I. CORPO STONEHILL VS.

DIOKNO [20 SCRA 383; L-19550; 19 JUN 1967] Facts: Upon application of the officers of the government named on the margin1 hereinafter referred to as Respondents-Prosecutors several judges2 hereinafter referred to as Respondents-Judges issued, on different dates,3 a total of 42 search warrants against petitioners herein4 and/or the corporations of which they were officers,5 directed to the any peace officer, to search the persons above-named and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of the following personal property to wit: Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals, typewriters, and other documents and/or papers showing all business transactions including disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers). as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be used as the means of committing the offense," which is described in the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code." Petitioners contentions are: (1) they do not describe with particularity the documents, books and things to be seized; (2) cash money, not mentioned in the warrants, were actually seized; (3) the warrants were issued to fish evidence against the aforementioned petitioners in deportation cases filed against them; (4) the searches and seizures were made in an illegal manner; and (5) the documents, papers and cash money seized were not delivered to the courts that issued the warrants, to be disposed of in accordance with law Respondents-prosecutors contentions (1) that the contested search warrants are valid and have been issued in accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and (3) that, in any event, the effects seized are admissible in evidence against herein petitioners, regardless of the alleged illegality of the aforementioned searches and seizures. The documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and seized in the residences of petitioners herein. Issues: (1) Whether or not those found and seized in the offices of the aforementioned corporations are obtained legally. (2) Whether or not those found and seized in the residences of petitioners herein are obtained legally. Held: The petitioners have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. With respect to the documents, papers and things seized in the residences of petitioners herein, the aforementioned resolution of June 29, 1962, lifted the writ of preliminary injunction previously issued by this Court, thereby, in effect, restraining herein Respondents-Prosecutors from using them in evidence against petitioners herein. Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant shall particularly describe the things to be seized. None of these requirements has been complied with in the contested warrants. Indeed, the same were issued upon applications stating that the natural and juridical person therein named had committed a "violation of Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no specific offense had been alleged in said applications. The averments thereof with respect to the offense committed were abstract. As a consequence, it was impossible for the judges who issued the warrants to have found the existence of probable cause, for the same presupposes the introduction of competent proof that the party against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision of our criminal laws. As a matter of fact, the applications involved in this case do not allege any specific acts performed by herein petitioners. It would be the legal heresy, of the highest order, to convict anybody of a "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code," as alleged in the aforementioned applications without reference to any determinate provision of said laws or II. Yutivo v. CTA (Tax avoidance) Facts :Yutivo Sons Hardware Co. bought a number of carsand trucks from General Motors Overseas Corporation. Asimporter, GM paid sales tax prescribed by sections 184, 185and 186 of the Tax Code on the basis of its selling price toYutivo. Said tax being collected only once on original sales,Yutivo paid no further sales tax on its sales to the public.Southern Motors, Inc. was organized to engage in thebusiness of selling cars, trucks and spare parts.After the incorporation of SM and until the withdrawalof GM from the Philippines in the middle of 1947, the cars andtrucks purchased by Yutivo from GM were sold by Yutivo toSM which, in turn, sold them to the public in the Visayas andMindanao. Issue :Whether or not Southern Motors, Inc. was organized as a taxevasion device. Held/Ratio :NO. SM was organized in June, 1946 when it couldnot have caused Yutivo any tax savings. From that date up toJune 30, 1947, or a period of more than one year, GM was theimporter of the cars and trucks sold to Yutivo, which, in turnresold them to SM. During that period, it is not disputed thatGM as importer, was the one solely liable for sales taxes.Neither Yutivo or SM was subject to the sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did notarise until July 1, 1947 when it became the importer and simplycontinued its practice of selling to SM. The decision, therefore,of the Tax Court that SM was organized purposely as a taxevasion device runs counter to the fact that there was no tax toevade. III. Corporate Law Case Digest: Stockholders of F. Guanzon and Sons, Inc v. Register of Deeds of Manila (1962) G.R. No. L-18216 October 30, 1962 Lessons Applicable: Strong Juridical Personality FACTS: Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the corporation, dissolution and distribution among themselves in proportion to their shareholdings, as liquidating dividends, corporate assets, including real properties Register of Deeds of Manila denied the registration of the certificate of liquidation: 1. The number of parcels not certified to in the acknowledgment; 2. P430.50 Reg. fees need be paid; 3. P940.45 documentary stamps need be attached to the document; 4. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be presented Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6. Stockholders appealed o contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has ceased to exist for having been dissolved ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be considered a transfer or conveyance) HELD: NO. affirm the resolution appealed from Corporation - juridical person distinct from the members composing it. o Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. o While shares of stock constitute personal property they do not represent property of the corporation.

