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Detective & Protective Bureau, Inc. v.

Cloribel
Gr. No. L-23428, November 29, 1968

Facts:
Plaintiff was a corporation duly organized and existing under the laws of the
Philippines. The defendant was the managing director. The plaintiff alleged that the
defendant illegally seized and took control of all the assets as well as the books,
records, vouchers and receipts of the corporation from the accountant-cashier,
concealed them illegally and refused to allow any member of the corporation to see
and examine the same; that on January 14, 1964, the stockholders, in a meeting,
removed defendant as managing director and elected Jose de la Rosa in his stead;
that defendant not only had refused to vacate his office and to deliver the assets
and books to Jose de la Rosa, but also continued to perform unauthorized acts for
and in behalf of plaintiff corporation; that defendant had been required to submit a
financial statement and to render an accounting of his administration from 1952 but
defendant has failed to do so; that defendant, contrary to a resolution adopted by
the Board of Directors on November 24, 1963, had been illegally disposing of
corporate funds; that defendant, unless immediately restrained ex-parte, would
continue discharging the functions of managing director; and that it was necessary
to appoint a receiver to take charge of the assets and receive the income of the
corporation.
The plaintiff then prayed that a writ of preliminary injunction be issued
against Albert for the latter to enjoined from exercising the functions of managing
director.
Issue:
1. Whether Jose de la Rosa is qualified to be elected as managing
directors.
2. Can the injunction against Albert be lifted?
Held:
1. No. Under Section 30 of the Corporation Code, Every director must own in
his own right at least one share of the capital stock of the stock
corporation of which he is a director, which stock shall stand in his name
on the books of the corporation .." In the present case, Jose de la Rosa is
not an owner of a share of stock in the corporation. Hence, could not be
made a managing director pursuant to the mandatory provision of Section
30. Consequently, if Jose de la Rosa is not qualified to be a director,
Alberto could not be compelled to vacate his office and cede the same to
the managing director-elect because the by-laws of the corporation
provides in Article IV, Section 1 that "Directors shall serve until the
election and qualification of their duly qualified successor."cra
2. Yes. Since there was a question as to who own the controlling interest in
the corporation, and where ownership is in dispute, the party in control or
possession of the disputed interest is presumed to have the better right
until the contrary is adjudged, and hence that party should not be
deprived of the control or possession until the court is prepared to
adjudicate the controverted right in favor of the other party.

Grace Christian v. CA
Gr. No. 108905, October 23, 1997

Facts:
Grace Christian High School is an educational institution located at the Grace
Village in Quezon City, while Private respondent Grace Village Association, Inc. is an
organization of lot and/or building owners, lessees and residents at Grace Village.
The original 1968 by-laws provide that the Board of Directors, composed of
eleven (11) members, shall serve for one year until their successors are duly
elected and have qualified.
On 20 December 1975, a committee of the board of directors prepared a
draft of an amendment to the by-laws which provides that "GRACE CHRISTIAN HIGH
SCHOOL representative is a permanent Director of the ASSOCIATION." However, this
draft was never presented to the general membership for approval. Nevertheless,
from 1975 to 1990, petitioner was given a permanent seat in the board of directors
of the association.
On 13 February 1990, the association's committee on election sought to
change the by-laws and informed the Petitioner's school principal "the proposal to
make the Grace Christian High School representative as a permanent director of the
association, although previously tolerated in the past elections should be
reexamined."
Following this advice, notices were sent to the members of the association
that the provision on election of directors of the 1968 by-laws of the association
would be observed. Petitioner requested the chairman of the election committee to
change the notice to honor the 1975 by-laws provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and
Guaranty Corporation (HIGC) to compel the board of directors to recognize its right
to a permanent seat in the board. Meanwhile, the opinion of the SEC was sought by
the association, and SEC rendered an opinion to the effect that the practice of
allowing unelected members in the board was contrary to the existing by-laws of
the association and to 92 of the Corporation Code (B.P. Blg. 68). This was adopted
by the association in its Answer in the mandamus filed with the HIGC.
The HIGC hearing officer ruled in favor of the association, which decision was
affirmed by the HIGC Appeals Board and the Court of Appeals.
Issue:
Whether the draft of an amendment to the by-laws made in 1975
giving the petitioner a permanent board seat was valid.

