FRANCISCA S.

BALUYOT
vs.
PAUL E. HOLGANZA and the OFFICE OF THE OMBUDSMAN (VISAYAS)
represented by its Deputy Ombudsman for the Visayas ARTURO C. MOJICA,
Director VIRGINIA PALANCA-SANTIAGO, and Graft Investigation Officer I ANNA
MARIE P. MILITANTE
G.R. No. 136374

FACTS:
Holganza, in his capacity as a member of the board Bohol chapter filed a
complaint with the Ofc. of the Ombudsman for malversation. Upon recommendation of
respondent Militante, an administratiave

During a spot audit in 1977, the auditors from the Philippine National Red Cross
(PNRC) headquarters discovered a case shortage in the funds of its Bohol chapter. The
chapter administrator, petitioner Baluyot, was held accountable and thereafter,
respondent Holganza docket of dishonesty was also opened against Baluyot. Baluyot
raised the defense that the Ombudsman had no jurisdiction as he had authority only
over government owned or controlled corporations which the PNRC was not. She gives
as evidence of its private character 1) it does not receive budgetary support from the
government and all money given to it by the latter and its instrumentalities become
private funds of the organization. 2) funds for the payment of personnel’s salaries and
other emoluments come from yearly fund campaigns, private contributions and
rentals from its properties. 3) it is not audited by COA. PNRC, petitioner claims falls
under the International Federation of Red Cross, Swiss-based organization.

ISSUE:

Whether or not PNRC is a government owned or controlled corporation.

RULING:

Yes. PNRC is a government owned and controlled corporation, with an original

charter under RA No. 95, as amended. The test to determine whether a corporation is
government owned or controlled or private in nature is simple. Is it created by its own
charter for the exercise of a public function, or by incorporation under the general
corporation law? Those with special charters are government corporations subject to
its provisions, and its employees are under the jurisdiction of the Civil Service
Commission, and are compulsory members of the GSIS.
The PNRC was not “impliedly converted to a private corporation” simply
because its charter was amended to vest in it the authority to secure loans, be
exempted from payment of all duties, taxes, fees and other charges of all kinds on all
importations and purchases for its exclusive use, on donations for its disaster relief
work and other services and in its benefits and fund raising drives.” Clearly then,
public respondent has jurisdiction over the matter.
STRONG LEGAL PERSONALITY

REMO, JR.
vs.
INTERMEDIATE APPELLATE COURT
172 SCRA 405. April 18, 1989

FACTS:

The Board of Directors of Akron Corporation composed of petitioner Remo,

Feliciano Coprada, et al. adopted a resolution authorizing the purchase of 13 trucks

for use in its business. Feliciano Coprada as President and Chairman of Akron,

purchased 13 trucks from respondent E.B. Marcha Transport with a downpayment of

P50,000 and a security by way of promissory note executed by Coprada in favor of

Akron. Akron paid rentals a day but sometime after lapsed in payment. Coprada wrote

respondent asking for grace period and eventually returned the 10 trucks. Respondent
filed a complaint for the recovery of the sum or 13 trucks against Akron and its
officers/directors. The trial court and later the IAC found for respondent. Petitioner

contends that he should not be held personally liable for the corporation’s liabilities.

ISSUE:
Whether or not petitioner may be held personally liable for the corporation’s
liabilities.

RULING:

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 for its obligation
to private respondent. While it is true that petitioner was still a member of the board

of directors of Akron and that he participated in the adoption of a resolution

authorizing the purchase of 13 trucks for the use in the brokerage business of Akron

to be paid out of a loan to be secured from a lending institution, it does not appear

that said resolution was intended to defraud anyone and more particularly private

respondent. It was Coprada, President and Chairman of Akron, who negotiated with

said respondent for the purchase of 13 cargo trucks. It was Coprada who signed a
promissory note to guarantee the payment of the unpaid balance of the purchase price

out of the proceeds of a loan he supposedly sought from the DBP. The word “WE’ in

the said promissory note must refer to the corporation which Coprada represented in

the execution of the note and not its stockholders or directors. Petitioner did not sign
the said promissory note so he cannot be personally bound thereby.

CENTRALIZED MANAGEMENT

FIRME
vs.
BUKAL ENTERPRISES
G.R. No. 146608

FACTS:

Spouses Constante and Azucena Firme are the registered owners of a parcel of
land located on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro, the vice
president of Bukal Enterprises and Development Corporation authorized his friend,
Teodoro Aviles, a broker, to negotiate with the Spouses Firme for the purchase of the
Property. On 28 March 1995, Bukal Enterprises filed a complaint for specific
performance and damages with the trial court, alleging that the Spouses Firme
reneged on their agreement to sell the Property. The complaint asked the trial court to
order the Spouses Firme to execute the deed of sale and to deliver the title to the
Property to Bukal Enterprises upon payment of the agreed purchase price. On 7
August 1998, the trial court rendered judgment against Bukal Enterprises, dismissing
the case and ordering Bukal Enterprises to pay the Spouses Constante and Azucena
Firme (1) the sum of P335,964.90 as and by way of actual and compensatory
damages; (2) the sum of P500,000.00 as and by way of moral damages; (3) the sum of
P100,000.00 as and by way of attorney’s fees; and (4) the costs of the suit.

The trial court held there was no perfected contract of sale as Bukal Enterprises failed
to establish that the Spouses Firme gave their consent to the sale of the Property; and
that Aviles had no valid authority to bind Bukal Enterprises in the sale transaction.
Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside the
decision of the trial court.

ISSUE:
Whether or not there was a perfected contract between the Spouses Firme and
Bukal Enterprises, the latter allegedly being represented by Aviles.
RULING:
No. There was no approval from the Board of Directors of Bukal Enterprises as
would finalize any transaction with the Spouses Firme. Aviles did not have the proper
authority to negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro,
had asked him to negotiate with the Spouses Firme to buy the Property. De Castro, as
Bukal Enterprises’ vice president, testified that he authorized Aviles to buy the
Property. However, there is no Board Resolution authorizing Aviles to negotiate and
purchase the Property on behalf of Bukal Enterprises.
The power to purchase real property is vested in the board of directors or
trustees. While a corporation may appoint agents to negotiate for the purchase of real
property needed by the corporation, the final say will have to be with the board, whose
approval will finalize the transaction. A corporation can only exercise its powers and
transact its business through its board of directors and through its officers and agents
when authorized by a board resolution or its by-laws.
Section 23 of the Corporation Code expressly provides that the corporate
powers of all corporations shall be exercised by the board of directors. Just as a
natural person may authorize another to do certain acts in his behalf, so may the
board of directors of a corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a corporation must be
made either by the board of directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the rule is that the declarations of
an individual director relating to the affairs of the corporation, but not in the course
of, or connected with, the performance of authorized duties of such director, are held
not binding on the corporation. In this case, Aviles, who negotiated the purchase of
the Property, is neither an officer of Bukal Enterprises nor a member of the Board of
Directors of Bukal Enterprises. There is no Board Resolution authorizing Aviles to
negotiate and purchase the Property for Bukal Enterprises. There is also no evidence
to prove that Bukal Enterprises approved whatever transaction Aviles made with the
Spouses Firme.

LIMITED LIABILITY TO INVESTORS AND OFFICERS

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.

vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE
GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT
CORP.
G.R. No. 129459

FACTS:

A parcel of land was sold by Nenita Lee Gruenberg, the corporate treasurer of
defendant corporation Motorich Sale in favor of San Juan Structural and Steel
Fabricators, Inc. However, the latter failed to execute the necessary Transfer of
Rights/Deed of Assignment in favor of plaintiff-appellant. Hence a case for damages
was filed. The defendant corporation questions the validity of the contract entered by
its treasurer in its behalf without authorization from the corporation’s Board.

ISSUE:

Whether or not the doctrine of piercing the veil of corporate fiction be applied to
Motorich.

RULING:

No. The contract cannot bind Motorich, because it never authorized or ratified
such sale. A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation is not the
property of its stockholders or members and may not be sold by the stockholders or
members without express authorization from the corporation’s board of directors. The
corporation may act only through its board of directors, or, when authorized either by
its bylaws or by its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, bylaws,
or relevant provisions of law.
As to the piercing of the corporate veil, the same is not applicable. In the
present case, the Court finds no reason to pierce the corporate veil of Respondent
Motorich. Petitioner utterly failed to establish that 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.

CONSOLIDATED BANK
vs.
COURT OF APPEALS
356 SCRA 671

FACTS:
On July 13, 1982, Continental Cement Corporation (Continental Cement) and
its President, Gregory Lim, obtained from Consolidated Bank and Trust Corporation
(CBTC) Letter of Credit in the amount of P1,068,150.00 which was used to purchase
fuel oil from Petrophil Corporation. On the same date, Continental Cement paid a
marginal deposit of P320,445.00 to CBTC. In relation to the same transaction, a trust
receipt for the amount of P1,001,520.93 was executed by Continental Cement. CBTC
filed a complaint for sum of money claiming that Continental Cement and Lim failed to
turn over the goods covered by the trust receipt or the proceeds. In its answer,
Continental Cement argued that the transaction was a simple loan and not a trust
receipt transaction.
ISSUE:
Whether or not Gregory T. Lim and his spouse are personally liable in the trust
receipt agreement.

RULING:
No. The court is not convinced that respondent Gregory T. Lim and his spouse
should be personally liable under the subject trust receipt. Petitioner's argument that
respondent Corporation and respondent Lim and his spouse are one and the same
cannot be sustained. The transactions sued upon were clearly entered into by
respondent Lim in his capacity as Executive Vice President of respondent Corporation.
We stress the hornbook law that corporate personality is a shield against personal
liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse
cannot be made personally liable since respondent Lim entered into and signed the
contract clearly in his official capacity as Executive Vice President. The personality of
the corporation is separate and distinct from the persons composing it.

FREE TRANSFERABILITY OF OWNERSHIP TO INVESTORS

REMO, JR.
vs.
INTERMEDIATE APPELLATE COURT
172 SCRA 405. April 18, 1989

FACTS:

The Board of Directors of Akron Corporation composed of petitioner Remo,

Feliciano Coprada, et al. adopted a resolution authorizing the purchase of 13 trucks
for use in its business. Feliciano Coprada as President and Chairman of Akron,
purchased 13 trucks from respondent E.B. Marcha Transport with a downpayment of
P50,000 and a security by way of promissory note executed by Coprada in favor of
Akron. Akron paid rentals a day but sometime after lapsed in payment. Coprada wrote
respondent asking for grace period and eventually returned the 10 trucks. Respondent
filed a complaint for the recovery of the sum or 13 trucks against Akron and its
officers/directors. The trial court and later the IAC found for respondent. Petitioner
contends that he should not be held personally liable for the corporation’s liabilities.

ISSUE:
Whether or not petitioner may be held personally liable for the corporation’s
liabilities.

RULING:
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 for its obligation to
private respondent. While it is true that petitioner was still a member of the board of
directors of Akron and that he participated in the adoption of a resolution authorizing
the purchase of 13 trucks for the use in the brokerage business of Akron to be paid
out of a loan to be secured from a lending institution, it does not appear that said
resolution was intended to defraud anyone and more particularly private respondent.
It was Coprada, President and Chairman of Akron, who negotiated with said
respondent for the purchase of 13 cargo trucks. It was Coprada who signed a
promissory note to guarantee the payment of the unpaid balance of the purchase price
out of the proceeds of a loan he supposedly sought from the DBP. The word “WE’ in
the said promissory note must refer to the corporation which Coprada represented in
the execution of the note and not its stockholders or directors. Petitioner did not sign
the said promissory note so he cannot be personally bound thereby.

PHILIPPINE NATIONAL BANK

vs.
RITTARATO GROUP
362 SCRA 216.