A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity but its holder is NOT the owner of any part of the capital of the corporation nor entitled to possession The stockholder is not a co-owner or tenant in common of the corporate property

IV. Gokongwei v. SEC (1979) 1 ) G o k o n g w e i s a s k e d t h e S E C t o i s s u e a n o r d e r t o S M C g r a n t i n g h i s request to e x a m i n e t h e r e c o r d s o f S a n M i g u e l I n t e r n a t i o n a l , I n c . , a fully owned subsidiary of San Miguel Corporation. 2)The books of SMI were in the possession of the parent, SMC. 3 ) S E C : d e n i e d r e q u e s t 4 ) G o k o n g w e i c o n t e n t i o n b e f o r e S C : I S S U E : W O N r e s p o n d e n t S E C g r a v e l y a b u s e d i t s d i s c r e t i o n i n d e n y i n g P e t i t i o n e r G o k o n g w e i s r e q u e s t f o r a n e x a m i n a t i o n o f t h e rec ord s of S a n Mi gu el In t e rn a t i ona l, In c . , a fu ll y o wn ed s u b si di a ry of San Miguel Corporation? H E L D : C o u r t v o t e d u n a n i m o u s l y t o g r a n t t h e p e t i t i o n i n s o f a r a s i t p ra ys t h a t p et i ti on er b e a ll o wed t o exa m i n e t h e b ook s and rec ord s of (SMI), as specified by him.I n t h e c a s e a t b a r , c o n s i d e r i n g t h a t t h e f o r e i g n s u b s i d i a r y i s wh oll y o wn ed b y res p on d en t San M i g u el C orp ora t i on a nd , t h erefo re, u n d er i t s c ont rol, i t wou ld b e m ore i n a c c ord wi t h eq u i t y, good fa i t h a n d f a i r d e a l i n g t o c o n s t r u e t h e s t a t u t o r y r i g h t o f p e t i t i o n e r a s stockholder to inspect the books and r e c o r d s o f t h e c o r p o r a t i o n a s extending to books and records of such wholly owned subsidiary whichare in respondent corporation's possession and control. Gokongwei vs. Securitiesand Exchange Commission [GR L-45911, 11 April 1979]En Banc, Antonio (J): 4 concur, 1 concur and reserves his right to file separation opinion, 1 concurs in resultand reserves his right to file separate opinion, 1 reserves right to file separate opinion, 4 file a joint separateopinion to which 1 joined, 1 concurs and dissents in a separate opinion, 1 took no part. Facts:[SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of San MiguelCorporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullityof amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and damages withprayer for a preliminary injunction" against the majority of the members of the Board of Directors and SanMiguel Corporation as an unwilling petitioner. As a first cause of action, Gokongwei alleged that on 18September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buao,Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on 13 March 1961, when the outstanding capitalstock of the corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per shareand 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid upshares totalled 30,127,043, with a total par value of P301,270,430.00. It was contended that according tosection 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend,modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative voteof stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation,which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Sincethe amendment was based on the 1961 authorization, Gokongwei contended that the Board acted withoutauthority and in usurpation of the power of the stockholders. As a second cause of action, it was alleged thatthe authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of theBoard ceased to exist. As a third cause of action, Gokongwei averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being 6 new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be adirector of the corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei hadacquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei'sdisqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are nulland void. As additional causes of action, it was alleged that corporations have no inherent power to disqualifya stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; thatAndres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts(specifically a management contract) with the corporation, which was avowed because the questionedamendment gave the Board itself the prerogative of determining whether they or other persons are engaged incompetitive or antagonistic business; that the portion of the amended by-laws which states that in determiningwhether or not a person is engaged in competitive business, the Board may consider such factors as businessand family relationship, is unreasonable and oppressive and, therefore, void; and that the portion of theamended by-laws which requires that "all nominations for election of directors shall be submitted in writing tothe Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewiseunreasonable and oppressive. It was, therefore, prayed that the amended by-laws be declared null and voidand the certificate of filing thereof be cancelled, and that Soriano, et. al. be made to pay damages, in specifiedamounts, to Gokongwei. On 28 October 1976, in connection with the same case, Gokongwei filed with theSecurities and Exchange Commission an "Urgent Motion for Production and Inspection of Documents",alleging that the Secretary of the corporation refused to allow him to inspect its records despite request madeby Gokongwei for production of certain documents enumerated in the request, and that the corporation hadbeen attempting to suppress information from its stockholders despite a negative reply by the SEC to its queryregarding their authority to do so. The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al.filed their answer, and their opposition to the petition, respectively. Meanwhile, on 10 December 1976, whilethe petition was yet to be heard, the corporation issued a notice of special stockholders' meeting for thepurpose of "ratification and confirmation of the amendment to the By-laws", setting such meeting for 10February 1977. This prompted Gokongwei to ask the SEC for a summary judgment insofar as the first causeof action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaidpurpose, Soriano, et. al. admitted the invalidity of the amendments of 18 September 1976. The motion for summary judgment was opposed by Soriano, et. al. Pending action on the motion, Gokongwei filed an"Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determinationof Gokongwei's application for the issuance of a preliminary injunction and or Gokongwei's motion for summary judgment, a temporary restraining order be issued, restraining Soriano, et. al. from holding thespecial stockholders' meeting as scheduled. This motion was duly opposed by Soriano, et. al. On 10 February 1977, Cremation issued an order denying the motion for issuance of temporary restraining order. After receiptof the order of denial, Soriano, et. al. conducted the special stockholders' meeting wherein the amendments tothe by-laws were ratified. On 14 February 1977, Gokongwei filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. A motion for reconsideration of the order denyingGokongwei's motion for summary judgment was filed by Gokongwei before the SEC on 10 March 1977.[SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been investingcorporate funds in other corporations and businesses outside of the primary purpose clause of the corporation,in violation of section 17-1/2 of the Corporation Law, he filed with SEC, on 20 January 1977, a petitionseeking to have Andres M. Soriano, Jr. and Jose M. Soriano, as well as the corporation declared guilty of suchviolation, and ordered to account for such investments and to answer for damages. On 4 February 1977,motions to dismiss were filed by Soriano, et. al., to which a consolidated motion to strike and to declareSoriano, et. al. in default and an opposition ad abundantiorem cautelam were filed by Gokongwei. Despite thefact that said motions were filed as early as 4 February 1977, the Commission acted thereon only on 25 April1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days within which to filetheir answer, and set the case for hearing on April 29 and May 3, 1977. Soriano, et. al. issued notices of theannual stockholders' meeting, including in the Agenda thereof, the "reaffirmation of the authorization to theBoard of Directors by the stockholders at the meeting on 20 March 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has beenorganized, and ratification of the investments thereafter made pursuant thereto." By reason of the foregoing,on 28 April 1977, Gokongwei filed with the SEC an urgent motion for the issuance of a writ of preliminaryinjunction to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the annual stockholders' meeting,requesting that the same be set for hearing on 3 May 1977, the date set for the second hearing of the case onthe merits. The SEC, however, cancelled the dates of hearing originally scheduled and reset the same to May16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging theCommission to act,

Gokongwei filed an urgent manifestation on 3 May 1977, but this notwithstanding, noaction has been taken up to the date of the filing of the instant petition.Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, with the Supreme Court, alleging that there appears a deliberate and concertedinability on the part of the SEC to act. Issue [1]:Whether the corporation has the power to provide for the (additional) qualifications of its directors. Held [1]:It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws'for its internal government, and to regulate the conduct and prescribe the rights and duties of its memberstowards itself and among themselves in reference to the management of its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties andcompensation of directors, officers and employees." This must necessarily refer to a qualification in additionto that specified by section 30 of the Corporation Law, which provides that "every director must own in hisright at least one share of the capital stock of the stock corporation of which he is a director." Any person"who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters withinthe limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this extent,therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulatethe disposition of his property which he has invested in the capital stock of the corporation, and surrendered itto the will of the majority of his fellow incorporators. It can not therefore be justly said that the contract,express or implied, between the corporation and the stockholders is infringed by any act of the former whichis authorized by a majority." Pursuant to section 18 of the Corporation Law, any corporation may amend itsarticles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of thesubscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the rights of theexisting shareholders, then the dissenting minority has only one right, viz.: "to object thereto in writing anddemand payment for his share." Under section 22 of the same law, the owners of the majority of thesubscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore,that Gokongwei has a vested right to be elected director, in the face of the fact that the law at the time suchright as stockholder was acquired contained the prescription that the corporate charter and the by-law shall besubject to amendment, alteration and modification. Issue [2]:Whether the disqualification of a competitor from being elected to the Board of Directors is areasonable exercise of corporate authority. Held[2]:Although in the strict and technical sense, directors of a private corporation are not regarded astrustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and thestockholders as a body are concerned. As agents entrusted with the management of the corporation for thecollective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." "The ordinary trust relationship of directors of a corporation and stockholders is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporateaffairs and property and hence of the property interests of the stockholders. Equity recognizes thatstockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof." Adirector is a fiduciary. Their powers are powers in trust. He who is in such fiduciary position cannot servehimself first and his cestuis second. He cannot manipulate the affairs of his corporation to their detriment andin disregard of the standards of common decency. He cannot by the intervention of a corporate entity violatethe ancient precept against serving two masters. He cannot utilize his inside information and strategic positionfor his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation whathe could not do so directly. He cannot violate rules of fair play by doing indirectly through the corporationwhat he could not do so directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter howmeticulous he is to satisfy technical requirements. For that power is at all times subject to the equitablelimitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to theexclusion or detriment of the cestuis. The doctrine of "corporate opportunity" is precisely a recognition by thecourts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities withcompeting interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of anofficer or director taking advantage of an opportunity for his own personal profit when the interest of thecorporation justly calls for protection. It is not denied that a member of the Board of Directors of the SanMiguel Corporation has access to sensitive and highly confidential information, such as: (a) marketingstrategies and pricing structure; (b) budget for expansion and diversification; (c) research and development;and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms. It isobviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, whois also the officer or owner of a competing corporation, from taking advantage of the information