ATRIUM MANAGEMENT CORP. VS. CA, GR.

109491

FACTS:

Hi-Cement Corporation borrowed money from E.T. Henry and Co. The said loan was secured by
4 checks amounting to P2 million in total. The checks were signed by Lourdes M. de Leon,[2]
treasurer, and the late Antonio de las Alas, Chairman.

E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner Atrium Management
Corporation for valuable consideration, after Enrique Tan, or E.T. Henry approached Atrium for
financial assistance, offering to discount four RCBC checks.

Atrium agreed to Tan's offer based on two letters, dated February 6, 1981 and February 9,
1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the issuance
of the four checks in favor of E.T. Henry in payment for petroleum products.

Upon presentment for payment, the drawee bank dishonored all four checks for the common
reason payment stopped. Atrium, thus, instituted this action after its demand for payment of
the value of the checks was denied.

RTC Ruling:
The trial court ordered all the defendants (Hi-Cement, E.T. Henry, and Lourdes M. de Leon)
except defendant Antonio de las Alas to pay Atrium jointly and severally P2,000,000.00 with
the legal rate of interest from the filling of the complaint until fully paid, plus P20,000.00 as
attorneys fees and the cost of suit.

Lourdes de Leon and Hi-Cement appealed the trial court decision.

CA Ruling:

CA
(1) dismissed the plaintiffs complaint as against defendants Hi-Cement and De las Alas; (2)
ordered the defendants E.T. Henry de Leon, jointly and severally to pay the plaintiff Atrium
(P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid,
plus P20,000.00 for attorneys fees. (3) ordered the plaintiff and defendants E.T. Henry de Leon,
jointly and severally to pay defendant Hi-Cement P20,000.00 as attorneys fees.

De Leon and Atrium appealed the CA decision separately.

ISSUES:

1. Whether the issuance of the questioned checks was an ultra vires act;

2. Whether Atrium was not a holder in due course and for value;

3. Whether the Court of Appeals erred in holding de Leon personally liable for the Hi-Cement
checks issued to E.T. Henry;
RULING:

1. It is a valid corporate act.

Yasuma vs. Heirs of Cecilio S. De Villa (499 SCRA 466 [2006])

Facts:

On September 15, 1988, October 21, 1988 and December 5, 1988, Cecilio S. de Villa obtained
loans from petitioner Koji Yasuma in the amounts of P1,100,000, P100,000 and P100,000,
respectively, for the total amount of P1.3 million. These loans were evidenced by three
promissory notes signed by de Villa as borrower. The last promissory note in the amount of
P1,300,000 cancelled the first two notes.

The loans were initially secured by three separate real estate mortgages on a parcel of land
with Transfer Certificate of Title No. 176575 in the name of respondent East Cordillera Mining
Corporation. The deeds of mortgage were executed on the dates the loans were obtained,
signed by de Villa as president of respondent corporation.

The third real estate mortgage later cancelled the first two. For failure of de Villa to pay,
petitioner filed a collection suit in the Regional Trial Court of Makati City, Branch 148 (RTC-Br.
148) against de Villa and respondent corporation.4 The RTC-Br. 148 declared de Villa and
respondent corporation in default and resolved the case in favor of petitioner. On appeal,
however, the judgment of RTC-Br. 148 was annulled on the ground of improper service of
summons. Thus, the case was remanded for retrial.

During the pendency of the case in the RTC-Br. 148, de Villa died. Petitioner consequently
amended the complaint and impleaded the heirs of de Villa as defendants. After the case was
re-heard, the RTC of Makati City, Branch 139 (RTC-Br. 139) rendered judgment on November
13, 1998 in favor of petitioner and against respondent corporation. It ordered respondent
corporation to pay petitioner P1.3 million plus legal interest, attorneys fees, liquidated
damages and costs of suit. The complaint was dismissed against respondent heirs.7

On appeal, the CA reversed and set aside the decision of RTC-Br. 139. It held that the loan was
personal to de Villa and that the mortgage was null and void for lack of authority from the
corporation.

Issues:

1) whether the loans were personal liabilities of de Villa or debts of respondent corporation
and

2) whether the mortgage on respondent corporations property was null and void for having
been executed without its authority.

Held/Ruling:

1. Yes, on their face, they appeared to be personal loans of de Villa. Petitioner himself did not
consider the corporation to be his debtor for if he really knew that de Villa was obtaining the
loan on behalf of the corporation, then why did he allow the notes to reflect only the personal
liability of de Villa?21 Even the demand letters of petitioner were personally addressed to de
Villa and not to respondent corporation.22 Undoubtedly, petitioner dealt with de Villa purely in
his personal capacity. There was no basis to hold the corporation liable since there was no
authority, express, implied or apparent, given to de Villa to borrow money from petitioner.
Neither was there any subsequent ratification of his act.
2. Yes, In the case at bar, no special power of attorney conferring authority on de Villa was
ever presented. The promissory notes evidencing the loans were signed by de Villa (who was
the president of respondent corporation) as borrower without indicating in what capacity he
was signing them. In fact, there was no mention at all of respondent corporation.

A special power of attorney is necessary to create or convey real rights over immovable
property.26 Furthermore, the special power of attorney must appear in a public document.27 In
the absence of a special power of attorney in favor of de Villa as president of the corporation,
no valid mortgage could have been executed by him.28 Since the mortgage was void, it could
not be ratified.

Petitioner cannot blame anyone but himself. He did not check if the person he was dealing with
had the authority to mortgage the property being offered as collateral.

.
NATIONAL POWER CORPORATION, PETITIONER
V.
HON. ROSE MARIE ALONZO-LEGASTO AS PRESIDING JUDGE, RTC QC BR 99 ET AL1
GR no.148318 November 22, 2004
Tinga, J.

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

SC: no basis for applying promissory estoppel. The payment was conditional on the issuance of
the extra work order. The acts of the officials of NPC exceeded their authority and should not
bind NPC unless the latter ratifies these acts. Unfortunately, NPC did when it signed the
compromise agreement. Hence, FUCC was entitled for payment for the blasting works.

1 NPC and First United Constructors Corporation (FUCC) entered into a construction of
power facilities, one in Cawayan area and the other in Bacon, Sorsogon. The price for
grading excavation was P76.00 per cubic meter.
2 After commencement of the excavation, FUCC requested that it be allowed to blast to
the design grade of 495 meters above sea level as its dozers and rippers could no longer
excavate. It also requested that it be paid P1346 per cubic meter
3 NPC, after creating a task force to review the blasting works, offered to pay P458.07 per
cubic meter, which FUCC accepted in a letter.
4 FUCC eventually abandoned the project. NPC decided to take over the project to stave-
off huge pecuniary and non-monetary losses. FUCC, in order to prevent this filed an
action for specific performance and damages with preliminary injunction and TRO
against NPC.
5 RTC QC issued a TRO and later a writ of preliminary injunction.
a NPC filed a petition for certiorari before the CA. CA granted petition and set aside
the lower courts order
6 FUCC filed before the SC a petition for review assailing the decision of the CA but
pending the resolution of the SC, NPC and FUCC entered into a compromise agreement.
a In the compromise agreement, NPC shall pay the undisputed unpaid billings of
FUCC in connection with the project; that NPC shall have the right to proceed with
the works by re-bidding it; upon final resolution of the arbitration, the parties shall
mutually terminate the contract among others
b That the claims will be settled through 2 stages
i One is the signing of the compromise agreement which they will submit for
approval by this court
ii It shall submit by arbitration to settle the price of the blasting, damages and
all other unresolved claims by the parties. The 3-man commission was
headed by Mr. Carmelo Sison
7 The compromise agreement was approved by the court and the case was then referred
to arbitration where it was held that an award of P118,681,328.28 as just compensation
plus 10% thereof for attorneys fees and expenses of litigation was due. (NPC already
paid 36,550,000 so they only owe FUCC P82,131,328.28)
8 FUCC filed a motion for execution while NPC filed a motion to vacate award by the
arbitration board. Judge Alonzo-LEgasto approved the motion for execution.
9 NPC went to the CA alleging GAD.

1
 a CA: no GAD. The arbitration board acted pursuant to its powers under the
compromise agreement. That NPC failed to prove by evidence that Mr. Sison was
biased. That although the blasting was not part of the unit price for the project and
that there was no perfected contract for it, FUCC relied on the representation of
NPCs officials that the extra work order should be submitted to its board of
directors for approval and that the blasting works would be paid. CA ruled that
FUCC is entitled to just compensation on grounds of equity and promissory
estoppel
10 NPC went up to the SC with basically the same arguments before the CA. one of these
arguments is that the claim for blasting works was not approved by authorized officials,
that the approval of extra work by authorized officials is required for an extra work order
is issued.

ISSUE: Is FUCC entitled to the payment for the extra work done on the project?

HELD:
there was a discussion on arbitration and vacating an award. In the end SC held that
NPCs only ground was the alleged bias of Mr. Sison, which it failed to prove by
evidence at the lower court. Hence they cannot depart from the ruling upholding the
award

the court looked at Sec. 9 of PD 1594 (Prescribing Policies, Guidelines, Rules and
Regulations for Government Infrastructure Contracts,) which provides that a change
order or extra work order may be issued only for works necessary for the completion
of the project and, therefore, shall be within the general scope of the contract as
bid[ded] and awarded. All change orders and extra work orders shall be subject to the
approval of the Minister of Public Works, Transportation and Communications, the
Minister of Public Highways, or the Minister of Energy, as the case may be.
The SC also considered the facts which were used as bases for promissory estoppel
and held that although it appeared that NPC made promises that an extra work order
will be issued in connection with the blasting projects, none came to existence.
o Promissory estoppel may arise from the making of a promise, even though
without consideration, if it was intended that the promise should be relied
upon and in fact it was relied upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or would result in other injustice.
Promissory estoppel presupposes the existence of a promise on the part of one
against whom estoppel is claimed. The promise must be plain and unambiguous
and sufficiently specific so that the court can understand the obligation
assumed and enforce the promise according to its terms.
o There was no basis for promissory estoppel since both parties knew that the
payment for the blasting works was dependent on the issuance of an extra work
order. The promise of NPC to pay was conditional (upon the issuance of the
work order) and FUCC knew of this fact.
o Mendoza v. CA: a cause of action for promissory estoppel does not lie where an
alleged oral promise was conditional, so that reliance upon it was not
reasonable. It does not operate to create liability where it does not otherwise
exist.
NPCs argument that it is not bound by the acts of its officials is correct. It is a
corporate entity performing proprietary functions and not a mere agency of the
government.
The officials exceeded the scope of their authority when they authorized FUCC to
commence blasting without an extra work order. Their acts cannot bind NPC unless it
has ratified such acts or it is estopped from disclaiming them
 NPC RATIFIED THOSE ACTS! The compromise agreement is a confirmatory act
signifying NPCs ratification of all the prior acts of its officers (the president who
signed it was acting pursuant to a board resolution)
SC in the end upheld the award of the arbitration except for the rate of interest which
was decreased from 12% to 6%.

