroad Co.
130 Red Line Trans vs. Rural Transit
132 Uy Siuliong vs. Director of Commerce and Industry
135 Alhambra Cigar vs. Securities and Exchange Commission
136 Clavecilla Radio System vs. Antillon
138 Sy vs. Tyson Enterprises, Inc.
JDPAGADUAN 128 | P a g e
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Facts:
Issue:
Whether or not the provisions of the corporation law apply between the
parties.
Ruling:
JDPAGADUAN 128 | P a g e
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certainly the Government cannot impose upon said company any conditions
or obligations found in any general law, which does not expressly modify said
contract.
The question is not whether Act No. 1510 repealed Act No. 1459; but
whether, after the adoption of Act No. 1510, the respondents are obliged to
comply with the special provision above mentioned, contained in Act No.
1459. We must answer that question in the native. Both laws are still in force,
unless otherwise repealed. Act No. 1510 is applicable to respondents upon the
question before us, while Act No. 1459 is not applicable.
The petitioner, in view of all the foregoing facts and the law applicable
thereto, has not shown itself entitled to the remedy prayed for. The prayer of
the petition must, therefore, be denied. And without any finding as to costs, it
is so ordered.
JDPAGADUAN 129 | P a g e
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Facts:
This is a petition for review of an order of the Public Service
Commission granting to the Rural Transit Company, Ltd., a certificate of
public convenience to operate a transportation service between Ilagan in the
Province of Isabela and Tuguegarao in the Province of Cagayan, and
additional trips in its existing express service between Manila Tuguegarao.
Red Line opposed said application, arguing that they already hold a
certificate of public convenience for Tuguegarao and Ilagan, and is rendering
adequate service. They also argued that granting Rural Transit’s application
would constitute a ruinous competition over said route.
A motion for rehearing and reconsideration was filed by Red Line since
Rural Transit has a pending application before the Court of First Instance for
voluntary dissolution of the corporation. A motion for postponement was filed
by Rural Transit as verified by M. Olsen who swears "that he was the secretary
of the Rural Transit Company, Ltd. During the hearing before the Public
Service Commission, the petition for dissolution and the CFI’s decision
decreeing the dissolution of Rural Transit were admitted without objection
At the trial of this case before the Public Service Commission an issue
was raised as to who was the real party in interest making the application,
whether the Rural Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using name of the Rural
Transit Company, Ltd., as a trade name. However, PSC granted Rural
Transit’s application for certificate of public convenience and ordered that a
certificate be issued on its name.
JDPAGADUAN 130 | P a g e
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Issue:
Ruling:
No. The Rural Transit Company, Ltd., and the Bachrach Motor Co.,
Inc., are Philippine corporations and the very law of their creation and
continued existence requires each to adopt and certify a distinctive name. The
incorporators "constitute a body politic and corporate under the name stated
in the certificate."
JDPAGADUAN 131 | P a g e
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Facts:
JDPAGADUAN 132 | P a g e
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petitioners to engage in the banking business, and (c) to deal in real estate, in
violation of the Act of Congress of July 1, 1902.
Issue:
Ruling:
The attorney for the respondent, at the time of the argument, admitted
in open court that corporations in the Philippine Islands might be organized
for both the "importation and exportation" of merchandise and that there
might be no relation between the kind of merchandise imported with the class
of merchandise exported.
While the court arrived at the conclusion that the proposed articles of
incorporation do not authorize the petitioners to engage in a business with
more than one purpose, they do not mean to be understood as having decided
that corporations under the laws of the Philippine Islands may not engage in
a business with more than one purpose. Such an interpretation might work a
JDPAGADUAN 133 | P a g e
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JDPAGADUAN 134 | P a g e
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Facts:
Issue:
Ruling:
No. Alhambra cannot avail of the new law because it has already
expired at the time of its passage. When a corporation is liquidating pursuant
to the statutory period of three years to liquidate, it is only allowed to continue
for the purpose of final closure of its business and no other purposes. In fact,
within that period, the corporation is enjoined from “continuing the business
for which it was established”. Hence, Alhambra’s board cannot validly amend
its articles of incorporation to extend its lifespan.
JDPAGADUAN 135 | P a g e
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Facts:
On June 22, 1963, the New Cagayan Grocery filed a complaint against the
Clavecilla Radio System alleging that on March 12, 1963, the following
message, addressed to the former, was filed at the latter's Bacolod Branch
Office for transmittal thru its branch office at Cagayan de Oro:
The Cagayan de Oro branch office having received the said message
omitted, in delivering the same to the New Cagayan Grocery, the word "NOT"
between the words "WASHED" and "AVAILABLE," thus changing entirely
the contents and purport of the same and causing the said addressee to suffer
damages. After service of summons, the Clavecilla Radio System filed a
motion to dismiss the complaint on the grounds that it states no cause of action
and that the venue is improperly laid. The motion was denied.
Issue:
Whether or not the suit against Clavecilla should be filed in Manila where
it holds its principal office.
Ruling:
YES. It is clear that the case for damages filed with the city court is based
upon tort and not upon a written contract. Section 1 of Rule 4 of the New
Rules of Court, governing venue of actions in inferior courts, provides in its
paragraph (b) (3) that when "the action is not upon a written contract, then in
the municipality where the defendant or any of the defendants resides or may
be served with summons."
JDPAGADUAN 136 | P a g e
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The appellee maintains that with the filing of the action in Cagayan de Oro
City, venue was properly laid on the principle that the appellant may also be
served with summons in that city where it maintains a branch office. However,
the fact that it maintains branch offices in some parts of the country does not
mean that it can be sued in any of these places. To allow an action to be
instituted in any place where a corporate entity has its branch offices would
create confusion and work untold inconvenience to the corporation.
JDPAGADUAN 137 | P a g e
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Facts:
This is a case about the venue of a collection suit. Tyson Enterprises, Inc.
filed against John Sy and Universal Parts Supply Corporation in the CFI of
Rizal, Pasig Branch XXI, a complaint for the collection of P288,534.58 plus
interest, attorney's fees and litigation expenses. It is alleged in the complaint
that John Sy, doing business under the trade name, Universal Parts Supply, is
a resident of Fuentebella Subdivision, Bacolod City and that his co-defendant,
Universal Parts Supply Corporation, allegedly controlled by Sy, is doing
business in Bacolod City. Curiously enough, there is no allegation in the
complaint as to the office or place of business of plaintiff Tyson Enterprises,
Inc., a firm actually doing business at 1024 Magdalena, now G. Masangkay
Street, Binondo, Manila.
The trial court denied the motion to dismiss on the ground that by filing a
motion for a bill of particulars the defendants waived their objection to the
venue. The Appellate Court dismissed the petition. It ruled that the parties did
not intend Manila as the exclusive venue of the actions arising under their
transactions and that since the action was filed in Pasig, which is near Manila,
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no useful purpose would be served by dismissing the same and ordering that
it be filed in Manila. Hence, this appeal.
Issue:
Ruling:
NO. There is no question that the venue was improperly laid in this case.