which heacquires as director to promote his individual or corporate interests to the prejudice of San MiguelCorporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, wheretwo corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for thedirector, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place theperformance of his corporation duties above his personal concerns. The offer and assurance of Gokongweithat to avoid any possibility of his taking unfair advantage of his position as director of San MiguelCorporation, he would absent himself from meetings at which confidential matters would be discussed, wouldnot detract from the validity and reasonableness of the by-laws involved. Apart from the impractical resultsthat would ensue from such arrangement, it would be inconsistent with Gokongwei's primary motive inrunning for board membership which is to protect his investments in San Miguel Corporation. Moreimportant, such a proposed norm of conduct would be against all accepted principles underlying a director'sduty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporatemanagement. Issue [3]:Whether the SEC gravely abused its discretion in denying Gokongwei's request for an examinationof the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation. Held [3]:Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all businesstransactions of the corporation and minutes of any meeting shall be open to the inspection of any director,member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of thecorporation's books and records is based upon their ownership of the assets and property of the corporation. Itis, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termedan equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated upon thenecessity of self-protection. It is generally held by majority of the courts that where the right is granted bystatute to the stockholder, it is given to him as such and must be exercised by him with respect to his interestas a stockholder and for some purpose germane thereto or in the interest of the corporation. In other words,the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful incharacter and not inimical to the interest of the corporation. The "general rule that stockholders are entitled tofull information as to the management of the corporation and the manner of expenditure of its funds, and toinspection to obtain such information, especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to theexclusion of others." While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing. Stockholders are entitledto inspect the books and records of a corporation in order to investigate the conduct of the management,determine the financial condition of the corporation, and generally take an account of the stewardship of theofficers and directors. herein, considering that the foreign subsidiary is wholly owned by San MiguelCorporation and, therefore, under Its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of thecorporation as extending to books and records of such wholly owned subsidiary which are in the corporation'spossession and control. Issue [4]:Whether the SEC gravely abused its discretion in allowing the stockholders of San MiguelCorporation to ratify the investment of corporate funds in a foreign corporation. Held [4]:Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" providedthat its Board of Directors has been so authorized by the affirmative vote of stockholders holding sharesentitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of thecorporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares isdone solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary.As stated by the corporation, the purchase of beer manufacturing facilities by SMC was an investment in thesame business stated as its main purpose in its Articles of Incorporation, which is to manufacture and marketbeer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery,Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture andmarketing of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru theorganization of SMI in Bermuda as a tax free reorganization. Assuming arguendo that the Board of Directorsof SMC had no authority to make the assailed investment, there is no question that a corporation, like anindividual, may ratify and thereby render binding upon it the originally

unauthorized acts of its officers or other agents. This is true because the questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which isdefective from a purported failure to observe in its execution the requirement of the law that the investmentmust be authorized by the affirmative vote of the stockholders holding twothirds of the voting power. Thisrequirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement wasenacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defectwhich it may have had at the outset. Besides, the investment was for the purchase of beer manufacturing andmarketing facilities which is apparently relevant to the corporate purpose. The mere fact that the corporationsubmitted the assailed investment to the stockholders for ratification at the annual meeting of 10 May 1977cannot be construed as an admission that the corporation had committed an ultra vires act, considering thecommon practice of corporations of periodically submitting for the ratification of their stockholders the acts of their directors, officers and managers. V. Case Digest on REPUBLIC BANK V. CUADERNO, ET AL Facts: This is an appeal from a dismissal of the case against respondent Roman for alleged fraudulent grant of loans to relatives (while he was chairman of the Board of Directors of Republic Bank and its Executive Loan Committee) and for the selection of respondents Cuaderno and Dizon (as technical consultant and chairman of the board respectively) in order to shield himself from the alleged wrongdoing and from any prosecution that may be instituted against him. The complaint also alleges that the present composition of the board of directors of the bank are constituted by men chosen by respondent Roman so that it was futile to ask them, in the first place, to institute this action on behalf of the bank. Ruling: In a derivative suit, the corporation is the real party in interest and the stockholder is merely a nominal party. Normally, it is the corporation through its board of directors that should bring the suit. But where, as in this case and it is alleged in the complaint, that the members of the board of directors of the bank were the nominees and creatures of respondent Roman, thus, any demand for an intra-corporate remedy would be futile, the stockholder is permitted to bring a derivative suit. As to the question of should the corporation be made a party, the English practice is to make the corporation a party plaintiff while in the US the practice is to make it a party defendant. However, in our jurisdiction what is important is that the corporation should be made a party in order to make the courts judgment binding upon it, and thus bar future