CORPO Finals Case Digests

VI. CLASSES OF CORPORATIONS UNDER THE CORP. CODE Collector of Internal Revenue vs. Club Filipino G.R.
L-12719; May 1! 19"2 F#C$%& Club Filipino is a civic or'ani(ation or'ani(e) un)er t*e +*ilippine la,s. -o,ever! neit*er in t*e articles or by-la,s is t*ere a provision relative to )ivi)en)s an) t*eir )istribution! alt*ou'* it is covenante) t*at upon its )issolution! t*e Club.s re/ainin' assets! after payin' )ebts! s*all be )onate) to a c*aritable +*ilippine institution in Cebu. $*e Club o,ns a club *ouse! a bo,lin' alley! a 'olf course an) a bar restaurant. $*e Club is operate) /ainly ,it* fun)s )erive) fro/ /e/bers*ip an) )ues. $*e Club )eclare) stoc0 )ivi)en)s but no actual cas* )ivi)en)s ,ere )istribute) to stoc0*ol)ers. I%%12& 345 Club Filipino is a stoc0 corporation. -2L6& $*e facts t*at t*e capital stoc0 of t*e respon)ent Club is )ivi)e) into s*ares! )oes not )etract fro/ t*e fin)in' of t*e trial court t*at it is not en'a'e) in t*e business of operator of bar an) restaurant. 3*at is )eter/inative of ,*et*er or not t*e Club is en'a'e) in suc* business is its ob7ect or purpose! as state) in its articles an) by-la,s. It is a fa/iliar rule t*at t*e actual purpose is not controlle) by t*e corporate for/ or by t*e co//ercial aspect of t*e business prosecute)! but /ay be s*o,n by e8trinsic evi)ence! inclu)in' t*e by-la,s an) t*e /et*o) of operation. Fro/ t*e e8trinsic evi)ence a))uce)! t*e $a8 Court conclu)e) t*at t*e Club is not en'a'e) in t*e business as a bar0eeper an) restaurateur. Moreover! for a stoc0 corporation to e8ist! t,o re9uisites /ust be co/plie) ,it*! to ,it& :1; a capital stoc0 )ivi)e) into s*ares an) :2; an aut*ority to )istribute to t*e *ol)ers of suc* s*ares! )ivi)en)s or allot/ents of t*e surplus profits on t*e basis of t*e s*ares *el) :sec. ! #ct 5o. 1<=9;. In t*e case at bar! no,*ere in its articles of incorporation or by-la,s coul) be foun) an aut*ority for t*e )istribution of its )ivi)en)s or surplus profits. %trictly spea0in'! it cannot! t*erefore! be consi)ere) a stoc0 corporation! ,it*in t*e conte/plation of t*e corporation la,. VIII. INCORPORATION +*ilippine $rust Co. vs. Rivera
compiled/edited/digest: KWYB -1-
G.R. 5o. L-197"1; >anuary 29! 192 F#C$%& Cooperative 5aval Filipinas ,as incorporate) un)er t*e +*ilippine la,s. Mariano Rivera ,as one of t*e incorporators. $*e #4I ,ere re'istere) in t*e ?ureau of Co//erce an) In)ustry. In t*e course of ti/e! t*e corporation beca/e insolvent an) ,ent into t*e *an)s of +*il. $rust Co.! as assi'nee in ban0ruptcy. $*e latter institute) an action to recover unpai) stoc0 subscription of )efen)ant. 6efen)ant insists t*e resolution t*at *as been /a)e on t*e re)uction of t*e capital! t*e reason ,*y *e )i) not fully pay t*e entire subscription. I%%12& 345 t*e re)uction of t*e corporate capital by releasin' t*e subscribers fro/ pay/ent of t*eir subscription is vali) an) proper. -2L6& It is establis*e) )octrine t*at subscription to t*e capital of a corporation constitute a fin) to ,*ic* cre)itors *ave a ri'*t to loo0 for satisfaction of t*eir clai/s an) t*at t*e assi'nee in insolvency can /aintain an action upon any unpai) stoc0 subscription in or)er to reali(e assets for t*e pay/ent of its )ebts. :@elasco vs. +oi(at! 7 +*il.! AB2.; # corporation *as no po,er to release an ori'inal subscriber to its capital stoc0 fro/ t*e obli'ation of payin' for *is s*ares! ,it*out a valuable consi)eration for suc* release; an) as a'ainst cre)itors a re)uction of t*e capital stoc0 can ta0e place only in t*e /anner an un)er t*e con)itions prescribe) by t*e statute or t*e c*arter or t*e articles of incorporation. Moreover! strict co/pliance ,it* t*e statutory re'ulations is necessary In t*e case at bar! t*erefore *el) t*at t*e resolution relie) upon t*e )efen)ant ,as ,it*out effect an) t*at t*e )efen)ant ,as still liable for t*e unpai) balance of *is subscription. Marcus vs. R- Macy 7< 5.2. 2) 22A; 19<7 F#C$%& $*e ?oar) of 6irectors 'ave notice to %- t*at a/on' t*e /atters to be acte) upon in its annual /eetin' ,oul) be a proposal to a/en) certificate of incorporation to a)) to t*e ri'*ts of preferre) stoc0*ol)ers! votin' ri'*ts e9ual to t*ose of co//on stoc0*ol)ers. Marcus ob7ecte) an) )e/an)e) pay/ent for t*e co//on stoc0 o,ne) by *er.
I%%12& 345 Marcus can e8ercise *er appraisal ri'*t. -2L6& $*e Court *el) t*at Marcus /ay invo0e *er appraisal ri'*t. $*e a''re'ate nu/ber of s*ares *avin' votin' ri'*ts e9ual to t*ose of co//on s*ares ,as substantially increase) an) t*ereby t*e votin' po,er of eac* co//on s*are outstan)in' prior to t*e /eetin' ,as altere) or li/ite) by t*e resultin' pro rata )i/inution of its potential ,ort* as a factor in t*e /ana'e/ent of t*e corporate affairs. Consi)erin' t*at s*e *el) )i/inis*e) votin' po,er; t*at s*e notifie) t*e corporation of *er ob7ection; t*at *er s*ares ,ere vote) a'ainst t*e a/en)/entCt*ese ,ere sufficient to 9ualify *er to invo0e *er statutory appraisal ri'*t. I'lesia 2van'elica Meto)ista 2n Las Islas Filipinas vs. ?is*op La(aro G.R. 5o. 1A<BAA; >uly "! 2B1B F#C$%; I2M2LIF is a corporation sole. It ,as re'istere) an) by-la,s ,ere create) ,*ic* e/po,ere) t*e election of officers to /ana'e t*e affairs of t*e or'ani(ation. #lt*ou'*! t*e petitioner re/aine) a corporation sole on paper! it *a) al,ays acte) li0e a corporation a''re'ate. $*e Consistory! I2M2LIF.s ?46! to'et*er ,it* t*e 'eneral /e/bers*ip c*an'e t*e or'ani(ational structure fro/ corporation sole to corporation a''re'ate! ,*ic* ,as approve) by %2C. -o,ever! t*e corporate papers re/aine) unaltere) as a corporation sole. #bout 2A years later! t*e issue ree/er'e. $*e %2C ans,ere)! t*is ti/e! is t*at t*e conversion ,as not properly carrie) out an) )ocu/ente) an) t*at it nee)e) to a/en) its #4I for t*at purpose. #ctin' on t*e a)vice! t*e Consistory resolve) to convert but petitioner Rev. 5estor +ine)a in I2M2LIF.s na/e )i) not support t*e conversion. +etitioners clai/ t*at a co/plete s*ift fro/ I2M2LIF.s status as a corporation sole to a corporation a''re'ate re9uire)! not 7ust an a/en)/ent of t*e I2M2LIF.s articles of incorporation! but a co/plete )issolution of t*e e8istin' corporation sole follo,e) by a reincorporation. I%%12&
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compiled/edited/digest: KWYB
345 a corporation sole /ay be converte) into a corporation a''re'ate by /ere a/en)/ent of its articles of incorporation. -2L6& # corporation /ay c*an'e its c*aracter as a corporation sole into a corporation a''re'ate by /ere a/en)/ent of its articles of incorporation ,it*out first 'oin' t*rou'* t*e process of )issolution. $rue! t*e Corporation Co)e provi)es no specific /ec*anis/ for a/en)in' t*e articles of incorporation of a corporation sole. -o,ever! %ection 1B9 of t*e Corporation Co)e allo,s t*e application to reli'ious corporations of t*e 'eneral provisions 'overnin' non-stoc0 corporations. For non-stoc0 corporations! t*e po,er to a/en) its articles of incorporation lies in its /e/bers. $*e co)e re9uires t,o-t*ir)s of t*eir votes for t*e approval of suc* an a/en)/ent. %o *o, ,ill t*is re9uire/ent apply to a corporation sole t*at *as tec*nically but one /e/ber :t*e *ea) of t*e reli'ious or'ani(ation; ,*o *ol)s in *is *an)s its broa) corporate po,ers over t*e properties! ri'*ts! an) interests of *is reli'ious or'ani(ationD #lt*ou'* a non-stoc0 corporation *as a personality t*at is )istinct fro/ t*ose of its /e/bers ,*o establis*e) it! its articles of incorporation cannot be a/en)e) solely t*rou'* t*e action of its boar) of trustees. $*e a/en)/ent nee)s t*e concurrence of at least t,o-t*ir)s of its /e/bers*ip. If suc* approval /ec*anis/ is /a)e to operate in a corporation sole! its one /e/ber in ,*o/ all t*e po,ers of t*e corporation tec*nically belon's! nee)s to 'et t*e concurrence of t,o-t*ir)s of its /e/bers*ip. $*e one /e/ber! *ere t*e General %uperinten)ent! is but a trustee! accor)in' to %ection 11B of t*e Corporation Co)e! of its /e/bers*ip. $*ere is no point to )issolvin' t*e corporation sole of one /e/ber to enable t*e corporation a''re'ate to e/er'e fro/ it. 3*et*er it is a non-stoc0 corporation or a corporation sole! t*e corporate bein' re/ains )istinct fro/ its /e/bers! ,*atever be t*eir nu/ber. $*e increase in t*e nu/ber of its corporate /e/bers*ip )oes not c*an'e t*e co/ple8ion of its corporate responsibility to t*ir) parties. $*e one /e/ber! ,it* t*e concurrence of t,o-t*ir)s of t*e /e/bers*ip of t*e or'ani(ation for ,*o/ *e acts as trustee! can self-,ill t*e a/en)/ent. -e can! ,it* /e/bers*ip concurrence! increase t*e tec*nical nu/ber of t*e /e/bers of t*e corporation fro/ EsoleF or one to t*e 'reater nu/ber aut*ori(e) by its a/en)e) articles. Ga/boa vs. $eves G.R. 5o. 17"=79; >une 2A! 2B11
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$*is is a petition to nullify t*e sale of s*ares of stoc0 of +*ilippine $eleco//unications Invest/ent Corporation :+$IC; by t*e 'overn/ent of t*e Republic of t*e +*ilippines! actin' t*rou'* t*e Inter-#'ency +rivati(ation Council :I+C;! to Metro +acific #ssets -ol)in's! Inc. :M+#-;! an affiliate of First +acific Co/pany Li/ite) :First +acific;! a -on' Gon'base) invest/ent /ana'e/ent an) *ol)in' co/pany an) a s*are*ol)er of t*e +*ilippine Lon' 6istance $elep*one Co/pany :+L6$;. $*e petitioner 9uestione) t*e sale on t*e 'roun) t*at it also involve) an in)irect sale of 12 /illion s*ares :or about ". percent of t*e outstan)in' co//on s*ares; of +L6$ o,ne) by +$IC to First +acific. 3it* t*is sale! First +acific.s co//on s*are*ol)in's in +L6$ increase) fro/ B.7 percent to 7 percent! t*ereby increasin' t*e total co//on s*are*ol)in's of forei'ners in +L6$ to about A1.<7H. $*is! accor)in' to t*e petitioner! violates %ection 11! #rticle III of t*e 19A7 +*ilippine Constitution ,*ic* li/its forei'n o,ners*ip of t*e capital of a public utility to not /ore t*an <BH! t*us& %ection 11. 5o franc*ise! certificate! or any ot*er for/ of aut*ori(ation for t*e operation of a public utility s*all be 'rante) e8cept to citi(ens of t*e +*ilippines or to corporations or associations or'ani(e) un)er t*e la,s of t*e +*ilippines! at least si8ty per centu/ of ,*ose capital is o,ne) by suc* citi(ens; 8 8 8 I%%12& 6oes t*e ter/ EcapitalF in %ection 11! #rticle III of t*e Constitution refer to t*e total co//on s*ares only! or to t*e total outstan)in' capital stoc0 :co/bine) total of co//on an) non-votin' preferre) s*ares; of +L6$! a public utilityD -2L6& [The Court partly granted the petition and held that the term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to ote in the election of directors of a pu!lic utility, i"e", to the total common shares in #$%T"& Consi)erin' t*at co//on s*ares *ave votin' ri'*ts ,*ic* translate to control! as oppose) to preferre) s*ares ,*ic* usually *ave no votin' ri'*ts! t*e ter/ EcapitalF in %ection 11! #rticle III of t*e Constitution refers only to co//on s*ares. -o,ever! if t*e preferre) s*ares also *ave t*e ri'*t to vote in t*e election of )irectors! t*en t*e ter/ EcapitalF s*all inclu)e suc* preferre) s*ares because t*e ri'*t to participate in t*e control or /ana'e/ent of t*e corporation is e8ercise) t*rou'* t*e ri'*t to vote in t*e election of )irectors. In s*ort! t*e ter/ EcapitalF in %ection 11! #rticle III of t*e Constitution refers only to s*ares of stoc0 t*at can vote in t*e election of )irectors. $o construe broa)ly t*e ter/ EcapitalF as t*e total outstan)in' capital stoc0! inclu)in' bot* co//on an) nonvotin' preferre) s*ares! 'rossly contravenes t*e intent an) letter of t*e Constitution t*at t*e E%tate s*all )evelop a self-reliant
an) in)epen)ent national econo/y effectively controlle) by Filipinos.F # broa) )efinition un7ustifiably )isre'ar)s ,*o o,ns t*e all-i/portant votin' stoc0! ,*ic* necessarily e9uates to control of t*e public utility.
Joun' #uto %upply vs. C# G.R. 5o. 1B<17=; >une 2=! 199 F#C$%& J#%C4 sol) all t*eir s*ares of stoc0 in CM6C to Geor'e Ro8as. $*e latter ,as able to /a0e a =BH )o,npay/ent of t*e purc*ase price in cas* ,*ile t*e ot*er *alf ,ere /a)e in post-)ate) c*ec0s. %ubse9uently! t*e post-)ate) c*ec0s ,ere )is*onoure) ,*ic* pro/pte) J#%C4 to file an action for collection of su/ of /oney in R$C of Cebu. Ro8as faile) to ans,er *ence *e ,as )eclare) in )efault. 3it*out ,aitin' for t*e resolution of t*e /otion for liftin' t*e or)er of )efault! *e file) a petition for certiorari in C# on t*e 'roun) of i/proper venue. I%%12& 345 t*e venue ,as i/properly lai). -2L6& # corporation *as no resi)ence in t*e sa/e sense in ,*ic* t*is ter/ is applie) to a natural person. ?ut for practical purposes! a corporation is in a /etap*ysical sense a resi)ent of t*e place ,*ere its principal office is locate) as state) in t*e articles of incorporation. $*e Corporation Co)e precisely re9uires eac* corporation to specify in its articles of incorporation t*e Kplace ,*ere t*e principal office of t*e corporation is to be locate) ,*ic* /ust be ,it*in t*e +*ilippines.K $*e purpose of t*is re9uire/ent is to fi8 t*e resi)ence of a corporation in a )efinite place! instea) of allo,in' it to be a/bulatory. #ctions cannot be file) a'ainst a corporation in any place ,*ere t*e corporation /aintains its branc* offices. $*e Court rule) t*at to allo, an action to be institute) in any place ,*ere t*e corporation *as branc* offices! ,oul) create confusion an) ,or0 untol) inconvenience to sai) entity. ?y t*e sa/e to0en! a corporation cannot be allo,e) to file personal
actions in a place ot*er t*an its principal place of business unless suc* a place is also t*e resi)ence of a co-plaintiff or a )efen)ant. 3it* t*e fin)in' t*at t*e resi)ence of J#%C4 for purposes of venue is in Cebu City! ,*ere its principal place of business is locate)! it beco/es unnecessary to )eci)e ,*et*er Garcia is also a resi)ent of Cebu City an) ,*et*er Ro8as ,as in estoppel fro/ 9uestionin' t*e c*oice of Cebu City as t*e venue. $*e )ecision of t*e Court of #ppeals ,as set asi)e. +*ilips 28port ?.@. vs. C# G.R. 5o. 9"1"1; February 21! 1992 F#C$%& +*ilips 28port ?.@. :+2?@; file) ,it* t*e %2C for t*e cancellation of t*e ,or) E+*ilipsF t*e corporate na/e of %tan)ar) +*ilips Corporation in vie, of its prior re'istration ,it* t*e ?ureau of +atents an) t*e %2C. -o,ever! %tan)ar) +*ilips refuse) to a/en) its #rticles of Incorporation so +2?@ file) ,it* t*e %2C a petition for t*e issuance of a 3rit of +reli/inary In7unction! *o,ever t*is ,as )enie) rulin' t*at it can only be )one ,*en t*e corporate na/es are i)entical an) t*ey *ave at least t,o ,or)s )ifferent. $*is ,as affir/e) by t*e %2C en banc an) t*e Court of #ppeals t*us t*e case at bar. I%%12& 345 %tan)ar) +*ilips can be en7oine) fro/ usin' +*ilips in its corporate na/e. -2L6& J2%. # corporation.s ri'*t to use its corporate an) tra)e na/e is a property ri'*t! a ri'*t in re/! ,*ic* it /ay assert an) protect a'ainst t*e ,*ole ,orl). #ccor)in' to %ec. 1A of t*e Corporation Co)e! no corporate na/e /ay be allo,e) if t*e propose) na/e is i)entical or )eceptively confusin'ly si/ilar to t*at of any e8istin' corporation or to any ot*er na/e alrea)y protecte) by la, or is patently )eceptive! confusin' or contrary to e8istin' la,. For t*e pro*ibition to apply! t,o re9uisites /ust be present& :1; t*e co/plainant corporation /ust *ave ac9uire) a prior ri'*t over t*e use of suc* corporate na/e an); :2; t*e propose) na/e is eit*er i)entical or )eceptively or confusin'ly si/ilar to t*at of any e8istin' corporation or to any ot*er na/e alrea)y protecte) by la, or patently )eceptive! confusin' or contrary to e8istin' la,.
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Lyceu/ of t*e +*ils. vs. C# G.R. 5o. 1B1A97; Marc* =! 199 F#C$%& +etitioner is an e)ucational institution )uly re'istere) ,it* t*e %2C since 19=B. ?efore t*e case at bar! petitioner co//ence) a procee)in' a'ainst Lyceu/ of ?a'uio ,it* t*e %2C to re9uire it to c*an'e its corporate na/e an) a)opt a ne, one not si/ilar or i)entical to t*e petitioner. %2C 'rante) notin' t*at t*ere ,as substantial si/ilarity because of t*e )o/inant ,or) ELyceu/F. C# an) %C affir/e). +etitioner file) si/ilar co/plaint a'ainst ot*er sc*ools an) obtains a favorable )ecision fro/ t*e *earin' officer. 4n appeal! %2C en banc reverse) t*e )ecision an) *el) t*at t*e ,or) Lyceu/ *as not beco/e so i)entifie) ,it* t*e petitioner an) t*at t*e use t*ereof ,ill not cause confusion to t*e 'eneral public. I%%12%& 1. 345 t*e corporate na/es of t*e private respon)ents are i)entical ,it* or )eceptively si/ilar to t*at of t*e petitioner. 2. 345 t*e use by t*e petitioner of Lyceu/ in its corporate na/e *as been for suc* len't* of ti/e an) ,it* suc* e8clusivity as to *ave beco/e associate) or i)entifie) ,it* t*e petitioner institution in t*e /in) of t*e 'eneral public :6octrine of %econ)ary /eanin';. -2L6& 54! to bot*. $rue enou'*! t*e corporate na/es of t*e parties carry t*e ,or) ELyceu/F but confusion an) )eception are preclu)e) by t*e appen)in' of 'eo'rap*ic na/es. Lyceu/ 'enerally refers to a sc*ool or an institution of learnin' an) it is natural to use t*is ,or) to )esi'nate an entity ,*ic* is or'ani(e) an) operatin' as an e)ucational institution. 6octrine of %econ)ary /eanin' is a ,or) of p*rase ori'inally incapable of e8clusive appropriation! /i'*t nevert*eless *ave been use) so lon' an) so e8clusively by one pro)ucer ,it* reference to *is article t*at! in tra)e an) to t*at branc* of t*e purc*asin' public! t*e ,or) or p*rase *as co/e to /ean t*at t*e article ,as *is pro)uct. Lyceu/ of t*e +*ilippines *as not 'aine) e8clusive use of ELyceu/F by lon' passa'e of ti/e. $*e nu/ber alone of t*e private respon)ents su''ests stron'ly t*at t*e use of Lyceu/ *as not been atten)e) ,it* t*e e8clusivity essential for t*e applicability of t*e )octrine. It /ay be note) t*at one of t*e respon)ents L 3estern +an'asinan Lyceu/ use) suc* ter/ 17 years before t*e petitioner re'istere) ,it* t*e %2C. Moreover! t*ere /ay be ot*er sc*ools usin' t*e na/e but not re'istere) ,it* t*e %2C because t*ey *ave not a)opte) t*e corporate for/ of or'ani(ation.
#r/co %teel Corp. vs. %2C G.R. 5o. L-=<=AB; 6ece/ber 29! 19A7 F#C$%& #RMC4 %teel Corp. is a corporation or'ani(e) in 4*io! 1%#! *ereinafter calle) #RMC4-4-I4. #RMC4 Marsteel#lloy Corporation ,as incorporate) in t*e +*ilippines un)er its ori'inal na/e Marsteel #lloy Co/pany! Inc. but its na/e ,as c*an'e) to #RMC4-Marsteel #lloy Corporation *ereinafter calle) #RMC4-Marsteel! by a/en)/ent of its #rticles of Incorporation after t*e #RMC4-4*io purc*ase) <BH of its capital stoc0. ?ot* sai) corporations are en'a'e) in t*e /anufacture of steel pro)ucts. 4n t*e ot*er *an)! #RMC4 %teel Corporation ,as incorporate) in t*e +*ilippines! *ereinafter calle) #RMC4+*ilippines. # pertinent portion of its articles of incorporation provi)es as a/on' its purposes& Kto contract! fabricate ... /anufacture ... re'ar)in' pipelines! steel fra/es ... .K #RMC4-4*io an) #RMC4-Marsteel t*en file) a petition in t*e %2C to co/pel #RMC4-+*ilippines to c*an'e its corporate na/e on t*e 'roun) t*at it is very si/ilar! if not e8actly t*e sa/e as t*e na/e of one of t*e petitioners. %2C 'rante) t*e petition. Respon)ent a/en)e) its articles of incorporation by c*an'in' its na/e to K#RMC4 structures! Inc.K ,*ic* ,as file) ,it* an) approve) by t*e %2C. +etitioners file) a co//ent alle'in' t*at t*e c*an'e of na/e of sai) respon)ent ,as not )one in 'oo) fait* an) is not in accor)ance ,it* t*e or)er of t*e Co//ission ,*ic* ,as to ta0e out #RMC4 an) substitute anot*er ,or) in lieu t*ereof in its corporate na/e by a/en)in' t*e articles of incorporation. I%%12& 345 #RMC4-+*ilippines *a) substantially co/plie) in 'oo) fait* ,it* sai) or)er an) sai) co/pliance *a) ac*ieve) t*e purpose of t*e or)er! by c*an'in' its corporate na/e ,it* t*e approval of %2C. -2L6& 54. $*e sai) a/en)/ent in t*e corporate na/e of petitioner is not in substantial co/pliance ,it* t*e or)er. $o repeat! t*e or)er ,as for t*e re/oval of t*e ,or) K#RMC4K fro/ t*e corporate na/e of t*e petitioner ,*ic* it faile) to )o. #n) even if t*is c*an'e of corporate na/e ,as erroneously accepte) an) approve) in t*e %2C it cannot t*ereby le'ali(e nor c*an'e ,*at is clearly unaut*ori(e) if not conte/ptuous act of petitioner in securin' t*e re'istration of a ne, corporate na/e a'ainst t*e very previous or)er of t*e %2C. Certainly t*e sai) previous or)er is not ren)ere) functus oficio t*ereby.
-a) petitioner reveale) at t*e ti/e of t*e re'istration of its a/en)e) corporate na/e t*at t*ere ,as t*e sai) or)er! t*e re'istration of t*e a/en)e) corporate na/e coul) not *ave been accepte) an) approve) by t*e persons in-c*ar'e of t*e re'istration. $*e actuations in t*is respect of petitioner are far fro/ re'ular /uc* less in 'oo) fait*. 5ote) in fact! #RMC4 %$22L-+-ILI++I52% *as not only an i)entical na/e but also a si/ilar line of business. +eople ,*o are buyin' an) usin' pro)ucts bearin' t*e tra)e/ar0 K#r/coK /i'*t be le) to believe t*at suc* pro)ucts are /anufacture) by t*e respon)ent! ,*en in fact! t*ey /i'*t actually be pro)uce) by t*e petitioners. $*us! t*e 'oo),ill t*at s*oul) 'ro, an) inure to t*e benefit of petitioners coul) be i/paire) an) pre7u)ice) by t*e continue) use of t*e sa/e ter/ by t*e respon)ent. +.C. >avier M %ons vs. C# G.R. 5o. 129==2; >une 29! 2BB= F#C$%& +etitioner applie) ,it* First %u//a ?an0 for a loan acco//o)ation un)er t*e In)ustrial Guarantee Loan Fun) :IGLF;. $*e corporation t*rou'* +ablo >avier ,as a)vise) t*at its loan application ,as approve) an) t*at t*e sa/e s*all be for,ar)e) to t*e Central ?an0 for processin'. $*e Central ?an0 release) t*e loan. $o secure t*e loan! >avier e8ecute) c*attel /ort'a'e in favor of t*e ban0. In t*e /eanti/e! t*e ban0 c*an'e) its na/e) to +#IC %avin's an) Mort'a'e ?an0 Inc. $*ereafter! t*e corporation faile) to pay; t*is pro/pte) t*e ban0 to /ove for t*e e8tra7u)icial foreclosure of t*e /ort'a'es. +etitioner file) an action to restrain t*e e8tra7u)icial foreclosure on t*e 'roun) t*at First %u//a ?an0 an) +#IC ?an0 are separate entities. I%%12& 345 t*e )ebtor s*oul) be for/ally notifie) of t*e corporate cre)itor.s c*an'e of na/e. -2L6& 54. $*ere is no suc* re9uire/ent un)er t*e la, or any re'ulation or)erin' a ban0 t*at c*an'es its corporate na/e to for/ally notify all its )ebtors. $*is Court cannot i/pose on a ban0 t*at c*an'es its corporate na/e to notify a )ebtor of suc* c*an'e absent any la,! circular or re'ulation re9uirin' it. %uc* act ,oul) be 7u)icial le'islation. $*e for/al notification is! t*erefore! )iscretionary on t*e ban0. 1nless t*ere is a la,! re'ulation or circular fro/ t*e %2C or ?%+ re9uirin' t*e for/al
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notification of all )ebtors of ban0s of any c*an'e in corporate na/e! suc* notification re/ains to be a /ere internal policy t*at ban0s /ay or /ay not a)opt. # c*an'e in t*e corporate na/e )oes not /a0e a ne, corporation! ,*et*er effecte) by a special act or un)er a 'eneral la,. It *as no effect on t*e i)entity of t*e corporation! or on its property! ri'*ts! or liabilities. $*e corporation! upon suc* c*an'e in its na/e! is in no sense a ne, corporation! nor t*e successor of t*e ori'inal corporation. It is t*e sa/e corporation ,it* a )ifferent na/e! an) its c*aracter is in no respect c*an'e). +ioneer Insurance vs. C# G.R. 5o. A<197; >uly 2A! 19A9 F#C$%& >acob %. Li/ is an o,ner-operator of %out*ern #irlines :%#L;! a sin'le proprietors*ip. >apan 6o/estic #irlines :>6#; an) Li/ entere) into a sales contract. +ioneer Insurance an) %urety Corp. as surety e8ecute) its surety bon) in favor of >6# on be*alf of its principal Li/. ?or)er Mac*inery an) -eacy 29uip/ent Co! Inc.! Francisco an) Mo)esto Cervantes! an) Constancio Ma'lana contribute) fun)s for t*e transaction base) on t*e /isrepresentation of Li/ t*at t*ey ,ill for/ a ne, corporation to e8pan) *is business. Li/ as %#L e8ecute) in favor of +ioneer a )ee) of c*attel /ort'a'e as security. Restructurin' of obli'ation to c*an'e t*e /aturity ,as )one t,ice ,it*out t*e 0no,le)'e of t*e ot*er )efen)ants. 1pon )efault on t*e pay/ents! +ioneer pai) for *i/ an) file) a petition for t*e foreclosure of c*attel /ort'a'e as security. Ma'lana! ?or/a*eco an) t*e Cervantes.s file) cross-clai/s a'ainst Li/ alle'in' t*at t*ey ,ere not privies to t*e contracts si'ne) by Li/ an)! by ,ay of counterclai/! sou'*t for )a/a'es for bein' e8pose) to liti'ation an) for recovery of t*e su/s of /oney t*ey a)vance) to Li/ for t*e purc*ase of t*e aircrafts in 9uestion. #fter trial on t*e /erits! a )ecision ,as ren)ere) *ol)in' Li/ liable to pay +ioneer but )is/isse) +ioneerNs co/plaint a'ainst all ot*er )efen)ants. I%%12& 345 failure of t*e respon)ents to incorporate auto/atically resulte) to )e facto partners*ip. -2L6& 54. +artners*ip inter se )oes not necessarily e8ist! for or)inarily persons cannot be /a)e to assu/e t*e relation of partners as bet,een t*e/selves! ,*en t*eir purpose is t*at no partners*ip s*all e8ist an) it s*oul) be i/plie) only ,*en
compiled/edited/digest: KWYB - 11 -
necessary to )o 7ustice bet,een t*e parties; t*us! one ,*o ta0es no part e8cept to subscribe for stoc0 in a propose) corporation ,*ic* is never le'ally for/e) )oes not beco/e a partner ,it* ot*er subscribers ,*o en'a'e in business un)er t*e na/e of t*e preten)e) corporation! so as to be liable as suc* in an action for settle/ent of t*e alle'e) partners*ip an) contribution. $*e petitioner! in *is ans,er! )enie) *avin' receive) any a/ount fro/ respon)ents ?or/a*eco! t*e Cervantes.s an) Ma'lana. It is t*erefore clear t*at t*e petitioner never *a) t*e intention to for/ a corporation ,it* t*e respon)ents )espite *is representations to t*e/. #pplyin' t*erefore t*e principles of la,! no )e facto partners*ip ,as create) a/on' t*e parties ,*ic* ,oul) entitle t*e petitioner to a rei/burse/ent of t*e suppose) losses of t*e propose) corporation. Municipality of Malaban' vs. ?enito G.R. 5o. L-2A11 ; Marc* 2A! 19"9 F#C$%& +etitioner ?alin)on' is t*e /unicipal /ayor of Malaban'! Lanao )el %ur ,*ile respon)ents are Mayor ?enito an) councilors of Municipality of ?alaba'an of t*e sa/e province. ?alaba'an :for/erly part of Malaban'; ,as create) by 28ecutive 4r)er A" of t*e t*en +resi)ent Carlos +. Garcia! out of barrios an) sitios of t*e Malaban'. Citin' #elae' rulin' t*at Republic #ct 2 7B :?arrio C*arter #ct;! veste) po,er to create barrios in t*e provincial boar)! an) %ection "A of t*e #)/inistrative Co)e! insofar as it 'ives t*e +resi)ent t*e po,er to create /unicipalities! is unconstitutional. +etitioner sou'*t to nullify 2.4. A" an) restrain respon)ents fro/ perfor/in' t*eir official functions. Respon)ents ar'ue) t*at #elae' rulin' )i) not apply because unli0e t*e /unicipalities involve) t*erein! t*e /unicipality of ?alaba'an is at least a )e facto corporation! *avin' been or'ani(e) un)er color of a statute before t*is ,as )eclare) unconstitutional :by #elae' rulin';! its officers *avin' been eit*er electe) or appointe)! an) t*e /unicipality itself *avin' )isc*ar'e) its corporate functions for t*e past five years prece)in' t*e institution of t*is action. I%%12& 345 a corporation or'ani(e) un)er a statute subse9uently )eclare) voi) ac9uires status as O)e facto. corporation. -2L6& 54. # corporation or'ani(e) un)er a statute subse9uently )eclare) invali) cannot ac9uire t*e status of a O)e facto. corporation unless t*ere is so/e ot*er statute un)er ,*ic* t*e suppose) corporation /ay be vali)ly or'ani(e). -ence! in t*e
case at bar! t*e /ere fact t*at t*e /unicipality ,as or'ani(e) before t*e statute *a) been invali)ate) cannot conceivably /a0e it a O)e facto. corporation since t*ere is no ot*er vali) statute to 'ive color of aut*ority to its creation.
-all vs. +iccio G.R. 5o. L-2=9A; >une 29! 19=B F#C$%& +etitioners #rnol) -all! ?ra)ley -all an) private respon)ents Fre) ?ro,n! 2//a ?ro,n! -ipolita C*ap/an an) Ceferino #bella si'ne) an) ac0no,le)'e) t*e #4I of t*e Far 2astern Lu/ber an) Co//ercial Co.! Inc. or'ani(e) to en'a'e in a 'eneral lu/ber business to carry on as 'eneral contractors! operators an) /ana'ers. I//e)iately after t*e e8ecution of t*e articles of incorporation! t*e corporation procee)e) to )o business ,it* t*e a)option of by-la,s an) t*e election of its officers. $*en! t*e articles of incorporation ,ere file) in %2C for t*e issuance of t*e correspon)in' certificate of incorporation. +en)in' action on t*e #4I! private respon)ents file) a civil case a'ainst t*e -alls alle'in' a/on' ot*er t*in's t*at Far 2astern Lu/ber an) Co//ercial Co! ,as an unre'istere) partners*ip an) t*at t*ey ,is*e) to *ave it )issolve) because of bitter )issension a/on' t*e /e/bers! /is/ana'e/ent an) frau) by t*e /ana'ers an) *eavy financial losses. $*e petitioners file) a Motion to 6is/iss contestin' t*e court.s 7uris)iction an) t*e sufficiency of t*e cause of action but >u)'e +iccio or)ere) t*e )issolution of t*e co/pany an) appointe) a receiver. I%%12& 345 t*e court *a) 7uris)iction to )ecree t*e )issolution of t*e co/pany because it bein' a )e facto corporation! )issolution /ay only be or)ere) in a 9uo ,arranto procee)in' in accor)ance ,it* %ection 19. -2L6& J2%. $*e court *a) 7uris)iction but %ection 19 )oes not apply. It *el) t*at t*ere ,as no O)e facto. corporation on t*e 'roun) t*at t*e corporation cannot clai/ to be in O'oo) fait*. to be a corporation ,*en it *as not yet obtaine) its certificate of incorporation.