The place of business of plaintiff Tyson Enterprises, Inc., which for purposes
of venue is considered as its residence, is in Manila and not in Rizal. The
residence of its president is not the residence of the corporation because a
corporation has a personality separate and distinct from that of its officers and
stockholders.
Hence, venue is improperly laid in this case. The trial court of Pasig has
no jurisdiction.
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PART VIII
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Facts:
Issue:
Whether or not the respondent court has jurisdiction to interfere with the
management of the corporation by the board of directors, and the enactment
of a resolution by the defendants, as members of the board of directors of the
corporation, allowing the sale of the 823 shares of stock to the defendants.
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Ruling:
YES. The well-known rule is that courts cannot undertake to control the
discretion of the board of directors about administrative matters as to which
they have legitimate power of action and contracts intra vires entered into by
the board of directors are binding upon the corporation and courts will not
interfere unless such contracts are so unconscionable and oppressive as to
amount to a wanton destruction of the rights of the minority.
In the instant case, the plaintiffs aver that the defendants have concluded
a transaction among themselves as will result to serious injury to the interests
of the plaintiffs, so that the trial court has jurisdiction over the case.
The petitioners further contend that the proper remedy of the plaintiffs
would be to institute a derivative suit against the petitioners in the name of the
corporation in order to secure a binding relief after exhausting all the possible
remedies available within the corporation.
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Facts:
The Parties are all stockholders and member of the board of directors of
the Parañaque Rice Mill, Inc. Angeles et al. (minority) filed a complaint as
stockholders, for and in behalf of the corporation, against Santos et al
(majority) in CFI Rizal.
The complaint alleged that: a special meeting was held in Feb. 1932 where
the Board formed an investigation committee (headed by the minority) to look
into the losses of the corporation in the year 1931, however, Santos et al
denied access to the properties, books and record of the corporation which
were in their possession. According to the by-laws, said documents should be
under the exclusive control and possession of the secretary- treasurer, not
Santos. Santos had appropriated to his own benefit properties, funds, and
income of the corporation in the sum of P10,000. He refused to sign over fully
paid-up shares of stock to Higinio Angeles so that he can control the affairs
of the corporation, that he refused to hold monthly meetings of the board, even
after due request, and Santos et al was disposing of the properties and records
of the corporation without authority from the board of directors or the
stockholders of the corporation and suspended Jose Lara from the office of
general manager to prevent any interference with or examination of his
arbitrary acts.
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Issues:
2. WON it was proper for the court to order the removal of Santos et al from
their offices as members of the board of directors of the corporation. (NO)
Ruling:
Yes. There is ample evidence showing that Santos et al are guilty of breach
of trust as directors of the corporation. The board of directors of a corporation
is a creation of the stockholders and controls and directs the affairs of the
corporation by allegation of the stockholders. But the board of directors, or
the majority thereof, in drawing to themselves the power of the corporation,
occupies a position of trusteeship in relation to the minority of the stock in the
sense that the board should exercise good faith, care and diligence in the
administration of the affairs of the corporation and should protect not only the
interest of the majority but also those of the minority of the stock. Where a
majority of the board of directors wastes or dissipates the funds of the
corporation or fraudulently disposes of its properties, or performs ultra vires
acts, the court, in the exercise of its equity jurisdiction, and upon showing that
intracorporate remedy is unavailing, will entertain a suit filed by the minority
members of the board of directors.
The Corporation Law, in section 29 to 34, provide for the election and
removal of the directors of a corporation. It does not confer expressly upon
the court the power to remove a director of a corporation.
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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.
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.
Facts:
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contracts without prior approval of the Board. The lower court came out with
a judgment dismissing the complaint. Hence, plaintiff appealed direct to this
Court. Plaintiff levelled a major attack on the lower court's holding that Kalaw
justifiedly entered into the controverted contracts without the prior approval
of the corporation's directorate. Plaintiff leans heavily on NACOCO's
corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the
duties of the general manager, the obligation: "(b) To perform or execute on
behalf of the Corporation upon prior approval of the Board, all contracts
necessary and essential to the proper accomplishment for which the
Corporation was organized.
Issue:
Ruling:
NACOCO was much more conservative than the exporters with big
capital. This short-selling was inevitable at the time in the light of other factors
such as availability of vessels, the quantity required before being accepted for
loading, the labor needed to prepare and sack the copra for market. To
NACOCO, forward sales were a necessity. Copra could not stay long in its
hands; it would lose weight, its value decrease. Above all, NACOCO's limited
funds necessitated a quick turnover. Copra contracts then had to be executed
on short notice — at times within twenty-four hours. To be appreciated then
is the difficulty of calling a formal meeting of the board. These previous
contract it should be stressed, were signed by Kalaw without prior
authority from the board. Said contracts were known all along to the board
members. Nothing was said by them. The aforesaid contracts stand to prove
one thing: Obviously, NACOCO board met the difficulties attendant to
forward sales by leaving the adoption of means to end, to the sound discretion
of NACOCO's general manager Maximo M. Kalaw.
Settled jurisprudence has it that 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 usage and practices of the company and
by the knowledge which the board of directors has, or must bepresumed to
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have, of acts and doings of its subordinates in and about the affairs of the
corporation.
In the case at bar, 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. If the
by-laws were to be literally followed, the board should give its stamp of prior
approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of prior
approval. Under the given circumstances, the Kalaw contracts are valid
corporate acts.
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It is within the SEC’s jurisdiction to pass upon the issue as to who among the
different contending groups is the legitimate Board of Trustees.
Facts:
Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic
leaders of all Muslim major tribal groups in the Philippines headed by Dean
Cesar Adib Majul organized and incorporated the ISLAMIC
DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of
which is to establish an Islamic Center in Quezon City for the construction of
a Mosque (prayer place), Madrasah (Arabic School), and other religious
infrastructures so as to facilitate the effective practice of Islamic faith in the
area. Towards this end, the Libyan government donated money to the IDP to
purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center
for the Islamic populace. The land was covered by two titles both registered
in the name of IDP.
After the purchase of the land by the Libyan government in the name of
IDP, Martial Law was declared by the late President Ferdinand Marcos. Most
of the members of the 1971 Board of Trustees flew to the Middle East to
escape political persecution. Thereafter, two Muslim groups sprung, the
Carpizo Group, headed by Engineer Carpizo, and the Abbas Group, led by
Mrs. Tamano and Atty. Abbas. Both groups claimed to be the legitimate
IDP. Significantly, the SEC, in a suit between these two contending groups,
came out with a Decision in SEC Case No. 2687 declaring the election of both
the Carpizo Group and the Abbas Group as IDP board members to be null and
void.
Neither group, however, took the necessary steps prescribed by the SEC
in its Decision, and, thus, no valid election of the members of the Board of
Trustees of IDP was ever called. Although the Carpizo Group attempted to
submit a set of by-laws, the SEC found that, aside from Engineer Carpizo and
Atty. Buat, those who prepared and adopted the by-laws were not bona
fide members of the IDP, thus rendering the adoption of the by-laws likewise
null and void. Without having been properly elected as new members of the
Board of Trustees of IDP, the Carpizo Group caused to be signed an alleged
Board Resolution of the IDP, authorizing the sale of the subject two parcels
of land to the private respondent INC.