litigation of the issues. Misjoinder of parties (in a derivative suit) is not a ground to dismiss the action. VI. ISMAEL MATHAY vs.CONSOLIDATED BANK AND TRUST COMPANY FACTS:Petitioners filed a case for a class suit against Consolidated Mines Inc.. They were former stockholders of the company. Consolidated Mines sent a board resolution requiring stockholders to signify toa special subscription which authorized a loan of the company to Metrobank. The parties in the suitcontended that the consolidated mines fraudulently filed a certification to the loan. Consolidated minesquestions Mathay et als capacity to institute a class suit. ISSUEWhether or not petitioners have the capacity to institute a class suit.: HELDThe necessary elements for the maintenance of a class suit are accordingly: (1) that the subjectmatter of the controversy be one of common or general interest to many persons, and (2) that suchpersons be so numerous as to make it impracticable to bring them all to the court. An action does notbecome a class suit merely because it is designated as such in the pleadings. Whether the suit is or is nota class quit depends upon the attending facts, and the complaint, or other pleading initiating the classaction should allege the existence of the necessary facts, to wit, the existence of a subject matter of common interest, and the existence of a class and the number of persons in the alleged class, 3 in orderthat the court might be enabled to determine whether the members of the class are so numerous as tomake it impracticable to bring them all before the court, to contrast the number appearing on therecord with the number in the class and to determine whether claimants on record adequatelyrepresent the class and the subject matter of general or common interest By the phrase subjectmatter pertains to the physical facts. The thing real or personal and not the delict committed. Thus,petitioners do not have the capacity to institute a class suit. Mathay v. Consolidated Bank, 58 SCRA Facts: This is the classic case of the class suit filed by Mathay vs. Consolidated Bank. Mathay & Co. averred in the complaint that they were denied the right to subscribe shares in the Bank. All in all, the complaint filed by Mathay contained 6 COAs . Held: Bare allegations that one is entitled to something is an allegation of a conclusion. Such kind of allegation adds nothing to the complaint it being necessary to plead specifically the facts upon w/c such conclusion is founded. In CAB, the pet. did not show their qualifications to being stockholders nor their right to subscribe the shares. Did not show how they acquired the right, the extent of its exercise & amount of shareholdings that they are entitled to. Corporate Law Case Digest: Tan v. Sycip (2006) Labels: 2006, Case Digest, Corporate Law, Corporate Law Case Digest, Juris Doctor G.R. No. 153468 Lessons Applicable: Release from Subscription Obligation FACTS: Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation w/ 15 regular members, who also constitute the board of trustees. April 6, 1998: During the annual members meeting only 11 living member-trustees, as 4 had already died. o 7 attended the meeting through their respective proxies. o The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. o In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the 4 deceased member-trustees. SEC: meeting void due to lack of quorum (NOT living but based on AIC) o Sec 24 read together with Sec 89 CA: Dismissed due to technicalities ISSUE: W/N dead members should still be counted in the quorum - NO based on by-laws HELD: NO. remaining members of the board of trustees of GCHS may convene and fill up the vacancies in the board Except as provided, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights: o 1. Amendment of the articles of incorporation; o 2. Adoption and amendment of by-laws; o 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporation property; o 4. Incurring, creating or increasing bonded indebtedness; o 5. Increase or decrease of capital stock; o 6. Merger or consolidation of the corporation with another corporation or other corporations; o 7. Investment of corporate funds in another corporation or business in accordance with this Code; and o 8. Dissolution of the corporation. quorum in a members meeting is to be reckoned as the actual number of members of the corporation stock corporations - shareholders may generally transfer their shares o on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it o Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor

nonstock corporation - personal and non-transferable unless the articles of incorporation or the bylaws of the corporation provide otherwise o Section 91 of the Corporation Code: termination extinguishes all the rights of a member of the corporation, unless otherwise provided in the articles of incorporation or the bylaws. o whether or not "dead members" are entitled to exercise their voting rights (through their executor or administrator), depends on those articles of incorporation or bylaws By-Laws of GCHS: membership in the corporation shall be terminated by the death of the member With 11 remaining members, the quorum = 6. SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office. o the filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive, not mandatory either by the remaining directors constituting a quorum, or by the stockholders or members in a regular or special meeting called for the purpose By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of directors; that is, by a majority vote of the remaining members of the board remaining member-trustees must sit as a board (as a body in a lawful meeting) in order to validly elect the new ones

NEGOhttp://www.scribd.com/doc/38310804/Haystacks-and-Short-Digests-Nego-Instru NOVATION; LOANS; SOLIDARY OBLIGATIONS; PROMISSORY NOTE; ACCOMODATION PARTY ROMEO GARCIA VS. DIONISIO LLAMAS G.R. No. 154127. December 8, 2003 Facts: A complaint for sum of money was filed by respondent Dionisio Llamas against Petitioner Romeo Garcia and Eduardo de Jesus alleging that the two borrowed Php 400, 000 from him. They bound themselves jointly and severally to pay the loan on or before January 23, 1997 with a 15% interest per month. The loan remained unpaid despite repeated demands by respondent. Petitioner resisted the complaint alleging that he signed the promissory note merely as an accommodation party for de Jesus and the latter had already paid the loan by means of a check and that the issuance of the check and acceptance thereof novated or superseded the note. The trial court rendered a judgment on the pleadings in favor of the respondent and directed petitioner to pay jointly and severally respondent the amounts of Php 400, 000 representing the principal amount plus interest at 15% per month from January 23, 1997 until the same shall have been fully paid, less the amount of Php 120,000 representing interests already paid. The Court of Appeals ruled that no novation, express or implied, had taken place