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$*e i//unity of collateral attac0 is 'rante) to corporations Eclai/in' in 'oo) fait* to be corporation un)er t*is act.F %uc* a clai/ is co/patible ,it* t*e e8istence of errors an) irre'ularities but not ,it* a total or substantial )isre'ar) of t*e la,. 1nless t*ere *as been an evi)ent atte/pt to co/ply ,it* t*e la,! t*e clai/ to be a corporation Eun)er t*is actF coul) not be /a)e Ein 'oo) fait*.F Moreover! t*is is not a suit in ,*ic* t*e corporation is a party. $*is is liti'ation bet,een stoc0*ol)ers of t*e alle'e) corporation for t*e purpose of obtainin' its )issolution. 2ven t*e e8istence of a )e 7ure corporation /ay be ter/inate) in a private suit for its )issolution bet,een stoc0*ol)ers! ,it*out t*e intervention of t*e state. Ca'ayan Fis*in' vs. %an)i0o G.R. 5o. L-< =B; 6ece/ber 2 ! 19 7 F#C$%& Manuel $abora is t*e re'istere) o,ner of four parcels of lan). $*e four parcels ,ere /ort'a'e) for loans an) in)ebte)ness. -o,ever! $abora e8ecute) a public )ocu/ent :28*ibit #; by virtue of ,*ic* t*e four parcels of lan) o,ne) by *i/ ,as sol) to t*e plaintiff co/pany! ,*ic* at t*at ti/e is still un)er t*e process of incorporation. # year later! t*e ?46 of sai) co/pany a)opte) a resolution aut*ori(in' its presi)ent to sell t*e four parcels of lan)s in 9uestion to $eo)oro %an)i0o. 28*ibits ?! C an) 6 ,ere t*ereafter /a)e an) e8ecute). 28*ibit ? is a )ee) of sale ,*ere t*e plaintiff sol)! ce)e) an) transferre) to t*e )efen)ant t*e four parcels of lan). 28*ibit C is a pro/issory note )ra,n by t*e )efen)ant in favor of t*e plaintiff. 28*ibit 6 is a )ee) of /ort'a'e e8ecute) ,*ere t*e four parcels of lan) ,ere 'iven a security for t*e pay/ent of t*e pro/issory note. 6efen)ant faile) to pay t*us plaintiff file) a collection of su/ of /oney in t*e Court of First Instance in Manila. $*e latter ren)ere) 7u)'/ent absolvin' t*e )efen)ant. +laintiff *as appeale) to t*is court an) /a0es an assi'n/ent of various errors. I%%12& 345 t*e sale /a)e by t*e plaintiff corporation is vali). -2L6& 54. $*e transfer ,as /a)e al/ost five /ont*s before t*e incorporation of t*e co/pany. #lt*ou'*! a )uly or'ani(e) corporation *as t*e po,er to purc*ase an) *ol) suc* real property as t*e purposes for ,*ic* suc* corporation ,as for/e) /ay per/it an) for t*is purpose /ay enter into suc* contracts as /ay be necessary. -o,ever before a corporation /ay be
sai) to be la,fully or'ani(e)! /any t*in's *ave to be )one. #/on' ot*er t*in's! t*e la, re9uires t*e filin' of articles of incorporation. #lt*ou'* t*ere is a presu/ption t*at all t*e re9uire/ents of la, *ave been co/plie) ,it*! in t*e case before us it can not be )enie) t*at t*e plaintiff ,as not yet incorporate) ,*en it entere) into a contract of sale. It ,as not even a )e facto corporation at t*e ti/e. 5ot bein' in le'al e8istence t*en! it )i) not possess 7uri)ical capacity to enter into t*e contract. Corporations are creatures of t*e la,! an) can only co/e into e8istence in t*e /anner prescribe) by la,. It s*oul) *ave a full an) co/plete or'ani(ation an) e8istence as an entity before it can enter into any 0in) of a contract or transact any business. -arill vs. 6avis 1"A F. 1A7; 19B9 F#C$%& $*e constitutive )ocu/ents ,ere file) ,it* t*e cler0 of t*e Court of #ppeals but not ,it* t*e cler0 of court in t*e 7u)icial )istrict ,*ere t*e business ,as locate). #r0ansas la, re9uires filin' in bot* offices. I%%12& 3as t*ere Ocolorable. co/pliance enou'* to 'ive t*e suppose) corporation at least t*e status of a O)e facto. corporationD -2L6& 54. 5eit*er t*e *ope! t*e belief! nor t*e state/ent by parties t*at t*ey are incorporate)! nor t*e si'nin' of t*e articles of incorporation ,*ic* are not file)! ,*ere filin' is re9uisite to create t*e corporation! nor t*e use of t*e preten)e) franc*ise of t*e none8istent corporation! ,ill constitute suc* a corporation )e facto as ,ill e8e/pt t*ose ,*o actively an) 0no,in'ly use s na/e to incur le'al obli'ations fro/ t*eir in)ivi)ual liability to pay t*e/. $*ere coul) be no incorporation or color of it un)er t*e la, until t*e articles ,ere file) :re9uisites for vali) incorporation;. #sia ?an0in' Corp. vs. %tan)ar) +ro)ucts Co. G.R. 5o. 221B"; %epte/ber 11! 192<
F#C$%& $*e plaintiff corporation sue) )efen)ant corporation for failure to pay t*e pro/issory note. $rial court ren)ere) 7u)'/ent in favor of plaintiff. 6efen)ant appeale) an) its )efense ,as t*at t*e plaintiff faile) to prove affir/atively t*e corporate e8istence of t*e parties an) t*e appellant insists t*at un)er t*ese circu/stances t*e court erre) in fin)in' t*at t*e parties ,ere corporations ,it* 7uri)ical personality an) assi'ns sa/e as reversible error. I%%12& 345 plaintiff ,as unable to prove its corporate e8istence. -2L6& 54. $*e 'eneral rule is t*at in t*e absence of frau) a person ,*o *as contracte) or ot*er,ise )ealt ,it* an association in suc* a ,ay as to reco'ni(e an) in effect a)/it its le'al e8istence as a corporate bo)y is t*ereby estoppe) to )eny its corporate e8istence in any action lea)in' out of or involvin' suc* contract or )ealin'! unless its e8istence is attac0e) for cause ,*ic* *ave arisen since /a0in' t*e contract or ot*er )ealin' relie) on as an estoppel an) t*is applies to forei'n as ,ell as to )o/estic corporations. -ence! t*e )efen)ant is estoppe) fro/ )enyin' its o,n corporate e8istence. It is also estoppe) fro/ )enyin' t*e ot*er.s corporate e8istence. Cranson vs. International ?usiness Mac*ines Corp. 2 < M6. <77! 2BB #. 26 ; 19"< F#C$%& Cranson ,as as0e) to be an investor in a ne, business corporation an) after *e acce)e)! t*ere are ot*er people ,*o *a) for/e) t*e corporation ,it* *i/. # stoc0 certificate evi)encin' *is o,ners*ip of s*ares in t*e corporation ,as 'iven to *i/. $*e transactions ,ere )one as if it ,ere a corporation an) eventually Cranson ,as electe) presi)ent an) all t*e )ealin's ,it* I?M ,ere con)ucte) by *i/ for t*e corporation. #t no ti/e )i) *e assu/e personal obli'ation or ple)'e *is in)ivi)ual cre)it to I?M. ?ut t*e la,yers of t*e corporation /a)e an oversi'*t of not filin' t*e certificate of incorporation an) ,*en clai/ for pay/ent ,ere c*ar'e) a'ainst t*e Real 2state %ervice ?ureau! I?M c*ar'e) Cranson in *is personal capacity.
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I%%12& 345 a )efectively incorporate) association ,oul) ,arrant a c*ar'e a'ainst officers in t*eir personal capacity. -2L6& 54. $ra)itionally! t,o )octrines *ave been use) by t*e courts to clot*e an officer of a )efectively incorporate) association ,it* t*e corporate attribute of li/ite) liability. $*e first! often referre) to as t*e )octrine of )e facto corporations! *as been applie) in t*ose cases ,*ere t*ere are ele/ents s*o,in'& :1; t*e e8istence of la, aut*ori(in' incorporation& :2; an effort in 'oo) fait* to incorporate un)er t*e e8istin' la,; an) : ; actual user or e8ercise of corporate po,ers. $*e secon)! )octrine of estoppel& e/ploye) ,*en t*e person see0in' to *ol) t*e officer personally liable *as contracte) or ot*er,ise )ealt ,it* t*e association in suc* a /anner as to reco'ni(e an) in effect a)/it its e8istence as a corporate bo)y. 3*en t*ere is a concurrence of t*e t*ree ele/ents necessary for t*e application of t*e )e facto corporation )octrine! t*ere e8ists an entity ,*ic* is a corporation )e 7ure a'ainst all persons ?1$ $-2 %$#$2. 4n t*e ot*er *an)! t*e estoppel t*eory is applie) only to t*e facts of eac* particular case an) /ay be invo0e) even ,*en t*ere is no corporation )e facto. I?M! *avin' )ealt ,it* t*e ?ureau as if it ,ere a corporation an) relie) on its cre)it rat*er t*an t*at of Cranson! is estoppe) to assert t*at t*e ?ureau ,as not incorporate) at t*e ti/e t*e type,riters ,ere franc*ise). 3*ere one *as reco'ni(e) t*e corporate e8istence of an association! *e is estoppe) to assert t*e contrary ,it* respect to clai/ arisin' out of suc* )ealin's.
%alvatierra vs. Garlitos et. al. G.R. 5o. L-11<<2; May 2 ! 19=A F#C$%& %alvatierra lease) *is lan) to t*e corporation. -e file) a suit for accountin'! rescission an) )a/a'es a'ainst t*e corporation an) its presi)ent for *is s*are of t*e pro)uce. >u)'/ent a'ainst bot* ,as obtaine). $*e presi)ent of t*e corporation co/plains for bein' *el) personally liable. I%%12& 345 t*e presi)ent can be personally *el) liable to plaintiff.
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-2L6& J2%. -e is liable. $*e 'eneral rule is t*at a person ,*o *as contracte) or )ealt ,it* an association in suc* a ,ay as to reco'ni(e its e8istence as a corporate bo)y is 2%$4++26 fro/ )enyin' t*e sa/e in an action arisin' out of suc* transaction or )ealin'! unless t*ere is frau) in t*e transaction. # person ,*o acts as an a'ent ,it*out aut*ority or ,it*out a principal is *i/self re'ar)e) as t*e principal! possesse) of all t*e ri'*ts an) sub7ect to all t*e liabilities of a principal! a person actin' or purportin' to act on be*alf of a corporation ,*ic* *as no vali) e8istence assu/es suc* privile'es an) obli'ations an) beco/es personally liable for contracts entere) into or for ot*er acts perfor/e) as suc* a'ent. #lbert vs. 1niversity +ublis*in' Co. G.R. 5o. L-1911A; >anuary B! 19"= F#C$%& Mariano #lbert entere) into a contract ,it* 1niversity +ublis*in' Co.! Inc. t*rou'* >ose M. #rue'o! its +resi)ent! ,*ereby 1niversity ,oul) pay plaintiff for t*e e8clusive ri'*t to publis* *is revise) Co//entaries on t*e Revise) +enal Co)e. $*e contract stipulate) t*at failure to pay one install/ent ,oul) ren)er t*e rest of t*e pay/ents )ue. 3*en 1niversity faile) to pay t*e secon) install/ent! #lbert sue) for collection an) ,on. -o,ever! upon e8ecution! it ,as foun) t*at 1niversity ,as not re'istere) ,it* t*e %2C. #lbert petitione) for a ,rit of e8ecution a'ainst >ose M. #rue'o as t*e real )efen)ant. 1niversity oppose)! on t*e 'roun) t*at #rue'o ,as not a party to t*e case. I%%12& 345 #rue'o can be *el) personally liable to t*e plaintiff. -2L6& J2%. $*e %upre/e Court foun) t*at #rue'o represente) a non-e8istent entity an) in)uce) not only #lbert but t*e court to believe in suc* representation. #rue'o! actin' as representative of suc* non-e8istent principal! ,as t*e real party to t*e contract sue) upon! an) t*us assu/e) suc* privile'es an) obli'ations an) beca/e personally liable for t*e contract entere) into or for ot*er acts perfor/e) as suc* a'ent. 4ne ,*o *as in)uce) anot*er to act upon *is ,ilful /isrepresentation t*at a corporation ,as )uly or'ani(e) an) e8istin' un)er t*e la,! cannot t*ereafter set up a'ainst *is victi/ t*e principle of corporation by estoppel
$*e %upre/e Court li0e,ise *el) t*at t*e )octrine of corporation by estoppel cannot be set up a'ainst #lbert since it ,as #rue'o ,*o *a) in)uce) *i/ to act upon *is :#rue'oNs; ,illful representation t*at 1niversity *a) been )uly or'ani(e) an) ,as e8istin' un)er t*e la,. C*ian' Gai %*e0 %c*ool vs. C# G.R. 5o. L-=AB2A; #pril 1A! 19A9 F#C$%& Fausta F. 4* reporte) for ,or0 at t*e C*ian' Gai %*e0 %c*ool in %orso'on on t*e first ,ee0 of >uly! 19"A. %*e ,as tol) s*e *a) no assi'n/ent for t*e ne8t se/ester. 4* ,as s*oc0e) for s*e *a) been teac*in' in t*e sc*ool since19 2 for a continuous perio) of al/ost years. #n) no,! for no apparent or 'iven reason! t*is abrupt )is/issal. %*e )e/an)e) separation pay! social security benefits! salary )ifferentials! /aternity benefits an) /oral an) e8e/plary )a/a'es. $*e ori'inal )efen)ant ,as t*e C*ian' Gai %*e0 %c*ool but ,*en it file) a /otion to )is/iss on t*e 'roun) t*at it coul) not be sue)! t*e co/plaint ,as a/en)e). Certain officials of t*e sc*ool ,ere also i/plea)e) to /a0e t*e/ soli)arily liable ,it* t*e sc*ool. Court of First Instance of %orso'on )is/isse) t*e co/plaint. 4n appeal! its )ecision ,as set asi)e by t*e respon)ent court! ,*ic* *el) t*e sc*ool suable an) liable ,*ile absolvin' t*e ot*er )efen)ants. I%%12& 345 a sc*ool t*at *as not been incorporate) /ay be sue) by reason alone of its lon' continue) e8istence an) reco'nition by t*e 'overn/ent. -2L6& J2%. -avin' been reco'ni(e) by t*e 'overn/ent! it ,as un)er obli'ation to incorporate un)er t*e Corporation La, ,it*in 9B )ays fro/ suc* reco'nition. It appears t*at it *a) not )one so at t*e ti/e t*e co/plaint ,as file) not,it*stan)in' t*at it *a) been in e8istence even earlier t*an 19 2. $*e petitioner cannot no, invo0e its o,n non-co/pliance ,it* t*e la, to i//uni(e it fro/ t*e private respon)entNs co/plaint. $*ere s*oul) also be no 9uestion t*at *avin' contracte) ,it* t*e private respon)ent every year for t*irty t,o years an) t*us represente) itself as possesse) of 7uri)ical personality to )o so! t*e petitioner is no, estoppe) fro/ )enyin' suc* personality to )efeat *er clai/ a'ainst it. #ccor)in' to #rticle 1< 1 of t*e Civil Co)e! Kt*rou'* estoppel an a)/ission or
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representation is ren)ere) conclusive upon t*e person /a0in' it an) cannot be )enie) or )isprove) as a'ainst t*e person relyin' on it.K Li/ $on' Li/ vs. +*il. Fis*in' Gear In)ustries G.R. 5o. 1 "<<A; 5ove/ber ! 1999 F#C$%& C*ua an) Jao entere) into a contract for t*e purc*ase of fis*in' nets on be*alf of 4cean Puest Fis*in' Corp. fro/ +*il Fis*in' Gear In)ustries. C*ua an) Jao clai/e) t*at t*ey ,ere en'a'e) in a business ,it* Li/ $on' Li/ but ,*o ,as not a si'natory to t*e a'ree/ent. $*ey faile) to pay t*us +FGI file) collection suit a'ainst t*e t*ree& C*ua! Jao an) Li/ as 'eneral partners because 4cean Puest is a non-e8istin' corporation as s*o,n by a certificate fro/ %2C. Li/ file) for t*e lift of t*e 3rit of #ttac*/ent but R$C /aintaine) t*e ,rit an) or)ere) t*e sale of t*e nets. R$C /aintains t*at t*ere is partners*ip because of t*e Co/pro/ise #'ree/ent entere) by t*e/! alt*ou'* silent as to t*e nature of t*eir obli'ations but presu/es t*at t*ere is e9ual )istribution of t*e profit an) loss. C# affir/e). I%%12& 345 Li/ /ay be re'ar)e) as a partner ,*en t*e sole basis is t*e Co/pro/ise #'ree/ent an) not consi)erin' t*e fact t*at *e *as not si'ne) any transaction nor /et any of t*e representatives of t*e +*il. Fis*in' Gears. -2L6& J2%. $*ere is partners*ip. It is clear in t*e factual fin)in's t*at t*ey *ave )eci)e) to en'a'e in a fis*in' business ,*ere t*ey bou'*t boats fro/ t*e loan t*ey 'ot fro/ >. Li/! ,*o is Li/.s brot*er. $*e partners*ip e8ten)e) not only to t*e boats but also to t*e nets an) t*e floats. In t*eir Co/pro/ise #'ree/ent! t*ey subse9uently reveale) t*eir intention to pay t*e loan ,it* t*e procee)s of t*e sale of t*e boats! an) to )ivi)e e9ually a/on' t*e/ t*e e8cess of loss. $*ese boats! t*e purc*ase an) t*e repair of ,*ic* ,ere finance) ,it* borro,e) /oney! fell un)er t*e ter/ Eco//on fun)F un)er #rticle 17"7. $*e contribution to suc* fun) nee) not be case of fi8e) assets; it coul) be an intan'ible li0e cre)it or in)ustry. $*at t*e parties a'ree) t*at any loss or profits fro/ t*e sale an) operation of t*e boats ,oul) be )ivi)e) early a/on' t*e/ also s*o,s t*at t*ey *a) in)ee) for/e) a partners*ip.
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$ec*nically! it is true t*at petitioner )i) not )irectly act on be*alf of t*e corporation. -o,ever! *avin' reape) t*e benefits of t*e contract entere) into by person ,it* ,*o/ *e previously *a) an e8istin' relations*ip! *e is )ee/e) to be part of sai) association an) is covere) by t*e scope of t*e )octrine of corporation by estoppel.
International 28press $ravel vs. C# G.R. 5o. 119BB2; 4ctober 19! 2BBB F#C$%& 28press $ravel ,rote a letter to t*e +*il. Football Fe)eration t*ru t*e presi)ent -enry Ga*n offerin' its services to t*e latter an) Ga*n accepte) t*is. $*e fe)eration consistin' of at*letes an) officials! ,ent to t*e %out* 2ast #sian Ga/es in Malaysia an) ot*er trips to ot*er countries. Fe)eration incurre) e8penses an) /a)e t,o partial pay/ents. Ga*n issue) a personal c*ec0 as a partial pay/ent t*en faile) to pay t*ereafter. 28press $ravel sue) -enry Ga*n in *is personal capacity an) as presi)ent an) i/plea)e) t*e fe)eration as an alternative )efen)ant. -enry Ga*n alle'e t*at t*ere is no cause of action a'ainst *i/ in *is personal capacity or official capacity an) t*at *e )i) not 'uarantee t*e pay/ent an) /erely acte) as an a'ent. R$C rule) t*at -enry Ga*n is personally liable an) t*at t*ere is no proof t*at t*e fe)eration *as a corporate e8istence. C# reverse) on t*e 'roun) t*at Fe)eration *as 7uri)ical e8istence. I%%12& 345 Fe)eration *as a 7uri)ical e8istence. -2L6& 54. $*e basis of C# t*at R# 1 = Revise) C*arter of t*e +*il. #/ateur #t*letic Fe)eration an) +6 "B< t*at reco'ni(es t*e 7uri)ical e8istence of 5ational %ports #ssociation is not correct. Mere passa'e of t*ese la,s 642% 54$ #1$4M#$IC#LLJ vest t*e associations a C4R+4R#$2 %$#$1%. $*e %tate /ust 'ive its consent& in t*e for/ of a special la, of a 'eneral enablin' act. $*ese la,s /erely reco'ni(e) t*e e8istence of national sports associations.
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-enry Ga*n s*all be *el) liable for t*e unpai) obli'ations of t*e unincorporate) Fe)eration. It is a settle) rule t*at any person actin' or purportin' to act on be*alf of a corporation ,*ic* *as no vali) e8istence assu/es suc* privile'es an) obli'ations an) beco/es personally liable for contracts entere) into or for ot*er acts perfor/e) as suc* a'ent. +etitioner cannot be *el) estoppe) because t*e )octrine of corporation by estoppel is /ista0enly applie) by t*e respon)ent court to t*e petitioner. $*e application of t*e )octrine applies to a t*ir) party only ,*en *e tries to escape liability on a contract fro/ ,*ic* *e *as benefite) on t*e irrelevant 'roun) of )efective corporation. +etitioner is not tryin' to escape liability but is t*e one clai/in' fro/ t*e contract. IX. INTERNAL ORGANIZATION OF CORPORATIONS Loyola Gran) @illas -o/eo,ners vs. C# G.R. 5o. 1171AA; #u'ust 7! 1997 F#C$%& -IGC :Guaranty Corp;! a 9uasi-7u)icial bo)y! reco'ni(e) LG@-#I as t*e sole *o/eo,ners. association in Loyola Gran) @illas in Mari0ina an) PC. -IGC revo0e) t*e certificate of 5ort* #ssociation an) %out* #ssociation. 5ort* is re'istere) ,it* -IGC an) *as sub/itte) its by-la,s. 3*en %oliven in9uire) about t*e status of t*e LG@-#I! *e ,as tol) by t*e le'al counsel of -IGC t*at LG@ *as been #1$4M#$IC#LLJ )issolve) because it )i) not sub/it its by-la,s an) t*at it *as been a non-user of t*e corporate c*arter because -IGC )i) not receive any report on t*e association activities. #pparently! t*is infor/ation resulte) in t*e re'istration of %out* #ssociation ,it* -IGC an) subse9uently file) its by-la,s. $*ese )evelop/ents pro/pte) t*e officers of t*e LG@-#I to lo)'e a co/plaint ,it* t*e -IGC. $*ey 9uestione) t*e revocation of LG@-#I.s certificate of re'istration ,it*out )ue notice an) *earin' an) conco/itantly praye) for t*e cancellation of t*e certificates of re'istration of t*e 5ort* an) %out* #ssociations by reason of t*e earlier issuance of a certificate of re'istration in favor of LG@-#I. I%%12& 345 t*e failure of a corporation to file its by-la,s ,it*in one :1; /ont* fro/ t*e )ate of its incorporation! as /an)ate) by #rt. <" of t*e Corporation Co)e! results in t*e corporationNs auto/atic )issolution.
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-2L6& 5o. Failure to file by-la,s )oes not result in t*e auto/atic )issolution of t*e corporation. It only constitutes a 'roun) for suc* )issolution. Incorporators /ust be 'iven t*e c*ance to e8plain t*eir ne'lect or o/ission an) re/e)y t*e sa/e. +roper notice an) *earin' are car)inal co/ponents of )ue process in any )e/ocratic institution! a'ency or society. $*ere /ust be a *earin' to )eter/ine t*e e8istence of t*e 'roun) an) assu/in' t*at t*ere is suc* fin)in'! t*e penalty is not revocation but /ay be only suspension of t*e c*arter. #lt*ou'*! t*e co)e is silent on t*e result of t*e failure to a)opt an) file t*e by-la,s ,it*in t*e re9uire) perio). +6 9B2-# provi)es! it is clear t*at t*e failure to file by-la,s ,it*in t*e re9uire) perio) is only a 'roun) for suspension or revocation of t*e certificate of re'istration of corporations. Fleisc*er vs. ?otica 5olasco Inc. G.R. 5o. L-2 2<1; Marc* 1<! 192= F#C$%& Manuel Gon(ales /a)e a ,ritten state/ent to t*e respon)ent! re9uestin' t*at = s*ares of stoc0 sol) by *i/ to -enry Fleisc*er be note) transferre) to Fleisc*erNs na/e. -e also ac0no,le)'e) in sai) ,ritten state/ent t*e preferential ri'*t of t*e corporation to buy sai) five s*ares but later ,it*)re, an) cancelle) *is ,ritten state/ent. -o,ever! t*e respon)ent replie) t*at *is letter ,as of no effect! an) t*at t*e s*ares in 9uestion *a) been re'istere) in t*e na/e of t*e ?otica 5olasco! Inc. Fleisc*er file) an a/en)e) co/plaint a'ainst t*e respon)ent! alle'in' t*at *e beca/e t*e o,ner of = s*ares of fully pai) stoc0 purc*ase by *i/ fro/ t*e ori'inal o,ner! Manuel Gon(ale(. 6espite repeate) )e/an)s! respon)ent refuse) to re'ister sai) s*ares in *is na/e in t*e boo0s of t*e corporation. Respon)ent.s )efense is t*at it *as preferential ri'*t to buy t*e s*ares at t*e par value base) on t*eir #rt. 12 of t*e by-la,s. $rial court favore) petitioner an) or)ere) t*e s*ares be re'istere). -ence! t*is appeal. I%%12&
345 respon)ent.s #rt. 12 of t*e by-la,s is in conflict ,it* t*e Corporation La, :no, Corporation Co)e;. -2L6& J2%. #lt*ou'* t*e corporation is e/po,ere) to /a0e by-la,s! t*e sa/e /ust not be inconsistent ,it* any e8istin' la,! for t*e transferrin' of its stoc0s. ?y-la, s*oul) be in *ar/ony ,it* t*e la, on t*e sub7ect of transfer of stoc0. ?y-la,s are inten)e) for t*e protection an) re'ulation of t*e corporation an) not for restriction. #s a 'eneral rule! t*e by-la,s of a corporation are vali) if t*ey are reasonable an) calculate) to carry into effect t*e ob7ective of t*e corporation an) are not contra)ictory to t*e 'eneral policy of t*e la,s of t*e lan). 1n)er a statute aut*ori(in' by-la,s for t*e transfer of stoc0! a corporation can )o no /ore t*an prescribe a 'eneral /o)e of transfer on t*e corporation boo0s an) cannot 7ustify an restriction upon t*e ri'*t of sale. NOTE: $*e Corporation Co)e allo,s reasonable transfer restriction in close corporations. Govern/ent of +*ilippine Islan)s vs. 2l -o'ar Filipino G.R. 5o. L-2""<9; >uly 1 ! 1927 F#C$%& $*e plaintiff institute) a 9uo ,arranto procee)in' a'ainst respon)ent for t*e purpose of )eprivin' it of its corporate franc*ise! e8clu)in' fro/ it all corporate ri'*ts an) privile'es an) effectin' a final )issolution of t*e corporation. $*e by-la,s of t*e corporation states a provision t*at& t*e ?46! by vote of an absolute /a7ority of its /e/bers! is e/po,ere) to C#5C2L %-#R2% #56 R2$1R5 $4 $-2 4352R t*ereof t*e balance resultin' fro/ t*e li9ui)ation t*ereof! ,*enever! by reason of t*eir con)uct of any ot*er /otive! t*e continuation as /e/bers of t*e o,ners of suc* s*ares is not )esirable. $*e plaintiff 9uestione) t*e vali)ity because it conflicts ,it* t*e Corporation La, ,*ic* )eclares t*at t*e ?4#R6 %-#LL 54$ -#@2 $-2 +432R $4 F4RC2 $-2 %1RR2562R #56 3I$-R#3#L 4F 15M#$1R26 %$4CG 2IC2+$ I5 C#%2 4F LIP1I6#$I45 4F $-2C4R+4R#$I45 4R 4F F4RF2I$1R2 4F $-2 %$4CG F4R 62LI5P125CJ. %econ) cause of action of t*e plaintiff ,as base) on t*e ?46.s failure to *ol) annual /eetin's an) fill vacancies. $*ere is also a provision in t*e by-la,s t*at t*e )irectors s*all elect fro/ a/on' t*e s*are*ol)er /e/bers to fill t*e vacancies t*at /ay occur in t*e ?46 until t*e election at t*e 'eneral /eetin'.
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$*ir) cause of action is t*e fact t*e )irectors of 2l -o'ar *ave been receivin' lar'e co/pensation because t*e by-la,s provi)e a =H of t*e net profit s*o,n by t*e annual balance s*eet to be )istribute) to t*e )irectors in proportion to t*eir atten)ance at /eetin's of t*e boar). Fourt* cause of action! proce)ures to a)opt ,*en one is electe) as a ?46 /ust o,n at least +=BBB pay-up of s*ares as security. I%%12%& First! is a provision in t*e by-la,s allo,in' t*e ?46! by vote of absolute /a7ority! to cancel s*ares vali)D %econ)! is /ere failure to elect officers ter/inates t*e ter/ of e8istin' officersD $*ir)! is a provision in t*e by-la,s fi8in' t*e salary of )irectors vali)D Fourt*! is a provision re9uirin' persons electe) to t*e ?oar) of 6irectors to o,n at least + =!BBB s*ares vali)D -2L6& First. 5o. It is a patent nullity! bein' in )irect conflict ,it* %ec. 1A7 of t*e Corporation La, ,*ic* pro*ibits force) surren)er of un/ature) stoc0s e8cept in case of )issolution. %econ). 5o. 1nless t*e la, or t*e c*arter of t*e corporation e8pressly provi)es t*at an office s*all beco/e at t*e e8piration of t*e ter/ of office for ,*ic* t*e officer ,as electe)! t*e 'eneral rule is to allo, t*e officer to *ol) over until *is successor is )uly 9ualifie). M2R2 F#IL1R2 4F # C4R+4R#$I45 $4 2L2C$ 4FFIC2R% 642% 54$ $2RMI5#$2 $-2 $2RM 4F 2II%$I5G4FFIC2R% #56 6I%%4L@2 $-2 C4R+4R#$I45. $*ir). Jes. %ince t*e Corporation La, )oes not prescribe t*e rate of co/pensation! t*e po,er to fi8 co/pensation lies ,it* t*e corporation. $*e re/e)y is in t*e *an)s of t*e stoc0*ol)ers. Fourt*. Jes. $*e Corporation La, 'ives t*e corporation t*e po,er to provi)e 9ualifications of its )irectors an) t*e re9uire/ent of security fro/ t*e/ for t*e proper )isc*ar'e of t*e )uties of t*eir office. Go0on',ei >r. vs. %2C et. al. G.R. 5o. L-<=911; #pril 11! 1979 F#C$%& +etitioner! stoc0*ol)er of %an Mi'uel Corp. file) a petition ,it* t*e %2C for t*e )eclaration of nullity of t*e by-la,s etc. a'ainst t*e /a7ority /e/bers of t*e ?46 an) %an Mi'uel. It is state) in t*e by-la,s t*at t*e a/en)/ent or /o)ification
of t*e by-la,s /ay only be )ele'ate) to t*e ?46.s upon an affir/ative vote of stoc0*ol)ers representin' not less t*an 2Q of t*e subscribe) an) pai) up capital stoc0 of t*e corporation! ,*ic* 2Q coul) *ave been co/pute) on t*e basis of t*e capitali(ation at t*e ti/e of t*e a/en)/ent. +etitioner conten)s t*at t*e a/en)/ent ,as base) on t*e 19"1 aut*ori(ation! t*e ?oar) acte) ,it*out aut*ority an) in usurpation of t*e po,er of t*e stoc0*ol)ers in a/en)in' t*e by-la,s in 197". -e also conten)s t*at t*e 19"1 aut*ori(ation ,as alrea)y use) in 19"2 an) 19" . -e also conten)s t*at t*e a/en)/ent )eprive) *i/ of *is ri'*t to vote an) be vote) upon as a stoc0*ol)er :because it )is9ualifie) co/petitors fro/ no/ination an) election in t*e ?46 of %MC;! t*us t*e a/en)e) by-la,s ,ere null an) voi). 3*ile t*is ,as pen)in'! t*e corporation calle) for a stoc0*ol)er.s /eetin' for t*e ratification of t*e a/en)/ent to t*e by-la,s. $*is pro/pte) petitioner to see0 for su//ary 7u)'/ent. $*is ,as )enie) by t*e %2C. In anot*er case file) by petitioner! *e alle'e) t*at t*e corporation *a) been usin' corporate fun)s in ot*er corporations an) businesses outsi)e t*e pri/ary purpose clause of t*e corporation in violation of t*e Corporation Co)e. I%%12& #re t*e a/en)/ents in t*e by-la,s are vali)D -2L6& J2%. $*e vali)ity an) reasonableness of a by-la, is purely a 9uestion of la,. 3*et*er t*e by-la, is in conflict ,it* t*e la, of t*e lan)! or ,it* t*e c*arter of t*e corporation or is in le'al sense unreasonable an) t*erefore unla,ful is a 9uestion of la,. -o,ever! t*is is li/ite) ,*ere t*e reasonableness of a by-la, is a /ere /atter of 7u)'/ent! an) one upon ,*ic* reasonable /in)s /ust necessarily )iffer! a court ,oul) not be ,arrante) in substitutin' its 7u)'/ent instea) of t*e 7u)'/ent of t*ose ,*o are aut*ori(e) to /a0e by-la,s an) ,*o *ave e8ercise) aut*ority. $*e Court *el) t*at a corporation *as aut*ority prescribe) by la, to prescribe t*e 9ualifications of )irectors. It *as t*e in*erent po,er to a)opt by-la,s for its internal 'overn/ent! an) to re'ulate t*e con)uct an) prescribe t*e ri'*ts an) )uties of its /e/bers to,ar)s itself an) a/on' t*e/selves in reference to t*e /ana'e/ent of its affairs. # corporation! un)er t*e Corporation la,! /ay prescribe in its by-la,s t*e 9ualifications! )uties an) co/pensation of )irectors! officers! an) e/ployees. #ny person ,*o buys stoc0 in a corporation )oes so ,it* t*e 0no,le)'e t*at its affairs are )o/inate) by a /a7ority of t*e stoc0*ol)ers an) *e i/plie)ly contracts t*at t*e ,ill of t*e /a7ority s*all 'overn in all /atters ,it*in t*e li/its of t*e acts of incorporation an) la,fully enacte) by-la,s an) not forbi))en by la,. #ny corporation /ay a/en) its by-la,s by t*e o,ners of t*e /a7ority of t*e subscribe) stoc0. It cannot t*us be sai) t*at petitioners *as t*e veste) ri'*t! as a stoc0 *ol)er! to be electe) )irector! in t*e face of t*e fact t*at t*e la, at t*e ti/e
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suc* stoc0*ol)erNs ri'*t ,as ac9uire) containe) t*e prescription t*at t*e corporate c*arter an) t*e by-la,s s*all be sub7ect to a/en)/ent! alteration an) /o)ification. # 6irector stan)s in a fi)uciary relation to t*e corporation an) its s*are*ol)ers! ,*ic* is c*aracteri(e) as a trust relations*ip. #n a/en)/ent to t*e corporate by-la,s ,*ic* ren)ers a stoc0*ol)er ineli'ible to be )irector! if *e be also )irector in a corporation ,*ose business is in co/petition ,it* t*at of t*e ot*er corporation! *as been sustaine) as vali). $*is is base) upon t*e principle t*at ,*ere t*e )irector is e/ploye) in t*e service of a rival co/pany! *e cannot serve bot*! but /ust betray one or t*e ot*er. $*e a/en)/ent in t*is case serves to a)vance t*e benefit of t*e corporation an) is 'oo). Corporate officers are also not per/itte) to use t*eir position of trust an) confi)ence to furt*er t*eir private nee)s! an) t*e act )one in furt*erance of private nee)s is )ee/e) to be for t*e benefit of t*e corporation. $*is is calle) t*e doctrine of cor or!te o ort"nit#. Grace C*ristian -i'* %c*ool vs. C# G.R. 5o. 1BA9B=; 4ctober 2 ! 1997 F#C$%& Grace C*ristian -i'* %c*ool is an e)ucational institution at t*e Grace @illa'e in Pue(on City. Grace @illa'e #ssociation! Inc.! on t*e ot*er *an)! is an or'ani(ation of lot an)Qor buil)in' o,ners! lessees an) resi)ents at Grace @illa'e. In 19"A! t*e by-la,s of t*e association provi)e t*at t*e annual /eetin' of t*e /e/bers s*all be *el) per calen)ar year an) t*at t*e election of t*e ?46 s*all be by plurality of votes. In 197=! a co//ittee of t*e ?46 prepare) a )raft of an a/en)/ent to t*e by-la,s a substantial a))ition ,as /a)e ,*erein GR#C2 C-RI%$I#5 -IG- %C-44L representative is a per/anent 6irector of t*e #%%4CI#$I45. -o,ever! sai) )raft ,as never presente) to t*e 'eneral /e/bers*ip for approval. 5evert*eless! Grace C*ristian -i'* %c*ool ,as 'iven a per/anent seat in t*e boar) of )irectors of t*e association. 4n 199B! t*e associationNs co//ittee )eci)e) to re-e8a/ine t*e 197= by-la,s for t*e reason t*at t*ere ,as )eprivation on t*e part of t*e voters to vote for 1= )irectors :because of a reserve) per/anent seat for GC-%;. -ence! notices ,ere sent to t*e /e/bers of t*e association t*at t*e provision on election of )irectors of t*e 19"A by-la,s of t*e association ,oul) be observe). $*e sc*ool re9ueste) t*e c*air/an of t*e election co//ittee to c*an'e t*e notice of election clai/in' t*at it ,as in violation of t*e 197= by-la,s an) unla,fully )eprive) Grace C*ristian -i'* %c*ool of its veste) ri'*t to a per/anent seat in t*e boar). $*e G@# )enie) t*eir re9uest. $*e sc*ool brou'*t suit for /an)a/us in t*e -IGC. $*e association! on t*e ot*er *an)! sou'*t t*e opinion of t*e %2C on t*e vali)ity of t*is provision an) ren)ere) t*at t*e practice of allo,in' unelecte) /e/bers in t*e boar) ,as contrary to t*e e8istin' by-la,s of t*e association an) to R92 of t*e Corporation Co)e.