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by the Carpizo Group and the INC since the group of Engineer Carpizo was
not the legitimate Board of Trustees of the IDP.
Private respondent INC opposed the motion arguing, inter alia, that the
issue sought to be litigated by way of intervention is an intra-corporate dispute
which falls under the jurisdiction of the SEC.
Issue:
Did the CA commit reversible error in setting aside that portion of the
SECs Decision which declared the sale of two (2) parcels of land in Quezon
City between the IDP-Carpizo Group and private respondent INC null and
void?
Ruling:
YES. There can be no question as to the authority of the SEC to pass upon
the issue as to who among the different contending groups is the legitimate
Board of Trustees of the IDP since this is a matter properly falling within the
original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c)
of Presidential Decree No. 902-A
If the SEC can declare who is the legitimate IDP Board, then by parity of
reasoning, it can also declare who is not the legitimate IDP Board. This is
precisely what the SEC did in SEC Case No. 4012 when it adjudged the
election of the Carpizo Group to the IDP Board of Trustees to be null and
void. By this ruling, the SEC in effect made the unequivocal finding that the
IDP-Carpizo Group is a bogus Board of Trustees. Consequently, the Carpizo
Group is bereft of any authority whatsoever to bind IDP in any kind of
transaction including the sale or disposition of IDP property.
Therefore, all acts carried out by the Carpizo Board, particularly the sale
of the Tandang Sora property, allegedly in the name of the IDP, have to be
struck down for having been done without the consent of the IDP thru a
legitimate Board of Trustees. Ineluctably, the subject sale is void and produces
no effect whatsoever.
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Facts:
The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had
sought to offer its shares to the public in order to raise funds allegedly to
develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares
through the Philippine Stock Exchange Inc. (PSEi), for which purpose it filed
with the said stock exchange an application to list its shares, with supporting
documents attached. Pending the approval of the PALI’s listing application, a
letter was received by PSE from the heirs of Ferdinand Marcos, the legal and
beneficial owner of certain properties forming part of the Puerto Azul Beach
Hotel and Resort Complex which PALI claims to be among its assets and that
the Ternate Development Corporation.
As a result, PSE denied PALI’s application which caused the latter to file
a complaint before the SEC. The SEC issued an order to PSE to grant listing
application of PALI on the ground that PALI have certificate of title over its
assets and properties and that PALI have complied with all the requirements
to enlist with PSE. Dissatisfied with this ruling, the PSE filed with the CA a
Petition for Review.
CA dismissed the petition ruling that, uled that the SEC had both
jurisdiction and authority to look into the decision of the petitioner PSE,
pursuant to Section 3[3] of the Revised Securities Act in relation to Section
6(j) and 6(m)[4] of P.D. No. 902-A, and Section 38(b)[5] of the Revised
Securities Act, and for the purpose of ensuring fair administration of the
exchange. Both as a corporation and as a stock exchange, the petitioner is
subject to public respondent’s jurisdiction, regulation and control. PSE then
submits that the CA erred in ruling that the SEC had authority to order the
PSE to list the shares of PALI in the stock exchange. Under presidential decree
No. 902-A, the powers of the SEC over stock exchanges are more limited as
compared to its authority over ordinary corporations. In connection with this,
the powers of the SEC over stock exchanges under the Revised Securities Act
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are specifically enumerated, and these do not include the power to reverse the
decisions of the stock exchange. This is in accord with the business judgment
rule whereby the SEC and the courts are barred from intruding into business
judgments of corporations, when the same are made in good faith.
Issue:
Whether or not it was in the exercise of its authority that the SEC reversed
the decision of the PSE to deny the application for listing in the stock
exchange of the private respondent PALI.
Ruling:
No. SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in the stock
exchange. This is in line with the SECs mission to ensure proper compliance
with the laws, such as the Revised Securities Act and to regulate the sale and
disposition of securities in the country.
The role of the SEC in our national economy cannot be minimized. The
legislature, through the Revised Securities Act, Presidential Decree No. 902-
A, and other pertinent laws, has entrusted to it the serious responsibility of
enforcing all laws affecting corporations and other forms of associations not
otherwise vested in some other government office. This is not to say, however,
that the PSEs management prerogatives are under the absolute control of the
SEC. The PSE is, after all, a corporation authorized by its corporate franchise
to engage in its proposed and duly approved business. One of the PSEs main
concerns, as such, is still the generation of profit for its
stockholders. Moreover, the PSE has all the rights pertaining to corporations,
including the right to sue and be sued, to hold property in its own name, to
enter (or not to enter) into contracts with third persons, and to perform all
other legal acts within its allocated express or implied powers.
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Facts:
Gokongwei alleged that the Board amended the bylaws of the corporation,
prescribing additional qualifications for its directors, “that no person
shallqualify or be eligible for nomination if he isengaged in any business
which competes with that of the Corporation.” The board based their authority
to do so on aresolution of the stockholders. It was contended thataccording to
section 22 of the Corporation Law and Article VIII of the by-laws of the
corporation, the power to amend, modify, repeal or adopt new by-laws may
be delegated to the Board of Directors only by the affirmative vote of
stockholders representing not less than 2/3 of the subscribed and paid up
capital stock of the corporation, which 2/3 should have been computed on the
basis of the capitalization at the time of the amendment. Since the amendment
was based on 1961 authorization, Gokongwei contended that the Board acted
without authority and in usurpation of the power of the stockholders.
Issue:
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Ruling:
Under section 22 of the same law, the owners of the majority of the
subscribed capital stock may amend or repeal any by-law or adopt new by-
laws. It cannot be said, therefore, that petitioner has a vested right to be elected
director, in the face of the fact that the law at the time such right as stockholder
was acquired contained the prescription that the corporate charter and the by-
law shall be subject to amendment, alteration and modification. Although in
the strict and technical sense, directors of a private corporation are not
regarded as trustees, there cannot be any doubt that their character is that of a
fiduciary insofar as the corporation and the stockholders as a body are
concerned. As agents entrusted with the management of the corporation, they
should act for the collective benefit of the stockholders.
It is a settled state law in the United States that corporations have the
power to make by-laws declaring a person employed in the service of a rival
company to be ineligible for the corporation's Board of Directors. ". . . (A)n
amendment which renders ineligible, or if elected, subjects to removal, a
director if he be also a director in a corporation whose business is in
competition with or is antagonistic to the other corporation is valid." This is
based upon the principle that where the director is so employed in the service
of a rival company, he cannot serve both, but must betray one or the other.
Such an amendment "advances the benefit of the corporation and is good."
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Facts:
The private respondents argued that the voting trust agreement 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.
The trial court upheld the validity of the service of summons on ALFA
through the petitioners, thus, denying the latter's motion for reconsideration
and requiring ALFA to file its answer through the petitioners as its corporate
officers. A second 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, hence, they could no longer receive
summons or any court processes for or on behalf of ALFA. In support of their
second motion for reconsideration, the petitioners attached thereto a copy of
the voting trust agreement between all the stockholders of ALFA (the
petitioners included), on the one hand, and the DBP, on the other hand,
whereby the management and control of ALFA became vested upon the DBP.
