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2. EXPRESS, IMPLIED, INCIDENTAL (read Aquino Issue: (1) w/n the acts of Acoje’s Board of Directors was
pp336-340) ultra vires; (2) w/n its liability is merely that of a
CC PH Held:
Sec. 45. Ultra vires acts of corporations. - No 1. No, the act covers a subject which concerns the
corporation under this Code shall possess or exercise benefit, convenience, and welfare of the company’s
any corporate powers except those conferred by this employees and their families. An ultra vires act if one
Code or by its articles of incorporation and except committed outside the object for which a corporation is
such as are necessary or incidental to the exercise of created as defined by the law of its organization and
the powers so conferred. (n) therefore beyond the powers conferred upon it by law.
However, there are certain corporate acts that may be
performed outside of the scope of the powers expressly
REPUBLIC V. ACOJE MINING CO. conferred if they are necessary to promote the interests
or welfare of the corporation. Establishment of the local
Facts: Acoje Mining wrote the Director of Posts post office is a reasonable and proper adjunct to the
requesting the opening of a post, telegraph and money conduct of the business.
order offices at its mining camp at Zambales for the use
of its employees and their families living in said camp. Moreover, an ultra vires act is merely voidable, in
The Director of Posts obliged on the condition that the contrast to illegal acts which are void. It may be
company assume direct responsibility for whatever enforced by performance, ratification or estoppel. Here
pecuniary loss may be suffered by the Bureau of Posts it is fair that the resolution be upheld at least on the
by reason of any act of dishonesty, carelessness or ground of estoppel since the company at least
negligence on the part of the employee of the company benefited from the transaction.
who is assigned to take charge of the post office.
Board of Directors of Acoje passed a resolution stating 2. No, the terms employed in the resolution are clear
that: and sweeping. Acoje assumed “full responsibility for all
cash received by the Postmaster”. Its liability is that of a
“That the requirement of the Bureau of Posts that the principal.
Company should accept full responsibility for all cash
received by the Postmaster be complied with, and that
a copy of this resolution be forwarded to the Bureau of TERESA ELECTRIC AND POWER CO., INC. vs. PUBLIC
Post Office branch was opened but after five years, the G.R. No. L-21804. September 25, 1967
postmaster, an employee of Acoje, went on a 3-day
leave and never returned. Acoje informed the Manila FACTS: The petitioner Teresa Electric Light and Power
Post Office of the incident and upon making an audit, it Co., Inc. is a domestic corporation operating an electric
was found that 13k was missing. Post Office demanded plant in Teresa, Rizal, under a subsisting certificate of
payment from Acoje Mining and filed a suit with the CFI public convenience and necessity issued on June 2,
Manila 1960, while the respondent Filipinas is likewise a
domestic corporation engaged in the manufacture and
Acoje’s Defenses: Board’s act in assigning a postmaster sale of cement.
was ultra vires; and the company’s liability was merely
that of a guarantor On May 24, 1962, Filipinas filed an application
with the Public Service Commission for a certificate of
CFI ruled in favor of Post Office but awarded only 9k as public convenience to install, maintain and operate an
supported by evidence electric plant in sitio Kaysapon of barrio Pamanaan,
municipality of Teresa, Rizal, for the purpose of
supplying electric power and light to its cement factory
and its employees living within its compound.

to the commencement of the suit, failed to establish a

Petitioner opposed alleging that it is the duly cause of action for a writ of preliminary injunction. The
authorized operator of an electric light, heat and power respondent judge denied the NPC’s motion and issued a
service in Teresa, Rizal and that Filipinas is not TRO after finding that NPC was not empowered by its
authorized by its articles of incorporation to operate an Charter to engage in stevedoring and arrastre services.
electric plant; that the Municipal Council of Teresa had
not authorized it either to operate the proposed service ISSUE: WON the undertaking of stevedoring services is
since Filipinas' principal business does not come within empowered by the NPC’s charter powers.
the jurisdiction of the respondent Commission.
HELD: YES. To carry out the national policy of total
ISSUES: Whether or not under its articles of electrification of the country, the NPC was created and
incorporation Filipinas is authorized to operate and empowered not only to construct, operate and
maintain an electric plant. maintain power plants, reservoirs, transmission lines,
and other works, but also to exercise such powers and
RULING: YES. The Articles of Incorporation of Filipinas do such things as may be reasonably necessary to carry
(paragraph 7) provide for authority to secure from any out the business and purposes for which it was
governmental, state, municipality, or provincial, city or organized, or which, from time to time, may be
other authority, and to utilize and dispose of in any declared by the Board to be necessary, useful,
lawful manner, rights, powers, privileges, franchises and incidental or auxiliary to accomplish said purpose.
concessions — obviously necessary or at least related to
the operation of its cement factory. Moreover, said In determining whether or not an NPC act falls
Articles of Incorporation also provide that the within the purview of the above provision, the Court
corporation may generally perform any and all acts must decide whether or not a logical and necessary
connected with the business of manufacturing Portland relation exists between the act questioned and the
cement or arising therefrom or incidental thereto. corporate purpose expressed in the NPC charter. For if
that act is one which is lawful in itself and not otherwise
It cannot be denied that the operation of an prohibited, and is done for the purpose of serving
electric light, heat and power plant is necessarily corporate ends, and reasonably contributes to the
connected with the business of manufacturing cement. promotion of those ends in a substantial and not in a
Moreover, it has been established in this case that remote and fanciful sense, it may be fairly considered
petitioner was in no condition to supply the power within the corporation's charter powers.
needs of Filipinas, because its load capacity was only
200 kilowatts while Filipinas was in need of 6,000
Kilowatts power to operate its cement factory.

G.R. NO. 83558; FEBRUARY 27, 1989 G.R. No. L-36207. October 26, 1932

FACTS: Sea Lion International Port Services, private FACTS: The Mindoro Sugar Company is a corporation
respondent, filed a complaint for prohibition and constituted in accordance with the laws of the country
mandamus against petitioner NPC alleging that it had and registered on July 30, 1917. According to its articles
acted in bad faith in not renewing its contract for of incorporation, one of its principal purposes was to
stevedoring services for its plant and in taking over its acquire and exercise the franchise granted by Act No.
stevedoring services. Respondent judge issued a 2720 to George H. Fairchild, to substitute the organized
restraining order against NPC enjoining the latter from corporation, the Mindoro Company, and to acquire all
undertaking stevedoring services at its pier. the rights and obligations of the latter and of Horace
Consequently, NPC filed an "Urgent Motion" to dissolve Havemeyer and Charles J. Welch in the so-called San
the restraining order, asserting that respondent judge Jose Estate in the Province of Mindoro.
had no jurisdiction to issue the order and private
respondent, whose contract with NPC had expired prior

The Philippine Trust Company is another business, made in connection with their sale, are not
domestic corporation, registered on October 21, 1917. ultra vires, and are binding.
In its articles of incorporation, some of its purposes are
expressed thus: "To acquire by purchase, subscription,
or otherwise, and to invest in, hold, sell, or otherwise THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on
dispose of stocks, bonds, mortgages, and other relation of the Attorney-General) vs. EL HOGAR
securities, or any interest in either, or any obligations or FILIPINO
evidences of indebtedness, of any other corporation or G.R. No. L-26649 July 13, 1927
corporations, domestic or foreign.
FACTS: This case has 17 causes of action proceeded by
In pursuance of this resolution, the Mindoro the Government of the Philippines through Quo
Sugar Company executed in favor of the Philippine Trust Warranto alleging that El Hogar Filipino, a corporation
Company the deed of trust transferring all of its organized as a mutual building and loan association
property to it in consideration of the bonds it had issued under the provisions of the Corporation Law, has
to the value of P3,000,000. violated or went beyond its stated primary purposes for
mutual building and loan associations. Under
The Philippine Trust Company sold thirteen Corporation Law Section 171 to 190, inclusive, of this
bonds, Nos. 1219 to 1231, to Ramon Diaz for P27,300, Act are devoted to the subject of building and loan
at a net profit of P100 per bond. The four bonds Nos. associations, defining their objects making various
1219, 1220, 1221, and 1222, here in litigation, are provisions governing their organization and
included in the thirteen sold to Diaz. The Philippine administration, and providing for the supervision to be
Trust Company paid the appellant, upon presentation of exercised over them.. The respondent, El Hogar Filipino,
the coupons, the stipulated interest from the date of was apparently the first corporation organized in the
their maturity until the 1st of July, 1928, when it Philippine Islands under the provisions cited, and the
stopped payments; and thenceforth it alleged that it did association has been favored with extraordinary
not deem itself bound to pay such interest or to redeem success. The articles of incorporation bear the date of
the obligation because the guarantee given for the December 28, 1910, at which time capital stock in the
bonds was illegal and void. association had been subscribed to the amount of
P150,000 of which the sum of P10,620 had been paid in.
ISSUE: Whether or not Philippine Trust Company Under the law as it then stood, the capital of the
bound itself legally and acted within its corporate Association was not permitted to exceed P3,000,000,
powers in guaranteeing the four bonds in question. but by Act No. 2092, passed December 23, 1911, the
statute was so amended as to permit the capitalization
RULING: YES. The Philippine Trust Company has full of building and loan associations to the amount of ten
powers to acquire personal property such as the bonds millions. Soon thereafter the association took
in question. Being authorized to acquire the bonds, it advantage of this enactment by amending its articles so
was given implied power to guarantee them in order to as to provide that the capital should be in an amount
place them upon the market under better, more not exceeding the then lawful limit. From the time of its
advantageous conditions, and thereby secure the profit first organization the number of shareholders has
derived from their sale. It is not, however, ultra vires for constantly increased, with the result that on December
a corporation to enter into contracts of guaranty or 31, 1925, the association had 5,826 shareholders
suretyship where it does so in the legitimate holding 125,750 shares, with a total paid-up value of
furtherance of its purposes and business. And it is well P8,703,602.25. During the period of its existence prior
settled that where a corporation acquires commercial to the date last above-mentioned the association paid
paper or bonds in the legitimate transaction of its to withdrawing stockholders the amount of
business it may sell them, and in furtherance of such a P7,618,257,.72; and in the same period it distributed in
sale it may, in order to make them the more readily the form of dividends among its stockholders the sum
marketable, indorse or guarantee their payment. of P7,621,565.81.