Justin Benedict A. Moreto

Peoples Aircargo and Warehousing Co., Inc. vs. CA [297 SCRA 170 (Oct 7 1998)]

Power of Board of Directors to Bind Corporation

Facts:
Peoples Aircargo is a domestic corporation organized to operate a customs bonded
warehouse. To obtain a license for the corporation from the Bureau of Customs, Punsalan, its
President, solicited a proposal from Sano for the preparation of a feasibility study. Sano
submitted a letter proposal to Punsalan of the terms and conditions of the contract, amounting
to P350,000.00. Punsalan sent a letter to Sano confirming to their agreement. Accordingly,
Sano prepared the feasibility study. Sano was paid in full. Thereafter, a 2nd contract was
entered into for consultancy services. Hence, the Bureau of Customs issued a license to
Peoples Aircargo. Sano was not paid for this 2nd contract. Hence, he filed a collection case
against the corporation. Meanwhile, Punsalan sold his shares in Peoples Aircargo andresigned
as president. Peoples Aircargo denied that there were consultancy services rendered by Sano.
It alleged that the 2nd contract entered into between him and Punsalan was without authority.
RTC adjudged in favor of Sano. CA affirmed. Hence, this petition.

Issue:

Whether or not the Punsalan had apparent authority to bind Peoples Aircargo to the 2nd
contract.

Held:
Yes. The general rule is that, in the absence of authority from the BoD, no person, not even its
officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct
from its stockholders and members, having powers, attributes and properties expressly
authorized by law or incident to its existence. Being a juridical entity, a corporation may act
through its BoD, which exercises almost all corporate powers, lays down all corporate business
policies and is responsible for the efficiency of management as is under Sec. 23 of the
Corporation Code. The power and responsibility to decide whether the corporation should enter
into a contract that will bind the corporation is lodged in the board, subject to AoI, by laws, or
relevant provisions of law. However, just as a natural person may authorize another to do
certain acts for and on his behalf, the BoD may validly delegate some of its functions and
powers to officers, committees or agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate by laws or authorization from the board,
either expressly or impliedly by habit, custom or acquiescence in the general course of
business. In the case at bar, since the corporation had previously allowed Punsalan to enter
into the first contract with Sano without a board resolution expressly authorizing him, thus, it
had clothed its president with apparent authority to execute the subject 2nd contract. If a
corporation knowingly permits one of its officers, or any other agent, to act within the scope of
an apparent authority, it holds him out to the public as possessing the power to do those acts,
and thus, the corporation will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agents authority.
Lapu-Lapu Foundation vs. Court of Appeals [GR 126006, 29 January 2004]

Facts:
Elias Q. Tan, then President Lapulapu Foundation, Inc., obtained four loans from Allied Banking
Corporation covered by four promissory notes in the amounts of P100, 000 each. When the
entire obligation became due, it was not paid despite demands by the bank. The Bank filed
with the RTC a complaint seeking payment by Lapulapu Foundation and Elias Tan, jointly and
solidarily, of the sum representing their loan obligation, exclusive of interests, penalty charges,
attorneys fees and costs. The Foundation denied incurring indebtedness from the Bank
alleging that Tan obtained the loans in his personal capacity, for his own use and benefit and
on the strength of the personal information he furnished the Bank. The Foundation maintained
that it never authorized petitioner Tan to co-sign in his capacity as its President any promissory
note and that the Bank fully knew that the loans contracted were made in Tans personal
capacity and for his own use and that the Foundation never benefited, directly or indirectly,
there from.

For his part, Tan admitted that he contracted the loans from the Bank in his personal capacity.
The parties, however, agreed that the loans were to be paid from the proceeds of Tans shares
of common stocks in the Lapulapu Industries Corporation, a real estate firm. The loans were
covered by promissory notes which were automatically renewable (rolled-over) every year at
an amount including unpaid interests, until such time as petitioner Tan was able to pay the
same from the proceeds of his aforesaid shares.

Issue:

May the Foundation correctly raise as a defense that it did not authorize Tan to obtain the loans
involved and therefore it may not be held solidarily liable for them?

Held:

NO. The Court agrees with the CA that the petitioners cannot hide behind the corporate veil
under the following circumstances: The evidence shows that Tan has been representing himself
as the President of Lapulapu Foundation, Inc. He opened a savings account and a current
account in the names of the corporation, and signed the application form as well as the
necessary specimen signature cards twice, for himself and for the foundation. He submitted a
notarized Secretarys Certificate from the corporation, attesting that he has been authorized,
inter alia, to sign for and in behalf of the Lapulapu Foundation any and all checks, drafts or
other orders with respect to the bank; to transact business with the Bank, negotiate loans,
agreements, obligations, promissory notes and other commercial documents; and to initially
obtain a loan for P100, 000.00 from any bank. Under these circumstances, the Foundation is
liable for the transactions entered into by Tan on its behalf. Per its Secretarys Certificate, the
Foundation had given Tan ostensible and apparent authority to inter alia deal with the Bank.
Accordingly, the petitioner Foundation is estopped from questioning Tans authority to obtain
the subject loans from the Bank. It is a familiar doctrine that if a corporation knowingly permits
one of its officers, or any other agent, to act within the scope of an apparent authority, it holds
him out to the public as possessing the power to do those acts; and thus, the corporation will,
as against anyone who has in good faith dealt with it through such agent, be estopped from
denying the agents authority.
Francisco vs. GSIS (7 SCRA 577 [1963]) G.R. No. L-18287 March 30, 1963

Facts:

In 1956, Trinidad Francisco obtained a P400k loan from the Government Service Insurance
System (GSIS). She secured the loan with a parcel of land. In 1959 however, due to some
difficulties, Trinidad incurred huge arrears. This prompted GSIS to foreclose the property. But
then, Trinidads father, Atty. Vicente Francisco, wrote a letter to GSIS offering that he pay P30k
off the loan and then allow GSIS to administer the mortgaged property instead of foreclosing it;
that thereafter, GSIS shall receive rents from the tenants of the land until the arrears are paid
and the account is made current or up to date (because the total of the monthly rents is bigger
than the monthly loan payments supposed to be paid by Trinidad to GSIS).

GSIS, through its general manager Rodolfo Andal, responded with a letter which states that the
GSIS Board had accepted Vicentes offer. But GSIS for some reason did not take over the
property. Nevertheless, the Franciscos collected rents and turned them over to GSIS.

Then in 1960, GSIS demanded Francisco to pay off the loan. Vicente then reminded GSIS that
the agreement in 1959 which is actually a compromise is binding upon GSIS. GSIS then averred
that the letter sent to Vicente in response to his offer was not sent in error because Andals
secretary sent the poorly worded response without Andals knowledge.

ISSUE:

Whether or not a corporation like GSIS is bound by the acts of its officers acting in their
apparent authority.

HELD:

Yes. A third party transacting with a corporation cannot be expected to know what occurs
within a corporation, its meetings, without any external manifestations from the corporation. In
the case at bar, the response by GSIS to Vicente by way of a telegram, is within the apparent
authority of Andal. If there are any irregularities in the telegraph i.e., the sending of the
secretary without the authority of Andal, Vicente is not expected to know it because the
telegram on its face is clear as to the acceptance. Vicente cannot therefore be faulted for
relying on the telegram; that GSIS accepted his offer. Hence, GSIS cannot now ask Francisco to
suddenly pay off the debt. If a corporation knowingly permits one of its officers, or any other
agent, to do acts within the scope of an apparent authority, and thus holds him out to the
public as possessing power to do those acts, the corporation will, as against anyone who has in
good faith dealt with the corporation through such agent, be estopped from denying his
authority; and where it is said if the corporation permits this means the same as if the thing
is permitted by the directing power of the corporation.
GSIS cannot also deny that it has knowledge of the acceptance. A corporation cannot see, or
know, anything except through its officers. Knowledge of facts acquired or possessed by an
officer or agent of a corporation in the course of his employment, and in relation to matters
within the scope of his authority, is notice to the corporation, whether he communicates such
knowledge or not. Andal is presumed to have knowledge of the acceptance because it was his
office which sent it to Vicente. Knowledge of Andal, an officer of GSIS, is deemed knowledge of
GSIS.

At any rate, even if the compromise agreement is void because of the unauthorized
telegram, GSISs silence and acceptance of the subsequent remittances of the Franciscos
ratified the compromise agreement.
Nyco Sales Corp. vs. BA Finance Corp. (200 SCRA 637 [1991])

200 SCRA 637 Mercantile Law Negotiable Instruments Law Notice of Dishonor
Assignment of Credit

FACTS:
Nyco Sales Corporation has discounting privileges with BA Finance Corporation. In 1978,
brothers Renato Fernandez and Santiago Renato (officers of Sanshell Corporation) approached
Nyco Sales Corporation for a credit accommodation in order for the brothers make use of
Nycos discounting privileges. Nyco Sales agreed and so, on November 15, 1978, Sanshell
issued a post-dated (November 17, 1978) BPI check to Nyco Sales in the amount of
P60,000.00. Following the discounting process agreed upon, Nyco Sales, thru its president
Rufino Yao, endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check
payable to Nyco Sales which endorsed it in favor of Sanshell. Sanshell then made use of and/or
negotiated the check. Accompanying the exchange of checks was a Deed of Assignment
executed by Nyco Sales (assignor) in favor of BA Finance (assignee) with the conformity of
Sanshell. Under the said Deed, the subject of the discounting was P60k BPI check.