$*e case ,as set for *earin' an) -IGC ren)ere) a )ecision )is/issin' t*e sc*oolNs action. $*e appeals boar) of t*e -IGC affir/e) t*e )ecision of t*e *earin' officer. +etitioner appeale) to t*e C# but a'ain lost. I%%12& 345 t*e a/en)/ents /a)e in t*e by-la,s in 197= ,as vali). -2L6& 54. # by-la, provision 'rantin' to a stoc0*ol)er a per/anent representation in t*e ?oar) of 6irectors is contrary to t*e Corporation Co)e re9uirin' all /e/bers of t*e ?oar) to be electe) by t*e stoc0*ol)ers or /e/bers. 2ven ,*en t*e /e/bers of t*e association /ay *ave for/ally a)opte) t*e provision! t*eir action ,oul) be of no avail because no provision of t*e by-la,s can be a)opte) if it is contrary to la,. -ence! t*e sc*ool cannot clai/ a veste) ri'*t to sit in t*e boar) on t*e basis of Kpractice.K +ractice! no /atter *o, lon' continue)! cannot 'ive rise to any veste) ri'*t if it is contrary to la,. 2ven less tenable is t*e sc*oolNs clai/ t*at its ri'*t is Kcoter/inus ,it* t*e e8istence of t*e association.K $*o/son vs. C# G.R. 5o. 11"" 1; 4ctober 2A! 199A F#C$%& +etitioner ,as t*e 2@+ an) later on t*e Mana'e/ent Consultant of t*e private respon)ent! #/erican C*a/ber of Co//erce in t*e +*ilippines :#/C*a/;. 3*ile petitioner ,as still ,or0in' ,it* private respon)ent! *is superior! ?urri)'e! retire) as #/C*a/Ns +resi)ent. ?urri)'e ,ante) to transfer *is proprietary s*are in t*e Manila +olo Club :M+C; to petitioner. -o,ever! t*rou'* t*e intercession of ?urri)'e! private respon)ent pai) for t*e s*are but *a) it liste) in petitionerNs na/e. 1pon *is a)/ission as a ne, /e/ber of t*e M+C! petitioner pai) t*e transfer fee fro/ *is o,n fun)s; but private respon)ent subse9uently rei/burse) t*is a/ount. $*ereafter! M+C issue) +roprietary Me/bers*ip Certificate but petitioner faile) to e8ecute a )ocu/ent reco'ni(in' private respon)entNs beneficial o,ners*ip over sai) s*are. 3*en petitionerNs contract of e/ploy/ent ,as up for rene,al! *e notifie) private respon)ent t*at *e ,oul) no lon'er be available as 2@+! but t*e latter insiste) t*at *e stay for " /ont*s. +etitioner in)icate) *is acceptance of t*e consultancy
arran'e/ent ,it* a counter-proposal a/on' ot*ers is t*e retention of t*e +olo Club s*are. +rivate respon)ent re7ecte) t*e counter-proposal. +en)in' t*e ne'otiation for consultancy arran'e/ent! private respon)ent e8ecute) a release an) 9uitclai/ a'ainst petitioner. +rivate respon)ent sent a letter to t*e petitioner )e/an)in' t*e return an) )elivery of t*e M+C s*are but faile) to 'et a response. -ence! t*e for/er file) a co/plaint a'ainst petitioner for t*e return of M+C s*are. $*e trial court a,ar)e) t*e M+C s*are to petitioner on t*e 'roun) t*at t*e #4I an) ?y-la,s of Manila +olo Club pro*ibit artificial persons! suc* as corporations! to be club /e/bers. C# reverse) t*e )ecision of t*e trial court. I%%12& 345 t*e C# erre) in or)erin' petitioner to transfer t*e conteste) M+C s*are to a no/inee of private respon)ent not,it*stan)in' M+C.s #4I an) ?y-la,s pro*ibition for bein' a club /e/ber. -2L6& 54. +rivate respon)ent )oes not insist nor inten) to transfer t*e club /e/bers*ip in its na/e but rat*er to its )esi'nate) no/inee. $*e Manila +olo Club )oes not necessarily pro*ibit t*e transfer of proprietary s*ares by its /e/bers. $*e Club only restricts /e/bers*ip to )eservin' applicants in accor)ance ,it* its rules! ,*en t*e a/en)e) #rticles of Incorporation states t*at& K5o transfer s*all be vali) e8cept bet,een t*e parties! an) s*all be re'istere) in t*e Me/bers*ip ?oo0 unless /a)e in accor)ance ,it* t*ese #rticles an) t*e ?y-La,sK. $*us! as bet,een parties *erein! t*ere is no 9uestion t*at a transfer is feasible. Moreover! aut*ority 'rante) to a corporation to re'ulate t*e transfer of its stoc0 )oes not e/po,er it to restrict t*e ri'*t of a stoc0*ol)er to transfer *is s*ares! but /erely aut*ori(es t*e a)option of re'ulations as to t*e for/alities an) proce)ure to be follo,e) in effectin' transfer. In t*is case! t*e petitioner ,as t*e no/inee of t*e private respon)ent to *ol) t*e s*are an) en7oy t*e privile'es of t*e club. ?ut upon t*e e8piration of petitionerNs e/ploy/ent as officer an) consultant of #/C*a/! t*e incentives t*at 'o ,it* t*e position! inclu)in' use of t*e M+C s*are! also cease) to e8ist. It no, be*ooves petitioner to surren)er sai) s*are to private respon)entNs ne8t no/inee! anot*er natural person. %alafranca vs. +*ila/life :+a/plona; -o/eo,ners #ssociation G.R. 5o. 121791; 6ece/ber 2 ! 199A
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F#C$%& +etitioner 2nri9ue %alafranca starte) ,or0in' ,it* private respon)ent as a)/inistrative officer for a perio) of " /ont*s. -e ,as re-appointe) to *is position t*ree /ore ti/es. #fter petitioner.s ter/ of e/ploy/ent e8pire) on! *e still continue) to ,or0 in t*e sa/e capacity! albeit! ,it*out t*e benefit of a rene,e) contract. %o/eti/e in 19A7! private respon)ent )eci)e) to a/en) its by-la,s. Inclu)e) t*erein ,as a provision re'ar)in' officers! specifically! t*e position of a)/inistrative officer un)er ,*ic* sai) officer s*all *ol) office at t*e pleasure of t*e ?oar) of 6irectors. In vie, of t*e )evelop/ent! private respon)ent infor/e) t*e petitioner t*at *is ter/ of office s*all be co-ter/inus ,it* t*e ?oar) of 6irectors ,*ic* appointe) *i/ to *is position. Furt*er/ore! until *e sub/its a /e)ical certificate *is e/ploy/ent s*all be on a /ont* to /ont* basis. 5ot,it*stan)in' t*e failure of petitioner to sub/it *is /e)ical certificate! *e continue) to ,or0 until *is ter/ination. +etitioner file) a co/plaint for ille'al )is/issal! /oney clai/s an) for )a/a'es. $*e Labor #rbiter ren)ere) )ecision in favor of petitioner on t*e 'roun) t*at t*e a/en)/ent ,oul) not be applicable to co/plainant ,*o *a) beco/e a re'ular e/ployee lon' ti/e before t*e a/en)/ent too0 place. $*e 5LRC reverse) t*e )ecision of t*e Labor #rbiter. I%%12& 345 t*e )is/issal of petitioner ,as vali) by virtue of t*e a/en)/ent in t*e by-la,s /a0in' petitioner.s position coter/inus ,it* t*at of t*e ?46. -2L6& 54. #lt*ou'* t*e ri'*t to a/en) by-la,s lies solely in t*e )iscretion of t*e e/ployer! t*is bein' in t*e e8ercise of /ana'e/ent prero'ative or business 7u)'/ent! *o,ever suc* ri'*t cannot i/pair t*e obli'ation of e8istin' contracts or ri'*ts or un)er/ine t*e ri'*t to security of tenure of a re'ular e/ployee. 4t*er,ise! it ,oul) enable an e/ployer to re/ove any e/ployee fro/ e/ploy/ent by t*e si/ple e8pe)iency of a/en)in' its by-la,s an) provi)in' t*e position s*all cease to e8ist upon occurrence of a specifie) event. If private respon)ent ,ante) to /a0e t*e petitioner.s position co-ter/inus ,it* t*at of t*e ?oar) of 6irectors! t*en t*e a/en)/ent /ust be effective after petitioner.s stay ,it* t*e private respon)ent! not )urin' *is ter/. 4bviously! t*e /easure ta0en by t*e private respon)ent in a/en)in' its by-la,s is not*in' but a )evious! but cru)e! atte/pt to circu/vent petitioner.s ri'*t to security of tenure as a re'ular e/ployee 'uarantee) un)er t*e Labor Co)e.
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C*ina ?an0in' Corp. vs. C# G.R. 5o. 117"B<; Marc* 2"! 1997 F#C$%& Galicano Calapatia! stoc0*ol)er of @alley Golf an) Country Club Inc. :@GCCI;! ple)'e) *is stoc0 certificate to petitioner as a security for t*e loan. +etitioner re9ueste) @GCCI t*at t*e ple)'e a'ree/ent be recor)e) in t*eir boo0s. 6ue to Calapatia failure to pay! petitioner file) a petition for e8tra7u)icial foreclosure of ple)'e) stoc0; notifie) an) or)ere) @GCCI to transfer t*e ple)'e) stoc0 in its na/e an) in t*e corporate boo0s. @GCCI refuse) in vie, of Calapatia.s unsettle) accounts ,it* t*e club. 6espite t*e refusal! t*e foreclosure ensue) an) petitioner e/er'e) t*e *i'*est bi))er an) a certificate of sale ,as issue). Mean,*ile! @GCCI sent a notice of )e/an) to Calapatia for t*e full pay/ent of *is over)ue account. For failure to pay! t*e )elin9uent stoc0 ,as publis*e) an) auctione). +etitioner a)vise) @GCCI t*at it is t*e ne, o,ner of Calapatia.s stoc0 certificate an) re9ueste) t*at a ne, certificate of stoc0 be issue) in its na/e. @GCCI replie) t*at by reason of )elin9uency! Calapatia.s stoc0 ,as sol) at public auction. +etitioner proteste) t*e sale an) file) a co/plaint for t*e nullification of auction /a)e by @GCCI in t*e R$C of Ma0ati. $*e trial court )is/isse) t*e co/plaint on t*e 'roun) of intra-corporate controversy. $*ereafter! petitioner file) a co/plaint in %2C on t*e sa/e 'roun)s. %2C rule) in favor of @GCCI. +etitioner appeale) to %2C en banc an) t*e latter reverse) t*e )ecision. @GCCI appeale) to C# an) t*e latter set asi)e t*e or)ers of %2C on t*e 'roun) of lac0 of 7uris)iction because it )oes not involve intra-corporate controversy. I%%12& 345 t*e petitioner is boun) by t*e @GCCI.s by-la,s. -2L6& 54. In or)er to be boun)! t*e t*ir) party /ust *ave ac9uire) 0no,le)'e! eit*er actual or constructive! of t*e pertinent by-la,s at t*e ti/e t*e transaction or a'ree/ent bet,een sai) t*ir) party an) t*e s*are*ol)er ,as entere) into ! in t*is case! at t*e ti/e t*e ple)'e a'ree/ent ,as e8ecute). @GCCI coul) *ave easily infor/e) petitioner of its by-la,s ,*en it sent notice for/ally reco'ni(in' petitioner as ple)'ee of one of its s*ares re'istere) in CalapatiaNs na/e. ?y-la,s si'nifies t*e rules an) re'ulations or private la,s enacte) by t*e corporation to re'ulate! 'overn an) control its o,n actions! affairs an) concerns an) its stoc0*ol)ers or /e/bers an) )irectors an) officers ,it* relation t*ereto an) a/on' t*e/selves in t*eir relation to it. In ot*er ,or)s! by-la,s are t*e relatively per/anent an) continuin' rules of action
a)opte) by t*e corporation for its o,n 'overn/ent an) t*at of t*e in)ivi)uals co/posin' it an) *avin' t*e )irection! /ana'e/ent an) control of its affairs! in ,*ole or in part! in t*e /ana'e/ent an) control of its affairs an) activities. $*e purpose of a by-la, is to re'ulate t*e con)uct an) )efine t*e )uties of t*e /e/bers to,ar)s t*e corporation an) a/on' t*e/selves. $*ey are self-i/pose) an)! alt*ou'* a)opte) pursuant to statutory aut*ority! *ave no status as public la,.
X. CAPITAL STRUCTURE OF CORPORATIONS Republic +lanters ?an0 vs. #'ana G.R. 5o. =17"=; Marc* ! 1997 F#C$%& +rivate respon)ent Robes Francisco Realty M 6evelop/ent Corp. secure) a loan fro/ petitioner. #s part of t*e procee)s of t*e loan! preferre) s*ares of stoc0s ,ere issue) to private respon)ent corporation. In ot*er ,or)s! instea) of 'ivin' t*e le'al ten)er totallin' to t*e full a/ount of t*e loan! petitioner lent suc* a/ount partially in t*e for/ of /oney an) of stoc0 certificates. %ai) stoc0 certificates ,ere in t*e na/e of private respon)ent #)alia Robes an) Carlos Robes! later on! subse9uently en)orse) *is s*ares in favor of #)alia Robes. %ai) certificates of stoc0 bear t*e follo,in' ter/s an) con)itions& :1; t*e ri'*t to receive a 9uarterly )ivi)en) of 1H! cu/ulative an) participatin'; :2; t*at suc* preferre) s*ares /ay be re)ee/e)! by t*e syste/ of )ra,in' lots! at any ti/e after 2 years fro/ t*e )ate of issue at t*e option of t*e corporation. +rivate respon)ents procee)e) a'ainst petitioner an) file) a co/plaint anc*ore) on private respon)ents. alle'e) ri'*ts to collect )ivi)en)s un)er t*e preferre) s*ares in 9uestion an) to *ave petitioner re)ee/ t*e sa/e un)er t*e ter/s an) con)itions of t*e stoc0 certificates. $*e trial court or)ere) t*e petitioner to pay private respon)ents t*e face value of t*e stoc0 certificates as re)e/ption price! plus 1H 9uarterly interest. -ence t*is petition.
I%%12& 345 t*e ban0 can be co/pelle) to re)ee/ t*e preferre) s*ares issue) to RFR6C an) Robes. -2L6& 54. 3*ile t*e stoc0 certificate )oes allo, re)e/ption! t*e option to )o so ,as clearly veste) in t*e ban0. $*e re)e/ption t*erefore is clearly t*e type 0no,n as KoptionalK. $*us! e8cept as ot*er,ise provi)e) in t*e stoc0 certificate! t*e re)e/ption rests entirely ,it* t*e corporation an) t*e stoc0*ol)er is ,it*out ri'*t to eit*er co/pel or refuse t*e re)e/ption of its stoc0. Furt*er/ore! t*e ter/s an) con)itions set fort* t*erein use t*e ,or) K/ayK. It is a settle) )octrine in statutory construction t*at t*e ,or) K/ayK )enotes )iscretion! an) cannot be construe) as *avin' a /an)atory effect. $*e re)e/ption of sai) s*ares cannot be allo,e). $*e Central ?an0 /a)e a fin)in' t*at t*e ?an0 *as been sufferin' fro/ c*ronic reserve )eficiency! an) t*at suc* fin)in' resulte) in a )irective to t*e +resi)ent an) #ctin' C*air/an of t*e ?oar) of t*e ban0 pro*ibitin' t*e latter fro/ re)ee/in' any preferre) s*are! on t*e 'roun) t*at sai) re)e/ption ,oul) re)uce t*e assets of t*e ?an0 to t*e pre7u)ice of its )epositors an) cre)itors. Re)e/ption of preferre) s*ares ,as pro*ibite) for a 7ust an) vali) reason. $*e )irective issue) by t*e Central ?an0 Governor ,as obviously /eant to preserve t*e status 9uo! an) to prevent t*e financial ruin of a ban0in' institution t*at ,oul) *ave resulte) in a)verse repercussions! not only to its )epositors an) cre)itors! but also to t*e ban0in' in)ustry as a ,*ole. $*e )irective! in li/itin' t*e e8ercise of a ri'*t 'rante) by la, to a corporate entity! /ay t*us be consi)ere) as an e8ercise of police po,er. NOTE: $*is case 'ave a co/pre*ensive overvie, of t*e nature of preferre) s*ares an) re)ee/able s*ares. +referre) s*are of stoc0! on one *an)! is one ,*ic* entitles t*e *ol)er t*ereof to certain preferences over t*e *ol)ers of co//on stoc0. $*e preferences are )esi'ne) to in)uce persons to subscribe for s*ares of a corporation. +referre) s*ares ta0e a /ultiplicity of for/s. $*e /ost co//on for/s /ay be classifie) into t,o& :1; preferre) s*ares as to assets; an) :2; preferre) s*ares as to )ivi)en)s. $*e for/er is a s*are ,*ic* 'ives t*e *ol)er t*ereof preference in t*e )istribution of t*e assets of t*e corporation in case of li9ui)ation; t*e latter is a s*are t*e *ol)er of ,*ic* is entitle) to receive )ivi)en)s on sai) s*are to t*e e8tent a'ree) upon before any )ivi)en)s at all are pai) to t*e *ol)ers of co//on stoc0. $*ere is no 'uaranty! *o,ever! t*at t*e s*are ,ill receive any )ivi)en)s. $*e )eclaration of )ivi)en)s is )epen)ent upon t*e availability of surplus profit or unrestricte) retaine) earnin's! as t*e case /ay be. +references 'rante) to preferre) stoc0*ol)ers! /oreover! )o not 'ive t*e/ a lien upon t*e property of t*e corporation nor /a0e t*e/ cre)itors of t*e corporation! t*e ri'*t of t*e for/er bein' al,ays subor)inate to t*e latter. 6ivi)en)s are t*us payable only ,*en t*ere are profits earne) by t*e corporation an)
as a 'eneral rule! even if t*ere are e8istin' profits! t*e boar) of )irectors *as t*e )iscretion to )eter/ine ,*et*er or not )ivi)en)s are to be )eclare). Re)ee/able s*ares! on t*e ot*er *an)! are s*ares usually preferre)! ,*ic* by t*eir ter/s are re)ee/able at a fi8e) )ate! or at t*e option of eit*er issuin' corporation! or t*e stoc0*ol)er! or bot* at a certain re)e/ption price. Re)e/ption by t*e corporation of its stoc0 is! in a sense! a repurc*ase of it for cancellation. $*e present Co)e allo,s re)e/ption of s*ares even if t*ere are no unrestricte) retaine) earnin's on t*e boo0s of t*e corporation. $*is is a ne, provision ,*ic* in effect 9ualifies t*e 'eneral rule t*at t*e corporation cannot purc*ase its o,n s*ares e8cept out of current retaine) earnin's. -o,ever! ,*ile re)ee/able s*ares /ay be re)ee/e) re'ar)less of t*e e8istence of unrestricte) retaine) earnin's! t*is is sub7ect to t*e con)ition t*at t*e corporation *as! after suc* re)e/ption! assets in its boo0s to cover )ebts an) liabilities inclusive of capital stoc0. Re)e/ption! t*erefore! /ay not be /a)e ,*ere t*e corporation is insolvent or if suc* re)e/ption ,ill cause insolvency or inability of t*e corporation to /eet its )ebts as t*ey /ature. C4C4F26 vs. Republic of t*e +*ilippines G.R. 5o. 177A=7-=A; %epte/ber 17! 2BB9 F#C$%& C4C4F26 see0s t*e Court.s approval of t*e conversion of Class E#F an) Class E?F co//on s*ares of %an Mi'uel Corporation :%MC; re'istere) in t*e na/es of Coconut In)ustry Invest/ent Fun) an) t*e so-calle) E1< -ol)in' Co/paniesF :collectively 0no,n as ECIIF co/paniesF; into %MC %eries 1 +referre) %*ares. C4C4F26 proposes to constitute a trust fun) to be 0no,n as t*e ECoconut In)ustry $rust Fun) :CI$F; for t*e ?enefit of t*e Coconut Far/ers!F ,it* respon)ent Republic! actin' t*rou'* t*e +*ilippine Coconut #ut*ority :+C#;! as trustee. Respon)ent Republic file) its Co//ent 9uestionin' C4C4F26.s personality to see0 t*e Court.s approval of t*e )esire) conversion. Respon)ent Republic also )isputes C4C4F26.s ri'*t to i/pose an) prescribe ter/s an) con)itions on t*e propose) conversion! /aintainin' t*at t*e CIIF %MC co//on s*ares are se9uestere) assets an) are in custodia legis un)er +CGG.s a)/inistration. It postulates t*at! o,in' to t*e se9uestrate) status of t*e sai) co//on s*ares! only +CGG *as t*e aut*ority to approve t*e propose) conversion an) see0 t*e necessary Court approval. I%%12& Conversion of %*ares.
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-2L6& $*e court resolve) to approve t*e conversion! ta0in' into account certain circu/stances an) *ar) econo/ic realities as )iscusse) belo,& 5o )oubt s*ares of stoc0 are not t*e safest of invest/ents! /oore) as t*ey are on t*e ever c*an'in' ,orl),i)e an) local financial con)itions. $*e propose) conversion ,oul) provi)e better protection eit*er to t*e 'overn/ent or to t*e eventually )eclare) real stoc0 o,ners! )epen)in' on t*e final rulin' on t*e o,ners*ip issue. In t*e event %MC suffers serious financial reverses in t*e s*ort or lon' ter/ an) see0s insolvency protection! t*e o,ners of t*e preferre) s*ares! bein' consi)ere) cre)itors! s*all *ave! vis-S-vis co//on stoc0 s*are*ol)ers! preference in t*e corporate assets of t*e insolvent or )issolve) corporation. In t*e case of t*e %MC %eries 1 +referre) %*ares! t*ese preferential features are /a)e available to buyers of sai) s*ares an) are a/ply protecte) in t*e invest/ent. $*e re)e/ption value of t*e preferre) s*ares )epen)s upon an) is actually tie) up ,it* t*e issue price plus all t*e cu/ulate) an) unpai) )ivi)en)s. $*is re)e/ption feature is envisa'e) to effectively eli/inate t*e /ar0et volatility ris0s on t*e si)e of t*e s*are o,ners. 1n)oubte)ly! t*ese are clear a)vanta'es an) benefits t*at inure to t*e s*are o,ners ,*o! on one *an)! prefer a stable )ivi)en) yiel) on t*eir invest/ents an)! on t*e ot*er *an)! ,ant security fro/ t*e uncertainty of /ar0et forces over ,*ic* t*ey )o not *ave control. $*e propose) conversion ,ill a))ress t*e concerns an) allay t*e fears of ,ell /eanin' sectors! an) insulate an) protect t*e se9uestere) CIIF %MC s*ares fro/ potential )a/a'e or loss. Moreover! t*e conversion /ay be vie,e) as a soun) business strate'y to preserve an) conserve t*e value of t*e 'overn/ent.s interests in CIIF %MC s*ares. +reservation is attaine) by fi8in' t*e value to)ay at a si'nificant pre/iu/ over t*e /ar0et price an) ensurin' t*at suc* value is not 'oin' to )ecline )espite ne'ative /ar0et con)itions. Conservation is reali(e) t*ru an i/prove/ent in t*e earnin's value via t*e AH per annu/ )ivi)en)s versus t*e uncertain an) /ost li0ely lo,er )ivi)en)s on co//on s*ares. NOTE: $*is case )iscusse) t*e classification of s*ares! its votin' an) non-votin' ri'*ts an) instances of appraisal ri'*t. $reasury stoc0s ,as e/p*asi(e) $*e co//on s*ares after conversion an) release fro/ se9uestration beco/e treasury stoc0s or s*ares. $reasury s*ares are Es*ares of stoc0 ,*ic* *ave been issue) an) fully pai) for! but subse9uently reac9uire) by t*e issuin' corporation by purc*ase! re)e/ption! )onation or t*rou'* so/e ot*er la,ful /eans. %uc* s*ares /ay a'ain be )ispose) of for a reasonable price fi8e) by t*e boar) of )irectors.F # treasury s*are or stoc0! ,*ic* /ay be co//on or preferre)! /ay be use) for a variety of corporate purposes! suc* as for a stoc0 bonus plan for /ana'e/ent an) e/ployees or for ac9uirin' anot*er co/pany. It /ay be *el) in)efinitely! resol) or retire). 3*ile *el) in t*e co/pany.s treasury! t*e stoc0 earns no )ivi)en)s an) *as no vote in co/pany affairs.
F. STOC$S % STOC$HOLDERS 1.; C45%I62R#$I45 F4R %-#R2% Garcia vs. Li/ C*u %in' G.R. 5o. L- 9<27; February 2<! 19 < F#C$%& Li/ Cuan %y *a) an account ,it* t*e Mercantile ?an0 of C*ina :plaintiff ban0; in t*e for/ of Ktrust receiptsK 'uarantee) by Li/ C*u %in' :respon)ent; as surety M ,it* c*attel /ort'a'e securities. Li/ Cuan %y faile) to co/ply ,it* *is obli'ations. $*e plaintiff ban0 re9uire) Li/ C*u %in'! as surety! to )eliver a pro/issory note . $*e plaintiff ban0! ,it*out t*e 0no,le)'e M consent of t*e )efen)ant! foreclose) t*e c*attel /ort'a'e an) privately sol) t*e property covere) t*ereby. $*e )efen)ant is an o,ner of s*ares of stoc0 in t*e plaintiff ban0. Mean,*ile! plaintiff ban0 ,as subse9uently place) un)er li9ui)ation. $*e )efen)ant file) a /otion for t*e inclusion of t*e principal )ebtor Li/ Cuan %y as party )efen)ant ,it* t*e CFI-Manila so t*at *e coul) avail *i/self of t*e benefit of t*e e8*austion of t*e property of sai) Li/ Cuan %y. $*e /otion ,as )enie). $*e procee)s of t*e sale of t*e /ort'a'e) c*attels to'et*er ,it* ot*er pay/ents /a)e ,ere applie) to t*e a/ount of t*e pro/issory note in 9uestion! leavin' t*e balance ,*ic* t*e plaintiff no, see0s to collect. I%%12& 345 it is proper to C4M+25%#$2 t*e respon)ents in)ebte)ness to t*e value of *is s*ares of stoc0 ,it* t*e Mercantile ?an0 of C*ina. -2L6& 54. # s*are of stoc0 or t*e certificate t*ereof is not in)ebte)ness to t*e o,ner nor evi)ence of in)ebte)ness an) t*erefore! it is not a cre)it. %toc0*ol)ers as suc* are not cre)itors of t*e corporation. $*e capital stoc0 of a corporation is a trust fun) to be use) /ore particularly for t*e security of t*e cre)itors of t*e corporation ,*o presu/ably )eal ,it* it on t*e cre)it of its capital.
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#po)aca vs. 5LRC G.R. 5o. ABB 9; #pril 1A! 19A9 F#C$%& +etitioner ,as e/ploye) in respon)ent corporation. -e ,as persua)e) by respon)ent Mirasol to subscribe to 1!=BB s*ares ,*ic* *e pai) partially. +etitioner ,as appointe) +resi)ent an) General Mana'er of t*e respon)ent corporation but later on *e resi'ne). +etitioner institute) ,it* t*e 5LRC a co/plaint a'ainst private respon)ents for t*e pay/ent of *is unpai) ,a'es! *is cost of livin' allo,ance! t*e balance of *is 'asoline an) representation e8penses an) *is bonus co/pensation. +rivate respon)ents a)/itte) t*at t*ere is )ue to petitioner but t*is ,as applie) to t*e unpai) balance of *is subscription. +etitioner 9uestione) t*e set-off alle'in' t*at t*ere ,as no call or notice for t*e pay/ent of t*e unpai) subscription an) t*at! accor)in'ly! t*e alle'e) obli'ation is not enforceable. I%%12; :1; 3*et*er or not 5LRC *as 7uris)iction to resolve a clai/ for non-pay/ent of stoc0 subscriptions to a corporation. :2; If so! ,*et*er or not an obli'ation arisin' t*erefro/ be offset a'ainst a /oney clai/ of an e/ployee a'ainst t*e e/ployer. -2L6& :1; 5LRC *as no 7uris)iction to )eter/ine suc* intra-corporate )ispute bet,een t*e stoc0*ol)er an) t*e corporation as in t*e /atter of unpai) subscriptions. $*is controversy is ,it*in t*e e8clusive 7uris)iction of t*e %ecurities an) 28c*an'e Co//ission :no, R$C;. :2; 5o. $*e unpai) subscriptions are not )ue an) payable until a call is /a)e by t*e corporation for pay/ent. +rivate respon)ents *ave not presente) a resolution of t*e boar) of )irectors of respon)ent corporation callin' for t*e pay/ent of t*e unpai) subscriptions. It )oes not even appear t*at a notice of suc* call *as been sent to petitioner by t*e respon)ent corporation. #s t*ere ,as no notice or call for t*e pay/ent of unpai) subscriptions! t*e sa/e is not yet )ue an) payable. 2ven if t*ere ,as a call for pay/ent! an obli'ation arisin' fro/ non-pay/ent of stoc0 subscriptions to a corporation cannot be offset a'ainst a /oney clai/ of an e/ployee a'ainst t*e e/ployer. 5ational 28c*an'e vs. 6e8ter
G.R. 5o. L-27A72; February 2=! 192A F#C$%& 6e8ter subscribe) to BB s*ares. $*e subscription contract provi)e) t*at t*e s*ares ,ill be pai) solely fro/ t*e )ivi)en)s. Co/pany beca/e insolvent. #ssi'nee in insolvency sue) 6e8ter for t*e balance. 6e8terNs )efense ,as t*at un)er t*e contract! pay/ent ,oul) co/e fro/ t*e )ivi)en)s. 3it*out )ivi)en)s! *e cannot be obli'ate) to pay.
I%%12& 345 t*e stipulation containe) in t*e subscription to t*e effect t*at t*e subscription is payable fro/ t*e first )ivi)en)s )eclare) on t*e s*ares *as t*e effect of relievin' t*e subscriber fro/ personal liability in an action to recover t*e value of t*e s*ares. -2L6& $*e Court *el) t*at t*e subscription contract ,as voi) since it ,or0s a frau) on cre)itors ,*o rely on t*e t*eoretical capital of t*e co/pany :subscribe) s*ares;. 1n)er t*e contract! t*is t*eoretical value ,ill never be reali(e) since if t*ere are no )ivi)en)s! stoc0*ol)ers ,ill not be co/pelle) to pay t*e balance of t*eir subscriptions. 2.; 15+#I6 %1?%CRI+$I45% @elasco vs. +oi(at G.R. 5o. L-11=2A; Marc* 1=! 191A F#C$%& +oi(at subscribe) to 2B s*ares but only pai) for =. ?oar) /a)e a call for pay/ent t*rou'* a resolution. +oi(at refuse) to pay. Corporation beca/e insolvent. #ssi'nee in insolvency sue) +oi(at ,*ose )efense ,as t*at t*e call ,as invali) for lac0 of publication. I%%12&
345 +oi(at is liable to t*e unpai) subscription. -2L6& J2%. # stoc0 subscription is subsistin' liability fro/ t*e ti/e t*e subscription is /a)e! since it re9uires t*e subscriber to pay interest 9uarterly fro/ t*at )ate unless *e is relieve) fro/ suc* liability by t*e by-la,s of t*e corporation. $*e subscriber is as /uc* boun) to pay t*e a/ount of t*e s*are subscribe) by *i/ as *e ,oul) be to pay any ot*er )ebt! an) t*e ri'*t of t*e co/pany to )e/an) pay/ent is no less incontestable. $*e ?oar) call beca/e i//aterial ,*en insolvency supervenes! all unpai) subscriptions beco/e at once )ue an) enforceable. Lin'ayen Gulf 2lectric vs. ?alta(ar G.R. 5o. L-<A2<; >une B! 19= F#C$%& Co/pany.s presi)ent subscribe) to s*ares an) pai) partially. $*e ?oar) /a)e a call for pay/ent t*rou'* a resolution. -o,ever! t*e presi)ent refuse) to pay! pro/ptin' t*e corporation to sue. $*e )efense ,as t*at t*e call ,as invali) for lac0 of publication. I%%12& 345 t*e petitioner co/pany is liable for unpai) subscription )espite t*e lac0 of publication. -2L6& 54. 5otice of any call for t*e pay/ent of unpai) subscription s*oul) be /a)e not only personally but also by publication once a ,ee0! for four consecutive ,ee0s in so/e ne,spapers. In a solvent corporation! t*ere /ust be a publis*e) call for t*e pay/ent of unpai) subscriptions before pay/ent coul) be )e/an)e). $*e rulin' in +oi(at )oes not apply since t*e co/pany *ere is solvent. 5o cancellation or release fro/ obli'ation can be vali) ,it*out t*e consent of t*e stoc0*ol)er. 6e %ilva vs. #boiti(
G.R. 5o. L-19A9 ; Marc* 1! 192 F#C$%& 6e %ilva subscribe) to "=B s*ares an) pai) for 2BB. $*e co/pany notifie) *i/ t*at *is s*ares ,ill be )eclare) )elin9uent an) sol) in a public auction if *e )oes not pay t*e balance. 6e %ilva )i) not pay. $*e co/pany a)vertise) a notice of )elin9uency sale. 6e %ilva sou'*t an in7unction because t*e by-la,s alle'e)ly provi)e t*at unpai) subscriptions ,ill be pai) fro/ t*e )ivi)en)s allotte) to stoc0*ol)ers. I%%12& 345 6e %ilva is liable )espite t*e provision in t*e by-la,s re'ar)in' )ivi)en)s as pay/ent for unpai) subscriptions. -2L6& J2%. #lt*ou'*! t*e by-la,s provi)e t*at unpai) subscriptions /ay be pai) fro/ suc* )ivi)en)s $*e )efen)ant corporation! t*rou'* its boar) of )irectors! /a)e use of its )iscretionary po,er! ta0in' a)vanta'e of t*e first of t*e t,o re/e)ies& )elin9uency sale or specific perfor/ance. %ettle) is t*e rule t*at not*in' in t*is act s*all prevent t*e )irectors fro/ collectin'! by action in any court of proper 7uris)iction! t*e a/ount )ue on any unpai) subscription! to'et*er ,it* accrue) interest an) costs an) e8penses incurre). Lu/anlan vs. Cura G.R. 5o. L- 9A"1; Marc* 21! 19 < F#C$%& Lu/anlan *a) unpai) subscriptions. Co/pany.s receiver sue) *i/ for t*e balance an) ,on. 3*ile t*e case ,as on appeal! t*e co/pany an) petitioner entere) into a co/pro/ise ,*ereby *e ,oul) )irectly pay a cre)itor of t*e co/pany. In e8c*an'e! t*e co/pany ,oul) fore'o ,*atever balance re/aine) on t*e unpai) subscription. -e a'ree) since *e ,oul) be payin' less t*an *is unpai) subscription. #fter,ar)s! t*e corporation still sue) *i/ for t*e balance because t*e co/pany still *as unpai) cre)itors. -is )efense ,as t*e co/pro/ise a'ree/ent. I%%12& 345 Lu/anlan is still liable )espite t*e co/pro/ise a'ree/ent.
-2L6& J2%. $*e Court *el) t*at t*e a'ree/ent cannot pre7u)ice cre)itors. $*e subscriptions constitute a fun) to ,*ic* t*ey *ave a ri'*t to loo0 to for satisfaction of t*eir clai/s. $*erefore! t*e corporation *as a ri'*t to collect all unpai) stoc0 subscriptions an) any ot*er a/ounts ,*ic* /ay be )ue it! not,it*stan)in' t*e co/pro/ise a'ree/ent. C*ina ?an0in' Corp. vs. C# :supra; G.R. 5o. 117"B<; Marc* 2"! 1997 I%%12& 1npai) Clai/ ,it* re'ar)s to unpai) subscription. -2L6& %ec. " of t*e Corporation Co)e ,*ic* provi)es t*at Kno s*ares of stoc0 a'ainst ,*ic* t*e corporation *ol)s any unpai) clai/ s*all be transferable in t*e boo0s of t*e corporationK cannot be utili(e) by @GCCI. $*e ter/ Kunpai) clai/K refers to Kany unpai) clai/ arisin' fro/ unpai) subscription! an) not to any in)ebte)ness ,*ic* a subscriber or stoc0*ol)er /ay o,e t*e corporation arisin' fro/ any ot*er transaction.F In t*e case at bar! t*e subscription for t*e s*are in 9uestion *as been fully pai) as evi)ence) by t*e issuance of Me/bers*ip Certificate 5o. 1219. 3*at Calapatia o,e) t*e corporation ,ere /erely t*e /ont*ly )ues. -ence! t*e afore9uote) provision )oes not apply. .; RIG-$% 4F 15+#I6 %-#R2% NOTE: $*e t*ree cases t*ereun)er are correlate)! rea) an) co/pre*en) t*orou'*ly. Fua Cun vs. %u//ers G.R. 5o. L-19<<1; Marc* 27! 192
F#C$%& C*ua %oco bou'*t =BB s*ares of C*ina ?an0in' Corp. at par value of +1BB.BB! payin' t*e su/ of +2=!BBB.BB! =BH of t*e subscription price. C*ua /ort'a'e) t*e sai) s*ares in favor of plaintiff Fua Cun to secure a pro/issory note for t*e su/ of +2=!BBB.BB. In t*e /eanti/e! C*ua %ocoNs interest in t*e =BB s*ares ,ere attac*e) an) levie) upon to satisfy *is )ebt ,it* C*ina ?an0in' Corp. Fua Cun brou'*t an action to *ave *i/self )eclare) to *ol) priority over t*e clai/ of C*ina ?an0! to *ave t*e receipt for t*e s*ares )elivere) to *i/! an) to be a,ar)e) )a/a'es for ,ron'ful attac*/ent! on t*e 'roun) t*at *e ,as o,ner of 2=B s*ares by virtue of C*ua %ocoNs pay/ent of *alf of t*e subscription price. I%%12& 345 petitioner is entitle) to issuance of stoc0 certificate. -2L6& 54. # subscriber )oes not beco/e t*e o,ner of a particular nu/ber of s*ares correspon)in' to t*e a/ount *e alrea)y pai) but /erely *ol)s a ri'*t of e9uity in t*e total nu/ber of s*ares subscribe). Co/plete o,ners*ip over t*e total nu/ber of s*ares subscribe) ,ill only vest ,it* t*e stoc0*ol)er upon pay/ent of t*e ,*ole subscription price. In t*e absence of special a'ree/ent to t*e contrary! a subscriber for a certain nu/ber of s*ares of stoc0 )oes not! upon pay/ent of one-*alf of t*e subscription price beco/e entitle) to t*e issuance of certificates for one-*alf of t*e nu/ber of s*ares subscribe) for; t*e subscriberNs ri'*t consists only in e9uity entitlin' *i/ to a certificate for t*e total nu/ber of s*ares subscribe) for by *i/ upon pay/ent of t*e re/ainin' portion of t*e subscription price. ?alta(ar vs. Lin'ayen Gulf G.R. 5o. L-1"2 "; >une B! 19"= F#C$%& ?alta(ar! et al. subscribe) to a certain nu/ber of s*ares of Lin'ayen Gulf 2lectric +o,er. $*ey *a) /a)e only partial pay/ent of t*e subscription but t*e corporation issue) t*e/ certificates correspon)in' to s*ares covere) by t*e partial pay/ents. Corporation ,ante) to )eny votin' ri'*ts to all subscribe) s*ares until total subscription is pai).