FACTS:
PNB-IFL, a subsidiary company of PNB extended credit to Ritratto and secured
by the real estate mortgages on four parcels of land. Since there was default, PNB-IFL
thru PNB, foreclosed the property and were subject to public auction. Ritratto Group
filed a complaint for injunction. PNB filed a motion to dismiss on the grounds of
failure to state a cause of action and the absence of any privity between respondents
and petitioner

ISSUE:
Is PNB privy to the loan contracts entered into by respondent & PNB-IFL being
that PNB-IFL is owned by PNB?

HELD:
No. The contract questioned is one entered into between Ritratto and PNB-IFL.
PNB was admittedly an agent of the latter who acted as an agent with limited
authority and specific duties under a special power of attorney incorporated in the real
estate mortgage
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.
CORPORATE NAME

RED LINE TRANS.

vs
RURAL TRANSIT
60 PHIL. 549

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. On June 4, 1932, Rural Transit filed an
application for certification of a new service between Tuguegarao and Ilagan with the
Public Company Service Commission (PSC), since the present service is not sufficient.
Rural Transit further stated that it is a holder of a certificate of public convenience to
operate a passenger bus service between Manila and 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.

On Dec. 21, 1932, Public Service Commission approved Rural Transit’s application,
with the condition that "all the other terms and conditions of the various certificates of
public convenience of the herein applicant and herein incorporated are made a part
hereof." 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. PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to
continue using Rural Transit’s name as its tradename in all its applications and
petitions to be filed before the PSC. Said resolution was given a retroactive effect as of
the date of filing of the application or April 30, 1930

ISSUE:
Whether or not the Public Service Commission can authorize a corporation to
assume the name of another corporation as a trade name
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." A corporation has
the power "of succession by its corporate name." It is essential to its existence and
cannot change its name except in the manner provided by the statute. By that name
alone is it authorized to transact business. The law gives a corporation no express or
implied authority to assume another name that is unappropriated: still less that of
another corporation, which is expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered trade name the name of
another corporation, this practice would result in confusion and open the door to
frauds and evasions and difficulties of administration and supervision.

In this case, the order of the commission authorizing the Bachrach Motor Co.,
Incorporated, to assume the name of the Rural Transit Co., Ltd. likewise incorporated,
as its trade name being void. Accepting the order of December 21, 1932, at its face as
granting a certificate of public convenience to the applicant Rural Transit Co., Ltd., the
said order last mentioned is set aside and vacated on the ground that the Rural
Transit Company, Ltd., is not the real party in interest and its application was
fictitious

REPUBLIC PLANTERS BANK

vs.
COURT OF APPEALS,
G.R. No. 93073 December 21, 1992

FACTS:

Shozo Yamaguchi and Fermin Canlas were President/Chief Operating Officer

and Treasurer respectively, of Worldwide Garment Manufacturing, Inc. By virtue of
Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private
respondent Fermin Canlas were authorized to apply for credit facilities with the
petitioner Republic Planters Bank in the forms of export advances and letters of
credit/trust receipts accommodations.
Petitioner bank issued nine promissory notes. In some promissory notes, the
name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above
the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to
change its corporate name to Pinch Manufacturing Corporation. Subsequently,
petitioner bank filed a complaint for the recovery of sums of money covered among
others, by the nine promissory notes with interest thereon, plus attorney's fees and
penalty charges.
The complainant was originally brought against Worldwide Garment
Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide
Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it
its place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not
file an Amended Answer and failed to appear at the scheduled pre-trial conference
despite due notice.
Only private respondent Fermin Canlas filed an Amended Answer wherein he
denied having issued the promissory notes in question since according to him, he was
not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment
Manufacturing, Inc., and that when he issued said promissory notes in behalf of
Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten
entries not appearing therein prior to the time he affixed his signature.

ISSUE:

Whether or not the amendment in a corporation's Articles of Incorporation

effecting a change of corporate name extinguished the personality of the original
corporation.

RULING:

No. The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original corporation. It is the same corporation
with a different name, and its character is in no respect changed. A change in the
corporate name does not make a new corporation, and whether effected by special act
or under a general law, has no affect on the identity of the corporation, or on its
property, rights, or liabilities.
The corporation continues, as before, responsible in its new name for all debts
or other liabilities which it had previously contracted or incurred. As a general rule,
officers or directors under the old corporate name bear no personal liability for acts
done or contracts entered into by officers of the corporation, if duly authorized.
Inasmuch as such officers acted in their capacity as agent of the old corporation and
the change of name meant only the continuation of the old juridical entity, the
corporation bearing the same name is still bound by the acts of its agents if authorized
by the Board.

P.C JAVIER AND SONS

vs.
COURT OF APPEALS
462 SCRA 36

FACTS:
A complaint for Annulment of Mortgage and Foreclosure with Preliminary
Injunction, Prohibition and Damages was filed by petitioners P.C. Javier & Sons, Inc.
and spouses Pablo C. Javier, Sr. and Rosalina F. Javier against PAIC Savings &
Mortgage Bank, Inc.

Plaintiff P.C. Javier and Sons Services, Inc., Plaintiff Corporation, for short, applied
with First Summa Savings and Mortgage Bank, later on renamed as PAIC Savings and
Mortgage Bank, Defendant Bank, for short, for a loan accommodation and was
advised that its loan application was approved and that the same shall be forwarded to
the Central Bank (CB) for processing and release. The CB released the loan to
Defendant Bank in two (2) tranches of P750,000 each. However, Plaintiffs claim that
the loan releases were delayed and placed under time deposit and Plaintiffs were never
allowed to withdraw the proceeds of the time deposit because Defendant Bank
intended this time deposit as automatic payments on the accrued principal and
interest. However, the defendant bank initiated an extrajudicial foreclosure of real
estate mortgage executed by the petitioners.

The instant complaint was filed to forestall the extrajudicial foreclosure sale of a piece
of land mortgaged by petitioner corporation in favor of First Summa Savings and
Mortgage Bank which bank was later renamed as PAIC Savings and Mortgage Bank,
Inc. It likewise asked for the nullification of the Real Estate Mortgages it entered into
with First Summa Savings and Mortgage Bank. The RTC ruled in favor of the
respondent bank on foreclosing the mortgaged property because the loans are due and
demandable

ISSUE:
Whether or not the petitioners’ action of withholding the amortization of
payments to respondent bank because they were not notified of the change of
corporate name of the First Summa Savings and Mortgage Bank is tenable.

RULING:
No. Their defense that they should first be formally notified of the change of
corporate name of First Summa Savings and Mortgage Bank to PAIC Savings and
Mortgage Bank, Inc., before they will continue paying their loan obligations to
respondent bank presupposes that there exists a requirement under a law or
regulation ordering a bank that changes its corporate name to formally notify all its
debtors. After going over the Corporation Code and Banking Laws, as well as the
regulations and circulars of both the SEC and the Bangko Sentral ng Pilipinas (BSP),
we find that there is no such requirement. This being the case, this Court cannot
impose on a bank that changes its corporate name to notify a debtor of such change
absent any law, circular or regulation requiring it. Such act would be judicial
legislation. The formal notification is, therefore, discretionary on the bank.

A change in the corporate name does not make a new corporation, whether effected by
a special act or under a general law. It has no effect on the identity of the corporation,
or on its property, rights, or liabilities. The corporation, upon such change in its
name, is in no sense a new corporation, nor the successor of the original corporation.
It is the same corporation with a different name, and its character is in no respect
changed.
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, HSK SA BANSANG
PILIPINAS INC.
vs.
IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN
GR 137592

FACTS:

The Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (IDCJ-
HSK; Church of God in Christ Jesus, the Pillar and Ground of Truth), is a non-stock
religious society or corporation registered in 1936. Sometime in 1976, one Eliseo
Soriano and several other members of said corporation disassociated themselves from
the latter and succeeded in registering on 30 March 1977 a new non-stock religious
society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan (IDKJ-HSK). On 16 July 1979, IDCJ-HSK filed with the SEC a petition to
compel IDKJ-HSK to change its corporate name.
The SEC rendered judgment in favor of IDCJ-HSK, ordering IDKJ-HSK to
change its corporate name to another name that is not similar or identical to any
name already used by a corporation, partnership or association registered with the
Commission.

ISSUE:

Whether the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are

confusingly similar.

RULING:

Yes. The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc."
in AK[IDKH-HSK]BP's name are merely descriptive of and also referring to the
members, or kaanib, of IDCH-HSK who are likewise residing in the Philippines. These
words can hardly serve as an effective differentiating medium necessary to avoid
confusion or difficulty in distinguishing AK[IDKH-HSK]BP from IDCH-HSK. This is
especially so, since both AK[IDKH-HSK]BP and IDCH-HSK are using the same
acronym — H.S.K.; not to mention the fact that both are espousing religious beliefs
and operating in the same place. Parenthetically, it is well to mention that the
acronym H.S.K. used by AK[IDKH-HSK]BP stands for "Haligi at Saligan ng
Katotohanan." Then, too, the records reveal that in holding out their corporate name
to the public, AK[IDKH-HSK]BP highlights the dominant words "IGLESIA NG DIOS
KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN," which is strikingly
similar to IDCH-HSK's corporate name, thus making it even more evident that the
additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely
descriptive of and pertaining to the members of IDCH-HSK. Significantly, the only
difference between the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are the
words SALIGAN and SUHAY. These words are synonymous — both mean ground,
foundation or support. Hence, the Court ruled that the corporate names Universal are
indisputably so similar that even under the test of "reasonable care and observation"
confusion may arise.
 The wholesale appropriation by AK[IDKH-HSK]BP of IDCH-HSK's corporate
name cannot find justification under the generic word rule. A contrary ruling would
encourage other corporations to adopt verbatim and register an existing and protected
corporate name, to the detriment of the public. The fact that there are other non-stock
religious societies or corporations using the names Church of the Living God, Inc.,
Church of God Jesus Christ the Son of God the Head, Church of God in Christ & By
the Holy Spirit, and other similar names, is of no consequence. It does not authorize
the use by AK[IDKH-HSK]BP of the essential and distinguishing feature of IDCH-HSK's
registered and protected corporate name.

PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS,INC. and PHILIPS

INDUSTRIAL DEVELOPMENT, INC.
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD
PHILIPS CORPORATION
G.R. No. 96161

FACTS:

Petitioner is a foreign corporation organized under the laws of Netherlands

although not engaged in any business here in the Philippines, is the registered owner
of the trademarks Philips and Philips Shield Emblem. Petitioners Philips Electrical
Lamps, Inc, and Philips Industrial Development Inc are the authorized users of the
trademark of petitioner Philips BV. All petitioner corporations belong to the Philips
Group of Companies.
Private respondent Standard Philips Corporation was issued a certificate of
registration by the respondent Securities and Exchange Commission. Petitioner filed
a letter complaint with the SEC asking for the cancellation of the word “Philips” from
private respondent’s corporate name in view of its prior registration with the Bureau of
Patent alleging that private respondent’s use of the word Philips amounts to an
infringement and clear violation of petitioner’s exclusive right to use the same
considering that both parties are engaged in the same business.

ISSUE:

Whether or not Standard Philips’ use of the word PHILIPS amounts to an

infringement and clear violation of Petitioner's exclusive right to use the same
considering that both parties engage in the same business.

RULING:

Yes. The requisite no less exists in this case. In determining the existence of
confusing similarity in corporate names, the test is whether the similarity is such as to
mislead a person using ordinary care and discrimination. In so doing, the Court must
look to the record as well as the names themselves. While the corporate names of
Petitioners and Private Respondent are not identical, a reading of Petitioner's corporate
names, to wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and
PHILIPS INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to conclude that
"PHILIPS" is, indeed, the dominant word in that all the companies affiliated or
associated with the principal corporation, PEBV, are known in the Philippines and
abroad as the PHILIPS Group of Companies.
It is settled that proof of actual confusion need not be shown. It suffices that
confusion is probably or likely to occur. Under the Guidelines in the Approval of
Corporate and Partnership Names formulated by the SEC, the proposed name "should
not be similar to one already used by another corporation or partnership. If the
proposed name contains a word already used as part of the firm name or style of a
registered company, the proposed name must contain two other words different from
the company already registered". Private Respondents' name, however, contains only
a single word, that is, "STANDARD", different from that of Petitioners inasmuch as the
inclusion of the term "Corporation" or "Corp." merely serves the purpose of
distinguishing the corporation from partnerships and other business organizations.
It is obvious that private respondent’s choice of Philips as part of its corporate
name tends to show said respondent’s intention to ride on the popularity and
established goodwill of the said petitioner’s business throughout the world. The
subsequent appropriator of the name or one-confusingly similar thereto usually seeks
an unfair advantage, a free ride on another’s goodwill. Besides, there is showing that
private respondent not only manufactured and sold ballasts for fluorescent lamps with
their corporate name printed thereon but also advertised the same as Standard
Philips.