The check bounced. BA Finance notified Sanshell. Sanshell substituted the BPI check with a
Security Bank and Trust Company check for P60k. This check again bounced. BA Finance made
repeated demands to Nyco Sales and Sanshell but neither of the two settled the obligation.
Hence, BA Finance sued Nyco Sales. Nyco Sales averred that it received no notice of dishonor
when the second check was dishonored.

ISSUE:
Whether or not Nyco Sales is liable to pay BA Finance.

HELD:

Yes. The relationship between Nyco Sales and BA Finance is one of assignor-assignee. The
assignor-vendor warrants both the credit itself (its existence and legality) and the person of the
debtor (his solvency), if so stipulated, as in the case at bar. Consequently, if there be any
breach of the above warranties, the assignor-vendor should be held answerable therefor. There
is no question then that the assignor-vendor is indeed liable for the invalidity of whatever he
assigned to the assignee-vendee. Considering now the facts of the case at bar, it is beyond
dispute that Nyco executed a deed of assignment in favor of BA Finance with Sanshell
Corporation as the debtor-obligor. BA Finance is actually enforcing said deed and the check
covered thereby is merely an incidental or collateral matter. This particular check merely
evidenced the credit which was actually assigned to BA Finance. Thus, the designation is
immaterial as it could be any other check. It is only what is represented by the said checks that
Nyco is being asked to pay.
Nyco Sales pretension that it had not been notified of the fact of dishonor is belied not only by
the formal demand letter issued by BA Finance but also by the fact that Nyco Sales and
Sanshell had frequent contacts before, during and after the dishonor. More importantly, as long
as the credit remains outstanding, Nyco Sales shall continue to be liable to BA Finance as its
assignor. The dishonor of an assigned check simply stresses its liability and the failure to give a
notice of dishonor will not discharge it from such liability. This is because the cause of action
stems from the breach of the warranties embodied in the Deed of Assignment, and not from
the dishonoring of the check alone.
BPI Family Savings Bank, Inc. vs First Metro Investment GR 132390, May 21, 2004

Facts:
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current
account and deposited METROBANK check no. 898679 of P100 million with BPI Family Bank
(BPI FB). Ong made the deposit upon request of his friend, Ador de Asis, a close acquaintance
of Jaime Sebastian, then Branch Manager of BPI FB San Francisco del Monte Branch.
Sebastians aim was to increase the deposit level in his Branch.

BPI FB, through Sebastian, guaranteed the payment of P14,667,687.01 representing17% per
annum interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB that it will
maintain its deposit of P100 million for a period of one year on condition that the interest of
17% per annum is paid in advance. This agreement between the parties was reached through
their communications in writing. Subsequently, BPI FB paid FMIC 17% interest or
P14,667,687.01 upon clearance of the latters check deposit.

However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma.
Theresa David, Senior Manager of FMIC, BPI FB transferred P80 million from FMICs current
account to the savings account of Tevesteco Arrastre Stevedoring,Inc. FMIC denied having
authorized the transfer of its funds to Tevesteco, claiming that the signatures of Ong and David
were falsified.

Thereupon, to recover immediately its deposit, FMIC, on September 12, 1989, issued BPI FB
check no. 129077 forP86,057,646.72 payable to itself and drawn on its deposit with BPI FB
SFDM branch. But upon presentation for payment on September 13, 1989,
BPI FB dishonored the check as it was drawn against insufficient funds. Consequently, FMIC
filed a complaint against BPI FB.

FMIC filed an Information for estafa against Ong, de Asis, Sebastian and four others. However,
the Information was dismissed on the basis of a demurrer to evidence filed by the accused.

Issues:

1. Was the transaction between FMIC and BPI, a time deposit or an interest-bearing current
account which, under existing bank regulations, was an illegal transaction?

2. Is the bank liable for the unauthorized transfer of respondents funds to Tevesteco?

HELD:

1.We hold that the parties did not intend the deposit to be treated as a demand deposit but
rather as an interest-earning time deposit not withdrawable anytime. When respondent FMIC
invested its money with petitioner BPI FB, they intended the P100 million as a time deposit, to
earn 17% per annum interest and to remain intactuntil its maturity date one year thereafter.
Ordinarily, a time deposit is defined as one the payment of which cannot legally be required
within such a specified number of days.In contrast, demand deposits are all those liabilities of
the Bangko Sentral and of other banks which are denominated in Philippine currency and are
subject to payment in legal tender upon demand by the presentation of (depositors) checks.

While it may be true that barely one month and seven days from the date of deposit,
respondent FMIC demanded the withdrawal of P86,057,646.72 through the issuance of a check
payable to itself, the same was made as a result of the fraudulent and unauthorized transfer
by petitioner BPI FB of its P80 million deposit to Tevestecos savings account. Certainly, such
was a normal reaction of respondent as a depositor to petitioners failure in its fiduciary duty to
treat its account with the highest degree of care.
Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year
maturity date did not change the nature of its time deposit to one of demand deposit. We have
held that if a corporation knowingly permits its officer, or any other agent, to perform acts
within the scope of an apparent authority, holding him out to the public as possessing power to
do those acts, the corporation will, as against any person who has dealt in good faith with the
corporation through such agent, be estopped from denying such authority.

Petitioner maintains that respondent should have first inquired whether the deposit of P100
Million and the fixing of the interest rate were pursuant to its (petitioners) internal procedures.
Petitioners stance is a futile attempt to evade an obligation clearly established by the intent of
the parties. What transpires in the corporate boardroom is entirely an internal matter. Hence,
petitioner may not impute negligence on the part of respondents representative in failing to
find out the scope of authority of petitioners Branch Manager.

Indeed, the public has the right to rely on the trustworthiness of bank managers and their acts.
Obviously, confidence in the banking system, which necessarily includes reliance on bank
managers, is vital in the economic life of our society. Significantly, the transaction was actually
acknowledged and ratified by petitioner when it paid respondent in advance the interest for
one year. Thus, petitioner is estopped from denying that it authorized its Branch Manager to
enter into anagreement with respondents Executive Vice President concerning the deposit
withthe corresponding 17% interest per annum.

2.Yes. We uphold the finding of both lower courts that petitioner failed to exercise that degree
of diligence required by the nature of its obligations to its depositors. A bank is under
obligation to treat the accounts of its depositors with meticulous care, whether such account
consists only of a few hundred pesos or of million of pesos. Here, petitioner cannot claim it
exercised such a degree of care required of it and must, therefore, bear the consequence.
Alhambra Cigar vs. SEC (24 SCRA 269 [1968])
24 SCRA 269 Business Organization Corporation Law Corporate Lifespan

FACTS:

On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing Company, Inc. was
incorporated. Its lifespan was for 50 years so on January 15, 1962, it expired. Thereafter, its
Board authorized its liquidation. Under the prevailing law, Alhambra has 3 years to liquidate.

In 1963, while Alhambra was liquidating, Republic Act 3531 was enacted. It amended Section
18 of the Corporation Law; it empowered domestic private corporations to extend their
corporate life beyond the period fixed by the articles of incorporation for a term not to exceed
fifty years in any one instance. Previous to Republic Act 3531, the maximum non-extendible
term of such corporations was fifty years.

Alhambra now amended its articles of incorporation to extend its lifespan for another 50 years.
The Securities and Exchange Commission (SEC) denied the amended articles of incorporation.

ISSUE:

Whether or not a corporation under liquidation may still amend its articles of incorporation to
extend its lifespan.

HELD:

No. Alhambra cannot avail of the new law because it has already expired at the time of its
passage. When a corporation is liquidating pursuant to the statutory period of three years to
liquidate, it is only allowed to continue for the purpose of final closure of its business and no
other purposes. In fact, within that period, the corporation is enjoined from continuing the
business for which it was established. Hence, Alhambras board cannot validly amend its
articles of incorporation to extend its lifespan.
Caltex (Phils.), Inc. vs. PNOC Shipping and Transport Corp. (498 SCRA 400 [2006])

Facts:

On 6 July 1979, PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered into an
Agreement of Assumption of Obligations. Finally, the Agreement provides that LUSTEVECO
appoints and constitutes PSTC as its attorney-in-fact to demand and receive any claim out of
the countersuits and counterclaims arising from the claims in the Annexes.

Among the actions enumerated in the Annexes is Caltex (Phils.), Inc. v. Luzon Stevedoring
Corporation docketed as AC-G.R. CV No. 62613. However, the judgment was not satisfied
because of the prior foreclosure of LUSTEVECOs properties. The Manila Bank Intramuros
Branch and the Traders Royal Bank Aduana Branch did not respond to the notices of
garnishment.

Caltex subsequently learned of the Agreement between PSTC and LUSTEVECO. Caltex sent
successive demands to PSTC asking for the satisfaction of the judgment rendered by the CFI.
PSTC requested for the copy of the records of AC-G.R. CV No. 62613. Later, PSTC informed
Caltex that it was not a party to AC-G.R. CV No. 62613 and thus, PSTC would not pay
LUSTEVECOs judgment debt. PSTC advised Caltex to demand satisfaction of the judgment
directly from LUSTEVECO.

Caltex continued to send several demand letters to PSTC. On 5 February 1992, Caltex filed a
complaint for sum of money against PSTC. The case was docketed as Civil Case No. 91-59512.

ISSUE:

1. Whether PSTC is bound by the Agreement when it assumed all the obligations of
LUSTEVECO; and

2. Whether Caltex is a real party in interest to file an action to recover from PSTC the judgment
debt against LUSTEVECO.

RULINGS:

The petition is meritorious.