I%%12& 345 petitioner is entitle) to issuance of stoc0 certificate. -2L6& J2%. $*e Court *el) t*at s*ares of stoc0 covere) by fully pai) capital stoc0 s*ares certificates are entitle) to vote. 3*ere t*e corporation *as issue) certificate of stoc0 of a )efinite nu/ber correspon)in' to t*e initial pay/ent /a)e on t*e subscription! sai) s*ares /ay vali)ly be vote) at all /eetin's an) only t*e re/ainin' nu/ber of s*ares in t*e unpai) subscription ,ill be affecte) by t*e call an) subse9uent )eclaration of )elin9uency in case of non-pay/ent of t*e subscription balance. Corporation /ay c*oose to apply pay/ents to subscription eit*er as& :a; full pay/ent for correspon)in' nu/ber of stoc0 t*e par value of ,*ic* is covere) by suc* pay/ent; or :b; as pay/ent pro-rata to eac* subscribe) s*are. $*e corporation c*ose t*e first option! an)! *avin' )one so! it cannot unilaterally nullify t*e certificates issue). 5ava vs. +eers Mar0etin' Corp. G.R. 5o. L-2A12B; 5ove/ber 2=! 197" F#C$%& $eofilo Co subscribe) to AB s*ares of +eers Mar0etin' Corp. at +1BB.BB a s*are for a total of +A!BBB.BB. -e! *o,ever! pai) only +2!BBB.BB correspon)in' to 2B s*ares or 2=H of total subscription. 5ava bou'*t 2B s*ares fro/ Co an) sou'*t its transfer in t*e boo0s of t*e corporation. $*e corporation refuse) to transfer sai) s*ares in its boo0s. I%%12& 345 t*e s*ares /ay be transferre) in t*e boo0s of t*e corporation an) /ay stoc0 certificate be issue). -2L6& 54. It ,as *el) t*at t*e transfer is effective only bet,een Co an) 5ava an) )oes not affect t*e corporation. $*e F"! C"n rulin' applies. Lin&!#en G"'f )oes not apply because! unli0e in Lin'ayen Gulf! no certificate of stoc0 ,as issue) to Co.
5o s*ares of stoc0 a'ainst ,*ic* t*e corporation *ol)s an unpai) clai/ are transferable in t*e boo0s of t*e corporation. Man)a/us ,ill not lie to co/pel corporate officers to recor) t*e transfer of s*ares in its boo0s ,*ere no s*ares of stoc0s ,ere issue) for t*e unpai) subscription. $*e issuance of t*e certificate of stoc0! its in)orse/ent an) )elivery to t*e transferee! an) t*e surren)er t*ereof to t*e corporation are re9uisites for t*e recor)in' of t*e transfer in t*e corporate boo0s. CA(POS NOTES: $*e N!)! case reinforce) t*e rulin' in t*e F"! C"n case! /a0in' it clear t*at t*e )ecision in Lin&!#en G"'f case s*oul) be applicable only to t*e special circu/stances appearin' t*ere. Section () of the Code clearly supports the *ua Cun case and its prohi!itory language seems to rule out an agreement contrary to its pro isions" The rule applies to par and no par stocks lea ing no room for the application of the $ingayen +ulf case" <.; 5#$1R2 M F15C$I45 4F %$4CG C2R$IFIC#$2% $an vs. %2C G.R. 5o. 9="9"; Marc* ! 1992 F#C$%& +etitioner is t*e incorporator of t*e respon)ent corporation. %toc0 Certificate 5o. 2 ,as 'iven to *i/ as evi)ence) of *is s*ares. -e ,as electe) presi)ent an) t*ereafter in or)er to co/plete t*e /e/bers*ip of t*e five :=; )irectors in t*e ?oar)! *e sol) =B s*ares out <BB s*ares of capital stoc0 to *is brot*er. %toc0 Certificate 5o. 2 ,as cancelle) an) t*e correspon)in' Certificates 5os. " an) A ,ere issue). +etitioner )i) not en)orse an) instea) 0ept t*e cancelle) certificate. Later on! petitioner ,as )islo)'e) fro/ t*e position an) t*ereafter ,it*)re, fro/ t*e corporation. Jears later! petitioner file) a case a'ainst respon)ent corporation before t*e Cebu %2C 28tension 4ffice! 9uestionin' for t*e first ti/e! t*e cancellation of *is aforesai) %toc0 Certificates 5os. 2 an) A. $*e bone of contention raise) by t*e petitioner is t*at t*e )eprivation of *is s*ares )espite t*e non-en)orse/ent or surren)er of *is %toc0 Certificate 5os. 2 an) A! ,as ,it*out t*e process contrary to t*e provision of %ection " of t*e Corporation Co)e. I%%12& 5ature an) function of stoc0 certificates.
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-2L6& # certificate of stoc0 is t*e paper representative or tan'ible evi)ence of t*e stoc0 itself an) of t*e various interests t*erein. $*e certificate is not stoc0 in t*e corporation but is /erely evi)ence of t*e *ol)erNs interest an) status in t*e corporation! *is o,ners*ip of t*e s*are represente) t*ereby! but is not in la, t*e e9uivalent of suc* o,ners*ip . It e8presses t*e contract bet,een t*e corporation an) t*e stoc0*ol)er! but is not essential to t*e e8istence of a s*are in stoc0 or t*e nation of t*e relation of s*are*ol)er to t*e corporation. # certificate of stoc0 is not a ne'otiable instru/ent. K#lt*ou'* it is so/eti/e re'ar)e) as 9uasi-ne'otiable! in t*e sense t*at it /ay be transferre) by en)orse/ent! couple) ,it* )elivery! it is ,ell-settle) t*at it is non-ne'otiable! because t*e *ol)er t*ereof ta0es it ,it*out pre7u)ice to suc* ri'*ts or )efenses as t*e re'istere) o,nerQs or transferor.s cre)itor /ay *ave un)er t*e la,! e8cept insofar as suc* ri'*ts or )efenses are sub7ect to t*e li/itations i/pose) by t*e principles 'overnin' estoppel.K In t*e case at bar! a by-la, ,*ic* pro*ibits a transfer of stoc0 ,it*out t*e consent or approval of all t*e stoc0*ol)ers or of t*e +resi)ent or ?oar) of 6irectors is ille'al as constitutin' un)ue li/itation on t*e ri'*t of o,ners*ip an) in restraint of tra)e. 3*ile %ec. <7 :9; of t*e Corporation Co)e 'rants to stoc0 corporations t*e aut*ority to )eter/ine in t*e by-la,s t*e K/anner of issuin' certificatesK of s*ares of stoc0! *o,ever! t*e po,er to re'ulate is not t*e po,er to pro*ibit! or to i/pose unreasonable restrictions of t*e ri'*t of stoc0*ol)ers to transfer t*eir s*ares. $o up*ol) t*e cancellation of a stoc0 certification as null an) voi) for lac0 of )elivery of t*e cancelle) K/ot*erK certificate ,*ose en)orse/ent ,as )eliberately ,it**el) by petitioner! is to prescribe certain restrictions on t*e transfer of stoc0 in violation of t*e Corporation Co)e as t*e only la, 'overnin' transfer of stoc0s. =.; +R44F 4F 4352R%-I+ 4F %-#R2% 5autica Cannin' Corp. vs. Ju/ul G.R. 5o. 1"<=AA; 4ctober 19! 2BB= F#C$%& Ju/ul ,as appointe) C*ief 4peratin' 4fficerQGeneral Mana'er of 5autica. First 6o/inion +ri/e -ol)in's! Inc.! 5autica.s parent co/pany! t*rou'* its C*air/an #lvin J. 6ee! 'rante) Ju/ul an 4ption to +urc*ase up to 1=H of t*e total
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stoc0s it subscribe) fro/ 5autica. # 6ee) of $rust an) #ssi'n/ent ,as e8ecute) bet,een First 6o/inion +ri/e -ol)in's! Inc. an) Ju/ul ,*ereby t*e for/er assi'ne) 1<!999 of its subscribe) s*ares in 5autica to t*e latter. #fter Ju/ul.s resi'nation fro/ 5autica! *e ,rote a letter to 6ee re9uestin' t*e latter to for/ali(e *is offer to buy Ju/ul.s 1=H s*are in 5autica an) )e/an)in' t*e issuance of t*e correspon)in' certificate of s*ares in *is na/e s*oul) 6ee refuse to buy t*e sa/e. 6ee )enie) t*e re9uest clai/in' t*at Ju/ul ,as not a stoc0*ol)er of 5autica. Ju/ul re9ueste) t*at t*e 6ee) of $rust an) #ssi'n/ent be recor)e) in t*e %toc0 an) $ransfer ?oo0 of 5autica! an) t*at *e! as a stoc0*ol)er! be allo,e) to inspect its boo0s an) recor)s. Ju/ul.s re9uests ,ere )enie). Ju/ul file) a petition for /an)a/us prayin' t*at t*e 6ee) of $rust an) #ssi'n/ent be recor)e) in t*e %toc0 an) $ransfer ?oo0 of 5autica an) t*at t*e certificate of stoc0s correspon)in' t*ereto be issue) in *is na/e. I%%12& 345 Ju/ul is a stoc0*ol)er. :+roof of 4,ners*ip of %*ares; -2L6& J2%. In)ee)! it is possible for a business to be ,*olly o,ne) by one in)ivi)ual. $*e vali)ity of its incorporation is not affecte) ,*en suc* in)ivi)ual 'ives no/inal o,ners*ip of only one s*are of stoc0 to eac* of t*e ot*er four incorporators. $*is is not necessarily ille'al. ?ut! t*is is vali) only bet,een or a/on' t*e incorporators privy to t*e a'ree/ent. It )oes bin) t*e corporation ,*ic*! at t*e ti/e t*e a'ree/ent is /a)e! ,as non-e8istent. $*us! incorporators continue to be stoc0*ol)ers of a corporation unless! subse9uent to t*e incorporation! t*ey *ave vali)ly transferre) t*eir subscriptions to t*e real parties in interest. # transfer of s*ares of stoc0 not recor)e) in t*e stoc0 an) transfer boo0 of t*e corporation is non-e8istent as far as t*e corporation is concerne). #s bet,een t*e corporation on one *an)! an) its s*are*ol)ers an) t*ir) persons on t*e ot*er! t*e corporation loo0s only to its boo0s for t*e purpose of )eter/inin' ,*o its s*are*ol)ers are. It is only ,*en t*e transfer *as been recor)e) in t*e stoc0 an) transfer boo0 t*at a corporation /ay ri'*tfully re'ar) t*e transferee as one of its stoc0*ol)ers. Fro/ t*is ti/e! t*e conse9uent obli'ation on t*e part of t*e corporation to reco'ni(e suc* ri'*ts as it is /an)ate) by la, to reco'ni(e arises. Lao vs. Lao G.R. 5o. 17B=A=; 4ctober "! 2BBA
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F#C$%& +etitioners 6avi) an) >ose Lao file) a petition ,it* t*e %2C a'ainst respon)ent 6ionisio Lao! presi)ent of +acific Foun)ry %*op Corporation :+F%C;. +etitioners praye) for a )eclaration as stoc0*ol)ers an) )irectors of +F%C! issuance of certificates of s*ares in t*eir na/e an) to be allo,e) to e8a/ine t*e corporate boo0s of +F%C. +etitioners clai/e) t*at t*ey are stoc0*ol)ers of +F%C base) on t*e General Infor/ation %*eet file) ,it* t*e %2C! in ,*ic* t*ey are na/e) as stoc0*ol)ers an) )irectors of t*e corporation. 6avi) Lao ac9uire) *is s*ares fro/ *is fat*er an) >ose Lao fro/ respon)ent *i/self. Respon)ent )enie) petitionersN clai/. -e also clai/e) t*at petitioners )i) not ac9uire any s*ares in +F%C by any of t*e /o)es reco'ni(e) by la,! na/ely subscription! purc*ase! or transfer. Mean,*ile! R.#. A799! ot*er,ise 0no,n as t*e %ecurities Re'ulation Co)e! ,as enacte)! transferrin' 7uris)iction over all intra-corporate )isputes fro/ t*e %2C to t*e R$C. R$C )enie) t*eir petition on t*e 'roun) t*at t*ey *ave no stoc0 certificates in t*eir na/es. I%%12& Is t*e /ere inclusion as s*are*ol)er in t*e General Infor/ation %*eet of a corporation sufficient proof t*at one is a s*are*ol)er in suc* corporationD -2L6& 54. $*e /ere inclusion as s*are*ol)er of petitioners in t*e General Infor/ation %*eet of +F%C is insufficient proof t*at t*ey are s*are*ol)ers of t*e co/pany. $*e infor/ation in t*e )ocu/ent ,ill still *ave to be correlate) ,it* t*e corporate boo0s of +F%C. # certificate of stoc0 is t*e evi)ence of a *ol)erNs interest an) status in a corporation. It is a ,ritten instru/ent si'ne) by t*e proper officer of a corporation statin' or ac0no,le)'in' t*at t*e person na/e) in t*e )ocu/ent is t*e o,ner of a )esi'nate) nu/ber of s*ares of its stoc0. It is prima facie evi)ence t*at t*e *ol)er is a s*are*ol)er of a corporation. ".; R2%$RIC$I45% 45 $R#5%F2R 4F %-#R2% Fleisc*er vs. ?otica 5olasco :supra; G.R. 5o. L-2 2<1; Marc* 1<! 192= I%%12&
Is a by-la, restrictin' a transfer of s*ares vali)D -2L6& #s a 'eneral rule! t*e by-la,s of a corporation are vali) if t*ey are reasonable an) calculate) to carry into effect t*e ob7ective of t*e corporation an) are not contra)ictory to t*e 'eneral policy of t*e la,s of t*e lan). 1n)er a statute aut*ori(in' by-la,s for t*e transfer of stoc0! a corporation can )o no /ore t*an prescribe a 'eneral /o)e of transfer on t*e corporation boo0s an) cannot 7ustify an restriction upon t*e ri'*t of sale. Moreover! a by-la, ,*ic* pro*ibits a transfer of stoc0 ,it*out t*e consent or approval of all t*e stoc0*ol)ers or of t*e +resi)ent or ?oar) of 6irectors is ille'al as constitutin' un)ue li/itation on t*e ri'*t of o,ners*ip an) in restraint of tra)e. $*e only restraint i/pose) by t*e Corporation La, upon transfer of s*ares is foun) in %ection = of #ct 5o. 1<=9 :no, %ection " ;& K5o transfer! *o,ever! s*all be vali)! e8cept as bet,een t*e parties! until t*e transfer is entere) an) note) upon t*e boo0s of t*e corporation so as to s*o, t*e na/es of t*e parties to t*e transaction! t*e )ate of t*e transfer! t*e nu/ber of t*e certificate! an) t*e nu/ber of s*ares transferre).K $*is restriction is necessary in or)er t*at t*e officers of t*e corporation /ay 0no, ,*o are t*e stoc0*ol)ers! ,*ic* is essential in con)uctin' elections of officers! in callin' /eetin' of stoc0*ol)ers! an) for ot*er purposes. but any restriction of t*e nature of t*at i/pose) in t*e by-la, no, in 9uestion! is ultra vires! violative of t*e property ri'*ts of s*are*ol)ers! an) in restraint of tra)e. $*o/son vs. C# :supra; G.R. 5o. 11"" 1; 4ctober 2A! 199A I%%12& Restrictions on $ransfer of %*ares. -2L6& $*e Manila +olo Club )oes not necessarily pro*ibit t*e transfer of proprietary s*ares by its /e/bers. $*e Club only restricts /e/bers*ip to )eservin' applicants in accor)ance ,it* its rules! ,*en t*e a/en)e) #rticles of Incorporation states t*at& K5o transfer s*all be vali) e8cept bet,een t*e parties! an) s*all be re'istere) in t*e Me/bers*ip ?oo0 unless /a)e in accor)ance ,it* t*ese #rticles an) t*e ?y-La,sK. $*us! as bet,een parties *erein! t*ere is no 9uestion t*at a transfer is feasible. Moreover! aut*ority 'rante) to a corporation to re'ulate t*e transfer of its stoc0 )oes not e/po,er it to restrict t*e
ri'*t of a stoc0*ol)er to transfer *is s*ares! but /erely aut*ori(es t*e a)option of re'ulations as to t*e for/alities an) proce)ure to be follo,e) in effectin' transfer.
Rural ?an0 of %alinas Inc. vs. C# G.R. 5o. 9""7<; >une 2"! 1992 F#C$%& Cle/ente Guerrero! +resi)ent of t*e petitioner-ban0! e8ecute) a %+# in favor of *is ,ife! private respon)ent Melania Guerrero! 'ivin' an) 'rantin' t*e latter full po,er an) aut*ority to sell or ot*er,ise )ispose of an)Qor /ort'a'e *is <7 s*ares of stoc0 of t*e ?an0 re'istere) in *is na/e. First )ee) of assi'n/ent ,as /a)e on t*e <72 out of <7 s*ares! in favor of private respon)ents Lu( #n)ico! 3il*el/ina Rosales an) Francisco Guerrero! >r. Mont*s later! secon) )ee) of assi'n/ent ,as e8ecute) for t*e re/ainin' one s*are of stoc0 in favor of private respon)ent Francisco Guerrero! %r . %ubse9uently! private respon)ent Melania Guerrero presente) to petitioner-ban0 t*e t,o 6ee)s of #ssi'n/ent for re'istration ,it* a re9uest for t*e transfer in t*e ?an0Ns stoc0 an) transfer boo0 of t*e s*ares of stoc0 so assi'ne)! t*e cancellation of stoc0 certificates an) t*e issuance of ne, stoc0 certificates coverin' t*e transferre) s*ares of stoc0s in t*e na/e of t*e ne, o,ners t*ereof. -o,ever! petitioner-ban0 )enie) t*e re9uest. +rivate respon)ent file) a /an)a/us a'ainst petitioner-ban0 in t*e %2C. $*e latter alle'e) in t*eir ans,er t*at upon t*e )eat* of Cle/ente Guerrero! *is s*ares of stoc0 beca/e t*e property of *is estate! an) *is property an) t*at of *is ,i)o, s*oul) first be settle) an) li9ui)ate) in accor)ance ,it* la, before any )istribution can be effecte) so t*at petitioners /ay not be a party to any sc*e/e to eva)e pay/ent of estate or in*eritance ta8 an) in or)er to avoi) liability to any t*ir) persons or cre)itors. %2C 'rante) t*e ,rit of /an)a/us. %2C en banc an) C# li0e,ise affir/e) t*e )ecision of %2C. I%%12%& :1; 345 %2C *as 7uris)iction. :2; Restrictions on $ransfer of %*ares.
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-2L6& :1; J2%. %ection = :b; of +.6. 5o. 9B2-# 'rants to t*e %2C t*e ori'inal an) e8clusive 7uris)iction to *ear an) )eci)e cases involvin' intra-corporate controversies. #n intra-corporate controversy *as been )efine) as one ,*ic* arises bet,een a stoc0*ol)er an) t*e corporation. $*ere is no )istinction! 9ualification! nor any e8ception ,*atsoever ,-i era s" *lorendo, 1)) SC-A (). [1/0(&1. $*e case at bar involves s*ares of stoc0! t*eir re'istration! cancellation an) issuances t*ereof by petitioner Rural ?an0 of %alinas. It is t*erefore ,it*in t*e po,er of respon)ent %2C to a)7u)icate. :2; Respon)ent %2C correctly rule) in favor of t*e re'isterin' of t*e s*ares of stoc0 in 9uestion in private respon)entNs na/es. %uc* rulin' fin)s support un)er %ection " of t*e Corporation Co)e. $*e only li/itation i/pose) by %ection " of t*e Corporation Co)e is ,*en t*e corporation *ol)s any unpai) clai/ a'ainst t*e s*ares inten)e) to be transferre)! ,*ic* is absent *ere. # corporation! eit*er by its boar)! its by-la,s! or t*e act of its officers! cannot create restrictions in stoc0 transfers. Restrictions in t*e traffic of stoc0 /ust *ave t*eir source in le'islative enact/ent! as t*e corporation itself cannot create suc* i/pe)i/ent. ?y-la,s are inten)e) /erely for t*e protection of t*e corporation! an) prescribe re'ulation! not restriction; t*ey are al,ays sub7ect to t*e c*arter of t*e corporation. $*e corporation! in t*e absence of suc* po,er! cannot or)inarily in9uire into or pass upon t*e le'ality of t*e transactions by ,*ic* its stoc0 passes fro/ one person to anot*er! nor can it 9uestion t*e consi)eration upon ,*ic* a sale is base). $*e ri'*t of a transfereeQassi'nee to *ave stoc0s transferre) to *is na/e is an in*erent ri'*t flo,in' fro/ *is o,ners*ip of t*e stoc0s. 7.; @#LI6I$J 4F $R#5%F2R%Q R2GI%$R#$I45 4F %-#R2% Ra(on vs. I#C G.R. 5o. 7< B"; Marc* 1"! 1992 F#C$%& +etitions centers on t*e o,ners*ip of 1!=BB s*ares of stoc0 in 2. Ra(on! Inc. covere) by %toc0 Certificate 5o. BB issue) an) re'istere) un)er t*e na/e of >uan $. C*ui)ian in t*e boo0s of t*e corporation. $*e t*en Court of First Instance of Manila! no, Re'ional $rial Court of Manila! )eclare) t*at 2nri9ue Ra(on! t*e petitioner is t*e o,ner of t*e sai) s*ares of stoc0. $*e t*en Inter/e)iate #ppellate Court! no, Court of #ppeals! *o,ever! reverse) t*e trial courtNs )ecision an) rule) t*at >uan $. C*ui)ian! t*e )ecease) fat*er of petitioner @icente ?. C*ui)ian is t*e o,ner of t*e s*ares of stoc0. ?ot* parties file) separate /otions for reconsi)eration. 2nri9ue Ra(on ,ante) t*e appellate courtNs )ecision reverse) an) t*e trial courtNs
)ecision affir/e) ,*ile @icente C*ui)ian as0e) t*at all cas* an) stoc0 )ivi)en)s an) all t*e pre-e/ptive ri'*ts accruin' to t*e 1!=BB s*ares of stoc0 be or)ere) )elivere) to *i/. $*e appellate court )enie) bot* /otions. -ence! t*ese petitions. I%%12& 3*en t*ere is an effective transfer of s*ares of stoc0D -2L6& $*e la, is clear t*at in or)er for a transfer of stoc0 certificate to be effective! t*e certificate /ust be properly in)orse) an) t*at title to suc* certificate of stoc0 is veste) in t*e transferee by t*e )elivery of t*e )uly in)orse) certificate of stoc0. :%ection =! Corporation Co)e; %ince t*e certificate of stoc0 coverin' t*e 9uestione) 1!=BB s*ares of stoc0 re'istere) in t*e na/e of t*e late >uan C*ui)ian ,as never in)orse) to t*e petitioner! t*e inevitable conclusion is t*at t*e 9uestione) s*ares of stoc0 belon' to C*ui)ian. $*e petitionerNs asseveration t*at *e )i) not re9uire an in)orse/ent of t*e certificate of stoc0 in vie, of *is inti/ate frien)s*ip ,it* t*e late >uan C*ui)ian can not overco/e t*e failure to follo, t*e proce)ure re9uire) by la, or t*e proper con)uct of business even a/on' frien)s. $o reiterate! in)orse/ent of t*e certificate of stoc0 is a /an)atory re9uire/ent of la, for an effective transfer of a certificate of stoc0. $orres vs. C# G.R. 5o. 12B1 A; %epte/ber =! 1997 F#C$%& $*e late Manuel #. $orres! >r. :>u)'e $orres for brevity; ,as t*e /a7ority stoc0*ol)er of $or/il Realty M 6evelop/ent Corporation ,*ile private respon)ents ,*o are t*e c*il)ren of >u)'e $orres! )ecease) brot*er #ntonio #. $orres! constitute) t*e /inority stoc0*ol)ers. $*e 19A7 annual stoc0*ol)ers /eetin' an) election of )irectors of $or/il corporation ,as sc*e)ule) in co/pliance ,it* t*e provisions of its by-la,s. >u)'e $orres assi'ne) fro/ *is o,n s*ares! one :1; s*are eac* to petitioners $obias! >ocson! >urispru)encia! #(ura an) +abalan. $*ese assi'ne) s*ares ,ere in t*e nature of 9ualifyin' s*ares! for t*e sole purpose of /eetin' t*e le'al re9uire/ent to be able to elect t*e/ :$obias an) co/pany; to t*e ?oar) of 6irectors as $orres no/inees.
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$*e annual stoc0*ol)ers /eetin' ,as *el) as sc*e)ule). $,o representatives of t*e %2C ,ere present in t*e /eetin'. #ntonio $orres >r. 9uestione) t*e presence of t*e %2C representatives *ol)in' t*at t*e sub7ect /eetin' is for t*e fa/ily corporation an) private fir/. $*e %2C representatives e8plaine) t*at it ,as /erely in response to t*e re9uest of Manuel $orres! >r. an) t*at %2C *as 7uris)iction over all re'istere) corporations. $*e /eetin' resulte) into c*aos ,*ic* in effect ouste) Manuel $orres an) *is 'roup but nevert*eless ,ere able to elect t*e officers. Conse9uently! private respon)ents institute) a co/plaint ,it* t*e %2C prayin' in t*e /ain! t*at t*e election of petitioners to t*e ?oar) of 6irectors be annulle). +rivate respon)ents alle'e) t*at t*e petitioners-no/inees ,ere not le'iti/ate stoc0*ol)ers of $or/il because t*e assi'n/ent of s*ares to t*e/ violate) t*e /inority stoc0*ol)ers ri'*t of pree/ption as provi)e) in t*e corporation.s articles an) by-la,s. I%%12& 345 t*e assi'n/ent of s*ares /a)e by >u)'e $orres is vali) )espite bein' only t*e si'natory to t*e certificates issue). -2L6& 54. It is t*e corporate secretary.s )uty an) obli'ation to re'ister vali) transfers of stoc0s an) if sai) corporate officer refuses to co/ply! t*e transferor-stoc0*ol)er /ay ri'*tfully brin' suit to co/pel perfor/ance. In t*e absence of any provision to t*e contrary! t*e corporate secretary is t*e custo)ian of corporate recor)s. Corollarily! *e 0eeps t*e stoc0 an) transfer boo0 an) /a0es proper an) necessary entries t*erein. In t*e case at bar! t*e stoc0 an) transfer boo0 of $4RMIL ,as not 0ept by Ms. Maria Cristina $. Carlos! t*e corporate secretary but by respon)ent $orres! t*e +resi)ent an) C*air/an of t*e ?oar) of 6irectors of $4RMIL. In contravention to t*e above cite) provision! t*e stoc0 an) transfer boo0 ,as not 0ept at t*e principal office of t*e corporation eit*er but at t*e place of respon)ent $orres. $*ese bein' t*e obtainin' circu/stances! any entries /a)e in t*e stoc0 an) transfer boo0 on Marc* A! 19A7 by respon)ent $orres of an alle'e) transfer of no/inal s*ares to +abalan an) Co. cannot t*erefore be 'iven any vali) effect. 3*ere t*e entries /a)e are not vali)! +abalan an) Co. cannot t*erefore be consi)ere) stoc0*ol)ers of recor) of $4RMIL. ?ecause t*ey are not stoc0*ol)ers! t*ey cannot t*erefore be electe) as )irectors of $4RMIL. Rivera vs. Floren)o G.R. 5o. L-=7=A"; 4ctober A! 19A"
F#C$%& Isa/u #0asa0o! a >apanese national ,*o ,as alle'e)ly t*e real o,ner of t*e s*ares of stoc0 in t*e na/e of one #9uilino Rivera! a re'istere) stoc0*ol)er of Fu7uya/a -otel an) Restaurant! Inc.! sol) 2!==B s*ares of t*e sa/e to Mila'ros $suc*iya alon' ,it* t*e assurance t*at $suc*iya ,oul) be /a)e +resi)ent of t*e corporation after t*e purc*ase. Rivera assure) *er t*at *e ,oul) si'n t*e stoc0 certificates because #0asa0o ,as t*e real o,ner. -o,ever! after t*e sale ,as consu//ate) an) t*e consi)eration pai)! Rivera refuse) to /a0e t*e in)orse/ent unless *e is also pai). $suc*iya! et al. atte/pte) several ti/es to *ave t*e s*ares re'istere) but ,ere refuse) co/pliance by t*e corp. $*ey file) a special action for /an)a/us an) )a/a'es. I%%12%& 345 Rivera *a) t*e ri'*t to refuse t*e in)orse/ent of t*e s*ares of stoc0 in 9uestion. 345 t*e Corporation *a) t*e ri'*t to refuse t*e re'istration of t*e respon)ents s*ares. -2L6& $*e %upre/e Court )enie) t*e ,rit of preli/inary /an)atory in7unction an) re/an)e) t*e case to t*e lo,er court for a trial on t*e /erits. #s foun) in %ec. " of t*e Corporation Co)e! s*ares of stoc0 /ay be transferre) by )elivery of t*e certificate after in)orse/ent by t*e o,ner or *is attorney-in-fact or ot*er person le'ally aut*ori(e) to /a0e t*e transfer. ?y t*is provision it is evi)ent t*at Rivera.s in)orse/ent /ust be obtaine) before any transfer of t*e 9uestione) s*ares is effecte). 4n t*e /atter of 7uris)iction! t*e %2C )oes not *ave 7uris)iction of t*e case since t*e )ispute is not an intra-corporate controversy. 3*at it si/ply involves is a conflict on t*e o,ners*ip of a 'roup of s*ares bet,een t*e re'istere) o,ner an) an outsi)e party. -ence! because of t*is conflict in o,ners*ip ri'*ts! a /an)atory in7unction can not lie. Li/ $ay vs. C# G.R. 5o. 12"A91; #u'ust =! 199A F#C$%& %y Guio0 an) %y Li/ secure) a loan fro/ Li/ $ay. $*is ,as secure) by a contract of ple)'e ,*ereby t*e for/er ple)'e) t*eir BB s*ares of stoc0 eac* in Go Fay M Co/pany to t*e latter. -o,ever! t*ey faile) to pay t*eir respective
loans. -ence! Li/ $ay file) a petition for /an)a/us a'ainst Go Fay M Co/pany ,it* t*e %2C prayin' t*at an or)er be issue) )irectin' t*e corporate secretary of t*e sai) corporation to re'ister t*e stoc0 transfers an) issue ne, certificates in favor of Li/ $ay. Go Fay M Co/pany file) its ans,er conten)in' t*at %2C *a) no 7uris)iction to entertain t*e co/plaint on t*e 'roun) t*at since Li/ $ay ,as not a stoc0*ol)er of t*e co/pany! no intra corporate controversy too0 place; an) furt*er/ore! t*at t*e )efault of pay/ent of %y Guio0 an) %y Li/ )i) not auto/atically vest in Li/ $ay t*e o,ners*ip of t*e ple)'e) s*ares. %2C )is/isse) t*e co/plaint. 4n appeal to t*e C#! it affir/e) %2C.s )ecision. I%%12& 345 Li/ $ay is t*e o,ner of t*e s*ares previously sub7ecte) to ple)'e! for *i/ to cause t*e re'istration of sai) s*ares in *is o,n na/e. -2L6& Li/ $ayNs o,ners*ip over t*e s*ares ,as not yet perfecte) ,*en t*e Co/plaint ,as file). $*e contract of ple)'e certainly )oes not /a0e *i/ t*e o,ner of t*e s*ares ple)'e). 3*en s*ares of stoc0s are ple)'e) by /eans of en)orse/ent in blan0 an) )elivery of t*e coverin' certificates to secure a /ort'a'e loan! t*e ple)'ee )oes not beco/e t*e o,ner of t*e s*ares si/ply by t*e failure of t*e re'istere) stoc0*ol)er to pay *is loan. Conse9uently! ,it*out proper foreclosure! t*e len)er cannot )e/an) t*at t*e s*ares be re'istere) in *is na/e. # contract of ple)'e of s*ares )oes not /a0e t*e ple)'ee t*e o,ners of t*e s*ares ple)'e). +once vs. #lsons Ce/ent G.R. 5o. 1 9AB2; 6ece/ber 1B! 2BB2 F#C$%& @icente C. +once an) Fausto Gai)! incorporator of @ictory Ce/ent Corporation :@CC;! e8ecute) a E6ee) of 1n)erta0in'F an) EIn)orse/entF ,*ereby Gai) ac0no,le)'es t*at +once is t*e o,ner of t*e s*ares an) *e ,as t*erefore assi'nin'Qen)orsin' it to +once. @CC ,as rena/e) Floro Ce/ent Corporation :FCC; an) t*en to #lsons Ce/ent Corporation :#CC;. 1p to t*e present! no certificates of stoc0 correspon)in' to t*e 2 9!=BB subscribe) an) fully pai) s*ares
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of Gai) ,ere issue) in t*e na/e of Fausto G. Gai) an)Qor t*e plaintiff. 6espite repeate) )e/an)s! t*e #CC refuse) to issue t*e certificates of stoc0s. +once! file) a co/plaint ,it* t*e %2C for /an)a/us an) )a/a'es a'ainst #lsons Ce/ent Corporation an) its corporate secretary Francisco M. Giron! >r. #CC an) Giron /ove) to )is/iss. %2C -earin' 4fficer 2nri9ue L. Flores! >r. 'rante) t*e /otion to )is/iss. +once appeale) t*e 4r)er of )is/issal. $*e Co//ission 2n ?anc reverse) t*e appeale) 4r)er an) )irecte) t*e -earin' 4fficer to procee) ,it* t*e case. In rulin' t*at a transfer or assi'n/ent of stoc0s nee) not be re'istere) first before it can ta0e co'ni(ance of t*e case to enforce +onceNs ri'*ts as a stoc0*ol)er! t*e Co//ission 2n ?anc cite) t*e %upre/e CourtNs rulin' in A!e2o s" %e la Cru'. #CC an) Giron appeale) t*e )ecision of t*e %2C 2n ?anc to C#. $*e latter rule) t*at /an)a/us s*oul) be )is/isse) for failure to state a cause of action. I%%12& 345 t*e certificate of stoc0s of Gai) can be transferre) to +once. -2L6& 54. +ursuant to %ection " of t*e Corporation Co)e! a transfer of s*ares of stoc0 not recor)e) in t*e stoc0 an) transfer boo0 of t*e corporation is non-e8istent as far as t*e corporation is concerne). #s bet,een t*e corporation on t*e one *an)! an) its s*are*ol)ers an) t*ir) persons on t*e ot*er! t*e corporation loo0s only to its boo0s for t*e purpose of )eter/inin' ,*o its s*are*ol)ers are. It is only ,*en t*e transfer *as been recor)e) in t*e stoc0 an) transfer boo0 t*at a corporation /ay ri'*tfully re'ar) t*e transferee as one of its stoc0*ol)ers. Fro/ t*is ti/e! t*e conse9uent obli'ation on t*e part of t*e corporation to reco'ni(e suc* ri'*ts as it is /an)ate) by la, to reco'ni(e arises. -ence! ,it*out suc* recor)in'! t*e transferee /ay not be re'ar)e) by t*e corporation as one a/on' its stoc0*ol)ers an) t*e corporation /ay le'ally refuse t*e issuance of stoc0 certificates in t*e na/e of t*e transferee even ,*en t*ere *as been co/pliance ,it* t*e re9uire/ents of %ection "< of t*e Corporation Co)e. $*e stoc0 an) transfer boo0 is t*e basis for ascertainin' t*e persons entitle) to t*e ri'*ts an) sub7ect to t*e liabilities of a stoc0*ol)er. 3*ere a transferee is not yet reco'ni(e) as a stoc0*ol)er! t*e corporation is un)er no specific le'al )uty to issue stoc0 certificates in t*e transfereeNs na/e. 2ven if a certificate is in)orse) an) )elivere) to a t*ir) person it )oes not auto/atically entitle suc* person to re'ister suc* certificate in *is na/e! or co/pel t*e corporation to re'ister t*e certificate in *is na/e even. #n in)orse) an) )elivere) certificate )oes not create a clear ri'*t ,it* respect to t*e possession of suc* certificate by t*e t*ir) person! as t*e sa/e /o)e :in)orse/ent an) )elivery; applies to sale! ple)'e an) /ort'a'e. $*is is ,*ere t*e re'istere) o,ner /ust co/e in; *e /ust infor/ t*e corporation ,*et*er t*e )isposition ,as a ple)'e! or /ort'a'e or sale! ,*ic* ,oul) )eter/ine ,*et*er or
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not t*e t*ir) person is entitle) re'istration. %ince al/ost all )ealin's co/prise of t*e sa/e /o)e! t*e o,ner /ust apprise t*e corporation ,it* t*e necessary infor/ation an) instructions.