Guaranties of payment of bonds taken by a loan As one of the causes of action, the respondent
and trust company in the ordinary course of its is charged with having a provision in its by-laws stating

that “The board of directors of the association, by the Michigan, with power to build a road in that State, and
vote of an absolute majority of its members, is the other by the legislature of Indiana, with power to
empowered to cancel shares and to return to the owner build one in that State. They both insist that they had no
thereof the balance resulting from the liquidation right or power under their respective charters to
thereof whenever, by reason of their conduct, or for consolidate their business in the manner stated, and
any other motive, the continuation as members of the especially that they could not legally, either separately
owners of such shares is not desirable”. or jointly, acquire the possession and use of a
connecting road in the State of Illinois and undertake to
ISSUE: Whether or not the provision of the by-laws carry passengers or freight over the same.
They do not deny that their boards of directors and
RULING: YES. The by-law is of course a patent nullity, agents, duly authorized to wield all the powers which
since it is in direct conflict with the latter part of section the corporations themselves possessed, entered into
187 of the Corporation Law, which expressly declares the arrangements which have been mentioned, nor
that the board of directors shall not have the power to that, in the execution of those arrangements, they
force the surrender and withdrawal of unmatured stock made the contract with the plaintiff to carry him as a
except in case of liquidation of the corporation or of passenger; nor do they deny that they received the
forfeiture of the stock for delinquency. It is agreed that benefit of that contract in the customary fare which he
this provision of the by-laws has never been enforced, paid. Their defense is, simply and purely, that they
and in fact no attempt has ever been made by the transcended their own powers and violated their own
board of directors to make use of the power therein organic laws. On this ground they insist that their
conferred. It appears, however, that no annual meeting business was not, in judgment of law, consolidated; that
of the shareholders called since that date has been they did not use and operate a road in Illinois; that they
attended by a sufficient number of shareholders to did not undertake to carry the plaintiff over it; and did
constitute a quorum, with the result that the provision not, by their negligence, cause the injury of which he
referred to has no been eliminated from the by-laws, complains; but that all these acts and proceedings were,
and it still stands among the by-laws of the association, in legal contemplation, the acts and proceedings of the
notwithstanding its patent conflict with the law. natural persons who were actually engaged in
promoting the same.
ISSUE: WON respondents may interpose the violation of
BISSELL V. THE MICHIGAN SOUTHERN N. IND. RD. their own charters to shield them from responsibility?
COMPANIES HELD: NO. Such a defense is shocking to the moral
FACTS: The two corporations-defendants were jointly This doctrine of theoretical perfection in corporations
engaged in the business of carrying passengers and would convert them practically into most mischievous
freight between Chicago and Lake Erie, through a part monsters.
of the State of Illinois, and through the States of Indiana
and Michigan, by three connected railroads which they Doctrine of theoretical perfection - Every violation of
owned or controlled, and the business of which was their charter or assumption of unauthorized power on
managed under a consolidated arrangement which had the part of their officers, although with the full
been in force between the defendants for some time approbation of their directors, is to be considered the
previous to the injury complained of. act of the officers, and is not to prejudice the
corporation itself. There would be no possibility of ever
They undertook and assumed to carry the plaintiff as a convicting a corporation of exceeding its powers.
passenger from Chicago, or a point near that place, that Corporations are said to be clothed with certain powers
he took his seat in their cars accordingly, and that enumerated in their charters or incidental to those
during the transit he was injured by an accident which which are enumerated, and it is also said they cannot
happened through their carelessness and neglect. exceed those powers.

Defendants deny liability on the ground that one of the When we speak of the powers of a corporation, the
companies was chartered by the legislature of term only expresses the privileges and franchises which

are bestowed in the charter; and when we say it cannot Lourdes de la Rama wrote secretary of the
exercise other powers, the just meaning of the language corporation, Atty. Marcial Lichauco, asking him to
is, that as the attempt to do so is without authority of cancel the waiver she supposedly gave of her pre-
law, the performance of unauthorized acts is a emptive rights.
usurpation which may be a wrong to the State, or, The company ammended the resolution turning it
perhaps, to the shareholders. But the usurpation is into a loan with 5% interest payable when the
possible. In the same sense, natural persons are under obligation can be met
the restraints of law, but they may transgress the law, The company revoked its donation of the life
and when they do so they are responsible for their acts. premium proceeds since it is not in compliance with the
From this consequence corporations are not wholly SEC
exempt. Minor children of the late Enrico represented by their
mother and judicial guardian demanded the payment of
The contract of the defendants to transport the the credit due them as of December 31, 1951,
plaintiffs from Chicago to Toledo was illegal and void, amounting to P564,980.89
they having, as we have seen, no power under their RTC: contract or donation is not ultra vires
charters to enter into the engagement for running their
cars on joint account between those two places. It does ISSUE: W/N corporation donation of the proceeds of
not follow, however, that they are not liable to the insurance policies is an ultra vires act
plaintiff in this action.
HELD: NO. valid and binding
The plaintiff's claim, rests not upon his contract, but
upon the right which every man has to be protected remunerative donation
from injury through the carelessness of others, whether That which is made to a person in consideration of
artificial or natural person. his merits or for services rendered to the donor,
provided they do not constitute recoverable debts, or
that in which a burden less than the value of the thing
PIROVANO V. DE LA RAMA STEAMSHIP CO., INC (1954) given is imposed upon the donee, is also a donation."
G.R. NO. L-5377. DECEMBER 29, 1954 (Art. 619, old Civil Code)
LESSONS APPLICABLE: RATIFICATION OF ULTRA VIRES In donations made to a person for services
ACTS (CORPORATE LAW) rendered to the donor, the donor's will is moved by acts
which directly benefit him. The motivating cause is
FACTS: gratitude, acknowledgment of a favor, a desire to
compensate. (Sinco and Capistrano, The Civil Code, Vol.
Enrico Pirovano, president of the defendant 1, p. 676; Manresa, 5th ed., pp. 72-73.)
company, managed the companyuntil it became a Donation has reached the stage of perfection which is
multi-million corporation by the time Pirovano was valid and binding upon the corporation and as such
executed by the Japanese during the occupation. cannot be rescinded unless there is exists legal grounds
BOD Resolution: Out of the proceeds, the sum of for doing so. Donation was embodied in a resolution
P400,000 be set aside for equal division among the 4 duly approved by the Board of Directors on January 6,
minor children, convertible into shares of stock of the 1947
De la Rama Steamship Company, at par and, for that
purpose, that the present registered stockholders of the July 25, 1949: BOD approved the proposal of Mrs.
corporation be requested to waive their preemptive Pirovano to buy the house at New Rochelle, New York,
right to 4,000 shares of the unissued stock of the owned by a subsidiary of the corporation at the costs of
company in order to enable each of the 4 minor heirs to S75,000 .
obtain 1,000 shares at par
if the Pirovano children would given shares of stock, 2 reasons given for the rescission of donation in the
the voting strength of the 5 daughters of Don Esteban resolution of the corporation adopted on March 8, 1951
would be adversely affected - Mrs. Pirovano would have - valid and legal as to justify the rescission
a voting power twice that of her sisters


 corporation failed to comply with the assumed by Esteban de la Rama. She claims that the
conditions to which the above donation was advances made to her by appellees were debited from
made subject the account of Hijos de I. de la Rama, another
 in the opinion of the Securities and Exchange corporation practically owned by Esteban de la Rama.
Commission said donation is ultra vires She further claims that the appellee can only deduct
from the amount of dividend she is entitled to, the
articles of incorporation contain: amount of cash advances which was not assumed by
To invest and deal with the moneys of the company her father. The withdrawals by the appellant were
and immediately required, in such manner as from time made during the period 1940 to 1949 during which the
to time may be determined. appellee made a deed of trust with Hijos. The deed of
trust was made to circumvent the prohibition of
To aid in any other manner any person, association, declaring dividends during the period.
or corporation of which any obligation or in which any
interest is held by this corporation or in the affairs or ISSUE: Whether or not the donation made by the
prosperity of which this corporation has a lawful corporation of the proceeds of the insurance is a valid
interest. act.