1. Caltex May Recover from PSTC Under the Terms of the Agreement. Caltex may recover the
judgment debt from PSTC not because of a stipulation in Caltexs favor but because the
Agreement provides that PSTC shall assume all the obligations of LUSTEVECO. In this case,
LUSTEVECO transferred, conveyed and assigned to PSTC all of LUSTEVECOs business,
properties and assets pertaining to its tanker and bulk business "together with all the
obligations relating to the said business, properties and assets

When PSTC assumed all the properties, business and assets of LUSTEVECO pertaining to
LUSTEVECOs tanker and bulk business, PSTC also assumed all of LUSTEVECOs obligations
pertaining to such business. The assumption of obligations was stipulated not only in the
Agreement of Assumption of Obligations but also in the Agreement of Transfer.

PSTC is bound by the Agreement. PSTC cannot accept the benefits without assuming the
obligations under the same Agreement. PSTC cannot repudiate its commitment to assume the
obligations after taking over the assets for that will amount to defrauding the creditors of
LUSTEVECO. It will also result in failure of consideration since the assumption of obligations is
part of the consideration for the transfer of the assets from LUSTEVECO to PSTC. Failure of
consideration will revert the assets to LUSTEVECO for the benefit of the creditors of
LUSTEVECO. Thus, PSTC cannot escape from its undertaking to assume the obligations of
LUSTEVECO as stated in the Agreement.

The Agreement, under Article 1291 of the Civil Code,17 is also a novation of LUSTEVECOs
obligations by substituting the person of the debtor. Under Article 1293 of the Civil Code, a
novation which consists in substituting a new debtor in place of the original debtor cannot be
made without the consent of the creditor.18 Here, since the Agreement novated the debt
without the knowledge and consent of Caltex, the Agreement cannot prejudice Caltex. Thus,
the assets that LUSTEVECO transferred to PSTC in consideration, among others, of the
novation, or the value of such assets, remain even in the hands of PSTC subject to execution to
satisfy the judgment claim of Caltex.

2. Caltex is a Real Party in Interest. Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides: SEC. 2. Parties in interest. A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.
Unless otherwise authorized by law or these Rules, every action must be prosecuted or
defended in the name of the real party in interest.

Ordinarily, one who is not a privy to a contract may not bring an action to enforce it.
Caltex may enforce its cause of action against PSTC because PSTC expressly assumed all the
obligations of LUSVETECO pertaining to its tanker and bulk business and specifically, those
relating to AC-G.R. CV No. 62613. While Caltex is not a party to the Agreement, it has a real
interest in the performance of PSTCs obligations under the Agreement because the non-
performance of PSTCs obligations will defraud Caltex.

Even if PSTC did not expressly assume to pay the creditors of LUSTEVECO, PSTC would still be
liable to Caltex up to the value of the assets transferred. The transfer of all or substantially all
of the unencumbered assets of LUSTEVECO to PSTC cannot work to defraud the creditors of
LUSTEVECO. A creditor has a real interest to go after any person to whom the debtor
fraudulently transferred its assets.
Ong Yong, et al. vs. Tiu, et al.
[GR 144476, 8 April 2003];
also Tiu, et al. vs. Ong Yong, et al. [GR 144629]
Resolution of Special Second Division, Corona (J): 3 concur

Facts:
In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage
and incompletion when its owner, the First Landlink Asia Development Corporation(FLADC),
which was owned by David S. Tiu and et. al, encountered dire financial difficulties. It was
heavily indebted to the Philippine National Bank (PNB) for P190 million. To stave off foreclosure
of the mortgage on the two lots where the mall was being built, the Tius invited Ongs, to invest
in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius
agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000
shares at a par value of P100.00 each while the Tius were to subscribe to an additional
549,800 shares at P100.00 each in addition to their already existing subscription of 450,200
shares. Furthermore, they agreed that the Tius were entitled to nominate the Vice-President
and the Treasurer plus 5 directors while the Ongs were entitled to nominate the President, the
Secretary and 6 directors (including the chairman) to the board of directors of FLADC.
Moreover, the Ongs were given the right to manage and operate the mall. Accordingly,the
Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while the Tius
committed to contribute to FLADC a four-storey building and two parcels of land.

The business harmony between the Ongs and the Tius in FLADC, however, was short lived
because the Tius, on 23 February 1996, rescinded the Pre-Subscription Agreement. The Tius
accused the Ongs of (1) refusing to credit to them the FLADC shares covering their real
property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions
of and performing their duties as Vice-President and Treasurer, respectively, and (3) refusing to
give them the office spaces agreed upon. The controversy finally came to a head when the
case was commenced by the Tius on 27 February1996 at the Securities and Exchange
Commission (SEC), seeking confirmation of their rescission of the Pre-Subscription Agreement.
After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued a decision
on 19 May 1997 confirming the rescission sought by the Tius. On motion of both parties, the
above decision was partially reconsidered but only insofar as the Ongs' P70 million was
declared not as a premium on capital stock but an advance (loan) by the Ongs to FLADC
and that the imposition of interest on it was correct. Both parties appealed to the SEC en banc
which rendered a decision on 11 September 1998, affirming the 19May 1997 decision of the
Hearing Officer. The SEC en banc confirmed the rescission of the Pre-Subscription Agreement
but reverted to classifying the P70 million paid by the Ongs as premium on capital and not as a
loan or advance to FLADC, hence, not entitled to earn interest.

ISSUES:

Whether or not the Rescission of the Pre-Subscription Agreement is valid in so far as the Tius
are concerned.

HELD:

Petition granted. The Petition for Confirmation of the Rescission of the Pre-Subscription
Agreement docketed as SEC Case No. 02-96-5269 is hereby DISMISSED for lack of merit. The
unilateral rescission by the Tius of the subject Pre-Subscription Agreement, dated August 15,
1994, is hereby declared as null and void.

The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners David
S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is
hereby DENIED for being moot.
After all is said and done, no one can close his eyes to the fact that the Masagana Citimall
would not be what it has become today were it not for the timely infusion of P190 million by
the Ongs in 1994. There are no ifs or buts about it.

Without the Ongs, the Tius would have lost everything they originally invested in said mall. If
only for this and the fact that this Resolution can truly pave the way for both groups to enjoy
the fruits of their investments assuming good faith and honest intentions we cannot allow
the rescission of the subject subscription agreement. The Ongs' shortcomings were far from
serious and certainly less than substantial; they were in fact remediable and correctable under
the law. It would be totally against all rules of justice, fairness and equity to deprive the Ongs
of their interests on petty and tenuous grounds.

Accordingly, the Decision of this Court, dated February 1, 2002, affirming with modification the
decision of the Court of Appeals, dated October 5, 1999, and the SEC en banc, dated
September 11, 1998, is hereby REVERSED.
G.R. No. L-37281 November 10, 1933

W. S. PRICE and THE SULU DEVELOPMENT COMPANY, plaintiffs-appellants,

vs.
H. MARTIN, defendant-appellant.
THE AGUSAN COCONUT COMPANY, defendant-appellee.

Facts:

From the records of the Sulu Development Company it appears that at the meeting of
November 12, 1925, Martin presented evidence to the effect that he, and not Mrs. Worcester,
was the owner of the 97 shares of stock. Copies of the documents relied upon by Martin were
made a part of the record, but apparently no action was taken by the stockholders or by the
directors, and at the meetings of November 12, 17, and 19, Mrs. Worcester's proxy apparently
voted the stock without protest on the part of Martin or any other stockholder.

As far as the record shows, every formal action taken at those three meetings was unanimous,
and Martin at the last two meetings was accompanied by two members of the Bar of the
Philippine Islands as his counsel.

The Sulu Development Company from its inception up to the time of executing the contract
was virtually owned and controlled by Martin. Prince purchased one share of stock about a
month before the called meeting but was not present at the meetings in question.

Another ground relied upon by plaintiffs is a claim that the mortgage was without
consideration. The evidence shows that for years the Agusan Coconut Company, through its
general manager, had been advancing sums through Martin in order that the Sulu
Development Company might secure good and sufficient title to a large tract of land situated
near Siasi and thereon develop a coconut plantation. The amount of money so advanced was
in dispute, but between the meeting on November 12 and the final action on November 19, the
attorney of the Sulu Development Company, one of whom was also an accountant, and the
attorneys of the Agusan Coconut Company went over the mutual accounts with care and
arrived at the sum set forth in the mortgaged. Had there been no agreement, suit would have
been instituted by the Agusan Company against the Sulu Development Company.

There is also a claim that there was a parol agreement between Martin and Worcester,
representing the two companies, that after the death of Mr. Worcester on May 2, 1924, the
Agusan Coconut Company failed to comply with the terms and conditions of the so-called
cultivation agreement, and Martin prayed in his special cross-complaint and counter-claim that
the Defendant Agusan Coconut Company be required to make such further cash advances to
"carry out the full scale development of the tract of land in the cultivation agreement and as
contemplated therein."
The trial court, on timely objection, refused to receive the parol evidence as to the cultivation
agreement, and after trial and a lengthy opinion, held that the mortgage in question was valid
and refused to order its cancellation.

ISSUES:

Whether the stock was rightfully the property of Martin, and thus as a stockholder has a right
to participate in the stockholders meeting.

Whether or not that the mortgage was without consideration hence invalid.

HELD:

The court finds no merit in the contention that the trial court should have concerned itself with
an alleged parol contract between Martin and Dean C. Worcester, deceased. The alleged
contract not being in writing or to be executed within a year, it is within the statute of frauds.
The value of the rule is shown in this case as it was some time after Mr. Worcester's death
before anything was heard of such an alleged agreement. Even if such an agreement had been
made and it had been proper to receive proof thereof, it would not benefit plaintiffs as the
mortgage was executed pursuant to a compromise agreement to settle the affairs between the
two companies, and all the transactions between the two companies were merged and settle
by that compromise.