Rural ?an0 of %alinas Inc. vs. C# :supra; G.R. 5o. 9""7<; >une 2"! 1992 I%%12& 345 t*e corporate secretary is co/pelle) to re'ister t*e sai) transfer of s*ares. -2L6& J2%. ?ase) on t*ose circu/stances! t*ere ,as a clear )uty on t*e part of t*e corporate secretary to re'ister t*e <7 s*ares in favor of t*e ne, o,ners! since t*e person ,*o sou'*t t*e transfer of s*ares *a) e8press instructions fro/ an) specific aut*ority 'iven by t*e re'istere) stoc0*ol)er to cause t*e )isposition of stoc0s re'istere) in *is na/e. $*e ri'*t of a transfereeQassi'nee to *ave stoc0s transferre) to *is na/e is an in*erent ri'*t flo,in' fro/ *is o,ners*ip of t*e stoc0s. $*us! ,*enever a corporation refuses to transfer an) re'ister stoc0! /an)a/us ,ill lie to co/pel t*e officers of t*e corporation to transfer sai) stoc0 in t*e boo0s of t*e corporation. $*is is because t*e corporationNs obli'ation to re'ister is /inisterial. ,3ote, ho4e er, that in such cases, the person re5uesting the registration must !e the prima facie o4ner of the shares" Cf" $im Tay " CA, 6/. SC-A (.)1 -a'er vs. ?ryan G.R. 5o. "2 B; >anuary 1A! 1911 F#C$%& +etitioner file) an ori'inal action to secure a ,rit of /an)a/us a'ainst t*e respon)ent! to co/pel *i/! as secretary of t*e @isayan 2lectric Co/pany! to transfer upon t*e boo0s of t*e co/pany certain s*ares of stoc0. -e base) t*e ur'ency of *is action on a suppose) a'ree/ent to sell t*e sai) s*ares to a Mr. Leverin'. Furt*er/ore! *e also state) t*at t*e issuin' co/pany *ol)s no unpai) clai/s a'ainst t*e s*ares of stoc0. -o,ever! on t*e boo0s of t*e co/pany! it turns out t*at petitioner is not t*e re'istere) o,ner of t*e stoc0 ,*ic* *e see0s to *ave transferre). -is only clai/ as o,ner is base) on
*is aver/ent t*at suc* ,ere Ein)orse)F to *i/ on February = by t*e ?ryan-Lan)on Co/pany! in ,*ose na/e it is re'istere) on t*e boo0s of t*e @isayan 2lectric Co/pany. $*ere ,as no alle'ation t*at t*e petitioner *ol)s any po,er of attorney fro/ t*e ?ryan-Lan)on Co/pany aut*ori(in' *i/ to /a0e )e/an) on t*e secretary of t*e @isayan 2lectric Co/pany to /a0e t*e transfer ,*ic* petitioner see0s to *ave /a)e t*rou'* t*e /e)iu/ of t*e /an)a/us of t*is court. I%%12& 345 a ,rit of /an)a/us ,ill lie un)er t*e circu/stances of t*e case to allo, t*e transfer of s*ares as bein' re9ueste) by t*e petitioner. -2L6& $*e %upre/e Court )enie) t*e ,rit. +etitioner )i) not *ave t*e ri'*t to )e/an) t*e transfer since *e ,as not t*e stoc0*ol)er of recor). $*is ,as proven by t*e fact t*at t*e sai) s*ares ,ere still re'istere) un)er t*e na/e of ?ryan-Lan)on Co/pany. Furt*er/ore! even t*e latter )i) not )e/an) fro/ t*e co/pany t*e transfer of sai) s*ares. 5eit*er )i) it 'ive by ,ay of a special po,er of attorney to petitioner t*e aut*ority to effect suc* a transfer. -ence! t*ere is no clear an) le'al obli'ation upon t*e respon)ent t*at ,ill 7ustify t*e issuance of a ,rit to co/pel t*e latter to perfor/ a transfer. #s a 'eneral rule! as bet,een t*e corporation on t*e one *an)! an) its s*are*ol)ers an) t*ir) persons on t*e ot*er! t*e corporation loo0s only to its boo0s for t*e purpose of )eter/inin' ,*o its s*are*ol)ers are! so t*at a /ere in)orsee of a stoc0 certificate! clai/in' to be t*e o,ner! ,ill not necessarily be reco'ni(e) as suc* by t*e corporation an) its officers! in t*e absence of e8press instructions of t*e re'istere) o,ner to /a0e suc* transfer to t*e in)orsee! or a po,er of attorney aut*ori(in' suc* transfer. ?iton' vs. C# G.R. 5o. 12 == ; >uly 1 ! 199A F#C$%& ?iton' ,as t*e treasurer an) /e/ber of t*e ?46 of Mr. M Mrs. +ublis*in' Co. %*e file) a co/plaint ,it* t*e %2C to *ol) respon)ent spouses #postol liable for frau)! /isrepresentation! )isloyalty! evi)ent ba) fait*! conflict of interest an) /is/ana'e/ent in )irectin' t*e affairs of t*e corporation to t*e pre7u)ice of t*e stoc0*ol)ers. %*e alle'es t*at certain transactions entere) into by t*e corporation ,ere not supporte) by any stoc0*ol)er.s resolution.
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$*e co/plaint sou'*t to en7oin #postol fro/ furt*er actin' as presi)ent-)irector of t*e corporation an) fro/ )isbursin' any /oney or fun)s. #postol conten)s t*at ?iton' ,as /erely a *ol)er-in-trust of t*e >#G# s*ares of t*e corporation! *ence! not entitle) to t*e relief s*e prays for. %2C -earin' +anel issue) a ,rit en7oinin' #postol. #fter *earin' t*e evi)ence! %2C -earin' +anel )issolve) t*e ,rit an) )is/isse) t*e co/plaint file) by ?iton'. ?iton' appeale) to t*e %2C en banc ,*ic* t*e latter reverse) %2C -earin' +anel )ecision. #postol file) petition for revie, ,it* t*e C#. C# reverse) %2C en banc rulin' *ol)in' t*at ?iton' ,as not t*e o,ner of any s*are of stoc0 in t*e corporation an) t*erefore! not a real party in interest to prosecute t*e co/plaint. I%%12& 345 ?iton' is t*e real party-in-interest. -2L6& 54. ?ase) on t*e evi)ence presente)! it coul) be 'leane) t*at ?iton' ,as not a bona fi)e stoc0*ol)er of t*e corporation. %everal corporate )ocu/ents )isclose t*at t*e true party in interest ,as >#G#. %ection " of t*e Corporation Co)e envisions a for/al certificate of stoc0 ,*ic* can be issue) only upon co/pliance ,it* certain re9uisites. Fir*t! t*e certificate /ust be si'ne) by t*e presi)ent or vice-presi)ent! countersi'ne) by t*e secretary or assistant secretary! an) seale) ,it* t*e seal of t*e corporation. # /ere type,ritten state/ent a)visin' a stoc0*ol)er of t*e e8tent of *is o,ners*ip is a corporation ,it*out 9ualification an)Qor aut*entication cannot be consi)ere) as a for/al certificate of stoc0. Second! )elivery of t*e certificate is an essential ele/ent of its issuance. -ence! t*ere is no issuance of a stoc0 certificate ,*ere it is never )etac*e) fro/ t*e stoc0 boo0s alt*ou'* blan0s t*erein are properly fille) up if t*e person ,*ose na/e is inserte) t*erein *as no control over t*e boo0s of t*e co/pany. T+ird! t*e par value! as to par value s*ares! or t*e full subscription as to no par value s*ares! /ust first be fully pai). Fo"rt+! t*e ori'inal certificate /ust be surren)ere) ,*ere t*e person re9uestin' t*e issuance of a certificate is a transferee fro/ a stoc0*ol)er. %toc0 issue) ,it*out aut*ority an) in violation of la, is voi) an) confers no ri'*ts on t*e person to ,*o/ it is issue) an) sub7ects *i/ to no liabilities. 3*ere t*ere is an in*erent lac0 of po,er in t*e corporation to issue t*e stoc0! neit*er t*e corporation nor t*e person to ,*o/ t*e stoc0 is issue) is estoppe) to 9uestion its vali)ity since an estoppel cannot operate to create stoc0 ,*ic* un)er t*e la, cannot *ave e8istence. #be7o vs. 6e la Cru( G.R. 5o. L-" ==A; May 19! 19A7
F#C$%& Case involves a )ispute bet,een t*e principal stoc0*ol)ers of t*e corporation +oc0et ?ell +*ilippines! Inc. :+oc0et ?ell; na/ely spouses #be7os. an) t*e purc*aser! $electronic %yste/s! Inc. :$electronics; of t*eir /inority s*are*ol)in's an) of s*ares re'istere) in t*e na/e of spouses ?ra'as.. 3it* t*e sai) purc*ases! $electronics ,oul) beco/e t*e /a7ority stoc0*ol)er! *ol)in' ="H of t*e outstan)in' stoc0 an) votin' po,er of t*e corporation +oc0et ?ell. $electronics re9ueste) t*e corporate secretary of t*e corporation! 5orberto ?ra'a! to re'ister an) transfer to its na/e! an) t*ose of its no/inees t*e total 19"!BBB +oc0et ?ell s*ares in t*e corporationNs transfer boo0! cancel t*e surren)ere) certificates of stoc0 an) issue t*e correspon)in' ne, certificates of stoc0 in its na/e an) t*ose of its no/inees. $*e latter refuse) to re'ister t*e aforesai) transfer of s*ares in t*e corporate boo0s! assertin' t*at t*e ?ra'as clai/ pre-e/ptive ri'*ts over t*e #be7o s*ares an) t*at @ir'inia ?ra'a never transferre) *er s*ares to $electronics but *a) lost t*e five stoc0 certificates representin' t*ose s*ares. $*is tri''ere) off t*e series of intert,ine) actions bet,een t*e prota'onists! all centere) on t*e 9uestion of 7uris)iction over t*e )ispute. $*e ?ra'as assert t*at t*e re'ular civil court *as ori'inal an) e8clusive 7uris)iction as a'ainst t*e %2C! ,*ile t*e #be7os an) $electronics! as ne, /a7ority s*are*ol)ers! clai/ t*e contrary. Respon)ent >u)'e )e la Cru( issue) an or)er rescin)in' t*e or)er ,*ic* )is/isse) t*e co/plaint of t*e ?ra'as in t*e R$C! t*us *ol)in' t*at t*e R$C an) not t*e %2C *a) 7uris)iction. Respon)ent 7u)'e also revive) t*e $R4 previously issue) restrainin' $electronicsN a'ents or representatives fro/ enforcin' t*eir resolution constitutin' t*e/selves as t*e ne, set of officers of +oc0et ?ell an) fro/ assu/in' control of t*e corporation an) )isc*ar'in' t*eir functions. $*e #be7os file) a MR! ,*ic* /otion ,as )uly oppose) by t*e ?ra'as! ,*ic* ,as )enie) by respon)ent >u)'e. I%%12& :1; 3*o *as 7uris)ictionD :2; 345 t*e corporate secretary /ay refuse to re'ister t*e transfer of s*ares in t*e corporate boo0s. -2L6& :1; $*e Court rule) t*at t*e %2C *as ori'inal an) e8clusive 7uris)iction an) t*at t*e %2C correctly rule) in )is/issin' t*e ?ra'asN petition 9uestionin' its 7uris)iction! t*at Kt*e issue is not t*e o,ners*ip of s*ares but rat*er t*e non-perfor/ance by t*e Corporate %ecretary of t*e /inisterial )uty of recor)in' transfers of s*ares of stoc0 of t*e Corporation of ,*ic* *e is secretary.K $*e )ispute at bar! as *el) by t*e %2C! is an intra-corporate )ispute t*at *as arisen bet,een an) a/on' t*e principal stoc0*ol)ers of t*e corporation +oc0et ?ell )ue to t*e refusal of t*e corporate secretary! bac0e) up by *is parents as
erst,*ile /a7ority s*are*ol)ers! to perfor/ *is K/inisterial )utyK to recor) t*e transfers of t*e corporationNs controllin' :="H; s*ares of stoc0! covere) by )uly en)orse) certificates of stoc0! in favor of $electronics as t*e purc*aser t*ereof. :2; 54. #s pointe) out by t*e #be7os! +oc0et ?ell is not a close corporation! an) no restriction over t*e free transferability of t*e s*ares appears in t*e #rticles of Incorporation! as ,ell as in t*e byla,s an) t*e certificates of stoc0 t*e/selves! as re9uire) by la, for t*e enforce/ent of suc* restriction. #s t*e %2C /aintains! K$*ere is no re9uire/ent t*at a stoc0*ol)er of a corporation /ust be a re'istere) one in or)er t*at t*e %ecurities an) 28c*an'e Co//ission /ay ta0e co'ni(ance of a suit see0in' to enforce *is ri'*ts as suc* stoc0*ol)er.K $*is is because t*e %2C by e8press /an)ate *as Kabsolute 7uris)iction! supervision an) control over all corporationsK an) is calle) upon to enforce t*e provisions of t*e Corporation Co)e! a/on' ,*ic* is t*e stoc0 purc*aserNs ri'*t to secure t*e correspon)in' certificate in *is na/e un)er t*e provisions of %ection " of t*e Co)e. A.; 15#1$-4RIT26 $R#5%F2R% %anta/aria vs. -on'0on' an) %*an'*ai ?an0 G.R. 5o. L-2ABA; #u'ust 1! 19=1 F#C$%& %anta/aria secure) *er or)er for a nu/ber of s*ares ,it* R> Ca/pos M Co. ,it* *er stoc0 certificate representin' *er s*ares ,it* ?atan'as Minerals. $*e sai) certificate ,as ori'inally issue) in t*e na/e of *er bro0er an) en)orse) in blan0 by t*e latter. #s Ca/pos faile) to /a0e 'oo) on t*e or)er! %anta/aria )e/an)e) t*e return of t*e certificate. -o,ever! s*e ,as infor/e) t*at -on'0on' ?an0 *a) ac9uire) possession of it inas/uc* as it ,as covere) by t*e ple)'e /a)e by Ca/pos ,it* t*e ban0. $*ereafter! s*e institute) an action a'ainst -on'0on' ?an0 for t*e recovery of t*e certificate. $rial court )eci)e) in *er favor. $*e ban0 appeale). I%%12%& :1; 345 %anta/aria ,as c*ar'eable ,it* ne'li'ence ,*ic* 'ave rise to t*e case. :2; 345 t*e ?an0 ,as obli'ate) to in9uire into t*e o,ners*ip of t*e certificate. -2L6&
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:1; $*e facts of t*e case 7ustify t*e conclusion t*at s*e ,as ne'li'ent. %*e )elivere) t*e certificate! ,*ic* ,as en)orse) in blan0! to Ca/pos ,it*out *avin' ta0en any precaution. %*e )i) not as0 t*e ?atan'as Minerals to cancel it an) instea)! issue anot*er in *er na/e. In failin' to )o so! s*e clot*e) Ca/pos ,it* apparent title to t*e s*ares represente) by t*e certificate. ?y *er /isplace) confi)ence in Ca/pos! s*e /a)e possible t*e ,ron' )one. %*e ,as t*erefore estoppe) fro/ assertin' title t*ereto for it is ,ell-settle) t*at E,*ere one of t*e innocent parties /ust suffer by reason of a ,ron'ful or unaut*ori(e) act! t*e loss /ust fall on t*e one ,*o first truste) t*e ,ron')oer.F :2; $*e sub7ect certificate is ,*at is 0no,n as a *treet certific!te. 1pon its face! t*e *ol)er is entitle) to )e/an) its transfer into *is na/e fro/ t*e issuin' corporation. $*e ban0 is not obli'ate) to loo0 beyon) t*e certificate to ascertain t*e o,ners*ip of t*e stoc0. # certificate of stoc0! en)orse) in blan0! is )ee/e) 9uasi-ne'otiable! an) as suc*! t*e transferee t*ereof is 7ustifie) in believin' t*at it belon's to t*e transferor. 6e los %antos vs. McGrat* G.R. 5o. L-<A1A; February 2A! 19== F#C$%& 6e los %antos file) a clai/ ,it* t*e #lien +roperty Custo)ian for a nu/ber of s*ares of t*e Lepanto Corporation. -e conten)e) t*at sai) s*ares ,ere bou'*t fro/ one Ca/pos an) -ess! bot* of t*e/ )ea). $*e +*ilippine #lien +roperty #)/inistrator re7ecte) t*e clai/. -e institute) t*e present action to establis* title to t*e afore/entione) s*ares of stoc0. $*e 1% #ttorney General! t*e successor of t*e #lien +roperty #)/inistrator! oppose) t*e action on t*e 'roun) t*at t*e sai) s*ares of stoc0 ,ere bou'*t by one Ma)ri'al! in trust for t*e true o,ner! Matsui! an) t*en )elivere) to t*e latter in)orse) in blan0. I%%12& -a) )e los %antos in fact purc*ase) t*e s*ares of stoc0D -2L6& 6e los %antos. sole evi)ence t*at *e purc*ase) t*e sai) s*ares ,as *is o,n unverifie) testi/ony. $*e alle'e) ven)ors of t*e s*ares of stoc0! ,*o coul) *ave verifie) t*e alle'ation! ,ere alrea)y )ea). Furt*er! t*e receipt t*at /i'*t *ave proven t*e sale ,as sai) to *ave been lost in a fire. 4n t*e ot*er *an)! it ,as s*o,n t*at t*e s*ares of stoc0 ,ere re'istere) in t*e recor)s of Lepanto in t*e na/e of Ma)ri'al! t*e trustee of Matsui; t*at Matsui ,as subse9uently 'iven possession of t*e
correspon)in' stoc0 certificates! t*ou'* en)orse) in blan0; an)! t*at Matsui *a) neit*er sol)! conveye) nor alienate) t*ese to anybo)y. It is t*e rule t*at if t*e o,ner of t*e certificate *as en)orse) it in blan0! an) is stolen! no title is ac9uire) by an innocent purc*aser of value. $*is is so because even t*ou'* a stoc0 certificate is re'ar)e) as 9uasi-ne'otiable! in t*e sense t*at it /ay be transferre) by en)orse/ent! couple) ,it* )elivery! t*e *ol)er t*ereof ta0es it ,it*out pre7u)ice to suc* ri'*ts or )efenses as t*e re'istere) o,ner or cre)it /ay *ave un)er t*e la,! e8cept in so far as suc* ri'*ts or )efenses are sub7ect to t*e li/itations i/pose) by t*e principles 'overnin' estoppel. CO(PARISON of %anta/aria case an) 6e los %antos case& In S!nt!,!ri! c!*e! a certificate of stoc0! in)orse) in blan0! is )ee/e) 9uasi-ne'otiable! an) as suc* t*e transferee t*ereof is 7ustifie) in believin' t*at it belon's to t*e *ol)er an) transferor. In De 'o* S!nto* c!*e! alt*ou'* a stoc0 certificate is so/eti/es re'ar)e) as 9uasi-ne'otiable! in t*e sense t*at it /ay be transferre) by en)orse/ent! couple) ,it* )elivery it is ,ell settle) t*at t*e instru/ent is non-ne'otiable! because t*e *ol)er t*ereof ta0es it ,it*out pre7u)ice to suc* ri'*ts or )efense as t*e re'istere) o,ner or cre)it /ay *ave un)er t*e la,! e8cept in so far as suc* ri'*ts or )efenses are sub7ect tot e* li/itations i/pose) by t*e principles 'overnin' estoppel. 9.; C4LL#$2R#L $R#5%F2R% 1son vs. 6ioso/ito G.R. 5o. L-<21 =; >une 17! 19 = F#C$%& $oribia 1son file) a civil action for )ebt a'ainst @icente 6ioso/ito. 1pon institution of sai) action! an attac*/ent ,as )uly issue) an) respon)ent.s property ,as levie) upon! inclu)in' 7= s*ares of t*e 5ort* 2lectric Co.! ,*ic* stoo) in *is na/e on t*e boo0s of t*e co/pany ,*en t*e attac*/ent ,as levie). $*e s*eriff sol) sai) s*ares at a public auction ,it* 1son bein' t*e *i'*est bi))er. >ollye clai/s to be t*e o,ner of sai) certificate of stoc0 issue) to *i/ by t*e 5ort* 2lectric Co. $*ere is no )ispute t*at 6ioso/ito ,as t*e ori'inal o,ner of sai) s*ares! ,*ic* *e sol) to ?arcelon. -o,ever! ?arcelon )i) not present t*ese certificates to t*e corporation for re'istration until 19 /ont*s after t*e )elivery t*ereof by
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?arcelon! an) 9 /ont*s after t*e attac*/ent an) levy on sai) s*ares. $*e transfer to >ollye ,as /a)e = /ont*s after t*e issuance of a certificate of stoc0 in ?arcelonNs na/e. I%%12& Is a bona fi)e transfer of t*e s*ares of corp.! not re'istere) or note) on t*e boo0s of t*e corp.! vali) as a'ainst a subse9uent la,ful attac*/ent of sai) s*ares! re'ar)less of ,*et*er t*e attac*in' cre)itor *a) actual notice of sai) transfer or notD -2L6& 54! it is not vali). $*e transfer of t*e 7= s*ares in t*e 5ort* 2lectric Co.! Inc /a)e by t*e )efen)ant 6ioso/ito as to t*e )efen)ant ?arcelon ,as not vali) as to t*e plaintiff. $oribia 1son! on 1A >an. 19 2! t*e )ate on ,*ic* s*e obtaine) *er attac*/ent lien on sai) s*ares of stoc0 ,ill still stoo) in t*e na/e of 6ioso/ito on t*e boo0s of t*e corp. %ec. = provi)es t*at E5o transfer! *o,ever! is vali)! e8cept as bet,een t*e parties! until t*e transfer is entere) an) note) upon t*e boo0s of t*e corporation so as to s*o, t*e na/es of t*e parties to t*e transaction! t*e )ate of t*e transfer! t*e nu/ber of t*e certificate! an) t*e nu/ber of s*ares transferre).F #ll transfers of s*ares not so entere) are invali) as to attac*in' or e8ecution cre)itors of t*e assi'nors! as ,ell as to t*e corporation an) to subse9uent purc*asers in 'oo) fait*! an) in)ee)! as to all persons intereste)! e8cept t*e parties to suc* transfers. C*ua Guan vs. %a/a*an' Ma'sasa0a G.R. 5o. L-<2B91; 5ove/ber 2! 19 = F#C$%& # certain Co $oco ,as t*e o,ner of =!A9< s*ares of %a/a*an' Ma'sasa0a! Inc. ,*ic* *e /ort'a'e) to C*ua C*iu to 'uarantee t*e pay/ent of )ebt. $*e correspon)in' certificates ,ere )elivere) to C*ua C*iu an) ,ere )uly re'istere) in t*e office of t*e re'ister of )ee)s of Manila an) in t*e office of t*e sai) corporation. #bout five /ont*s after! C*ua C*ui assi'ne) all *is ri'*ts an) interest in sai) /ort'a'e to t*e plaintiff! C*ua Gan ,*ic* ,as also )uly recor)e). Co $oco )efaulte). $*e plaintiff foreclose) on t*e /ort'a'e. In t*e public auction *e ,on as t*e *i'*est bi))er. -o,ever! upon presentin' t*e certificates to t*e corporation for re'istration! t*e officers refuse) because t*ey an) t*e plaintiff coul) not
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a'ree on t*e notin' of nine ot*er attac*/ents t*at *a) been issue)! serve) an) note) on t*e boo0s of t*e corporation a'ainst t*e s*ares of Co $oco. I%%12& 345 t*e sai) /ort'a'e ta0es priority over t*e alrea)y note) ,rits of attac*/ent. -2L6& $*e %upre/e Court rule) t*at t*e attac*in' cre)itors are entitle) to priority over t*e )efectively re'istere) /ort'a'e of t*e appellant. $*e court ar'ues t*at t*e re'istration in t*e re'ister of )ee)s /ust be )one bot* at t*e place ,*ere t*e o,ner is )o/icile) an) at t*e place ,*ere t*e principal office of t*e corporation is locate). $*e purpose of t*is is to 'ive sufficient constructive of any clai/ or encu/brance over t*e recor)e) s*ares to t*ir) persons. Furt*er/ore! any s*are still stan)in' in t*e na/e of t*e )ebtor on t*e boo0s of t*e corporation ,ill be liable to sei(ure by attac*/ent or levy on e8ecution at t*e instance of ot*er cre)itors. $*us! t*e 'a/e *ere is to *ave t*e *i'*est or /ost preferre) priority over any ple)'e) or /ort'a'e) s*ares. NOTE: $*e provision of t*e C*attel Mort'a'e La, :#ct 5o. 1=BA; provi)in' for )elivery of /ort'a'e) property to t*e /ort'a'ee as a /o)e of constitutin' a c*attel /ort'a'e is no lon'er vali) in vie, of t*e Civil Co)e provision )efinin' suc* as a ple)'e. C*e/p*il 28port M I/port vs. C# G.R. 5os. 112< A- 9; 6ece/ber 12! 199= F#C$%& $*is case involve) a consortiu/ of ban0s ,*ic* obtaine) a ,rit of preli/inary attac*/ent in a civil case :Kconsortiu/ caseK; over s*ares of stoc0 belon'in' to Mr. #ntonio Garcia in t*e C*e/ical In)ustries of t*e +*ilippines :KC*e/p*ilK;. $*e attac*/ent! ,*ic* ,as serve) on t*e secretary to t*e +resi)ent of C*e/p*il! ,as not re'istere) in t*e stoc0 an) transfer boo0 of C*e/p*il. # fe, years t*ereafter! Mr. Garcia sol) t*e sa/e s*ares of stoc0 to t*e Ferro C*e/icals! Inc. :KFCIK;. FCI subse9uently assi'ne) t*e s*ares to t*e C*e/p*il 28port an) I/port Corporation :KC2ICK;. $*e s*ares ,ere re'istere) an) recor)e) in t*e corporate boo0s of C*e/p*il in C2IC.s na/e an) t*e correspon)in' stoc0 certificates ,ere issue) to it.
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$*e consortiu/ case ,as appeale) to t*e C#. 3*ile t*e appeal ,as pen)in'! Mr. Garcia an) t*e ban0 consortiu/ a/icably settle) t*e case. $*e C# ren)ere) a 7u)'/ent by co/pro/ise. 1nfortunately! Mr. Garcia faile) to co/ply ,it* t*e co/pro/ise a'ree/ent. $*e consortiu/ of ban0s cause) to be sol) on e8ecution t*e s*ares of stoc0 :earlier attac*e) by t*e/;! ,*ic* ,ere t*e sa/e s*ares subse9uently sol) by Mr. Garcia to C2IC. # certificate of sale coverin' t*e s*ares ,as issue) in t*e na/e of t*e ban0 consortiu/. I%%12& 3*o *as priority to t*e s*ares of stoc0 L an attac*in' cre)itor or t*e subse9uent buyerD -2L6& $*e %upre/e Court rule) t*at t*e attac*/ent lien ac9uire) by t*e ban0 consortiu/ is vali) an) effective even as a'ainst t*e buyer :FCI; an) its assi'nee :C2IC;! not,it*stan)in' t*e fact t*at sai) attac*/ent lien ,as not re'istere) in t*e corporate boo0s of C*e/p*il. K?ot* t*e Revise) Rules of Court an) t*e Corporation Co)eK! accor)in' to t*e Court! K)o not re9uire annotation in t*e corporation.s stoc0 an) transfer boo0 for t*e attac*/ent of s*ares of stoc0 to be vali) an) bin)in' on t*e corporation an) t*ir) party.K Conse9uently! ,*en FCI purc*ase) t*e s*ares of stoc0 fro/ Mr. Garcia! it purc*ase) t*e/ sub7ect to t*e attac*/ent lien of t*e ban0 consortiu/. In t*is re'ar)! t*e -i'* Court e8plaine) t*at a preli/inary attac*/ent is a security for t*e satisfaction of ,*atever 7u)'/ent /ay be obtaine) by t*e attac*in' cre)itor in a court action! ,*ic* continues until t*e 7u)'/ent )ebt is fully satisfie). CO(PARISON of t*e above/entione) t*ree cases& #/on' t*e t*ree cases /entione)! settle) is t*e rule t*at t*e attac*in' cre)itor en7oys priority to t*e s*ares of stoc0 as a'ainst a subse9uent la,ful buyer. XII. CORPORATE PO-ERS Republic of t*e +*ilippines vs. #co7e Minin' Co. G.R. 5o. L-1AB"2; February 2A! 19" F#C$%&
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#co7e Minin' re9ueste) to t*e 6irector of +osts for openin' of a post! tele'rap* an) /oney or)er offices at its /inin' ca/p. $*e latter si'nify its ,illin'ness but re9ueste) t*at a boar) resolution be passe) upon re'ar)in' assu/ption of )irect responsibility in case of pecuniary loss. $*e boar) resolution ,as approve) an) t*ereafter a post office branc* ,as opene). # post/aster ,as *ire) to con)uct t*e operations of post office. $*e post/aster t*at ,as *ire) ,ent on a leave but never returne). $*e co/pany i//e)iately infor/e) t*e officials of t*e Manila +ost 4ffice an) t*e provincial au)itor of Ta/bales of post/aster.s )isappearance ,it* t*e result t*at t*e accounts of t*e post/aster ,ere c*ec0e) an) a s*orta'e ,as foun). %everal )e/an)s ,ere /a)e upon t*e co/pany for t*e pay/ent of t*e s*orta'e! *avin' faile); t*e petitioner co//ence) t*e present action. $*e co/pany in its ans,er )enie) liability conten)in' t*at t*e resolution of t*e boar) of )irectors ,*erein it assu/e) responsibility for t*e act of t*e post/aster is ultra vires! an) in any event its liability un)er sai) resolution is only t*at of a 'uarantor ,*o ans,ers only after t*e e8*austion of t*e properties of t*e principal! asi)e fro/ t*e fact t*at t*e loss clai/e) by t*e plaintiff is not supporte) by t*e office recor). I%%12& Is t*e boar) resolution for t*e approval of post office branc* ultra viresD -2L6& Resolution a)opte) by t*e co/pany to open a post office branc* at t*e /inin' ca/p an) to assu/e sole an) )irect responsibility for any )is*onest! careless or ne'li'ent act of its appointe) post/aster is 54$ 1L$R# @IR2% because t*e act covers a sub7ect ,*ic* concerns t*e benefit! convenience! an) ,elfare of t*e co/pany.s e/ployees an) t*eir fa/ilies. 3*ile as a rule an ultra vires act is one co//itte) outsi)e t*e ob7ect for ,*ic* a corporation is create) as )efine) by t*e la, of its or'ani(ation an) t*erefore beyon) t*e po,ers conferre) upon it by la,! t*ere are *o,ever certain corporate acts t*at /ay be perfor/e) outsi)e of t*e scope of t*e po,ers e8pressly conferre) if t*ey are necessary to pro/ote t*e interest or ,elfare of t*e corporation. 5ational +o,er Corp. vs. @era G.R. 5o. A ==A; February 27! 19A9 F#C$%& %ea Lion International +ort %ervices! private respon)ent! file) a co/plaint for pro*ibition an) /an)a/us a'ainst petitioner 5+C alle'in' t*at it *a) acte) in ba) fait* in not rene,in' its contract for steve)orin' services for its plant an) in
ta0in' over its steve)orin' services. Respon)ent 7u)'e issue) a restrainin' or)er a'ainst 5+C en7oinin' t*e latter fro/ un)erta0in' steve)orin' services at its pier. Conse9uently! 5+C file) an K1r'ent MotionK to )issolve t*e restrainin' or)er! assertin' t*at respon)ent 7u)'e *a) no 7uris)iction to issue t*e or)er an) private respon)ent! ,*ose contract ,it* 5+C *a) e8pire) prior to t*e co//ence/ent of t*e suit! faile) to establis* a cause of action for a ,rit of preli/inary in7unction. $*e respon)ent 7u)'e )enie) t*e 5+C.s /otion an) issue) a $R4 after fin)in' t*at 5+C ,as not e/po,ere) by its C*arter to en'a'e in steve)orin' an) arrastre services. I%%12& 345 t*e un)erta0in' of steve)orin' services is e/po,ere) by t*e 5+C.s c*arter po,ers. -2L6& J2%. $o carry out t*e national policy of total electrification of t*e country! t*e 5+C ,as create) an) e/po,ere) not only to construct! operate an) /aintain po,er plants! reservoirs! trans/ission lines! an) ot*er ,or0s! but also to e8ercise suc* po,ers an) )o suc* t*in's as /ay be reasonably necessary to carry out t*e business an) purposes for ,*ic* it ,as or'ani(e)! or ,*ic*! fro/ ti/e to ti/e! /ay be )eclare) by t*e ?oar) to be necessary! useful! inci)ental or au8iliary to acco/plis* sai) purpose. In )eter/inin' ,*et*er or not an 5+C act falls ,it*in t*e purvie, of t*e above provision! t*e Court /ust )eci)e ,*et*er or not a lo'ical an) necessary relation e8ists bet,een t*e act 9uestione) an) t*e corporate purpose e8presse) in t*e 5+C c*arter. For if t*at act is one ,*ic* is la,ful in itself an) not ot*er,ise pro*ibite)! an) is )one for t*e purpose of servin' corporate en)s! an) reasonably contributes to t*e pro/otion of t*ose en)s in a substantial an) not in a re/ote an) fanciful sense! it /ay be fairly consi)ere) ,it*in t*e corporationNs c*arter po,ers. Govern/ent of +*il. Islan)s vs. 2l -o'ar Filipino :supra; G.R. 5o. L-2""<9; >uly 1 ! 1927 NOTE: $*is case is an e8a/ple of *o, t*e i/plie) po,ers concept /ay be use) to 7ustify certain acts of a corporation. # 9uo ,arranto procee)in' institute) by t*e Govern/ent a'ainst 2l -o'ar! a buil)in' an) loan association! to )eprive it of its corporate franc*ise.
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1. 2l -o'ar *el) title to real property for a perio) in e8cess of = years in 'oo) fait*; *ence t*is cause ,ill not prosper. 2. 2l -o'ar o,ne) a lot an) bl)'. at a business )istrict in Manila alle'e)ly in e8cess of its reasonable re9uire/ents! *el) vali) because! it ,as foun) to be necessary an) le'ally ac9uire) an) )evelope). . 2l -o'ar lease) so/e office space in its bl)'.; it a)/inistere) an) /ana'e) properties belon'in' to )elin9uent stoc0*ol)ers; an) /ana'e) properties of its stoc0*ol)ers even if suc* ,ere not /ort'a'e) to t*e/. He'd: first t,o vali)! but t*e t*ir) is ultra vires because t*e a)/inistration of property in t*at /anner is /ore befittin' of t*e business of a real estate a'ent or trust co/pany an) not of a buil)in' an) loan association. <. Co/pensation to t*e pro/oter an) or'ani(er alle'e)ly e8cessive an) unconscionable. He'd: Court cannot ),ell on t*e issue since t*e pro/oter is not a party in t*e procee)in' an) it is t*e corp. or its stoc0*ol)ers ,*o /ay brin' a co/plaint on suc*. =. Issuance of special s*ares )i) not affect 2l -o'arNs c*aracter as a buil)in' an) loan association nor /a0e its loans usurious. ". Corporate policy of usin' a )epreciation rate of 1B H per annu/ is not e8cessive! because accor)in' to t*e %C! t*e byla,s e8pressly aut*ori(es t*e ?46 to )eter/ine eac* year t*e a/ount to be ,ritten )o,n upon t*e e8penses of installation an) t*e property of t*e corp. 7. $*e Corp. La, )oes not e8pressly 'rant t*e po,er of /aintainin' reserve fun)s but suc* po,er is i/plie) . #ll business enterprises encounter perio)s of 'ains an) losses! an) its officers ,oul) usually provi)e for t*e creation of a reserve to act as a buffer for suc* circu/stances. A. $*at loans issue) to /e/ber borro,ers are bein' use) for purposes ot*er t*an t*e bl)'. of *o/es not invali) because t*ere is no statute ,*ic* e8pressly )eclares t*at loans /ay be /a)e by t*ese associations solely for t*e purpose of bl)'. *o/es. 9. %ec. 17 of t*e Corp. La, provi)es t*at Kany personK /ay beco/e a stoc0*ol)er on a bl)'. an) loan association. $*e ,or) KpersonK is use) on a broa) sense inclu)in' not only natural persons but also artificial persons. +irovano! et. al. vs. 6e la Ra/a G.R. 5o. L-= 77; 6ece/ber 29! 19=< F#C$%& 2nrico +irovano! presi)ent of t*e )efen)ant co/pany! /ana'e) t*e co/pany until it beca/e a /ulti-/illion corporation by t*e ti/e +irovano ,as e8ecute) by t*e >apanese )urin' t*e occupation.