Issue:
Ruling:
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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. The penultimate question, therefore, is whether the
change in his status deprives the stockholder of the right to qualify as a
director under section 23 of the present Corporation Code which deletes
the phrase "in his own right." Section 30 of the old Code states that:
Every director must own in his own right at least one share of the capital
stock of the stock corporation of which he is a director, which stock shall
stand in his name on the books of the corporation. A director who ceases
to be the owner of at least one share of the capital stock of a stock
corporation of which is a director shall thereby cease to be a director . . .
(Emphasis supplied)
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
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There can be no reliance on the inference that the five-year period of the
voting trust agreement in question had lapsed in 1986 so that the legal title to
the stocks covered by the said voting trust agreement ipso facto reverted to
the petitioners as beneficial owners pursuant to the 6th paragraph of section
59 of the new Corporation Code which reads:
Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:
The petitioners in this case do not fall under any of the enumerated
officers. The service of summons upon ALFA, through the petitioners,
therefore, is not valid. To rule otherwise, as correctly argued by the
petitioners, will contravene the general principle that a corporation can only
be bound by such acts which are within the scope of the officer's or agent's
authority.
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Facts:
The plaintiff has demanded upon the defendant to restitute the amount
representing the value of the checks but defendant refused and continue to
refuse to honor plaintiffs demands up to the present. As a result of the illegal
and irregular acts perpetrated by the defendant bank, the plaintiff was
damaged. Thus, Premium prayed that judgment be rendered ordering
defendant bank to pay the amount representing the value of the checks plus
interest, exemplary damages and attorneys fees. In its Answer International
Corporate Bank alleged, inter alia, that Premium has no
capacity/personality/authority to sue in this instance and the complaint should,
therefore, be dismissed for failure to state a cause of action.
Meantime, the same corporation, i.e., Premium, but this time represented
by Siguion Reyna, Montecillio and Ongsiako Law Office as counsel, filed a
motion to dismiss on the ground that the filing of the case was without
authority from its duly constituted board of directors as shown by the excerpt
of the minutes of the Premiums board of directors meeting. In its opposition
to the motion to dismiss, Premium thru Atty. Dumadag contended that the
persons who signed the board resolution namely Belen, Jr., Nograles & Reyes,
are not directors of the corporation and were allegedly former officers and
stockholders of Premium who were dismissed for various irregularities and
fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and
Nograles and not of Premium and that the Articles of Incorporation of
Premium shows that Belen, Nograles and Reyes are not majority stockholders.
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Issue:
Whether or not the filing of the case for damages against private
respondent was authorized by a duly constituted Board of Directors of the
petitioner corporation.
Ruling:
Sec. 26 of the Corporation Code provides, thus: Sec. 26. Report of election
of directors, trustees and officers. Within thirty (30) days after the election of
the directors, trustees and officers of the corporation, the secretary, or any
other officer of the corporation, shall submit to the Securities
and Exchange Commission, the names, nationalities and residences of the
directors, trustees and officers elected. Xxx Evidently, the objective sought to
be achieved by Section 26 is to give the public information, under sanction of
oath of responsible officers, of the nature of business, financial condition and
operational status of the company together with information on its key officers
or managers so that those dealing with it and those who intend to do business
with it may know or have the means of knowing facts concerning the
corporations financial resources and business responsibility.[10] The claim,
therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al.,
are the incumbent officers of Premium has not been fully substantiated. In the
absence of an authority from the board of directors, no person, not even the
officers of the corporation, can validly bind the corporation.
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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 provision in the by- laws allowing a director to hold the
position perpetually is valid.
Ruling:
NO. These provisions of the former and present corporation law leave no
room for doubt as to their meaning: the board of directors of corporations must
be elected from among the stockholders or members. There may be
corporations in which there are unelected members in the board but it is clear
that in the examples cited by petitioner the unelected members sit as ex
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officio members, i.e., by virtue of and for as long as they hold a particular
office. 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 for fifteen
years it has not been questioned or challenged but, on the contrary, appears to
have been implemented by the members of the association 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. For that matter the
members of the association may have formally adopted the provision in
question, but their action would be of no avail because no provision of the by-
laws can be adopted if it is contrary to law.
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Facts:
Issue:
Ruling:
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necessary. In this case the voting trust is only majority of the shares and not
two-thirds majority.
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Facts:
The first such appointment was extended on April 27, 1970, "effective
May 1, 1970 until April 30, 1971, unless sooner terminated and subject to the
approval of the Board of Regents and to pertinent University regulations."
Pursuant thereto Dr. Blanco assumed office as ad interim Dean on May 1,
1970.
The Board of Regents met on May 26, 1970, and President Lopez
submitted to it the ad interim appointment of Dr. Blanco for reconsideration.
The minutes of that meeting disclose that "the Board voted to defer action on
the matter in view of the objections cited by Regent Kalaw based on the
petition against the appointment, addressed to the Board, from a majority of
the faculty and from a number of alumni Dr. Blanco's appointment had lapsed.
On August 18, 1970 Dr. Blanco wrote the President of the University,
protesting the appointment of Oseas A. del Rosario as Officer-in-Charge of
the College of Education. Neither communication having elicited any official
reply, Dr. Blanco went to the Court of First Instance of Quezon City on a
petition for certiorari and prohibition with preliminary injunction.
Issue:
Ruling:
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Dr. Blanco was clearly not the choice of a majority of the members of
the Board of Regents, as unequivocally demonstrated by the transcript of the
proceedings. This fact cannot be ignored simply because the Chairman, in
submitting the question to the actual vote, did not frame it as accurately as the
preceding discussion called for, such that two of the Regents present (Silva
and Kalaw) had to make some kind of clarification.
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Facts:
Thereafter, trial for the two criminal cases, was consolidated. After a
full-blown hearing, Judge Porfirio Parian handed down a verdict of acquittal
on both counts without imposing any civil liability against the accused therein.
Petitioners filed a Motion for Reconsideration of the civil aspect of the RTC
Decision which was, however, denied in an Order.
Issue:
Whether or not the case is derivative suit correctly filed in the Regional
Trial Court.
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Ruling:
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Facts:
Issue:
Ruling:
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From the above the following conclusion is clear: that we can only
regard as officers of a corporation those who are given that character either by
the Corporation Law or by its by-laws. The rest can be considered merely as
employees or subordinate officials. And considering that plaintiff has been
appointed manager by the board of directors and as such does not have the
character of an officer, the conclusion is inescapable that he can be suspended
or removed by said board of directors under such terms as it may see fit and
not as provided for in the by-laws. Evidently, the power to appoint carries with
it the power to remove, and it would be incongruous to hold that having been
appointed by the board of directors he could only be removed by the
stockholders.
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Facts:
Issue:
Ruling:
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its stockholders, and between them and the corporation. Private respondent
also contends that his "ouster" was a scheme to intimidate him into selling his
shares and to deprive him of his just and fair return on his investment as a
stockholder received through his salary and allowances as Executive Vice-
President. Vis-a-vis the NLRC, these matters fall within the jurisdiction of the
SEC. (PBSA vs Leano).