By ratification the infirmity of the corporate act has

been obliterated thereby making it perfectly valid and RULING: YES. Even assuming that the donation was ultra
enforceable. This is specially so if the donation is not vires, still it cannot be invalidated or declared legally
merely executory but executed and consummated and ineffective for that reason alone, it appearing that the
no creditors are prejudice, or if there are creditors donation represents not only the act of the Board but
affected, the latter has expressly given their confirmity also that of the stockholders themselves since they
expressly ratified the resolution. By this ratification, the
infirmity of the corporate act, if any, has been
MARIA CLARA PIROVANO ET AL. vs. THE DE LA RAMA obliterated thereby making the act perfectly valid and
STEAMSHIP CO. enforceable, especially so if the donation is not merely
G.R. No. L-5377. December 29, 1954 executory but consummated. The defense of ultra vires
cannot be set up against completed or consummated
FACTS: Plaintiffs herein are the minor children of the transactions.
late Enrico Pirovano represented by their mother and An ultra vires act may either be an act
judicial guardian Estefania R. Pirovano. They seek to performed merely outside the scope of the powers
enforce certain resolutions adopted by the Board of granted to the corporation by its AOI or one which is
Directors and stockholders of the defendant company contrary to law or violative of any principle which would
giving to said minor children of the proceeds of the void any contract. A distinction has to be made with
insurance policies taken on the life of their deceased respect to corporate acts which are illegal and those
father Enrico Pirovano with the company as beneficiary. merely ultra vires. The former are contrary to law,
Defendant's main defense is: that said resolutions and morals, public order or policy, while the latter are not
the contract executed pursuant thereto are ultra vires, void ab initio, but merely go beyond the scope of the
and, if valid, the obligation to pay the amount given is powers in the AOI, and which renders the act merely
not yet due and demandable. voidable and thus can be ratified by the stockholders.
Plaintiff-appellant Pirovano is the owner of The defendant corporation, therefore, is now
3424 shares of stocks in defendant-appellee prevented or estopped from contesting the validity of
Corporation which declared a dividend of P100 per the donation. This is especially so in this case when the
share. Appellant wants to recover from appellee the very directors who conceived the idea of granting said
sum of P221, 975 after deducting the sum of P120, 424 donation are practically the stockholders themselves,
which she had withdrawn or received from appellee for with few nominal exceptions.
advances she received after the death of her father, the
late Esteban de la Rama.
Appellant’s theory is that the cash advances to HARDEN VS. BENGUET MINING
her for her personal use and that of her children were

GR NO. L-37331 to mining corporations: “it shall be unlawful for any

MARCH 18, 1933 member of a corporation engaged in agriculture or
mining and for any corporation organized for any
purpose except irrigation to be in any wise
interested in any other corporation engaged in
 BENGUET CONSOLIDATED MINING was organized in agriculture or in mining.”
June 1903 as a sociedad anonima in conformity
with Spanish Law. BALATOC MINING CO. was
ISSUES: (1) WON Harden et al can maintain an action
organized in December 1925 as corporation in
conformity with Act. 1459 (Corporation Law). based upon the violation of law supposedly committed
Harden et al. are stockholders of Balatoc Mining. by Benguet Company; (2) If Benguet Company
 When Balatoc Mining first organized the properties committed a violation, WON Benguet Company
it acquired were largely undeveloped and the (sociedad anonima) is a corporation within the meaning
original stockholders were unable to supply the of the language used by US Congress and later by
means needed for profitable operation. (In short, Philippine Congress, prohibiting mining corporations
naglisud ang corporation). In order to solve such
from becoming interested in another mining
problem, the company’s stockholders appointed a
committee for the purpose of interesting outside corporation
capital in the mine. By authority of a resolution of
the board of directors, the committee approached RULING: (1) WON Harden et al can maintain an action
A.W. Beam, president & general manager of based upon the violation of law supposedly committed
Benguet Company in order to secure capital by Benguet Company
necessary to the development of the Balatoc
 A contract was signed between the 2 companies
which provide that BENGUET COMPANY was to against the plaintiffs, and if a public wrong has been
proceed with the development of the Balatoc committed, the directors of the Balatoc Company, and
property and in return BENGUET COMPANY would Harden himself were the active inducers of the
receive from BALATOC COMPANY shares of par commission of that wrong. THE CONTRACT WAS
value of P600,000 in payment for the first P600,000 PERFORMED ON BOTH SIDES: by the building of the
be thus advanced to it by Benguet company.
Balatoc plant by the Benguet Company and the delivery
 The total cost incurred by BENGUET COMPANY in
to the latter of the certificate of 600,000 shares of the
developing the Balatoc property was P1,417,952.15.
In compensation for this work, a certificate for Balatoc Company.
P600,000 shares of stock of BALATOC COMPANY
was given to BENGUET COMPANY and the excess The penalties imposed on what is now Sec. 190 (A) of
value was paid to Benguet by Balatoc in cash. the Corporation Law for the violation of the prohibition
 Due to the improvements made on the company’s in question are of such nature that they can be
property, the value of the shares of BALATOC enforced only by a criminal prosecution or by an action
increased in the market (from P1.00 to P11.00) and
of quo warranto. However these proceedings can be
the dividends of the company enriched its
stockholders. As soon as the success of the maintained only by the Attorney General in
company became apparent, Harden (owner of representation of the government.
thousands of shares of Balatoc) questioned the
transfer of 600,000 shares to Benguet. Harden 2. If Benguet Company committed a violation, WON
seeks to annul the certificate covering the 600,000 Benguet Company (sociedad anonima) is a corporation
shares of stock transferred to Benguet.
within the meaning of the language used by US
 Main argument of Harden: It is unlawful for the
Congress and later by Philippine Congress, prohibiting
Benguet Company to hold any interest in a mining
corporation because in the former Corporation Law mining corporations from becoming interested in
(Act of Congress 1916) there is a provision referring another mining corporation

paragraph (5) of section 13 of the Act. The Philippine

Since the plaintiffs have no right of action against Legislature undertook to remedy this situation in
Benguet Company, the COURT REFUSED TO GO section 3 of Act No. 2792 of the Philippine Legislature,
FURTHER INTO THE QUESTION AS TO WHETHER A approved on February 18, 1919, but this provision was
SOCIEDAD ANONIMA CREATED UNDER SPANISH LAW declared invalid by this court in Government of the
(Bengeut Company) IS A CORPORATION WITHIN THE Philippine Islands vs. El Hogar Filipino (50 Phil., 399), for
PROHIBITORY PROVISION, lack of an adequate title to the Act. Subsequently the
Legislature reenacted substantially the same penal
Sociedad Anonima is much like the English joint stock provision in section 21 of Act No. 3518, under a title
company with features resembling those of a sufficiently broad to comprehend the subject matter.
partnership. Since it was the intention of Congress to This part of Act No. 3518 became effective upon
simulate the introduction of American Corporation into approval by the Governor-General, on December 3,
Philippine law in place of sociedad anonima, it was 1928, and it was therefore in full force when the
necessary to make certain adjustments resulting from contract now in question was made.
the continued co-existence for a time, of the 2 forms of
commercial entities. Accordingly, in section 75 of the This provision was inserted as a new section in the
Corporation Law, a provision is found making the Corporation Law, forming section 190 (A) of said Act as
sociedad anonima subject to the provisions of the it now stands. Omitting the proviso, which seems not to
Corporation Law "so far as such provisions may be be pertinent to the present controversy, said provision
applicable", and giving to the sociedades anonimas reads as follows:
previously created in the Islands the option to continue SEC. 190 (A). Penalties. — The violation of any of the
business as such or to reform and organize under the provisions of this Act and its amendments not
provisions of the Corporation Law. Again, in section 191 otherwise penalized therein, shall be punished by a
of the Corporation Law, the Code of Commerce is fine of not more than five thousand pesos and by
repealed in so far as it relates to sociedades anonimas. imprisonment for not more than five years, in the
The purpose of the commission in repealing this part of discretion of the court. If the violation is committed
the Code of Commerce was to compel commercial by a corporation, the same shall, upon such violation
entities thereafter organized to incorporate under the being proved, be dissolved by quo warranto
Corporation Law, unless they should prefer to adopt proceedings instituted by the Attorney-General or by
some form or other of the partnership. any provincial fiscal by order of said Attorney-
General: . . . .

The provision in Section 75 of the Act Congress of July 1, Sort of Historical Background of Introduction of
1902 (Philippine Bill), generally prohibiting corporations “Corporations” into the Philippines:
engaged in mining and members of such from being  When the Philippines passed to the sovereignty of
interested in any other corporation engaged in mining, the US, Philippine Commission was drawn to the
was amended by section 7 of Act No. 3518 of the fact that there is no entity in Spanish law which
Philippine Legislature, approved by Congress March 1, exactly corresponded to the notion of corporation
in English and American law.
 Philippine Congress thus enacted a general law
authorizing the creation of Corporation Law (Act
As originally drawn, our Corporation Law (Act No. 1459) No. 1459). The purpose of the commission was to
did not contain any appropriate clause directly introduce the American corporation into the
penalizing the act of a corporation, a member of a Philippines as a standard of commercial entity. The
corporation, in acquiring an interest contrary to statute is a codification of American corporate law.


incorporation for a term not to

exceed fifty years in any one
o “Provided, however, That should the
amendment consist in extending the
1. Extend of shorten corporate life corporate life, the extension shall not
Sec. 37. Power to extend or shorten corporate term. - A exceed fifty years in any one instance:
private corporation may extend or shorten its term as Provided, further, That the original
stated in the articles of incorporation when approved articles, and amended articles together
by a majority vote of the board of directors or trustees shall contain all provisions required by
law to be set out in the articles of
and ratified at a meeting by the stockholders
representing at least two-thirds (2/3) of the outstanding  At a special meeting, Alhambra's BOD
capital stock or by at least two-thirds (2/3) of the resolved to amend the "Fourth" paragraph of
members in case of non-stock corporations. Written its articles of incorporation to extend its
notice of the proposed action and of the time and place corporate life for an additional 50 yrs, or a
of the meeting shall be addressed to each stockholder total of 100 yrs from its incorporation.
or member at his place of residence as shown on the  Alhambra's stockholders, representing more
than 2/3 of its subscribed capital stock,
books of the corporation and deposited to the
voted to approve the foregoing resolution.
addressee in the post office with postage prepaid, or  Alhambra's articles of incorporation as so
served personally: Provided, That in case of extension of amended and certified correct by its
corporate term, any dissenting stockholder may president and secretary and a majority of its
exercise his appraisal right under the conditions BOD, were filed with the SEC.
provided in this code.  SEC, however, returned the amended articles,
ruling that RA 3531 which took effect only
on June 20, 1963, CANNOT be availed of by
Alhambra, because its term of existence had
COMPANY, INC. v SEC already expired when said law took effect. In
GR L-23606 | July 29, 1968 short, no retroactive effect.

