La Compana Coffee Factory Inc. vs.

Kaisahan ng mga manggagawa sa La Campana

and the attempt to settle the matter through mediation had given no result. So the Dept. of Labor certified the dispute to the Court of

La Campana Gaugau Packing and La Campana Coffee Factory are operating under one single mgt, that is, as one business though with 2 trade names. It is true that the coffee factory is a corpo and, by legal fiction, an

when in reality they are but one, is but a device to defeat the ends of the law (the Act governing capital and labor relations) and shld not be permitted to prevail.

Tan Tong has been engaged in the business of buying and selling guagua under the trade name La Campana Guagua Packing. Later, Tan Tong and his family organized a family corporation known as La Campana Coffee Factory Co. Inc, with its principal office located in the same place as that of La Campana Guagua Packing.

Industrial Relations.

The 2 corpos as combined and the PLOW moved for the dismissal of the case which includes the ground, among others, that the action is directed against 2 different entities with distinct personalities the La Campana Starch Factory and the La Campana Coffee Factory Inc. CIR denied. MR was filed

entity existing separate and apart from the persons composing it, that is, Tan Tong and his family. But it is settled that this fiction of law, which has been introduced as a matter of convenience and to subserve the ends of justice cannot be invoked to further an end subversive of that purpose. This case involves a complaint for unfair labor practice filed before the CIR against Emilio, Ariston and Rodolfo, all Emilio Cano Enterprises, Inc. vs. Court of Industrial Relations

A year before the formation of the corporation, Tan Tong had entered into a CBA with the Phil. Legion of Organized Workers (PLOW) to which the union of Tan Tongs employees was affiliated. Said employees later formed their organization known as Kaisahan Ng Mga Manggagawa sa La Campana and applied for registration in the Dept. of Labor as an independent entity.

on the grounds that CIR had no jurisdiction to take cognizance of the case for the reason, among others, that the petitioner La Campana Coffee Factory, has only 14 employees, only 5 of whom are members of the respondent union and therefore the absence of the In the present case, Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an

surnamed Cano, in their capacity as president and proprietor, field supervisor and mgr, respectively, of Emilio Cano Enterprises Inc. The court found Emilio and Rodolfo guilty of unfair labor practice while Ariston was

incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the CIR:

absolved for insufficiency of evidence. As a consequence, the 2 were ordered, jointly and severally, to reinstate Honorata Cruz, to her

jurisdictional number of 30.

ISSUE

WON

THE

CIR

HAS

The 2 factories have only 1 office, 1 mgt and 1 payroll

former position with payment of backwages.

JURISDICTION The Kaisahan Ng Mga Manggagawa Sa La Campana, composed of 66 members HELD YES. CIR HAS JURISDICTION bec

The laborers of the gaugau factory and the coffee factory were interchangeable laborers from the gaugau factory were sometimes transferred to the coffee factory and vice-versa

Meanwhile

Emilio

died

and

the

attempt to have the case dismissed against him failed. An order of execution was issued which was directed against the properties of Emilio Cano Enterprises, Inc. instead of those of the respondents named in the decision. The

consisting of both members of LCGP and LCCF, presented a demand for higher wages and more privileges addressed to La Campana Starch and Coffee Factory, by which name they sought to designate the LCGP and the LCCF. However, the demand was not granted

the number of employees of the La Campana Gaugau Packing involved in the case is more than the jurisdictional number (31) required by law.

Thus, the attempt to make the 2 factories appear as 2 separate businesses,

corpo filed a motion to quash the writ on the ground that the judgment sought to be

enforced was not rendered against it which is a juridical entity separate and distinct from its officials.

In the present case, it is a fact that Emilio Cano Enterprises Inc is a closed family corpo where the incorporators and directors belong to one single family. In this instance,

filed a Notice and Claim for Compensation with the Regional Office of the Workmens Compensation alleging that her deceased

same is made as a shield to confuse the legitimate issues.

husband was an employee of TESCO. WCC required petitioner to submit an Employers Report of Accident or Sickness. Said report as submitted with UMACOR indicated as the employer of the deceased. The Acting Referee awarded death benefits and burial expenses in favor of the heirs of Gatus.

It

is

important

to

note

that

ISSUE

WHETHER

THE

JUDGMENT

the corpo and its members can be considered as one. Furthermore, Emilio and Rodolfo were indicted, not in their private capacity, but as officers of the corpo. Having been sued officially, their connection with the case must be impressed with the representation of the corpo. Thus, the order rendered against them is in effect against the corpo.

petitioner denied for the first time, the employer-employee relationship between

RENDERED AGAINST EMILIO AND RODOLFO CANO IN THEIR

TESCO and Gaitus only in the petition for certiorari. That in the actions brought by TESCO before said petition, petitioner as the even

CAPACITY AS OFFICIALS OF THE CORPO EMILIO INC BE CANO MADE THE

ENTERPRISES, EFFECTIVE

represented and employer of the

defended itself deceased.

AGAINST

TESCO

PROPERTY OF THE LATTER WHICH WAS NOT A PARTY TO THE CASE

The Provincial Sheriff levied on and attached the properties of TESCO and

admitted that TESCO and UMACOR are sister companies operating under one single mgt and housed in the same bldg.

scheduled the sale of the same at a public HELD YES, the judgment against Emilio and Telephone Engineering Service Co. vs. auction. TESCO filed for a petition for Certiorari with Preliminary Injunction seeking to annul the award and to enjoin the Sheriff TESCO is a domestic corpo engaged in the business of manufacturing telephone equipment. Its executive VP and GM is Jose It is undisputed rule that a corpo has a personality separate and distinct from its members or stockholders bec of a fiction of the law. And to hold such entity liable for the acts of its members is not to ignore the legal fiction but merely to give meaning to the principle that such fiction cannot be invoked if its purpose is to use it as a shield to further an end which is subversive of justice. UMACOR employed Pacifico Gatus as Purchasing Agent and was detailed with Luis Santiago. It has a sister company, the Utilities Management Corporation (UMACOR), with offices in the same location. UMACOR is also under the mgt of Santiago. HELD YES, the WCC may render award ISSUE WON THE WCC MAY RENDER from buying and selling its properties at public auction.

Rodolfo can be made effective against the property of the corporation bec the

Workmens Compensation Commission

While indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCOs denial at this stage that it is the employer of the deceased is obviously an afterthought, a devise to defeat the law and evade its obligations. This denial also

corporation and its members can be considered as one.

AWARD AGAINST TESCO

constitutes a change of theory on appeal which is not allowed in this jurisdiction.

against TESCO bec TESCO is the employer of the deceased employee. Although respect for the corporate personality as such, is the GR, there are exceptions. In appropriate cases, the veil of corporate fiction may be pierced as when the Claparols vs. Court of Industrial Relations

petitioner company. When he reported back to UMACOR, he contracted illness and eventually died due to a serious medical illness. His widow

A complaint for unfair labor practice was filed by the Allied Workers Association against Claparols Steel and Nail Plant on account of the dismissal of the workers.

of operations of the former corp. Thus, the latter corp was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor,

the fiction of separate and distinct corporate entity shld be disregarded

products but under the name of LIBRA GARMENTS. When this was discovered by the workers, LIBRA GARMENTS was changed to DOLPHIN GARMENTS.

National Federation of Labor Union (NAFLU) vs. Ople ISSUE WON THE CORPORATE FICTION OF NAFLU conciliation before filed the a request of for Labor THE 2ND CORPO (LIBRA

The CIR found Claparols guilty of union busting and of having dismissed said complainants bec of their union activities, and ordered Claparols 1) to cease and desist from committing unfair labor practices against their employees and laborers; and 2) to reinstate said complainants to their former or equivalent jobs, with backwages from the date of their dismissal up to their actual reinstatement.

Claparols

Steel

and

Nail

Plant.

Both

predecessor and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. The avoidingthe-liability scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corp was owned by Mr. Claparols himself, and all the assets of the dissolved corp CSNP were turned over to the

GARMENTS changed to DOLPHIN GARMENTS) SHLD BE PIERCED

Bureau

Relations requesting for the intervention in its dispute with mgt involving certain money claims, refusal to conclude a collective HELD YES, the corporate fiction of the 2nd corpo shld be pierced bec it is but an alter ego of the old employer, Lawman Industrial.

agreement after such has been negotiated and run-away shop undertaken by mgt in order to bust the union.

As enunciated in the Claparols case, the corporate fiction shld be pierced as it was

ISSUE

WON THE VEIL OF CORPORATE FICTION SHLD BE PIERCED

emerging CSC. After all efforts to mediate the Yutivo: when the notion of legal entity is used charges of ULP and non-payment of certain money claims have failed, the union filed its notice of strike. The company had failed to resume operations as promised alleging poor business conditions. Meanwhile, the union filed a complaint for ULP against the mgt of Lawman Liddel: where a corp is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored The actual partial shutdown began. The name of lawman was changed to LIBRA Industrial.

deliberately and maliciously designed to evade its financial obligations to its employees. It is an established principle that when the veil of corporate fiction is made as a shield to perpetrate a fraud or to confuse legitimate issues, in the present case the employeremployee pierced. relationship, the same shld be

HELD

YES bec Claparols Steel and Nail

to defeat public convenience, justify wrong, protect fraud or defend crime, the law will regard the corp as an assn or persons, or, in the case of 2 corpos, will merge them into 1.

Plant and Claparols Steel Corp is one and the same. It is very obvious that the 2
nd

corp CSC

seeks the protective shield of a corporate fiction whose veil in the present case could, and shld be pierced as it was deliberately and maliciously designed to evade its financial obligations to its employees.

The 2nd corpo seeks the protective shield of a corporate fiction to achieve an illegal purpose. Thus, being an alter ego of the old employer, LIBRA GARMENTS must bear the consequences of Lawmans unfair acts.

The CIR found that Claparols Steel and Nail Plant was succeeded by the Claparols Steel Corpo the next day after the cessation

Norton: where a corp is merely an adjunct, business conduit or alter ego of another corp,

GARMENTS. Under that name, new applicants for employment were called even as the company continued to manufacture the same

after 1972 or up to the time the corporate life was terminated. A.C. Ransom Labor Union CCLU vs. NLRC ISSUE The CIR declared AC Ransom Phil. Corp guilty of ULP, and ordered it, its officers and agents to the the cease same, 22 and and desist to from HELD NO, the NLRC is incorrect in WON THE NLRC IS CORRECT IN RELIEVING THE OFFICERS OF AC RANSOM OF ANY LIABILITY

convenient instrument to avoid payment of backwages and the reinstatement of the 22 workers.

issued but was only partially satisfied. An Alias Writ of Execution was subsequently filed but to no avail because the principal office of Concept Builders Inc was occupied by Hydro

Such circumstances justify the piercing the fiction of separate and distinct corporate entities.

Pipes Phils., and that while the sheriff levied upon some personal properties he found

thereat, he was prevented from removing them by security guards with high powered guns.

committing immediately

reinstate

union members with

relieving the officers of RANSOM from liability due to the circumstances making ROSARION Industrial Corp a mere extension of RANSOM: Concept Builders Inc was a domestic corpo engaged in the construction business. 1. ROSARIO Industrial Corp was organized as a run-away corp in 1969 at the time the ULP case was proceeding before the Private respondents were employed by said corpo. Later, said respondents were served individual written notices of termination of employment as their contracts already expired and the project in which they were hired had been completed. that However, respondents found that the project was in fact not yet finished and bldgs, completed. That petitioner had to engage the services of sub-contractors whose workers performed the functions of said respondents. the NLRC committed grave abuse of discretion when it ordered the Petitioner Concept Builders alleged Concept Builders Inc. vs. NLRC The special sheriff recommended that a break-open order be issued to enable him to enter petitioners premises so that he could proceed with the public auction sale. A 3rd-party claim was filed alleging that the props sought to be levied were owned by Hydro Phils. Labor Arbiter denied break-open order. NLRC issued a break-open order.

backwages. Writs of execution were issued but to no avail. The union against filed a motion for the execution of the order praying that the writ be issued against the officers/agents of Ransom personally and or their estates, as the case may be.

The Labor Arbiter held the officers and agents liable. However, on appeal, the NLRC relieved the officers and agents from liability. 2.

CIR by the same persons who were the officers and stockholders of RANSOM Engaged in the same line of business as RANSOM, producing the same line of products

A special civil action was filed, the decision of which ordered the reinstatement of the Labor Arbiters order with the

3. 4.

Occupying the same compound Using the same machineries,

execution of its decision despite a 3rd-party claim; the doctrine of piercing the

factories, bodega and sales and accts depts. Used by RANSOM (which is still in existence)

modification that personal liability for the backwages due the 22 strikers shall be limited to Ruben Hernandez, who was President of Ransom, who was President of Ransom in 1974, jointly and severally with other Presidents of the same corp who had been elected as such

corporate veil shld not have been They filed a complaint for illegal applied in this case in the absence of any showing that it created HPPI in order to evade its liability to private respondents;

Thus, both corpos were closed corpos owned and managed by members of the same family. Its organization proved to be a

dismissal and ULP, among others. The Labor Arbiter ordered the reinstatement and

payment of backwages. Writ of execution was

HPPI is engaged in the mftr and sale of steel, concrete and iron pipes, a business separate which is distinct and

used as a device to defeat the labor laws, this separate personality of the corpo may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corpo is merely an adjunct, a business conduit or an

domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own Thus, petitioner ceased its business

operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions and that the emergence of HPPI was skillfully

from

petitioners

construction business it is of no consequence that

alter ego of another corpo. 2. There is no hard and fast rule under which the juridical entity may be disregarded vary accdg to the peculiar facts and Such control must have been used by

petitioner and HPPI shared the same premises, the same Pres and the same set of officers and subscribers

orchestrated to avoid the financial liability that already attached to petitioner corpo.

the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiffs legal rights; and

ISSUE

WON THE NLRC GRAVELY ABUSED ITS DISCRETION IN ISSUING THE BREAK-OPEN ORDER

circumstances of each case. However, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil:

McConnel vs. CA

The Park Rite Co., Inc leased from 3. The aforesaid control and breach of injury or Rafael Rosales y Samanillo a vacant lot on Juan Luna St. (Mla) which it used for parking motor vehicles for a consideration. However, it turned out that the corpo also occupied and Absence of one of the elements prevents piercing the corporate veil. In applying said doctrine, the courts are concerned with reality and not form, with how the corpo operated and the individual defendants relationship to that used an adjacent lot belonging to respondentappellees Padilla, without the owners

HELD

NO, the NLRC did not commit grave 1. Stock ownership by one or common

duty must proximately cause the unjust loss complained of.

abuse of discretion in issuing the break-open order bec Concept Builders Inc and HPPI is one and the same, and that HPPI is a mere business conduit of petitioner corp.

ownership of both corpos 2. 3. Identity of directors and officers The manner of keeping corporate

books and records It is a fundamental principle of corpo law that a corpo is an entity separate and distinct from its stockholders and from other corpos to which it may be connected. But this separate and distinct personality of a corpo is merely a fiction created by law for The SEC en banc explained the 4. Methods of conducting the business

knowledge and consent. When the latter discovered the truth, they demanded payment for the use and occupation of the lot.

operation. The In the present case, information sheets filed to the SEC by the each corpo was filed by the same corporate secretary of both corporations; both corpos had the same corpo (then controlled by

INSTRUMENTALITY RULE or ALTER EGO DOCTRINE which the courts have applied in disregarding the separate juridical personality of corpos as follows:

petitioners Parades and Tolentino) disclaimed liability, blaming the original incorporators, McConnel, Rodriguez and Cochrane. Meanwhile, the lot owners filed a complaint for forcible entry against the corpo. Judgment was

convenience and to promote justice. So when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is

1. complete

Control, stock

not

mere

majority but

or

president, same BOD, same corporate officers, and substantially the same subscribers.

control,

complete

rendered ordering Park Rite to pay Padilla until

return of the lot. However, restitution was not made. The corpo was found to be without any assets other than P550 deposited in Court which was applied to the judgment credit.

the functions of the corpo were solely for their benefit.

Tan Boon Bee, doing business under the name and style of Anchor Supply Co., sold paper products on credit to Graphic Publishing

5 hours after the auction sale, PADCO filed a Motion to Nullify Sale on Execution (with Injunction) with the CFI Mla. Judge ruled in favor of PADCO.

It has been held that in cases where the corporate entity is being used as an alter-

Inc. Graphic made partial payment by check. Later, a promissory note was executed to cover the balance. In the said PN, it was stipulated that the amt will be paid on monthly installments and that failure to pay any amt would make the amt immediately demandable with an interest of 12% per annum.

The judgment creditors filed a suit against the corpo and its past and present stockholders, to recover from them, jointly and severally, the unsatisfied balance of the judgment. CFI denied recovery. CA reversed, finding that the corpo was a mere alter-ego or business conduit of the principal stockholders that controlled it for their own benefit, and adjudged them responsible for the amts demanded by the lot owners.

ego or business conduit for the sole benefit of the stockholders, or else to defeat public convenience, justify wrong, protect fraud, or defend crime, the corporate veil shld be pierced.