?46 Resolution& 4ut of t*e procee)s! t*e su/ of +<BB!BBB be set asi)e for e9ual )ivision a/on' t*e < /inor c*il)ren! convertible into s*ares of stoc0 of t*e 6e la Ra/a %tea/s*ip Co/pany! at par an)! for t*at purpose! t*at t*e present re'istere) stoc0*ol)ers of t*e corporation be re9ueste) to ,aive t*eir pre-e/ptive ri'*t to <!BBB s*ares of t*e unissue) stoc0 of t*e co/pany in or)er to enable eac* of t*e < /inor *eirs to obtain 1!BBB s*ares at par. +laintiffs *erein are t*e /inor c*il)ren of t*e late 2nrico +irovano represente) by t*eir /ot*er an) 7u)icial 'uar)ian 2stefania +irovano. $*ey see0 to enforce certain resolutions a)opte) by t*e ?oar) of 6irectors an) stoc0*ol)ers of t*e )efen)ant co/pany 'ivin' to sai) /inor c*il)ren of t*e procee)s of t*e insurance policies ta0en on t*e life of t*eir )ecease) fat*er 2nrico +irovano ,it* t*e co/pany as beneficiary. 6efen)antNs /ain )efense is& t*at sai) resolutions an) t*e contract e8ecute) pursuant t*ereto are ultra vires! an)! if vali)! t*e obli'ation to pay t*e a/ount 'iven is not yet )ue an) )e/an)able. R$C rule) t*at contract or )onation is not ultra vires. I%%12& 345 corporation )onation of t*e procee)s of t*e insurance policies is an ultra vires act. -2L6& 54. $*e #4I of t*e corporation provi)e) t,o relevant ite/s& :1; to invest an) )eal ,it* /oneys of t*e co/pany not i//e)iately re9uire)! in suc* /anner as fro/ ti/e to ti/e /ay be )eter/ine); an) :2; to ai) in any ot*er /anner any person! association or corporation of ,*ic* any obli'ation or in ,*ic* any interest is *el) by t*is corporation or in t*e affairs of prosperity of ,*ic* t*is corporation *as a la,ful interest. Fro/ t*is! it is obvious t*at t*e corporation properly e8ercise) ,it*in its c*artere) po,ers t*e act of availin' of insurance procee)s to t*e *eirs of t*e insure) an) )ecease) officer. NOTE: 1ltra vires act vs. Ille'al #cts L # )istinction s*oul) be /a)e bet,een corporate acts or contracts ,*ic* are ille'al an) t*ose ,*ic* are /erely ultra ires. $*e for/er conte/plates t*e )oin' of an act ,*ic* is contrary to la,! /orals! or public policy or public )uty! an) are! li0e si/ilar transactions bet,een t*e in)ivi)uals voi). $*ey cannot serve as basis of a court action! nor re9uire vali)ity ultra vires acts on t*e ot*er *an)! or t*ose ,*ic* are not ille'al an) voi) a! initio! but are /erely ,it*in are not ille'al an) voi) a! initio! but are not /erely ,it*in t*e scope of t*e articles of incorporation! are /erely voi)able an) /ay beco/e bin)in' an) enforceable ,*en ratifie) by t*e stoc0*ol)ers.
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-ar)en! et. al. vs. ?en'uet G.R. 5o. L- 7 1; Marc* 1A! 19 F#C$%& # contract bet,een ?en'uet Consoli)ate) Minin' an) ?alatoc Minin' Co. provi)e) t*at ?en'uet ,ill brin' in capital! e9uip/ent. an) tec*nical e8pertise in e8c*an'e for capital s*ares in ?alatoc. -ar)en ,as a stoc0*ol)er of ?alatoc an) *e conten)s t*at t*is contract violate) t*e Corporation La, ,*ic* restricts t*e ac9uisition of interest by a /inin' corporation in anot*er /inin' corporation. I%%12& 345 t*e plaintiff can /aintain an action base) upon t*e violation of t*e la, suppose)ly co//itte) by respon)ent co/pany. -2L6& 54. $*e provision ,as a)opte) by t*e la,/a0ers ,it* a sole vie, to t*e public policy t*at s*oul) control in t*e 'rantin' of /inin' ri'*ts. Furt*er/ore! t*e penalties i/pose) in ,*at is no, section 19B :#; of t*e Corporation La, for t*e violation of t*e pro*ibition in 9uestion are of suc* nature t*at t*ey can be enforce) only by a cri/inal prosecution or by an action of 9uo ,arranto. but t*ese procee)in's can be /aintaine) only by t*e #ttorney-General in representation of t*e Govern/ent. ?issell vs. Mic*i'an %out*ern 22 5J 2=A; 1A"B F#C$%& $,o railroa) corporations conten) t*at t*ey transcen)e) t*eir o,n po,ers an) violate) t*eir o,n or'anic la,s. -ence! t*ey s*oul) not be *el) liable for t*e in7ury of t*e plaintiff ,*o ,as a passen'er in one of t*eir trains. I%%12& 345 t*e contract /a)e bet,een t*e t,o railroa) corporations is vali) an) as suc* can be use a )efense to eva)e t*e liability a'ainst t*e passen'er.
-2L6& 54. $*e contract bet,een t*e t,o corporations ,as an ultra vires act. -o,ever! it is not one tainte) ,it* ille'ality! t*erefore! t*e acco/panyin' ri'*ts an) obli'ations base) on t*e contract of carria'e bet,een t*e/ an) t*e plaintiff cannot be avoi)e) by raisin' suc* a )efense. XIII. CONTROL AND (ANAGE(ENT 1.; ?4#R6 4F 6IR2C$4R%Q$R1%$22% Ra/ire( vs. 4rientalist Co. G.R. 5o. 11A97; %epte/ber 2<! 191A F#C$%& 4rientalist Co. en'a'e) in t*e t*eatre business! )esire) to be t*e e8clusive a'ent of Ra/ire(! ,*o is base) in +aris! for t,o fil/ outfitsCUclair Fil/s an) Milano fil/s. $*rou'* t*e active involve/ent an) ne'otiations of Ra/on E2l +resi)enteF Fernan)e(! a )irector of 4rientalist an) also its treasurer! 4rientalist ,as able to secure an offer! t*e ter/s of ,*ic* ,ere acceptable to t*e ?oar) as ,ell as to t*e stoc0*ol)ers. It appears t*at t*is acceptance of t*e ter/s of t*e offer ,as )eci)e) )urin' an infor/al /eetin' of t*e boar)! an) conveye) to Ra/ire( in t,o letters si'ne) only by Fernan)e(! bot* in *is in)ivi)ual an) *is capacity as treasurer of 4rientalist. It turns out t*at t*e co/pany ,as not financially capable to co/ply ,it* t*e obli'ations set fort* in t*e a'ency contract! an) about t*is ti/e fil/s *a) alrea)y been )elivere) to t*e co/pany. $,o stoc0*ol)ers /eetin's ,ere or'ani(e)! t*e first a)opte) a resolution approvin' t*e action of t*e boar) on t*e offer! t*e secon) raisin' t*e contin'ency of t*e lac0 of fun)s an) t*e proviso t*at t*e four officers involve)! inclu)in' Fernan)e( ,oul) continue i/portin' t*e fil/s usin' t*eir o,n fun)s. Ra/ire( sues 4rientalist an) Fernan)e( for ,*at is )ue on t*e contract. R$C rule) 4riental as t*e principal )ebtor ,*ile Fernan)e( is subsi)iarily liable. I%%12& :1; 345 t*e treasurer *as an in)epen)ent aut*ority to bin) t*e respon)ent co/pany by si'nin' its na/e to t*e letters in 9uestione). :2; Can stoc0*ol)ers ratify t*e above/entione) contractD
-2L6& :1; 54. It is )eclare) in section 2A of t*e Corporation La, t*at corporate po,er s*all be e8ercise)! an) all corporate business con)ucte) by t*e boar) of )irectors; an) t*is principle is reco'ni(e) in t*e by-la,s of t*e corporation in 9uestion ,*ic* contain a provision )eclarin' t*at t*e po,er to /a0e contracts s*all be veste) in t*e boar) of )irectors. It is true t*at it is also )eclare) in t*e sa/e by-la,s t*at t*e presi)ent s*all *ave t*e po,er! an) it s*all be *is )uty! to si'n contract; but t*is *as reference rat*er to t*e for/ality of re)ucin' to proper for/ t*e contract ,*ic* are aut*ori(e) by t*e boar) an) is not inten)e) to confer an in)epen)ent po,er to /a0e contract bin)in' on t*e corporation. :2; 54. $*e subse9uent action by t*e stoc0*ol)ers in not ratifyin' t*e contract /ust be i'nore). $*e functions of t*e stoc0*ol)ers are li/ite) of nature. $*e t*eory of a corporation is t*at t*e stoc0*ol)ers /ay *ave all t*e profits but s*all return over t*e co/plete /ana'e/ent of t*e enterprise to t*eir representatives an) a'ents! calle) )irectors. #ccor)in'ly! t*ere is little for t*e stoc0*ol)ers to )o beyon) electin' )irectors! /a0in' by-la,s! an) e8ercisin' certain ot*er special po,ers )efine) by la,. In confor/ity ,it* t*is i)ea! it is settle) t*at contracts bet,een a corporation an) a t*ir) person /ust be /a)e by )irectors an) not stoc0*ol)ers. It results t*at ,*ere a /eetin' of t*e stoc0*ol)ers is calle) for t*e purpose of passin' on t*e propriety of /a0in' a corporate contract! its resolutions are at /ost a)visory an) not in any ,ise bin)in' on t*e boar).
28pert $ravel M $ours vs. C# G.R. 5o. 1=2 92; May 2"! 2BB= F#C$%& Gorean #irlines :G#L; is a corporation establis*e) an) re'istere) in t*e Republic of %out* Gorea an) license) to )o business in t*e +*ilippines. Its 'eneral /ana'er in t*e +*ilippines is %u0 Gyoo Gi/! ,*ile its appointe) counsel ,as #tty. Mario #'uinal)o an) *is la, fir/. G#L! t*rou'* appointe) counsel! file) a co/plaint a'ainst 28pert $ravel ,it* t*e R$C for t*e collection of su/ of /oney. $*e verification an) certification a'ainst foru/ s*oppin' ,as si'ne) by t*e sa/e appointe) counsel! ,*o in)icate) t*erein t*at *e ,as t*e resi)ent a'ent an) le'al counsel of G#L an) *a) cause) t*e preparation of t*e co/plaint. 28pert
$ravel file) a /otion to )is/iss t*e co/plaint on t*e 'roun) t*at t*e appointe) counsel ,as not aut*ori(e) to e8ecute t*e verification an) certificate of non-foru/ s*oppin' as re9uire) by t*e Rules of Court. G#L oppose) t*e /otion! conten)in' t*at *e is a resi)ent a'ent an) ,as re'istere) as suc* ,it* t*e %2C as re9uire) by t*e Corporation Co)e. -e also clai/e) t*at *e *a) been aut*ori(e) to file t*e co/plaint t*rou'* a resolution of t*e G#L ?oar) of 6irectors approve) )urin' a special /eetin'! ,*erein t*e boar) of )irectors con)ucte) a special teleconference ,*ic* *e atten)e). It ,as also averre) t*at in t*e sa/e teleconference! t*e boar) of )irectors approve) a resolution aut*ori(in' *i/ to e8ecute t*e certificate of non-foru/ s*oppin' an) to file t*e co/plaint. %u0 Gyoo Gi/ alle'e)! *o,ever! t*at t*e corporation *a) no ,ritten copy of t*e aforesai) resolution. $C )enie) /otion to )is/iss. C# affir/s. I%%12& Can a special teleconference be reco'ni(e) as le'iti/ate /eans to approve) a boar) resolution an) aut*ori(e an a'ent to e8ecute an act in favor of t*e corporationD -2L6& J2%. In t*is a'e of /o)ern tec*nolo'y! t*e courts /ay ta0e 7u)icial notice t*at business transactions /ay be /a)e by in)ivi)uals t*rou'* teleconferencin'. teleconferencin' an) vi)eoconferencin' of /e/bers of boar) of )irectors of private corporations is a reality! in li'*t of Republic #ct 5o. A792. $*e %ecurities an) 28c*an'e Co//ission issue) %2C Me/oran)u/ Circular 5o. 1=! on 5ove/ber B! 2BB1! provi)in' t*e 'ui)elines to be co/plie) ,it* relate) to suc* conferences. -432@2R! in t*e case at bar! even 'iven t*e possibility t*at #tty. #'uinal)o an) %u0 Gyoo Gi/ participate) in a teleconference alon' ,it* t*e respon)ent.s ?oar) of 6irectors! t*e Court is not convince) t*at one ,as con)ucte); even if t*ere *a) been one! t*e Court is not incline) to believe t*at a boar) resolution ,as )uly passe) specifically aut*ori(in' #tty. #'uinal)o to file t*e co/plaint an) e8ecute t*e re9uire) certification a'ainst foru/ s*oppin'. Facts an) circu/stances s*o, t*at t*ere ,as 'ross failure on t*e part of co/pany to prove t*at t*ere ,as in)ee) a special teleconference suc* as failure to pro)uce a ,ritten copy of t*e boar) resolution via teleconference. NOTE: Rea) %2C Me/o Circular 5o. 1=-2BB1! t*e 'ui)elines for t*e con)uct of teleconferencin' an) vi)eoconferencin'. Citiban0! 5.#. vs. C*ua G.R. 5o. 1B2 BB; Marc* 17! 199
F#C$%& +etitioner is a forei'n co//ercial ban0in' corporation )uly license) to )o business in t*e +*ilippines. +rivate respon)ents! spouses Cresencio an) Tenai)a @ele(! ,ere 'oo) clients of petitioner ban0Ns branc* in Cebu until ,*en t*ey file) a co/plaint for specific perfor/ance an) )a/a'es a'ainst t*e for/er for violation of ?+ 22 an) several count of estafa cases in R$C of Cebu. 4n t*e )ate of pre-trial conference! counsel for petitioner ban0 appeare)! presentin' a special po,er of attorney e8ecute) by Citiban0 officer in favor of petitioner ban0Ns counsel! t*e >.+. Garcia M #ssociates! to represent an) bin) petitioner ban0 at t*e pre-trial conference of t*e case at bar. Inspite of t*is special po,er of attorney! counsel for private respon)ents orally /ove) to )eclare petitioner ban0 as in )efault on t*e 'roun) t*at t*e special po,er of attorney ,as not e8ecute) by t*e ?oar) of 6irectors of Citiban0. Respon)ent 7u)'e )enie) private respon)entsN oral /otion to )eclare petitioner ban0 as in )efault an) set t*e continuation of t*e pre-trial conference. $*e private respon)ents file) for reconsi)eration! an) t*is ti/e t*e respon)ent *ol)s t*e petitioner ban0 in )efault for failure to *ave a proper representation. C# affir/s. I%%12& 345 a resolution of t*e boar) of )irectors of a corporation is al,ays necessary for 'rantin' aut*ority to an a'ent to represent t*e corporation in court cases. -2L6& In t*e corporate *ierarc*y! t*ere are t+ree 'e)e'* of contro'& :1; t*e .o!rd of director*! ,*ic* is responsible for corporate policies an) t*e 'eneral /ana'e/ent of t*e business affairs of t*e corporation; :2; t*e officer*! ,*o in t*eory e8ecute t*e policies lai) )o,n by t*e boar)! but in practice often *ave ,i)e latitu)e in )eter/inin' t*e course of business operations; an) : ; t*e *toc/+o'der* ,*o *ave t*e resi)ual po,er over fun)a/ental corporate c*an'es! li0e a/en)/ents of t*e articles of incorporation. -o,ever! 7ust as a natural person /ay aut*ori(e anot*er to )o certain acts in *is be*alf! so /ay t*e boar) of )irectors of a corporation vali)ly )ele'ate so/e of its functions to in)ivi)ual officers or a'ents appointe) by it. #lt*ou'* as a 'eneral rule! all corporate po,ers are to be e8ercise) by t*e boar) of )irectors! e8ceptions are /a)e ,*ere t*e Co)e provi)es ot*er,ise un)er %ec. 2= an) <7. It is clear t*at corporate po,ers /ay be )irectly conferre) upon corporate officers or a'ents by statute! t*e articles of incorporation! by-la,s or by resolution or ot*er act of t*e boar) of )irectors. In a))ition! an officer ,*o is not a )irector /ay also appoint ot*er a'ents ,*en so aut*ori(e) by t*e by-la,s or by t*e boar) of )irectors. %uc* are referre) to as e8press po,ers. $*ere are also po,ers inci)ental to e8press po,ers conferre).
It is a fun)a/ental principle in t*e la, of a'ency t*at every )ele'ation of aut*ority! ,*et*er 'eneral or special! carries ,it* it! unless t*e contrary be e8presse)! i/plie) aut*ority to )o all of t*ose acts! naturally an) or)inarily )one in suc* cases! ,*ic* are reasonably necessary an) proper to be )one in or)er to carry into effect t*e /ain aut*ority conferre). %ince t*e by-la,s are a source of aut*ority for corporate officers an) a'ents of t*e corporation! a resolution of t*e ?oar) of 6irectors of Citiban0 appointin' an attorney in fact to represent an) bin) it )urin' t*e pre-trial conference of t*e case at bar is not necessary because its by-la,s allo, its officers! t*e 28ecutin' 4fficer an) t*e %ecretary +ro-$e/! to e8ecute a po,er of attorney to a )esi'nate) ban0 officer! clot*in' *i/ ,it* aut*ority to )irect an) /ana'e corporate affairs. ?oyer-Ro8as vs. C# G.R. 5o. 1BBA""; >uly 1<! 1992 F#C$%& $*e corporation! -eirs of 2u'enia Ro8as Inc! ,as establis*e) to en'a'e in a'riculture to )evelop t*e properties in*erite) fro/ 2u'enia Ro8as an) 2ufroncio Ro8as! ,*ic* inclu)es t*e lan) upon ,*ic* t*e -i))en @alley %prin's Resort ,as put up! inclu)in' various i/prove/ents t*ereon! usin' corporate fun)s. $*e #4I of -eirs Inc. ,as a/en)e) for t*is purpose. -eirs Inc. clai/s t*at ?oyer-Ro8as an) Guiller/o Ro8as *a) been in possession of t*e various properties an) i/prove/ents in t*e resort an) only upon t*e tolerance of t*e corporation. It ,as alle'e) t*at t*ey co//itte) acts t*at i/pe)e) t*e corporation.s e8pansion an) nor/al operation of t*e resort. $*ey also )i) not co/ply ,it* court an) re'ulatory or)ers! an) t*us t*e corporation a)opte) a resolution aut*ori(in' t*e e7ect/ent of t*e )efen)ants. $C 'rants. C# affir/s. ?oyer an) Ro8as conten) t*at! bein' stoc0*ol)ers! t*eir possession of t*e properties of t*e corporation /ust be respecte) in vie, of t*eir o,ners*ip of an ali9uot portion of all properties of t*e corporation. I%%12& 345 t*e possession of t*e properties in 9uestion /ust be respecte) in vie, of bein' a stoc0*ol)er. -2L6& 54. Re'ar)in' properties o,ne) by t*e corporation! un)er t*e )octrine of corporate entity Eproperties re'istere) in t*e na/e of t*e corporation are o,ne) by it as an entity separate an) )istinct fro/ its /e/bers.F 3*ile s*ares of stoc0 constitute personal property! t*ey )o not represent property of t*e corporation. # s*are of stoc0 only typifies an ali9uot part of t*e corporation.s property! or t*e ri'*t to s*are in its procee)s to t*at e8tent ,*en )istribute) accor)in' to la, an) e9uity!
but its *ol)er is not t*e o,ner of any part of t*e capital of t*e corporation! nor is *e entitle) to t*e possession of any )efinite portion of its property or assets. $*e stoc0*ol)er is not a co-o,ner or tenant in co//on of t*e corporate property. $*e corporation *as a personality )istinct an) separate fro/ its /e/bers an) transacts business only t*rou'* its officers or a'ents. 3*atever aut*ority t*ese officers or a'ents /ay *ave is )erive) fro/ t*e boar) or ot*er 'overnin' bo)y! unless conferre) by t*e c*arter of t*e corporation itself. #n officerNs po,er as an a'ent of t*e corporation /ust be sou'*t fro/ t*e statute! c*arter! t*e by-la,s or in a )ele'ation of aut*ority to suc* officer! fro/ t*e acts of t*e boar) of )irectors! for/ally e8presse) or i/plie) fro/ a *abit or custo/ of )oin' business. In t*is case t*e el)er Ro8as ,*o t*en controlle) t*e /ana'e/ent of t*e corporation! bein' t*e /a7ority stoc0*ol)er! consente) to t*e petitioner.s use an) stay ,it*in t*e properties. $*e ?oar) )i) not ob7ect an) ,ere allo,e) to stay until it a)opte) a resolution to t*e effect of aut*ori(in' to e7ect t*e/. %ince t*eir stay ,as /erely by tolerance! in )eference to t*e ,is*es of t*e /a7ority stoc0*ol)er ,*o controlle) t*e corporation! ,*en Ro8as )ie) *is actions cannot bin) t*e co/pany forever. $*ere is no provision in t*e by-la,s or any ot*er resolution aut*ori(in' t*eir continue) stay. @alle @er)e Country Club vs. #frica G.R. 5o. 1=19"9; %epte/ber <! 2BB9 F#C$%& 2rnesto @illaluna! >ai/e C. 6in'lasan :6in'lasan;! 2)uar)o Ma0alintal :Ma0alintal;! Francisco 4rti'as III! @ictor %alta! #/a)o M. %antia'o! >r.! Fortunato 6ee! #u'usto %unico! an) Ray Ga/boa ,ere electe) as ?46 )urin' t*e #nnual %toc0*ol)ers. Meetin' of petitioner @alle @er)e Country Club! Inc. :@@CC;. Re9uisite 9uoru/ coul) not be obtaine) so t*ey continue) in a *ol)-over capacity. First resi'nation& 6in'lasan! ?46 still constitutin' a 9uoru/ electe) 2ric Ro8as :Ro8as;. %econ) resi'nation& Ma0alintal! >ose Ra/ire( :Ra/ire(; ,as electe) by t*e re/ainin' ?46. Respon)ent #frica :#frica;! a /e/ber of @@CC! 9uestione) t*e election of Ro8as an) Ra/ire( as /e/bers of t*e petitioner.s ?oar) ,it* t*e %2C an) t*e R$C as contrary to %ec. 2 an) 29 of t*e Corporation Co)e. -e clai/e) t*at a year after Ma0alintal.s election as /e/ber of t*e petitioner.s ?oar) in 199"! *is ter/ L as ,ell as t*ose of t*e ot*er /e/bers L s*oul) be consi)ere) to *ave alrea)y e8pire). $*us! accor)in' to *i/! t*e resultin' vacancy s*oul) *ave been fille) by t*e stoc0*ol)ers in a re'ular or special /eetin' calle) for t*at purpose! an) not by t*e re/ainin' /e/bers of t*e petitioner.s ?oar). R$C favore) respon)ent. %2C rule) on t*e sa/e 'roun) as R$C. +etitioner appeale) in %C for certiorari bein' partially contrary to la, an) 7urispru)ence.
I%%12& Can t*e /e/bers of a corporation.s boar) of )irectors elect anot*er )irector to fill in a vacancy cause) by t*e resi'nation of a *ol)-over )irectorD -2L6& 54. $*e *ol)over perio) is not part of t*e ter/ of office of a /e/ber of t*e boar) of )irectors. 3*en %ection 2 of t*e Corporation Co)e )eclares t*at Et*e boar) of )irectorsVs*all *ol) office for one :1; year until t*eir successors are electe) an) 9ualifie)!F ,e construe t*e provision to /ean t*at t*e ter, of t+e ,e,.er* of t+e .o!rd of director* *+!'' .e on'# for one year; t*eir ter/ e8pires one year after election to t*e office. $*e *ol)over perio) L t*at ti/e fro/ t*e lapse of one year fro/ a /e/ber.s election to t*e ?oar) an) until *is successor.s election an) 9ualification L is not part of t*e )irector.s ori'inal term of office! nor is it a ne, ter/; t*e *ol)over perio)! *o,ever! constitutes part of *is tenure. Corollary! ,*en an incu/bent /e/ber of t*e boar) of )irectors continues to serve in a *ol)over capacity! it i/plies t*at t+e office +!* ! fi0ed ter,! which has expired! an) t*e incu/bent is *ol)in' t*e succee)in' ter/. $*e po,ers of t*e corporation.s boar) of )irectors e/anate fro/ its stoc0*ol)ers. $*is t*eory of )ele'ate) po,er of t*e boar) of )irectors si/ilarly e8plains ,*y! un)er %ection 29 of t*e Corporation Co)e! in cases ,*ere t*e vacancy in t*e corporation.s boar) of )irectors is cause) not by t*e e8piration of a /e/ber.s ter/! t*e successor Eso electe) to fill in a vacancy s*all be electe) only for the unexpired term of t*e *is pre)ecessor in office.F $*e la, *as aut*ori(e) t*e re/ainin' /e/bers of t*e boar) to fill in a vacancy only in specifie) instances! so as not to retar) or i/pair t*e corporation.s operations; yet! in reco'nition of t*e stoc0*ol)ers. ri'*t to elect t*e /e/bers of t*e boar)! it li/ite) t*e perio) )urin' ,*ic* t*e successor s*all serve only to t*e Eune7pired term of *is pre)ecessor in office.F It also bears notin' t*at t*e vacancy referre) to in %ection 29 conte/plates a )!c!nc# occ"rrin& within the directors term of office. 3*en a vacancy is create) by t*e e8piration of a ter/! lo'ically! t*ere is no /ore une8pire) ter/ to spea0 of. -ence! %ection 29 )eclares t*at it s*all be t*e corporation.s stoc0*ol)ers ,*o s*all possess t*e aut*ority to fill in a vacancy cause) by t*e e8piration of a /e/ber.s ter/. NOTE: $*e court )istin'uis*e) ter/ an) tenure. Ter, is t*e ti/e )urin' ,*ic* t*e officer /ay clai/ to *ol) t*e office as of ri'*t! an) fi8es t*e interval after ,*ic* t*e several incu/bents s*all succee) one anot*er. $*e ter/ of office is not affecte) by t*e *ol)over. $*e ter/ is fi8e) by statute an) it )oes not c*an'e si/ply because t*e office /ay *ave beco/e vacant! nor because t*e incu/bent *ol)s over in office beyon) t*e en) of t*e ter/ )ue to t*e fact t*at a successor *as not been electe) an) *as faile) to 9ualify.
Ten"re represents t*e ter/ )urin' ,*ic* t*e incu/bent actually *ol)s office. $*e tenure /ay be s*orter :or! in case of *ol)over! lon'er; t*an t*e ter/ for reasons ,it*in or beyon) t*e po,er of t*e incu/bent. 2.; 4FFIC2R% Ju C*uc0 vs. Gon' Li +o G.R. 5o. L-22<=B; 6ece/ber ! 192< F#C$%& Gon' Li +o is a corporation en'a'e) in t*e publication of a C*inese ne,spaper. Its #4I provi)e for a presi)ent ,*o s*all si'n all contracts an) ot*er instru/ents of ,ritin'! but )oes not provi)e for a business or 'eneral /ana'er. CC C*en or $C C*en ,as appointe) 'eneral business /ana'er of t*e paper. -e t*en entere) into an a'ree/ent ,it* Ju C*uc0 for t*e printin' of t*e ne,spaper for +=AB per /ont*. Ju C*uc0 ,or0e) for a year until t*ey ,ere )isc*ar'e) by t*e ne, /ana'er $an $ian -on' because CC C*en *a) left for C*ina. Ju C*uc0 sues t*e paper! clai/in' t*e contract ,as for a perio) of years! an) t*at )isc*ar'e ,it*out 7ust cause before t*e e8piration of t*is ter/ entitles t*e/ to receive full pay for t*e re/ain)er of t*e ter/. Gon' Li +o counters t*at CC C*en ,as not aut*ori(e) to enter into t*e contract ,it* Ju C*uc0. $C rule) in favor of Ju C*uc0! conclu)in' t*at t*e contract *a) been i/plie)ly ratifie) by Gon' Li +o an) t*at alt*ou'* *e *a) no e8press aut*ority to enter into t*e contract; since *e ,as 'eneral business /ana'er in c*ar'e of t*e printin' of t*e paper *e *a) i/plie) aut*ority to e/ploy t*e petitioners. I%%12& 345 CC C*en *a) t*e po,er to bin) t*e corporation t*rou'* t*e contract /entione). -2L6& $*e 'eneral rule is t*at t*e po,er to bin) a corporation by contract lies ,it* its boar) of )irectors or trustees! but t*is po,er /ay eit*er e8pressly or i/plie)ly be )ele'ate) to ot*er officers or a'ents of t*e corporation ! an) it is ,ell settle) t*at e8cept ,*ere t*e aut*ority of e/ployin' servants an) a'ent is e8pressly veste) in t*e boar) of )irectors or trustees! an officer or a'ent ,*o *as 'eneral control an) /ana'e/ent of t*e corporationNs business! or a specific part t*ereof! /ay bin) t*e corporation by t*e e/ploy/ent of suc* a'ent an) e/ployees as are usual an) necessary in t*e con)uct of suc* business . ?ut t*e contracts of e/ploy/ent /ust be reasonable.
In t*e case at bar! alt*ou'* t*e court affir/e) t*e po,er to bin) t*e corporation /ay be /a)e by an officer or a'ent! t*e contract of e/ploy/ent in t*e printin' business is not reasonable for it ,as too lon' an) onerous to t*e business. 3oo)c*il) -ol)in's vs. Ro8as 2lectric G.R. 5o. 1<B""7; #u'ust 12! 2BB< F#C$%& $*e respon)ent ,as t*e o,ner of t,o parcels of lan) locate) alon' t*e %u/ulon' -i'*,ay. +etitioner ,ante) to buy t*e one parcel on ,*ic* it planne) to construct its ,are*ouse buil)in'. Ro8as! as t*e presi)ent of respon)ent co/pany! accepte) t*e offer t*rou'* t*e ?46 resolution issue) by t*e latter. -o,ever! t*e respon)ent posits t*at Ro8as ,as not so aut*ori(e) un)er t*e May 17! 1991 Resolution of its ?oar) of 6irectors to i/pose a bur)en or to 'rant a ri'*t of ,ay in favor of t*e petitioner on Lot 5o.<91-#- -?-1! /uc* less convey a portion t*ereof to t*e petitioner. -ence! t*e respon)ent ,as not boun) by suc* provisions containe) in t*e )ee) of absolute sale. I%%12& 345 ,*et*er t*e respon)ent is boun) by t*e provisions in t*e )ee) of absolute sale 'rantin' to t*e petitioner beneficial use an) a ri'*t of ,ay over a portion of Lot 5o. <91-#- -?-1 accessin' to t*e %u/ulon' -i'*,ay. -2L6& 54. Generally! t*e acts of t*e corporate officers ,it*in t*e scope of t*eir aut*ority are bin)in' on t*e corporation. -o,ever! un)er #rticle 191B of t*e 5e, Civil Co)e! acts )one by suc* officers beyon) t*e scope of t*eir aut*ority cannot bin) t*e corporation unless it *as ratifie) suc* acts e8pressly or tacitly! or is estoppe) fro/ )enyin' t*e/. $*us! contracts entere) into by corporate officers beyon) t*e scope of aut*ority are unenforceable a'ainst t*e corporation unless ratifie) by t*e corporation. 2vi)ently! Ro8as ,as not specifically aut*ori(e) un)er t*e sai) resolution to 'rant a ri'*t of ,ay in favor of t*e petitioner on a portion of Lot 5o. <91-#- -?-1 or to a'ree to sell to t*e petitioner a portion t*ereof. $*e aut*ority of Ro8as! un)er t*e resolution! to sell Lot 5o. <91-#- -?-2 covere) by $C$ 5o. 7ABA" )i) not inclu)e t*e aut*ority to sell a portion of t*e a)7acent lot! Lot 5o. <91-#- -?-1! or to create or convey real ri'*ts t*ereon. 5eit*er /ay suc* aut*ority be i/plie) fro/ t*e aut*ority 'rante) to Ro8as to sell Lot 5o. <91-#- -?-2 to t*e petitioner Eon suc* ter/s an) con)itions ,*ic* *e )ee/s /ost reasonable an) a)vanta'eous.F $*e 'eneral rule is t*at t*e po,er of attorney /ust be pursue) ,it*in le'al
strictures! an) t*e a'ent can neit*er 'o beyon) it; nor besi)e it. $*e act )one /ust be le'ally i)entical ,it* t*at aut*ori(e) to be )one. In su/! t*en! t*e consent of t*e respon)ent to t*e assaile) provisions in t*e )ee) of absolute sale ,as not obtaine); *ence! t*e assaile) provisions are not bin)in' on it. $*e )octrine of apparent aut*ority ,as not applicable in t*is case because t*e presi)ent of t*e co/pany ,as 'iven a specific aut*ority by virtue of a boar) resolution to sell a particular lan). #ny actions of t*e presi)ent outsi)e suc* veste) aut*ority s*all not bin) t*e corporation ,it* t*ir) party. $*e apparent po,er of an a'ent is to be )eter/ine) by t*e acts of t*e principal an) not by t*e acts of t*e a'ent. ?oar) of Li9ui)ators vs. -eirs of Gala, G.R. 5o. L-1AAB=; #u'ust 1<! 19"7 F#C$%& Ma8i/o Gala, is c*air/an of t*e boar) an) 'eneral /ana'er of t*e 5ational Coconut Corporation :5#C4C4;! a non-profit G4CC e/po,ere) by its c*arter to buy sell barter e8port an) )eal in coconut! copra! an) )esiccate) coconut. ?ocar! Garcia an) Moll ,ere )irectors. It entere) into contracts for t*e tra)in' an) )elivery of copra. 5ature intervene)C< typ*oons )evastate) a'riculture an) copra pro)uction. 5#C4C4 ,as on t*e ver'e of sustainin' losses an) coul) not be able to /a0e 'oo) on t*e contracts. %ensin' t*is! Gala, sub/itte) t*e contracts to t*e boar) for approval an) /a)e a full )isclosure of t*e situation. 5o action ,as ta0en! an) no vote ,as ta0en on t*e /atter. 4n 2B >an 19<7 t*e boar) /et a'ain ,it* Gala,! ?ocar! Garcia! an) Moll in atten)ance! an) approve) t*e contracts. 5#C4C4 *o,ever only partially perfor/e) t*e contracts. 4ne of t*e contracts concerns t*e Louis 6rayfus M Co.! ,*ic* sue) 5#C4C4. 5#C4C4 settle) out-of-court an) pai) 6rayfus +="7!B2<.=2 representin' 7BH of total clai/s. $*e total settle/ents su/ up to +1. M. 5#C4C4 sues Gala,! an) *is )irectors ?ocar! Moll an) Garcia to recover t*is su/! alle'in' ne'li'ence! ba) fait* an) breac* of trust in approvin' t*e contracts! by not *avin' t*e/ approve) by t*e boar). $C )is/isses co/plaint. 5#C4C4 clai/s t*at t*e byla,s provi)e t*at prior boar) approval is re9uire) before t*e GM can perfor/ or e8ecute in be*alf of 5#C4C4 all contracts necessary to acco/plis* its purpose. I%%12& 345 t*e Gala, contracts are vali) )espite its lac0 of prior boar) approval as re9uire) by t*e 5#C4C4 by-la,s. -2L6&
$*e contracts in 9uestion are Efor,ar) salesF contractsCa sales a'ree/ent entere) into! even t*ou'* t*e 'oo)s are not yet in t*e *an)s of t*e seller. Given t*e peculiar nature of copra tra)in'! i.e. copra /ust be )ispose) of as soon as possible else it ,oul) lose ,ei'*t an) ,oul) )ecrease its value! it necessitates a 9uic0 turnover an) e8ecution of t*e contract on s*ort notice :,Qin 2< *ours;. It ,oul) be )ifficult if not i/practical to call a for/al /eetin' of t*e boar) eac* ti/e a contract is to be e8ecute). Gala, ,as a corporate officer entruste) ,it* 'eneral /ana'e/ent an) control of 5#C4C4. -e *a) i/plie) aut*ority to /a0e any contract or )o any act ,*ic* is necessary for t*e con)uct of t*e business. -e /ay! ,it*out aut*ority fro/ t*e boar)! perfor/ acts of or)inary nature for as lon' as t*ese re)oun) to t*e interest of t*e corporation. +articularly! *e contracte) for,ar) sales ,it* business entities. Lon' before so/e of t*ese contracts ,ere )ispute)! *e contracte) by *i/self alone! ,it*out boar) approval. #ll of t*e /e/bers of t*e boar) 0ne, about t*is practice an) *ave entruste) fully suc* )ecisions ,it* Gala,. -e ,as never 9uestione) nor repri/an)e) nor prevente) fro/ t*is practice. In fact! t*e boar) itself! t*rou'* its acts an) by ac9uiescence! *ave lai) asi)e t*e by-la, re9uire/ent of prior boar) approval. $*us! it cannot no, )eclare t*at t*ese contracts :failures; are not bin)in' on 5#C4C4. Ratification by a corporation of an unaut*ori(e) act or contract by its officers relates bac0 to t*e ti/e of t*e act or contract ratifie) an) is e9uivalent to ori'inal aut*ority. $*e t*eory of corporate ratification is pre)icate) upon t*e ri'*t of a corporation to contract! an) any ratification or a)option is e9uivalent to a 'rant of prior aut*ority. Ratification Ecleanses t*e contract fro/ all its )efects fro/ t*e /o/ent it ,as constitute). $*us! even in t*e face of an e8press by-la, re9uire/ent of prior approval! t*e la, on corporations is not to be *el) too ri'i) an) infle8ible as to fail to reco'ni(e e9uitable consi)erations.