FACTS: ISSUE: W/N a corporation may extend its life by

 Alhambra Cigar and Cigarette Manufacturing amendment of its articles of incorporation, effected
Company, Inc. was duly incorporated under during the 3-year statutory period for liquidation,
Philippine laws and it was to exist for 50 when its original term of existence had already
years from incorporation.
 Its term of existence expired on January 15,
1962. On that date, it ceased transacting
business, entered into a state of liquidation. HELD: NO.
 Thereafter, a new corporation, Alhambra  Sec. 77 of the Corporation Code provides:
Industries, Inc., was formed to carry on the Every corporation whose charter expires by
business of Alhambra. its own limitation or is annulled by forfeiture
 Within Alhambra's 3-year statutory period or otherwise, or whose corporate existence
for liquidation, RA 3531 was enacted into for other purposes is terminated in any
law. other manner, shall nevertheless be continued
o It amended Section 18 of the as a body corporate for three years after the
Corporation Law, empowering time when it would have been so dissolved,
domestic private corporations to for the purpose of prosecuting and defending
extend their corporate life beyond suits by or against it and of enabling it
the period fixed by the articles of gradually to settle and close its affairs, to


dispose of and convey its property and to increasing of any bonded indebtedness is to be
divide its capital stock, but NOT for the considered, must be addressed to each stockholder at
purpose of continuing the business for which his place of residence as shown on the books of the
it was established.
corporation and deposited to the addressee in the post
 The privilege given to prolong corporate life
office with postage prepaid, or served personally.
under the amendment must be exercised
BEFORE the expiry of the term fixed in the
articles of incorporation. A certificate in duplicate must be signed by a majority of
 The law gives a certain length of time for the directors of the corporation and countersigned by
the filing of records in this court, and the chairman and the secretary of the stockholders'
provides that the time may be extended by meeting, setting forth:
the court, but under this provision it has
(1) That the requirements of this section have been
uniformly been held that when the time was
complied with;
expired, there is nothing to extend, and that
the appeal must be dismissed. (2) The amount of the increase or diminution of the
 When the articles of a corporation have capital stock;
expired, it is too late to adopt an (3) If an increase of the capital stock, the amount of
amendment extending the life of a capital stock or number of shares of no-par stock
corporation; for, the corporation having thereof actually subscribed, the names, nationalities
expired, this is in effect to create a new
and residences of the persons subscribing, the amount
of capital stock or number of no-par stock subscribed by
 From July 15 to October 28, 1963, when
Alhambra made its attempt to extend its each, and the amount paid by each on his subscription
corporate existence, its original term of fifty in cash or property, or the amount of capital stock or
years had already expired (January 15, number of shares of no-par stock allotted to each stock-
1962). In fact, at the time of the passage of holder if such increase is for the purpose of making
Republic Act 3531, Alhambra's corporate effective stock dividend therefor authorized;
life had already expired. There is no life to
(4) Any bonded indebtedness to be incurred,
created or increased;
(5) The actual indebtedness of the corporation on
2. Increase or decrease capital stock; incur, create or the day of the meeting;
increase bonded indebtedness (6) The amount of stock represented at the
Sec. 38. Power to increase or decrease capital stock; meeting; and
incur, create or increase bonded indebtedness. - No (7) The vote authorizing the increase or diminution
corporation shall increase or decrease its capital stock of the capital stock, or the incurring, creating or
or incur, create or increase any bonded indebtedness increasing of any bonded indebtedness.
unless approved by a majority vote of the board of
directors and, at a stockholder's meeting duly called for Any increase or decrease in the capital stock or the
the purpose, two-thirds (2/3) of the outstanding capital incurring, creating or increasing of any bonded
stock shall favor the increase or diminution of the indebtedness shall require prior approval of the
capital stock, or the incurring, creating or increasing of Securities and Exchange Commission.
any bonded indebtedness. Written notice of the
proposed increase or diminution of the capital stock or One of the duplicate certificates shall be kept on file in
of the incurring, creating, or increasing of any bonded the office of the corporation and the other shall be filed
indebtedness and of the time and place of the with the Securities and Exchange Commission and
stockholder's meeting at which the proposed increase attached to the original articles of incorporation. From
or diminution of the capital stock or the incurring or and after approval by the Securities and Exchange


Commission and the issuance by the Commission of its increase of P200/month and an additional
certificate of filing, the capital stock shall stand allowance of P100/month on top of other benefits.
increased or decreased and the incurring, creating or  On July 29, 1974, by resolution of its stockholders,
MCI reduced its capital stock from 765,000 shares
increasing of any bonded indebtedness authorized, as
to 267,366 shares. This was effected through the
the certificate of filing may declare: Provided, That the distribution of the marketable securities owned by
Securities and Exchange Commission shall not accept the petitioner to its stockholders in exchange for
for filing any certificate of increase of capital stock their shares in an equivalent amount in the
unless accompanied by the sworn statement of the corporation.
treasurer of the corporation lawfully holding office at  On August 22, 1975, by yet another stockholders'
the time of the filing of the certificate, showing that at action, MCI further reduced its authorized
capitalization from 267,366 shares to 110,085
least twenty-five (25%) percent of such increased
shares, again, through the same scheme.
capital stock has been subscribed and that at least  MCI then dismissed about 40 employees, which
twenty-five (25%) percent of the amount subscribed has according to MCI was due to the desire of the
been paid either in actual cash to the corporation or stockholders to phase out the operations of MCI,
that there has been transferred to the corporation and in order to prevent further losses which was
property the valuation of which is equal to twenty-five also the reason why MCI had to reduce its capital
(25%) percent of the subscription: Provided, further, stock on the two mentioned occasions. MCI also
posits that it has no substantial income to speak of,
That no decrease of the capital stock shall be approved
necessitating a retrenchment of its employees and
by the Commission if its effect shall prejudice the rights operations. This drove the Union to file a complaint
of corporate creditors. against MCI with Dept. of Labor.

Non-stock corporations may incur or create bonded  Secretary of Labor: Ruled in favor of the UNION,
indebtedness, or increase the same, with the approval finding the dismissal illegal and ordered MCI to
by a majority vote of the board of trustees and of at reinstate the 40 employees with back wages and
least two-thirds (2/3) of the members in a meeting duly provide the benefits being demanded for by the
Union in the CBA. A clear scrutiny of the financial
called for the purpose.
reports (yearly statements) of MCI reveals that it
had been making substantial profits in the
Bonds issued by a corporation shall be registered with operation. NOTE: They pointed out substantial
the Securities and Exchange Commission, which shall earnings of MCI from dividends in it’s shares in RCC.
have the authority to determine the sufficiency of the  Appeal: Appeal was made to the Office of the
terms thereof. President, which affirmed the decision of the
Secretary, thus this petition. I'm
 Union’s Position: Economic demands by the UNION
MADRIGAL & COMPANY INC. (PETITIONERS) VS. HON. are justified by the persistent increase in the cost of
RONALDO ZAMORA living and the substantial earnings of MCI from
GR L-48237, GR L-49023 1971-1975.
JUNE 30, 1987  MCI Contentions: MCI points that the profits
Facts: reflected in its yearly Statement of Income and
 Madrigal & Company Inc. (MCI) was engaged in the Expenses are dividends from security holdings with
management of Rizal Cement Co. Inc. (RCC). These RCC. MCI claims that it in fact sustained losses and
two companies - MCI and RCC - are sister the profits it earned were in the nature of dividends
companies owned by basically the same "declared on its shareholdings in other companies
stockholders. (i.e. RCC) in the earning of which the employees had
 The Madrigal Central Office Employees Union no participation whatsoever." "Cash dividends,"
(Union) sought for the renewal of its collective according to MCI, "are the absolute property of the
bargaining agreement with MCI – proposing a wage stockholders and cannot be made available for