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Facts:
Issue:
Whether or not the NLRC has jurisdiction over the dismissal case.
Ruling:
No. The SEC, and not the NLRC, has original and exclusive
jurisdiction over cases involving the removal of corporate officers. Section 5,
paragraph (c) of P.D. 902-A unequivocally provides that SEC has jurisdiction
over intra-corporate affairs regarding the election or appointment of officers
of a corporation.
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Facts:
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Issues:
2. Whether or not the said contract was valid and not merely simulated.
Ruling:
The pivotal issue was the enforceability of the Second Contract, which bound
People’s Aircargo through Punsalan for consultancy services in the amount of
P400,000.00, 50% of which should be paid upon completion the
seminar/workshop and the other 50% upon approval by the Commissioner.
People’s Aircargo argues that the contract is unenforceable because
Punsalan, its president, was not authorized by its board of directors to enter
into said contract.
The general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct from its stockholders
and members, "having powers, attributes and properties expressly authorized
by law or incident to its existence."
Under this provision, the power and the responsibility to decide whether
the corporation should enter into a contract that will bind the corporation is
lodged in the board, subject to the articles of incorporation, by-laws, or
relevant provisions of law. However, just as a natural person may authorize
another to do certain acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to officers, committees or
agents. The authority of such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from the board, either
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Thus the authority to act for and to bind a corporation may be presumed
from acts of recognition in other instances, wherein the power was in fact
exercised without any objection from its board or shareholders. People’s
Aircargo had previously allowed its president to enter into the First Contract
with Saño without a board resolution expressly authorizing him; thus, it had
clothed its president with apparent authority to execute the subject contract.
Although there were badges of fraud, the same cannot affect the
perfection of the contract. First, the lack of payment (whether down, partial or
full payment), even after completion of Saño’s obligations, imports only a
defect in the performance of the contract on the part of petitioner. Second, the
delay in the filing of action was not fatal to Saño’s cause. Despite the lapse of
one year after he completed his services or eight months after the alleged last
demand for payment in June 1987, the action was still filed within the
allowable period, considering that an action based on a written contract
prescribes only after ten years from the time the right of action accrues. Third,
a misspelling in the contract does not establish vitiation of consent, cause or
object of the contract. Fourth, a confirmation letter is not an essential element
of a contract, neither is it necessary to perfect one. Fifth, Saño’s failure to
implead the corporate president does not establish collusion between them.
People’s Aircargo could have easily filed a third-party claim against Punsalan
if it believed that it had recourse against the latter. Lastly, the mere fact that
the contract price was six times the alleged going rate does not invalidate it.
In short, these "badges" do not establish simulation of said contract.
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Facts:
The late Manuel A. Torres, Jr. was the major stockholder of Tormil
Realty & Development Corporation while private respondents who are the
children of Judge Torres' deceased brother Antonio A. Torres, constituted the
minority stockholders. In particular, their respective shareholdings and
positions in the corporation.
Issue:
Ruling:
No. The shortage of 972 shares would not be valid ground for
respondent Torres to unilaterally revoke the deeds of assignment he had
executed on July 13, 1984 and July 24, 1984 wherein he voluntarily assigned
to TORMIL real properties covered by TCT No. 374079 (Makati) and TCT
No. 41527, 41528 and 41529 (Pasay) respectively. A comparison of the
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Facts:
Issue:
Ruling:
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respondent was not ultra vires but a valid execution of the trial court's partial
decision.
Based on the foregoing, the sale is also deemed to have satisfied the
requirements of Section 40 of the Corporation Code.
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Facts:
Issue:
Ruling:
No. First, petitioner itself concedes having raised the issue belatedly,
not having done so during the trial, but only when it filed its sur-rejoinder
before the Court of Appeals. Thus, this Court cannot entertain said issue at
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this late stage of the proceedings. It is well-settled the points of law, theories
and arguments not brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court, as they cannot be
raised for the first time on appeal. Allowing petitioner to change horses in
midstream, as it were, is to run roughshod over the basic principles of fair
play, justice and due process.
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Facts:
The NLRC ruled for the respondent. Thereafter, imputing grave abuse
of discretion on the part of the NLRC, petitioners elevated the case to the
Supreme Court via petition for certiorari. They alleged that private respondent
was properly served with summons in accordance with the Rules of Court
through its bookkeeper at its provincial office address. By virtue of said
service of summons, the Labor Arbiter acquired jurisdiction over private
respondent. Private respondent contends that it was not validly served with
summons, since its bookkeeper cannot be considered as an agent under
Section 13, Rule 14 of the old Rules of Court upon whom valid service can be
made. Consequently, the Labor Arbiters decision is void as it was rendered
without jurisdiction over private respondent.
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Issue:
Ruling:
The rules on service of process make service on agent sufficient. It does not
in any way distinguish whether the agent be general or special, but is complied
with even by a service upon an agent having limited authority to represent his
principal. As such, it does not necessarily connote an officer of the
corporation. However, though this may include employees other than officers
of a corporation, this does not include employees whose duties are not so
integrated to the business that their absence or presence will not toll the entire
operation of the business. It is for this reason that the Supreme Court lent
credence to the finding of the Labor Arbiter when it ruled that it required
jurisdiction over private respondent on the basis of Section 5, Rule III of the
NLRC Rules of Procedure.
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Officers of a corporation are not liable for their official acts unless they
exceeded their authority.
Facts:
The labor arbiter ruled in favor of the workers ordering PIF and its
officers Mr. Jaime Pabalan and Mr. Eduardo Lagdameo to jointly and
severally reinstate and pay the workers their backwages and other benefits
prayed for.
Issue:
Ruling:
No. The settled rule is that the corporation is vested by law with a
personality separate and distinct from the persons composing it, including its
officers as well as from that of any other legal entity to which it may be related.
Thus, a company manager acting in good faith within the scope of his
authority in terminating the services of certain employees cannot be held
personally liable for damages. Mere ownership by a single stockholder or by
another corporation of all or nearly all capital stocks of the corporation is not
by itself sufficient ground for disregarding the separate corporate personality.
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Facts:
After due hearing, Labor Arbiter dismissed the complaints for illegal
dismissal but ordered Crispa, Inc., Floro and the petitioners to pay respondent
employees separation pays equivalent to 17 days for every year of service.
Petitioners filed a Motion for Reconsideration but the same was denied
by the NLRC.
Issue:
Whether or not Crispa, Inc., and its board of directors are solidarily
liable for back wages and separation pay to be awarded to respondents
Ruling:
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people comprising it. The general rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are its sole
liabilities. There are times, however, when solidary liabilities may be incurred
but only when exceptional circumstances warrant such as in the following
cases:
“1. When directors and trustees or, in appropriate cases, the officers of
a corporation:
(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the
corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
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PART IX
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The clear intendment of its Charter is for LBP to be clothed not only
with the express powers granted to it, but also with those implied, incidental
and necessary for the exercise of those express powers.