ISSUE

WON

THE

ORDER JUDGE

OF SHLD

THE BE

RESPONDENT UPHELD

HELD

NO, said order should not be upheld

bec PADCO and GRAPHIC is one and the same. While the mere ownership of all or nearly all of the capital stock of a corpo does not necessarily mean that it is a mere business conduit of the stockholder, that conclusion is amply justified where it is shown that the Due to failure to pay installment, Tan Boon Bee filed an action for the collection of sum of money. The court ordered Graphic to pay Tan Boon Bee. The doctrine of piercing the veil of corporate fiction applies in this case since the corporate fiction of PADCO and GRAPHIC as separate entities was used as a cloak or cover Pursuant to an alias writ of for fraud or illegality. PADCO was never engaged in the

ISSUE

WON

THE

INDIVIDUAL MAY BE HELD

operations of the corpo were so merged with the stockholders as to be practically

STOCKHOLDERS LIABLE FOR

execution, the sheriff levied upon 1 unit printing machine found in the premises of Graphic. Phil. American Drug CO (PADCO) informed the sheriff that the printing machine is its property and no that of Graphic, and accordingly advised the sheriff to cease and desist from carrying out the scheduled public auction. Notwithstanding, the sheriff

OBLIGATIONS

indistinguishable from them. To hold the latter liable for the corpos obligations is not to ignore the corpos separate entity, but merely

printing business BOD and officers of Graphic and

CONTRACTED BY THE CORPO

PADCO were the same Graphic Printing machine had been in PADCO holds 50% shares of stock of

HELD

YES, they can be held liable for the

to apply the established principle that such entity cannot be invoked or used for purposes that could not have been intended by the law that created that separate personality.

obligations contracted by the corpo bec the corpo was a mere alter-ego or business conduit of the defendants Paredes and Tolentino, and before them the defendants McConnel, Cochrane and Rodriguez. Also, evidence clearly shows that these persons completely

premises of Graphic and was allegedly leased by PADCO to Graphic

proceeded with the auction, sold the property to petitioner and issued a cert of sale in favor Tan Boon Bee & Co., Inc vs. Jarencio of Tan Boon Bee.

dominated and controlled the corpo and that

Cease vs. CA

Forrest Cease together with 5 other American citizens organized the Tiaong Milling and Plantation Company. In the course of its corporate existence, the company acquired various props but at the same time all the other original incorporators were bought by Cease together with his children and one Bonifacia Tirante. The charter of the company lapsed on Aug 13, 1959.

estate also of the deceased Forest Cease and ordered to be divided among his children.

Accounts

of

the

corpo

and

its

The Brokerage

BOD Corp

of adopted

Akron a

Customs resolution

operation, as well as that of the family appears to be indistinguishable

authorizing the purchase of 13 trucks for use in its business to be paid out of a loan the

ISSUE

WON

THE

TRIAL

COURT

IS The legal fiction of separate corporate personality shall have been used to delay and ultimately deprive and defraud the

CORRECT IN RULING THAT THE ASSETS AND PROPS OF THE

corpo may secure from a lending institution.

CORPO IS ALSO PART OF THE ESTATE OF FOREST CEASE

Feliciano Coprada, Pres. Of Akron, purchased 13 trucks from EB Marcha

respondents of their successional right to the estate of their deceased father.

Transport Co., Inc as evidenced by a deed of absolute sale. In a side agreement, the parties agreed on a down payment and the balance to

HELD When Forrest died, his shares were extrajudicially partitioned among the children. However, Benjamin and Florence wanted an actual division while the others wanted

YES the trial court is correct bec it

correctly applied the familiar exception to the GR by disregarding the legal fiction of distinct and separate the corporate corpo and personality the and WHEN PIERCING THE CORPORATE VEIL IS NOT JUSTIFIED

be paid within 60 days from date of execution of the agreement. The obligation is further secured by a promissory note executed by

regarding

individual Where the corpo is not used or not being used to defeat public convenience, justify wrong, confuse circumvent protect fraud, defend crime, or to

reincorporation. Ernesto, Teresita, Cecilia and Bonifacia proceeded to incorporate themselves into FL Cease Plantation Company. In view of said action, Benjamin and Florence initiated the judicial settlement of the estate of Forrest Cease, and also filed a civil case against the incorporators praying that Tiaong Milling and Plantation Corp be declared

members one and the same. Thus, FL Cease is only the business conduit and alter ego of the deceased Forrest Cease and the registered props of Tiaong Milling are actually props of Forrest Cease and shld be divided equally among his children.

Coprada in favor of Akron. It is stated in the PN that the balance shall be paid from the proceeds of a loan obtained from the Devt. Bank of the Phil within 60 days. After the lapsed of 90 days, EB Marcha tried to collect from Coprada but the latter promised to pay only upon the release of the DBP loan.

legitimate the law

issues, or

perpetuate

deception, or an alter-ego, adjunct or business conduit for the sole benefit of

While originally, the incorporators

stockholders or another corpo Mere ownership of all or substantially all of the shares of stock of a corpo Upon inquiry, EB Marcha found that no loan application was ever filed by Akron with DBP. So EB Marcha filed a complaint for the recovery of a sum of money against Akron and its officers and directors.

identical to FL Cease and that its props be divided among his children as his intestate heirs.

were aliens, it developed into a close family corp BOD and stockholders belong to 1

Presumption of fraud If petitioner does not seek to impose a claim against the stockholders or officers

family, the head of which Forrest Cease always The trial court ruled in favor of Benjamin and Florence and declared that the assets or props of Tiaong Milling now appearing under the name of FL Cease, as trustee, is the retained the majority stocks and hence, the control and mgt of its affairs.

Remo Jr. vs. Intermediate Appellate Court

Petitioner denied any participation in the transaction and alleging that Akron has a

distinct

corporate

personality.

Meanwhile,

It was Coprada who signed the PN to guarantee payment of unpaid balance (The word WE referred to the corpo which Coprada represented)

Francisco del Rosario and if insufficient, against the cash and/or surety bond of the Bonding Company concerned for the full

The organization of Philsa International Placement and Services Corp and its registration with POEA does not imply fraud since it was organized and

petitioner sold all his shares in Akron to Coprada. It also appears that Akron amended its arts. Of incorp thereby changing its name to Akron Transport International Inc which assumed the liability of Akron to private respondent.

satisfaction of the judgment awarded.

Petitioner did not sign said PN No personal obligation to respondent it is petitioners inherent right as a ISSUE WON THE WRIT OF EXECUTION AS AGAINST THE PETITIONER SHLD BE UPHELD NLRC dismissed the appeal.

registered in 1981, several years before private respondent filed his complaint Substantial identity of the incorporators of the 2 corpos does not necessarily imply fraud IndoPhil Textile Mill Workers Union vs. Calica

stockholder to dispose of his share of The trial court ordered Akron, stock anytime he so desires

Coprada et al including Remo Jr to jointly and severally pay the purchase price of the trucks with legal interest. IAC affirmed. In a POEA case, the POEA dismissed ISSUE WON PETITIONER REMO JR the complaint for money claims for lack of merit. On appeal, NLRC reversed the decision and ordered PHILSA Construction and Trading Co., Inc (recruiter) and Arieb Enterprises HELD NO, petitioner Remo Jr. could not be (employer) to jointly and severally pay private respondent Leonaldo Atienza, salary Del Rosario vs. NLRC HELD

NO, the writ shld not be upheld bec

Petitioner

Indophil

Textile

Mill

of it was not shown that petitioner is the corporate officer responsible for private respondents predicament.

Workers Union-PTGWO is a legitimate labor organization duly registered with the Dept. of Labor and the exclusive bargaining agent of all the rank-and-file Mills Inc. employees of Indophil Calica is

COULD BE HELD JOINTLY AND SEVERALLY LIABLE

Also,

the

separate

juridical

Textile

Respondent

personality of the corpo cannot be disregarded in this case bec of the absence of clear and convincing evidence which would establish fraud.

impleaded in his official capacity as the Voluntary Arbitrator of the DOL.

held personally liable for the corporations obligation to private respondent bec there is no cogent basis to pierce the corporate veil of Akron.

differentials and vacation leave benefits. SC dismissed.

Petitioner Union and Indophil Textile Mills Inc executed a CBA effective from Apr.

A writ of execution was issued by The petitioners participation in the the POEA but it was returned unsatisfied as PHILSA was no longer operating and was financially incapable of satisfying the

The conclusion that PHILSA allowed its license to expire so as to evade payment of private respondents claim is not supported by the facts

1, 1987 to Mar. 31, 1990.

adoption of a resolution authorizing the purchase of trucks to be paid out of a loan does not appear to have the intention of defrauding anyone specially the

On Nov. 3, 1967, Indophil Acrylic Manufacturing Corp was formed and

judgment. Private respondent moved for the issuance of an alias writ against the officers of PHILSA. Issued and ordered sheriff to execute against the properties of Mr.

Intent to evade payment of the claims cannot be implied from the expiration of PHILSAs license and its delisting.

registered with the SEC and in 1988, it became operational and hired workers accdg to its own criteria and standards. Sometime in

respondent.

July 1989, the workers of Acrylic unionized and a duly certified CBA was executed.

HELD

YES, the VA is correct in not

Petitioner

PNB

and

respondents

HELD

NONE bec the petitioner is not a

piercing the veil of Acrylic bec the two companies involved are distinct entities with

Ritratto Group, Inc, Ritratto Intl Inc and Dadason Gen. Merchandise are domestic

party to the contract thus, it has no power to recomputed the interest rates set forth in the contract as prayed by the respondents in their complaint. Petitioner is an agent with limited

In 1990, petitioner union claimed that the plant facilities built and set up by Acrylic shld be considered as an extension or expansion of the facilities of private

separate juridical personalities.

corpos organized and existing under Phil. Law.

The circumstances of the case are not sufficient to justify the piercing of the corporate veil of Acrylic.

PNB International Finance Ltd, a subsidiary company of PNB, organized and doing business in Hongkong, extended a letter of credit in favor of the respondents secured

authority and specific duties under a SPA incorporated in the real estate mortgage. It is not privy to the loan contract entered into by respondents and PNB-IFL.

respondent Indophil Textile Mills Inc pursuant to Sec. 1[c], Art. 1 of the CBA. In other words, it is the petitioners contention that Acrylic is part of the Indophil bargaining unit (thus, alleging that the creation of Acrylic is a devise to evade the application of the CBA between petitioner company). Union and private respondent

Businesses of private respondent and Acrylic are related

by a real estate mortgage. Respondents made repayments of the loans incurred by remitting those amts to their loan acct with PNB-IFL in Hongkong. ISSUE2 WON THE SUIT AGAINST THE DEFENDANT PNB IS A SUIT

Some of the employees of priv. resp are the same persons manning and providing for auxiliary services to the units of Acrylic

AGAINST PNB-IFL, THE LATTER BEING A WHOLLY OWNED

However, there remained outstanding obligations. Pursuant to the terms of the real estate mortgages, PNB-IFL, thru its atty-infact, notified the respondents of the HELD

SUBSIDIARY OF DEFENDANT

Private respondent opposed the

The physical plants, offices and facilities are situated in the same compound

NO bec the respondents failed to

contention and submitted that it is a juridical entity separate and distinct from Acrylic. How do you distinguish this ruling to La

show any cogent reason why the separate entities of PNB and PNB-IFL shld be

foreclosure of all the real estate mortgages and such props to be sold at a public auction.

Campana,
The Voluntary Arbitrator rendered its award declaring that the CBA does not extend to the employees of Acrylic as an extension or expansion of Indophil. - La campana, one payroll, employees were made interchangeable. Acrylic had its own standards ISSUE WON THE VOLUNTARY having the same issues:

disregarded. [Thus, ruling in Koppel case finds no application]

Respondents filed a complaint for injunction. Trial court issued TRO which was assailed by the petitioner before the CA. CA dismissed the petition. There is no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corpo. However, some factors have ISSUE1 WON THE RESPONDENTS HAVE A PNB vs. Ritratto Group Inc et al CAUSE OF ACTION AGAINST THE PETITIONER been identified that will justify the application of the treatment of the doctrine of the piercing of corporate veil.

ARBITRATOR IS CORRECT IN NOT PIERCING THE VEIL OF ACRYLIC

The Court cited the case of Garrett vs. Southern Railway Co wherein the Tennessee SC stated that as a GR, the stock ownership alone by one corpo of the stock of another does not thereby render the dominant corpo liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corpo.

there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil based on the alterego or instrumentality doctrine finds

for the sale of TDI to the First Pacific Metro Corpo, the retrenchment pushed through.

PETITIONER LIABLE

YU

AND

YOUNG

The purchase of the assets of TDI by the First Pacific was not consummated. A new buyer of TDIs assets, Twin Ace Holdings,

HELD

YES bec TDI and Twin Ace or

application in the case at bar.

Tanduay Distillers are 2 separate and distinct, and that the fiction of separate and distinct corporate entities cannot be disregarded

The between PNB

parent-subsidiary relationship and PNB-IFL is not the

Inc, took over the business and assumed the business name Tanduay Distillers.

there being not the least indication that the 2nd corpo is a dummy or serves as a client of

significant legal relationship involved in this case since the petitioner was not sued bec it is the parent company of PNB_IFL but rather bec it acted as an atty-in-fact of PNB-IFL in A year after the resps-employees ceased as employees, the Labor Arbiter declared that the retrenchment was illegal thereby ordering TDI to reinstate the

the 1st corporate entity.

The SC discussed a number of reasons why the petitioners may not be held liable under the final judgment of the Labor Arbiter:

Similarly, in our jurisdiction, we held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate

initiating the foreclosure proceedings. A suit against an agent cannot be considered a suit against the principal without compelling

complainants with payment of backwages; that in the event of change in mgt, TDI was ordered to pay separation benefits. TDI appealed but to no avail.

reasons. The injunction suit is directed only against the agent, not the principal.

corporate personality of a corpo is abused or used for wrongful purposes. In the case of Concept Builders vs. NLRC, the Court laid the CONTROL TEST in determining the

1.

It is beyond the scope of the power and

competence of the Labor Arbiter to amend its Priv. resps-employees filed a motion Yu. Vs. NLRC for execution. Petitioners filed an opposition on the ground that it is without any basis in so This case involves 22 employees of Tanduay Distillery Inc (TDI), including priv. resps. Duran, Paliwan, Estoce and Santos, who were terminated from the corpo due to far as it prays for the issuance of a writ of execution against Tanduay Distillers, which is an entity separate and distinct from TDI, and respondents James Yu and Wilson Young. NLRC dismissed the petition for lack of merit. 2. Petitioners and Tanduay Distillers are not final decision final judgment does not in any manner obligate Tanduay DIstillers or

applicability of the doctrine of piercing the veil of corporate fiction. Absence of any of the elements prevents piercing the corporate veil.

petitioners Yu and Young to reinstate the petitions. Only TDI was held liable.

one and the same as TDI since such stand is not supported by the facts. Twin Ace or Tanduay Distillers, and TDI are distinct and

In the present case, aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corpo is a mere instrumentality of the other. Neither is

retrenchment.

Said

employees

filed

an

application for the issuance of TRO against their retrenchment. The labor Arbiter issued TRO. However, due to the 20-day lifetime of the TRO, and bec of the on-going negotiations ISSUE WON RESPONDENT NLRC

separate corpos. There is nothing to suggest that the owners of TDI have any common

COMMITTED GRAVE DISCRETION IN

ABUSE OF HOLDING

relationship as to identify it with Allied Bank Grp which runs Tanduay Distillers. Sec. 16.

The amendments shall take effect upon their

of the arts of incorp as provided in Sec. 6

Amendment

of

Articles

of

approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation. a. Does not apply in case the of 3.

Incorporation. - Unless otherwise prescribed

3. TDI as a corpo or its shares of stock, by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the

Submission and filing of the amendments

were not purchased by Twin Ace. They buyer limited itself to purchasing most of the assets, equipment and machinery of TDI. Thus, Twin Ace or Tanduay Distillers did not take over the corporate personality of TDI although they manufacture the same product at the same plant with the same equipement and machinery.

with the SEC as follows:

The original and amended articles

together shall contain all the provisions required by law to be set out in the arts of incorp. Such articles, as amended, shall be indicated by underscoring the change or changes made

amendment

consist

increasing/decreasing the capital stock or shortening the corporate term where any increase or decrease of capital stock or dissolution by shortening the corporate term shall require the prior approval of the SEC [see. Sec. 38 & 120]

appraisal right of dissenting stockholders in 4. There is no showing that TDI itself was accordance with the provisions of this Code, or the vote or written assent of at least twothirds (2/3) of the members if it be a nonstock corporation.

absorbed by Twin Ace or that it ceased to exist as a separate corpo.

b.