disposition if only to meet the employees' economic  It clearly emerges from the recorded fact that MCI,
demands.” That by reducing its capital, it is made had overflowing profits from its business operations
evident that it is phasing out its operations, and but confronted with the demand of the union for
that it is losing money and is therefore not wage increases, decided to evade its responsibility
financially capable of providing the Union with its towards the employees by a devised capital
demands. reduction. While the reduction in capital stock
created an apparent need for retrenchment, it was,
Issue: Whether or not the awarding of the additional by all indications, just a mask for the purge of union
benefits on the CBA to the Union and the reinstatement members, who, by then, had agitated for wage
of the dismissed employees are lawful. increases. In the face of the petitioner company's
piling profits, the UNION had the right to demand
for such salary adjustments.
 YES. Petition is DENIED. UNION WINS. Decision of 3. Denial of preemptive right; denial
the Secretary of Labor is affirmed awarding the
Sec. 39. Power to deny pre-emptive right. - All
additional benefits to the employees and their
reinstatement with backwages. stockholders of a stock corporation shall enjoy pre-
 It is incorrect to say that MCI’s profits — in the emptive right to subscribe to all issues or disposition of
form of dividends — are beyond the reach of the shares of any class, in proportion to their respective
Union/Creditors, since MCI had received them as shareholdings, unless such right is denied by the articles
compensation for its management services in favor of incorporation or an amendment thereto: Provided,
of the companies (RCC) it managed as a That such pre-emptive right shall not extend to shares
shareholder thereof. As such shareholder, the
to be issued in compliance with laws requiring stock
dividends paid to it were its own money, which
may then be available for wage increments. It is offerings or minimum stock ownership by the public; or
not a case of a corporation distributing dividends to shares to be issued in good faith with the approval of
in favor of its stockholders, in which case, such the stockholders representing two-thirds (2/3) of the
dividends would be the absolute property of the outstanding capital stock, in exchange for property
stockholders and hence, out of reach by needed for corporate purposes or in payment of a
Union/creditors of the corporation. Here, the previously contracted debt.
petitioner was acting as stockholder itself, and in
that case, the right to a share in such dividends, by
way of salary increases, may not be denied its 4. Sale or other disposition of assets
employees. Sec. 40. Sale or other disposition of assets. - Subject to
 MCI’s capital reduction efforts were, to begin with, the provisions of existing laws on illegal combinations
a subterfuge, a deception as it were, to camouflage and monopolies, a corporation may, by a majority vote
the fact that it had been making profits, and of its board of directors or trustees, sell, lease,
consequently, to justify the mass layoff in its
exchange, mortgage, pledge or otherwise dispose of all
employee ranks, especially of union members. They
were nothing but a premature and plain distribution or substantially all of its property and assets, including
of corporate assets to obviate a just sharing to labor its goodwill, upon such terms and conditions and for
of the vast profits obtained by its joint efforts with such consideration, which may be money, stocks, bonds
capital through the years. It is an unfair labor or other instruments for the payment of money or
practice. other property or consideration, as its board of
 The dividends received by the company are directors or trustees may deem expedient, when
corporate earnings arising from corporate
authorized by the vote of the stockholders representing
investment.” as found by the lower court, MCI had
entered such earnings in its financial statements as at least two-thirds (2/3) of the outstanding capital
profits, which it would not have done if they were stock, or in case of non-stock corporation, by the vote
not in fact profits. of at least to two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the

purpose. Written notice of the proposed action and of of outstanding shares of any class, or of extending or
the time and place of the meeting shall be addressed to shortening the term of corporate existence;
each stockholder or member at his place of residence as 2. In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition of all or
shown on the books of the corporation and deposited
substantially all of the corporate property and assets as
to the addressee in the post office with postage provided in the Code; and
prepaid, or served personally: Provided, That any 3. In case of merger or consolidation.
dissenting stockholder may exercise his appraisal right
under the conditions provided in this Code.
A sale or other disposition shall be deemed to
cover substantially all the corporate property and assets
if thereby the corporation would be rendered incapable
of continuing the business or accomplishing the ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL
purpose for which it was incorporated. PEEA AND SEC VS. COURT OF APPEALS
After such authorization or approval by the MAY 14, 1997 GR 117897
stockholders or members, the board of directors or
trustees may, nevertheless, in its discretion, abandon Facts:
such sale, lease, exchange, mortgage, pledge or other  IDP- Tamano Group alleges that in 1971, Islamic
leaders of all Muslim major tribal groups in the PH
disposition of property and assets, subject to the rights
headed by Dean Cesar Adib Mjul organized and
of third parties under any contract relating thereto, incorporated the ISLAMIC DIRECTORATE OF THE
without further action or approval by the stockholders PHILIPPINES (IDP)
or members. Primary Purpose: To establish an Islamic Center
Nothing in this section is intended to restrict in Quezon City for the construction of:
the power of any corporation, without the authorization 1. Mosque
by the stockholders or members, to sell, lease, 2. Madrasah (Arabic School)
3. Other Religious infrastructures to
exchange, mortgage, pledge or otherwise dispose of
facilitate the effective practive of
any of its property and assets if the same is necessary in Islamic Faith.
the usual and regular course of business of said  Towards the end of 71’, the Libyan government
corporation or if the proceeds of the sale or other donated money to the IDP to purchase a lot
disposition of such property and assets be appropriated Location: Culiat, Tandang Sora
for the conduct of its remaining business. Area: 49,652 sqms.
In non-stock corporations where there are no *Titles (2 lots) of which were registered
under the name of IDP
members with voting rights, the vote of at least a
 In 72’, after the purchase of the land by the Libyan
majority of the trustees in office will be sufficient Government in the name of IDP, Martial Law was
authorization for the corporation to enter into any declared. By reason thereof, members of IDP’s
transaction authorized by this section. Board of Directors flew to the Middle East to escape
political prosecution.
Sec. 81. Instances of appraisal right.- Any stockholder  Subsequently, 2 Muslim groups sprung:
of a corporation shall have the right to dissent and First: Caprizo Group- headed by Engr. Farouk
demand payment of the fair value of his shares in the Caprizo
following instances: Second: Abbas Group- led by Mrs. Zorayda
1. In case any amendment to the articles of Tamano
incorporation has the effect of changing or restricting  Both groups claimed to be the legitimate
the rights of any stockholder or class of shares, or of IDP.
authorizing preferences in any respect superior to those  In line with this, the SEC in a suit between the
contending groups: Declared the elections of both
Carprizo and Abbas Group as IDP Board of Directors

null and void. And that with the nullification of the Tamano Group and that the issues being raised are
election of the 2 contending groups, the approved intra-corporate in nature,jurisdication thereto properly
by-laws which they certified to this Commission pertaining to the SEC.
must necessarily be likewise declared null and void.
 In 1989, without having been properly elected as RTC Ruling: Treated Iglesia ni Cristo as the rightful
new members of the Board of Trustees of IDP, the owner of the properties.
Caprizo Group caused the signing of an alleged o Leticia P. Ligon is hereby ordered to
Board Resolution, which authorized the sale of the produce and/or surrender to plaintiff the
subject property in favor of Iglesia ni Cristo for a owners copy of RT-26521 (170567) and RT-
consideration of P22,343,400.00 as evidenced by a 26520 (176616) in open court for the
Deed of Absolute Sale registration of the Deed of Absolute Sale in
 Two years after, the petitioner 1971 Board of the latters name and the annotation of the
Trustees called the Tamano Group, filed a petition mortgage executed in her favor by herein
before the SEC seeking to declare null and void the defendant Islamic Directorate of the
Deed of Absolute Sale executed by the Caprizo Philippines on the new transfer certificate
Group and INC since the Caprizo Group was not the of title to be issued to plaintiff.
legitimate Board of Trustees of the IDP. o Subsequently, the Order was amended
 Meanwhile, Iglesia ni Cristo pursuant to the its Deed directing Ligon to deliver the Duplicate
of Sale, filed an action for Specific Performance with copies to the Register of Deeds in QC.
damages against the Carpizo Group before the RTC CA: Ligon filed a petition for certiorari with the CA.
to compel the said group to clear the property of however, petition was dismissed.
squatters and deliver complete and full physical  In the meantime, the SEC, on July 5, 1993, finally
possession thereof to Iglesia. Likewise, INC filed a came out with a Decision in SEC Case No. 4012 in
motion in the same case to compel one Mrs. Leticia this wise:
P. Ligon to produce and surrender to the Register 1. Declaring the by-laws submitted by the
of Deeds of Quezon City the owners duplicate copy respondents[21] as unauthorized, and hence, null and
of TCT Nos. RT-26521 and RT-26520 covering the void.
aforementioned two parcels of land, so that the 2. Declaring the sale of the two (2) parcels of
sale in INCs favor may be registered and new titles land in Quezon City covered by the Deed of Absolute
issued in the name of INC. Mrs. Ligon was alleged Sale entered into by Iglesia ni Kristo and the Islamic
to be the mortgagee of the two parcels of land Directorate of the Philippines, Inc. null and void.
executed in her favor by certain Abdulrahman R.T.  INC filed a Motion for Intervention, dated
Linzag and Rowaida Busran-Sampaco claimed to September 7, 1993, in SEC Case No. 4012, but the
be in behalf of the Carpizo Group. same was denied on account of the fact that the
 Few months after, the IDP-Tamano sought to decision of the case had become final and
intervene averring that: executory, no appeal having been taken therefrom.
a. They filed a case before the SEC against Mr.  INC elevated SEC Case No. 4012 to the public
Carpizo who, through false schemes and respondent Court of Appeals by way of a special
machinations, succeeded in executing the civil action for certiorari, docketed as CA-G.R. SP
Deed of Sale between the IDP and Iglesia No. 33295. On October 28, 1994, the court a quo
b. That in said case, the main issue was promulgated a Decision in CA-G.R. SP No. 33295
whether or not the Deed of Sale between granting INCs petition.
IDP and Iglesia is null and void, hence, Issue: WON the CA erred in not uploading the
Intervenors has a legal interest in the jurisdication of the SEC to declare the nullity of the sale.
instant case. WON the sale made by IDP to INC was valid?
 Iglesia ni Cristo’s argument: Opposed the Ruling: Petition was GRANTED. The Decision of the
intervention arguing that the issue sought to be Securities and Exchange Commission dated July 5, 1993
litigated is an intra-corporate dispte which falls in SEC Case No. 4012 is REINSTATED. The Register of
under the jurisdiction of the SEC. Deeds of Quezon City is hereby ordered to cancel the
RTC: Denied Petitioner’s Motion to Intervene on the registration of the Deed of Absolute Sale in the name of
ground of lack of juridical personality of the IDP-