The contention that a new trial should have been granted in order that plaintiffs could present
in evidence a letter from Mr. Worcester to the late Governor-General Wood, is likewise without
merit. The letter, even if admitted, would not have changed the result of these proceedings, as
a fair reading of the letter is not repugnant to a single contention of defendant-appellee.
GOCHAN et al vs Young (Celicia Gochan Uy, Mike Uy, et al)

Nature: Petition for Review on Certiorari assailing the Decision of the Court of Appeals

FACTS:

Felix Gochan & Sons Realty Corporation (Gochan Realty) is registered in SEC with Felix Gochan
Sr. & 5 others as incorporators.

The daughter of Felix Gochan Sr. (& the mother of respondents), Alice, inherited 50 shares of
stock in Gochan Realty. When Alice died, she left the 50 shares to her husband John Young, Sr.

The RTC adjudicated 6/14 of these shares to the children of Alice.

Having earned dividends, these stocks numbered 179.

John Young Sr. requested Gochan Realty to partition the shares of his late wife by cancelling
the stock certificates in his name and issuing new stock certificates in the names of the
children.

Petitioner Gochan Realty refused, citing as reason, the right of first refusal granted to the
remaining stockholders by the Articles of Incorporation.

John Young, Sr. died and left the shares to the respondents.

*SEC: Respondents Cecilia Gochan Uy and Miguel Uy filed a complaint for issuance of shares
of stock to the rightful owners, nullification of shares of stock, reconveyance of property
impressed with trust, accounting, removal of officers and directors and damages against
Petitioner Gochan Realty.
Petitioners Gochan et al filed a motion to dismiss the complaint alleging that: (1) the SEC
has no jurisdiction over the nature of the action; (2) the respondents were not the real parties-
in-interest and had no capacity to sue; and (3) respondents causes of action were barred by
the Statute of Limitations.

SEC Hearing Officer granted the motion to dismiss

According to the SEC Order:

(1) It has been shown that the complainant heirs of Alice and John, suing in THEIR OWN
RIGHT to the stocks, had never been stockholders of record of Gochan Realty to confer
them with the legal capacity to bring and maintain their action. Even though the heirs
succeeded the estate, they did not become automatically the stockholders of the corporation.
Since they are not yet stockholders, the case cannot be considered as an intra-corporate
controversy. (outside the jurisdiction of SEC).

(2) Due to the alleged wrongful acts of the corporation and its directors constitute fraudulent
devices or schemes which may be detrimental to the stockholders, the complainants
brought this action as a DERIVATIVE SUIT on their behalf and on behalf of Gochan
Realty.

Section 5. Derivative Suit - No action shall be brought by stockholder in the right of a

corporation unless the complainant was a stockholder at the time the questioned
transaction occurred as well as at the time the action was filed and remains a stockholder
during the pendency of the action. x x x.

According to jurisprudence, a stockholder bringing a derivative action must have been so (a

stockholder) at the time the transaction or act complained of took place. The failure to comply
with the jurisdictional requirement on derivative action must result in the dismissal of the
instant complaint.

-------------end of SEC order---------------

Respondents filed a motion for a reconsideration but it was denied for being pro-forma.

Respondents appealed to the SEC en banc, contending that the SEC has jurisdiction.

Petitioners contend that the appeal was 97 days late and beyond the 30-day period for
appeals.
The SEC en banc ruled for the petitioners and holding that the respondents motion for
reconsideration did not interrupt the 30-day period for appeal because said motion was pro-
forma.

*CA: Respondents filed a Petition for Review with the Court of Appeals.

CA ruled that the SEC had no jurisdiction as far as the heirs of Alice Gochan were concerned,
because they were not yet stockholders. BUT it upheld the capacity of Respondents Cecilia
Gochan Uy and Miguel Uy. It also upheld that the intestate Estate of John Young Sr. was an
indispensable party.

Moreover, it declared that respondents' Motion for Reconsideration before the SEC was not pro
forma; thus, its filing tolled the appeal period.

1. Sub-Issue: W/N the Spouses Uy have the personality to file an action before the SEC
against Gochan Realty Corporation. YES!

Held: Petitioners argue that Spouses Cecilia and Miguel had no capacity to bring the suit since
they were no longer stockholders at the time. Allegedly, the corporation had already purchased
their stocks. Cecilia averred that the purchase contract of her stocks was null and void which
the court admitted. Thus, Cecilia remains to be a stockholder of the corporation. Although she
was no longer registered as a stockholder in the corporate records as of the filing of the case
before the SEC, the admitted allegations in the Complaint made her still a bona fide
stockholder of Gochan Realty, as between said parties.

However, petitioners contend that the statute of limitations already bars the spouses' action
being voidable. However, the sale of the stock was not voidable, but was void ab initio. The
contention that the action has prescribed cannot be sustained. Prescription cannot be invoked
as a ground if the contract is alleged to be void ab initio.

2. Main Issue: W/N the Spouses Uy could bring a derivative suit in the name of Gochan Realty
to redress wrongs allegedly committed against it for which the directors refused to sue YES!

Held: Petitioners contend that the action filed by the Spouses was not a derivative suit,
because the spouses and not the corporation were the injured parties. The Court is not
convinced!
The Complaint shows allegations of injury to the corporation itself:

(1) There was conspiracy and fraud in depressing the value of the stock of the Corporation and
to induce the minority stockholders to sell their shares of stock for an inadequate
consideration. Petitioner Esteban Gochan et al unlawfully and fraudulently appropriated for
themselves the funds of the Corporation by drawing excessive amounts in the form of salaries
and cash advances and charging their purely personal expenses to the Corporation.

(2) The payment of P1,200,000 by the Corporation to Respondent Cecilia for her shares of
stock constituted an unlawful and partial liquidation and distribution of assets to a stockholder,
resulting in the impairment of the capital of the Corporation and prevented it from otherwise
utilizing said amount for its regular and lawful business, to the damage and prejudice of the
Corporation, its creditors, and of complainants as minority stockholders

As early as 1911, this Court has recognized the right of a single stockholder to file derivative
suits. In its words:

Where corporate directors have committed a breach of trust either by their frauds, ultra
vires acts, or negligence, and the corporation is unable or unwilling to institute suit to
remedy the wrong, a single stockholder may institute that suit, suing on behalf of himself
and other stockholders and for the benefit of the corporation, to bring about a redress of
the wrong done directly to the corporation and indirectly to the stockholders.

The allegations of injury to the Spouses Uy can coexist with those pertaining to the
corporation. The personal injury suffered by the spouses cannot disqualify them from filing a
derivative suit on behalf of the corporation.

Doctrine: The fact that certain persons are not registered as stockholders in the books of the
corporation will not bar them from

filing a derivative suit, if it is evident from the allegations in the complaint that they are bona
fide stockholders

3. Sub-Issue W/N the intestate estate of John Young Sr. is an indispensable party in the SEC
case considering that the individual heirs' shares are still in the decedent stockholder's name.
Held: Petitioners contend that the Intestate Estate of John D. Young Sr. is not an indispensable
party, as it not benefited or injured by any court judgment.

It would be useful to point out that one of the causes of action stated in the Complaint filed
with the SEC refers to the registration, in the name of the other heirs of Alice Gochan Young, of
6/14th of the shares still registered under the name of John D. Young Sr. Since all the shares
that belonged to Alice are still in his name, no final determination can be had without his
estate being impleaded in the suit. His estate is thus an indispensable party with respect to
dealing with the registration of the shares in the names of the heirs of Alice.

4. Sub-Issue Whether or not the cancellation of notice of lis pendens was justified considering
that the suit did not involve real properties owned by Gochan Realty. -- NO

Held: The Court found no reason to disturb the ruling of the Court of Appeals.

There were allegations of breach of trust and confidence and usurpation of business
opportunities in conflict with petitioners' fiduciary duties to the corporation, resulting in
damage to the Corporation. Under these causes of action, respondents are asking for the
delivery to the Corporation of possession of the parcels of land and their corresponding
certificates of title. Hence, the suit necessarily affects the title to or right of possession of the
real property sought to be reconveyed. The Rules of Court allows the annotation of a notice
of lis pendens in actions affecting the title or right of possession of real property. Thus, the
Court of Appeals was correct in reversing the SEC Order for the cancellation of the notice of lis
pendens.

Effect of RA 8799: Intra-corporate controversies are now within the jurisdiction of courts of
general jurisdiction, no longer of the Securities and Exchange Commission.

DISPOSITION: Petition DENIED!

Everett vs. The Asia Banking Corporation

Facts:

The plaintiffs, by Thomas Cary Welch, complaint of the defendants and for cause of action
against them allege:

This complaint mentioned the defendant the Asia Banking Corporation(the Bank), was a
foreign banking corporation duly licensed to transact banking business in the Philippine
and its principal office and place of business at Manila but never has been empowered
by law or licensed to do any business other than commercial banking in the Philippine
Islands. That the defendants Mullen, Alfred F. Kelly, Mears, and Macintosh were officers,
agents and employees of the said Bank.

The Teal and Company (the Company) was a domestic corporation duly incorporated
under the laws of the Philippine and principal office and place of business at Manila. The
plaintiffs Everett, Clifford, Teal and Robinson were the principal stockholders in the
Company that the defendant Barclay was the only other stockholder, owning one share.

In 1921, The Company has become indebted to the firm of H. W. Peabody and Company
in about the sum of P300,000, being for tractors, plows and parts which had been
ordered and delivered, the Bank and other banks in Manila held drafts accepted by the
Company under said H. W. Peabody and Company's guarantee. The Company made
payments on its indebtedness through the Bank to H. W. Peabody and Company.

In 1921, the Bank persuaded the Company and the said H. W. Peabody and Co. and Smith,
Kirkpatrick and Co. to enter into a so called "creditors agreement" with itself, wherein it was
mutually agreed that neither of the parties should take action to collect its debts from the
Company for the term of two years after the date thereof. The plaintiffs have no copy of said
agreement but beg leave to refer to the original of same, in possession of the Bank,

for greater certainty.