A copy thereof, duly certified under

oath by the corporate secretary and a majority of the directors or trustees

Steps AMENDMENT CHARTER OF THE CORPORATE The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. One of the express powers granted by law to all corpos registered under the provisions of the Corpo Code Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the Sec. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and capacity: directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the 2. 1.

to

be

followed

for

an

effective

stating the fact that such amendments have been duly approved by the required vote of the stockholders or members

amendment of the articles of incorp:

Resolution by at least a majority of the c. Favorable recommendation of the

BOD or trustees

appropriate govt agency concerned in the Vote or written assent of the case where the corpo is under its

stockholders representing at least 2/3 of the outstanding capital stocks or 2/3 of the members in case of non-stock corpo Non-voting shares are considered in determining the voting and quorum requirement in case of amendments

supervision such as banking and insurance companies, etc [last par: Sec. 17]

ORDINARY AMENDMENTS SEC. 16 Change of name,

SPECIAL AMENDMENTS SEC 37 & 38

stockholders or members, shall be submitted 4. To amend its articles of incorporation in accordance with the provisions of this Code; to the Securities and Exchange Commission.

purpose principal office

and/or

directors and, at a stockholder's meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the

(3) If an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually subscribed, the names, nationalities and residences of the persons subscribing, the amount of capital stock or number of no-par stock subscribed by each, and the amount paid by each on his subscription in cash or property, or the amount of capital stock or number of shares of no-par stock allotted to each stock-holder if such increase is for the purpose of making

One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by the Securities and Exchange Commission and the issuance by the

Sec. 37. Power to extend or shorten corporate

increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or

term. - A private corporation may extend or

shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least twothirds (2/3) of the members in case of nonstock corporations. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of

Commission of its certificate of filing, the capital stock

increasing of any bonded indebtedness and of the time and place of the stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally.

effective stock dividend therefor authorized; (4) Any bonded indebtedness to be incurred, created or increased; (5) The actual indebtedness of the corporation on the day of the meeting; (6) The amount of stock represented at the meeting; and (7) The vote authorizing the increase or

residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That in case of extension of corporate term, any dissenting stockholder may exercise his appraisal right under the conditions provided in this code.

A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders' meeting,

diminution

of

the

capital

stock,

or

the

incurring, creating or increasing of any bonded indebtedness.

setting forth: Sec. 38. Power to increase or decrease capital

Any increase or decrease in the capital stock or the incurring, creating or increasing of any

stock; incur, create or increase bonded indebtedness. - No corporation shall increase

or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of

(1) That the requirements of this section have been complied with; (2) The amount of the increase or diminution of the capital stock;

bonded

indebtedness

shall

require

prior

approval of the Securities and Exchange Commission.

shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange

WRITTEN

ASSENT

of

the

stockholders

or

Change In Corporate Name included in the general power to amend the charter of a corpo subject only to the limitation imposed by law and the special restrictions provided or the R&R implementing the same

__- Hartigan failed to pay the sum of P5K.

members would suffice Action undertaken under Sec. 37 & 38 must be

__-

Defendants admitted the execution of the

voted upon at a duly constituted meeting Differences in the formal requirements Still subject to the approval of the SEC and may

indemnity agreement but they claimed that they signed it in favor of Yek Tong

Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twentyfive (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: Provided, further, That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors.

and not in favor of FPIC; Sec. 16 shld be complied with Any change upon a corporate identity or name DOES NOT AFFECT THE RIGHTS & OBLIGS that there was no privity of contract

be rejected or disapproved on grounds provided for by Sec. 17

between the plaintiff and defendants, thus, plaintiff has no cause of action

PROVISIONS SUBJECT TO AMENDMENT

OF THE CORPO

against them since the complaint did not allege that FPIC and Yek Tong are one and the same

Explicit from Sec. 16 is that unless otherwise Philippine First Insurance Co. vs. Hartigan

or that the plaintiff acquired the rights of the latter.

provided by the Code or by special law, any provision or matter stated in the arts of incorp is/are subject to amendment However, not all encompassing bec those

__- Plaintiff

was

originally

organized

as

an

__- CFI-Manila dismissed the action.

insurance corpo under the name of The Yek Tong Lin Fire and Marine Insurance Co., Ltd. ISSUE WON THE TRIAL COURT SHLD BE UPHELD IN DISMISSING THE CASE __- On May 26, 1961, the arts of incorp were

matters which are FAIT ACCOMPLI are beyond the powers or authority of the corpo to change, alter or modify

Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose.

Names of the incorporators and the

amended pursuant to a certificate of the BOD changing the name to Phil. First Insurance Co., Inc (FPIC).

HELD

NO, bec the trial court erred in its

incorporating directors or trustees Name of the treasurer originally or first

observation, citing the case of Red Line Transport, that a change of name is against public policy.

elected by the subscribers or members to act as such until his successor has been duly elected and qualified Number of shrs and amt originally __- Complaint alleges that FPIC under its old name, signed as co-maker a PN (P5K) in favor of the China Banking Corp, together with Maria Carmen Hartigan when she and 2 others signed an indemnity agreement in favor of the plaintiff, undertaking jointly and severally to pay the plaintiff damages, losses or expenses of whatever kind or nature that it may sustain as a result of the execution of the PN. __- Thus, the Red Line case was not one of change of name. __- What the Court held to be contrary to public policy is the use by 1 corpo of the name of another corpo as its trade name since to do so will result in confusion and open the door to frauds and evasions and difficulties of administration and supervision.

Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the authority to determine the sufficiency of the terms thereof.

subscribed and paid out of the original authorized capital stock of the corpo Date and place of execution of the arts of

Meeting of the stockholders or members

incorp Signatories and acknowledgment

would be required unlike in Sec. 16 where the

__- Neither can the Court share the position of the trial court that the change of name of a corpo results in its dissolution.

4. In case of EXTENSION of corporate term, the extension shld be for periods not exceeding 50 yrs in any single instance, and provided that no extension can be made earlier than 5 yrs prior to

Sec. 82. How right is exercised. - The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate action, by making a written demand on the corporation within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares: Provided, That failure to make the demand within such period shall be deemed a waiver of the appraisal right. If the proposed corporate action is implemented or affected, the corporation shall pay to such stockholder, upon surrender of the certificate or certificates of stock representing his shares, the fair value thereof as of the day prior to

the stockholder shall forthwith transfer his shares to the corporation.

__- an authorized change in the name of a corpo has no more effect upon its identity as a corpo than a change of name of a natural person has upon his identity. It does not affect the rights of the corpo or lessen or add to its obligs.

the original or subsequent expiry date/s unless there are justifiable reasons for an earlier extension as may be determined by the SEC 5. In cases of extension of the corporate term, a dissenting stockholder may exercise his appraisal rights under the conditions prescribed by Sec. 81

Alhambra Cigar & Cigarette Mfg. Co., Inc vs. SEC

__- ACCMC was incorporated on Jan. 15, 1912 for a period of 50 yrs. Its term of existence expired on Jan. 15, 1962.

__- After a corpo has effected a change in its name, it shld sue and be sued in its new name.

& 82.

__- During the period of its liquidation and winding up [July 15, 1963], the BOD resolved to amend its arts of incorp extending its corporate life for another 50 yrs. The stockholders approved the resolution.

Sec. 81. Instances of appraisal right. - Any AMENDMENT OF THE CORPORATE TERM stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his Cannot exceed 50 yrs unless sooner dissolved shares in the following instances:

the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.

__- the SEC refused to approve the amendment on If within a period of sixty (60) days from the date the the ground that a corpo cannot extend its life after the lapse of its original term of existence. Appeal to the SC. corporate action was approved by the stockholders, the withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and appraised by three (3)

or unless the period indicated in the arts of incorp is amended extending the same Special amendment subject to special provision 1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect Procedure on Amending the Corporate Term superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; 1. Approval by a majority vote of the BOD or trustees 2. Written notice of the proposed action and the time and place of meeting shall be served to each stockholder or member either by mail or personal service 3. Ratification by the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of the members in case of non-stock corpos 3. In case of merger or consolidation. 2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Code; and

of Sec. 37

disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The findings of the majority of the appraisers shall be final, and their award shall be paid by the corporation within thirty (30) days after such award is made: Provided, That no payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover such payment: and Provided, further, That upon payment by the corporation of the agreed or awarded price,

ISSUE

WON

THE

EXTENSION

OF

CORPORATE EXISTENCE OF ACCMC SHLD BE ALLOWED

HELD

NO, the extension shld not be allowed

bec the corporate term of ACCMC already expired, thus, it automatically dissolved on the date such term expired.

__- The privilege of extension is purely statutory such that all of the statutory conditions precedent must be complied with in order that the extension

may be effectuated. __- And these conditions must be complied with during the life of the corpo, and before the expiration of the term of existence as originally fixed by its charter or the general law

xxx

Classification Agents/Officers CHAPTER VI BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

of

Powers

of

Corporate

Ramirez vs. Orientalist Co.

Such power and authority may be delegated to individual directors or other officers or agents, unless the law provides for it SC: corporate powers, such as the power to enter into contracts, are exercised by the BOD. However, the Board may delegate such powers

__- Orientalist Co was engaged in the business of maintaining and conducting a theatre in Mla for the exhibition of cinematographic films. __- Under its arts of incorp, it is authorized to mftr, buy or otherwise obtain all accessories necessary for conducting such business.

__- once the corporate terms expires without an amendment having made, it ceases to exist as a corporate body.

POWERS OF THE BOARD

1 Par: Sec. 23. The board of directors or trustees. Unless otherwise provided in this Code, the

st

to either an executive committee or officials or contracted managers. __- The plaintiff JF Ramirez was at the same time a resident of Paris,France, and was engaged in the bus GR: A corpo is bound by the acts of its corporate officers if they act within the scope of the 5 classification of powers of corporate agents: __- Meanwhile, negotiations were begun bet some 1. Those expressly conferred or those granted by the arts of incorp, the corporate by-laws or by the official act of the BOD; of the directors of the Orientalist and Jose Ramirez for the purpose of placing the exclusive agency of the 2 marks of films in the hands of the Orientalist. The defendat, Ramon Fernandez, one of the 2. Those that are incidental or those acts as are naturally and ordinarily done which are reasonable and necessary to carry out the corporate purpose/s; __- Jose Ramirez placed in the hands of Ramon 3. Those that are inherent or acts that go with the Fernandez an offer to supply from Paris the aforesaid films. Accordingly, Fernandez 4. Those that are apparent or those acts which although not actually granted, the principal had an informal conference with all the members of the companys BOD except one, and with approval of those whom he had directors of the Orientalist and also its treasurer was chiefly active in this matter. of marketing films. He was represented by his son Jose Ramirez.

__- As a rule, the corpo is ipso facto dissolved as soon as that time expires. So where the extension is by amendment of the arts of incorp, the

corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where

amendment must be adopted before that time.

__-

When corporate life of the corporation was

there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified.

ended, there was nothing to extend.

Instances when the SEC allowed extension whose term has already expired:

BOD is the supreme authority in matters of

mgt of the regular and ordinary business affairs of the corpo (trustees in NS corpos or the designated

Sec. 122. Corporate liquidation. - Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.

or the designated governing board by any other name allowed under Sec. 138)

However, authority does not extend to the

office;

fundamental changes in the corporate charter (amendment/substantial changes which belong to the stockholders as a whole) Stockholders may have all the profits but shall turn over the mgt of the enterprise to the BOD 5. Powers arising out of customs, usage or emergency

knowingly allows or permits it to be done; and

communicated, accepted the offer for the exclusive agency of clair Films and Milano Films thru a letter addressed to Jose Ramirez

Said communications were signed by a separate

HELD

YES, the company could be held liable on

Actions of the stockholders in such matters is

The law is clear that contracts between a corpo

signature of RJ Fernandez, as an individual, placed below and to the left of the signature of the Orientalist Co, as assigned by RJ Fernandez, in the capacity of treasurer.

the contracts bec the acts of Ramon Fernandez bound the company to the obligations arising from such contracts.

only advisory and not in any way binding in the corporation

and 3rd persons must be made by or under the authority of its BOD and not by its stockholders.

The SC ruled that in dealing with corpos, the Barreto vs. La Previsora Filipina

Therefore, the action of the stockholders was

only advisory and not in any wise binding on the corpo.

In due time, the films began to arrive in Mla in

public at large is bound to rely to a large extent upon outward appearances. This case involves an action to recover from

which expenses were incident to each shipment. Since Orientalist Co was without funds to meet

defendant, La Previsora Filipina brought by Alberto if a man is found acting for a corporation with Barreto, Jose de Amusategui and Jose Barreto, who had been directors of said corpo from its incorpo up to March 1929, 1% to each plaintiffs of the profits of the these obligations, the first few drafts were accepted in the name of Orientalist but paid by its president B. Hernandez with his own funds. Since he paid for the drafts, he treated it as his own property, and they in fact never came into actual possession of the company.

QUALIFICATIONS AND DISQUALIFICATIONS [see Chap. IV]

the external indicia of authority, any person not having notice of want of authority, may usually rely upon those appearances; and if it be found that the directors had permitted the agent to exercise that authority and thereby held him out as a person competent to bind the corporation, or had acquiesced in a contract and retained the benefit

2nd Par: Sec. 23. The board of directors or trustees. Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director

corpo for the yr 1929, under and in accordance with an amendment to the by-laws of the corpo which was made at a general meeting of the stockholders sometime in February 1929.

Later, several remittances of films from Paris

supposed to have been conferred by it, the corporation will be bound, notwithstanding the actual authority may never have been granted. ISSUE The failure of the defendant corpo to make an WON THE AMENDMENT TO THE BYLAWS HAVE A BINDING EFFECT TO WARRANT THE GRANT OF THE Lower court ruled in favor of the plaintiffs.

arrived which were drawn upon the Orientalist and accepted by its president. None of these, however, were taken up by the drawee or by Hernandez when they fall due. Action was instituted by plaintiff against the

shall thereby cease to be a director. Trustees of nonstock corporations must be members thereof. a majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines.

issue in its answer with regard to the authority of Fernandez to bind it, and particularly to deny specifically under oath the genuineness and due execution of the contracts sued upon have the effect of eliminating the question of his authority from the present case. HELD

Orientalist Co and Ramon Fernandez. The company was declared as principal debtor, and Fernandez as subsidiarily liable as guarantor.

PLAINTIFFS CLAIM

Sec. 27. Disqualification of directors, trustees or officers. - No person convicted by final judgment of

NONE, the amendment does not have

an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of his election or appointment, shall qualify as a director, trustee or officer of any corporation.

any binding effect to warrant grant of the subject claim bec the article which the appellees relied upon was merely a by-law provision adopted by the

ISSUE

WON THE CORPO COULD BE HELD LIABLE ON THE CONTRACTS

Functions of the stockholders are of limited

stockholders of the corpo, without any action having been taken in relation thereto by its BOD.

nature - Contracts must be made by the director and not the stockholders

Lee vs. CA

Priv. resps argued that the VTA did not divest

right to sell certain interest in the assets of the corpo and

In the absence of a showing that the DBP had

the petitioners of their positions as pres and exec VP complaint for a sum of money was filed by the of ALFA so that service of summons upon ALFA thru the petitioners as corporate officers was proper.

caused to be transferred in their names 1 shr of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA.

other rights to which a stockholder may be entitled until the liquidation of the corpo.

International Corporate Bank Inc against the private respondents (Sacoba Manufacturing Corp., Pablo Gonzales Jr., and Tomas Gonzales) who, in turn, filed a third party complaint against Alfa Integrated Textile Mills (ALFA), Ramon C. Lee (ALFA's president) and Antonio DM. Lacdao (ALFA's vice president).

Trial court declared that service upon the However, in order to distinguish a VTA from Detective and Protective Bureau vs. Cloribel

petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summon on ALFA. CA reversed.

proxies and other voting pool and agreements, it must pass 3 criteria or tests:

1. That the voting rights of the stock are separated from the other attributes of ownership 2. That the voting rights granted are intended to be irrevocable for a definite period of time

complaint for accounting with preliminary

injunction and receivership was filed by Detective and Protective Bureau Inc against Fausto Alberto. DPBI alleged

trial court issued an order requiring the

ISSUE

WON THE CA ERRED IN HOLDING THAT THERE WAS PROPER SERVICE OF SUMMONS ON ALFA THRU THE PETITIONERS

issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioners letter informing the court that the summons for ALFA was erroneously served upon them considering that the mgt of ALFA had been transferred to the DBP. HELD

that

Alberto,

managing director of

plaintiff corpo, illegally seized and took control of all the assets as well as the books, records, vouchers and receipts of the corpo from the accountant-cashier, and concealed them

YES, the CA erred in holding that there

3.

That the principal purpose of the grant of voting rights is to acquire voting control of the corpo

was proper service of summons bec the petitioners DBP claimed that it was not authorized to ceased to be the owners of at least 1 share standing in their names on the books of ALFA as required under Sec. 23 of the Corpo Code by virtue of the VTA executed in 1981 which disposed of all their shares thru assignment and delivery in favor of the DBP as trustee. Pets ceased to be directors. Petitioners claimed that they were no longer Under Sec. 59, by its very nature, a VTA results officers of ALFA and that priv.resps shld have availed of publication to effect proper service upon ALFA. petitioners, in their 2nd MR, attached a copy of

receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence.

illegally and refused to allow any member of Thus, the most immediate effect of a VTA on the corpo to see and examine the same;

the status of a stockholder who is a party to its execution is that from legal titleholder or owner of the shares subject of the VTA, he becomes the equitable or beneficial owner. that by virtue of a stockholders meeting,

defendant was removed as managing director and elected Jose dela Rosa as replacement;

in the separation of the voting rights of a stockholder from his other rights such as

Considering that the VTA between ALFA and

that defendant refused to vacate his office

the DBP transferred legal ownership of the stocks covered by the agreement to the DBP as trustee, the

and to deliver the assets and books to dela Rosa, and continued to perform unauthorized acts for and in behalf of the corpo.

the VTA bet all the stockholders of ALFA (pets included), and the DBP whereby the mgt and control of ALFA became vested upon the DBP.

right to receive dividends right to inspect the books of the corpo,

latter became the stockholder of record with respect to the said shares.