Facts:
The resolution also provided that "in cases of defaults in loan payment
and other credit accommodations due to unforeseen, highly justifiable reasons
or circumstances beyond the control of the borrower such as damages due to
natural calamities, sickness, adverse government rulings or court judgments,
duly processed and verified by the lending units, penalty charges may be
condoned or reduced by the Loan Executive Committee upon
recommendation of the appropriate lending units"
LBP requested its Corporate Auditor to pass in audit its waiver of the
penalty charges. The said official questioned the waiver and opined that the
power to condone interests or penalties is vested exclusively in the
Commission on Audit (COA) but in the absence of a categorical ruling on the
matter applicable to a government banking institution, referred the LBP
request to the COA. The COA ruled that the waiver is unauthorized and should
outright be disallowed in audit.
Issue:
Ruling:
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Facts:
Issue:
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Ruling:
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An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and therefore
beyond the power conferred upon it by law. The term “ultra vires” is
“distinguished from an illegal act for the former is merely voidable which
may be enforced by performance, ratification, or estoppel, while the latter is
void and cannot be validated.
Facts:
Issue:
Whether the issuance of the questioned checks was an ultra vires act
Ruling:
Yes. An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and therefore
beyond the power conferred upon it by law. The term “ultra vires” is
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“distinguished from an illegal act for the former is merely voidable which may
be enforced by performance, ratification, or estoppel, while the latter is void
and cannot be validated.
1. He assents:
(a) to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
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Facts:
Issues:
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Ruling:
1. No. There is no proof that a contract was perfected in the said meeting.
Lopez’ testimony about the contract being written in a napkin is not
corroborated because the napkin was never produced in court. Further, there
is no meeting of the minds because Del Rosario’s offer was of 104 films for
P60 million was not accepted. And that the alleged counter-offer made by
Lopez on the same day was not also accepted because there’s no proof of such.
The counter offer can only be deemed to have been made days after the April
2 meeting when Santos-Concio sent a letter to Del Rosario containing the
counter-offer. Regardless, there was no showing that Del Rosario accepted.
But even if he did accept, such acceptance will not bloom into a perfected
contract because Del Rosario has no authority to do so.
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The Board may enter into contracts through the president. The
president may only enter into contracts upon authority of the Board. Hence,
any agreement signed by the president is subject to approval by the Board.
Unlike a general manager, the president has no apparent authority to enter
into binding contracts with third persons.
Facts:
Later, Yao Ka Sin sued Prime White to compel the latter to comply with
what Yao Ka Sin considered as the true contract, i.e., 45,000 bags at P24.30
per bag. Prime White in its defense averred that although Maglana is
empowered to sign contracts in behalf of Prime White, such contracts are still
subject to approval by Prime White’s Board, and then it still requires further
approval by the National Investment and Development Corporation (NIDC),
a government owned and controlled corporation because Prime White is a
subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract
because it was made under the apparent authority of Maglana. The trial court
ruled in favor of Yao Ka Sin. The Court of Appeals reversed the trial court.
Issue:
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Ruling:
No. The Board may enter into contracts through the president. The
president may only enter into contracts upon authority of the Board. Hence,
any agreement signed by the president is subject to approval by the Board.
Unlike a general manager (like the case of Francisco vs GSIS), the
president has no apparent authority to enter into binding contracts with third
persons. Further, if indeed the by-laws of Prime White did provide Maglana
with apparent authority, this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner,
by which the corporation holds out an officer or agent as having power to act
or, in other words, the apparent authority with which it clothes him to act in
general or (2) acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or without the scope of his
ordinary powers. These are not present in this case.
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Facts:
Even prior to November 1986, petitioner and Nida Lopez knew each
other because of Rosario Pardo, the latter’s sister. During their meeting,
petitioner was hesitant to accept the job because of her many out of town
commitments, and also considering that Ms. Lopez was asking that the
designs be submitted by December 1986, which was such a short notice. Ms.
Lopez insisted, however, because she really wanted petitioner to do the design
for renovation. Petitioner acceded to the request. Ms. Lopez assured her that
she would be compensated for her services. Petitioner even told Ms. Lopez
that her professional fee was ten thousand pesos (P10,000.00), to which Ms.
Lopez acceded.
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Issue:
Whether or not Nida Lopez, the manager of the bank branch, had
authority to bind the bank in the transaction.
Ruling:
The designs petitioner submitted to Ms. Lopez were not returned. Ms.
Lopez, an officer of the bank as branch manager used such designs for
presentation to the board of the bank. Thus, the designs were in fact useful to
Ms. Lopez for she did not appear to the board without any designs at the time
of the deadline set by the board.
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Under 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.
Facts:
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Issue:
Ruling:
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.
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Facts:
The certificate was later sold to Francisco Benitez, Jr., who resold it to
Rodi Taxicab Company. Both sales were made with assumption of the
mortgage in favor of the RFC, and were also approved provisionally by the
Commission, subject to petitioner's lien.
Before the death of Amador D. Santos, he sold all his rights and
interests in the certificate of public convenience in question to respondent
A.D. Santos, Inc. The latter opposed petitioner’s application on the ground
that under the petitioner's Articles of Incorporation, it was not authorized to
engage in the taxicab business or operate as a common carrier.
Issue:
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Ruling:
No. While it is not denied that under the Corporation Law, a corporation
may purchase, hold, and otherwise deal in such real and personal property,
this is qualified by “ for the purpose for which the corporation was formed
may permit and the transaction of its lawful business may reasonably and
necessarily require.”
There is thus a need to determine whether the purpose for which Luneta
Motor was organized and the transaction on its lawful business reasonably and
necessarily require the purchase and holding by it of a Certificate of Public
Convenience and thus, give it additional authority to operate as a common
carrier.
The fact that Luneta Motor may engage in the transportation of persons
by water does not mean that it may engage in the business of land
transportation-- an entirely different line of business.
It could not thus engage in this line of business, it follows that it may
not acquire a certificate of public convenience to operate a taxicab service
because such acquisition would be without purpose and would have no
necessary connection with Luneta Motor’s legitimate business.
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Facts:
Vic Ang Siong sought the dismissal of the case on two grounds: First,
that petitioner had no authority to file the case on behalf of Concord, the payee
of the dishonored check, since the firms board of directors had not empowered
him to act on its behalf. Second, he and Concord had already agreed to
amicably settle the issue after he made a partial payment of P19,000,000.00
on the dishonored check.
The City Prosecutor dismissed the case on the grounds that: (1) that
petitioner lacked the requisite authority to initiate the criminal complaint for
and on Concords behalf; and (2) that Concord and Vic Ang Siong had already
agreed upon the payment of the latters balance on the dishonored check.
Petitioner then filed a case to compel the Chief State Prosecutor to file
or cause the filing of an information charging Vic Ang Siong with violation
of B.P. Blg. 22. For utter lack of merit, the petition for mandamus of petitioner
was denied and dismissed, hence, the instant petition.
Issue:
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Ruling:
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Facts:
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any petition to amend its AOI brought about by such increase in its
capitalization.