respondent Iglesia Ni Cristo, if one has already been  The Carpizo Group-INC sale is further deemed null
made and void ab initio because of the Carpizo Groups
 There can be no question as to the authority of the failure to comply with Section 40 of the Corporation
SEC to pass upon the issue as to who among the Code pertaining to the disposition of all or
different contending groups is the legitimate Board substantially all assets of the corporation:
of Trustees of the IDP since this is a matter properly Sec. 40. Sale or other disposition of
falling within the original and exclusive jurisdiction assets. - Subject to the provisions of
of the SEC by virtue of Sections 3 and 5(c) of existing laws on illegal combinations
Presidential Decree No. 902-A: and monopolies, a corporation may, by
Section 3. The Commission shall have a majority vote of its board of directors
absolute jurisdiction, supervision and control or trustees, sell, lease, exchange,
over all corporations, partnerships or mortgage, pledge or otherwise dispose
associations, who are the grantees of primary of all or substantially all of its property
franchises and/or a license or permit issued by and assets, including its goodwill, upon
the government to operate in the Philippines terms and conditions and for such
xxx xxx. consideration, which may be money,
xxxxxxxxx stocks, bonds or other instruments for
Section 5. In addition to the regulatory the payment of money or other
and adjudicative functions of the Securities and property or consideration, as its board
Exchange Commission over corporations, of directors or trustees may deem
partnerships and other forms of associations expedient, when authorized by the vote
registered with it as expressly granted under of the stockholders representing at
existing laws and decrees, it shall have original least two-thirds (2/3) of the
and exclusive jurisdiction to hear and decide outstanding capital stock; or in case of
cases involving: non-stock corporation, by the vote of at
c) Controversies in the selection or least two-thirds (2/3) of the members,
appointment of directors, trustees, in a stockholders or members meeting
officers, or managers of such duly called for the purpose. Written
corporations, partnerships or notice of the proposed action and of
associations. x x x. the time and place of the meeting shall
 If the SEC can declare who is the legitimate IDP be addressed to each stockholder or
Board, then by parity of reasoning, it can also member at his place of residence as
declare who is not the legitimate IDP Board. This is shown on the books of the corporation
precisely what the SEC did in SEC Case No. 4012 and deposited to the addressee in the
when it adjudged the election of the Carpizo Group post office with postage prepaid, or
to the IDP Board of Trustees to be null and void. By served personally: Provided, That any
this ruling, the SEC in effect made the unequivocal dissenting stockholder may exercise his
finding that the IDP-Carpizo Group is a bogus Board appraisal right under the conditions
of Trustees. Consequently, the Carpizo Group is provided in this Code.
bereft of any authority whatsoever to bind IDP in  A sale or other disposition shall be deemed to cover
any kind of transaction including the sale or substantially all the corporate property and assets if
disposition of IDP property. thereby the corporation would be rendered
 In this case, the IDP, owner of the subject parcels of incapable of continuing the business or
land, never gave its consent, thru a legitimate Board accomplishing the purpose for which it was
of Trustees, to the disputed Deed of Absolute Sale incorporated.
executed in favor of INC. This is, therefore, a case  The Tandang Sora property, it appears from the
not only of vitiated consent, but one where consent records, constitutes the only property of the IDP.
on the part of one of the supposed contracting Hence, its sale to a third-party is a sale or
parties is totally wanting. Ineluctably, the subject disposition of all the corporate property and assets
sale is void and produces no effect whatsoever. of IDP falling squarely within the contemplation of
the foregoing section. For the sale to be valid, the

majority vote of the legitimate Board of Trustees, It’s purchase of 1,000 shares of stock of Insular Farms
concurred in by the vote of at least 2/3 of the bona for P285,126.99 which was sold to certain individuals,
fide members of the corporation should have been the reorganization of the board of directors causing its
obtained. These twin requirements were not met as assets, including its leasehold rights over a public land in
the Carpizo Group which voted to sell the Tandang Bolinao, Pangasinan, to be sold to herein appellee for
Sora property was a fake Board of Trustees, and P10,000.00 doesn’t prove that Pacific Farms is an alter
those whose names and signatures were affixed by ego of Insular Farms.
the Carpizo Group together with the sham Board
Resolution authorizing the negotiation for the sale The rule is set forth in Fletcher Cyclopedia Corporations,
were, from all indications, not bona fide members Vol. 15, Sec. 7122, pp. 160-161, as follows:
of the IDP as they were made to appear to be. Generally where one corporation sells or
Apparently, there are only fifteen (15) official otherwise transfers all of its assets to another
members of the petitioner corporation including corporation, the latter is not liable for the debts
the eight (8) members of the Board of Trustees.[39] and liabilities of the transferor, except: (1)
where the purchaser expressly or impliedly
agrees to assume such debts; (2) where the
THE EDWARD J. NELL COMPANY vs. PACIFIC FARMS, transaction amounts to a consolidation or
INC. merger of the corporations; (3) where the
G.R. No. L-20850 November 29, 1965 purchasing corporation is merely a continuation
of the selling corporation; and (4) where the
Topic: Corporate powers; Specific powers; Sale or other transaction is entered into fraudulently in order
disposition of assets (all or substantially all) to escape liability for such debts.
1. October 9, 1958 - Edward J. Nell Co., in a civil case, In the case at bar, there is neither proof nor allegation
secured against Insular Farms, Inc. a judgment for that appellee had expressly or impliedly agreed to
the sum of P1,853.80 representing the unpaid assume the debt of Insular Farms in favor of Edward
balance of the price of a pump it sold to Insular Nell, or that Pacific Farms is a continuation of Insular
2. Municipal Court of Manila: Issued writ of Farms, or that the sale of either the shares of stock or
execution, yet returned unsatisfied, stating that the assets of Insular Farms to the Pacific has been
Insular had no leviable property entered into fraudulently, in order to escape liability for
3. Edward petitions for the collection of the judgment the debt of the Insular Farms in favor of appellant
aforementioned, upon the theory that appellee herein.
Pacific Farms is the alter ego of Insular Farms:
- It purchased all or substantially all of the Pacific Farms purchased the shares of stock of Insular
shares of stock, as well as the real and Farms as the highest bidder at an auction sale held at
personal properties of the latter, including the instance of a bank to which said shares had been
the pumping equipment sold Insular Farms pledged as security for an obligation of Insular Farms in
4. Pacific denies all allegations favor of said bank.
5. MC: dismissing appellant's complaint These transactions have not resulted in the
6. CFI & CA: Denied appeal consolidation or merger of the Insular Farms and Pacific
7. Edward appeals: Farms. Edward's theory to the effect that appellee is
a. Pacific is liable for said unpaid an alter ego of the Insular Farms negates such
obligation of the Insular Farms consolidation or merger, for a corporation cannot be its
b. Grant attorney's fees to appellant own alter ego.
Whether Pacific Farms should answer for the liability of 5. Acquisition of its own shares
Insular Farms. NO. Facts do not prove that the appellee Sec. 41. Power to acquire own shares. - A stock
is an alter ego of Insular Farms, or is liable for its corporation shall have the power to purchase or acquire
debts. Affirmed CA
its own shares for a legitimate corporate purpose or
Ratio: purposes, including but not limited to the following