Matlin' In)ustrial vs. Coros G.R. 5o. 1=7AB2; 4ctober 1 ! 2B1B F#C$%&
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$*is case involves t*e )is/issal of Coros ,*o *el) t*e position of vice presi)ent for finance an) a)/inistration of t*e co/pany. -e ,as at t*e sa/e ti/e a /e/ber of its boar) of )irectors. Coros file) a co/plaint for ille'al )is/issal ,it* t*e Labor #rbiter. $*e co/pany sou'*t t*e )is/issal of t*e case on t*e 'roun) t*at! since *e is a corporate officer an) )irector! *is co/plaint is an intra-corporate )ispute ,*ic*! at t*at ti/e! ,as un)er t*e 7uris)iction of t*e %ecurities an) 28c*an'e Co//ission :no, R$C; . $*e Labor #rbiter! 5LRC an) C# )enie) t*e co/pany.s plea an) rule) t*at Coros is not a corporate officer an) t*erefore *is co/plaint falls ,it*in t*e Labor #rbiter.s 7uris)iction. $*e co/pany elevate) t*e /atter to t*e tribunal for final resolution. $*e co/pany ar'ue) t*at Coros ,as appointe) to *is position by its presi)ent pursuant to t*e aut*ority 'iven to *i/ by t*e boar) of )irectors in its by-la,s. 4n t*e basis of t*at 'rant of po,er! it ,as as if Coros ,as )irectly appointe) by t*e boar)! t*us /a0in' *i/ a corporate officer. Coros countere) t*at inas/uc* as *is position )oes not appear in t*e co/pany.s by-la,s an) *e ,as not )irectly appointe) by t*e boar)! *e s*oul) be classifie) as an or)inary or non-corporate officer. I%%12%& 345 respon)ent is a corporate officerD 3*o is a corporate officerD -2L6& 54. Central to t*e issue is %ection 2= of t*e Corporation Co)e! ,*ic* states t*at Ei//e)iately after t*eir election! t*e )irectors of a corporation /ust for/ally or'ani(e by t*e election of a presi)ent! a treasurer! a secretary! an) suc* ot*er officers as /ay be provi)e) for in t*e by-la,s.F $*e tribunal state) t*at for a position to be consi)ere) a corporate office! it is essential t*at it is one of t*ose e8pressly /entione) in t*e Corporation Co)e or in t*e co/pany.s by-la,s. $*us! Et*e creation of an office pursuant to or un)er a byla, enablin' provision is 54$ enou'* to /a0e a position a corporate office.F $*e co/pany.s ar'u/ent t*at its by-la,s /a)e a vali) )ele'ation of t*e boar).s appointin' po,er to t*e presi)ent ,as re7ecte) by t*e tribunal. It pointe) out t*at t*e )ele'ation is invali) because t*e la, re9uires t*e boar) itself to elect t*e corporate officers. $*at po,er is Ee8clusively veste) in t*e boar) of )irectors an) coul) not be )ele'ate) to subor)inate officers or a'ents.F Moreover! t*e tribunal e8plaine)! t*e appoint/ent aut*ority 'rante) to t*e presi)ent ,as li/ite) to t*e creation of non-corporate offices to be occupie) by or)inary e/ployees. $*eir appoint/ent is inci)ental to t*e presi)ent.s )uty as e8ecutive to assist *i/ in runnin' t*e co/pany.
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.; ?4#R6 C4MMI$$22% -ayes vs. Cana)a #tlantic M +lant %tea/s*ip Co. 1A1 F. 2A9; 191B F#C$%& +etitioner is one of t*e e8ecutive co//ittee of respon)ent co/pany. In t*is case! t*e 28ecutive Co//ittee& :a; re/ove) t*e $reasurer an) appointe) a ne, one; :b; fi8e) t*e annual salary of t*e /e/bers of t*e 28ecutive Co//ittee; :c; a/en)e) t*e by-la,s by 'ivin' t*e +resi)ent t*e sole aut*ority to call a stoc0*ol)erNs /eetin' an) a boar) of )irectors /eetin'; an) :); a/en)e) t*e co/position of t*e 28ecutive Co//ittee by li/itin' it to 7ust 2 persons. I%%12& 3ere t*ese actions vali)D -2L6& 5o! because t*e 28ecutive Co//ittee usurpe) t*e po,ers veste) in t*e boar) an) t*e stoc0*ol)ers. If t*eir actions ,ere vali)! it ,oul) put t*e corporation in a situation ,*erein only t,o /en! actin' in t*eir o,n pecuniary interests! ,oul) *ave absorbe) t*e po,ers of t*e entire corporation. KFull po,ersK s*oul) be interprete) only in t*e or)inary con)uct of business an) not total ab)ication of boar) an) stoc0*ol)ersN po,ers to t*e 28ecutive Co//ittee. KF1LL +432R%K )oes not /ean unli/ite) or absolute po,er. XIV. DUTIES OF DIRECTORS AND CONTROLLING STOC$HOLDERS ?en'uet 2lectric Cooperative vs. 5LRC G.R. 5o. A9B7B; May 1A! 1992 F#C$%& Cosalan! GM of t*e ?en'uet 2lectric Cooperative! ,as infor/e) by C4# t*at cas* a)vances receive) by officers an) e/ployees of ?en'uet 2lectric *a) been virtually ,ritten off t*e boo0s! t*at per )ie/s an) allo,ances s*o,e) substantial inconsistencies ,it* t*e )irectives of t*e 5ational 2lectrification #)/inistration! an) t*at several irre'ularities in t*e
utili(ation of fun)s release) by 52# to ?en'uet. Cosalan t*en i/ple/ente) t*e re/e)ial /easures reco//en)e) by C4#. ?oar) /e/bers of ?en'uet respon)e) by abolis*in' t*e *ousin' allo,ance of Cosalan! re)uce) *is salary! representation an) ot*er allo,ances! an) )irecte) *i/ to *ol) in abeyance all )isciplinary actions! an) struc0 *is na/e out as principal si'natory of ?en'uet 2lectric. $*e ?oar) a)opte) anot*er series of resolutions ,*ic* resulte) in t*e ouster of Cosalan as GM. Cosalan nonet*eless continue) to ,or0 as GM! conten)in' t*at only t*e 52# can suspen) an) re/ove *i/. $*e ?oar) t*en refuse) to act on Cosalan re9uest to release co/pensation )ue *i/. Cosalan files a co/plaint ,it* t*e 5LRC a'ainst t*e ?oar) of ?en'uet 2lectric! an) i/plea)e) ?en'uet 2lectric itself as ,ell as t*e in)ivi)ual /e/bers of t*e boar) in t*eir official an) private capacities. Labor #rbiter rules in favor of Cosalan! *ol)in' bot* t*e co/pany an) t*e boar) soli)arily liable to Cosalan. 5LRC /o)ifies a,ar) to Cosalan by )eclarin' ?en'uet alone! an) not t*e ?oar) /e/bers! ,as liable to Cosalan. ?en'uet appeals. I%%12& 345 bot* t*e corporation an) boar) /e/bers are liable to Cosalan.
-2L6& J2%. $*e ?oar) /e/bers an) officers of a corporation ,*o purport to act for an) in be*alf of t*e corporation! 0eep ,it*in t*e la,ful scope of t*eir aut*ority in so actin'! an) act in 'oo) fait*! )o not beco/e liable! civilly or ot*er,ise! for t*e conse9uences of t*eir acts. $*ose acts are properly attribute) to t*e corporation alone an) no personal liability is incurre). In t*is case! t*e boar) /e/bers obviously ,ante) to 'et ri) of Cosalan an) acte) ,it* in)ecent *aste in re/ovin' *i/ fro/ *is GM position. $*is s*o,s stron' in)ications t*at t*e /e/bers of t*e boar) *a) ille'ally suspen)e) an) )is/isse) *i/ precisely because *e ,as tryin' to rectify t*e financial irre'ularities. $*e ?oar) /e/bers are also liable for )a/a'es un)er %ec. 1 of t*e Corporation Co)e! ,*ic* by virtue of %ec. < t*ereof! /a0es it applicable in a supple/entary /anner to all corporations! inclu)in' t*ose ,it* special or in)ivi)ual c*arters so lon' as t*ese are not inconsistent t*ere,it*. $*e ?oar) /e/bers are also 'uilty of 'ross ne'li'ence an) ba) fait* in )irectin' t*e affairs of t*e corporation in enactin' t*e sai) resolutions! an) in )oin' so! acte) beyon) t*e scope of t*eir aut*ority. +ri/e 3*ite Ce/ent vs. I#C
G.R. 5o. L-"A===; Marc* 19! 199 F#C$%& +ri/e 3*ite Ce/ent entere) into a )ealers*ip a'ree/ent ,it* one of its )irectors! #le7an)ro $e! for t*e latter to be t*e e8clusive )istributor of 2B!BBB ba's of +ri/e 3*ite ce/ent per /ont* W +9.7B per ba' for t*e entire Min)anao area for = years! an) t*at a letter of cre)it be opene) to secure pay/ent. $e a)vertise) *is )ealers*ip an) ,as able to obtain possible clients! an) entere) into a'ree/ents ,it* several *ar),are stores for t*e purc*ase of t*e ce/ent. $e t*en infor/e) +ri/e 3*ite of t*e or)ers! but t*e latter i/pose) a))itional con)itions! ,*ic* effectively )elaye) t*e )elivery of t*e ce/ent! lo,ere) t*e nu/ber of ba's to be )elivere)! an) increase) t*e price per ba'. It also /a)e t*e prices sub7ect to c*an'e unilaterally an) a))itional con)itions on t*e /anner of pay/ent. $e refuse) to co/ply an) +ri/e 3*ite cancelle) t*e )ealers*ip a'ree/ent. $e sue) for specific perfor/ance an) )a/a'es. $C rule) in favor of $e. I%%12& 345 t*e )ealers*ip a'ree/ent is a vali) an) enforceable contract bin)in' on t*e corporation. -2L6& 54. It is not vali) an) enforceable. #ll corporate po,ers are e8ercise) by t*e ?oar). It /ay also )ele'ate specific po,ers to its +resi)ent or ot*er officers. In t*e absence of e8press )ele'ation! a contract entere) into by t*e +resi)ent in be*alf of t*e corporation! /ay still bin) t*e latter if t*e boar) s*oul) ratify e8pressly or i/plie)ly. In t*e absence of e8press or i/plie) ratification! t*e +resi)ent /ay as a 'eneral rule bin) t*e corporation t*rou'* a contract in t*e or)inary course of business! provi)e) t*e sa/e is reasonable un)er t*e circu/stances. $*ese rules are applicable ,*ere t*e +resi)ent or ot*er officer actin' for t*e corporation is )ealin' ,it* a t*ir) person. $*e situation is )ifferent ,*ere a )irector or officer is )ealin' ,it* *is o,n corporation. $e ,as not an or)inary stoc0*ol)er; *e ,as a /e/ber of t*e ?oar) an) #u)itor of t*e corporation. -e is ,*at is often calle) a 1*e'f2de!'in&3 director. #s a )irector! *e *ol)s a position of trust an) o,es a )uty of loyalty to *is corporation. In case *is interests conflict ,it* t*ose of t*e corporation! *e cannot sacrifice t*e latter to *is o,n a)vanta'e an) benefit. $*e trust relations*ip sprin's fro/ t*e control an) 'ui)ance of t*e corporate affairs an) property interests of t*e stoc0*ol)ers. # )irector.s contract ,it* *is corporation is not in all instances voi) or voi)able. If t*e contract is fair an) reasonable un)er t*e circu/stances! it /ay be ratifie) by t*e stoc0*ol)ers provi)e) a full )isclosure of *is a)verse interest is /a)e. Go0on',ei >r. vs. %2C et. al. :supra;
G.R. 5o. L-<=911; #pril 11! 1979 I%%12& 345 t*e a/en)e) by-la,s of %MC of )is9ualifyin' a co/petitor :Interloc0in' )irector; fro/ no/ination or election to t*e ?oar) of 6irectors of %MC are vali) an) reasonable.
-2L6& 1n)er 1% corporate la,! corporations *ave t*e po,er to /a0e by-la,s )eclarin' a person e/ploye) in t*e service of a rival co/pany to be ineli'ible for t*e corporationNs ?oar) of 6irectors. ... #n a/en)/ent ,*ic* ren)ers ineli'ible! or if electe)! sub7ects to re/oval! a )irector if *e be also a )irector in a corporation ,*ose business is in co/petition ,it* or is anta'onistic to t*e ot*er corporation is vali).K $*is is base) upon t*e principle t*at ,*ere t*e )irector is so e/ploye) in t*e service of a rival co/pany! *e cannot serve bot*! but /ust betray one or t*e ot*er. %uc* an a/en)/ent Ka)vances t*e benefit of t*e corporation an) is 'oo).K In t*e +*ilippines! section 21 of t*e Corporation La, e8pressly provi)es t*at a corporation /ay /a0e by-la,s for t*e 9ualifications of )irectors. $*us! it *as been *el) t*at an officer of a corporation cannot en'a'e in a business in )irect co/petition ,it* t*at of t*e corporation ,*ere *e is a )irector by utili(in' infor/ation *e *as receive) as suc* officer! un)er Kt*e establis*e) la, t*at a )irector or officer of a corporation /ay not enter into a co/petin' enterprise ,*ic* cripples or in7ures t*e business of t*e corporation of ,*ic* *e is an officer or )irector.F It is also ,ell establis*e) t*at corporate officers Kare not per/itte) to use t*eir position of trust an) confi)ence to furt*er t*eir private interests.K In a case ,*ere )irectors of a corporation cancelle) a contract of t*e corporation for e8clusive sale of a forei'n fir/Ns pro)ucts! an) after establis*in' a rival business! t*e )irectors entere) into a ne, contract t*e/selves ,it* t*e forei'n fir/ for e8clusive sale of its pro)ucts! t*e court *el) t*at e9uity ,oul) re'ar) t*e ne, contract as an offs*oot of t*e ol) contract an)! t*erefore! for t*e benefit of t*e corporation! as a Kfaultless fi)uciary /ay not reap t*e fruits of *is /iscon)uct to t*e e8clusion of *is principal. %tron' vs. Repi)e G.R. 5o. L-21B1; 5ove/ber 1=! 19B" F#C$%&
$*is action ,as brou'*t to recover ABB s*ares of t*e capital stoc0 of t*e +*ilippine %u'ar 2states 6evelop/ent Co/pany! Li/ite)! an anony/ous society for/e) to *ol) t*e 6o/inican friar lan)s. $*e s*ares ,ere t*e property of one of t*e plaintiffs! Mrs. %tron'! as part of t*e estate of *er first *usban). $*ey ,ere purc*ase) by t*e )efen)ant t*rou'* a bro0er ,*o )ealt ,it* *er a'ent! one >ones! ,*o *a) t*e script in *er possession an) ,*o *a) /a)e t*e sale ,it*out t*e 0no,le)'e of t*e plaintiff. $*e )efen)ant ,as a )irector! ,as t*e /ana'in' a'ent! an) ,as in *is o,n ri'*t t*e /a7ority stoc0*ol)er of t*e society. I%%12& 345 a )irector an) /a7ority stoc0*ol)er /ust )isclose *is infor/ation to anot*er stoc0*ol)er before buyin' stoc0 fro/ *i/. -2L6& J2%. $*e )irector an) controllin' stoc0*ol)er ,*o purc*ase) t*e s*ares of anot*er stoc0*ol)er t*rou'* an a'ent ,as *el) to be 'uilty of concealin' t*e i/pen)in' purc*ase of t*e friar lan)s t*ey o,n by t*e 'overn/ent! a si'nificant fact ,*ic* ,oul) affect t*e price of t*e s*ares. #lt*ou'* or)inarily! t*e relations*ip bet,een )irectors an) stoc0*ol)ers of a corporation is not of a fi)uciary c*aracter as to obli'e t*e )irector to )isclose to a stoc0*ol)er t*e 'eneral 0no,le)'e ,*ic* *e /ay possess re'ar)in' t*e value of t*e s*ares of t*e co/pany before *e purc*ases any for/ a s*are*ol)er! t*ere are cases ,*en suc* )uty an) obli'ation upon t*e )irector is present. ?ein' t*e c*ief ne'otiator for t*e sale of t*e lan)s! t*e )irector ,as t*e only person ,*o 0ne, of t*e a)vanta'es an) t*e i/pen)in' increase in t*e value of t*e s*ares suc* t*at *e is preclu)e) fro/ ac9uirin' stoc0s fro/ ot*er s*are*ol)ers ,it*out first infor/in' t*e/ of t*e pertinent facts affectin' t*e value of t*e s*ares bein' bou'*t. It is frau)ulent for a stoc0*ol)er to buy fro/ a s*are*ol)er ,it*out )isclosin' *is i)entity. NOTE: %pecial Facts 6octrine& a )octrine *ol)in' t*at a corporate officer ,it* superior 0no,le)'e 'aine) by virtue of bein' an insi)er o,es a li/ite) fi)uciary )uty to a s*are*ol)er in transactions involvin' transfer of stoc0.
%teinber' vs. @elasco G.R. 5o. L- B<"B; Marc* 12! 1929

F#C$%& $*e boar) of t*e corporation aut*ori(e) t*e purc*ase of Bs*ares of capital stoc0 of t*e corporation an) t*e )eclaration of )ivi)en)s at a ti/e ,*en t*e corporation ,as in)ebte) an) in suc* a ba) financial con)ition. $*e )irectors relie) on t*e face value on t*e boo0s of its #QR! ,*ic* *a) little or no value. Furt*er/ore it appears t*at t,o of t*e )irectors ,ere per/itte) to resi'n so t*at t*ey coul) sell t*eir stoc0 to t*e corporation. $*e corporation beca/e insolvent! an) t*e receiver %teinber' sues t*e )irectors. I%%12& 6uty to cre)itors. -2L6& Cre)itors of a corporation *ave t*e ri'*t to assu/e t*at so lon' as t*ere are outstan)in' )ebts an) liabilities! t*e ?46 ,ill not use t*e assets of t*e corporation to buy its o,n stoc0! an) ,ill not )eclare )ivi)en)s to stoc0*ol)ers ,*en t*e corporation is insolvent. In t*is case! it ,as foun) t*at t*e corporation )i) not *ave an actual bona fi)e surplus fro/ ,*ic* )ivi)en)s coul) be pai). Moreover! t*e Court note) t*at t*e ?oar) of 6irectors purc*ase) t*e stoc0 fro/ t*e corporation an) )eclare) t*e )ivi)en)s on t*e stoc0 at t*e sa/e ?oar) /eetin'! an) t*at t*e )irectors ,ere per/itte) to resi'n so t*at t*ey coul) sell t*eir stoc0 to t*e corporation. Given all of t*is! it ,as apparent t*at t*e )irectors )i) not act in 'oo) fait* or ,ere 'rossly i'norant of t*eir )uties. 2it*er ,ay! t*ey are liable for t*eir actions ,*ic* affecte) t*e financial con)ition of t*e corporation an) pre7u)ice) cre)itors. XV. DEVICES AFFECTING CONTROL 2verett vs. #sia ?an0in' G.R. 5o. L-2=2<1; 5ove/ber ! 192" F#C$%& $eal M Co/pany is in)ebte) to -3 +eabo)y M Co. for + BBG for tractors! plo,s! an) parts )elivere)! of ,*ic* it *as pai) +1=BG. #sia ?an0in' Corp *el) )rafts accepte) by $eal un)er t*e -3 +eabo)y.s 'uarantee. $ractors ,ere returne) to
-3 +eabo)y )ue to its bein' unsellable )ue to financial an) a'ricultural )epression in t*e R+. $eal or)ere) anot*er lot of tractors fro/ %/it* Gir0patric0! but s*ip/ent ,as )elaye) until t*e rescission of t*e cre)it of $eal ,it* #sia ?an0. Jet %/it* still )elivere) t*e or)er! an) $eal at t*e re9uest an) a)vice of t*e ?an0 accepte) t*e )rafts an) store) t*e sa/e. #sia ?an0in' persua)e) $eal! +eabo)y! an) %/it* Gir0patric0 to enter into a Ecre)itor.s a'ree/entF ,*erein it ,as /utually a'ree) t*at neit*er of t*e parties s*oul) ta0e action to collect its )ebts fro/ $eal for 2 years. $eal soon beca/e in)ebte) to #sia ?an0 for +7=B!BBB! secure) by /ort'a'e. $*e ?an0 t*en su''este) t*at! for t*e /utual protection of $eal an) itself! it ,as a)visable t*at t*e ?an0 s*oul) te/porarily obtain control of t*e /ana'e/ent an) affairs of t*e co/pany. $o t*is en)! it ,as necessary for t*e stoc0*ol)ers to place t*eir s*ares in a votin' trust to be *el) by t*e ?an0! an) t*en t*e ?an0 ,oul) finance $eal un)er its o,n supervision. $*e $eal stoc0*ol)ers ,ere t*us in)uce) to enter into t*e @otin' $rust #'ree/ent! ,it* t*e purpose t*at t*e a'ree/ent ,ill be inten)e) for t*e protection of all parties fro/ outsi)e cre)itors. %*ortly after t*e e8ecution an) )elivery of t*e votin' trust an) t*e M4#! Mullen as GM of t*e ?an0! cause) t*e )isplace/ent an) re/oval stoc0*ol)er representatives in t*e ?oar) an) t*e substitution in t*eir place of t*e ?an0.s e/ployees or representatives. $*e ne, ?oar)! ,*o *ave not purc*ase) any s*are of stoc0 of $eal! procee)e) to re/ove t*e Corporate %ecretary! )isc*ar'e all t*e ol) /ana'ers an) )isplace t*e/ ,it* creatures of t*eir o,n c*oosin' ,*ose interest consiste) ,*olly in pleasin' t*e/selves an) t*e ?an0! an) ,*o ,ere ,*olly forei'n to t*e stoc0*ol)ers. I%%12& 345 t*e action s*oul) *ave been brou'*t by $eal an) Co.! an) not t*e /a7ority stoc0*ol)ers t*ereof. -2L6& 54. $eal an) Co.! inclu)in' its ?oar)! ,as alrea)y un)er t*e control of #sia ?an0in'. $*us! it ,oul) *ave been useless to as0 t*e ?oar) to institute t*e present suit! an) t*e la, )oes not re9uire liti'ants to perfor/ useless acts. $*e court *el) t*at t*e stoc0*ol)ers coul) brin' t*e sai) action :in t*e nature of a )erivative suit; on be*alf of $eal an) Co. 3*en t*e ?oar) of 6irectors in a Corporation is un)er t*e co/plete control of t*e principal )efen)ants in t*e case an) it is obvious t*at a )e/an) upon t*e boar) of )irectors to institute an action an) prosecute t*e sa/e effectively ,oul) be useless! t*e action /ay be brou'*t by one or /ore of t*e stoc0*ol)ers ,it*out suc* )e/an). $*e Court *o,ever! )i) not rule on t*e propriety or i/propriety of t*e @otin' $rust #'ree/ent bet,een t*e ?an0 an) t*e Co/pany. NOTE: -o,ever! it /ay be inferre) t*at t*e stoc0*ol)ers /ay brin' suit a'ainst t*e trustees if t*e votin' trust a'ree/ent is bein' use) by t*e sai) $rustees to perpetuate frau) a'ainst t*e corporation! as is present in t*is case. $*e stoc0*ol)ers ,oul)
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still *ave le'al stan)in' to institute t*e suit in be*alf of t*e corporation for acts )one by t*e trustees to )efrau) t*e corporation! ,*en t*e sai) trustees alrea)y *ave control of t*e ?oar) of t*e sai) corporation. # )erivative suit is still proper. 5I6C vs. #9uino G.R. 5o. L- <192; >une B! 19AA F#C$%& ?at7a0! a /anufacturer of coco oil an) copra ca0e for e8port! is on t*e brin0 of ban0ruptcy. It entere) in to a Financial #'ree/ent ,it* +5? for a))itional operatin' capital for its processin' /ills an) to pay its ot*er )ebts to ot*er ban0s. 1n)er t*e a'ree/ent ,it* +5?! 5I6C! a ,*olly-o,ne) subsi)iary of +5?! ,oul) invest +".7M ,ort* of preferre) s*ares convertible ,it*in = years into co//on stoc0 to pay off t*e ot*er )ebts an) t*e balance to pay off its o,n )ue ,it* +5?. +5? also 'rante) various cre)it acco//o)ations. ?at7a0 as part of t*e )eal /ort'a'e) all its properties in t*e province. # =year votin' trust a'ree/ent ,as e8ecute) in favor of 5I6C by t*e stoc0*ol)ers representin' "BH outstan)in' stoc0 of ?at7a0. Jears later! +5? institute) foreclosure procee)in's a'ainst t*e /ort'a'e) properties )ue to ?at7a0.s insolvency! an) soon beca/e o,ner of t*e properties. ?at7a0 faile) to e8ercise its ri'*t to re)ee/ ,it*in t*e perio) allo,e) an) +5? transferre) o,ners*ip of t*e 2 oil /ills to 5I6C. $*ree years later! ?at7a0 represente) by /a7ority stoc0*ol)ers! in9uire) ,it* 5I6C if it ,as still intereste) in ne'otiatin' t*e rene,al of t*e votin' trust a'ree/ent. 5I6C replie) t*at it ,as no lon'er intereste) an) re9ueste) turn-over of all ?at7a0 assets an) properties. ?at7a0 )e/an)e) an accountin' of all assets an) properties an) operations but 5I6C refuse) to co/ply. ?at7a0 t*en file) an action for /an)a/us. CFI >u)'e #9uino issue) a $R4 pro*ibitin' 5I6C fro/ re/ovin' any recor)! report! or )ocu/ent or )isposin' all of t*e properties of ?at7a0! an) allo,e) ?at7a0 to inspect t*e sa/e. ?at7a0 t*en /ove) for t*e appoint/ent of a receiver. 5I6C an) +5? opposes! but overrule) by CFI. MR.s )enie). I%%12& 345 5I6C ,as constitute) as trustee of t*e assets! /ana'e/ent an) operations of ?at7a0 )ue to t*e e8piration of t*e @otin' $rust #'ree/ent. -2L6&
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54. # @otin' $rust #'ree/ent only transfers votin' or ot*er ri'*ts pertainin' to t*e s*ares sub7ect of t*e a'ree/ent! or control over t*e stoc0. %toc0*ol)ers of a corporation t*at lost all its assets t*rou'* foreclosures cannot 'o after t*ose properties. -o,ever! t*e ac9uisition by +5?-5I6C of t*e properties in 9uestion ,as not /a)e or effecte) un)er t*e capacity of a trustee but as a foreclosin' cre)itor for t*e purpose of recoverin' on a 7ust an) vali) obli'ation of ?at7a0. XVI. RIGHT OF INSPECTION +ar)o vs. -ercules Lu/ber G.R. 5o. L-22<<2; #u'ust 1! 192< F#C$%& Corporate secretary of -ercules Lu/ber refuse) to per/it +ar)o! a stoc0*ol)er! or *is a'ent to inspect t*e recor)s an) business transactions of t*e co/pany at t*e ti/es )esire) by +ar)o. ?asis of t*e refusal ,as t*e provision in t*e co/pany.s by-la,s ,*ic* stipulate) t*at every stoc0*ol)er /ay e8a/ine t*e boo0s of t*e co/pany an) ot*er )ocu/ents upon t*e )ays ,*ic* t*e boar) annually fi8es. I%%12& 3*en is t*e ti/e or ti/es ,it*in ,*ic* t*e ri'*t of inspection /ay be e8ercise)D -2L6& $*e resolution of t*e boar) li/itin' t*e ri'*ts of stoc0*ol)ers to inspect its recor)s to a perio) of 1B )ays prior to t*e annual %- /eetin' is an unreasonable restriction in accor)ance ,it* t*e Corporation Co)e ,*ic* provi)es t*at t*e ri'*t to inspect can be e8ercise) at reasonable *ours. $*e ri'*t of inspection ,as interprete) to /ean t*at t*e ri'*t /ay be e8ercise) at reasonable *ours on business )ays t*rou'*out t*e year! an) not /erely )urin' an arbitrary perio) of a fe, )ays c*osen by t*e )irectors. Gon(ales vs. +5? G.R. 5o. L-2<A=B; Marc* 1! 192"
F#C$%& Gon(ales institute) a suit! as a ta8payer! a'ainst %ec. of +ublic 3or0s an) Co//unications! t*e Co//issioner of +ublic -i'*,ays! an) +5? for alle'e) ano/alies co//itte) re'ar)in' t*e ban0.s e8tension of cre)it to i/port public ,or0s e9uip/ent inten)e) for t*e /assive )evelop/ent pro'ra/. $*e petitioner.s stan)in' ,as 9uestione) because *e )i) not o,n any s*are in +5?. Conse9uently! +etitioner bou'*t 1 s*are of +5? stoc0s in or)er to 'ain stan)in' as a stoc0*ol)er. +etitioner t*ereafter sou'*t to in9uire an) or)ere) +5? to pro)uce its boo0s an) recor)s ,*ic* t*e ?an0 refuse)! invo0in' t*e provisions fro/ its c*arter create) by Con'ress. $*e petitioner file) petition for /an)a/us to co/pel +5? to pro)uce its boo0s an) recor)s. $*e R$C )is/isse) t*e petition an) it rule) t*at t*e ri'*t to e8a/ine an) inspect corporate boo0s is not absolute! but is li/ite) to purposes reasonably relate) to t*e interest of t*e stoc0*ol)er! /ust be as0e) for in 'oo) fait* for a specific an) *onest purpose an) not 'ratify curiosity or for speculative or vicious purposes. I%%12& 345 t*e ri'*t of inspection /ay be co/pelle) by Gon(ales. -2L6& 54. $*e Co)e *as prescribe) li/itations to t*e ri'*t of inspection! re9uirin' as a con)ition for e8a/ination t*at t*e person re9uestin' /ust not *ave been 'uilty of usin' i/properly any infor/ation secure) t*rou'* a prior e8a/ination! an) t*at t*e person as0in' for suc* /ust be actin' in 'oo) fait* an) for a le'iti/ate purpose. It is t*e stoc0*ol)er see0in' to e8ercise t*e ri'*t of inspection to set fort* t*e reasons an) purposes for ,*ic* *e )esires suc* inspection. %C *el) t*at t*e purpose of Gon(ales! ,*ic* ,as to ar/ *i/self ,it* evi)ence ,*ic* *e can use a'ainst t*e ban0 for acts )one by t*e latter ,*en *e ,as still a total stran'er :i.e. not a %-;! ,ere not )ee/e) proper /otives an) *is re9uest ,as )enie). @era'ut* vs. Isabela %u'ar Co. G.R. 5o. L- 7B"<; 4ctober <! 19 2 F#C$%& @era'ut*! a )irector an) stoc0*ol)er of t*e Isabela %u'ar Co/pany! Inc.! file) a petition ,it* t*e lo,er court prayin' t*at& a final an) absolute ,rit of /an)a/us be issue) to eac* an) all of t*e respon)ent )irectors to notify *i/ ,it*in t*e re'le/entary perio)! of all re'ular an) special /eetin's of t*e boar) of )irectors of t*e Co/pany! an) to place at *is
)isposal at reasonable *ours t*e /inutes! )ocu/ents! an) boo0s of sai) corporation for *is inspection as )irector an) stoc0*ol)er. -e li0e,ise conten)s t*at ,*en as0e) t*at *e be per/itte) to inspect t*e boo0s of t*e corporation! *e ,as )enie) access on t*e 'roun) t*at t*e boar) of )irectors a)opte) a resolution provi)in' for inspection of t*e boo0s an) t*e ta0in' of copies only by aut*ority of t*e +resi)ent of t*e corporation previously obtaine) in eac* case. I%%12& 345 @era'ut* can e8ercise t*e ri'*t of inspection of t*e boo0s prior to t*e approval of t*e ?oar). -2L6& 54. 6irectors *ave t*e un9ualifie) ri'*t to inspect t*e boo0s an) recor)s of a corporation at all reasonable ti/es. +rete8ts /ay not be put for,ar) by t*e officers to 0eep a )irector or stoc0*ol)er fro/ inspectin' t*e boo0s an) /inutes of t*e corporation! an) t*e ri'*t to inspect cannot be )enie) on t*e 'roun)s t*at t*e )irector or stoc0*ol)ers are on unfrien)ly ter/s ,it* t*e officers. # )irector or stoc0*ol)er *as no absolute ri'*t to secure certifie) copies of t*e /inutes until t*ese /inutes *ave been ,ritten up an) approve) by t*e )irectors. Go0on',ei >r. vs. %2C et. al. :supra; G.R. 5o. L-<=911; #pril 11! 1979 I%%12& 345 Go0on',ei /ay be allo,e) to inspect t*e boo0s of t*e corporation. -2L6& J2%. 3*ere t*e ri'*t to inspect is 'rante) by statute to t*e stoc0*ol)er! it is 'iven to *i/ as suc* an) /ust be e8ercise) by *i/ ,it* respect to *is interest as a stoc0*ol)er an) for so/e purpose 'er/ane t*ereto or in t*e interest of t*e corporation. $*e inspection *as to be 'er/ane to t*e petitioner.s interest as a stoc0*ol)er an) *as to be proper an) la,ful in c*aracter an) not ini/ical to t*e interest of t*e corporation. $*e stoc0*ol)er.s ri'*t to inspect is base) on *is o,ners*ip of t*e assets an) property of t*e corporation. It is t*erefore an inci)ent of o,ners*ip of t*e corporate property! ,*et*er t*is o,ners*ip or interest be ter/e) an e9uitable o,ners*ip! beneficial o,ners*ip! or 9uasi-o,ners*ip! an) is pre)icate) upon t*e necessity of self-protection. 4n application
for /an)a/us to enforce t*e ri'*t! it is proper for t*e court to in9uire into an) consi)er t*e stoc0*ol)er.s 'oo) fait* an) *is purpose an) /otives in see0in' inspection. ?ut t*e i/propriety of purpose suc* as ,ill )efeat enforce/ent /ust be set up by t*e corporation )efensively if t*e Court is to ta0e co'ni(ance of it as a 9ualification. In ot*er ,or)s! t*e la, ta0e fro/ t*e stoc0*ol)er t*e bur)en of s*o,in' t*e propriety of purpose an) place upon t*e corporation t*e bur)en of s*o,in' i/propriety of purpose or /otive. $*e forei'n subsi)iary is ,*olly-o,ne) by %MC an) t*erefore un)er its control! an) ,oul) be /ore in accor) ,it* e9uity! 'oo) fait*! an) fair )ealin' to construe t*e statutory ri'*t of Go0on',ei as stoc0*ol)er to inspect t*e boo0s of t*e parent as e8ten)in' to t*e boo0s of t*e subsi)iary in its control. XVII. DERIVATIVE SUIT 2van'elista vs. %antos G.R. 5o. L-1721; May 19! 19=B F#C$%& +laintiffs! /inority stoc0*ol)ers of @itali Lu/ber Co/pany! alle'es in t*eir co/plaint t*at )efen)ant as presi)ent! /ana'er an) treasurer of t*eir co/pany! t*rou'* fault! ne'lect an) aban)on/ent allo,e) it lu/ber concession to lapse an) its properties an) assets to )isappear causin' t*e co/plete ruin of t*e corporation.s operation an) total )epreciation of its stoc0s. $*ey pray for an accountin' fro/ t*e )efen)ant of t*e corporate affairs an) assets! pay/ent to t*e/ of t*e value of t*eir respective participation in sai) assets on t*e basis of t*e value of t*e stoc0s *el) by eac* of t*e/ an) to pay t*e cost of t*e suit. I%%12& 345 t*e plaintiff-stoc0*ol)ers *as t*e ri'*t to brin' suit in t*eir benefit. -2L6& 54. $*e co/plaint s*o,s t*at t*e action is for )a/a'es resultin' fro/ /is/ana'e/ent of t*e affairs an) assets of t*e corporation by its principal officer! it bein' alle'e) t*at )efen)antNs /ala)/inistration *as brou'*t about t*e ruin of t*e corporation an) t*e conse9uent loss of value of its stoc0s. $*e in7ury co/plaine) of is t*us pri/arily to t*e corporation! so
t*at t*e suit for t*e )a/a'es clai/e) s*oul) be by t*e corporation rat*er t*an by t*e stoc0*ol)ers. $*e stoc0*ol)ers /ay not )irectly clai/ t*ose )a/a'es for t*e/selves for t*at ,oul) result in t*e appropriation by an) t*e )istribution a/on' t*e/ of part of t*e corporate assets before t*e )issolution of t*e corporation an) t*e li9ui)ation of its )ebts an) liabilities so/et*in' ,*ic* cannot be le'ally )one. ?ut ,*ile it is to t*e corporation t*at t*e action s*oul) pertain in cases of t*is nature! *o,ever! if t*e officers of t*e corporation! ,*o are t*e ones calle) upon to protect t*eir ri'*ts! refuse to sue! or ,*ere a )e/an) upon t*e/ to file t*e necessary suit ,oul) be futile because t*ey are t*e very ones to be sue) or because t*ey *ol) t*e controllin' interest in t*e corporation! t*en in t*at case any of t*e stoc0*ol)ers is allo,e) to brin' suit. ?ut in t*at case! t*e corporation is t*e real party in interest. Republic ?an0 vs. Cua)erno G.R. 5o. L-22 99; Marc* B! 19"7 F#C$%& # )erivative suit ,as brou'*t a'ainst t*e officers an) t*e boar). Co/plaint alle'e) t*at t*e )irectors approve) a resolution 'rantin' e8cessive co/pensation to t*e corporate officers. %uit ,as file) in or)er to prevent )issipation of t*e corporate fun)s for t*e pay/ent of salaries of t*e sai) officers. ?oar) clai/s t*e action cannot prosper for failure to co/pel t*e boar) to file t*e suit for an) in be*alf of t*e corporation. I%%12& 345 t*e action cannot prosper for failure to co/pel t*e boar) to file suit in be*alf of t*e corporation. -2L6& 54. It is settle) t*at an in)ivi)ual stoc0*ol)er is per/itte) to institute a )erivative or representative suit on be*alf of t*e corporation ,*erein *e *ol)s stoc0 in or)er to protect or vin)icate corporate ri'*ts! ,*enever t*e officials of t*e corporation refuse to sue! or are t*e ones to be sue) or *ol) t*e control of t*e corporation. In suc* actions! t*e suin' stoc0*ol)er is re'ar)e) as a no/inal party! ,it* t*e corporation as t*e real party in interest. 5or/ally! it is t*e corporation t*rou'* t*e boar) of )irectors ,*ic* s*oul) brin' t*e suit. ?ut as in t*is case! t*e /e/bers of t*e boar) of )irectors of t*e ban0 ,ere t*e no/inees an) creatures of respon)ent Ro/an an) t*us! any )e/an) for an intra-corporate re/e)y ,oul) be futile! t*e stoc0*ol)er is per/itte) to brin' a )erivative suit.