Alberto disputed that dela Rosa could not be

ELECTION AND VOTING

number of votes shall be declared elected. Any meeting of the stockholders or members called for

To allow the minority to have a rightful representation in the BOD

elected managing director bec he did not own any stock in the corpo. Sec. 24. Election of directors or trustees. - At all elections of directors or trustees, there must be ISSUE WON JOSE DELA ROSA COULD BE ELECTED AS MANAGING DIRECTOR present, either in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there HELD NO, dela Rosa could not be elected as be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the election; and said stockholder may vote such number of shares for as Furthermore, since he could not be a director, many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see Since the managing director-elect was not fit: Provided, That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. Candidates receiving the highest he could also not be a managing director of the corpo pursuant to Art. V, Sec. 3 of the by-laws of the corpo which provides that the manager shall be elected by the BOD from among its members.

an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there not present or represented by proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the member entitled to vote. Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. If for any reason, no election is held as when the required quorum Is not obtaining, the meeting called for that purpose, may be ADJOURNED Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time. Election must be by ballot otherwise viva-voce would suffice The directors or trustees and officers to be elected shall perform the duties enjoined on them by law In the election of the members of the BOD, CUMULATIVE VOTING is a matter of right granted by law to each stockholder with voting rights and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the In NS corpo, cumulative voting is generally, not available, unless allowed by arts of incorp or by-laws, since each member is entitled only to 1 vote [Sec. 89 a member may cast as many votes as there are trustees to be elected but may not cast more than 1 vote for 1 candidate] transaction of corporate business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board.

managing director bec there is no proof that he owned a share of stock in the corpo. Since he did not own any share of stock, he could not be a director pursuant to the mandatory provision of Sec. 30 which provides that every director must own in his own right at least 1 shr of the capital stock of the stock corpo which he is a director

qualified to become managing director, Alberto could not be compelled to vacate his office and cede the same to the managing director-elect because the by-laws of the corpo provides that Directors shall serve until the election and qualification of their duly qualified successor.

Cumulative Voting gives the stockholder entitled to vote the right to give a candidate as many votes as the number of directors to be elected multiplied by the number of shrs shall equal

Directors or trustees cannot attend or vote by proxy at board meetings.

EXCEPT IN A CLOSE CORPO (where other corporate officers may be elected directly by the

stockholders), the Code requires the BOD to elect said officers

2. Where expressly conferred 3. Where the officer or agent is clothed with actual or apparent authority

A corpo, such as PWCC, can act only thru its

Lopez Realty Inc. vs. Fotencia

officers and agents, all acts within the powers of said corpo may be performed by agents of its selection; and Complaint was filed by private respondents (Fontecha, Refuerzo, Marcial Mamaril, Bautista, Edward Mamaril, Pascual, Pimentel)) against their except in so far as limitations or restrictions employer Lopez Realty Inc and its majority stockholder Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits may be imposed by special charter, by-law or statutory provisions, the same general provision of law which govern

1) Pres, who must be a director; 2) treasurer, who may or may not be a director; 3) secretary, who shld be a resident and citizen of the Phil; 4) such other officers as may be provided for in the by-laws root of the controversy in this case is the Yao Ka Sin Trading vs. CA

undated letter-offer of Constancio Maglana, Pres and Chairman of the Board of Prime White Cement VALIDITY AND BINDING EFFECT OF ACTIONS OF CORPORATE OFFICERS SEC. 25, PAR 2 Corp to Yao Ka Sin Trading, which describes itself as a business concern of single proprietorship, and is represented by its mgr, Mr. Yao.

the relation of agency for a natural person govern the officer or agent of a corpo, of whatever status or rank, in respect to his power to act for the corpo; and the agents when once appointed, or members

It

appears

that

Lopez

Realty

approved

resolutions providing for the gratuity of its employees, passed by the stockholders in a special meeting After almost a year since the approval of the said resolution, board member and majority stockholder Teresita Lopez Marquez died Later, the remaining members of the board,

To have a valid corporate act, the decision of at least a majority of the directors or the trustees present at a meeting at which there is a quorum is required

principal issue raised in this case is WON the

said letter-offer, as accepted by YKS, is a contract that binds the PWCC. Trial court ruled in favor of petitioner. CA reversed.

acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons.

EXCEPTION: election of corporate officers where the voting requirement would be a majority of all the members of the board

ISSUE

WON PWCC

THE

LETTER-OFFER

BINDS

Powers subject of the case presuppose a prior act of the corpo exercised thru the BOD

except for Asuncion, convened a special meeting and passed a resolution providing for the

No greater power can be implied from such express, but limited, delegated authority

Any action of the board WITHOUT A MEETING and WITHOUT THE REQUIRED VOTING AND QUORUM REQT will not bind the corpo unless subsequently ratified, expressly or impliedly HELD NO, the letter-offer does not bind PWCC bec the by-laws of PWCC do not in any way confer upon the president the authority to enter into contracts for the corpo independently of the BOD Individual directors are considered as agents of the corpo They cannot bind the corpo by their individual acts but subject to exceptions: 1. By delegation of authority petitioner failed to prove that indeed PWCC

distribution of the gratuity pay on the corpos laid off and retained employees Private respondents were the retained employees of the corpo. They requested for the full payment of the gratuity pay. Granted. However, at that time, petitioner Asuncion was still abroad. It was alleged that while she was still out of the country, she sent a cablegram to the corpo, objecting to certain matters taken up by the board

Neither can it be logically claimed that any power greater than that expressly conferred is inherent in Mr. Maglanas position as pres and chairman of the corpo

had clothed Mr. Maglana with the apparent power to execute the letter-offer or any similar contract

in her absence, such as the sale of some of the assets of the corpo. Upon her return, she filed a derivative suit with the SEC against majority shareholder Arturo Lopez 2 installments of the gratuity pay were paid

However, an action of the BOD during a meeting, which was illegal for lack of notice, may be RATIFIED

represented

by

its

president

and

principal

EXCEPTION: Where a general business manager of a corpo is clothed with apparent authority to borrow money and the amt borrowed does not

stockholder, W. Neumark

Defendant corpo denied said transaction and EXPRESSLY by the action of the directors in subsequent legal meeting, or IMPLIEDLY by the corpos subsequent course of conduct (SILENCE or claimed that it never authorized W. Neumark to borrow money for its account from the plaintiff, and that it never received nor made use of the sum alleged to have been so borrowed

exceed the ordinary requirements of the business, it has often been held that the authority is implied and that the corpo is bound. In the present case, there are sufficient record showing that

Asuncion cancelled the voucher for the 3rd installment of gratuity pay Labor Arbiter ruled in favor of private

INACTION) Ruled in favor of plaintiff In the present case, it was established that petitioner corpo did not issue any resolution revoking nor nullifying the board resolution granting gratuity pay to private respondents ISSUE WON THE DEFENDANT CORPO IS RESPONSIBLE FOR THE PAYMENT OF THE MONEY BORROWED BY W. NEUMARK They paid the gratuity pay (1st 2 installments HELD YES. Aside from the fact that the money

corpo was in need of funds to carry on its business

respondents On appeal, NLRC dismissed for lack of merit ISSUE WON THE ASSAILED BOARD

amt borrowed was not disproportionate to the volume of the business

RESOLUTIONS ARE VALID

Said circumstances shows that W. Neumark must be held to have been impliedly authorized to borrow the money in question. Therefore, corpo was bound by such transaction.

HELD

YES bec the assailed board resolutions

Despite the alleged lack of notice to petitioner Asuncion at the time the assailed resolutions were passed, records showed that she was aware of the corpos obligation under said resolution

was borrowed for the corpo and was placed in its possession, W. Neumark, as the principal

were expressly ratified by the conduct of petitioners after the passage of the resolutions thereby making them stopped from assailing the validity of said board resolutions.

stockholder, president and general business manager of the defendant corpo, was clothed with apparent authority to do everything necessary for the Yu Chuck vs. Kong Li Po

She acquiesced thereto GR: A corporation, thru its BOD, shld act in the manner and within the formalities, if any prescribed by its charter or by the general law Affixed her signature on cash vouchers representing 2nd installment of gratuity pay

conduct of its business. Defendant, a domestic corpo, is engaged in the GR: A business manager or other officer of a corpo has no implied power to borrow money in its behalf. publication of a Chinese newspaper styled Kong Li Po

Thus, directors must act as a body in a meeting called pursuant to the law or the corpos by-laws, otherwise, any action taken therein may be Action to recover the sum of P15K which was borrowed from the plaintiff by Neumark and Co. as Pua Casim & Co vs. Neumark and Co. But much depends upon the circumstances of each particular case. Subject to exceptions.

Its arts. Of incorp and by-laws are in the usual form and provide for a BOD and for other officers, among them a president whose duty is to sign all contracts and other instruments of writing No special provision for a business or GM

questioned by any objecting director or shareholder

 CC Chen/TC Chen was appointed as general business mgr of the newspaper

GR: Power to bind a corpo by contract lies with its BOD or trustees, BUT this power may either EXPRESSLY OR IMPLIEDLY BE DELEGATED to

Ratification by the pres is of no avail; in order to validate a contract, RATIFICATION BY THE BOD was necessary

Later,

GSIS

consolidated the

title

to

the

compound in its name on the grounds that the remittances were insufficient to pay off Atty. Franciscos daughters arrears; and the 1-yr

He entered into an agreement with the plaintiffs by which the latter bound themselves to do printing jobs for the newspaper for P580/mo Plaintiffs were discharged for no apparent reason by the new GM Tan Tian Hong while CC Chen left for China Plaintiffs brought an action for illegal dismissal before the expiration of the 3-yr term employment contract they signed with defendant Defense set up is that CC Chen, the person whose name appears to have signed the contract of employment was not authorized by defendant corp to execute such contract in its behalf Lower court ruled in favor of plaintiffs ISSUE WON CHEN HAD THE POWER TO BIND THE CORPO BY A CONTRACT OF THE CHARACTER INDICATED

other officers or agents of the corpo Fact that the pres was required by the by-laws to EXCEPTION: Where the authority of employing servants and agents is expressly vested in the BOD or trustees, an officer or agent who has GEN. CONTROL & MGT of the corpos business, or a specific part thereof, MAY BIND the corpo BY THE EMPLOYMENT of such agents and employees as are USUAL & NECESSARY in the conduct of such business Trinidad J. Franciso vs. GSIS Corpo absolved sign the docus evidencing contracts of the corpo does not mean that he had power to make the contracts

redemption period has expired. Notices were sent to the plaintiff and to each occupant of the compound Plaintiff filed an action for specific performance and damages. Lower court ruled in favor of the petitioner ISSUE WON THE TELEGRAM SENT BY THE CORPO BINDS THE PETITIONER

BUT the CONTRACTS of employment must be REASONABLE (not for 3 yrs) In RE: Corpo impliedly ratified the contract not supported by evidence

Trinidad

Francisco

mortgaged

in

favor

of

HELD

YES bec the sending of the telegram was

defendant GSIS a parcel of land in consideration of a loan in the amt of P400K, out of which P336.1K was released to her

within Mr. Andals apparent authority as GM of defendant corpo.

the terms of the offer were clear, and over the GSIS extrajudicially foreclosed the mortgage on signature of defendants GM Andal, plaintiff was informed telegraphically that the proposal had been accepted. Hence, there was nothing in the telegram that hinted at any anomaly or gave grounds to Plaintiffs father Atty. Vicente Francisco sent a letter to the GM of GSIS, Mr. Andal to redeem the suspect its veracity, and the plaintiff, therefore cannot be blamed for relying upon it.

Pres of corpo did not have any knowledge of the existence of the contract and asserted that it was never presented neither to him nor to the BOD

the ground that the plaintiff-mortgagor was in arrears on her monthly installments

HELD

NONE bec the subject employment

contract was not the usual contract of employment by which Chen, as GM, had implied authority to bind the defendant corpo, and the conditions of the contract were so onerous to the defendant corpo that the possibility of the corpo being thrown into insolvency thereby is expressly contemplated in the same contract

Before a contract can be ratified, knowledge of its existence must be brought home to the parties who have authority to ratify it or circumstance must be shown from which such knowledge may be presumed

property On the same day the letter was sent, the GSIS Board approved said request thru a telegram Atty. Francisco remitted to GSIS, thru Mr. Andal, a check for P30K. Remittances to defendant followed. The SC cited Ramirez vs. Orientalist Co. case: DEFENSE: That Mr. Andal did not sign the telegram, but that it was sent by the board secretary in his name and without his knowledge

It is familiar doctrine that if a corpo knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as POSSESSING POWER to do those acts, the corpo will, as against any one who has in GOOD FAITH DEALT with the corpo through such agent, be ESTOPPED FROM DENYING HIS AUTHORITY; and where it is said IF THE CORPO PERMITS; this means the same as IF THE THING IS PERMITTED BY THE DIRECTING POWER OF THE CORPO. Therefore, even if it were the board secretary who sent the telegram, the corpo could not evade the binding effect produced by the telegram

The Board of Liquidators vs. Kalaw

Existence of such authority is established, by proof of the course of business, the usages and

Buenaseda vs. Bowen & Co., Inc

NACOCO seeks to recover the sum of P1.3M from GM and board chairman Kalaw and directors Bocar, Garcia and Moll for negligence under the Civil Code, and bad faith and/or breach of trust for having approved the contracts entered into by Kalaw for the delivery of copra which, due to unforeseen chain of events, were undelivered to the buyers. Said P1.3M represented the settlement amt for the damage suits filed by the buyers which culminated in an out-of-court amicable settlement when the Kalaw mgt was already out. Lower court dismissed the complaint on the ground that Kalaw justifiedly entered into the controverted contracts even without the prior approvalof the corpos directorate ISSUE WON THE CONTRACTS EXECUTED BY KALAW BINDS THE CORPO

practices of the company and by the knowledge which the BOD has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corpo

BOD of Bowen & Co., Inc adopted a resolution appointing one of its directors, Francisco Buenaseda, as Managing Director Authorized him to negotiate for and in

behalf of the corpo with the Govt for the authority to act for and bind a corpo may be presumed from acts of recognition in other instances where the power was in fact exercised when, in the usual course of business of a corpo, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corpo may be implied from the manner in which he Meanwhile, an award of P200K worth of ECA procurement materials consisting of marine and industrial paints was allocated to the corpo securing of ECA order for paints in the sum of $398K, With full powers to arrange the financing

of the order and if necessary to mortgage the entire assets of the corpo

GSIS asserted that the telegram came from its offices but it alleged mistake in couching the correct wording Cannot be taken seriously bec the defendant informed Atty. Francisco of said mistake only after more than a yr since the sending of the telegram, and all the while accepted the remittances GSIS SILENCE about the telegram not being in accordance with the true facts, taken together with the unconditional acceptance of the subsequent remittances, constitutes in itself a BINDING

has been permitted by the directors to manage its business In the present case, the practice of the corpo has been to allow its GM to negotiate and execute contracts in its copra trading activities for and in NACOCOs behalf without prior board approval. If the by-laws were to be literally followed, the board shld give its stamp of prior approval on all corporate acts But the Board itself, BY ITS ACTS AND THROUGH ACQUIESCENCE, practically lad aside

For the importation of the materials, it was necessary to open a letter of credit with the PNB

Since the corpo did not have the funds to put up the required cash marginal deposit, its president

HELD

YES bec the contracts are valid corporate

Geoffrey Bowen, obligating the corpo and himself in his personal capacity, offered to pay BUenaseda 37 % of the profits to be realized from the sale of the materials, shld Buenaseda be able to obtain and produce the amt needed Buenaseda accepted. He was able to produce the amt

acts. The contracts executed by Kalaw where acts of an ordinary nature, which by usage or necessity were incident to his office, thereby binding NACOCO as matters arising in the usual course of its activity.