cases: Provided, That the corporation has unrestricted o Saavedra 10 shares

retained earnings in its books to cover the shares to be o Matias 20 shares
purchased or acquired: o Total amount of the capital stock
unlawfully purchased was P3,300.
1. To eliminate fractional shares arising out of stock
That at the time of such purchase, the corporation had
2. To collect or compromise an indebtedness to the
accounts payable amounting to P13,807.50, most of
corporation, arising out of unpaid subscription, in a
which were unpaid at the time petition for the
delinquency sale, and to purchase delinquent shares
dissolution of the corporation was presented, and that
sold during said sale; and
the corporation was then in a bad financial condition, in
3. To pay dissenting or withdrawing stockholders
contemplation of an insolvency and dissolution.
entitled to payment for their shares under the
provisions of this Code.
2nd cause of action
Plaintiff alleges that the officers and directors of the
SEC MC No. 11, s. 2008
corporation approved a resolution for the payment of
Sec 2. Definition of terms. –
P3,000 as dividends to its stockholders, which was
Retained Earnings – the accumulated profits
wrongfully done and in bad faith, and to the injury and
realized out of normal and continuous operations of the
fraud of its creditors. That at the time the petition for
business after deducting therefrom distributions to
the dissolution of the corporation was presented it had
stockholders and transfers to capital stock or other
accounts payable in the sum of P9,241.19, "and
accounts. The Retained earnings shall be the amount as
practically worthless accounts receivable."
shown in the financial statements audited by the
company’s independent auditor. If applicable, such
Gregorio Velasco admits that the shares of the first
amount shall refer to the retained earnings of the
cause of action were purchased, but alleges that they
parent company but not the consolidated financial
were purchased by virtue of a resolution of the board of
directors of the corporation "when the business of the
company was going on very well." As to the second
cause of action, he admits that the dividends described
G.R. No. L-30460 March 12, 1929
in paragraph 4 of the complaint were distributed, but
alleges that such distribution was authorized by the
FACTS: Defendants Gregorio Velasco, as president, Felix
board of directors, "and that the amount represented
del Castillo, as vice-president, Andres L. Navallo, as
by said dividends really constitutes a surplus profit of
secretary-treasurer, and Rufino Manuel, as director of
the corporation"
Trading Company, at a meeting of the board of directors
held on July 24, 1922, approved and authorized various
When the petition was filed for its dissolution upon the
unlawful purchases already made of a large portion of
ground that it was insolvent, its accounts payable
the capital stock of the company from its various
amounted to P9,241.19, and its accounts receivable
stockholders, thereby diverting its funds to the injury,
(from National Coal Compant) P12,512.47, or an
damage and in fraud of the creditors of the corporation.
apparent asset of P3,271.28 over and above its
liabilities. But it will be noted that there is no stipulation
1st cause of action
or finding of facts as to what was the actual cash value
The corporation purchased the following shares for par
of its accounts receivable. Neither is there any
value of P10:
stipulation that those accounts or any part of them ever
o Ganzon 100 shares
have been or will be collected, and it does appear that
o Mendaros 200 shares
after his appointment, the receiver made a diligent

effort to collect them, and that he was unable to do so, estates. This is the rule where the disposition made of
and it also appears from the minutes of the board of money or property of the corporation is one either not
directors that the president and manager within the lawful power of the corporation, or, if within
"recommended that P3,000 — out of the surplus the authority of the particular officer or officers.
account to be set aside for dividends payable, and that
payments be made in installments so as not to effect And section 458 which says:
the financial condition of the corporation." Want of Knowledge, Skill, or Competency. — It has been
said that directors are not liable for losses resulting to
ISSUE: W/N the acquisition of its own shares was the corporation from want of knowledge on their part;
proper? NO or for mistake of judgment, provided they were honest,
and provided they are fairly within the scope of the
HELD: It is, indeed, peculiar that the action of the board powers and discretion confided to the managing body.
in purchasing the stock from the corporation and in But the acceptance of the office of a director of a
declaring the dividends on the stock was all done at the corporation implies a competent knowledge of the
same meeting of the board of directors, and it appears duties assumed, and directors cannot excuse
in those minutes that the both Ganzon and Mendaros imprudence on the ground of their ignorance or
were formerly directors and resigned before the board inexperience; and if they commit an error of judgment
approved the purchase and declared the dividends. through mere recklessness or want of ordinary
prudence or skill, they may be held liable for the
In other words, that the directors were permitted to consequences. Like a mandatory, to whom he has been
resign so that they could sell their stock to the likened, a director is bound not only to exercise proper
corporation. As stated, the authorized capital stock was care and diligence, but ordinary skill and judgment. As
P20,000 divided into 2,000 shares of the par value of he is bound to exercise ordinary skill and judgment, he
P10 each, which only P10,300 was subscribed and paid. cannot set up that he did not possess them.
Deducting the P3,300 paid for the purchase of the
stock, there would be left P7,000 of paid up stock, from Creditors of a corporation have the right to assume
which deduct P3,000 paid in dividends, there would be that so long as there are outstanding debts and
left P4,000 only. In this situation and upon this state of liabilities, the board of directors will not use the assets
facts, it is very apparent that the directors did not act in of the corporation to purchase its own stock, and that
good faith or that they were grossly ignorant of their it will not declare dividends to stockholders when the
duties. corporation is insolvent.
Upon each of those points, the rule is well stated in
Ruling Case Law, vol. 7, p. 473, section 454 where it is The amount involved in this case is not large, but the
said: legal principles are important, and we have given them
General Duty to Exercise Reasonable Care. — The the consideration which they deserve.
directors of a corporation are bound to care for its
property and manage its affairs in good faith, and for a The judgment of the lower court is reversed, and (a), as
violation of these duties resulting in waste of its assets to the first cause of action, one will be entered for the
or injury to the property they are liable to account the plaintiff and against the defendant S. R. Ganzon for the
same as other trustees. Are there can be no doubt that sum of P1,000, with legal interest from the 10th of
if they do acts clearly beyond their power, whereby loss February, 1926, and against the defendant Felix D.
ensues to the corporation, or dispose of its property or Medaros for P2,000, with like interests, and against the
pay away its money without authority, they will be defendant Dionisio Saavedra for P100, with like interest,
required to make good the loss out of their private and against each of them for costs, each on their


primary liability as purchasers of stock, and (b) against

the defendants Gregorio Velasco, Felix del Castillo and Facts:
Rufino Manuel, personally, as members of the board of  John Gokongwei Jr (petitioner), as stockholder of
directors of the Sibuguey Trading Company, San Miguel Corporation (respondent) filed with the
Incorporated, as secondarily liable for the whole SEC a petition for declaration of nullity of amended
amount of such stock sold and purchased as above by-laws, cancellation of certificate of filing of
amended by-laws, injunction and damages with
stated, and on the second cause of action, judgment
prayer for a preliminary injunction against the
will be entered (c) for the plaintiff and jointly and majority of the members of the board of directors
severally against the defendants Gregorio Velasco, Felix and San Miguel Corporation as an unwilling
del Castillo and Rufino Manuel, personally, as members petitioner.
of the board of directors of the Sibuguey Trading  Petitioner contended that in 1976, the individual
Company, Incorporated, for P3,000, with interest respondents, through a resolution of the
stockholders adopted in 1961, amended the by-
thereon from February 10, 1926, at the rate of 6 per
laws of the corporation. Using Section 22 of the
cent per annum, and costs. So ordered.
Corporation Code and Article 8 of the by-laws of the
corporation, the power to amend, modify, repeal,
6. Investment of corporate funds in another or adopt new by-laws may be delegated to the
corporation or business or other purpose Board of Directors only by the affirmative vote of
Sec. 42. Power to invest corporate funds in another stockholders representing not less than 2/3 of the
corporation or business or for any other purpose. - subscribed and paid-up capital stock of the
corporation, which 2/3 should have been computed
Subject to the provisions of this Code, a private
on the basis of the capitalization at the time of the
corporation may invest its funds in any other amendment. Since the amendment was based on
corporation or business or for any purpose other than the 1961 authorization, it was contended that the
the primary purpose for which it was organized when Board acted without authority and in usurpation of
approved by a majority of the board of directors or the power of the stockholders.
trustees and ratified by the stockholders representing at  Petitioner also contended that the authority
least two-thirds (2/3) of the outstanding capital stock, granted in 1961 had already been exercised in 1962
and 1963, after which the authority of the board
or by at least two thirds (2/3) of the members in the
cease to exist.
case of non-stock corporations, at a stockholder's or
 Petitioner also contended that as a substantial
member's meeting duly called for the purpose. Written stockholder, he has acquired rights inherent in stock
notice of the proposed investment and the time and ownership, such as the rights to vote and to be
place of the meeting shall be addressed to each voted upon election of directors. Because of the
stockholder or member at his place of residence as amendment of by-laws, he was disqualified and
shown on the books of the corporation and deposited deprived him of his vested rights thus contending
that the amendment of by-laws should be
to the addressee in the post office with postage
considered as null and void.
prepaid, or served personally: Provided, That any
 Respondents San Miguel opposed the petition by
dissenting stockholder shall have appraisal right as denying the allegations and it argued that the
provided in this Code: Provided, however, That where action taken by the Board of Directors in 1976
the investment by the corporation is reasonably which resulted to the amendment of the by-laws is
necessary to accomplish its primary purpose as stated in valid and legal because the power to amend,
the articles of incorporation, the approval of the modify, repeal or adopt new by-laws delegated to
the board in 1961 has never been revoked by SMC.
stockholders or members shall not be necessary.
 On the other hand, Respondents Andres Soriano
and Jose Soriano also denied the allegations
GOKONGWEI V. SEC contending that in a stockholders meeting in 1976,
G.R. NO. L-45911 APRIL 11, 1979 petitioner was rejected by the stockholders in his