when respondent accepted the check from de Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by petitioner and de Jesus. Respondents acceptance of the check did not serve to make de Jesus the sole debtor because first, the obligation incurred by him and petitioner was joint and several; and second, the check which had been intended to extinguish the obligation bounced upon its presentment. Issues: (1) Whether or not there was novation of the obligation (2) Whether or not the defense that petitioner was only an accommodation party had any basis. Held: For novation to take place, the following requisites must concur: (1) There must be a previous valid obligation; (2) the parties concerned must agree to a new contract; (3) the old contract must be extinguished; and (4) there must be a valid new contract. The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check or that the check would take the place of the note. There is no incompatibility between the promissory note and the check. Neither could the payment of interests, which in petitioners view also constitutes novation, change the terms and conditions of the obligation. Such payment was already provided for in the promissory note and, like the check, was totally in accord with the terms thereof. Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. In order to change the person of the debtor, the old must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation. Well-settled is the rule that novation is never presumed. Consequently, that which arises from a purported change in the person of the debtor must be clear and express. It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. Note also that for novation to be valid and legal, the law requires that the creditor expressly consent to the substitution of a new debtor. In a solidary obligation, the creditor is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. It is up to the former to determine against whom to enforce collection. Having made himself jointly and severally liable with de Jesus, petitioner is therefore liable for the entire obligation. (2) By its terms, the note was made payable to a specific person rather than bearer to or ordera requisite for negotiability. Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and evidence of such intangible rights as may have been created by the assent of the parties. The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL. Even granting that the NIL was applicable, still petitioner would be liable for the note. An accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissory debtor from the beginning. The liability is immediate and direct. Moran vs. CAGR 105836, 7 March 1994Second Division, Regalado (J)Facts: Geo rg e a n d Li b ra d a M ora n m ai n ta in ed 3 j oin t a c c oun t s wi t h C i t yTru s t B a nk in g C orp ora tion . Th e Morans issued checks in favor of Petrophil Corporation, which were dishonored for insufficiency of funds.Moran deposited the amount that would cover the checks the day after the checks clearing. Petrophil did notd eli ver t h e M ora n s fu el ord e rs for t h ei r Wa c k - Wa c k Pet ron Ga s oli n e s t a t i on , p rom p t in g th e la t t er t o temporarily stop business operations. The Morans sued the bank for damages. Issue:Whether a bank is liable for its refusal to pay a check on account of insufficient funds, notwithstandingthe fact the fact that a deposit was made later in the day. Held:A check is a bill of exchange drawn on a bank payable on demand. Where the bank possesses funds ofa depositor, it is bound to honor his checks to the extent of the amount of the deposits. Failure to do so, whend ep os i t i s s u ffi ci en t , en t it les t h e d ra wer t o s u b s t an t ia l d a m a ges wi t h ou t p roof of a c t ua l d a m a ges . Herei n , however, the balance of the account maintained in the bank was not enough to cover either of the two checkswhen they were dishonored. A check, as distinguished from an ordinary bill of exchange, is supposed to bedrawn against a previous deposit of funds. As such, a drawer must remember his responsibilities every timehe issues a check. He must personally keep track of his available balance in the bank and not rely on the bankto notify him of the necessity to fund the checks he previously issued. A bank is under no obligation to makep a rt p aym en t on a ch ec k, up t o on ly t h e a m ou nt of t h e d ra we rs fu n d s , wh ere t h e c h ec k i s d ra wn for a n a m ou nt la rger t h an wh a t t h e d ra wer h a s on d ep os i t . A c h ec k i s i nt en d ed n ot on ly t o t ra n s fer a ri gh t t o t h eamount named in it, but to serve the further purpose of affording evidence for the bank of the payment of suchamount when the check is taken up. Clearly, a bank is not liable for its refusal to pay a check on account ofin s u ffi ci en t fund s , n ot wi t h s t and in g t h e fa ct th at a d ep os i t m a y b e m a d e la t er i n th e d a y. B efor e a b an k depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had ondeposit sufficient funds to meet his demand.

Nego-d: Caltex (Philippines) Inc. vs. CA (GR97753,10 August1992) Posted by Berne Guerrero under(a) oas,digests No Comments Caltex (Philippines) Inc. vs. CA Facts: On various dates, Security Bank and Trust Co. (SEBTC), through itsSucat branch, issued 280 certificates of time deposit (CTD) in favor of oneAngel dela Cruz who deposited with the bank the aggregate amount of P1.12million. Anger de la Cruz delivered the CTDs to Caltex in connection with hispurchase of fuel products from the latter. Subsequently, dela Cruz informedthe bank that he lost all the CTDs, and thus executed an affidavit of loss tofacilitate the issuance of the replacement CTDs. De la Cruz was able toobtain a loan of P875,000 from the bank, and in turn, he executed anotarized Deed of Assignment of Time Deposit in favor of the bank.Thereafter, Caltex presented for verification the CTDs (which were declaredlost by de la Cruz) with the bank. Caltex formally informed the bank of itspossession of the CTDs and its decision to preterminate the same. The bankrejected Caltex claim and demand, after Caltex failed to furnish copy of therequested documents evidencing the guarantee agreement, etc. In 1983, dela Cruz loan matured and the bank set-off and applied the time deposits aspayment for the loan. Caltex filed the complaint, but which was dismissed. Issue [1]: Whether the Certificates of Time Deposit (CTDs) are negotiableinstruments. Held [1]: The CTDs in question meet the requirements of the law fornegotiability. Contrary to the lower courts findings, the CTDs are negotiableinstruments (Section 1). Negotiability or non-negotiability of an instrumentis determined from the writing, i.e. from the face of the instrument itself.The documents provided that the amounts deposited shall be repayable tothe depositor. The amounts are to be repayable to the bearer of thedocuments, i.e. whosoever may be the bearer at the time of Whether the CTDs negotiation require deliveryonly. Held [2]: Although