Held:
No. The Corporation Code is clear when it provides that members of the
board of a corporation must be elected by the stockholders (stock corporation) or
the members (non-stock corporation).
Admittedly, there are corporations who allow some of their directors to sit in
the board without being elected but such practice cannot prevail over provisions
of law. Practice, no matter how long continued, cannot give rise to any vested right
if it is contrary to law. In the case of petitioner, there is no reason at all for its
representative to be given a seat in the board. Nor does petitioner claim a right to
such seat by virtue of an office held. In fact it was not given such seat in the
beginning. It was only in 1975 that a proposed amendment to the by-laws sought to
give it one.
Since the provision in question is contrary to law, the fact that it has gone
unchallenged for fifteen years cannot forestall a later challenge to its validity.
Neither can it attain validity through acquiescence because, if it is contrary to law, it
is beyond the power of the members of the association to waive its invalidity.
It is more accurate to say that the members merely tolerated petitioner's
representative and tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of
"practice." Practice, no matter how long continued, cannot give rise to any vested
right if it is contrary to law.
Lee v. Ca
Gr. No. 93695, February 4, 1992

Facts:
A complaint for sum of money was filed against respondent, who intern filed a
third party complaint against ALFA and petitioner. An alias summon was served
upon DBP because the management of ALFA was allegedly transferred to DBP. DBP
claimed that it was not authorized to receive summons upon ALFA since DBP did not
take over the company. Petitioners likewise allged that they are no longer officer of
the corporation, hence, not served with summons. The private respondents argued
that the voting trust agreement dated March 11, 1981 did not divest the petitioners
of their positions as president and executive vice-president of ALFA so that service
of summons upon ALFA through the petitioners as corporate officers was proper.
Issue:
1. What is the effect of the voting trust agreement.
2. Is the service of summons to petitioner in favour of ALFA proper.
Held:
1. In order to be eligible as director, what is material is the legal title to, not
beneficial ownership of, the stock as appearing on the books of the
corporation. In the present case, by virtue of the voting trust agreement
executed in 1981 disposed of all their shares through assignment and
delivery in favor of the DBP, as trustee. Consequently, the petitioners
ceased to own at least one share standing in their names on the books of
ALFA as required under Section 23 of the new Corporation Code. They also
ceased to have anything to do with the management of the enterprise.
The petitioners ceased to be directors. Hence, the transfer of the
petitioners' shares to the DBP created vacancies in their respective
positions as directors of ALFA. The transfer of shares from the stockholder
of ALFA to the DBP is the essence of the subject voting trust agreement.

Considering that the voting trust agreement between ALFA and the DBP
transferred legal ownership of the stock covered by the agreement to the
DBP as trustee, the latter became the stockholder of record with respect
to the said shares of stocks. In the absence of a showing that the DBP had
caused to be transferred in their names one share of stock for the purpose
of qualifying as directors of ALFA, the petitioners can no longer be deemed
to have retained their status as officers of ALFA which was the case before
the execution of the subject voting trust agreement. There appears to be
no dispute from the records that DBP has taken over full control and
management of the firm.

2. No. Under section 13, Rule 14 of the Revised Rules of Court, it is provided
that If the defendant is a corporation organized under the laws of the
Philippines or a partnership duly registered, service may be made on the
president, manager, secretary, cashier, agent or any of its directors. This
rule on service of processes of a corporation enumerates the
representatives of a corporation who can validly receive court processes
on its behalf. Not every stockholder or officer can bind the corporation
considering the existence of a corporate entity separate from those who
compose it.

The rationale of the rule is that service must be made on a representative


so integrated with the corporation sued as to make it a priori supposable
that he will realize his responsibilities and know what he should do with
any legal papers served on him. The petitioners in this case do not fall
under any of the enumerated officers. The service of summons upon ALFA,
through the petitioners, therefore, is not valid. To rule otherwise, as
correctly argued by the petitioners, will contravene the general principle
that a corporation can only be bound by such acts which are within the
scope of the officer's or agent's authority.