bid to secure a seat in the Board of Directors on the  An amendment to the corporation by-law which
basic issue that petitioner was engaged in a renders a stockholder ineligible to be director, if he
competitive business and his securing a seat would be also a director in a corporation whose business
have subjected respondent corporation to grave is in competition with that of the other
disadvantages which led to the amendment of the corporation has been sustained as valid. It has
by-laws of the corporation by the Board of been held that an officer of a corporation cannot
Directors. engage in a business in direct competition with that
 In 1976, while the petition was yet to be heard, of the corporation where he is a director by utilizing
respondent corporation issued a notice of special information he has received as such officer, under
stockholders meeting for the purpose of ratification "the established law that a director or officer of a
and confirmation of the amendment to the by-laws corporation may not enter into a competing
setting such meeting for 1977. This prompted enterprise which cripples or injures the business of
petitioner to ask respondent Commission for a the corporation of which he is an officer or
summary judgment for the alleged reason that by director.
calling a special stockholders meeting, private  It is also well established that corporate officers
respondents admitted the invalidity of the "are not permitted to use their position of trust
amendments of 1976. The motion for summary and confidence to further their private interests."
judgment was opposed by private respondents. The doctrine of "corporate opportunity" is
 Respondent Commission issued an order denying precisely a recognition by the courts that the
the motion for issuance of TRO and after receipt of fiduciary standards could not be upheld where the
the order of denial, respondents conducted the fiduciary was acting for two entities with competing
special stockholders meeting wherein the interests. This doctrine rests fundamentally on the
amendments to the by-laws were ratified. unfairness, in particular circumstances, of an
 Petitioner filed for a manifestation stating that he officer or director taking advantage of an
intended to run for the position of director of opportunity for his own personal profit when the
respondent corporation. Respondents then filed a interest of the corporation justly calls for
manifestation with the SEC submitting a resolution protection.
of the Board of Directors of respondent corporation  It is not denied that a member of the Board of
disqualifying and precluding petitioner from being a Directors of the San Miguel Corporation has access
candidate for director unless he could submit to sensitive and highly confidential information,
evidence. Petitioner alleges that there appears a such as: (a) marketing strategies and pricing
deliberate and concerted inability on the part of the structure; (b) budget for expansion and
SEC to act thus petitioner bringing the case to the diversification; (c) research and development; and
court. (d) sources of funding, availability of personnel,
proposals of mergers or tie-ups with other firms.
Issue: Whether or not the amended by-laws of SMC of  It is obviously to prevent the creation of an
disqualifying a competitor from nomination or election opportunity for an officer or director of San Miguel
to the Board of Directors of SMC are valid and Corporation, who is also the officer or owner of a
competing corporation, from taking advantage of
the information which he acquires as director to
promote his individual or corporate interests to the
Ruling: prejudice of San Miguel Corporation and its
Valid and reasonable. stockholders, that the questioned amendment of
 The authority of a corporation to prescribe the by-laws was made. Certainly, where two
qualifications of directors is expressly conferred by corporations are competitive in a substantial sense,
law. Section 21 of the Corporation Law provides it would seem improbable, if not impossible, for the
that a corporation may prescribe in its by-laws the director, if he were to discharge effectively his duty,
qualifications, duties and compensation of to satisfy his loyalty to both corporations and place
directors, officers and employees. the performance of his corporation duties above his
personal concerns.


 The offer and assurance of petitioner that to avoid obtaining in the corporation, such as when there is
any possibility of his taking unfair advantage of his need for special reserve for probable contingencies.
position as director of San Miguel Corporation, he
would absent himself from meetings at which
confidential matters would be discussed, would not
detract from the validity and reasonableness of the
Madrigal & Company, Inc. (MCI) manages the business
by-laws here involved. Apart from the impractical
of another corporation, Rizal Cement Co., Inc. (RCC). In
results that would ensue from such arrangement, it
1973, a labor union in MCI sought the renewal of the
would be inconsistent with petitioner's primary
collective bargaining agreement (CBA). The union
motive in running for board membership — which is
proposes a P200.00 monthly wage increase and an
to protect his investments in San Miguel
additional P100 monthly allowance. MCI refused to
Corporation. More important, such a proposed
negotiate. Later, MCI reduced its authorized capital
norm of conduct would be against all accepted
stocks. It then wrote a letter to the Department of
principles underlying a director's duty of fidelity to
Labor averring that it is incurring losses and so it will
the corporation, for the policy of the law is to
enforce a retrenchment program. The letter is however
encourage and enforce responsible corporate
unsupported by documents and so the Department of
Labor ignored it. However, MCI went on to dismiss
several employees which led the labor union to sue MCI
for unfair labor practices and illegal dismissal. The labor
7. Power to declare dividends arbiter ruled in favor of the labor union. The issue
Sec. 43. Power to declare dividends. - The board of reached the Office of the President. The then
directors of a stock corporation may declare dividends Presidential Assistant For Legal Affairs, Ronaldo Zamora,
out of the unrestricted retained earnings which shall be denied MCI’s appeal.
On appeal, MCI insists that it is incurring losses; that as
payable in cash, in property, or in stock to all
such, it has to reduce its capitalization; that the profits
stockholders on the basis of outstanding stock held by
it is earning are cash dividends from RCC; that under the
them: Provided, That any cash dividends due on law, dividends are the absolute property of a
delinquent stock shall first be applied to the unpaid stockholder like MCI and cannot be compelled to share
balance on the subscription plus costs and expenses, it with creditors (like the employees).
while stock dividends shall be withheld from the ISSUE: Whether or not the dividends in this case, as
delinquent stockholder until his unpaid subscription is understood by MCI, cannot be made available to meet
its employees economic demands.
fully paid: Provided, further, That no stock dividend
HELD: No. As found by the labor arbiter, MCI is in fact
shall be issued without the approval of stockholders making significant profits. MCI’s reduction of its
representing not less than two-thirds (2/3) of the capitalization is simply a scheme to avoid negotiations
outstanding capital stock at a regular or special meeting with the labor union. It is therefore correct for the
duly called for the purpose. (16a) arbiter to order MCI to comply with the union’s
Stock corporations are prohibited from demands.
retaining surplus profits in excess of one hundred It is true that cash dividends are the absolute property
of the stockholders and cannot be made available for
(100%) percent of their paid-in capital stock, except: (1)
disposition to a corporation’s creditors. However, this
when justified by definite corporate expansion projects should be viewed in context. This is only true in the case
or programs approved by the board of directors; or (2) of corporation distributing dividends to its
when the corporation is prohibited under any loan stockholders. If this is the case (if the dividends are still
agreement with any financial institution or creditor, with the corporation, in this case RCC), then creditors
whether local or foreign, from declaring dividends cannot touch such dividends. But if the stockholder
already receives the dividends, then it becomes a profit
without its/his consent, and such consent has not yet
on the part of the stockholder hence its creditors (like
been secured; or (3) when it can be clearly shown that
the employees) can make some demands out of it. In
such retention is necessary under special circumstances this case, MCI is a stockholder of RCC. While RCC still


has not distributed the dividends, creditors cannot  Nielson wanted to resume operations, but
demand it because such dividends are owned by Lepanto refused and unilaterally took over
stockholders like MCI. But when MCI already receives operations after rehabilitation
the dividends, then MCI’s creditors can already demand  Nielson now claiming for money it is entitled to
share from the dividends because such dividends are during effectivity of Agreement
already the profits of the stockholder/MCI. So in this
case, the employees can demand their share from said
profits (not strictly viewed as dividends now) by way of 1. W/N suspension of contract meant extension of
salary increase.
period of operation
2. W/N grant Nielson’s claims, as per Modification of
GR L-21601 DECEMBER 17, 1966
1. YES
 Testimonies of witnesses working for both
Nielson and Lepanto, as well as statements
 Action: Nielson and Company (“Nielson”) action given before Board of Directors, show that it
against Lepanto Consolidated Mining was the true intent of the parties to allow for
(“Lepanto”) to recover claims of sums of money extension of Nielson operations, in the event of
 Nielson-Lepanto Operating Agreement suspension
(“Agreement”) was executed before World War  Nielson continued to have a right to operate
II and manage the mining properties of Lepanto,
o Nielson to operate and manage the and Lepanto was under an obligation to pay
mining properties of Lepanto for a Nielson management fees
management fee of P2500/month and
10% net profits from mining operations
2. YES.
o Force majeure clause: Fortuitous events
beyond Nielson control would result in  Claim 1: 10% of dividends
suspension of Agreement o Nielson claims:
 1940 Lepanto Board of Directors had a meeting  10% of P14M cash dividends OR
and modified the agreement (“Modification”) P1.4M
o Nielson shall receive  FYI. Cash dividends are
 10% dividends declared and cash distributions from
paid the company given to
 10% of any depletion reserve shareholders.
that may be set up  10% of stock dividends
 10% out of surplus earnings for declared:
capital account  Lepanto declared two
 Agreement renewed in latter part of 1941 for stock dividends: 50% or
another period of five years worth of P1M AND
o However, in December 1941, Pacific 66.66% or worth of
War broke out P2M
 January – February 1942: Mining properties  FYI. Stock dividends are
operation disrupted; mines, mill and equipment often in the form of
destroyed; Japanese occupied properties percentages because
 June 1948: Mining operations resumed under what is being
exclusive management of Lepanto distributed is not cash,
 Period of suspension: February 1942 – June but additional share of
1948 (60 months) stocks. For example, if X
owns 100 shares and
ABC Corp declares 50%

dividend, the number

of shares of X will
become 150 shares
(100 shares x 150%)
o Cash dividend granted. Nielson entitled
to P1.4M
o Stock dividend cannot be granted in the
form of cash. Nielson is entitled to 10%
of stock dividends and the fruits
accruing to said stock dividends. Hence,
P100,000 and P200,000 worth of stocks
is due Nielson. If shares of stock are
insufficient, Lepanto must pay Nielson
cash equivalent.
 Claim 2: 10% in depletion reserves
o Total of P539k, hence Nielson entitled
to P53.9k
 Claim 3: 10% of increase in value of assets
o Total of P6.94M, hence Nielson entitled
to P694k
 Claim 4: Management fees
o P2,500 x 60 months = P150,000