PURPOSE CLAUSE

UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and

UY CHO YEE
vs.
THE DIRECTOR OF COMMERCE AND INDUSTRY
G.R. No.L-15429

FACTS:

Prior to the presentation of the petition the petitioners had been associated
together as partners, which partnership was known as "mercantil regular colectiva,
under the style and firm name of "Siuliong y Cia. That the petitioners herein, who had
theretofore been members of said partnership of "Siuliong y Cia.," desired to dissolve
said partnership and to form a corporation composed of the same persons as
incorporators, to be known as "Siulong y Compañia, Incorporada.
While the articles of incorporation of "Siuliong y Cia., Inc." states that its
purpose is to acquire and continue the business, with some of its objects or purposes,
of Siuliong & Co., it will be found upon an examination of the purposes enumerated in
the proposed articles of incorporation of "Siuliong y Cia., Inc.," that some of the
purposes of the original partnership of "Siuliong y Cia." have been omitted.

ISSUE:
 Whether or not a corporation can engage in other purposes other than that
stated in the purpose clause of its articles of incorporation.

RULING:

YES.

A corporation may be organized under the laws of the Philippine Islands for
mercantile purposes, and to engage in such incidental business as may be necessary
and advisable to give effect to, and aid in, the successful operation and conduct of the
principal business. All of the power and authority included in the articles of
incorporation of "Siuliong y Cia., Inc.," enumerated above in paragraph 4 of the
Articles of Incorporation are only incidental to the principal purpose of said proposed
incorporation, to wit: "mercantile business." The purchase and sale, importation and
exportation of the products of the country, as well as of foreign countries, might make
it necessary to purchase and discount promissory notes, bills of exchange, bonds,
negotiable instruments, stock, and interest in other mercantile and industrial
associations. It might also become important and advisable for the successful
operation of the corporation to act as agent for insurance companies as well as to buy,
sell and equip boats and to buy and sell other establishments, and industrial and
mercantile businesses. The proposed articles of incorporation do not authorize the
petitioners to engage in a business with more than one purpose, the Court 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 great injustice to corporations organized under the
Philippine laws. Such an interpretation would give foreign corporations, which are
permitted to be registered under the laws here and which may be organized for more
than one purpose, a great advantage over domestic corporations. It was not the
intention of the legislature to give foreign corporations such an advantage over
domestic corporations.

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON

vs.
ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO MANAGEMENT AND
DEVELOPMENT CORPORATION, RAUL E. GALA, VITALIANO N. AGUIRRE II,
ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, RODOLFO B.
REYNO, RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON
G.R. No. 156819. December 11, 2003

FACTS:

On March 28, 1979, the Ellice Agro-Industrial Corporation was formed and
organized. The total subscribed capital stock of the corporation was P3.5 Million with
35,000 shares. Additional shares were acquired and subscribed from said
corporation. Subsequently, on September 16, 1982, the Margo Management and
Development Corporation (Margo) was incorporated. The total subscribed capital
stock of Margo was 20,000 shares at P200, 000.00. Several transfers of shares of
Ellice to Margo were made by the stockholders and some payments of subscription
were made by transferring parcels of land by the Gala Spouses.
In essence, petitioners want this Court to disregard the separate juridical
personalities of Ellice and Margo for the purpose of treating all property purportedly
owned by said corporations as property solely owned by the Gala spouses. The
petitioners’ contention in support of this theory is that the purposes for which Ellice
and Margo were organized should be declared as illegal and contrary to public policy.
They claim that the respondents never pursued exemption from land reform coverage
in good faith and instead merely used the corporations as tools to circumvent land
reform laws and to avoid estate taxes. Specifically, they point out that respondents
have not shown that the transfers of the land in favor of Ellice were executed in
compliance with the requirements of Section 13 of R.A. 3844. Furthermore, they
alleged that respondent corporations were run without any of the conventional
corporate formalities.

ISSUE:

Whether or not the purpose of the creation of the two corporations is illegal and
against public policy.

RULING:

No. Impugning the legality of the purposes for which Ellice and Margo were
organized, amount to collateral attacks which are prohibited in this jurisdiction. The
best proof of the purpose of a corporation is its articles of incorporation and by-laws.
The articles of incorporation must state the primary and secondary purposes of the
corporation, while the by-laws outline the administrative organization of the
corporation, which, in turn, is supposed to insure or facilitate the accomplishment of
said purpose. A perusal of the Articles of Incorporation of Ellice and Margo shows no
sign of the allegedly illegal purposes that petitioners are complaining of. If a
corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the
SEC has no authority to inquire whether the corporation has purposes other than
those stated, and mandamus will lie to compel it to issue the certificate of
incorporation.
With regard to their claim that Ellice and Margo were meant to be used as mere
tools for the avoidance of estate taxes, suffice it say that the legal right of a taxpayer to
reduce the amount of what otherwise could be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted.
Thus, even if Ellice and Margo were organized for the purpose of exempting the
properties of the Gala spouses from the coverage of land reform legislation and
avoiding estate taxes, the court cannot disregard their separate juridical personalities.
PRINCIPAL PLACE OF BUSINESS

HYATT ELEVATORS and ESCALATORS CORP.

vs
GOLDSTAR ELEVATORS, PHIL.,
473 SCRA 705

FACTS:
In this case, the petitioner is Goldstar Elevator Philippines Inc. and on the other
hand the private respondent, Hyatt Elevators and Escalators Company. Both engaged
in installing, maintaining/servicing of elavators and escalators. Hyatt (herein
petitioner) filed an unfair trade practices and damages against LG industrial systems
Co. Ltd, and LG International Corporation alleging that it was appointed as the
exclusive distributor of LG elevators and escalators in the Philippines under
Distributorship Agreement. LG filed a motion to dismiss alleging that lack of
jurisdiction over the persons of defendant, improper venue and failure to state a cause
of action. Hyatt filed a motion for leave of court to amend the complaint, alleging that
LG transferred all assets to a joint venue agreement with Otis elevator Company of the
USA to LG Otis Elevator Company. Goldstar filed a Motion to dismiss the amended
complaint alleging that venue was improperly laid as neither the Hyatt, LG or Goldstar
itself resided in Mandaluyong city where the case was originally filed. The RTC denied
the motion. The CA dismissed the case and held that Makati was the principal place of
business of both respondent and petitioner, as stated in the latter’s Articles of
Incorporation, that place was controlling for purposes of determining the proper
venue.

ISSUE:

Whether or not the “residence” of the corporation is the same one as stated in
the Articles of Incorporation.

RULING:

Yes. Although the Rules of Court do not provide that when the plaintiff is a
corporation, the complaint should be filed in the location of its principal office as
indicated in its articles of incorporation. Jurisprudence has, however, settled that the
place where the principal office of a corporation is located, as stated in the articles,
indeed establishes its residence. This ruling is important in determining the venue of
an action by or against a corporation, as in the present case.
SUBSCRIPTION AND PAID-UP CAPAITAL

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES

vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES
ONRUBIA, ELENITA NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M.
ONRUBIA, PHILIPPINE MERCHANT MARINE SCHOOL, INC.
G.R. No. 131394

FACTS:

Philippine Merchant Marine School, Inc. (PMMSI) had seven hundred founders’
shares and seventy-six common shares as its initial capital stock subscription
reflected in the articles of incorporation. However, private respondents and their
predecessors who were in control of PMMSI registered the company’s stock and
transfer book for the first time in 1978, recording thirty-three (33) common shares as
the only issued and outstanding shares of PMMSI.
Sometime in 1979, a special stockholders’ meeting was called and held on the
basis of what was considered as a quorum of twenty-seven common shares,
representing more than two-thirds of the common shares issued and outstanding. In
1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with
the SEC for the registration of their property rights over one hundred (120) founders’
shares and twelve (12) common shares owned by their father. The SEC held that the
heirs were entitled to the claimed shares and called for a special stockholders’ meeting
to elect a new set of officers. As a result, the shares of Acayan were recorded in the
stock and transfer book.
A special stockholders’ meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06
May 1992 stockholders’ meeting, alleging that the quorum for the said meeting should
not be based on the 165 issued and outstanding shares as per the stock and transfer
book, but on the initial subscribed capital stock of seven hundred seventy-six (776)
shares, as reflected in the 1952 Articles of Incorporation.

ISSUE:

Whether or not the basis of quorum for a stockholders’ meeting is the

outstanding capital stock as indicated in the articles of incorporation.

RULING:

Yes. The stock and transfer book of PMMSI cannot be used as the sole basis for
determining the quorum as it does not reflect the totality of shares which have been
subscribed, more so when the articles of incorporation show a significantly larger
amount of shares issued and outstanding as compared to that listed in the stock and
transfer book. A stock and transfer book is one which records the names and
addresses of all stockholders arranged alphabetically, the instalments paid and
unpaid on all stock for which subscription has been made, and the date of payment
thereof; a statement of every alienation, sale or transfer of stock made, the date thereof
and by and to whom made; and such other entries as may be prescribed by law.
 To base the computation of quorum solely on the deficient stock and transfer
book, and completely disregarding the issued and outstanding shares as indicated in
the articles of incorporation would work injustice to the owners and/or successors in
interest of the said shares.
It is to be explained, that if at the onset of incorporation a corporation has 771
shares subscribed, the Stock and Transfer Book should likewise reflect 771 shares.
Any sale, disposition or even reacquisition of the company of its own shares, in which
it becomes treasury shares, would not affect the total number of shares in the Stock
and Transfer Book. All that will change are the entries as to the owners of the shares
but not as to the amount of shares already subscribed.

BY-LAWS

GRACE CHRISTIAN HIGH SCHOOL

vs.
THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G.
BELTRAN, and ERNESTO L. GO
G.R. No. 108905

FACTS:
Grace Christian High School is an educational institution offering preparatory,
kindergarten and secondary courses at the Grace Village in Quezon City. Grace Village
Association, Inc., on the other hand, is an organization of lot and/or building owners,
lessees and residents at Grace Village, while Alejandro G. Beltran and Ernesto L. Go
were its president and chairman of the committee on election, respectively, in 1990,
when this suit was brought. As adopted in 1968, the by-laws of the association
provided in Article IV, that "the annual meeting of the members of the Association
shall be held on the first Sunday of January in each calendar year at the principal
office of the Association at 2:00 P.M. where they shall elect by plurality vote and by
secret balloting, the Board of Directors, composed of 11 members to serve for one year
until their successors are duly elected and have qualified." It appears, that on 20
December 1975, a committee of the board of directors prepared a draft of an
amendment to the by-laws, providing that "The Annual Meeting of the members of the
Association shall be held on the second Thursday of January of each year. Each
Charter or Associate Member of the Association is entitled to vote. He shall be entitled
to as many votes as he has acquired thru his monthly membership fees only
computed on a ratio of TEN (P10.00) PESOS for one vote.