Petitioner argues that its authorized capital stock, not its unauthorized
paid-up capital, should be used in determining its capital impairment. Citing
two SEC Opinions which interpreted Sec 38 of the Corporation Code, it
claims that “the capital stock of a corporation stand(s) increased or decreased
only from and after approval and the issuance of the certificate of filing of
increase of capital stock.
Issue:
Held:
The records reveal, however, that petitioner included in its total paid-
up capital payments on advance subscriptions, although the proposed
increase in its capitalization had not yet been approved by, let alone presented
for the approval of, the SEC.
Thus, it's authorized capital stock in the year when exemption from the
subject wage order was sought stood at P128M, which was impaired by losses
of nearly 50%.
Since the subject wage order exempts from its coverage employers
whose capital has been impaired by at least 25%, and petitioner suffered losses
of nearly 50%, petitioner qualifies for the exemption and its application for
the same should be approved.
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Facts:
In 1989, the Carpizo group passed a Board Resolution authorizing the sale of
the land to Iglesia Ni Cristo ("INC"), and a Deed of Sale was eventually
executed.
In 1991, the Tamano Group filed a petition before the SEC questioning the
sale.
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In 1993, the SEC ruled that the sale was null and void . On appeal CA reversed
the SEC ruling.
Issue:
Whether or not the sale between the Carpizo group and INC is null and
void.
Ruling:
Since the SEC has declared the Carpizo group as a void Board of
Trustees, the sale it entered into with INC is likewise void. Without a valid
consent of a contracting party, there can be no valid contract.
In this case, the IDP, never gave its consent, through a legitimate Board
of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC.
Therefore, this is a case not only of vitiated consent, but one where consent
on the part of one of the supposed contracting parties is totally wanting.
Ineluctably, the subject sale is void and produces no effect whatsoever.
The subject lot constitutes the only property of IDP. Hence, its sale to
a third-party is a sale or disposition of all the corporate property and assets of
IDP. For the sale to be valid, the majority vote of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the bona fide members of
the corporation should have been obtained. These twin requirements were not
met in the case at bar.
Ancillary Issue:
Ruling:
NO. Section 49(b), Rule 39 enunciates the first concept of res judicata
known as "bar by prior judgment," whereas, Section 49(c), Rule 39 is referred
to as "conclusiveness of judgment."
There is "bar by former judgment" when, between the first case where
the judgment was rendered, and the second case where such judgment is
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invoked, there is identity of parties, subject matter and cause of action. When
the three identities are present, the judgment on the merits rendered in the first
constitutes an absolute bar to the subsequent action. But where between the
first case wherein judgment is rendered and the second case wherein such
judgment is invoked, there is only identity of parties but there is no identity
of cause of action, the judgment is conclusive in the second case, only as to
those matters actually and directly controverted and determined, and not as to
matters merely involved therein. This is what is termed "conclusiveness of
judgment."
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Facts:
Plaintiffs are suing as stockholders on their own behalf and for the
benefit of the Ma-ao Sugar Central Co., Inc. The complaint stated five causes
of action, to wit: (1) for alleged illegal and ultra-vires acts consisting of self-
dealing irregular loans, and unauthorized investments; (2) for alleged gross
mismanagement; (3) for alleged forfeiture of corporate rights warranting
dissolution; (4) for alleged damages and attorney's fees; and (5) for
receivership.
The case presented several points of which are the bases for the causes
of action; however, I will only focus on what is relevant to the topic.
After the trial, the lower court held a decision in which not all of
plaintiff’s prayers were granted. One such prayer is to hold the individual
defendants liable for their ultra vires act of investing in Philippine Fiber
Processing Co., Inc., a company engaged in the manufacture of sugar bags,
the amount of P655,000 in shares of stock of the defendant corporation by
collecting, producing and/or paying to the defendant corporation the
outstanding balance of the amounts so diverted and still unpaid to defendant
corporation.
The plaintiffs submitted that the investment of corporate funds of the Ma-
ao Sugar Central Co., Inc., in the Philippine Fiber Processing Co., Inc. was a
violation of Sec. 17 of the Corporation Law which provides:
No corporation organized under this act shall invest its funds in any
other corporation or business or for any purpose other than the main
purpose for which it was organized unless its board of directors has
been so authorized in a resolution by the affirmative vote of
stockholders holding shares in the corporation entitling them to
exercise at least two-thirds of the voting power on such proposal at the
stockholders' meeting called for the purpose.
The lower court held that “the law should be understood to mean as the
authorities state, that it is prohibited to the Corporation to invest in shares
of another corporation unless such an investment is authorized by 2/3 of
the voting power of the stockholders, if the purpose of the corporation in
which investment is made is foreign to the purpose of the investing
corporation because surely there is more logic in the stand that if the
investment is made in a corporation whose business is important to the
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On the other hand, the defendants, as appellees, invoked Sec. 13, par. 10
of the Corporation Law, which provides:
SEC. 13. — Every corporation has the power:
xxxxxxxxx
(9) To enter into any obligation or contract essential to the proper
administration of its corporate affairs or necessary for the proper
transaction of the business or accomplishment of the purpose for which
the corporation was organized;
(10) Except as in this section otherwise provided, and in order to
accomplish its purpose as stated in the articles of incorporation, to
acquire, hold, mortgage, pledge or dispose of shares, bonds, securities
and other evidences of indebtedness of any domestic or foreign
corporation.
A reading of the two afore-quoted provisions shows that there is need for
interpretation of the apparent conflict.
Issue:
Ruling:
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Therefore, the SC agrees with the lower court ruling. The investment
by a sugar central in the equity of a sugar bag manufacturing company falls
within the implied powers of the sugar central as part of its primary purpose
and does not need ratification by the stockholders.
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Facts:
On its modified contract Nielson will receive (1) 10% of the dividends
declared and paid, when and as paid during the period of the contract and at
the end of each year, (2) 10% of any depletion reserve that may set up, and
(3) 10% of any amount expended during the year out of surplus earnings for
capital account.
Shortly after the mines were liberated from the Japanese invaders in
1945, a disagreement arose between NIELSON and LEPANTO over the
status of the operating contract in question which as renewed expired in 1947.
Issue:
Ruling:
No corporation organized under this Act shall create or issue bills, notes
or other evidence of debt, for circulation as money, and no corporation shall
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issue stock or bonds except in exchange for actual cash paid to the corporation
or for: (1) property actually received by it at a fair valuation equal to the par
or issued value of the stock or bonds so issued; and in case of disagreement
as to their value, the same shall be presumed to be the assessed value or the
value appearing in invoices or other commercial documents, as the case may
be; and the burden or proof that the real present value of the property is greater
than the assessed value or value appearing in invoices or other commercial
documents, as the case may be, shall be upon the corporation, or for (2) profits
earned by it but not distributed among its stockholders or members; Provided,
however, That no stock or bond dividend shall be issued without the approval
of stockholders representing not less than two-thirds of all stock then
outstanding and entitled to vote at a general meeting of the corporation or at a
special meeting duly called for the purpose.