RATIFICATION of the original agreement It is well-settled that where similar acts have been approved by the directors as a matter of general practice, custom and policy, the GM may bind the company without formal authorization of the BOD.

the by-law requirement of prior approval

 When the corpo realized profit, the corpo refused to pay Buenaseda filed an action for recovery of the promised share in the profit Lower court ruled in favor of defendants. CA affirmed. ISSUE WON THE CA ERRED IN HOLDING THAT THE AGREEMENT WAS NOT BINDING UPON THE CORPO

In the present case, the BOD (composed of Bowen himself, his wife, Buenaseda and 2 others) did not repudiate the agreement entered into by Bowen with Buenaseda but on the contrary acquiesced in and took advantage of the benefits afforded by said agreement

be

REMOVAL WITHOUT CAUSED may not used to deprive minority

vote. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the corporation signing the demand. Notice of the time and place of such meeting, as well as of the intention to propose such removal, must be given by publication or by written notice prescribed in this Code. Removal may be with or without cause: Provided, That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be

stockholders/members of the RIGHT OF REPRESENTATION entitled under the law 28 Compliance with requirements under Sec. which they may be

In RE: Argument of the corpo that the profits of the corpo form part of its assets and payment of certain percentage of the profits require a REMOVAL WITH CAUSE proviso that removal shall not deprive the minority of their rightful representation in the board will not apply

declaration of dividends and/or resolution of the BOD

HELD

YES bec the agreement entered into by

Sec. 28. Removal of directors or trustees. - Any UNTENABLE Buenasedas claim of director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation, by a vote of at least twoREMOVAL AND FILLING UP OF VACANCIES thirds (2/3) of the members entitled to vote: Provided, That such removal shall take place either Corporate by-laws may provide for causes or grounds for the removal of a director at a regular meeting of the corporation or at a special meeting called for the purpose, and in either case, after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or, if it be a non-stock corporation, on the written LIMITATIONS: demand of a majority of the members entitled to share in the profits was not by virtue of being a stockholder but by virtue of the subject agreement

entitled under Section 24 of this Code.

Geoffrey Bowen and Buenaseda was with an implied ratification by the BOD of the corpo thereby binding the corpo even without the passing and recording of a formal resolution by the BOD.

Requirements for the removal of a director: 1. Removal shld take place at a general or

special MEETING duly called for that purpose; 2. Removal must be by the VOTE of the

An unauthorized act, or the act of a single director, officer or agent of a corpo may be ratified either expressly or impliedly Express ratification is made through a formal board action while implied ratification can either by by 1. 2. SILENCE OF ACQUIESCENCE; ACCEPTANCE AND/OR RETENTION OF BENEFITS [GSIS CASE]; OR 3. RECOGNITION OR ADOPTION [LOPEZ REALTY]

stockholders holding or representing 2/3 of the outstanding capital stock or the members entitled to vote in cases of NS corpos; and 3. There must be a PREVIOUS NOTICE to

May directors be ousted from office?

At least 2/3 of members representing outstanding capital stock. Again notice requirement must be complied with Jurisprudence to authorized remove or oust the a

the stockholders/members of the intention to propose such removal at the meeting either by PUBLICATION or on WRITTEN NOTICE to the stockholders/members

Phil.

stockholders/members

Meeting must be called by the Secretary on order of the president or on It depends if the removal is without cause they cannot do so because removal without cause shall not deprive the

corporate director WITH OR WITHOUT CAUSE

minority stockholders or members of the right of representative

Thereby effectively taking away the rights of the directors to act as manager of the corpo

trustee so elected to fill a vacancy shall be elected only or the unexpired term of his predecessor in office.

of the company together with information on its key officers or managers so that those dealing with it and those who intend to do business with it may know or have the means of knowing facts

If with cause they can even if it will prejudice the rights of the minority, provided of course additional Vacancy in BOD or trustees by virtue of REMOVAL [Sec. 28] Authorizes the filling of the vacancy by the election of a replacement at the same meeting without further notice or at any subsequent general or special meeting after proper notice A directorship or trusteeship to be filled by reason of an increase in the number of directors or trustees shall be filled only by an election at a regular or at a special meeting of stockholders or members duly called for the purpose, or in the same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting.

concerning the corpos financial resources and business responsibility (Premium Marble vs. CA)

requirements by-laws and articles of incorporation

NOTE: Sec. 144 Violations of the Code

COMPENSATION OF DIRECTORS

Written demand of the stockholders representing a majority of the outstanding capital stock or majority of the members entitled to vote, or

Who will fill up the vacancy created due to the ouster of a member of the BOD <section 29> When will the vacancies be filled up?
Sec. 26. Report of election of directors, trustees and Any change in the constitution of the BOD or trustees must be reported to the SEC: Directors

GR are NOT

EXCEPTION EXCEPT reasonable per for diems

GENERALLY ENTITLED to receive any

If there be no one authorized to make the call, the same may be addressed directly to the stockholders or members by any stockholder or member signing the demand PD 902-A, as amended: Grants the court the power and authority to remove or oust a director and it can do so, even motu propio under Sec. 6(d) by the appointment of a management committee to undertake the mgt of the corpo DEADLOCK IN A CLOSE CORPO SEC is also authorized to issue an Order as

UNLESS the by-laws so provide There is a provision in the by-laws to that effect When the stockholders, by a majority vote of the outstanding capital stock grant the same provided that their total yearly compensation shall NOT EXCEED 10% of the net income before income tax of the corpo If the director renders extra-ordinary or unusual service

compensation The office are usually filled up by those chiefly interested in the welfare of the institution by virtue of their interest in stock or other advantages, and such interests are presumed to be the motive for executing duties of the office without compensation

Is notice required, to fill up vacancies due to removal? What if the vacancy is due to an increase, can it be filled up in the same meeting where in the number is increased? Election due to removal-in the same meeting notice is not required Election due to increase in number- it must be so stated in the meeting
Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of directors or trustees OTHER THAN BY REMOVAL by the stockholders or members or by EXPIRATION OF TERM, may be filled by the vote of at least a majority of the remaining directors or trustees, if still

officers. - Within thirty (30) days after the election of the directors, trustees and officers of the

corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees, and officers elected. Should a director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of his death, the secretary, or any other officer of the corporation, or the director, trustee or officer himself, shall immediately report such fact to the Securities and Exchange Commission.

it deems appropriate cancelling, altering or enjoining any

resolution or other act of the corpo or its BOD or directing or prohibiting any act the

the objective sought to be achieved by Sec. 26 is to give the public information, under sanction of oath of responsible officers, of the nature of the business, financial condition and operational status

constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or

corpo or BOD

Sec. 30. Compensation of directors. - In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for

Even if consented by majority of the stockholders

diems for attending board meetings, transpo expenses representation expenses - Which were disbursed with the approval of general mgr, treasurer and auditor of CCE

sec/treasurer/cashier, as member of an exec committee, as chairman of a bldg committee or similar offices

If there is wastage of corporate assets Courts may be justified to inquire despite the fact that the grant thereof is authorized pursuant to the by-laws and by vote of ISSUE WON THE BOD OF CCE HAD THE POWER AND AUTHORITY TO ADOPT

reasonable pre diems: Provided, however, That any such compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. WON THE COURTS MAY LOOK INTO THE REASONABLENESS OF COMPENSATION OF

- Thus, the directors, in assigning themselves additional duties, acted within their power BUT by voting for themselves compensation for such additional duties, they acted in excess of their authority, as express in the by-laws

Rogers vs. Hill Much weight is to be given to the

action of the stockholders, and the by-laws is supported by the presumption of regularity and continuity. But the rules prescribed by it cannot, against the protest of a shareholder, be used to justify payments of sums as salaries so large as in substande and effect to amt to spoliation or waste of corporate propIf bonus payment has no relation HELD

VARIOUS

RESOLUTIONS

WHICH

APPROPRIATED THE FUNDS OF THE CORPO FOR THE SAID EXPENSES FOR THE MEMBER OF THE SAID BOARD - Cannot rely on Sec. 28 Corpo Law or its by-laws Empowering the BOD with general

supervision and control of the affairs and prop NONE bec the questioned resolutions are of the Exchange Not justifications for the adoption of said contrary to the by-laws of the federation and, therefore, not within the power of the BOD to enact.

DIRECTORS & OTHER CORPORATE OFFICERS

resolutions bec these provisions of the law and by-laws pertain to the BOARDS GENERAL POWERS and do not extend to giving the

Ballantine: Courts will NOT generally undertake to

review the fairness of official salaries, at the suit of a stockholder attacking them as excessive UNLESS wrongdoing and oppression or possible abuse of fiduciary position are shown

to the value of services for which it is given, it is in reality a gift in part, and the majority stockholders have no power to give away corporate prop against the protest of the minority.

- Sec. 8 of said by-laws explicity reserved to the stockholders the power to determine the

boards members compensation stated in the resolution Since the matter of providing for their

compensation of the members of the BOD

compensation are specifically withheld from When person is NOT the recipient and participant in fixing his own compensation Outside the proper judicial function - Complaint filed by Central Cooperative Exchange against Tibe Jr for the refund of certain amts When Board itself is the recipient and the one fixing the compensation Fiduciary relation calls for careful scrutiny of the reasonableness and fairness of compensation - It was alleged that Tibe Jr, as member of the corpos BOD, drew from the corpo cash advances , and sums of money representing commutable per received by the latter from the corpo, where he served as member of its board Central Cooperative Exchange vs. Tibe, Jr. - Even without the above express reservation of said power, directors are not entitled to compensation Well-settled that directors of corpos SERVE WITHOUT Western Institute of Technology Inc. vs. Salas the BOD, and reserved to the stockholders

PRESUMPTIVELY

COMPENSATION and in the absence of an express agreement or a resolution thereto, NO CLAIM can be asserted There can be no recovery of - Private respondents Ricardo, Salvador, Soledad, Antonio and Richard, belonging to the same family, are the majority and controlling members of the Board of Trustees of WIT, an educl institution

compensation UNLESS expressly provided for, when a director serves as Pres/VP, as

- A special board meeting was held including one of the petitioners Reginald Villasis - In said meeting, a resolution was passed granting monthly compensation to the private respondents as corporate officers

- The phrase AS SUCH DIRECTORS delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems, when they render services to the corpo in a CAPACITY OTHER THAN AS DIRS/TRUSTEES - Thus, last paragraph of Sec. 30 not applicable HELD

COMPENSATION TO THE MEMBERS OF THE BOD AS NULL AND VOID

- Corporate directors, officers and agents are NOT GENERALLY LIABLE FOR OBLIGATIONS incurred by the corpo thru their acts IF they did so WITHIN

NO bec the justice and propriety of the

THE SCOPE OF THEIR AUTHORITY and IN GOOD FAITH

questioned provision of the by-laws was a proper matter for the shareholders when the by-laws were framed.

- A few yrs later, an affidavit-complaint was filed against priv. resps as a result of 2 separate criminal infos falsification of a public docu and estafa Anchored on the submission of WITs

- A corpo, being a juridical entity, may act only through its directors, officers and employees

- Corpo Law does not undertake to prescribe the rate of compensation for the directors of corpos. It is left to the corpos, to be determined in its by-laws.

Obligations incurred by them, acting as

such corporate agents, are not theirs but the DIRECT ACCOUNTABILITIES of the corpo they represent

income statement for the fiscal yr 85-86 with the SEC reflecting disbursement of corporate funds for the compensation of priv resps based on the resolution, making it appear that the same was passed on June 1, 1985 when it was actually passed on June 1, 1986 (a date not covered by the corpos fiscal yr 85-86) - It is alleged that the directors of El Hogar Filipino, instead of serving without pay, or receiving nominal pay or a fixed salary (as the complainant supposes would be proper) have been receiving large compensation, varying in amt from time to time, out of the profits of respondent - Under Sec. 92 of El Hogars by-laws, 5% of the net profit shown by the annual balance sheet is distributed to the directors in proportion to their attendance at meetings of the board That the payment of said compensation is Government vs. El Hogar Filipino

- Matter cannot be corrected in the present action; nor can it be made a basis for depriving the respondent of its franchise; or even for enjoining it from compliance with the provisions of its own bylaws - If a mistake has been made, or the rule adopted in the by-laws has been found to work harmful results REMEDY: in the hands of the Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its

- Trial court acquitted the priv resps on both counts without civil liability against the accused

ISSUE

WON

THE

BOARD

RESOLUTION

stockholders who have the power at any lawful meeting to change the rule

stockholders or members and other persons.

GRANTING COMPENSATION TO THE OFFICERS OF THE CORPO IS VALID

When a director, trustee or officer attempts to LIABILITY OF CORPORATE OFFICERS acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, - GR: UNLESS the law specifically provides, a corporate officer or agent is NOT civilly or criminally liable for acts done by him as such officer or agent as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.

HELD

YES bec the subject compensation was

given to the priv resps in their capacity as officers of WIT and not as board members.

excessive and prejudicial to the interests of the shareholders

- The proscription against granting compensation to directors/trustees of a corpo under Sec. 30 is NOT A SWEEPING RULE

ISSUE

WON THE COURTS MAY DECLARE THE PROVISIONS OF A CORPORATE BY-LAWS GRANTING

Sec. 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present:

Sec. 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders

imposed upon the directors or trustees who voted for such refusal

3. The stockholders of the corporation shall be subject to all liabilities of directors.

Sec. 97. Articles of incorporation. - The articles of incorporation of a close corporation may provide:

The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed

1. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions on their transfers as may be stated therein, subject to the provisions of the following section;

by the stockholders, instead of by the board of directors. Where a STOCKHOLDER, to the extent

1.

That the presence of such director or trustee in

owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture.

the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting;

that he takes an active part in the mgt and operation of the business affairs of a close corpo, is LIABLE FOR CORPORATE TORTS

2. That the vote of such director or trustee was nor necessary for the approval of the contract;

Sec. 65. Liability of directors for watered stocks. Any director or officer of a corporation consenting to the issuance of stocks for a consideration less than

2. For a classification of directors into one or more classes, each of whom may be voted for and elected solely by a particular class of stock; and Tramat Mercantile Inc. vs. CA

3. That the contract is fair and reasonable under the circumstances; and

its par or issued value or for a consideration in any form other than cash, valued in excess of its fair value, or who, having knowledge thereof, does not 3. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. - Melchor dela Cuesta, doing business under the name and style of Farmers Machineries sold to Tramat Mercantile Inc 1 unit of HINIMOTO tractor The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. So long as this provision continues in effect: - Tramat, in turn, sold the tractor and a lawn mower to NAWASA. However, NAWASA refused Sec. 74. Books to be kept; stock transfer agent. xxx refusal to allow any director, trustees, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code xxx Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be 2. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code; and - Trial court ruled in favor of dela Cuesta and ordered the defendants, including Ong, jointly and severally to pay the plaintiff 1. No meeting of stockholders need be called to elect directors; - Dela Cuesta filed an action for the recovery of payment against Tramat to pay so Ong caused a stop payment of the check - David Ong, Tramats pres and mgr issued a check as payment

4. That in case of an officer, the contract has been previously authorized by the board of directors.

forthwith express his objection in writing and file the same with the corporate secretary, shall be solidarily, liable with the stockholder concerned to

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable under the circumstances.

the corporation and its creditors for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same.

ISSUE

WON ONG COULD BE JELD JOINTLY AND SEVERALLY LIABLE WITH THE CORPO

4. He is MADE, by a specific provision of law, to personally answer for his corporate action (Trust Receipt Law)

drawee bank bec payment was stopped, and that the check was drawn against insufficient funds - Complainant demanded from the accused for

the same in his capacity as Treasurer of the corpo is UNTENABLE

- the corporate entity theory cannot be used as a defense to escape liability in violation of BP 22

HELD

NO bec Ong, in transacting with dela

- In the present case, there is no indication that Ong could be held personally accountable under any of the aforementioned cases.

payment but failed to pay and instead, offered to return to complainant only 30% of his money. Refused. Thus the filing of complaint.

Cuesta, did not act in his personal capacity but as an officer of the corpo Tramat, which has a distinct and separate personality. As such, it shld only be the corpo, not the person acting for and on its behalf, that could properly be made liable thereon.

Uichico vs. NLRC et al - Trial court convicted the accused. CA affirmed. Llamado vs. CA ISSUE WON PETITIONER LLAMADO COULD BE HELD CIVILLY AND CRIMINALLY LIABLE - Priv resps filed complaints for illegal dismissal and diminution of compensation against Crispa Inc, Valeriano Floro, a major stockholder, incorporator and Director of the corpo, and the petitioners, who were high ranking officers and directors of the HELD - Pascual remained at large. Thus, trial on the YES bec there is a specific provision of law company making him personally liable for his corporate action. - Labor Arbiter dismissed the said complaints but at the same time ordered Crispa Inc, Floro and the - As found by the trial court, private complainant Leon Gaw delivered to accused the amt of P180K, with the assurance of Aida Tan, the secretary of the accused in the corpo, that he will be repaid plus interests plus a share in the profits of the corpo, if any - Upon delivery of the money, Llamado, treasurer of Pan Asia Finance Corpo, took it and placed it inside a deposit box. Pascual and Llamado signed a PhilTrust Company postdated check - While depositing the check, complainant was informed that the check was dishonored by the - petitioners argument that he shld not be held personally liable for the amt of the check bec it was a check of the Pan Asia Finance Corp and he signed - As a treasurer of the corpo who signed the check in his capacity as an officer of the corpo, lack of HELD YES bec the petitioners acted in bad faith when they signed, as high-ranking officers and directors of Crispa Inc, the Board Resolution retrenching the private respondents on the feigned ground of serious business losses that had no basis apart from an unsigned and unaudited Profit and Loss Statement, which had no evidentiary value whatsoever. - Sec. 1 of BP 22 which provides that where a check is drawn by a corpo, company or entity, the person/s who actually signed the check in behalf of such drawer shall be liable under BP 22 ISSUE WON THE INDIVIDUAL PETITIONERS CAN BE HELD LIABLE petitioners to pay respondent employees separation pay

- PERSONAL LIABILITY of a corporate director, trustee or officer along (although not necessarily) with the corpo may so validly ATTACH, as a rule, ONLY WHEN

- Ricardo Llamado and Jacinto Pascual was charged with violation of BP 22 and pleaded not guilty of the crime charged

1. He ASSENTS: a. To a patently unlawful act of the corpo, or b. For bad faith, or gross negligence in directing its affairs, or c. For conflict of interest resulting in damages to the corpo, its stockholders or other persons

merits was conducted against Llamado only

2. He CONSENTS to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objections thereto

involvement in the negotiation for the transaction is not a defense

3. He AGREES to hold himself personally and solidarily liable with the corpo or

- GR: Obligations incurred by the corpo acting through its directors, officers and employees, are its sole liabilities

bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting

Their duties do not make them insurer of the prop of the company nor guarantors that the enterprise undertaken by the corpo shall be successful Hence, does not conflict with the concept of negligence

- Appellants

initiated

the

present

action,

contending that Bacolod Murcia had become obligated to grant similar concessions to appellants since 2 Negros sugar centrals already granted increased participation to their planters - Bacolod Murcia opposed, arguing that the subject stipulations in the resolution were made without

- However, solidary liabilities may be incurred only when exceptional circumstances warrant it:

therefrom

suffered

by

the

corporation,

its

stockholders or members and other persons.