The Charter and Associate Members shall elect the Directors of the Association. The
candidates receiving the first 14 highest number of votes shall be declared and
proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN
HIGH SCHOOL representative is a permanent Director of the ASSOCIATION." This
draft was never presented to the general membership for approval. Nevertheless, from
1975, after it was presumably submitted to the board, up to 1990, Grace Christian
High School was given a permanent seat in the board of directors of the association.
On 13 February 1990, the association's committee on election in a letter informed
James Tan, principal of the school, that "it was the sentiment that all directors should
be elected by members of the association" because "to make a person or entity a
permanent Director would deprive the right of voters to vote for 15 members of the
Board," and "it is undemocratic for a person or entity to hold office in perpetuity." For
this reason, Tan was told that "the proposal to make the Grace Christian High School
representative as a permanent director of the association, although previously
tolerated in the past elections should be reexamined." Following this advice, notices
were sent to the members of the association that the provision on election of directors
of the 1968 by-laws of the association would be observed. The school requested the
chairman of the election committee to change the notice of election by following the
procedure in previous elections, claiming that the notice issued for the 1990 elections
ran "counter to the practice in previous years" and was "in violation of the by-laws (of
1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a
permanent seat in the board." As the association denied its request, the school
brought suit for mandamus in the Home Insurance and Guaranty Corporation to
compel the board of directors of the association to recognize its right to a permanent
seat in the board.

The school based its claim on the following portion of the proposed amendment which,
it contended, had become part of the by-laws of the association as Article VI,
paragraph 2. It appears that the opinion of the Securities and Exchange Commission
on the validity of this provision was sought by the association and that in reply to the
query, the SEC rendered an opinion to the effect that the practice of allowing
unelected members in the board was contrary to the existing by-laws of the
association and to §92 of the Corporation Code. The association cited the SEC opinion,
among others, in its answer.

A preliminary conference was held on 29 March 1990 but nothing substantial was
agreed upon. A subsequent meeting was held on 17 April 1990, but the parties failed
to reach an agreement. Instead, the board adopted a resolution declaring the 1975
provision null and void for lack of approval by members of the association and the
1968 by-laws to be effective. On 20 June 1990, the hearing officer of the HIGC
rendered a decision dismissing the school's action. The appeals board of the HIGC
affirmed the decision of the hearing officer in its resolution dated 13 September 1990.
Petitioner appealed to the Court of Appeals but the school again lost as the appellate
court on 9 February 1993, affirmed the decision of the HIGC. The school filed the
petition for review.

ISSUE:
Whether the school's representative should be elected to have the right to sit in
the board of directors of Grace Village Association, Inc. as a member thereof.

RULING:
It is actually §§28 and 29 of the Corporation Law — § 23 of the present law; not
§92 of the present law or §29 of the former one — which require members of the
boards of directors of corporations to be elected. 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 the school, the unelected members sit as ex officio members, i.e., by virtue of
and for as long as they hold a particular office. But in the case of the school itself,
there is no reason at all for its representative to be given a seat in the board. Nor does
the school 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 15 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. It is
probable that, in allowing the school's representative to sit on the board, the members
of the association were not aware that this was contrary to law. It should be noted that
they did not actually implement the provision in question except perhaps insofar as it
increased the number of directors from 11 to 15, but certainly not the allowance of the
school's representative as an unelected member of the board of directors. It is more
accurate to say that the members merely tolerated the school's representative and
tolerance cannot be considered ratification. Nor can the school claim a vested right to
sit in the board on the basis of "practice." Practice, no matter how long continued,
cannot give rise to any vested right if it is contrary to law. Even less tenable is the
school's claim that its right is "coterminus with the existence of the association."

THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on relation of the Attorney-

General)
vs.
EL HOGAR FILIPINO
G.R. No. L-26649

FACTS:

This case has 17 causes of action proceeded by the Government of the

Philippines through Quo Warranto alleging that El Hogar Filipino, a corporation
organized as a mutual building and loan association under the provisions of the
Corporation Law, has violated or went beyond its stated primary purposes for mutual
building and loan associations. Under Corporation Law Section 171 to 190, inclusive,
of this Act are devoted to the subject of building and loan associations, defining their
objects making various provisions governing their organization and administration,
and providing for the supervision to be exercised over them.. The respondent, El Hogar
Filipino, was apparently the first corporation organized in the Philippine Islands under
the provisions cited, and the association has been favored with extraordinary success.
The articles of incorporation bear the date of December 28, 1910, at which time capital
stock in the association had been subscribed to the amount of P150,000 of which the
sum of P10,620 had been paid in. Under the law as it then stood, the capital of the
Association was not permitted to exceed P3,000,000, but by Act No. 2092, passed
December 23, 1911, the statute was so amended as to permit the capitalization of
building and loan associations to the amount of ten millions. Soon thereafter the
association took advantage of this enactment by amending its articles so as to provide
that the capital should be in an amount not exceeding the then lawful limit. From the
time of its first organization the number of shareholders has constantly increased,
with the result that on December 31, 1925, the association had 5,826 shareholders
holding 125,750 shares, with a total paid-up value of P8,703,602.25. During the
period of its existence prior to the date last above-mentioned the association paid to
withdrawing stockholders the amount of P7,618,257,.72; and in the same period it
distributed in the form of dividends among its stockholders the sum of P7,621,565.81.
As one of the causes of action, the respondent is charged with having a
provision in its by-laws stating that “The board of directors of the association, by the
vote of an absolute majority of its members, is empowered to cancel shares and to
return to the owner thereof the balance resulting from the liquidation thereof
whenever, by reason of their conduct, or for any other motive, the continuation as
members of the owners of such shares is not desirable”.

ISSUE:

Whether or not the provision of the by-laws valid.

RULING:

Yes. The by-law is of course a patent nullity, since it is in direct conflict with
the latter part of section 187 of the Corporation Law, which expressly declares that the
board of directors shall not have the power to force the surrender and withdrawal of
unmatured stock except in case of liquidation of the corporation or of forfeiture of the
stock for delinquency. It is agreed that this provision of the by-laws has never been
enforced, and in fact no attempt has ever been made by the board of directors to make
use of the power therein conferred. It appears, however, that no annual meeting of the
shareholders called since that date has been attended by a sufficient number of
shareholders to constitute a quorum, with the result that the provision referred to has
no been eliminated from the by-laws, and it still stands among the by-laws of the
association, notwithstanding its patent conflict with the law.

CORPORATE POWER AND CAPACITY

LAND BANK OF THE PHILIPPINES

vs.
COMMISSION ON AUDIT
190 SCRA 154
FACTS:
Board of Directors of the LBP issued Resolution. The Resolution provides that
"in cases of defaults in loan payment and other credit accommodations due to
unforeseen, highly justifiable reasons/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 / reduced. Pursuant to this Resolution, LBP, waived the
penalty charges on the loan of HSBTC. Subsequently, LBP requested its Corporate
Auditor to pass in audit its waiver of the penalty charges. Said official questioned the
waiver and opined that the power to condone interests or penalties is vested
exclusively in the COA. COA held that the waiver is unauthorized and should
outrightly be disallowed in audit.

ISSUE:
Whether or not LBP is authorized to compromise or release claims or liabilities
in whole or in part.

RULING:
Yes. LBP was created as a body corporate and government instrumentality to
provide timely and adequate financial support in all phases involved in the execution
of needed agrarian reform. Concededly, the power to write-off is not expressly granted
in the LBP Charter. It can be logically implied however, from LBP's authority to
exercise the general powers vested in banking institutions as provided in the General
Banking Act. 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. "The test to be applied is whether the act of
the corporation is in direct and immediate furtherance of its business, fairly incident
to the express powers and reasonably necessary to their exercise. If so, the corporation
has the power to do it; otherwise, not." It bears emphasizing that LBP was created to
provide adequate financial support to the agrarian reform program as well as to grant
loans to farmers' cooperatives/associations, and to finance and/or guarantee the
acquisition of farm lots transferred to tenant-farmers. Its clientele consists primarily of
agrarian reform beneficiaries, landowners affected by agrarian reform and Land Bank
bond-holders. It should, therefore, be given some measure of flexibility in its
operations in order not to hamper it unduly in the fulfillment of its objectives.

PILIPINAS LOAN COMPANY, INC.

vs.
HON. SECURITES AND EXCHANGE COMMISSION AND FILIPINAS PAWNSHOP,
INC.
G.R. No. 104720

FACTS:

Private respondent Filipinas Pawnshop, Inc. is a duly organized corporation

registered with the Securities and Exchange Commission on February 9, 1959. The
articles of incorporation of private respondent states that its primary purpose is to
extend loans at legal interest on the security of either personal properties or on the
security of real properties, and to finance installment sales of motor vehicles, home
appliances and other chattels.
Petitioner is a lending corporation duly registered with the SEC on July 27,
1989. Based on its articles of incorporation, the primary purpose of petitioner is “to
act as a lending investor or, otherwise, to engage in the practice of lending money or
extending loans on the security of real or personal, tangible or intangible properties
whether as pledge, real or chattel mortgage or otherwise, xxx without however,
engaging in pawnbroking as defined under PD 114."
 Private respondent filed a complaint with the Prosecution and Enforcement
Department (PED) of the SEC and alleged that: (1) petitioner, contrary to the
restriction set by the Commission, has been operating and doing business as a
pawnbroker, pawnshop or "sanglaan" in the same neighborhood where private
respondent has had its own pawnshop for 30 years in violation of its primary purpose
and without the imprimatur of the Central Bank to engage in the pawnshop business
thereby causing unjust and unfair competition with private respondent. Petitioner
denied that it is engaged in the pawnshop business, alleging that it is a lending
investor duly registered with the Central Bank.

ISSUES:

Whether or not petitioner violated its primary franchise.

RULING:

Yes. A corporation, under the Corporation Code, has only such powers as are
expressly granted to it by law and by its articles of incorporation, those which may be
incidental to such conferred powers, those reasonably necessary to accomplish its
purposes and those which may be incident to its existence.
In the case at bar, the limit of the powers of petitioner as a corporation is very
clear, it is categorically prohibited from "engaging in pawnbroking as defined under PD
114". Hence, in determining what constitutes pawnbrokerage, the relevant law to
consider is PD 114.
Indispensable therefore to the determination of whether or not petitioner had
violated its articles of incorporation, was an inquiry by the SEC if petitioner was
holding out itself to the public as a pawnshop. It must be stressed that the
determination of whether petitioner violated PD 114 was merely incidental to the
regulatory powers of the SEC, to see to it that a corporation does not go beyond the
powers granted to it by its articles of incorporation.

ULTRA-VIRES DOCTRINE

MANILA METAL CONTAINER CORPORATION, REYNALDO C. TOLENTINO

vs.
PHILIPPINE NATIONAL BANK, DMCI-PROJECT DEVELOPERS, INC.
G.R. No. 166862

FACTS:

Petitioner is the owner of a parcel of land. To secure a loan he obtained from

PNB he executed a REM over said land. For failure to pay the loan, PNB sought the
foreclosure of the REM. After the public auction, the petitioner requested PNB to grant
him an extension to redeem the property. He failed to redeem the property. Later on,
the PNB agreed to let the petitioner purchase the property for a certain amount, and a
downpayment was then given. Subsequently, however, the bank informed the
petitioner that it was increasing the purchase price. Hence, a case was filed by
petitioner.

ISSUE:

Whether or not the letter by the respondent accepting the petitioner’s offer was
valid.

RULING:

No. There is no evidence that the SAMD was authorized by respondent's Board
of Directors to accept petitioner's offer and sell the property. Any acceptance by the
SAMD of petitioner's offer would not bind respondent. A corporation can only execute
its powers and transact its business through its Board of Directors and through its
officers and agents when authorized by a board resolution or its by-laws. Absent such
valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected
with the performance of authorized duties of such director, is held not binding on the
corporation.