the CTDs are bearer instruments, a valid negotiationthereof for the true purpose and agreement between it (Caltex) and de laCruz requires both delivery and indorsement; as the CTDs were delivered toit as security for dela Cruz purchases of its fuel products, and not forpayment. Herein, there was no negotiation in the sense of a transfer of title,or legal title, to the CTDs in which situation mere delivery of the bearer CTDswould have sufficed. The delivery thereof as security for the fuel purchasesat most constitutes Caltex as a holder for value by reason of his lien.Accordingly, a negotiation for such purpose cannot be effected by meredelivery of the instrument since the terms thereof and the subsequentdisposition of such security, in the event of non-payment of the principalobligation, must be contractually provided for. CONSOLIDATED PLYWOOD V. IFC 149 SCRA 448 FACTS: Petitioner bought from Atlantic Gulf and Pacific Company, through its sister company Industrial Products Marketing, two used tractors. Petitioner was issued a sales invoice for the two used tractors. At the same time, the deed of sale with chattel mortgage with promissory note was issued. Simultaneously, the seller assigned the deed of sale with chattel mortgage and promissory note to respondent. The used tractors were then delivered but barely 14 days after, the tractors broke down. The seller sent mechanics but the tractors were not repaired accordingly as they were no longer serviceable. Petitioner would delay the payments on the promissory notes until the seller completes its obligation under the warranty. Thereafter, a collection suit was filed against petitioner for the payment of the promissory note. HELD: It is patent that the seller is liable for the breach in warranty against the petitioner. This liability as a general rule extends to the corporation to whom it assigned its rights and interests unless the assignee is a holder in due course of the promissory note in question, assuming the note is negotiable, in which case, the latters rights are based on a negotiable instrument and assuming further that the petitioners defense may not prevail against it. The promissory note in question is not a negotiable instrument. The promissory note in question lacks the so-called words of negotiability. And as such, it follows that the respondent can never be a holder in due course but remains merely an assignee of the note in question. Thus, the petitioner may raise against the respondents all defenses available to it against the seller. GSIS V. CA 170 SCRA 533 FACTS: Two deeds of mortgages were issued by spouses Racho in favor of GSIS as security for two loans obtained by them. They also executed a promissory note. Due to the failure to comply with the terms of the mortgage, the mortgages were extrajudicially foreclosed. The foreclosure was being assailed by the spouses as they alleged that the mortgage contracts were signed not as guarantees or sureties but merely gave their common property for the sole benefit of the other spouses. Both sides of the case used the provisions on accommodation parties in the Negotiable Instruments Law. The trial court dismissed the action but this was reversed by the appellate court. HELD: Both parties rely on the Negotiable Instruments Law but this is misplaced. The promissory note and the deeds of mortgage are not negotiable instruments as they lack the fourth requisite which is it must be payable to order or bearer. SALAS V. CA 181 SCRA 296 FACTS: Petitioner bought a car from Viologo Motor Sales Company, which was secured by a promissory note, which was later on indorsed to Filinvest Finance, which financed the transaction. Petitioner later on defaulted in her installment payments, allegedly due to the fraud imputed by VMS in selling her a different vehicle from what was agreed upon. This default in payment prompted Filinvest Finance to initiate a case against petitioner. The trial court decided in favor of Filinvest, to which the appellate court upheld by increasing the amount to be paid. It is the contention of petitioner that since the agreement between her and the motor company was inexistent, none had been assigned in favor of private respondent. HELD: Petitioners liability on the promissory note, the due execution and genuineness of which she never denied under oath, is under the foregoing factual milieu, as inevitable as it is clearly established. The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce payment only to the same extent as, the assignor-vendor. The instrument to be negotiable must contain the so-called words of negotiability. There are only 2 ways for an instrument to be payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words or order or to the order of, the instrument is payable only to the person designated therein and is thus non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder in due course but will merely step into the shoes of the person designated in the instrument and will thus be open to the defenses available against the latter. In the case at bar, the promissory notes is earmarked with negotiability and Filinvest is a holder in due course. EQUITABLE BANKING V. IAC 161 SCRA 518 FACTS: Nell Company issued a check to help Casals and Casville Enterprises obtain a letter of credit from Equitable Banking in connection with equipment, a garrett skidder, which Casals and Casville were buying from Nell. Nell indicated the payee as follows EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES INC. Casals deposited the check with the bank and the bank teller accepted the same and in accordance with customary bank practice, stamped in the check the words non-negotiable. The amount was withdrawn after the deposit. This prompted Nell to file a case against the bank, Casals and Casville. While the instant case was being tried, Casals and

Casville assigned the garrett skidder to plaintiff which credited in favor of defendants the amount of P450,000, as partial satisfaction of its claim against them. HELD:Equitable is not liable to Nell. Nell should bear the loss as it was through its own acts, which put it into the power of Casals and Casville Enterprises to perpetuate the fraud against it. The check wasnt initially non-negotiable. Neither was it cross-checked. The rubber-stamping transversally on the face of the check was only made the bank teller in accordance with customary bank practice, and not by Nell as the drawer of the check, and simply meant that thereafter the same check could no longer be negotiated. The payee was not indicated with reasonable certainty in contravention of Section 8. As worded, it could be accepted as deposit to the account of the party named therein after the symbols of A/C, or payable to the bank as trustee, or as an agent, for Casville with the latter being the ultimate beneficiary. TRADERS ROYAL BANK V. CA 269 SCRA 15 FACTS: Filriters through a Detached Agreement transferred ownership to Philfinance a Central Bank Certificate of Indebtedness. It was only through one of its officers