ASSENTS, CONSENTS, AGREES & MADE - In labor cases, corporate directors and officers are solidarily liable with the corpo for the termination of employment of corporate employee done with malice or in BF

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits - Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and Co., had been are sugar planters adhered to Bacolod Murcia Millings sugar central mill under identical milling contracts Montelibano vs. Bacolod Murcia Milling Co. Inc

consideration; that the resolution was null and void ab initio, being in effect a donation that was ultravires and beyond the powers of the corporate directors to adopt - Trial court ruled in favor of Bacolod Murcia Milling. Dismissed the case. ISSUE1 WON THE RESOLUTION PASSED BY THE BOARD IS VALID

THREE-FOLD DUTY OF DIRECTORS 1. They must be OBEDIENT Willfully and knowingly voting or assenting to patently unlawful acts 2. They must be DILIGENT gross

which otherwise would have accrued to the corporation

Degree of diligence required is RELATIVE degree of care and diligence which an ordinary prudent director could reasonably be expected to exercise in a like position under similar

- The contracts were stipulated to be in force for 30 yrs, and that the resulting product shld be divided in the ration of 45% for the mill and 55% for the planters - Later, it was proposed to execute amended milling ISSUE2

negligence or BF in directing the affairs of the corpo 3. They must be LOYAL acquiring any personal or pecuniary interest in conflict with their duty as such director

WON THE COURT MAY REVIEW THE SAME

circumstances HELD1

BUSINESS JUDGMENT RULE Directors not liable for losses due to imprudence or honest error of judgment

contracts, increasing the planters share to 60% of the manufactured sugar and resulting molasses but extending the operation of the milling contract to 45 yrs

YES, THE RESOLUTION IS VALID bec

said resolution was passed in good faith by the BOD

Note: 31,32,33,34 - 31,32,33- specific instances when corporate officersmay violate loyalty - 32,33 self-dealing and interlocking director

HELD2

COURT HAS NO AUTHORITY TO

Questions of policy and mgt are left solely to the honest decision of the BOD and the courts are without authority to substantiate its judgment as against the former - BOD of Bacolod Murcia Milling adopted a resolution granting further concessions to the planters

REVIEW whether or not the resolution will cause losses or decrease the profits of the central bec the directors hold such office charged with the duty to act for the corpo accdg to their best judgment, and in so doing, they cannot be controlled in the reasonable exercise and performance of such duty.

Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or

- Bacolod Murcia Milling, under the terms of its resolution, is duty bound to grant similar increases to the plaintiffs-appellants

1.

Director/trustee acquires any personal or

cannot

appropriate

for

himself

business

- In 1902, it was thought important for the govt of the US to secure title, if reasonably possible, to friar lands in the Phils. - Sometime in 1903, the Governor of the Phil. Islands, on behalf of the Phil. Govt, made an offer of purchase for a sum of money in gold for all the friar lands, though owned by different owners - Defendant took steps to purchase the 800 shrs of stock in his company owned by Mrs. Strong, which he knew were in possession of F. Stuart Jones, as her agent - Instead of seeing Jones, defendant employed one Kauffman and Mr. Sloan, a broker, to purchase the stock for him, and told Sloan that the stock was for a member of his wifes family - Sloan communicated with the husband, latter referred him to Mr. Jones for consultation - As a result of the negotiations, Jones, assuming that he had the power and without consulting Mrs. Strong, sold the 800 shrs of stock, paid in Mexican

pecuniary interest in conflict with his duty as such director/trustee; 2. Attempts to acquire/s, in violation of his

opportunity which in fairness shld belong to the corpo

WON THE DIRECTORS ARE LIKEWISE LIABLE FOR THE ACTS OF THEIR CO-DIRECTORS
HELD NO, a director is not liable for the

duty, any interest adverse to the corpo in respect to any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf; and 3. By virtue of his office, acquires for

Distinction between section 31 and 34 relative to the ratification by the stockholders The second paragraph of section 31 which makes a director liable to account for profits if he attempts to acquire or acquires any interest adverse to the corporation in respect to any matter reposed in him in confidence as to which equity imposes a disability upon him to deal in his own behalf is not subject to ratification by the stockholders. Whereas, in section 34 if a director acquires for himself a business opportunity which should belong to the corporation, he is bound to account for such profits unless his act is ratified by the stockholders owning ore representing at least 2/3 of the outstanding capital stock. - If reposed in him in confidence, not subject to ratification - If the acquisition is merely that of a business opportunity which has not been reposed in him in confidence, the same may be subject to ratification by the stockholders.

misconduct of co-directors or other officers UNLESS: 1. 2. He connives or participates in it; or He is negligent in not discovering or

himself a business opportunity which shld belong to the corpo, thereby obtaining profit to the prejudice of such corpo

acting to prevent it

TEST: Absence of actual knowledge of the wrongful activities on the part of the co-directors, the same cannot be imputed to the other directors UNLESS in the exercise of reasonable care attending his responsibilities, he shld have been aware of suspicious action. circumstances demanding corrective

FORBIDDEN PROFITS [last par of Sec. 31 & provision of Sec. 34]

Directors and officers are fiduciary representatives of the corpo and as such they are not allowed to obtain any personal profit, commission, bonus or gain for their official actions. Those arising from transactions of directors with

Directors bears FIDUCIARY RELATION to the corpo and its stockholders As fiduciaries, they are expected and are obliged to act with utmost candor and fair dealing for the interest of the corpo and without taint of selfish motives

3rd persons which may involve misappropriation of corporate opportunities and disloyal diverting of business

Strong vs. Repide

currency; delivered the stock to Kauffman - Thus, defendant obtained the 800 shrs for abt 1/10 of the amt they became worth by the sale of the lands ISSUE WON, UNDER THE CIRCUMSTANCES MENTIONED, IT WAS THE DUTY OF

CORPORATE OPPORTUNITY DOCTRINE

- Involves an action to recover certain shares of corporate stock filed by plaintiffs Eleonor Strong

It places a director of a corpo in the position of a VIOLATION OF LOYALTY [SEC. 31 & 34]: fiduciary and prohibits him from seizing a business opportunity and/or developing it at the expense and with the facilities of the corpo. He

and her husband, Richard, against Repide

DEFENDANT,

ACTING

IN

GOOD

The defendant was guilty of fraud in procuring the purchase from the plaintiffs agent, it was a fraud for which he became liable to the plaintiff, even though the plaintiff maintained that her agent was not authorized to sell. The court held that he was authorized, and therefore, if he sold by reason of the

FAITH, TO DISCLOSE TO THE AGENT OF THE PLAINTIFF THE FACTS

BEARING UPON OR WHICH MIGHT AFFECT THE VALUE OF THE STOCK

HELD

YES not only bec he was the director but

fraud committed by defendant, the plaintiff was thereby injured and the defendant became liable. In legal effect, her consent was obtained by the fraud.

also bec of all the existing circumstances which made it the duty of the defendant, acting in GF, to state the facts before making the purchase.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable under the circumstances. Are the contracts and dealing of a self-dealing director valid? General rule: voidable

substantially all of the shares of stock of the corporation thereby making it easily possible to have the contract ratified - last sentence of section 32 should be made to apply by determining the reasonableness and fairness of the contract

What constitutes fairness or reasonableness? - No legal yardstick - Every case stands upon its own bottom - Ultimate question is whether the contract was honest and beneficial

SELF-DEALING DIRECTORS Generally, it is not the duty of a director to disclose to a shareholder the general knowledge he may possess regarding the value of the shares of the company before he purchases from any shareholder. However, by reason of the special circumstances surrounding the case, such duty exists. Sec. 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present: 1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting; 2. That the vote of such director or trustee was nor necessary for the approval of the contract; 3. That the contract is fair and reasonable under the circumstances; and 4. That in case of an officer, the contract has been previously authorized by the board of directors. Also involves the duty of loyalty of a director One who deals or transacts business with his own corpo Such dealings are voidable under the Corpo Code

May the contracts of a self-dealing director be valid per se. - YES. If all the 4 conditions are present they will be valid per se When do they become voidable? - When any of the two requisites are absent it is voidable, but subject to ratification by 2/3 of the outstanding capital stock or 2/3 of the member - Plaintiff Alejandro Te, a member of the BOD of Prime White Cement Corp and said corp, as defendant, thru its Pres, Mr. Zosimo Falcon and Justo Trazo, Chairman of the Board, entered into a Requisites for ratification (subject to ratification by the stockholders holding or representing at least 2/3 of the outstanding capital stock or 2/3 of the members.) - it must be at a meeting called for that purpose - full disclosure of the adverse interest of the director concerned must be made - the contract is fair and reasonable under the circumstances - By relying on the dealership agreement, plaintiff entered into a written agreement with several hardware stores, and informed the defendant corpo that he is preparing the letter of credit to cover the Problem if self-dealing director involved owns all or price for the initial delivery, at the same time dealership agreement whereby said plaintiff was obligated to act as exclusive dealer and/or PRIME WHITE CORP. vs. INTERMEDIATE APPELLATE COURT

Concealing his identity when procuring the purchase of the stock, by his agent, was in itself strong evidence of fraud on the part of the defendant. The concealment was not a mere inadvertent omission [an omission without any fraudulent or deceitful intent] but was a studied and intentional omission to be characterized as part of the deceitful machination to obtain the purchase without giving any information whatsoever as to the state and probable result of the negotiations, to the vendor of the stock, and to, in that way, obtain the same at a lower price.

distributor of the said defendant corpo of its cement prods in the entire Mindanao area for a term of 5 yrs.

looking forward to the defendants compliance with the dealership agreement.

of the corpo. As director, specially since he was the other party in interest, Tes duty was to act in such a manner as not to unduly prejudice the corpo.

discussing the condition of the company at that time and determining what course to pursue - Entered into a contract with defendant Mc Cullough whereby the wrecking contract with the naval authorities and all the rights and interests of the Phil Engg Construction Coy were assigned to

When the corpo becomes insolvent its

directors are trustees of all the creditors, whether they are members of the corpo or not, and must manage its prop and assets with strict regard to their interest If they are themselves the creditors while

- Replying to plaintiff, defendant thru its corporate secretary said that the BOD decided to impose certain conditions

Furthermore, there

is

no showing that the

stockholders ratified the dealership agreement or that they were fully aware of its provisions.

the insolvent corpo is under their mgt, they will not be permitted to secure to themselves by purchasing the corporate prop or otherwise any personal advantage over the other creditors

- Several demands to comply with the dealership agreement were made by the plaintiff to defendant but to no avail

- a director of a corpo holds a position of trust and as such, he owes a duty of loyalty to his corpo

EC Mc Cullough. - The assignees of the wrecking contract [including Mc Cullough] formed the Manila Salvage

- in case his interests conflict with those of the - So plaintiff was forced to cancel his agreement for the supply of white cement with 3rd parties, which was already concluded - trust relationship not a matter of statutory or - Notwithstanding that the dealership agreement bet plaintiff and defendant was in force, Prime White, in violation of, and with evident intention not to be bound by the terms and conditions thereof, entered into an exclusive dealership Mead vs. Mc Cullough technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence, of the prop interests of the stockholders corpo, he cannot sacrifice the latter to his own advantage and benefit

Association which paid $15K Mexican currency cash for the assignment of said contract ISSUE MAY OFFICERS OR DIRECTORS OF THE CORPO PROPERTY PURCHASE CORPORATE

Nevertheless, a director or officer may in GOOD FAITH and for an ADEQUATE CONSIDERATION PURCHASE from a majority of the directors or stockholders the prop even of an insolvent corpo, and a sale thus made to him is valid and binding upon the minority

HELD

There is a divided view regarding this issue

but the SC ruled in the affirmative. That the officers or directors of the corpo may purchase corporate property.

GR: Contracts are not absolutely void but they are VOIDABLE at the election of the party whose interest has been so represented by the party claiming under it

agreement with a certain Napoleon Co for the mktg of white cement in Mindanao. Hence, the suit.

ISSUE

WON THE DEALERSHIP AGREEMENT ENTERED INTO BY TE WITHIN HIS OWN CORPO THROUGH THE PRES AND CHAIRMAN IS VALID AND

- Plaintiff Mead and defendant organized the Phil. Engineering and Construction Company, the

When a director/officer MAY NOT deal with the corpo [loan its money/buy prop from it like a stranger] While a corpo remains solvent its

Exception: VOID AB INITIO when an agent to sell, buys of himself, and by his power of atty conveys to himself that which he was authorized to sell However, may be validated by virtue of

incorporators being the only stockholders and also the directors of said company, with general ordinary powers.

directors are agents or trustees for the stockholders They owe no duties or obligations to

BINDING

acts which amt to a ratification by the principal

HELD

NOT VALID AND NOT BINDING bec Te

- After plaintiff left the country, the other directors [defendants] held a meeting for the purpose of

others

- In the present case, the corpo was experiencing insolvency. To continue its operation meant more losses. The majority of the stockholders or directors

was guilty of disloyalty to the corpo; he was attempting in effect, to enrich himself at the expense

When a director or officer MAY deal with the corpo

acted in perfect good faith and for the best interest of all the stockholders when they decided to sell the assets of the corpo, thereby relieving themselves and the plaintiff of all responsibility.

- It would be a harsh rule that would permit one stockholder, or any minority of stockholders to hold a majority to their investment where a continuation of the business would be at a loss and where there was no prospect or hope that the enterprise would be profitable.

Sec. 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned. Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. Contracts bet corpos with interlocking

DERIVATIVE SUIT

Cannot institute an action from the years he was still not a stockholder Intra-corporate remedies - Demand to the BOD to institute such action - Negated by the BOD - The one who instituted must be a stockholder at the date when the act was done, must have been a stockholder by that time Demand will not be required if the majority of the BOD are the ones guilty of the wrong charged

BOD mismanages corporate officers. Who may file a suit? - General rule: BOD which can institute a case because it has all the powers. To allow stockholders to file would violate the doctrine of corporate entity and may result to multiplicity of suits - Stockholders cannot therefore generally file a case EXCEPT of course in a DERIVATIVE SUIT

3 Suits Stockholders/Members May Bring Against the Erring Directors/Officers 1. Individual / personal suit brought by the shareholder for direct injury to his rights, such as denial of his right to inspect corporate books and records or pre-emptive rights The corporation must be made a party in the case whatever side will not matter because under Philippine law misjoinder is not a ground for dismissal Non-joinder is a ground for dismissal Any benefit should inure to the corporation Stockholder bringing the action is entitled to reimbursement such as attorneys fee ONLY IF the case is SUCCESSFUL to avoid harassment suit to their management

directors are GENERALLY VALID unless tainted INTERLOCKING DIRECTOR Director in one corpo who deals or transact business with another corpo of which he is also a director May involve a violation of the duty of loyalty of a director since he occupies the position of a director in 2 corpos dealing with each other In such case, there may effectively be a If the interest of the interlocking director in 2. with fraud and provided that the contract is fair and reasonable

Representative / class suit which one or more members of a class sue for themselves as a class or for all to whom the right was denied, either as an individual action or as a derivate suit

once corpo is substantial [more than 20%] and merely nominal in the other, the contract becomes VOIDABLE and would be subject to the provisions of SEC. 32 In effect, the law considers an 3.