ATRIUM MANAGEMENT CORPORATION

vs.
COURT OF APPEALS, E.T. HENRY AND CO., et al.
GR 109491

FACTS:

Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M.

de Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor
of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the
four checks to petitioner Atrium Management Corporation for valuable consideration.
Upon presentment for payment, the drawee bank dishonored all four checks for the
common reason "payment stopped". Atrium, thus, instituted an action after its
demand for payment of the value of the checks was denied.
At the trial, Atrium presented as its witness Carlos C. Syquia who testified that
in February 1981, Enrique Tan of E.T. Henry approached Atrium for financial
assistance, offering to discount four RCBC checks in the total amount of P2 million,
issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the checks,
provided it be allowed to confirm with Hi-Cement the fact that the checks represented
payment for petroleum products which E.T. Henry delivered to Hi-Cement. Carlos C.
Syquia identified two letters, dated February 6, 1981 and February 9, 1981 issued by
Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the issuance of the
four checks in favor of E.T. Henry in payment for petroleum products.
Lourdes M. de Leon claimed she is not solidarilly liable with Hi-Cement for the
amount of the check and that Atrium was an ordinary holder, not a holder in due
course of the rediscounted checks.
ISSUE:

Whether or not de Leon may be held liable.

RULING:

Yes. Due to negligence. Lourdes M. de Leon and Antonio de las Alas as

treasurer and Chairman of Hi-Cement were authorized to issue the checks. However,
Ms. de Leon was negligent when she signed the confirmation letter requested by Mr.
Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks
issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for
deposit only to the payee's account and not to be further negotiated. What is more, the
confirmation letter contained a clause that was not true, that is, "that the checks
issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T.
Henry". Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may
be held personally liable therefor.
"Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when: 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; He consents to the issuance of
watered down stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto; He agrees to hold himself
personally and solidarily liable with the corporation; or He is made, by a specific
provision of law, to personally answer for his corporate action.

However, as to the claim of Atrium, it cannot be upheld because it is not a holder of

the check in due course due to the fact that the same was crossed in favor of E.T.
Henry, and therefore only payable to the latter’s account.

WOODCHILD HOLDINGS
vs.
ROXAS ELECTRIC
436 SCRA. 235

FACTS:

The respondent Roxas Electric and Construction Company, Inc. (RECCI),

formerly the Roxas Electric and Construction Company, was the owner of two parcels
of land. A portion of one Lot which abutted the other Lot was a dirt road accessing to
the Sumulong Highway, Antipolo, Rizal. At a special meeting on May 17, 1991, the
respondent's Board of Directors approved a resolution authorizing the corporation,
through its president, Roberto B. Roxas, to sell the Lots, at a price and under such
terms and conditions which he deemed most reasonable and advantageous to the
corporation; and to execute, sign and deliver the pertinent sales documents and
receive the proceeds of the sale for and on behalf of the company. Petitioner Woodchild
Holdings, Inc. (WHI) wanted to buy the Lot on which it planned to construct its
warehouse building, and a portion of the adjoining lot, so that its 45-foot container
van would be able to readily enter or leave the property.

On September 5, 1991, a Deed of Absolute Sale in favor of WHI was issued, under
which the Lot was sold for P5,000,000, receipt of which was acknowledged by Roxas
under the following terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the
beneficial use of and a right of way from Sumulong Highway to the property herein
conveyed consists of 25 square meters wide to be used as the latter's egress from and
ingress to and an additional 25 square meters in the corner of Lot No. 491-A-3-B-1, as
turning and/or maneuvering area for Vendee's vehicles.
The Vendor agrees that in the event that the right of way is insufficient for the
Vendee's use (ex entry of a 45-foot container) the Vendor agrees to sell additional
square meters from its current adjacent property to allow the Vendee full access and
full use of the property.

the respondent posits that Roxas was not so authorized under the May 17, 1991
Resolution of its Board of Directors to impose a burden or to grant a right of way in
favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to
the petitioner. Hence, the respondent was not bound by such provisions contained in
the deed of absolute sale.

ISSUE:

Whether or not the respondent is bound by the provisions in the deed of

absolute sale granting to the petitioner beneficial use and a right of way over a portion
of Lot accessing to the Sumulong Highway and granting the option to the petitioner to
buy a portion thereof, and, if so, whether such agreement is enforceable against the
respondent?

HELD:

No. Generally, the acts of the corporate officers within the scope of their
authority are binding on the corporation. However, under Article 1910 of the New Civil
Code, acts done by such officers beyond the scope of their authority cannot bind the
corporation unless it has ratified such acts expressly or tacitly, or is estopped from
denying them.

Thus, contracts entered into by corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the corporation.

Evidently, Roxas was not specifically authorized under the said resolution to grant a
right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to
sell to the petitioner a portion thereof. The authority of Roxas, under the resolution, to
sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to
sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights
thereon. Neither may such authority be implied from the authority granted to Roxas to
sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and conditions which he
deems most reasonable and advantageous."
The general rule is that the power of attorney must be pursued within legal strictures,
and the agent can neither go beyond it; nor beside it. The act done must be legally
identical with that authorized to be done.30 In sum, then, the consent of the
respondent to the assailed provisions in the deed of absolute sale was not obtained;
hence, the assailed provisions are not binding on it.

There can be no apparent authority of an agent without acts or conduct on the part of
the principal and such acts or conduct of the principal must have been known and
relied upon in good faith and as a result of the exercise of reasonable prudence by a
third person as claimant and such must have produced a change of position to its
detriment.

The apparent power of an agent is to be determined by the acts of the principal and
not by the acts of the agent.

RATIFICATION OF ULTRA VIRES ACT

NAPOCOR
vs.
ALONZO-LAGASTO
443 SCRA 342

FACTS:
NPC and FUCC Entered into a project for excavation. FUCC needed to do
blasting works to continue with the project. NPC agreed that it will issue an extra work
order for the blasting works and subsequently pay FUCC but this did not happen. The
two entered into a compromise agreement and agreed that NPC will pay the
undisputed unpaid claims and that they will submit the agreement to an arbitration
board to settle the amount to be paid. After the arbitration issued its ruling, NPC
questioned the award which included the blasting works (no extra work order issued
for it) allegedly due to promissory estoppel.

ISSUE:
Whether or not FUCC is entitled for payment of the project

RULING:

Yes. Petitioner's argument that it is not bound by the acts of its officials who
acted beyond the scope of their authority in allowing the blasting works is correct.
Petitioner is a government agency with a juridical personality separate and distinct
from the government. It is not a mere agency of the government but a corporate entity
performing proprietary functions. It has its own assets and liabilities and exercises
corporate powers, including the power to enter into all contracts, through its Board of
Directors.

In this case, petitioner's officials exceeded the scope of their authority when they
authorized FUCC to commence blasting works without an extra work order properly
approved in accordance with P.D. 1594. Their acts cannot bind petitioner unless it has
ratified such acts or is estopped from disclaiming them.26

However, the Compromise Agreement entered into by the parties, petitioner being
represented by its President, Mr. Guido Alfredo A. Delgado, acting pursuant to its
Board Resolution No. 95-54 dated April 3, 1995, is a confirmatory act signifying
petitioner's ratification of all the prior acts of its officers. Significantly, the parties
agreed that "[t]his Compromise Agreement shall serve as the Supplemental Agreement
for the payment of plaintiff's blasting works at the Botong site. In other words, it is
primarily by the force of this Compromise Agreement that the Court is constrained to
declare FUCC entitled to payment for the blasting works it undertook.

Moreover, since the blasting works were already rendered by FUCC and accepted by
petitioner and in the absence of proof that the blasting was done gratuitously, it is but
equitable that petitioner should make compensation therefor, pursuant to the
principle that no one should be permitted to enrich himself at the expense of another.

EXPRESS POWERS

CENTRAL TEXTILE MILLS, INC.

vs.
NWPC
260 SCRA 368.

FACTS:
On December 29, 1990, respondent Regional Tripartite Wages and Productivity
Board-NCR (the Board) issued a WAGE ORDER which mandated a P12.00 increase in
the minimum daily wage of all employees and workers in the private sector in the
NCR, but exempted from its application distressed employers whose capital has been
impaired by at least 25% in the preceding year. The “Guidelines on Exemption From
Compliance With the Prescribed Wage/Cost of Living Allowance Increase Granted by
the Regional Tripartite Wage and Productivity Boards,” issued on February 25, 1991,
defined “capital” as the “paid-up capital at the end of the last full accounting period (in
case of corporations).” Under said guidelines, “(a)n applicant firm may be granted
exemption from payment of the prescribed increase in wage/cost-of-living allowance
for a period not to exceed one (1) year from effectivity of the Order x x x when
accumulated losses at the end of the period under review have been impaired by at
least 25 percent the paid-up capital at the end of the last full accounting period
preceding the application.”

Petitioner Central Textile Mills filed an application for exemption from compliance
with the subject wage order due to financial losses. However, the Board’s Vice p-
Chairman, Ernesto Gorospe, disapproved of petitioner’s application for exemption after
concluding form the documents submitted that petitioner sustained an impairment of
only 22.41%. Petitioner’s motion for reconsideration was likewise dismissed by the
Board, which opined that petitioner’s total paid-up capital of P305,767, 900.00 should
be the basis for determining the capital impairment of petitioner, instead of the
authorized capital stock of P128M which petitioner insists should be the basis of
computation. The Board also noted that petitioner did not file with the SEC its board
resolution approving an increase in petitioner’s authorized capital stock. Neither did
petitioner file 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:
Whether petitioner’s authorized capital stock should be the basis for
determining its capital impairment.

RULING:
Yes. The guidelines on exemption specifically refer to paid-up capital, not
authorized capital stock, as the basis of capital impairment for exception from
the subject wage order. 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. These payments cannot as yet be
deemed part of petitioner’s paid-up capital, technically speaking, because its
capital stock has not yet been legally increased. 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.

MADRIGAL & COMPANY, INC.

vs.
 HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS,
THE HON. SECRETARY OF LABOR, and MADRIGAL CENTRAL OFFICE
EMPLOYEES UNION
G.R. No. L-48237

FACTS:

The petitioner was engaged, among several other corporate objectives, in the
management of Rizal Cement Co., Inc.Admittedly, the petitioner and Rizal Cement Co.,
Inc. are sister companies.Both are owned by the same or practically the same
stockholders.On December 28, 1973, the respondent, the Madrigal Central Office
Employees Union, sought for the renewal of its collective bargaining agreement with
the petitioner, which was due to expire on February 28, 1974.Specifically, it proposed
a wage increase of P200.00 a month, an allowance of P100.00 a month, and other
economic benefits.The petitioner, however, requested for a deferment in the
negotiations.
On July 29, 1974, by an alleged resolution of its stockholders, the petitioner
reduced its capital stock from 765,000 shares to 267,366 shares.This was effected
through the distribution of the marketable securities owned by the petitioner to its
stockholders in exchange for their shares in an equivalent amount in the
corporation.On August 22, 1975, by yet another alleged stockholders' action, the
petitioner reduced its authorized capitalization from 267,366 shares to 110,085
shares, again, through the same scheme.

ISSUE:

Whether or not the decrease in the ACS of petitioner is valid.

RULING:

No. The Court ruled that what clearly emerges from the recorded facts is that
the petitioner, awash with profits from its business operations but confronted with the
demand of the union for wage increases, decided to evade its responsibility towards
the employees by a devised capital reduction. While the reduction in capital stock
created an apparent need for retrenchment, it was, by all indications, just a mask for
the purge of union members, who, by then, had agitated for wage increases.
As such shareholder, the dividends paid to it were its own money, which may
then be available for wage increments. It is not a case of a corporation distributing
dividends in favor of its stockholders, in which case, such dividends would be the
absolute property of the stockholders and hence, out of reach by creditors of the
corporation. Here, the petitioner was acting as stockholder itself, and in that case, the
right to a share in such dividends, by way of salary increases, may not be denied its
employees.
Accordingly, the Court is convinced that the petitioner's capital reduction efforts
were, to begin with, a subterfuge, a deception as it were, to camouflage the fact that it
had been making profits, and consequently, to justify the mass layoff in its employee
ranks, especially of union members.
 LITONJUA
vs.
ETRNIT CORP.
490 SCRA 204

FACTS:
Eternit Corp. is engaged in the manufacture of roofing materials and pipe
products. Its manufacturing operations were conducted on 8 parcels of land located in
Mandaluyong City, covered by TCTs with Far East Bank & Trust Company, as trustee.
90% of the shares of stocks of Eternit Corp. were owned by Eteroutremer S.A.
Corporation (ESAC), a corporation organized and registered under the laws of Belgium.
Jack Glanville, an Australian citizen, was the General Manager and President of
Eternit Corp., while Claude Frederick Delsaux was the Regional Director for Asia of
ESAC. In 1986, the management of ESAC grew concerned about the political situation
in the Philippines and wanted to stop its operations in the country. The Committee for
Asia of ESAC instructed Michael Adams, a member of Eternit Corp.’s Board of
Directors, to dispose of the eight parcels of land. Adams engaged the services of
realtor/broker Lauro G. Marquez so that the properties could be offered for sale to
prospective buyers. Marquez offered the parcels of land and the improvements thereon
to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. Marquez declared that he
was authorized to sell the properties for P27,000,000.00 and that the terms of the sale
were subject to negotiation. Eduardo Litonjua, Jr. responded to the offer. Marquez
showed the property to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua.
The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez
apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in
Belgium, but the latter did not respond. Glanville telexed Delsaux in Belgium,
inquiring on his position/ counterproposal to the offer of the Litonjua siblings.
Delsaux sent a telex to Glanville stating that, based on the “Belgian/Swiss decision,”
the final offer was “US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation.

Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with

Glanville, and confirmed that the Litonjua siblings had accepted the counter-proposal
of Delsaux. He also stated that the Litonjua siblings would confirm full payment
within 90 days after execution and preparation of all documents of sale, together with
the necessary governmental clearances. The Litonjua brothers deposited the amount
of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and
drafted an Escrow Agreement to expedite the sale. With the assumption of Corazon
Aquino as President of RP, the political situation in the Philippines had improved.
Marquez received a telephone call from Glanville, advising that the sale would no
longer proceed. Glanville followed it up with a letter, confirming that he had been
instructed by his principal to inform Marquez that the decision has been taken at a
Board Meeting not to sell the properties on which Eternit Corp. is situated. When
apprised of this development, the Litonjuas, through counsel, wrote Eternit Corp.,
demanding payment for damages they had suffered on account of the aborted sale.
EC, however, rejected their demand.
ISSUE:
Whether or not Marquez, Glanville, and Delsaux were authorized by respondent
Eternit Corp. to act as its agents relative to the sale of the properties of Eternit Corp.,
and if so, what are the boundaries of their authority as agents

HELD:
No. A corporation is a juridical person separate and distinct from its members
or stockholders and is not affected by the personal rights, obligations and transactions
of the latter. It may act only through its board of directors or, when authorized either
by its by-laws or by its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, by-laws,
or relevant provisions of law. The property of a corporation is not the property of the
stockholders or members, and as such, may not be sold without express authority
from the board of directors. Physical acts, like the offering of the properties of the
corporation for sale, or the acceptance of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering such property, can be
performed by the corporation only by officers or agents duly authorized for the
purpose by corporate by-laws or by specific acts of the board of directors. Absent such
valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected
with, the performance of authorized duties of such director, are not binding on the
corporation.

While a corporation may appoint agents to negotiate for the sale of its real
properties, the final say will have to be with the board of directors through its officers
and agents as authorized by a board resolution or by its by-laws.30 An unauthorized
act of an officer of the corporation is not binding on it unless the latter ratifies the
same expressly or impliedly by its board of directors. Any sale of real property of a
corporation by a person purporting to be an agent thereof but without written
authority from the corporation is null and void. An agency may be expressed or
implied from the act of the principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting on his behalf without
authority. Acceptance by the agent may be expressed, or implied from his acts which
carry out the agency, or from his silence or inaction according to the circumstances.
Agency may be oral unless the law requires a specific form. However, to create or
convey real rights over immovable property, a special power of attorney is necessary.

The Litonjuas failed to adduce in evidence any resolution of the Board of

Directors of Eternit Corp. empowering Marquez, Glanville or Delsaux as its agents, to
sell, let alone offer for sale, for and in its behalf, the 8 parcels of land owned by Eternit
Corp. including the improvements thereon. The bare fact that Delsaux may have been
authorized to sell to Ruperto Tan the shares of stock of respondent ESAC cannot be
used as basis for Litonjua’s claim that he had likewise been authorized by Eternit
Corp. to sell the parcels of land. While Glanville was the President and General
Manager of Eternit Corp., and Adams and Delsaux were members of its Board of
Directors, the three acted for and in behalf of respondent ESAC, and not as duly
authorized agents of Eternit Corp.; a board resolution evincing the grant of such
authority is needed to bind Eternit Corp. to any agreement regarding the sale of the
subject properties. Such board resolution is not a mere formality but is a condition
sine qua non to bind Eternit Corp. Requisites of an agency by estoppels: (1) the
principal manifested a representation of the agent’s authority or knowingly allowed the
agent to assume such authority; (2) the third person, in good faith, relied upon such
representation; (3) relying upon such representation, such third person has changed
his position to his detriment.
• Eternit Corp. operations
manufacturing is in the manufacture
on 8 parcelsofofroofing
land inmaterials and pipes. It conducted
Mandaluyong,

ISLAMIC DIRECTORATE OF THE PHILIPPINES

vs.
COURT OF APPEALS
G.R. No. 117897

FACTS:

Petitioner IDP-Tamano Group alleges that 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, Madrasah, and other religious infrastructures so as to facilitate the
effective practice of Islamic faith in the area. 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. 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. Two Muslim groups sprung, the Carpizo Group, headed by
Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano and
Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. Significantly, on
October 3, 1986, 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
October 3, 1986 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 Farouk Carpizo and Atty. Musib
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 Trustee of IDP.

ISSUE:

Whether or not the sale of two (2) parcels of land 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 ID property.
The SEC already declared the election of the Carpizo Group as well as the
Abbas Group)to the IDP Board as null and void for being violative of the Articles of
Incorporation. In this case, the IDP, owner of the subject parcels of land, never gave its
consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale
executed in favor of INC. This is, therefore, 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.

NIELSON & COMPANY, INC.

vs.
LEPANTO CONSOLIDATED MINING COMPANY
G.R. NO. L-21601

FACTS:

Lepanto entered into a contract with Nielson wherein the latter was to manage
and operate the mining properties of the former claiming to be a contract of agency.
However, Nielson claims that the agreement is not one of agency.The phrase "Both
parties to this agreement fully recognize that the terms of this agreement are made
possible only because of the faith and confidence of the officials of each company have
in the other" in paragraph XI of the management contract does not qualify the relation
between Lepanto and Nielson as that of principal and agent based on trust and
confidence, such that the contractual relation may be terminated by the principal at
any time that the principal loses trust and confidence in the agent. Rather, that
phrase simply implies the circumstance that brought about the execution of the
management contract. In the annual report for 1936, submitted by Mr. C. A. Dewit,
President of Lepanto, to its stockholders, under date of March 15, 1937, it states that
instead of giving a monthly compensation to Nielson such was modified by giving the
amount of P2,500 plus 10% of cash value of the dividends declared and paid by
Lepanto.
Thus, the contention of Lepanto that it had terminated the management
contract in 1945, following the liberation of the mines from Japanese control, because
the relation between it and Nielson was one of agency and as such it could terminate
the agency at will, is, therefore, untenable.
ISSUE:

Whether or not the nature of the management contract is a contract of agency.

RULING:

No. By the contract of agency a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or authority
of the latter.
Under the contract, Nielson had agreed, for a period of five years, with the right
to renew for a like period, to explore, develop and operate the mining claims of
Lepanto, and to mine, or mine and mill, such pay ore as may be found therein and to
market the metallic products recovered therefrom which may prove to be marketable,
as well as to render for Lepanto other services specified in the contract.
Moreover, the contract thus entered into pursuant to the offer made by Nielson
and accepted by Lepanto was a "detailed operating contract". It was not a contract of
agency. Nowhere in the record is it shown that Lepanto considered Nielson as its agent
and that Lepanto terminated the management contract because it had lost its trust
and confidence in Nielson.
In the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect to all,
and if some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.
Thus, by express stipulation of the parties, the management contract in
question is not revocable at the will of Lepanto. The Court ruled that this management
contract is not a contract of agency as defined in Article 1709 of the old Civil Code, but
a contract of lease of services as defined in Article 1544 of the same Code.

IMPLIED POWERS

ASIA INVESTMENT INDUSTRIES

vs.
COURT OF APPEALS
353 SCRA 23

FACTS:
On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock
Purchase Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for
and in consideration of the sum of P19,500,000.00 all its right, title and interest in
and to all the outstanding shares of stock of FARMACOR, INC. (FARMACOR). The
Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of
Inter-Asia and Asia Industries, respectively. Under paragraph 7 of the Agreement,
Inter-Asia as seller made warranties and representations. The Agreement was later
amended with respect to the "Closing Date," originally set up at 10:00 a.m. of 30
September 1978, which was moved to 31 October 1978, and to the mode of payment
of the purchase price. The Agreement, as amended, provided that pending submission
by SGV of FARMACOR's audited financial statements as of 31 October 1978, Asia
Industries may retain the sum of P7,500,000.00 out of the stipulated purchase price
of P19,500,000.00; that from this retained amount of P7,500,000.00, Asia Industries
may deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00;
and that if the amount retained is not sufficient to make up for the deficiency in the
Minimum Guaranteed Net Worth, Inter-Asia shall pay the difference within 5 days
from date of receipt of the audited financial statements.

Asia Industries paid Inter-Asia a total amount of P12,000,000.00:

P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on 2 November
1978. From the STATEMENT OF INCOME AND DEFICIT attached to the financial
report dated 28 November 1978 submitted by SGV, it appears that FARMACOR had,
for the 10 months ended 31 October 1978, a deficit of P11,244,225.00. Since the
stockholder's equity amounted to P10,000,000.00, FARMACOR had a net worth
deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to
P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the
Minimum Guaranteed Net Worth of P12,000,000.00. The adjusted contract price,
therefore, amounted to P6,225,775.00 which is the difference between the contract
price of P19,500,000.00 and the shortfall in the guaranteed net worth of
P13,224,225.00. Asia Industries having already paid Inter-Asia P12,000,000.00, it was
entitled to a refund of P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24
January 1980, signed by its president, that Asia Industries's claim for refund be
reduced to P4,093,993.00, it promising to pay the cost of the Northern Cotabato
Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the
proposal respondent agreed. Inter-Asia, however, welched on its promise.

Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus

P759,570.00) exclusive of interest. On 5 April 1983, Asia Industries filed a complaint
against Inter-Asia with the Regional Trial Court of Makati, one of two causes of action
of which was for the recovery of above-said amount of P4,853,503.00 17 plus interest.
Denying Asia Industries's claim, Inter-Asia countered that Asia Industries failed to pay
the balance of the purchase price and accordingly set up a counterclaim. Finding for
Asia Industries, the trial court rendered on 27 November 1991 a Decision, ordering
Inter-Asia to pay Asia Industries the sum of P4,853,503.00 plus interest thereon at
the legal rate from the filing of the complaint until fully paid, the sum of P30,000.00
as attorney's fees and the costs of suit; and (b) dismissing the counterclaim. On appeal
to the Court of Appeals, and by Decision of 25 January 1996, the Court of Appeals
affirmed the trial court's decision. Inter-Asia's motion for reconsideration of the
decision having been denied by the Court of Appeals by Resolution of 11 July 1996,
Inter-Asia filed the petition for review on certiorari.

ISSUE:
 Whether the 24 January 1980 letter signed by Inter-Asia’s president is valid
and binding.