In December, 1922, said company was solvent and in the enjoyment of a large, growing,
and lucrative business and in the possession of a valuable reputation and good-will and
had done its banking business and financing almost exclusively thru and with the Bank
and by reason of such continued relations the officers of the Company had acquired trust
and confidence in the integrity and good intentions of the said bank and its officers and
the other defendants.
Toward the end of the year 1922, the Bank, through its defendant Mullen
represented to the Company and its managers that for the protection both of
the Bank and the Company it was advisable for them both that the Bank
should temporarily obtain control of the management and affairs of the
Company in order that the affairs of the Company could be conducted by the
Bank without interference or hindrance from outside, and to this end that it
would be necessary for the stockholders in the Company to place their shares
therein in a Voting Trust to be held by the Bank would then finance the
Company under its own supervision and that if and when the same were
successful and in position to resume independent operation the said trust
would be terminated and the stock returned to its true owners, and in case the
Bank decided to discontinue operation under the said trust then the stock also
would be so returned.
It was also stated by Mullen that in order to protect the mutual interests of the Bank and
 the Company it was necessary to carry into effect the proposed voting trust without the
knowledge of the creditors place the Bank in an advantageous position with regard to
them. The plaintiffs were induced to sign and did sign and deliver to the Bank
simultaneously a so-called "Voting Trust Agreement," executed by the plaintiff
stockholders and a Memorandum of Agreement executed by the Company.

Subsequent to the execution and delivery of the voting trust and MOA the defendant Mullen,
caused and procured, by virtue of the powers delegated in the said voting trust, the
displacement and

removal from the Board of Directors of the Company of each and every person who was
at the time of the execution of the said voting trust a stockholder in the Company and
the substitution in their places as such directors, the defendants, or employees of the
Bank, and no subsequent time did the trustee allow to act as a Director of the Company
any person who was in fact a stockholder in the Company, and the latter has been
exclusively controlled and managed by the said defendants.
To defraud these plaintiffs, the new so-called directors proceeded to remove from office
the Secretary of the Company, and to discharge from employment all of the old
managers and the stockholders (Plaintiffs, who were also the real owners).
The said defendants gave pledges and mortgages from the Company to the Bank and
entered contracts foreclose and to sell the property of the Company without knowing the
interests of the Company in which the Company was not represented by anyone
defendant and tricked and deluded the courts into giving judgments in which the rights
of the real parties were concealed and unknown to the courts.
In August 1923, said defendants, filed in the Bureau of Commerce and Industry of the
Philippine Islands, articles of incorporation of a corporation called the "Philippine Motors
Corporation," and the defendants were officers or employee of the Bank. Such
incorporation was a fraud upon these plaintiffs for the reason that it was intended for the
sole purpose of taking over the assets of the Company and said defendants were
enabled to effectuate such intent by reason of their positions as officers and employees
of the Bank and because each of them were de facto directors of the Company, by
reason of their appointments by defendant Mullen, the Voting Trustee.
Thereafter said Bank turned over to the Philippine Motors Corporation all of the business
and assets of the company of every name nature and description. Since then, the PMC
has continued to conduct and advantage itself of the business of the Company.

Issue:

WON the plaintiffs, not being stockholders in the corporation, had a legal right to proceed the
case? YES

Held:
The court below held that the corporation Teal and Company is a necessary party
plaintiff and that the plaintiff stockholders, not having made any demand on the Board to
bring the action, are not the proper parties plaintiffs. But, like most rules, the rule in
question has its exceptions. It is alleged in the complaint and, consequently,
admitted through the demurrer that the corporation Teal and Company is
under the complete control of the principal defendants in the case, and, in
these circumstances, it is obvious that a demand upon the Board of Directors
to institute an action and prosecute the same effectively would have been
useless, and the law does not require litigants to perform useless acts.
 It was necessary for the plaintiffs to set forth in full the history of the various
transactions which eventually led to the alleged loss of their property and, in making a
full disclosure, references to the Philippine Motors Corporation appear to have been
inevitable. It is to be noted that the plaintiffs seek no judgment against the corporation
itself at this stage of the proceedings.

The judgment of the court below is therefore reversed, the defendants demurrer is
overruled

Take note:
The court recognized the right of the transferring stockholders to set aside the trust agreement
when their rights are trampled upon by the trustee. Under the general principles of law,
stockholders who are defrauded by their trustees have a right to revoke the trust and recover
damages from such trustees.
Fleischer vs. Botica Nolasco Inc.G.R. No. L-23241; March 14, 1925

FACTS:

Manuel Gonzales made a written statement to the respondent, requesting that 5 shares
of stock sold by him to Henry Fleischer be noted transferred to Fleischer's name.
He also acknowledged in said written statement thepreferential right
o f t h e c o r p o r a t i o n t o b u y s a i d fi v e s h a r e s b u t l a t e r w i t h d r e w a n d c a n c
e l l e d h i s w r i t t e n statement. However, the respondent replied that his letter was
of no eff ect, and that the shares in question had been registered in the name of the
Botica Nolasco, Inc. F l e i s c h e r fi l e d a n a m e n d e d c o m p l a i n t a g a i n s t t h e respondent,
alleging that he became the owner of 5 shares of fully paid stock purchase by him from the
original owner,
M a n u e l G o n z a l e z . D e s p i t e r e p e a t e d d e m a n d s , respondent
refused to register said shares in his name in the books of the corporation. Respondents
defense is that it h a s p re f e re n t i a l r i g h t t o b u y t h e s h a re s a t t h e p a r v a l u e based
on their Art. 12 of the by-laws. Trial court favored petitioner and ordered the shares be
registered. Hence, this appeal.

ISSUE:

WON respondents Art. 12 of the by-laws is in conflict with the Corporation Law (now
Corporation Code).

HELD:

YES. Although the corporation is empowered to make

b y l a w s , t h e s a m e m u s t n o t b e i n c o n s i s t e n t w i t h a n y existing law, for the
transferring of its stocks. By-law should b e i n h a rm o n y w i t h t h e l a w o n t h e s u b j e c t o f
transfer of s t o c k . B y - l a w s a r e i n t e n d e d f o r t h e p r o t e c t i o n a n d
regulation of the corporation and not for restriction. As a general rule, the by-laws of a
corporation are v a l i d i f t h e y a re re a s o n a b l e a n d c a l c u l a t e d t o c a r r y i n t o
e ff e c t t h e o b j e c t i v e o f t h e c o r p o r a t i o n a n d a r e n o t contradictory to
the general policy of the laws of the land. Under a statute authorizing by-laws for the
transfer of stock, a c o r p o r a t i o n c a n d o n o m o re t h a n p re s c r i b e a g e n e r a l
m o d e o f t r a n s f e r o n t h e c o r p o r a t i o n b o o k s a n d c a n n o t justify an restriction upon
the right of sale.

NOTE:
The Corporation Code allows reasonable transfer restriction in close corporations
CIR vs. LINCOLN

DIGESTED

FACTS:

Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA Life Insurance
Company, Inc.) is a domestic corporation registered with the SEC and engaged in life insurance
business. In the years prior to 1984, private respondent issued a special kind of life insurance
policy known as the Junior Estate Builder Policy, the distinguishing feature of which is a
clause providing for an automatic increase in the amount of life insurance coverage upon
attainment of a certain age by the insured without the need of issuing a new policy. The clause
was to take effect in the year 1984. Documentary stamp taxes due on the policy were paid by
petitioner only on the initial sum assured.

[In 1984, private respondent also issued 50,000 shares of stock dividends.. Documentary
stamp taxes were paid based only on the par value of P5,000,000.00 and not on the book
value.]

Subsequently, petitioner CIR issued deficiency documentary stamps tax assessment for the
year 1984, the first corresponding to the amount of automatic increase of the sum assured on
the policy issued by respondent, [and second corresponding to the book value in excess of the
par value of the stock dividends.]

Private respondent questioned the deficiency assessments and sought their cancellation in a
petition filed in the CTA. The CTA found no valid basis for the deficiency tax assessment
[on the stock dividends] as well as on the insurance policy.

Petitioner appealed the CTAs decision to the CA. The CA promulgated a decision affirming the
CTAs decision insofar as it nullified the deficiency assessment on the insurance policy,[
but reversing the same with regard to the deficiency assessment on the stock dividends. The
CTA ruled that the correct basis of the documentary stamp tax due on the stock dividends is
the actual value or book value represented by the shares.]

ISSUE:

WON private respondent should pay issued deficiency documentary stamps tax assessment on
the insurance policy (not on stock dividends <- incidental issue only)

HELD:

The decision of the CA is SET ASIDE insofar as it affirmed the decision of the CTA nullifying the
deficiency stamp tax assessment petitioner imposed on private respondent corresponding to
the increase in 1984 of the sum under the policy issued by respondent.
EUGENIO VERAGUTH, Director and Stockholder of the Isabela Sugar Company,
Inc., petitioner, vs. ISABELA SUGAR COMPANY, INC., GIL MONTILLA, Acting President, and
AGUSTIN B. MONTILLA, Secretary of the same corporation, respondents.iMALCOLM (1932)

RATIO DECIDENDI

Directors of a corporation have the unqualified right to inspect the books and
records of the corporation at all reasonable times.

A director or stockholder can make copies, abstracts, and memoranda of

documents, books, and papers as an incident to the right of inspection, but cannot,
without an order of a court, be permitted to take books from the office of the
corporation.

But a director or stockholder does not have any absolute right to secure certified
copies of the minutes of the corporation until these minutes have been written up
and approved by the directors.

FACTS

Eugenio Veraguth, a director and stockholder of the Isabela Sugar Company, Inc., filed this
petition for mandamus directly with the Supreme Court against the Isabela Sugar Company,
Inc., Gil Montilla, acting president of the company, and Agustin B. Montilla, secretary of the
company.