Pascual vs. Orozco, et al Derivative suit an action based on injury to the corpo to enforce a corporate right wherein the corpo itself is joined as a necessary party, and recovery is in favor of and for the corpo Suit granted to any stockholder to - During the yrs 1903-1907, defendants and appellees, without the knowledge, consent or acquiescence of the stockholders, deducted their compensation from the gross income instead of from the net profits of the bank, thereby defrauding the bank and its stockholders

DUAL AGENCY, a divided allegiance where allegiance in one corpo may be subordinated to the other

interlocking director who owns a substantial interest in one corpo dealing with another where he has a nominal interest AS A SELF-

Legal view: These contracts are not voidable merely by reason of conflicting duties or interest as to corpos represented, even when a majority or all of the directors are common to both corpos Such contract will be upheld if there is no

DEALING DIRECTOR If his stockholding is either nominal or

substantial in both, SEC. 33 will apply

institute a case to remedy a wrong done directly to the corpo and indirectly to the stockholders Essential requisite must have been a stockholder from the time the act complained of took place

- Although demands were made upon them, defendants refuse to refund to the bank the sums so misappropriated

bad faith or unfairness or collusion

upon when, how, and for what purpose he acquired - Defendants constitute a majority of the present BOD of the bank, who alone can authorize an action against them in the name of the corpo, and that prior to the filing of the present suit, plaintiff exhausted every remedy in the premises within this banking corpo - Second cause of action sets forth that defendants and appellees immediate predecessors in office in this bank committed the same illegality as to their compensation as is charged against the defendants themselves - The present action was brought by the plaintiff Pascual, in his own right as a stockholder of the bank, for the benefit of the bank, all the other stockholders thereof - Plaintiff sues on behalf of the corpo, which, even though nominally a defendant, is to all intents and purposes the real plaintiff in this case. ISSUE WON THE PLAINTIFF HAS THE the shares which he now owns. - In suits of this character, the corpo itself and not the plaintiff stockholder is the real party in interest. The rights of the individual stockholder are merged into that of the corpo. It is a universally recognized doctrine that

- It is alleged that the plaintiff became a stockholder on 1903; the defendants, as members of BOD and board of govt, respectively, during each and all the yrs 1903-07, did fraudulently, and to the great prejudice of the bank and its stockholders, appropriate to their own use from the profits of the banks sums of money. Plaintiffs Everett, Clifford, Teal and Robinson principal stockholders [4478 shrs] in Teal and Company, a domestic corpo duly incorporated - In the present case, the plaintiff was not, before he acquired in 1903 the shrs which he now owns, injured or affected in any manner by the transactions set forth in the 2nd cause of action [Thus, while plaintiff may sue for the 2nd half on - Business of Teal and Company consisted mainly in the merchandising of automobiles, trucks, tractors, spare parts and accessories, including repairing thereof under Phil laws [defendany Barclay only other stockholder, 1 shr] Defendants: Nicholas Mullen, Alfred Kelly, John Mears, Charles Macintosh officers, agents and employees of the Bank

a stockholder in a corpo has no title, legal or equitable, to the corporate prop; that both of these are in the corpo itself for the benefit of all the stockholders Since the stockholder has no title, it is

evident that what he does have, with respect to the corpo and his fellow stockholder, are certain rights sui generis. 1) to have a cert or other evid of his status

1903-07, he has no capacity to sue for the yrs 18981st half of 1903]

as stockholder issued to him; 2) to vote at meetings of the corpo; 3) to participate proportionately in the distribution of the corporate assets upon the dissolution or winding up

- Settled by US SC: a stockholder in a corpo who was not such at the time of the transactions complained of, or whose shrs had not devolved upon him since by operation of law, cannot maintain suits of this character, unless such transactions continue and are injurious to the

- Dec. 29, 1922 said company was solvent and in the enjoyment of a large, growing and lucrative business and in the possession of a valuable reputation and goodwill - It had done its banking business and financing almost exclusively thru and with defendant Bank and by reason of such continued relations, the officers of the company had acquired trust and confidence in the integrity and good intentions of the said bank

- In 2 leading cases, established that where the directors have committed a breach of trust either by their frauds, ultra vires acts or negligence, and the corpo is unable or unwilling to institute suit to remedy the wrong, a single stockholder may

stockholder, or affect him specifically in some other way

CAPACITY TO SUE FOR AND IN BEHALF OF THE CORPO AND OTHER STOCKHOLDERS

Everett vs. Asia Banking Corpo

and its officers and the other defendants in their friendliness to themselves and the Company

HELD

YES by reason of the fact that he is a

institute that suit, suing on behalf of himself and other stockholders and for the benefit of the corpo, to bring abt a redress of the wrong done directly to the corpo and indirectly to the stockholders Defendant: Asia Banking Corpo foreign banking corpo duly licensed to transact business in the Phil; never empowered by law or licensed to do any business other than commercial banking in the Phil

stockholder in the bank (corpo) has a right to maintain a suit for and on behalf of the bank, however the extent of such a right must depend

- By reason of their reliance upon the good faith and goodwill of the defendants, these plaintiffs were induced to sign the Memorandum of Agreement

and Voting Trust Agreement, understanding from the defendant that the same were intended for the protection of all parties thereto from outside creditors, but that they were not intended to be enforced accdg to the letter thereof, and that they did not contain the true agreement bet the Bank and the Company which was to finance the company without interference from the

- After excluding the real owners from voice in the mgt or knowledge of the affairs of the Company, the said individual defendants and/or the Bank, by agreement among themselves or bec the individual defendants as employees were coerced by the Bank, said defendants gave pledges and mortgages from the Company to the Bank and entered into contracts as directed by the Bank, and permitted the Bank to foreclose the same and to sell the prop of the Company itself in disregard to the duties and obligs of a trustee and permitted the Bank to bring suit/s against the Company, in which the Company was not represented by anyone having its interest at heart and in which by reason of the relation of the Company to the Bank, the bank in truth occupied the position of both plaintiff and defendant and tricked and deluded the courts into giving judgment in which the rights of the real parties were concealed

corpos, permitted and assisted the said

PMC to

acct to these plaintiffs for all profits made thereby since its organization

enter and possess itself of the premises and goodwill of the Company and to continue and carry on the said business for the sole benefit of the new corpo - At all times, PMC has continued to conduct and advantage itself of the business of the Company to the disregard of and detriment to the rights of these plaintiffs and to their damage - Plaintiffs believe that defendants are

- Lower court ruled in favor of defendant [Teal & Co is a necessary party plaintiff and that the plaintiff stockholders, not having made any demand on the Board to bring the action, are not the proper parties plaintiff]

aforementioned creditors, to hold the voting trust as a protection to the bank as against the said creditors and for its own advances, and the further agreement that in case the Bank did not operate under the said voting trust bec of the disapproval by its New York headquarters of such action, or for any other cause, the said trust would be cancelled and the stock in the control of the Company returned to its true owners - Following the execution and delivery of the VTA and memo, in violation of the obligations and duties imposed by law upon the trustee and in pursuance of a scheme to defraud the plaintiffs, the said voting trustee, the defendant Mullen, caused and procured, by virtue of the powers delegated in the said voting trust, the displacement and removal from the BOD of the Company each and every person who was at the time of the execution of the said voting trust a stockholder in the Company and the substitution in their places as such directors, of the mentioned defendants, or of other persons at the time employees and servants of the Bank

ISSUE

WON PLAINTIFFS HAVE THE LEGAL CAPACITY TO BRING THE ACTION

confabulating among themselves to conceal the facts and damage them by a sale of the PMC and all its assets to a new purchaser; shld the sale proceed, it will damage the plaintiffs in a manner for which there is no adequate remedy and will cause and produce a multiplicity of actions - The plaintiffs demand the discern and judgment of the court on the ff matters: 1. Enjoin and restrain defendants and each of them from transferring PMC or any of the capital stock therein to any person/corpo during the pendency of the action 2. Order defendants to cancel the VTA and to return to plaintiffs their shrs of stock of Teal & Company 3. Decree that defendants make full and true discovery of all the facts in relation to the formation, incorp and ownership of PMC 4. In case it be found that PMC is in fact the Asia Banking Corp, that a decree be entered ordering the said Bank immediately to dissolve the same and to HELD

YES

- As a GR, shareholders cannot ordinarily sue in equity to redress wrongs done to the corpo, but that the action must be brought by the BOD

and unknown to the courts - Later, in order more effectually to plunder the Company and to defraud the plaintiffs, the said defendants (Mullen, Barclay, Mears and Macintosh) made, executed and filed in the Bureau of Commerce and Industry, arts of incorp of corp called Phil Motors Corpo - After its incorp, Bank turned over to Phil Motors Corp all of the business and assets of the Company of every name, nature and description and with the connivance and consent of the individual defendants acting in their double capacity as directors fo both

- Except when the corpo, in this case Teal & Co, is under the complete control of the principal defendants - In these circumstances, it is obvious that a demand upon the BOD to institute action and prosecute the same effectively would have been useless, and the law does not require litigants to perform useless acts - Lower courts decision rests on misconception of the character of the action It was necessary for the plaintiffs to set

forth in full the history of the various

transactions which eventually led to the alleged loss of their prop and, in making a full disclosure, references to the PMC appear to have been inevitable Plaintiffs seek no judgment against the

- Acting

upon

complaint,

Miguel

Cuaderno,

- Lower court denied the petition and dismissed the case

Defendants urged that the action was improper bec plaintiff was not authorized by the corp to bring suit in its behalf

Governor of CB and the Monetary Board, ordered an investigation

ISSUE - Upon reports, Cuaderno ordered a new BOD of the Republic Bank to be elected, which was done and approved by Monetary Board HELD

WON THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT

No need for such authority since the suit

is aimed to nullify the action taken by the mgr and BOD of the Bank

corpo itself at this stage of the proceedings

YES.

An

individual

stockholder

is

Any attempt for intra-corporate remedy

- SC: Plaintiffs state a good cause of action for equitable relief and their complaint is not in any respect fatally defective

- Banking frauds and violations of the Banking Act were discovered but no info was filed up to the time of retirement of Cuaderno - Pablo Roman engaged the services of Cuaderno as technical consultant to neutralize the impending action against the former - BOD composed of individuals personally selected and chosen by Roman, connived in approving the appointment and selection of Cuaderno and Dizon said action being motivated by bad faith and with intention prosecution - Complaint prayed from writ of preliminary injunction against the Monetary Board to prevent its confirmation of the appointments of Dizon and Cuaderno; against the BOD of the Republic Bank from recognizing Cuaderno as tech consultant and Dizon as Chairmn of Board; and against Pablo Roman from appointing or selecting officers or directors of the Rep Bank, and against the recognition of any such appointments until final determination of the action to protect Roman from criminal

permitted to institute a derivative or representative suit on behalf of the corpo wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corpo refuse to sue, or who are the ones to be sued or hold the control of the corpo. In such actions, the suing stockholder is regarded as a NOMINAL PARTY, with the corporation as the REAL PARTY IN INTEREST.

would be futile Thus, circumstances permit a stockholder

to bring a derivative suit

Although no other stockholder has chosen to make common cause with plaintiff is irrelevant not a ground to deny relief

Republic Bank vs. Cuaderno - Damaso Perez, a stockholder of the Republic Bank [a Phil banking corp], filed a derivative suit for and In behalf of said Bank, against Miguel Cuaderno, Bienvenido Dizon, the BOD of the Bank, and the Monetary Board of the Central Bank of the Phil

Contention of Dizon that the action amts to a quo - In the present case, plaintiff-appellants action is in conformity with the mentioned principles. warranto procg Plaintiff is not claiming title to Dizons

position as head of the Banks BOD - He is neither alleging nor vindicating his own individual interest or prejudice, but the interest of the Republic Bank and the damage caused to it. - The action he has brought is a derivative one, expressly manifested to be for and in behalf of the Republic Bank, bec it was futile to demand action by the corpo, since its directors were nominees and creatures of defendant Pablo Roman. - The frauds charged by plaintiff are frauds against the Bank that redounded to its prejudice. The SC remanded the court of origin with instructions to overrule the motion to dismiss and require the defendants to answer the complaint. Suit is aimed at preventing the waste or

- Plaintiff Perez alleged that he complained to the Monetary Board of CB against Pablo Roman, chairman of the BOD of the Republic Bank and of its Executive Loan Committee who allegedly

diversion of corporate funds in paying officers appointed solely to protect Roman from criminal prosecution, and not to carry on the corps banking business

fraudulently granted or caused to be granted loans to fictitious and non-existent persons and to their close friends, relatives and/or employees, who were in reality their dummies, on the basis of fictitious and inflated appraised values of real estate props

Western Institute of Technology vs. Salas

ISSUE

WON

THE

APPEAL AS A

MAY

BE

instant petition which, in part, merely states that this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Crim Case..

- Accdg to Soriano, the buyer of the shrs was a foreign company, Neptunia Corpo Limited (of Hongkong), a wholly owned subsidiary of San Miguel International which, in turn, is wholly owned by SMC, and it was Neptunia which on or abt Apr

CONSIDERED - Up for review on certiorari is the judgment of acquittal of the priv resps for estafa and falsification of public docus, which the petitioners seek to hold as civilly liable. HELD ACTION

DERIVATIVE

NO the case is not a derivative suit but is - By no amt of equity consideration can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit

merely an appeal on the civil aspect of the criminal case initially filed with the RTC for estafa and

1986 had made the down payment of P500M, from the proceeds of certain loans

- The information state that defendants conspired and mutually helped one another to defraud the corpo and its stockholders by disbursing the funds of the corpo by effecting payment of their retroactive salaries and subsequently paying themselves every 15th and 30th of the month, as if the same were their

falsification of public document.

- At this point, the said SMC shra were sequestered - A derivative suit is an action brought by minority shareholders in the name of the corpo to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuse of the majority. San Miguel Corpo vs. Khan - Case shld have been filed with the SEC which exercises orig and exclusive jurisdiction over by the PCGG on the ground that the stock belonged to E. Cojuangco Jr, allegedly a close associate and dummy of former Pres Marcos, and the sale thereof was in direct contravention of 2 Eos prohibiting the transfer/conveyance of assets and props acquired by Pres Marcos, family, friends, relatives, etc - Dec. 1986 SMC Board, thru a resolution, decided to assume the loans incurred by Neptunia for the DP on the shrs. Board opined that there was nothing illegal in this assumption (of liability for the loans), since Neptunia was indirectly wholly owned subsidiary of SMC, there was no addl expenses/exposure for the SMC Group, and there were tax and other benefits which would redound to the SMC grp of coys - However, at the meeting of the SMC Board, Eduardo delos Angeles, one of the PCGG reps in the SMC Board, impugned the resolution denying that it was ever adopted, and stating that what in truth was agreed upon at the meeting was merely a further study by Dir. Ramon del Rosario of a plan presented to him for the assumption of the loan

derivative suits, they being intra-corporate disputes

own knowing fully well that they did not have sufficient authority to do such acts - When accused were informed of the illegality of the disbursements by the minority stockholders, said accused refused to rectify the same to the damage and prejudice of the corpo - After the hearing, court ruled for the acquittal of the accused on both counts without imposing any civil liability against the accused - RTC denied MR. Hence, the instant petition. - Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT and on behalf of the corpo to annul a resolution granting compensation to the Chairman fo the Board, V-Chair, Treasurer and Corporate Sec which is prejudicial to the corpo

- Among the basic requirements for a derivative suit to prosper is that the minority shareholders who is suing for and on behalf of the corpo must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corpo and all other shareholders similarly situated who wish to join This is necessary to vest jurisdiction upon

- Dec. 15, 1983 33, 133, 266 shrs of the outstanding capital stock of the SMC were acquired by 14 other corpos, and were placed under a VTA in favor of the late Andres Soriano Jr.