RULING:
The 24 January 1980 letter signed by Inter-Asia's president is valid and
binding. As held in the case of People's Aircargo and Warehousing Co., Inc. v. Court of
Appeals, 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." Being a juridical entity, a corporation may act through its board of
directors, which exercises almost all corporate powers, lays down all corporate
business policies and is responsible for the efficiency of management, as provided in
Section 23 of the Corporation Code of the Philippines. Under this provision, the power
and 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, bylaws, 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 expressly or
impliedly by habit, custom or acquiescence in the general course of business, viz: "A
corporate officer or agent may represent and bind the corporation in transactions with
third persons to the extent that [the] authority to do so has been conferred upon him,
and this includes powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused person dealing with the
officer or agent to believe that it has conferred.... [A]pparent authority is derived not
merely from practice. Its existence may be ascertained through (1) the general manner
in which the corporation holds out an officer or agent as having the power to act or, in
other words the apparent authority to act in general, with which it clothes him; or (2)
the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers. It requires
presentation of evidence of similar acts executed either in its favor or in favor of other
parties. It is not the quantity of similar acts which establishes apparent authority, but
the vesting of a corporate officer with the power to bind the corporation." Hence, an
officer of a corporation who is authorized to purchase the stock of another corporation
has the implied power to perform all other obligations arising therefrom, such as
payment of the shares of stock. By allowing its president to sign the Agreement on its
behalf, Inter-Asia clothed him with apparent capacity to perform all acts which are
expressly, impliedly and inherently stated therein.

INCIDENTAL POWERS

ATRIUM MANAGEMENT CORPORATION

 vs.
COURT OF APPEALS, E.T. HENRY AND CO., et al.
GR 109491, 28 February 2001

FACTS:
Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M.
de Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor
of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the
four checks to Atrium for valuable consideration. Enrique Tan of E.T. Henry
approached Atrium for financial assistance, offering to discount four RCBC checks in
the total amount of P2 million, issued by Hi-Cement in favor of E.T. Henry. Atrium
agreed to discount the checks, provided it be allowed to confirm with Hi-Cement the
fact that the checks represented payment for petroleum products which E.T. Henry
delivered to Hi-Cement. Upon presentment for payment, the drawee bank dishonored
all four checks for the common reason “payment stopped”. As a result thereof, Atrium
filed an action for collection of the proceeds of 4 PDC in the total amount of 2M with
RTC Manila. Judgment was rendered in favor of Atrium ordering Lourdes and Rafael
de Leon, E.T. Henry and Co., and Hi-Cement to pay Atrium the said amount plus
interest and attorneys fees. CA absolved Hi-cement Corporation from liability. It also
ruled that since Lourdes was not authorized to issue the subjects checks in favor of
E.T. Henry Inc., the said act was ultra vires.

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 “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.
Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when:
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;
2. He consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection
thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate
action.
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and
Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon
was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium
and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in
favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit
only to the payee’s account and not to be further negotiated. What is more, the
confirmation letter contained a clause that was not true, that is, “that the checks
issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T.
Henry”. Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may
be held personally liable therefor.

OTHER POWERS

FIRME
vs.
BUKAL ENTERPRISES
G.R. No. 146608.October 23, 2003

FACTS:

Spouses Constante and Azucena Firme are the registered owners of a parcel of
land located on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro, the vice
president of Bukal Enterprises and Development Corporation authorized his friend,
Teodoro Aviles, a broker, to negotiate with the Spouses Firme for the purchase of the
Property. On 28 March 1995, Bukal Enterprises filed a complaint for specific
performance and damages with the trial court, alleging that the Spouses Firme
reneged on their agreement to sell the Property. The complaint asked the trial court to
order the Spouses Firme to execute the deed of sale and to deliver the title to the
Property to Bukal Enterprises upon payment of the agreed purchase price. On 7
August 1998, the trial court rendered judgment against Bukal Enterprises, dismissing
the case and ordering Bukal Enterprises to pay the Spouses Constante and Azucena
Firme (1) the sum of P335,964.90 as and by way of actual and compensatory
damages; (2) the sum of P500,000.00 as and by way of moral damages; (3) the sum of
P100,000.00 as and by way of attorney’s fees; and (4) the costs of the suit.

The trial court held there was no perfected contract of sale as Bukal Enterprises
failed to establish that the Spouses Firme gave their consent to the sale of the
Property; and that Aviles had no valid authority to bind Bukal Enterprises in the sale
transaction. Bukal Enterprises appealed to the Court of Appeals, which reversed and
set aside the decision of the trial court.

ISSUE:
Whether or not there was a perfected contract between the Spouses Firme and
Bukal Enterprises, the latter allegedly being represented by Aviles.

RULING:
 No. There was no approval from the Board of Directors of Bukal Enterprises as
would finalize any transaction with the Spouses Firme. Aviles did not have the proper
authority to negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro,
had asked him to negotiate with the Spouses Firme to buy the Property. De Castro, as
Bukal Enterprises’ vice president, testified that he authorized Aviles to buy the
Property. However, there is no Board Resolution authorizing Aviles to negotiate and
purchase the Property on behalf of Bukal Enterprises.
The power to purchase real property is vested in the board of directors or trustees.
While a corporation may appoint agents to negotiate for the purchase of real property
needed by the corporation, the final say will have to be with the board, whose approval
will finalize the transaction. A corporation can only exercise its powers and transact its
business through its board of directors and through its officers and agents when
authorized by a board resolution or its by-laws.
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board. Absent such
valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected
with, the performance of authorized duties of such director, are held not binding on
the corporation. In this case, Aviles, who negotiated the purchase of the Property, is
neither an officer of Bukal Enterprises nor a member of the Board of Directors of
Bukal Enterprises. There is no Board Resolution authorizing Aviles to negotiate and
purchase the Property for Bukal Enterprises. There is also no evidence to prove that
Bukal Enterprises approved whatever transaction Aviles made with the Spouses
Firme.

CHINA BANKING CORPORATION

vs.
COURT OF APPEALS
270 SCRA 476

FACTS:
On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf &
Country Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to China Banking
Corporation (CBC). On 16 September 1974, CBC wrote VGCCI requesting that the
pledge agreement be recorded in its books. In a letter dated 27 September 1974,
VGCCI replied that the deed of pledge executed by Calapatia in CBC's favor was duly
noted in its corporate books. On 3 August 1983, Calapatia obtained a loan of
P20,000.00 from CBC, payment of which was secured by the pledge agreement still
existing between Calapatia and CBC. Due to Calapatia's failure to pay his obligation,
CBC, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary
Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction
sale of the pledged stock. On 14 May 1985, CBC informed VGCCI of the foreclosure
proceedings and requested that the pledged stock be transferred to its name and the
same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote
CBC expressing its inability to accede to CBC's request in view of Calapatia's unsettled
accounts with the club. Despite the foregoing, Notary Public de Vera held a public
auction on 17 September 1985 and CBC emerged as the highest bidder at P20,000.00
for the pledged stock. Consequently, CBC was issued the corresponding certificate of
sale.

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment

of his overdue account in the amount of P18,783.24. Said notice was followed by a
demand letter dated 12 December 1985 for the same amount and another notice dated
22 November 1986 for P23,483.24. On 4 December 1986, VGCCI caused to be
published in the newspaper Daily Express a notice of auction sale of a number of its
stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was
Calapatia's own share of stock (Stock Certificate 1219). Through a letter dated 15
December 1986, VGCCI informed Calapatia of the termination of his membership due
to the sale of his share of stock in the 10 December 1986 auction. On 5 May 1989,
CBC advised VGCCI that it is the new owner of Calapatia's Stock Certificate 1219 by
virtue of being the highest bidder in the 17 September 1985 auction and requested
that a new certificate of stock be issued in its name. On 2 March 1990, VGCCI replied
that "for reason of delinquency" Calapatia's stock was sold at the public auction held
on 10 December 1986 for P25,000.00. On 9 March 1990, CBC protested the sale by
VGCCI of the subject share of stock and thereafter filed a case with the Regional Trial
Court of Makati for the nullification of the 10 December 1986 auction and for the
issuance of a new stock certificate in its name. On 18 June 1990, the Regional Trial
Court of Makati dismissed the complaint for lack of jurisdiction over the subject
matter on the theory that it involves an intra-corporate dispute and on 27 August
1990 denied CBC's motion for reconsideration. On 20 September 1990, CBC filed a
complaint with the Securities and Exchange Commission (SEC) for the nullification of
the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate
issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and
for damages, attorney's fees and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision

in favor of VGCCI, stating in the main that considering that the said share is
delinquent, VGCCI had valid reason not to transfer the share in the name of CBC in
the books of VGCCI until liquidation of delinquency. Consequently, the case was
dismissed. On 14 April 1992, Hearing Officer Perea denied CBC's motion for
reconsideration. CBC appealed to the SEC en banc and on 4 June 1993, the
Commission issued an order reversing the decision of its hearing officer; holding that
CBC has a prior right over the pledged share and because of pledgor's failure to pay
the principal debt upon maturity, CBC can proceed with the foreclosure of the pledged
share; declaring that the auction sale conducted by VGCCI on 10 December 1986 is
declared NULL and VOID; and ordering VGCCI to issue another membership
certificate in the name of CBC. VGCCI sought reconsideration of the order. However,
the SEC denied the same in its resolution dated 7 December 1993. The sudden turn of
events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the
Court of Appeals rendered its decision nullifying and setting aside the orders of the
SEC and its hearing officer on ground of lack of jurisdiction over the subject matter
and, consequently, dismissed CBC's original complaint. The Court of Appeals declared
that the controversy between CBC and VGCCI is not intra-corporate; nullifying the
SEC orders and dismissing CBC’s complaint. CBC moved for reconsideration but the
same was denied by the Court of Appeals in its resolution dated 5 October 1994. CBC
filed the petition for review on certiorari.

ISSUE:
Whether CBC is bound by VGCCI's by-laws.

RULING:
In order to be bound, the third party must have acquired knowledge of the
pertinent by-laws at the time the transaction or agreement between said third party
and the shareholder was entered into. Herein, at the time the pledge agreement was
executed. VGCCI could have easily informed CBC of its by-laws when it sent notice
formally recognizing CBC as pledgee of one of its shares registered in Calapatia's
name. CBC's belated notice of said by-laws at the time of foreclosure will not suffice.
By-laws signifies the rules and regulations or private laws enacted by the corporation
to regulate, govern and control its own actions, affairs and concerns and its
stockholders or members and directors and officers with relation thereto and among
themselves in their relation to it. In other words, by-laws are the relatively permanent
and continuing rules of action adopted by the corporation for its own government and
that of the individuals composing it and having the direction, management and control
of its affairs, in whole or in part, in the management and control of its affairs and
activities. The purpose of a by-law is to regulate the conduct and define the duties of
the members towards the corporation and among themselves. They are self-imposed
and, although adopted pursuant to statutory authority, have no status as public law.

Therefore, it is the generally accepted rule that third persons are not bound by
by-laws, except when they have knowledge of the provisions either actually or
constructively. For the exception to the general accepted rule that third persons are
not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the
provisions of the VGCCI By-laws must be acquired at the time the pledge agreement
was contracted. Knowledge of said provisions, either actual or constructive, at the time
of foreclosure will not affect pledgee's right over the pledged share. Article 2087 of the
Civil Code provides that it is also of the essence of these contracts that when the
principal obligation becomes due, the things in which the pledge or mortgage consists
maybe alienated for the payment to the creditor. Further, VGCCI's contention that
CBC is duty-bound to know its by-laws because of Article 2099 of the Civil Code which
stipulates that the creditor must take care of the thing pledged with the diligence of a
good father of a family, fails to convince. CBC was never informed of Calapatia's
unpaid accounts and the restrictive provisions in VGCCI's by-laws. Furthermore,
Section 63 of the Corporation Code which provides that "no shares of stock against
which the corporation holds any unpaid claim shall be transferable in the books of the
corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any
unpaid claim arising from unpaid subscription, and not to any indebtedness which a
subscriber or stockholder may owe the corporation arising from any other
transaction." Herein, the subscription for the share in question has been fully paid as
evidenced by the issuance of Membership Certificate 1219. What Calapatia owed the
corporation were merely the monthly dues. Hence, Section 63 does not apply.
 TAM WING TAK
vs.
HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the Regional
Trial Court of Manila, Branch 35) and ZENON DE GUIA (in his capacity as Chief
State Prosecutor)
G.R. No. 122452. January 29, 2001

FACTS:

On November 11, 1992, petitioner, in his capacity as director of Concord-World

Properties, Inc., (Concord for brevity), a domestic corporation, filed an affidavit-
complaint with the Quezon City Prosecutor's Office, charging Vic Ang Siong with
violation of B.P. Blg. 22 alleging that a check for the amount of P83,550,000.00,
issued by Vic Ang Siong in favor of Concord, was dishonored when presented for
encashment.
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 firm's 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. Petitioner moved for reconsideration but the
City Prosecutor denied such. On November 8, 1994, petitioner appealed the dismissal
of his complaint and the Chief State Prosecutor dismissed the appeal for having been
filed out of time.