Veraguth prays that:

- the corporation and its officers be required within five days from receipt of notice of the
petition to show cause why they refuse to notify Veraguth as director, of the regular and
special meetings of the board of directors,
- a final and absolute writ of mandamus be issued to the corporations and its officers to
notify immediately the petitioner within the reglamentary period, of all regular and
special meetings of the board of directors of the Isabela Sugar Central Company, Inc.,
- to place at his disposal at reasonable hours the minutes, documents, and books of the
corporation for his inspection as director and stockholder, and

to issue immediately, upon payment of the fees, certified copies of any documentation in
compensation of the attorneys of the company was fixed, or WHETHER Director Veraguth, in a
spirit of antogonism, has made the petition merely a pretext to cause trouble
UNDETERMINED.

WHETHER a director has the unqualified right to inspect the books and records of the
corporation YES.
RATIO

The corporation had by-laws, together with a resolution of the board of directors, providing for
the holding of ordinary and special meetings. At the time of the petition, it cannot yet be
determined whether there was a malicious attempt to keep Director Veraguth from attending a
special meeting of the board of the board of directors at which the compensation of the
attorneys of the company was fixed, or whether Director Veraguth, in a spirit of antogonism,
has made this merely a pretext to cause trouble.

However, what is clear and decisive is that:

- the meeting in question is in the past and has become a purely academic question;
- no damage was caused to Veraguth by the action taken at the special meeting which he
did not attend, since his interests were fully protected by the Philippine National Bank;
and
- as to meetings in the future it is to be presumed that the secretary of the company will
fulfill the requirements of the resolutions of the company pertaining to regular and
special meetings.

It is, however, Veraguths duty to give formal notice to the secretary of his post-office address
if he desires notice sent to a particular residence.

The Corporation Law, section 51, provides that:

All business corporations shall keep and carefully preserve a record of all business
transactions, and a minute of all meetings of directors, members, or stockholders, in which
shall be set forth in detail the time and place of holding the meeting was regular or special, if
special its object, those present and absent, and every act done or ordered done at the
meeting. . . .

The record of all business transactions of the corporation and the minutes of any meeting shall
be open to the inspection of any director, member, or stockholder of the corporation at
reasonable hours.

Directors of a corporation have the unqualified right to inspect the books and
records of the corporation at all reasonable times.

- Pretexts may not be put forward by officers of corporations to keep a director or

shareholder from inspecting the books and minutes of the corporation, and connection
with said minutes, documents, and the books of the corporation.

ISSUE/HELD
WHETHER there was a malicious attempt to keep Director Veraguth from attending a special
meeting of the board of the board of directors at which the compensation of the attorneys of
the company was fixed, or WHETHER Director Veraguth, in a spirit of antogonism, has made
the petition merely a pretext to cause trouble UNDETERMINED.

WHETHER a director has the unqualified right to inspect the books and records of the
corporation YES.

RATIO

The corporation had by-laws, together with a resolution of the board of directors, providing for
the holding of ordinary and special meetings. At the time of the petition, it cannot yet be
determined whether there was a malicious attempt to keep Director Veraguth from attending a
special meeting of the board of the board of directors at which the compensation of the
attorneys of the company was fixed, or whether Director Veraguth, in a spirit of antogonism,
has made this merely a pretext to cause trouble.

However, what is clear and decisive is that:

- the meeting in question is in the past and has become a purely academic question;
- no damage was caused to Veraguth by the action taken at the special meeting which he
did not attend, since his interests were fully protected by the Philippine National Bank;
and
- as to meetings in the future it is to be presumed that the secretary of the company will
fulfill the requirements of the resolutions of the company pertaining to regular and
special meetings.

It is, however, Veraguths duty to give formal notice to the secretary of his post-office address
if he desires notice sent to a particular residence.

The Corporation Law, section 51, provides that:

All business corporations shall keep and carefully preserve a record of all business
transactions, and a minute of all meetings of directors, members, or stockholders, in which
shall be set forth in detail the time and place of holding the meeting was regular or special, if
special its object, those present and absent, and every act done or ordered done at the
meeting. . . .

The record of all business transactions of the corporation and the minutes of any meeting shall
be open to the inspection of any director, member, or stockholder of the corporation at
reasonable hours.

Directors of a corporation have the unqualified right to inspect the books and
records of the corporation at all reasonable times.
Pretexts may not be put forward by officers of corporations to keep a director or shareholder
from inspecting the books and minutes of the corporation, and the right of inspection is not to
be denied on the ground that the director or shareholder is on unfriendly terms with the
officers of the corporation whose records are sought to be inspected.

A director or stockholder can make copies, abstracts, and memoranda of documents, books,
and papers as an incident to the right of inspection, but cannot, without an order of a
court, be permitted to take books from the office of the corporation.

But a director or stockholder does not have any absolute right to secure certified
copies of the minutes of the corporation until these minutes have been written up
and approved by the directors. (citations omitted)

Nothing improper occurred when the secretary declined to furnish certified copies of minutes
which had not been approved by the board of directors. While the last resolution of the
board of directors providing for prior approval of the president of the corporation
before the books of the corporation can be inspected is an illegal obstacle in the
way of a stockholder or director, that resolution, so far as we are aware, has not
been enforced to the detriment of anyone.

In addition, the case seems to be a family dispute (Veraguth and the officers are of the same
family) that has yet to develop into one of serious litigation. he would be in no better
position than he is at the present time. Under the theory of the majority opinion Veraguth
would have no redress.

The refusal of the secretary of the corporation to allow Veraguth to read the resolution during
the meeting on the ground that it had not been signed by the directors, Veraguth was clearly
within his rights in demanding that he be given an opportunity to examine said resolution. It
does not appear that there was any necessity for the directors to sign the
resolution in question. Such a resolution was a part of the secretary's minutes of
the meeting, which would ordinarily be reported for approval at the next meeting. In
any event the directors had adopted the resolution, and whether it was to be signed or not,
Veraguth as a director of the corporation had a right to see it.

DISPOSITIVE

The petition is DENIED.

DISSENTING Opinion of VICKERS:

An extraordinary meeting of the directors of the corporation was held at Isabela, Occidental
Negros. A notice of this meeting was sent to Veraguth by registered letter, but the notice was
not received by him until a later date, because the letter was addressed to the plaintiff at
Isabela. The post-office address of the plaintiff at that time was Pulupandan, Occidental
Negros, and this fact was known to the defendant officers of the corporation, as shown by the
notices, because these notices were not mailed until the day of the respective meetings,
although the notice were dated three days prior to the dates when they were mailed.
It is clear, therefore, that no notice of the meeting was given to Veraguth, because
the notice of said meeting was sent to Isabela instead of Pulupandan. Taking into
consideration the relations existing between the parties, I am satisfied that this notice was
addressed to Isabela instead of Pulupandan for the purpose of depriving the
plaintiff of an opportunity of attending the meeting.

Veraguth seeks the protection of his right to a notice of all meetings of the board of
directors, and prays that the officers impleaded be required to perform their duties
in accordance with the law. It is obvious that if the officers should again fail to
notify Veraguth of any meeting of the board of directors, corporation had a right to see
it.

DISPOSITIVE

The petition is DENIED.

Gonzales vs PNB 122 SCRA 489

FACTS:

Gonzales instituted a suit, as a taxpayer, against Sec. of Public Works and Communications,
the Commissioner of Public Highways, and PNB for alleged anomalies committed regarding the
banks extension of credit to import public works equipment intended for the massive
development program. The petitioners standing was questioned because he did not owned
any share in PNB. Consequently, Petitioner bought 1 share of PNB stocks in order to gain
standing as a stockholder.

Petitioner thereafter sought to inquire and ordered PNB to produce its books and records which
the Bank refused, invoking the provisions from its charter created by Congress. The petitioner
filed petition for mandamus to compel PNB to produce its books and records. The RTC
dismissed the petition and it ruled that the right to examine and inspect corporate books is not
absolute, but is limited to purposes reasonably related to the interest of the stockholder, must
be asked for in good faith for a specific and honest purpose and not gratify curiosity or for
speculative or vicious purposes; that such examination would violate the confidentiality of the
records of the respondent bank as provided in Section 16 of its charter, Republic Act No. 1300,
as amended; and that the petitioner has not exhausted his administrative remedies.

ISSUE:

Whether or not Petitioner may compel PNB to produce its books and records

HELD:

No. As may be noted from the Sec 74 BP Blg. 68, among the changes introduced in the new
Code with respect to the right of inspection granted to a stockholder are the following the
records must be kept at the principal office of the corporation; the inspection must be made
on business days; the stockholder may demand a copy of the excerpts of the records or
minutes; and the refusal to allow such inspection shall subject the erring officer or agent of the
corporation to civil and criminal liabilities. However, while seemingly enlarging the right of
inspection, the new Code has prescribed limitations to the same. It is now expressly required
as a condition for such examination that the one requesting it must not have been guilty of
using improperly any information through a prior examination, and that the person asking for
such examination must be "acting in good faith and for a legitimate purpose in making his
demand."

Although the petitioner has claimed that he has justifiable motives in seeking the inspection of
the books of the respondent bank, he has not set forth the reasons and the purposes for which
he desires such inspection, except to satisfy himself as to the truth of published reports
regarding certain transactions entered into by the respondent bank and to inquire into their
validity. The circumstances under which he acquired one share of stock in the respondent
bank purposely to exercise the right of inspection do not argue
G.R. No. 142474. August 18, 2005

R.N. SYMACO TRADING CORPORATION and/or NORMA SYMACO, ESTATE OF MARIANO

GUISON, Petitioners,
vs.
LUISITO T. SANTOS, for and in behalf of the MALABON FISH BROKERS ASSOCIATION,
INC., Respondent.

Facts:

Respondent (MFBAI) is a non-stock corporation engaged in the business of buying and selling
fish and other marine products. MFBAI executed a contract of lease with Mariano Guison as
lessor for a period of ten years, renewable on such terms as agreed upon the parties. Upon
the death of Mariano Guison, Norma Symaco who was also a member of the MFBAI Board of
Directors, and the President and Chairman of the Board of Directors of petitioner executed an
unnotarized contract of lease over the property previously leased to MFBAI.