In the case at bar Nielson cannot be paid in shares of stock which form
part of the stock dividends of Lepanto for services it rendered under the
management contract. We sustain the contention of Lepanto that the
understanding between Lepanto and Nielson was simply to make the cash
value of the stock dividends declared as the basis for determining the amount
of compensation that should be paid to Nielson, in the proportion of 10% of
the cash value of the stock dividends declared. In other words, Nielson must
still be paid his 10% fee using as the basis for computation the cash value of
the stock dividends declared.
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So, a stock dividend is actually two things: (1) a dividend, and (2) the
enforced use of the dividend money to purchase additional shares of stock at
par. When a corporation issues stock dividends, it shows that the corporation’s
accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available for distribution, in money or
kind, should opportunity offer.
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Stock dividend is the amount that the corporation transfers from its
surplus profit account to its capital account. It is the same amount that can
loosely be terms as the “trust fund” of the corporation
Facts:
Issue:
Ruling:
The law in point is clear and categorical. The basis for computation of
the fee to be charged by NTC on PLDT is the capital stock subscribed or paid
and not the property and equipment.
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It bears stressing that it is not the NTC that imposed such a fee. It is the
legislature itself. Since Congress has the power to exercise the State inherent
powers of Police Power, Eminent Domain and Taxation, the distinction
between police power and the power to tax, which could be significant if the
exercising authority were mere political subdivisions, would not be of any
moment when, as in the case under consideration, Congress itself exercises
the power. All that is to be done would be to apply and enforce the law when
sufficiently definitive and not constitutional infirm.
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Facts:
Said certificates of stock bear the following terms and conditions: "The
Preferred Stock shall have the following rights, preferences, qualifications and
limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%,
cumulative and participating. xxx 2. That such preferred shares may be
redeemed, by the system of drawing lots, at any time after 2 years from the
date of issue at the option of the Corporation."
The bank's Motion to Dismiss was denied by the trial court in an order
dated 16 March 1979. The bank then filed its Answer on 2 May 1979.
Thereafter, the trial court gave the parties 10 days from 30 July 1979 to submit
their respective memoranda after the submission of which the case would be
deemed submitted for resolution. On 7 September 1979, the trial court
rendered the decision in favor of RFRDC and Robes; ordering the bank to pay
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RFRDC and Robes the face value of the stock certificates as redemption price,
plus 1% quarterly interest thereon until full payment.
The bank filed the petition for certiorari with the Supreme Court,
essentially on pure questions of law.
Issues:
Whether RFRDC and Robes are entitled to the payment of certain rate
of interest on the stocks as a matter of right without necessity of a prior
declaration of dividend.
Ruling:
1st Issue: While the stock certificate does allow redemption, the option
to do so was clearly vested in the bank. The redemption therefore is clearly
the type known as "optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the corporation and the
stockholder is without right to either compel or refuse the redemption of its
stock. Furthermore, the terms and conditions set forth therein use the word
"may". It is a settled doctrine in statutory construction that the word "may"
denotes discretion, and cannot be construed as having a mandatory effect. The
redemption of said shares cannot be allowed.
The Central Bank made a finding that the Bank has been suffering from
chronic reserve deficiency, and that such finding resulted in a directive, issued
on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the
President and Acting Chairman of the Board of the bank prohibiting the latter
from redeeming any preferred share, on the ground that said redemption
would reduce the assets of the Bank to the prejudice of its depositors and
creditors. Redemption of preferred shares was prohibited for a just and valid
reason. The directive issued by the Central Bank Governor was obviously
meant to preserve the status quo, and to prevent the financial ruin of a banking
institution that would have resulted in adverse repercussions, not only to its
depositors and creditors, but also to the banking industry as a whole. The
directive, in limiting the exercise of a right granted by law to a corporate
entity, may thus be considered as an exercise of police power.
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Facts:
Linda Aduca who wrote the computation of the balance; that on March
2, 1989, plaintiff-appellant was ready with the amount corresponding to the
balance, covered by Metrobank cashier’s check no. 004223 payable to
defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and
defendant-appellee were supposed to meet in the plaintiff-appellant’s office
but defendant-appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that
defendant-appelle despite repeated demands and in utter disregard of its
commitments had refused to execute the transfer of rights/deed of assignment
which is necessary to transfer the certificate of title;
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transferred to the latter the subject property; that by reason of said transfer;
the registry of deeds of Quezon City issued a new title in the name of Motorich
Sales Corporation, represented by defendant-appellee Nenita Lee Gruenbeg
and Reynaldo L. Gruenbeg, under TCT no. 3751;
Issues:
Whether or not the corporation’s treasurer act can bind the corporation.
Held:
As a general rule, the acts of corporate officers within the scope of their
authority are binding on the corporation. But when these officers exceed their
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authority, their actions, cannot bind the corporation, unless it has ratified such
acts as is estopped from disclaiming them.
We stress that the corporate fiction should be set aside when it becomes
a shield against liability for fraud, or an illegal act on inequity committed on
third person. The question of piercing the veil of corporate fiction is
essentially, then a matter of proof. In the present case, however, the court finds
no reason to pierce the corporate veil of respondent Motorich. Petitioner
utterly failed to establish the said corporation was formed, or that it is operated
for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud,
illegality or inequity at the expense of third persons like petitioner.
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The power to borrow money is one of those cases where even a special
power of attorney is required under Art. 1878 of the New Civil Code. There is
invariably a need of an enabling act of the corporation to be approved by its
Board of Directors. The argument that the obtaining of loan was in
accordance with the ordinary course of business usages and practices of the
corporation is devoid of merit because the prevailing practice in the
corporation was to explicitly authorize an officer to contract loans in behalf
of the corporation.
Facts:
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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.
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Issue:
Held:
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.
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Facts:
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Issue:
Ruling:
YES. The Court is not persuaded that the subject resolutions had no
force and effect in view of the non-approval thereof during the Annual
Stockholders' Meeting held on March 1, 1982. To strengthen their position,
petitioners cite section 28 1/2 of the Corporation Law (Section 40 of the
Corporation Code).
The cited provision is not applicable to the case at bench as it refers to
the sale, lease, exchange or disposition of all or substantially all of the
corporation's assets, including its goodwill. In such a case, the action taken by
the board of directors requires the authorization of the stockholders on record.
It will be observed that, except for Arturo Lopez, the stockholders of
petitioner corporation also sit as members of the board of directors. Under the
circumstances in field, it will be illogical and superfluous to require the
stockholders' approval of the subject resolutions. Thus, even without the
stockholders' approval of the subject resolutions, petitioners are still liable to
pay private respondents' gratuity pay.
Petition is dismissed.
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Facts:
Issue:
Whether or not a corporation may enter into a joint venture with another
corporation.
Ruling:
It is true that the complaint states that the plaintiff is "represented herein
by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
there is nothing against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio Araneta,
Inc. cannot act as managing partner for plaintiff on the theory that it is illegal
for two corporations to enter into a partnership is without merit, for the true
rule is that "though a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its charter." (Wyoming-
Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2. Fletcher Cyc. of
Corp., 1082.). There is nothing in the record to indicate that the venture in
which plaintiff is represented by Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate business of either of them.
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