ISSUES:

Whether or not petitioner is the proper party to institute the case.

RULING:

No. In general, mandamus may be resorted to only where one's right is founded
clearly in law and not when it is doubtful. The exception is to be found in criminal
cases where mandamus is available to compel the performance by the public
prosecutor of an ostensibly discretionary function, where by reason of grave abuse of
discretion on his part, he willfully refuses to perform a duty mandated by law. Thus,
mandamus may issue to compel a prosecutor to file information when he refused to do
so in spite of the prima facie evidence of guilt.
First, with respect to the agreement between Concord and Victor Ang Siong to
amicably settle their difference, we find this resort to an alternative dispute settlement
mechanism as not contrary to law, public policy, or public order. Efforts of parties to
solve their disputes outside of the courts are looked on with favor, in view of the
clogged dockets of the judiciary.
Second, it is not disputed in the instant case that Concord, a domestic
corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord,
as payee of the bounced check, which is the injured party. Since petitioner was neither
a payee nor a holder of the bad check, he had neither the personality to sue nor a
cause of action against Vic Ang Siong.
Petitioner failed to show any proof that he was authorized or deputized or
granted specific powers by Concord's board of director to sue Victor Ang Siong for and
on behalf of the firm. Petitioner as a minority stockholder and member of the board of
directors had no such power or authority to sue on Concord's behalf. Nor can we
uphold his act as a derivative suit. For a derivative suit to prosper, it is required that
the minority stockholder suing for and on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of action on behalf of the corporation
and all other stockholders similarly situated who may wish to join him in the suit.

CENTRAL COOPERATIVE EXCHANGE, INC.

vs.
ENCISO
162 SCRA 706

FACTS:
Petitioner Central Cooperative Exchange, Inc. is the National Federation of
Farmers' Cooperative Marked Association (FACOMA) in the Philippines. Its single
major stockholder is a government entity, the Agricultural Credit and Cooperative
Financing Administration (ACCFA) now Agricultural Credit Administration (ACA).
Respondent Nicolas T. Enciso was then member of the Board of Governors of ACCFA
and concurrently a member of petitioner's Board of Directors from August 1, 1958 to
January, 1960. The ACCFA took over the management of the affairs of CCE by virtue
of a resolution of the latter's board of directors and ACCFA removed the general
manager of CCE and on January 22, 1960, designated Eugenio V. Mendoza, one of
ACCFA's staff officers, as Officer-in-Charge of petitioner corporation.
As shown by the payrolls and petty cash and check vouchers of the CCE, Nicolas T.
Enciso, as director of said Exchange, received as compensation in the form of
commutable per diem, per them Facoma visitations, kilometrage allowance,
commutable discretionary funds and representation expenses. Then CCE filed a
complaint with prayer for a writ of attachment verified by its Officer-in-Charge, against
Nicolas T. Enciso for the recovery of the said expenses, the same having been collected
and received by Enciso in violation of Section 8, Article V of CCE's By-Laws which
states that the petitioner it is the stockholders not the board of directors who can fix
the compensation per diem, and allowances of the members of the Board of Directors.

Respondent stated that he was a director of petitioner and that the amount of
compensation and per diems of the directors was fixed by stockholders in their annual
meeting. As affirmative defenses, he averred that: (1) plaintiff corporation has neither
the legal personality to institute the action; nor to question the legality of the
resolutions enacted by the Board of which he is a member; (2) plaintiff corporation is
guilty of laches; (3) that the stockholders had ratified in their General Annual Meetings
the acts of the Board of Directors, including the collection of the amounts in question;
and (4) under the circumstances, CCE is under estoppel to seek the refund of the
amounts involved in the litigation.

ISSUE:
 Whther or not the Board of Directors of the petitioner has the power and
authority to adopt the resolutions which includes per diems, transportation allowance
and discretionary funds for the members of its Board of Directors.

RULING:
No. this Court held that the right of the stockholders to determine the
compensation of the Board of Directors was explicitly reserved and even without said
reservation, the directors are not entitled to compensation. Moreover, this Court
declared that the law is well settled that directors of corporations presumptively serve
without compensation so that while the directors, in assigning themselves additional
duties acted within their power, they nonetheless acted in excess of their authority by
voting for themselves compensation for such additional duties.

Concerning the point that the complaint was verified by the officer-in-charge who is
not of the category of a General Manager, it win be noted that said officer-in-charge
took over the functions and duties of the deposed general manager. In general, the
authority to supervise the business and affairs of the corporation includes the
authority to institute proceedings against all accountable persons in order to protect
and preserve the assets of the corporation and to prevent their dissipation.

LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES

vs.
FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS
COMMISSION
G.R. No. 76801. August 11, 1995

FACTS:

Lopez Realty, Inc., is a corporation engaged in real estate business, while

petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Sometime in
1978, Arturo Lopez submitted a proposal relative to the distribution of certain assets
of Petitioner Corporation among its three (3) main shareholders. The proposal had
three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2)
the transfer of certain assets of the company to its three (3) main shareholders, while
some other assets shall remain with the company; and (3) the reduction of employees
with provision for their gratuity pay. The proposal was deliberated upon and approved
in a special meeting of the board of directors held on April 17, 1978.
It appears that petitioner corporation approved two (2) resolutions providing for
the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980 resolving to
set aside, twice a year, a certain sum of money for the gratuity pay of its retiring
employees and to create a Gratuity Fund for the said contingency; and (b) Resolution
No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund
covering the period from 1950 up to 1980.
On August 17, 1981, the remaining members of the Board of Directors, namely:
Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting
and passed a resolution which provides that: (a) Those who will be laid off be given the
full amount of gratuity; (b) Those who will be retained will receive 25% of their gratuity
(pay) due on September 1, 1981, and another 25% on January 1, 1982, and 50% to be
retained by the office in the meantime.
Private respondents were the retained employees of petitioner corporation. In a
letter, dated August 31, 1981, private respondents requested for the full payment of
their gratuity pay. Their request was granted in a special meeting held on September
1, 1981.

ISSUES:

Whether or not the subject resolutions requires for their validity stockholders’
approval.

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.

TUASON
vs.
BOLANOS
95 PHIL. 06
FACTS:
This was an action to recover possession of a parcel of land where the plaintiff
was represented by a corporation.

ISSUE:
Whether or not the case should be dismissed on the ground that the case was
not brought by the real property in interest

RULING:
 No. There is nothing to the contention that the present action is not brought by
the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of
Court require is that an action be brought in the name of, but not necessarily by, the
real party in interest. (Section 2, Rule 2.) The complaint is signed by the law firm of
Araneta and Araneta, "counsel for plaintiff" and commences with the statement
"comes now plaintiff, through its undersigned counsel." It is true that the complaint
also states that the plaintiff is "represented herein by its Managing Partner Gregorio
Araneta, Inc.", another corporation. 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 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.

SEC OPINION
29 February 1980

This Commission hereby reiterates its previous opinions that the weight of authority is
to the effect that a corporation cannot ordinarily enter into a contract of partnership
with another corporation or individual, to wit:

"According to the prevailing view, a corporation has no implied power to become a

partner with an individual or another corporation. This limitation is based on public
policy, since in a partnership the corporation would be bound by the acts of persons
who are not duly appointed and authorized agents and officers, which would be
entirely inconsistent with the policy of the law that the corporation shall manage its
own affairs, separately and exclusively". (Am Jur par. 823)

"It is fairly well-settled that corporations cannot ordinarily enter into partnerships with
other corporations or individuals, for, in entering into a partnership the identity of the
corporation is lost or merged with that of another and the direction of the affairs is
placed in other hands than those permitted by the law of its creation. A corporation
can act only through its duly authorized agents and is not bound by the acts of
anyone else, while in a partnership each member binds the firm when acting within
the scope of the partnership." (6 Fletcher, Cyc Corps. Section 2520; Cf. SEC Opinion
dated Dec. 22, 1966, SEC Folio p. 279).

Exceptions to the application of this general rule may be allowed by this Commission,
provided that the following conditions are adequately met:
1. The articles of incorporation of the corporations involved must expressly
authorize the corporation to enter into contracts of partnership with others in the
pursuit of its business;

2. The agreement or articles of partnership must provide that all the partners will
manage the partnership; and

3. The articles of partnership must stipulate that all the partners are and shall be
jointly and severally liable for all the obligations of the partnership.

This Commission will not therefore interpose any objection to the recording of the said
articles of partnership which must be accompanied by the proper SEC verification slip
regarding the proposed partnership name; the written undertaking to change the
partnership name in the event that another person, firm or entity has acquired a prior
right to the use of said name or is misleading or confusingly similar to it; the Data
Sheet of the registrant partnership and the recording fee of 1/10 of 1% of the
partnership's capital but not less than P100.00 or more than P50,000.00.

Moreover, two or more corporations may enter into a joint venture/consortium if the
nature of the venture is in line with the business authorized by its charter through a
contract or voluntary agreement between the said parties. Please note that no
independent legal entity is borne out of it and the same need not be registered with the
Commission. However when the joint venture/consortium would result in the
formation of a corporation or partnership, the same has to be registered with the
Commission and the conditions and requirements above-mentioned should be
complied with.

GAMBOA
vs.
VICTORIANO
FACTS:

The herein petitioners were sued by herein defendants to nullify the issuance of
823 shares of stock of the Inocentes de la Rama, Inc. in favor of the petitioners.
On April 4, 1972, the respondents, are the owners of 1,328 shares of stock of
the Inocentes de la Rama, Inc., a domestic corporation, with an authorized capital
stock of 3,000 shares, with a par value of P100.00 per share, 2,177 of which were
subscribed and issued, thus leaving 823 shares unissued. Then President and Vice-
President of the corporation, respectively, the defendants Mercedes R. Borromeo,
Honorio de la Rama, and Ricardo Gamboa, remaining members of the board of
directors of the corporation, in order to forestall the takeover by the plaintiffs of the
afore-named corporation, surreptitiously met and elected Ricardo L. Gamboa and
Honorio de la Rama as president and vice-president of the corporation, respectively,
and passed a resolution authorizing the sale of the 823 unissued shares of the
corporation to the defendants, at par value, after which the petitioners were elected to
the board of directors of the corporation.
The respondents claimed that the sale of the unissued 823 shares of stock of
the corporation was in violation of the plaintiffs' and pre-emptive rights and made
without the approval of the board of directors representing 2/3 of the outstanding
capital stock, and is in disregard of the strictest relation of trust existing between the
defendants, as stockholders. The respondents prayed that a writ of preliminary
injunction be issued restraining the defendants from committing, or continuing the
performance of an act tending to prejudice, diminish or otherwise injure the plaintiffs'
rights in the corporate properties and funds of the corporation, and from disposing,
transferring, selling, or otherwise impairing the value of the 823 shares of stock
illegally issued. The respondent court granted the prayer.

ISSUES:

Whether or not the proper action is a derivative suit.

RULING:

Yes. An individual stockholder is permitted to institute a derivative suit on

behalf of the corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or are the
ones to be sued or hold the control of the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with the corporation as the real party in
interest. 12 In the case at bar, however, the plaintiffs are alleging and vindicating their
own individual interests or prejudice, and not that of the corporation. At any rate, it is
yet too early in the proceedings since the issues have not been joined. Besides,
misjoinder of parties is not a ground to dismiss an action.