- When the latter died, Eduardo Cojuangco Jr was elected Substitute Trustee. Later, he left the country amidst persistent reports that huge and unusual cash disbursements from the SMC funds had been irregularly made. - An Agreement was executed between Andres Soriano III, as Buyer and the 14 corpos, as Sellers, for the purchase by Soriano, for himself and as agent of several persons of the aforementioned shrs payable in specified installments

the tribunal in line with the rule that iti is the allegations in the complaint that vest

jurisdiction upon the court or quasi-judicial body concerned over the subject matter and nature of the action

- NOT COMPLIED with by the petitioners either in their complaint before the court a quo nor in the

- De los Angeles was overruled by priv resps, and his efforts to obtain relief within the corpo and later the PCGG proves futile

the interest of the entity which placed him in the BOD 2. - De los Angeles prayed for the reversal of the judgment of the CA

- So he filed with the SEC what he describes as a derivative suit in behalf of SMC, against 10 of the 15membe BOD who had either voted to approve and/or refused to reconsider and revoke the questioned resolution - Khan moved for a motion to dismiss. Denied by SEC - Khan filed pet for certiorari and prohibition with the CA, seeking the annulment of the resolution of the SEC - A Special Division of the CA sustained upon a vote of 3-to-2. The majority ruled that de los Angeles had no legal capacity to institute the derivative suit, a conclusion founded, among others: 1. A party who files a derivative suit shld adequately represent the interests of the minority stockholders. However, Delos Angeles holds 20 shrs of stock out of 121,645, 860. Thus he cannot even be remotely said to adequately represent the interest of the minority stockholders, especially when delos Angeles was put by the PCGG to vote the majority stock, a situation generating a genuine conflict of interest 2. Delos Angeles has not met his conflict-ofinterest argument that his position as PCGGnominated director is inconsistent with his assumed role of representative of minority stockholders; not having been elected by the minority, his voting would expectedly consider adverse HELD YES ISSUE WON DELOS ANGELES CAN

3. INSTITUTE A DERIVATIVE SUIT

complained of took place, the number of shrs not being material He has tried to exhaust intra-corporate remedies has made a demand on the BOD for the appropriate relief but the latter has failed or refused to heed his plea; and The cause of action actually devolves on the corpo, the wrongdoing or harm having been, or being caused to the corpo and not to the particular stockholder bringing the suit

Chase vs. Buencamino Sr

- Defendant Dr. Buencamino Sr, Filipino and William Cranker, American, even prior to the yr 1954 were already business associates

- They owned 2 firms Philippine American Machinery and Equipment Corp (PAMEC), and BUCRA (Buencamino and Cranker) - Plaintiff Elton Chase was the owner of Production Mftg Company of Portland, Oregon, USA, a corpo primarily dedicated to the operation of a machine shop and heat-treating plant for the production of tractor parts - Later, Chase was notified by the Highway Commission of the State of Oregon that his factory was going to be in the path of a proposed highway; advised to sell or face expropriation and warned to

Regarding the conflict-of-interest theory Regarding no personality to bring suit: The implicit argument that a stockholder, to be considered as qualified to bring a derivative suit must hold a substantial or significant block of stock finds no support in the law - Although de los Angeles sits in the SMC BOD by the grace of the PCGG, it does not follow that he is legally obliged to vote as the PCGG would have him do, that he cannot legitimately take a position inconsistent with that of the PCGG, or that, not having been elected by the minority stockholders, - The bona fide ownership by a stockholder of stock in his own right suffices to invest him with standing to bring a derivative action for the benefit of the corpo. - Erroneous conception of a directors role and function, it being plainly a directors duty to vote - The number of his shrs is IMMATERIAL since he is not suing in his own behalf, or for the protection or vindication of his own particular right, or the redress of a wrong committed against him, individually, but in behalf and for the benefit of the corpo - Requisites for a Derivative Suit: 1. Party bringing suit shld be a shareholder as of the time of the act or transaction - Apart from the qualifying shrs given to him by the PCGG, he owns 20 shrs in his own right, as regards which he cannot from any aspect be deemed to be beholden to the PCGG, his ownership of these shrs being precisely what he invokes as the source of hi authority to bring the derivative suit accdg to his own independent judgment and his own conscience as to what is in the best interests of the company his vote would necessarily never consider the latters interests

remove his plant within a yr - His distributor Craig Carrol told him of a Dr. Buencamino of MLa who he said was interested in establishing a mftg plant in the Phil - Series of negotiations followed for the purchase of Chases factory and the establishment of a new factory in Manila which was to be called American Machinery Engg Parts Inc (Amparts)

- In the final agreement, Chase was to be paid $100K and he would also be given 1/3 interest in Amparts {2/3 to Buencamino and Cranker}

HELD

YES, Chase has personality to file a

derivative suit as an Amparts stockholder

- Evidence proves that Chase was recognized as - Amparts was formally organized July 5, 1955 - For sometime, the 3 maintained harmonious relations but later on distrust came. Until finally Chase tendered his letter of resignation as - Chase did not recover in suit brought before Superior Court of LA he is not stopped to intervene in any manner as stockholder and initial incorporator with 600 paid up shrs representing a 1/3 interest in Amparts enough for Chase to have the correct personality to institute derivative suit

Production Mgr - Chase filed an action against Cranker with the Superior Court of LA seeking to recover the sume of $150K as alleged balance of the purchase price of his plant [case died a natural death bec Cranker was never reached by process frm the Californian Court] - Later, Cranker sold out all his interest in Amparts to Dr. Buencamino - Chase filed a case before the CFI Mla alleging various acts of fraud which he claimed had been committed by both Buencamino and Cranker - Lower court ruled in favor of Chase and directed the respondents to acct, in favor of Amparts and Chase, for acts of fraud such as over pricing, mark up on interests, black mrktg, income frm sale of corporate assets etc ISSUE WON CHASE HAS THE PERSONALITY

incorporator/stockholder of Amparts - Chase filed the present case not for his personal benefit but for the benefit of AMparts [hence, argument of estoppels as against him would appear to be out of place] - The estoppels to be valid as a defense must be an estoppels against Amparts itself - Court is impelled and constrained to discard all the other defenses set up by Dr. Buencamino on the principal complaint the result of all these would be to sustain so far the position of Chase that Buencamino must acct for the amt used to pay the second series of payment on the subscription

TO INSTITUTE A DERIVATIVE SUIT

Reyes vs. Tan, et al [Francisca Justiniani] - Petition for certiorari to review and set aside an order of the CFI Mla Presiding Judge Tan in a civil case for the appointment of a receiver of the corpo Roxas-Kalaw Textile Mills Inc.

- Several purchases were made in NY for raw materials for the textile mills and shipped to the Phils, which shipment were found out to consist not of raw materials but already finished prods

ISSUE

WON JUSTINIANI MAY BE ALLOWED TO INSTITUTE THE CASE FOR

In re: Petitioners claim that Justiniani neither alleged nor proved the existence of an emergency requiring the immediate appointment of a receiver of the Roxas-Kalaw Textile Mill Inc; that the alleged

RECEIVERSHIP AND DAMAGES

HELD For which reasons the Central Bank of the Phils stopped all dollar allocations for raw materials for the corpo which necessarily stopped the operation of the textile mill and its business - Supplier of the said finished goods was the company in which defendant Dalamal had interests

YES bec a breach of trust was committed

fraudulent transaction took place more than 2 yrs before the application for receivership, and so was the refusal of the directors to sue or prosecute Dalamal

by the BOD which justified the derivative suit by a minority stockholder on behalf of the corpo.

- In said action, plaintiff Justiniani asks the court to order the directors of the corpo, jointly and severally, repair the damage caused to the corpo of which all the plaintiff and defendants are members. - The ff were alleged in the complaint: - Roxas-Kalaw Textile Mills Inc was organized on June 5, 1954 by defendants Cesar Roxas, Adelia Roxas, Benjamin Roxas, Jose Ma. Barcelona and Marris Wilson, for and on behalf of a certain shareholdings

- It is well-settled in Phil jurisdiction that where corporate directors are guilty of a breach of trust not of mere error of judgment or abuse of discretion and intra-corporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corpo, to bring abt a redress of wrong inflicted directly upon the corpo and indirectly upon the stockholders

NOT WELL FOUNDED. Various records of shipments of finished

textile goods on dollar allocations for raw materials were exhibited during the hearing for the appointment of a receiver Publicity had also been given to the

and the letter of credit for the said goods were guaranteed by the firms in which Dalamal also ahd interests

importations of textiles by the corpo, in place of cotton raw materials. The record shows the list of the various docus proving the purchase of letters of credits for textiles. These textiles

- Resale of the finished goods was the business of one of the firms in which Dalamal had interests,

- The BOD approved a resolution designating one Dayaram as co-mgr with the specific understanding that he was to act as defendant Wadhumal Dalamals designee; Morris Wilson was likewise designated as co-mgr with responsibilities for the mgt of the factory only - An office in New York was opened for the purposed of supervising purchases, which purchases must have the unanimous agreement of Cesar Roxas, NY resident mgr of the BOD, Robert Born and W. Dalamal or their respective reps

which said company could not obtain dollar allocations for importations of finished goods under CB regulations - Plaintiff and some members of the BOD urged defendants to proceed against Dalamal, exposing his offense to the CB, and to initiate a suit against Dalamal for his fraud against the corpo - Defendants refused to proceed against Dalamal and instead continued to deal with one of the firms to the damage and prejudice of the corpo

- In the present case, the importation of textiles instead of raw materials, as well as the failure of the BOD to take action against those directly responsible for the misuses of dollar allocations constitute fraud, or consent thereto on the part of the directors.

were denied importation and had to be reexported. The fact of the importation of finished

textiles on dollar allocations for raw materials in violation of CB regulations was, therefore, conclusively shown.

- SC: The appointment of a receiver was not only expedient but also necessary to restore the faith and confidence of the CB authorities in the

In re: Claim that Justiniani did not take steps to remedy the illegal importation for a period of 2 yrs WITHOUT MERIT During that period of time, respondent

administration of the affairs of the corpo, thus ultimately leading to a restoration of the dollar allocation so essential to the operation of the textile mills

Justiniani had the right to assume and expect that the directors would remedy the

anomalous situation of the corpo brought abt by their own wrong doing Only after such period of time had

surreptitiously met and elected Ricardo Gamboa and Honorio dela Rama as Pres and VP of the corpo, and thereafter passed a resolution authorizing the sale of the 823 unissued shrs of the corpo to the defendants - Plaintiffs alleged that the sale of the said unissued shrs of stock was in violation of the plaintiffs pre-

sale of 823 shrs of stock be declared null

a mgt concern which the court could not interfere with. Denied. ISSUE WON THE COURT HAS JURISDICTION TO HEAR THE CASE & WON A

and void

elapsed could respondent conclude that the directors were remiss in their duty to protect the corpos prop and business

- Respondent judge ruled in favor of the plaintiffs

- Late, plaintiffs, now as priv resps, entered into a compromise agreement with the defendants

DERIVATIVE SUIT SHLD BE INSTITUTED AGAINST now) THE DEFENDANTS (pets

In re: Claim that Justiniani, as treasurer, did not take steps to remdy the situation The fraud consisted in importing finished

emptive rights and made without the approval of the BOD representing 2/3 of the outstanding capital stock, and is in disregard of the strictest relation of trust existing bet the defendants, as stockholders thereof

whereby the contracting parties withdrew their respective claims against each other and the said defendants waived and transferred their rights and interests over the questioned shrs of stock in favor of the plaintiffs - Compromise agreement approved by trial court - As a result, defendants filed a motion to dismiss the complaint upon the ff grounds: 1. Plaintiffs cause of action had been waived HELD case bec

YES, the court has jurisdiction to hear the the defendants have concluded a

textile instead of raw cotton for the textile mill; The fraud, therefore, was committed by

transaction among themselves which will result to serious injury to the interests of the plaintiffs. Thus, the trial court has jurisdiction over the case.

the mgr of the business and was consented to by the directors, evidently beyond reach of respondent

- That defendants Lydia dela Rama, Honorio dela Rama and Enzo Battistuzzi were not legally elected to the BOD and has unlawfully usurped or intruded into said office to the prejudice of the plaintiffs - Prayed that a writ of prelim injunction be issued restraining the defendants from committing or continuing the

- The well-known rule is that courts cannot undertake to control the discretion of the BOD abt administrative matters as to which they have legitimate power of action, and contracts intra-vires

Gamboa vs. Victoriano, et al

or abandoned; and 2. They were stopped from further

entered into by the BOD are binding upon the corpo and the courts will not interfere UNLESS such contracts are so unconscionable and oppressive as to amt to a wanton destruction of the rights of the minority.

- Plaintiffs (Benjamin Loupe Jr, BL Sr, Leonito Loupe, Luisa Docles) (except Anastacio Dacles who was joined as a formal party) are the owners of 1,328 shrs of stock of the Inocentes dela Rama Inc., a domestic corpo

prosecuting the case since they have, in effect, acknowledged the validity of the issuance of the disputed 823 shrs of stock

performance of an act tending to prejudice, diminish or otherwise injure the plaintiffs rights in the corporate props and funds of the corpo, and from disposing, transferring, selling or

- Motion denied Petitioners contention that the proper remedy of - Filed MR and its addendum. Claimed that respondent court has no jurisdiction to interfere with the mgt of the corpo by the BOD, and the enactment of a resolution by the defendants, as members of the BOD of the corpo, allowing the sale of the 823 shrs of stock to the defendants was purely the plaintiffs would be to institute a derivative suit against the pets in the name of the corpo in order to secure a binding relief after exhausting all the possible remedies available within the corpo:

- Upon the plaintiffs acquisition of the shrs of stock by Rafael Ledesma and Jose Sicangco Jr, then Pres and VP of the corpo, the defendants (Mercedes Borromeo, Honorio dela rama, Ricardo Gamboa), remaining members of the BOD of the corpo, in order to forestall the takeover by the plaintiffs,

otherwise impairing the value of the 823 shrs of stock illegally issued by the defendants said defendants be declared as usurpers or

intruders into the office of director in the corpo and, consequently, ousting them from office and declare Luisa Dacles as a legally elected director of the corpo

- DERIVATIVE SUIT IS NOT APPROPRIATE IN THIS CASE bec the plaintiffs are alleging and vindicating their own individual interests or

- MR denied. Appeal.

or bec they hold the controlling interest in the corpo

ISSUE

WON THE PLAINTIFFS HAVE THE RIGHT TO BRING THE ACTION FOR THEIR BENEFIT Then, any one of the stockholders is 3.

prejudice, and not that of the corpo

directors who are the very ones to be sued (or where it becomes obvious that a demand upon them would have been futile and useless) since the law does not require a litigant to perform useless acts; The stockholder bringing the suit 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, otherwise, the case is dismissible. This is because the cause of action actually devolves on the corporation and not to a particular stockholder. The corporation should be made a party, either as party-plaintiff or defendant, in order to make the courts judgment binding upon it, and thus, bar future litigation of the same issues. On what side the corporation appears loses importance when it is considered that it lay within the power of the court to direct the making of amendment of the pleading, by adding or dropping parties, as may be required in the interest of justice. Misjoinder of parties is not a ground to dismiss action; and, Any benefit or damages recovered shall pertain to the corporation. This is so because in all instances, derivative suit is instituted for and in behalf of the corporation and not for the protection or vindication of a right or rights of a particular stockholder, otherwise, the aggrieved stockholder should institute, instead, an individual or personal suit to vindicate his personal or individual right. Or, for that matter, representative or class suit for all other stockholders whose rights are similarly situated, injured or violated, personally or individually.

allowed to bring suit It is the corpo itself and not the plaintiff

Evangelista vs. Santos - Complaint alleged that plaintiffs are minority stockholders of the Vitali Lumber Company, Inc., a Phil corpo organized for the exploitation of a lumber concession in Zamboanga, Phils

HELD

NO bec the plaintiffs are not the real

stockholder that is the real party in interest, so that such damages as may be recovered shall pertain to the corpo

party in interest in the present case.

- In this case, the plaintiff stockholders have brought the action not for the benefit of the corpo but for their own benefit, since they ask that the

DERIVATIVE

SUIT

brought

by

a 4.

stockholder as the nominal party plaintiff for the benefit of the corpo, which is the real party in interest

- Defendant holds more than 50% of the stocks of said corpo, and also is and always has been the pres, mgr and treasurer thereof - Defendant in such triple capacity, through fault, neglect and abandonment allowed its lumber concession to lapse and its properties and assets to disappear, thus causing the complete ruin of the corpo and total depreciation of its stock - Prays for judgment requiring defendant: 1. To render an acct of his admin of the corporate affairs and assets; 2. To pay plaintiffs the value of their respective participation in said assets on the basis of the value of the stocks held by each of them; 3. To pay the costs of suit - Lower court granted the motion for dismissal upon the 2 grounds alleged by defendant (improper venue and lack of cause of action)

defendant make good the losses occasioned by the latters mismanagement and pay them the value of their respective participation in the corporate assets on the basis of their respective holdings

REQUIREMENTS AND THE PROCEDURES THAT MUST BE FOLLOWED IN ORDER THAT A DERIVATIVE SUIT MAY PROSPER 1. That the party bringing the suit should be a stockholder as of the time the act or transaction complained of took place, or whose shares have evolved upon him since by operation of law. This rule, however, does not apply if such act or transaction continues and is injurious to the stockholder or affect him specifically in some other way. The number of his hares is immaterial since he is not suing in his own behalf or for the protection or vindication of his own right, or the redress of a wrong done against him, individually, but in behalf and for the benefit of the corporation. 2. He has tried to exhaust intra-corporate remedies, he has made a demand on the board of directors for the appropriate relief but the latter had failed or refused to heed his plea. Demand, however, is not required if the company is under the complete control of the

- Clearly, this cannot be done until all corporate debts, if there be any, are paid and the existence of the corpo terminated by the limitation of its charter or by lawful dissolution in view of the provisions of Sec. 16 of the Corpo Law

5.

DERIVATIVE SUIT IS NOT PROPER Claim is not for the benefit of the corpo but rather for the benefit of the individual stockholders

If the officers of the corpo [who are the ones called upon to protect their rights] refuse to sue, or where a demand upon them to file the necessary suit would be futile bec they are the very ones to be sued

EXECUTIVE COMMITTEE Corpo Law authorizes every corpo to create, in accordance with its by-laws, executive committees to perform specific powers within the competence of the board

Purpose clauses necessary because it confers and also limits the actual authority of the corporation

Sec. 35. Executive committee. - The by-laws of a corporation may create an executive committee, composed of not less than three members of the board, to be appointed by the board. Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on a majority vote of the board, except with respect to: (1) approval of any action for which shareholders' approval is also required; (2) the filing of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of new by-laws; (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and (5) a distribution of cash dividends to the shareholders. May the board alone create an executive committee without any authority provided for the by-laws? NO board of directors must sit and act as a body to have a valid transaction

May a non-member of the board of directors be a member of the executive committee? NO, all of them must be members of the BOD BOD cannot act by proxy it would be abdication of powers