S+o"'d t+e cor or!tion .e ,!de ! !rt#4 $*e 8nglish practice is to /a0e t*e corporation a party plaintiff ,*ile t*e 9S practice is to /a0e it a party )efen)ant. 3*at is i/portant t*ou'* is t*at t*e corporation s*oul) be /a)e a party in or)er to /a0e t*e courtNs rulin' bin)in' upon it an) t*us bar any future re-liti'ation of t*e issues. %an Mi'uel Corporation vs. G*an G.R. 5o. A= 9; #u'ust 11! 19A9 F#C$%& Fourteen corporations initially ac9uire) s*ares of outstan)in' capital stoc0 of %MC an) constitute) a @otin' $rust t*ereon in favor of #n)res %oriano! >r. 3*en t*e latter )ie) 2)uar)o Co7uanco ,as electe) as t*e substitute trustee. -o,ever! after t*e 26%# revolution! Co7uanco fle) out of t*e country! an) subse9uently an a'ree/ent ,as entere) into bet,een t*e 1< corporations an) #n)res %oriano III :as an a'ent of several persons; for t*e purc*ase of t*e s*ares *el) by t*e for/er. #ctually t*e buyer of t*e s*ares ,as 5eptunia Corporation! a forei'n corporation an) ,*olly-o,ne) subsi)iary of anot*er subsi)iary ,*olly o,ne) by %MC. 5eptunia pai) t*e )o,npay/ent fro/ t*e procee)s of certain loans. +CGG t*en se9uestere) t*e s*ares sub7ect of t*e sale so %MC suspen)e) all t*e ot*er install/ents of t*e price to t*e sellers. $*e 1< corporations t*en sue) for rescission an) )a/a'es. Mean,*ile! +CGG )irecte) %MC to issue 9ualifyin' s*ares to seven :7; in)ivi)uals inclu)in' 2)uar)o )e los #n'eles fro/ t*e se9uestere) s*ares for t*e/ to *ol) in trust. $*en! t*e %MC.s boar) of )irectors passe) a resolution assu/in' t*e loans incurre) by 5eptunia for t*e )o,npay/ent. 6e los #n'eles assaile) t*e resolution alle'in' t*at it ,as not passe) by t*e boar) asi)e fro/ its )eleterious effects on t*e corporation.s interest. 3*en *is efforts to obtain relief ,it*in t*e corporation prove) futile! *e file) t*is action ,it* t*e %2C. Respon)ent )irectors alle'e) t*at )e los #n'eles *as no le'al stan)in' *avin' been /erely Ei/pose)F by t*e +CGG an) t*at t*e t,enty :2B; s*ares o,ne) by *i/ personally cannot fairly an) a)e9uately represent t*e interest of t*e /inority. I%%12& 345 )e los #n'eles *ave t*e le'al stan)in' to sue. :6erivative suit; -2L6&
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J2%. $*e bona fi)e o,ners*ip by a stoc0*ol)er in *is o,n ri'*t suffices to invest *i/ ,it* t*e stan)in' to brin' a )erivative suit for t*e benefit of t*e corporation. $*e nu/ber of *is s*ares is i//aterial since *e is not suin' in *is o,n be*alf! or for t*e protection or vin)ication of *is o,n particular ri'*t! or t*e re)ress of a ,ron' co//itte) a'ainst *i/ in)ivi)ually but in be*alf an) for t*e benefit of t*e corporation. $*e re5"i*ite* of ! deri)!ti)e *"it are& :1; t*e party brin'in' t*e suit s*oul) be a stoc0*ol)er as of t*e ti/e of t*e act or transactions co/plaine) of! t*e nu/ber of s*ares not bein' /aterial; :2; e8*austion of intra-corporate re/e)ies :*as /a)e a )e/an) on t*e boar) of )irectors for t*e appropriate relief but t*e latter *as faile) or refuse) to *ee) *is plea;; an) : ; t*e cause of action actually )evolves on t*e corporation an) not to t*e particular stoc0*ol)er brin'in' t*e suit. Ju vs. Ju0ay'uan G.R. 5o. 177=<9; >une 1A! 2BB9 F#C$%& $*e case ste//e) fro/ t*e petition of #nt*ony Ju et. al. a'ainst *is youn'er *alf-brot*er >osep* Ju0ay'uan et. al.! ,*o ,ere all s*are*ol)ers of 3inc*ester In)ustrial %upply Inc.! a co/pany en'a'e) in *ar),are an) in)ustrial e9uip/ent business. #ccusin' *is ol)er brot*er.s fa/ily of /isappropriatin' fun)s an) assets of t*e co/pany! Ju0ay'uan file) a )erivative suit. #fter trial! t*e Cebu Re'ional $rial Court )is/isse) t*e case! sayin' Ju0ay'uan faile) to follo, an) observe t*e essentials for filin' of a )erivative suit or action. $*e rulin' ,as up*el) but later reverse) by t*e Court of #ppeals! pro/ptin' Ju to elevate t*e /atter to t*e %C. I%%12& Man)atory re9uire/ents before courts can 'ive )ue course to )erivative suits L or le'al actions t*at /ay be ta0en by a stoc0*ol)ers on be*alf of a corporation or association. -2L6& $*e fact t*at 3inc*ester! Inc. is a fa/ily corporation s*oul) not in any ,ay e8e/pt respon)ents fro/ co/plyin' ,it* t*e clear re9uire/ents an) for/alities of t*e rules for filin' a )erivative suit.
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# stoc0*ol)er.s ri'*t to institute a )erivative suit is not base) on any e8press provision of t*e Corporation Co)e! or even t*e %ecurities Re'ulation Co)e! but is i/plie)ly reco'ni(e) ,*en t*e sai) la,s /a0e corporate )irectors or officers liable for )a/a'es suffere) by t*e corporation an) its stoc0*ol)ers for violation of t*eir fi)uciary )uties. -o,ever! t*ere are /an)atory re9uire/ents before a )erivative suit can be 'iven )ue course by t*e Court . Citin' %ection 1! Rule A of t*e Interi/ Rules of +roce)ure Governin' Intra-Corporate Controversies! t*e %C sai) )erivative actions /ay be file) provi)e) t*at t*e suin' party ,as a stoc0*ol)er or /e/ber at t*e ti/e t*e acts or transactions sub7ect of t*e action occurre) an) at t*e ti/e t*e action ,as file); an) *e e8erte) all reasonable efforts! an) alle'es t*e sa/e ,it* particularity in t*e co/plaint! to e8*aust all re/e)ies available un)er t*e articles of incorporation! by-la,s! la,s or rules 'overnin' t*e corporation or partners*ip to obtain t*e relief *e )esires. #s !ddition!' re5"ire,ent*! t*e %C sai) t*ere /ust be no appraisal ri'*ts C ,*ic* ,oul) allo, a stoc0*ol)er to sell *is *ol)in's bac0 to t*e co/pany L available an) t*e suit is not a nuisance or *arass/ent suit. XVIII. (ERGERS AND CONSOLIDATION Global ?usiness -ol)in's vs. %ureco/p %oft,are G.R. 5o. 17 <" ; 4ctober 1 ! 2B1B F#C$%& Respon)ent %ureco/p %oft,are! a forei'n corporation )uly or'ani(e) an) e8istin' un)er t*e la,s of t*e 5et*erlan)s! entere) into a soft,are license a'ree/ent ,it* #sian ?an0 Corporation :#?C;! a )o/estic corporation! for t*e use of its IM2I %oft,are %yste/ :%yste/; in t*e ban0.s co/puter syste/. #?C /er'e) ,it* petitioner Global ?usiness -ol)in's ,it* Global as t*e survivin' corporation. 3*en Global too0 over t*e operations of #?C! it foun) t*e %yste/ un,or0able for its operations! an) infor/e) %ureco/p of its )ecision to )iscontinue ,it* t*e a'ree/ent an) to stop furt*er pay/ents t*ereon. Conse9uently! for failure of Global to pay its obli'ations un)er t*e a'ree/ent )espite )e/an)s! %ureco/p file) a co/plaint for breac* of contract. I%%12& 345 Global s*all be responsible for all t*e liabilities an) obli'ations of #?C after *avin' /er'e) ,it* t*e latter. -2L6&
J2%. It cannot be )enie) t*at t*ere is in)ee) a contract entere) into bet,een %ureco/p an) Global! t*e latter as a successor-in-interest of t*e /er'in'! Global is estoppe) fro/ )enyin' %ureco/p.s capacity to sue it for alle'e) breac* of t*at contract ,it* )a/a'es. In t*e /er'er of t,o e8istin' corporations! one of t*e corporations survives an) continues t*e business! ,*ile t*e ot*er is )issolve)! an) all its ri'*ts! properties! an) liabilities are ac9uire) by t*e survivin' corporation. 2),ar) 5ell Co/pany vs. +acific Far/s G.R. 5o. L-2BA=B; 5ove/ber 29! 19"= F#C$%& $*e 2),ar) 5ell Co. secure) a 7u)'/ent representin' t*e unpai) balance of t*e price of a pu/p sol) to Insular Far/s. +acific Far/s t*en purc*ase) all or substantially all of s*ares of stoc0 as ,ell as real an) personal property of Insular! sellin' t*e s*ares to certain in)ivi)uals ,*o reor'ani(e) Insular. $*e boar) of t*e reor'ani(e) Insular t*en sol) its assets to be sol) to +acific for +1BBBB. $*e ,rit of e8ecution ,as returne)! statin' t*at Insular *a) no leviable property. 5ell Co sue) +acific Far/s! on t*e 'roun) as a result of t*e purc*ase of all or substantially all assets of Insular! +acific beca/e t*e alter e'o of Insular Far/s. I%%12& 345 a corporation ,*o sells or ot*er,ise transfers all of its assets to anot*er corporation is liable for )ebts an) liabilities of t*e transferor. -2L6& 54. Generally ,*ere one corporation sells or ot*er,ise transfers all of its assets to anot*er corporation! t*e latter is not liable for t*e )ebts an) liabilities of t*e transferor! e0ce t& :1; ,*ere t*e purc*aser e8pressly or i/plie)ly a'rees to assu/e suc* )ebts; :2; ,*ere t*e transaction a/ounts to a consoli)ation or /er'er of t*e corporations; : ; ,*ere t*e purc*asin' corporation is /erely a continuation of t*e sellin' corporation; an) :<; ,*ere t*e transaction is entere) into frau)ulently in or)er to escape liability for suc* )ebts. In t*e case at bar! t*ere is neit*er proof nor alle'ation t*at appellee *a) /a)e any of t*e above e8ceptions. -ence! +acific Far/s cannot assu/e t*e )ebts an) liabilities of Insular Far/s.
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La'una $ransportation vs. %%% G.R. 5o. L-1<"B"; #pril 2A! 19"B F#C$%& +etitioner La'una $ransportation Co.! Inc. file) ,it* t*e Court of First Instance of La'una petition prayin' t*at an or)er be issue) by t*e court )eclarin' t*at it is not boun) to re'ister as a /e/ber of respon)ent %ocial %ecurity %yste/ an)! t*erefore! not obli'e) to pay to t*e latter t*e contributions re9uire) un)er t*e %ocial %ecurity #ct. $o t*is petition! respon)ent file) its ans,er prayin' for its )is/issal )ue to petitionerNs failure to e8*aust a)/inistrative re/e)ies! an) for a )eclaration t*at petitioner is covere) by sai) #ct! since t*e latterNs business *as been in operation for at least 2 years prior to t*e enact/ent of t*e %ocial %ecurity #ct. I%%12& 345 a partners*ip later converte) to a corporation! ,*ic* continue) t*e sa/e line of business! is still liable to t*e )ebts an) liabilities of t*e partners*ip. -2L6& J2%. #lt*ou'*! a corporation ,ill be loo0e) upon as a le'al entity as a 'eneral rule! an) until sufficient reason to t*e contrary appears; but! ,*en t*e /otion of le'al entity is use) to )efeat public convenience! 7ustify ,ron'! protect frau)! or )efen) cri/e! t*e la, ,ill re'ar) t*e corporation as an association of persons. -o,ever! ,*ere a corporation ,as for/e) by! an) consiste) of /e/bers of a partners*ip ,*ose business an) property ,as conveye) an) transferre) to t*e corporation for t*e purpose of continuin' its business! in pay/ent for ,*ic* corporate capital stoc0 ,as issue)! suc* corporation is presu/e) to *ave assu/e) partners*ip )ebts! an) is pri/a facie liable t*erefore. Lo(ano vs. 6e los %antos G.R. 5o. 12=221; >une 19! 1997 F#C$%&
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+etitioner ,as t*e presi)ent of t*e Gapatiran' Mabalacat-#n'eles >eepney 6riversN #ssociation! Inc. :G#M#>6#; ,*ile private respon)ent #n)a ,as t*e presi)ent of t*e %a/a*an' #n'eles-Mabalacat >eepney 4peratorsN an) 6riversN #ssociation! Inc. :%#M#>46#;. 1pon t*e re9uest of t*e %an''unian' ?ayan of Mabalacat! +a/pan'a! petitioner an) private respon)ent a'ree) to consoli)ate t*eir respective associations an) for/ t*e 1nifie) Mabalacat-#n'eles >eepney 4peratorsN an) 6riversN #ssociation! Inc. :1M#>46#;. +etitioner an) private respon)ent also a'ree) to elect one set of officers ,*o s*all be 'iven t*e sole aut*ority to collect t*e )aily )ues fro/ t*e /e/bers of t*e consoli)ate) association; elections ,ere *el) an) bot* petitioner an) private respon)ent ran for presi)ent; petitioner ,on; private respon)ent proteste) an)! alle'in' frau)! refuse) to reco'ni(e t*e results of t*e election. +etitioner file) a case for )a/a'es a'ainst private respon)ent in MC$C. $*e latter /ove) to )is/iss t*e co/plaint for lac0 of 7uris)iction! clai/in' t*at 7uris)iction ,as lo)'e) ,it* t*e %2C. MC$C )enie). #ppeale) to t*e R$C! t*e latter reverse) MC$C.s rulin'. I%%12& Is t*ere consoli)ation bet,een petitioner an) private respon)entD 3*en )o consoli)ation beco/es effectiveD -2L6& 54. $*ere is no intracorporate nor partners*ip relation bet,een petitioner an) private respon)ent. $*e controversy bet,een t*e/ arose out of t*eir plan to consoli)ate t*eir respective 7eepney )riversN an) operatorsN associations into a sin'le co//on association. $*is unifie) association ,as! *o,ever! still a proposal. It *a) not been approve) by t*e %2C! neit*er *a) its officers an) /e/bers sub/itte) t*eir articles of consoli)ation in accor)ance ,it* %ections 7A an) 79 of t*e Corporation Co)e. Consoli)ation beco/es effective not upon /ere a'ree/ent of t*e /e/bers but only upon issuance of t*e certificate of consoli)ation by t*e %2C. 3*en t*e %2C! upon processin' an) e8a/inin' t*e articles of consoli)ation! is satisfie) t*at t*e consoli)ation of t*e corporations is not inconsistent ,it* t*e provisions of t*e Corporation Co)e an) e8istin' la,s! it issues a certificate of consoli)ation ,*ic* /a0es t*e reor'ani(ation official. $*e ne, consoli)ate) corporation co/es into e8istence an) t*e constituent corporations )issolve an) cease to e8ist. Reyes et. al. vs. ?louse et. al. G.R. 5o. L-<<2B; May 19! 19=2
F#C$%& Minority stoc0*ol)ers of t*e La'una $ayabas ?us Co. file an action to en7oin ?louse et. al. fro/ e8ecutin' its resolution approve) by 99 XH of stoc0*ol)ers to consoli)ate t*e properties an) franc*ises of La'una $ayabas ,it* ?atan'as $ransport. ?louse believes it is /erely an e8c*an'e of properties an) not a consoli)ation. I%%12& 345 t*e real purpose of t*e resolution is /er'er or consoli)ation! an) if so! ,*et*er it can be carrie) out un)er t*e ol) Corporation La,. -2L6& $*e 9uestione) resolution c*ar'es t*e boar) of La'una to consoli)ate properties an) franc*ises t*ereof ,it* t*at of ?atan'as $ransport. ?ot* corporations *ave passe) si/ilar resolutions to ta0e steps to effect t*e consoli)ation. It is apparent t*at t*e purpose of t*e resolution is not to )issolve but to /erely transfer its assets to a ne, corporation in e8c*an'e for its s*ares. $*is co/es ,it*in t*e purvie, of t*e ol) corporation la,! ,*ic* provi)es t*at a corporation /ay sell! e8c*an'e! lease or ot*er,ise )ispose of all its property an) assets ,*en aut*ori(e) by affir/ative vote of 2Q of stoc0*ol)ers. $*e ,or)s Kor ot*er ,ise )ispose) ofK is very broa) an) in a sense covers a /er'er or consoli)ation. -o,ever! t*e transaction in t*is case cannot be consi)ere) as a /er'er or consoli)ation because a /er'er i/plies t*e ter/ination or cessation of t*e /er'e) corporations an) not /erely a /er'er of assets an) properties. $*e t,o co/panies ,ill not lose t*eir corporate e8istence but ,ill continue to e8ist even after t*e consoli)ation. 3*at is inten)e) by t*e resolution is /erely a consoli)ation of properties an) assets! to be /ana'e) an) operate) by a ne, corporation! an) not a /er'er of t*e corporations t*e/selves. XIX. DISSOLUTION 5ational #baca vs. +ore G.R. 5o. L-1"779; #u'ust 1"! 19"1 F#C$%& +laintiff 5ational #baca Corporation file) a co/plaint a'ainst +ore for t*e recovery of a su/ of /oney a)vance) to *er for t*e purc*ase of *e/p. %*e /ove) to )is/iss t*e co/plaint by citin' t*e fact t*at 5ational #baca *a) been abolis*e)
by 24 72 )ate) 5ov. 2<! 19=B. +laintiff ob7ecte) to suc* by sayin' t*at it s*all nevert*eless be continue) as a corporate bo)y for a perio) of years fro/ t*e effective )ate of sai) or)er for t*e purpose of prosecutin' an) )efen)in' suits by or a'ainst it an) to enable t*e ?oar) of Li9ui)ators to close its affairs. I%%12& Can an action co//ence) ,it*in e8piration of sai) perio)D years after t*e abolition of plaintiff corporation be continue) by t*e sa/e after t*e
-2L6& $*e Corporation La, allo,s a corporation to continue as a bo)y for years after t*e ti/e ,*en it ,oul) *ave been )issolve) for t*e purposes of prosecutin' an) )efen)in' suits by or a'ainst it. ?ut at any ti/e )urin' t*e years! t*e corporation s*oul) convey all its property to trustees so t*at t*e latter /ay be t*e ones to continue on ,it* suc* prosecution! ,it* no ti/e li/it on its *an)s. %ince t*e case a'ainst +ore ,as stron'! t*e corporation.s a/en)e) co/plaint ,as a)/itte) an) t*e case ,as re/an)e) to t*e lo,er court. Cle/ente vs. C# G.R. 5o. A2<B7; Marc* 27! 199= F#C$%& +laintiffs sou'*t to be )eclare) o,ners of a parcel of lan) o,ne) by %ocie)a) +opular Cala/bena! a %ocie)a) #noni/a. +laintiffs are stoc0*ol)ers of t*e latter corporation. -o,ever! t*ere ,as no proof t*at ta8es ,ere pai) by t*e %ocie)a) an) neit*er ,ere t*ere efforts e8erte) by t*e latter to consoli)ate title over t*e property. 5o e8planation ,as offere) as to *o, an) ,*en t*e property ca/e into t*e possession of t*e )efen)ants. +laintiffs ,ere not able to co/e up ,it* any evi)ence to substantiate t*eir clai/ of o,ners*ip of t*e assets. $*e trial court )is/isse) t*e co/plaint not /erely on ,*at it apparently perceive) to be an insufficiency of t*e evi)ence t*at fir/ly coul) establis* plaintiffsN clai/ of o,ners*ip over t*e property in )ispute but also on its t*esis t*at! absent a corporate li9ui)ation! it is t*e corporation! not t*e stoc0*ol)ers! ,*ic* can assert! if at all! any title to t*e corporate assets. $*e court! even t*en! e8presse) so/e reservations on t*e corporationNs bein' able to still vali)ly pursue suc* a clai/. I%%12& 2ffect of 6issolution.
-2L6& $*e corporation continues to be a bo)y corporate for t*ree : ; years after its )issolution for purposes of prosecutin' an) )efen)in' suits by an) a'ainst it an) for enablin' it to settle an) close its affairs! cul/inatin' in t*e )isposition an) )istribution of its re/ainin' assets. It /ay! )urin' t*e t*ree-year ter/! appoint a trustee or a receiver ,*o /ay act beyon) t*at perio). $*e ter/ination of t*e life of a 7uri)ical entity )oes not by itself cause t*e e8tinction or )i/inution of t*e ri'*t an) liabilities of suc* entity nor t*ose of its o,ners an) cre)itors. If t*e -year e8ten)e) life *as e8pire) ,it*out a trustee or receiver *avin' been e8pressly )esi'nate) by t*e corporation itself ,it*in t*at perio)! t*e boar) of )irectors or trustees itself /ay be per/itte) to so continue as KtrusteesK by le'al i/plication to co/plete t*e corporate li9ui)ation. In t*e absence of a boar) of )irectors or trustees! t*ose *avin' any pecuniary interest in t*e assets! inclu)in' not only t*e s*are*ol)ers but li0e,ise t*e cre)itors of t*e corporation! actin' for an) in its be*alf! /i'*t /a0e proper representations ,it* t*e %2C! ,*ic* *as pri/ary an) sufficiently broa) 7uris)iction in /atters of t*is nature! for ,or0in' out a final settle/ent of t*e corporate concerns. XX. LI6UIDATION C*ina ?an0in' vs. Mic*elin =A +*il. 2"1 F#C$%& Geor'e 4.Farrel M Cie Inc. is a )o/estic corporation actin' as a'ent an) representative of t*e Mic*elin M Cie! a forei'n corporation en'a'e) in t*e sale an) )istribution of Mic*elin tires. Mic*elin )eci)e) to )iscontinue t*eir business relations! an) it ,as )iscovere) t*at 4.Farrel faile) to account for an a/ount representin' t*e price of tires sol) by t*e latter. Mic*elin clai/s t*e /oney ,as )ispose) by 4.Farrel for its o,n use an) benefit an) ,it*out t*e aut*ority or consent of Mic*elin. Gaston 4.Farrel :t*e person; an) %anc*e( e8ecute) a /ort'a'e on t*e *ouse of 4.Farrel an) s*ares o,ne) by bot* to 'uarantee pay/ent of t*e a/ount to t*e Mic*elin! but left a balance ,*ic* t*e latter see0s to recover. $*e boar) of 4.Farrel file) a petition for its )issolution an) sou'*t t*e appoint/ent of Gaston as receiver an) li9ui)ator! ,*ic* ,as 'rante) by $C. Mic*elin file) its clai/ a'ainst 4.Farrel Corp ,it* a prayer t*at its clai/ be allo,e) as a preferre) one a'ainst t*e latter. $C 'rants /otion of Mic*elin. 5obo)y e8cept Mic*elin an) Gaston ,as notifie) of t*e or)er. C*ina ?an0
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intervene) an) /ove) t*at Mic*elin.s clai/ be allo,e) as an or)inary one un)er t*e Insolvency La, an) sou'*t t*e nullification of t*e $C or)ers. I%%12& Li9ui)ation. -2L6& $*e appoint/ent of a receiver by t*e court to ,in) up t*e affairs of t*e corporation upon petition of voluntary )issolution )oes not e/po,er t*e court to *ear an) pass on t*e clai/s of t*e cre)itors of t*e corporation at first *an). In suc* cases! t*e receiver )oes not act as a receiver of an insolvent corporation. %ince Kli9ui)ationK as applie) to t*e settle/ent of t*e affairs of a corporation consists of a)7ustin' t*e )ebts an) clai/s! t*at is! of collectin' all t*at is )ue t*e corporation! t*e settle/ent an) a)7ust/ent of clai/s a'ainst it an) t*e pay/ent of its 7ust )ebts! all clai/s /ust be presente) for allo,ance to t*e receiver or trustees or ot*er proper persons )urin' t*e ,in)in'-up procee)in's ,it*in t*e years provi)e) by t*e Corporation La, as t*e ter/ for t*e corporate e8istence of t*e corporation! an) if a clai/ is )ispute) so t*at t*e receiver cannot safely allo, t*e sa/e! it s*oul) be transferre) to t*e proper court for trial an) allo,ance! an) t*e a/ount so allo,e) t*en presente) to t*e receiver or trustee for pay/ent. $*e rulin's of t*e receiver on t*e vali)ity of clai/s sub/itte) are sub7ect to revie, by t*e court appointin' suc* receiver t*ou'* no appeal is ta0en to t*e latter rulin'! an) )urin' t*e ,in)in'-up procee)in's after )issolution! no cre)itor ,ill be per/itte) by le'al process or ot*er,ise to ac9uire priority! or to enforce *is clai/ a'ainst t*e property *el) for )istribution as a'ainst t*e ri'*ts of ot*er cre)itors. NOTE: 1n)er t*e Corporation Co)e! it is t*e %2C ,*ic* /ay appoint t*e receiver. Republic of t*e +*ilippines vs. Mars/an 6evelop/ent Corp. G.R. 5o. L-1A9="; #pril 27! 1972 F#C$%& 6efen)ant corporation ,as a ti/ber license *ol)er ,it* concessions in Ca/arines 5orte. Investi'ations le) to t*e )iscovery t*at certain ta8es ,ere )ue on it. ?IR assesse) Mars/an ti/es for unpai) ta8es. #tty. Moya! in be*alf of t*e corporation! receive) t*e first 2 assess/ents. -e re9ueste) for reinvesti'ations. #s a result! corporation faile) to pay ,it*in t*e prescribe) perio). 5u/erous ?IR ,arnin's ,ere 'iven. #fter years of futile notifications! ?IR sue) t*e corporation.
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I%%12& 345 present action is barre) by prescription! in li'*t of t*e fact t*at t*e corporation la, allo,s corporations to continue only for years after its )issolution! for t*e purpose of presentin' or )efen)in' suits by or a'ainst it! an) to settle its affairs. -2L6& 54. #lt*ou'* Mars/an ,as e8tra-7u)icially )issolve)! ,it* t*e -year rule! not*in' *o,ever bars an action for recovery of corporate )ebts a'ainst t*e li9ui)ators. In fact! t*e 1st assess/ent ,as 'iven before )issolution! ,*ile t*e 2n) an) r) assess/ents ,ere 'iven 7ust " /ont*s after )issolution :,it*in t*e -year rule;. %uc* facts )efinitely establis*e) t*at t*e Govern/ent ,as a cre)itor of t*e corporation for ,*o/ t*e li9ui)ator ,as suppose) to *ol) assets of t*e corporation. NOTE: Co)e provi)es for a -year perio) for continuation of t*e corporate e8istence for purposes of li9ui)ation! ?1$ t*ere is not*in' in t*e provision ,*ic* bars an action for recovery of )ebts of t*e corporation a'ainst t*e li9ui)ator *i/self! after t*e lapse of t*e -year perio).
$an $ion' ?io vs. CIR G.R. 5o. L-1=77A; #pril 2 ! 19"2 F#C$%& $an $ion' ?io et. al. are incorporators an) )irectors of t*e Central %yn)icate. $*e co/pany reali(e) a net profit of close to + BBG! an) sale of 'oo)s ,as t*e only transaction un)erta0en by it. ?IR sues t*e $an $ion' et. al. for )eficiency sales ta8es an) surc*ar'es on surplus 'oo)s purc*ase) by t*e corporation fro/ t*e Forei'n Li9ui)ation Co//ission. Corporation ,as )issolve)! an) $an $ion' an) co/pany substitute) t*e/selves as parties! t*ereby beco/in' successors-ininterests in t*e corporate assets after li9ui)ation. $C rules in favor of ?IR! an) $an $ion' et. al. appeals! clai/in' t*at t*ey cannot be *el) liable for ta8 liability t*ere bein' no la, aut*ori(in' t*e 'overn/ent to procee) a'ainst stoc0*ol)ers of a )efunct corporation as transferees of t*e corporate assets upon li9ui)ation. If t*ey ,ere liable! it is only to t*e e8tent of t*e benefits )erive) by t*e/! an) t*at t*e action is barre) by prescription )ue to t*e -year li/it in t*e corporation la,.
I%%12& 345 t*e sales ta8 can be enforce) a'ainst t*e corporation.s successors-in-interest! even if corporation *as been )issolve) by e8piration of corporate e8istence. -2L6& $*e cre)itor of a )issolve) corporation /ay follo, its assets! as in t*e nature of a trust fun)! once t*ey pass into t*e *an)s of t*e stoc0*ol)ers. $*e )issolution of a corporation )oes not e8tin'uis* t*e )ebts )ue or o,in' to it. #n in)ebte)ness of a corporation to t*e 'overn/ent for inco/e an) e8cess profit ta8es is not e8tin'uis*e) by t*e )issolution of t*e corporation. $*e *an)s of 'overn/ent cannot! of course! collect ta8es fro/ a )efunct corporation! it loses t*ereby none of its ri'*ts to assess ta8es ,*ic* *a) been )ue fro/ t*e corporation! an) to collect t*e/ fro/ persons! ,*o by reason of transactions ,it* t*e corporation *ol) property a'ainst ,*ic* t*e ta8 can be enforce) an) t*at t*e le'al )eat* of t*e corporation no /ore prevents suc* action t*an ,oul) t*e p*ysical )eat* of an in)ivi)ual prevent t*e 'overn/ent fro/ assessin' ta8es a'ainst *i/ an) collectin' t*e/ fro/ *is a)/inistrator! ,*o *ol)s t*e property ,*ic* t*e )ece)ent *a) for/erly possesse). $*us! petitioners can be *el) personally liable for t*e corporationNs ta8es! bein' successors-in-interest of t*e )efunct corporation. XXII. SECURITIES REGULATION CODE C2MC4 vs. 5ational Life Insurance Co. G.R. 5o. 171A1=; #u'ust 7! 2BB7 F#C$%& 1nion Ce/ent Corporation :1CC;! a publicly liste) co/pany! *as t,o principal stoc0*ol)ers L 1C-C! a non liste) co/pany! an) petitioner C2MC4. # /a7ority of 1C-C.s stoc0s ,ere o,ne) by ?acnotan Consoli)ate) In)ustries :?CI; an) #tlas Ce/ent Corporations :#CC;. C2MC4 *ol)s 9H of 1C-C.s stoc0s. ?CI infor/e) t*e +*ilippine %toc0 28c*an'e t*at its subsi)iary #CC *a) passe) resolutions to sell to C2MC4 all t*eir stoc0s in 1C-C. +%2 sent a letter to %2C to in9uire as to ,*et*er t*e $en)er 4ffer Rule un)er t*e %ecurities Re'ulation Co)e ,oul) apply. $*e %2C replie) t*at t*e transaction is not covere) by t*e ten)er offer rule.
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4n #u'ust 12! 2BB<! t*e sale of t*e stoc0s ,as consu//ate) an) close). 5ational Life Insurance Co. of t*e +*ilippines! a /inority stoc0*ol)er in 1CC file) a co/plaint ,it* t*e %2C as0in' t*e latter to )eclare t*e purc*ase a'ree/ent voi) for bein' violative of t*e ten)er offer rule. C2MC4 file) a co//ent to t*e co/plaint. $*e %2C rule) in favor of 5ational Life Insurance an) )eclare) t*e transaction to be voi) for bein' in violation of t*e ten)er offer rule. C2MC4 file) a petition ,it* t*e Court of #ppeals c*allen'in' t*e %2C.s 7uris)iction on t*e 'roun) t*at t*e %2C.s aut*ority is purely a)/inistrative an) )oes not e8ten) to a)7u)ication. $*e C# up*el) t*e %2C.s rulin'. It rule) t*at C2MC4 is estoppe) in 9uestionin' t*e 7uris)iction of t*e %2C. -ence! t*is present petition. I%%12& :1; 345 %2C *as 7uris)iction. :2; 345 /an)atory ten)er offer rule applies only to )irect ac9uisition of s*ares in t*e public co/pany. -2L6& :1; J2%. %2C ,as actin' pursuant to Rule 19:1 ; of t*e #/en)e) I/ple/entin' Rules an) Re'ulations of t*e %ecurities Re'ulation Co)e. $*e fore'oin' rule e/anates fro/ t*e %2C.s po,er an) aut*ority to re'ulate! investi'ate or supervise t*e activities of persons to ensure co/pliance ,it* t*e %ecurities Re'ulation Co)e! /ore specifically t*e provision on /an)atory ten)er offer un)er %ection 19 t*ereof. :2; 54. Tender offer is a publicly announce) intention by a person actin' alone or in concert ,it* ot*er persons to ac9uire e9uity securities of a public co/pany. # ".'ic co, !n# is )efine) as a corporation ,*ic* is liste) on an e8c*an'e! or a corporation ,it* assets e8cee)in' +=B!BBB!BBB.BB an) ,it* 2BB or /ore stoc0*ol)ers! at least 2BB of t*e/ *ol)in' not less t*an 1BB s*ares of suc* co/pany. %tate) )ifferently! a ten)er offer is an offer by t*e ac9uirin' person to stoc0*ol)ers of a public co/pany for t*e/ to ten)er t*eir s*ares t*erein on t*e ter/s specifie) in t*e offer. 1n)er e8istin' %2C Rules! t*e 1=H an) BH t*res*ol) ac9uisition of s*ares un)er t*e fore'oin' provision ,as increase) to t*irty-five percent : =H;. It is furt*er provi)e) t*erein t*at /an)atory ten)er offer is still applicable even if t*e ac9uisition is less t*an =H ,*en t*e purc*ase ,oul) result in o,ners*ip of over =1H of t*e total outstan)in' e9uity securities of t*e public co/pany. $*e %2C an) t*e Court of #ppeals rule) t*at t*e in)irect ac9uisition by petitioner of "H of 1CC s*ares t*rou'* t*e ac9uisition of t*e non-liste) 1C-C s*ares is covere) by t*e /an)atory ten)er offer rule. It accurately pointe) out t*at t*e covera'e of t*e /an)atory ten)er offer rule covers not only )irect ac9uisition but also in)irect ac9uisition or Eany type of ac9uisition.F
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+*ilippine @eterans ?an0 vs. Callan'an G.R. 5o. 19199=; #u'ust ! 2B11 F#C$%& Respon)ent Callan'an! t*e 6irector of t*e Corporation Finance 6epart/ent of t*e %2C! sent t*e ?an0 a letter! infor/in' it t*at it 9ualifies as a Kpublic co/panyK un)er %ection 17.2 of t*e %ecurities Re'ulation Co)e :%RC; in relation ,it* Rule :1;:/; of t*e #/en)e) I/ple/entin' Rules an) Re'ulations of t*e %RC. $*e ?an0 is t*us re9uire) to co/ply ,it* t*e reportorial re9uire/ents set fort* in %ection 17.1 of t*e %RC. $*e ?an0 respon)e) by e8plainin' t*at it s*oul) not be consi)ere) a Kpublic co/panyK because it is a private co/pany ,*ose s*ares of stoc0 are available only to a li/ite) class or sector! i.e.! to 3orl) 3ar II veterans! an) not to t*e 'eneral public. Respon)ent re7ecte) t*e ?an0Ns e8planation an) assesse) it a penalty for failin' to co/ply ,it* t*e %RC reportorial re9uire/ents fro/ 2BB1 to 2BB . $*e ?an0 /ove) for t*e reconsi)eration of t*e assess/ent! but respon)ent )enie) t*e /otion. %2C en banc an) C# affir/e) t*e %2C.s rulin'. -ence! t*is petition for revie, on certiorari. I%%12& 345 petitioner-ban0 is a public co/pany un)er t*e provisions of %RC. -2L6& J2%. # ".'ic co, !n# is )efine) as a corporation ,*ic* is liste) on an e8c*an'e! or a corporation ,it* assets e8cee)in' +=B!BBB!BBB.BB an) ,it* 2BB or /ore stoc0*ol)ers! at least 2BB of t*e/ *ol)in' not less t*an 1BB s*ares of suc* co/pany. Fro/ t*ese provisions! it is clear t*at a Kpublic co/pany!K as conte/plate) by t*e %RC! is not li/ite) to a co/pany ,*ose s*ares of stoc0 are publicly liste); even co/panies li0e t*e ?an0! ,*ose s*ares are offere) only to a specific 'roup of people! are consi)ere) a public co/pany! provi)e) t*ey /eet t*e re9uire/ents enu/erate) above.
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VI. CLASSES OF CORPORATIONS UNDER THE CORP. CODE Collector of Internal Revenue vs. Club Filipino G.R.

%teinber' vs. @elasco G.R. 5o. L- B<"B; Marc* 12! 1929

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