Respondent Santos as an MFBAI member and as a nominal party filed a complaint for the
annulment of the Contract of Lease between the Hrs of Mariano Guison and defendant Symaco
in behalf of the MFBAI. In their answer to the complaint, petitioners alleged that Santos was
has no standing to file the complaint in behalf of the corporation.

Issue:

Whether or not plaintiff Santos cannot bring a derivative suit for and in behalf of the MFBAI?

Ruling:

The court agreed with the petitioners contention that Santos is not a legitimate MFBAI
member. The evidence on record showing the he paid the membership fee and his monthly
dues and certification issued by Lino Buhain that he is a member is not sufficient to qualify him
as such member under the By-laws of respondent MFBAI.

One of the requisites of a derivative suit is that the party bringing the suit should be a
stockholder/member at the time of the action or transaction complained of. The right to sue
derivatively is an attribute of corporate ownership which, to be exercised, requires that the
injury alleged be indirect as far as the stockholders/members are concerned, and direct only
insofar as the corporation is concerned. The whole purpose of the law authorizing a derivative
suit is to allow the stockholder/member to enforce rights which are derivative (secondary) in
nature. A derivative action is a suit by a shareholder/member to enforce a corporate cause of
action.

It is enough that a member or a minority of such members file a derivative suit for and in
behalf of the corporation. After all, the members/stockholders who filed a derivative suit are
merely nominal parties, the real party-in-interest being the corporation itself for and in whose
behalf the suit is filed. Any monetary benefits under the decision of the court shall pertain to
the corporation.
Chua v. Court of Appeals, G.R. No. 150793, November 19, 2004

Facts:

Petitioner Chua allegedly falsified the Minutes of the Annual Stockholders meeting of the Board
of Directors of the Siena Realty Corporation, wherein respondent Hao is a stockholder. Thus,
she filed a criminal complaint for falsification before the MeTC. In that proceeding, petitioner
argued for the exclusion of Haos private counsel since no civil liability was proved. The MeTC
ruled in favor of petitioner. Aggrieved, respondent filed a petition for certiorari before the RTC,
this time including the Siena Realty Corporation as petitioner. The RTC reversed the MeTC. On
appeal, the CA sustained the RTC. Before the SC, petitioner argued that (1) respondent had no
personality to file petition for certiorari before the SC, on behalf of the corporation, absent any
board authorization; (2) in any event, the corporation cannot be a proper party therein since it
did not participate in the criminal case before the MeTC; and (3) Haos private counsel cannot
participate in the said criminal case because the offense charged (falsification of the Minutes
of the Meeting) does not provide for civil indemnity in the Revised Penal Code. For its part,
respondent replied that (1) the petition for certiorari is a derivative suit and hence she can file
it without authorization from the officers of the corporation; (2) the corporation is a proper
party since its own documents were forged; and (3) since no separate civil case was filed, the
private counsel of respondent can prosecute the civil indemnity, which is deemed instituted in
the criminal case.

Issues:

(1) Is the Petition for Certiorari before the RTC a derivative suit?

(2) Is the Corporation a proper party to the certiorari notwithstanding that it did not participate
in the MeTC criminal case for falsification?

(3) Should respondents private counsel be excluded in the criminal case?

Ruling:

(1) The Petition for Certiorari is not a derivative suit. For a derivative suit to prosper, it is
required that the minority stockholder suing for and on behalf of the corporation must allege in
his complaint that he is suing on a derivative cause of action on behalf of the corporation and
all other stockholders similarly situated who may wish to join him in the suit. In the criminal
complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf
and for the benefit of the corporation.

(2) Nevertheless, the Corporation is a proper party to the certiorari case. A party-in-interest or
those aggrieved may file certiorari cases. Although, the corporation was not a complainant in
the criminal action, the subject of the falsification was the corporation's project and the
falsified documents were corporate documents. Hence, it is an aggrieved party.

(3) Every man criminally liable is also civilly liable. Rule 111(a) of the Rules of Criminal
Procedure provides that, when a criminal action is instituted, the civil action arising from the
offense charged shall be deemed instituted with the criminal action unless the offended party
waives the civil action, reserves the right to institute it separately, or institutes the civil action
prior to the criminal action. Private respondent did not waive the civil action, nor did she
reserve the right to institute it separately, nor institute the civil action for damages arising
from the offense charged. Thus, the private prosecutors can intervene in the trial of the
criminal action.
Chua v. Court of Appeals, G.R. No. 150793, November 19, 2004

Facts:

Petitioner Chua allegedly falsified the Minutes of the Annual Stockholders meeting of the Board
of Directors of the Siena Realty Corporation, wherein respondent Hao is a stockholder. Thus,
she filed a criminal complaint for falsification before the MeTC. In that proceeding, petitioner
argued for the exclusion of Haos private counsel since no civil liability was proved. The MeTC
ruled in favor of petitioner. Aggrieved, respondent filed a petition for certiorari before the RTC,
this time including the Siena Realty Corporation as petitioner. The RTC reversed the MeTC. On
appeal, the CA sustained the RTC. Before the SC, petitioner argued that (1) respondent had no
personality to file petition for certiorari before the SC, on behalf of the corporation, absent any
board authorization; (2) in any event, the corporation cannot be a proper party therein since it
did not participate in the criminal case before the MeTC; and (3) Haos private counsel cannot
participate in the said criminal case because the offense charged (falsification of the Minutes
of the Meeting) does not provide for civil indemnity in the Revised Penal Code. For its part,
respondent replied that (1) the petition for certiorari is a derivative suit and hence she can file
it without authorization from the officers of the corporation; (2) the corporation is a proper
party since its own documents were forged; and (3) since no separate civil case was filed, the
private counsel of respondent can prosecute the civil indemnity, which is deemed instituted in
the criminal case.

Issues:

(1) Is the Petition for Certiorari before the RTC a derivative suit?

(2) Is the Corporation a proper party to the certiorari notwithstanding that it did not participate
in the MeTC criminal case for falsification?

(3) Should respondents private counsel be excluded in the criminal case?

Ruling:

(1) The Petition for Certiorari is not a derivative suit. For a derivative suit to prosper, it is
required that the minority stockholder suing for and on behalf of the corporation must allege in
his complaint that he is suing on a derivative cause of action on behalf of the corporation and
all other stockholders similarly situated who may wish to join him in the suit. In the criminal
complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf
and for the benefit of the corporation.

(2) Nevertheless, the Corporation is a proper party to the certiorari case. A party-in-interest or
those aggrieved may file certiorari cases. Although, the corporation was not a complainant in
the criminal action, the subject of the falsification was the corporation's project and the
falsified documents were corporate documents. Hence, it is an aggrieved party.

(3) Every man criminally liable is also civilly liable. Rule 111(a) of the Rules of Criminal
Procedure provides that, when a criminal action is instituted, the civil action arising from the
offense charged shall be deemed instituted with the criminal action unless the offended party
waives the civil action, reserves the right to institute it separately, or institutes the civil action
prior to the criminal action. Private respondent did not waive the civil action, nor did she
reserve the right to institute it separately, nor institute the civil action for damages arising
from the offense charged. Thus, the private prosecutors can intervene in the trial of the
criminal action.
BENEDICTO HORNILLA and ATTY. FEDERICO D. RICAFORT, complainants, vs. ATTY.
ERNESTO S. SALUNAT, respondent.

Facts:

This is an administrative case filed by Benedicto Hornilla and Federico Ricafort against Atty.
Ernesto Salunat for illegal and unethical practice and conflict of interest.

Complainants alleged that respondent is a member of the ASSA Law and Associates,
which was the retained counsel of the Philippine Public School Teachers Association (PPSTA).
Complainants, who are members of the PPSTA, filed an intra-corporate case against its
members of the Board of Directors before the Securities and Exchange Commission, which was
docketed as SEC Case No. 05-97-5657, and a complaint before the Office of the Ombudsman,
docketed as OMB Case No. 0-97-0695, for unlawful spending and the undervalued sale of real
property of the PPSTA. Respondent entered his appearance as counsel for the PPSTA Board
members in the said cases. Complainants contend that respondent was guilty of conflict of
interest because he was engaged by the PPSTA, of which complainants were members, and
was being paid out of its corporate funds where complainants have contributed. Despite being
told by PPSTA members of the said conflict of interest, respondent refused to withdraw his
appearance in the said cases.

In his Answer, respondent stressed that he entered his appearance as counsel for the
PPSTA Board Members for and in behalf of the ASSA Law and Associates. Respondent claims
that it was complainant Atty. Ricafort who instigated, orchestrated and indiscriminately filed
the said cases against members of the PPSTA and its Board. He denied that he ensured the
victory of the PPSTA Board in the case he was handling. He merely assured the Board that the
truth will come out and that the case before the Ombudsman will be dismissed for lack of
jurisdiction, considering that respondents therein are not public officials, but private
employees. Anent the SEC case, respondent alleged that the same was being handled by the
law firm of Atty. Eduardo de Mesa, and not ASSA.

Issue:

Whether or not respondent was guilty of violating Rule 15.03 of the Code of Professional
Responsibility (CPR) when he represented the assailed directors of the corporation of which he
is a retained counsel.

Held:

Rule 15.03 of the CPR mandates: A lawyer shall not represent conflicting interests
except by written consent of all concerned given after a full disclosure of the facts.

There is conflict of interest when a lawyer represents inconsistent interests of two or

more opposing parties. The test is "whether or not in behalf of one client, it is the lawyers duty
to fight for an issue or claim, but it is his duty to oppose it for the other client. In brief, if he
argues for one client, this argument will be opposed by him when he argues for the other
client.

In other jurisdictions, the prevailing rule is that a situation wherein a lawyer represents
both the corporation and its assailed directors unavoidably gives rise to a conflict of interest.
The interest of the corporate client is paramount and should not be influenced by any interest
of the individual corporate officials. The rulings in these cases have persuasive effect upon us.
Thus, a lawyer engaged as counsel for a corporation cannot represent members of the same
corporations board of directors in a derivative suit brought against them. To do so would be
tantamount to representing conflicting interests, which is prohibited by the CPR.
i