by which the CBCI was conveyed without authorization from the company. Petitioner and Philfinance later entered into a Repurchase agreement, on which petitioner bought the CBCI from Philfinance. The latter agreed to repurchase the CBCI but failed to do so. When the petitioner tried to have it registered in its name in the CB, the latter didn't want to recognize the transfer. HELD: The CBCI is not a negotiable instrument. The instrument provides for a promise to pay the registered owner Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of negotiability which should have served as an expression of the consent that the instrument may be transferred by negotiation. The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the protection, which the law throws around a holder in due course. This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time. The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. The pertinent question then iswas the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank? Clearly shown in the record is the fact that Philfinances title over CBCI is defective since it acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for value received, there was really no consideration involved. What happened was Philfinance merely borrowed CBCI from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity. Furthermore, the transfer wasn't in conformity with the regulations set by the CB. Giving more credence to rule that there was no valid transfer or assignment to petitioner. MWSS vs. CA GR L-62943, 14 July 1986Second Division, Gutierrez Jr. (J)Facts: By special arrangement with PNB, MWSS used personalized checks in drawing from its account. Thech ec k s wer e p ri n t ed b y i t s p ri n t er, F. M es i n a En t erp ri s es . 23 ch ec k s wer e p a i d an d c lea red b y PNB , a nd debited against MWSS account from March to May 1969. The checks were deposited by payees Raul Dizon,Art u ro Si s on , an d An t oni o M en d oza in t h ei r a cc oun t wi t h PC IB a n k . Sai d p ers on s wer e la t e r fou n d t o b e fictitious. MWSS requested PNB to restore the amount debited due to the 23 checks, allegedly forged, to itsaccount. The bank refused. Hence, the present action. Issue: Who shall bear the loss resulting from the alleged forged checks. Held: There was no express and categorical finding that the 23 checks were forged or signed by persons otherthan the authorized MWSS signatories. Forgery is not presumed but should be established by clear, positivea nd con vi n c in g evi d en c e. M WSS i s b a rred from s et t i n g up d efen s e o f for ge r y u n d er S ec t i on 23 of t h e Negotiable Instruments Law as MWSS committed gross negligence in the printing of its personalized checks,fai led t o rec o n c i le i t s b an k s t at em en t s wi t h i t s own rec ord s , a nd fa i led t o p rovi d e a pp rop ri a t e s ec u r i t ymeasures over its own record. PNB, the drawee bank, had taken necessary measures in the detection of forgedchecks and the prevention of their fraudulent encashment through constant reminders to all its current accountb ookk eep ers i n form i n g t h em of t h e a c t i vi ti es of forg er y s yn d i c at es . M WS S gr os s n egli g en c e wa s t h e proximate cause of the loss (P3 million), and should bear the loss. Nego-d: AssociatedBankvs. CA (GR107382,31 January 1996) Posted by Berne Guerrero under(a) oas,digests No Comments Associated Bank vs. CA Facts: The Province of Tarlac maintains a current account with the PhilippineNational Bank (PNB Tarlac Branch) where the provincial funds are deposited.Portions of the funds were allocated to the Concepcion Emergency Hospital.Checks were issued to it and were received by the hospitals administrativeofficer and cashier (Fausto Pangilinan). Pangilinan, through the help of Associated Bank but after forging the signature of the hospitals chief (AdenaCanlas), was able to deposit the checks in his personal account. All thechecks bore the stamp All prior endorsement guaranteed Associated Bank. Through post-audit, the province discovered that the hospital did not receiveseveral allotted checks, and sought the restoration of the debited amountsfrom PNB. In turn, PNB demanded reimbursement from Associated Bank.Both banks resisted payment. Hence, the present action. Issue: Who shall bear the loss resulting from the forged checks. Held: PNB is not negligent as it is not required to return the check to thecollecting bank within 24 hours as the banks involved are covered by CentralBank Circular 580 and not the rules of the Philippine Clearing House.Associated Bank, and not PNB, is the one duty-bound to warrant theinstrument as genuine, valid and subsisting at the time of indorsementpursuant to Section 66 of the Negotiable Instruments Law. The stampguaranteeing prior indorsement is not an empty rubric; the collecting bank isheld accountable for checks deposited by its customers. However, due to thefact that the Province of Tarlac is equally negligent in permitting Pangilinanto collect the checks when he was no longer connected with the hospital, itshares the burden of loss from the checks bearing a forged indorsement.Therefore, the Province can only recover 50% of the amount from thedrawee bank (PNB), and the collecting bank (Associated Bank) is liable toPNB for 50% of the same amount.Wed 24 Mar2004 Nego-d: AssociatedBankvs. CA (GR89802, 7May 1992) Posted by Berne Guerrero under(a) oas,digests No Comments Associated Bank vs. CA Facts: Melissas RTWs customers issued cross checks payable to MelissasRTW, which its proprietor Merle Reyes did not receive. It was learned thatthe checks had been deposited with the Associated Bank by one RafaelSayson. Sayson was not authorized by Reyes to deposit and encash saidchecks. Reyes filed an action for the recovery of the total value of the checksplus damages. Issue: Whether the bank was negligent for the loss. Held: Crossing a check means that the drawee bank should not encash thecheck but merely accept it for deposit, that the check may be negotiatedonly once by one who has an account in a bank, and that the check servesas warning that it was issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. The effect, thus, relate

to the mode of its presentment for payment, in accordance with Section 72of the Negotiable Instruments Law. The bank paid the checksnotwithstanding that title had not passed to the indorser, as the checks hadbeen crossed and issued for payees account only. It does did so in its ownperil and became liable to the payee for the value of the checks. The failureof the bank to make an inquiry as to Saysons authority was a breach of itsduty. The bank is negligent and is thus liable to Reyes. PNB vs. QuimpoGR L-53194, 14 March 1988First Division, Gancayco (J)Facts: Fra n c i s c o Go zon wa s a d ep os it or of t h e P h i li pp in e Na t i ona l B a nk (PNB C a looc a n Ci t y b ran c h ). Ernesto Santos, Gozons friend, took a check from the latters checkbook which was left in the car, filled it upfor the amount of P5,000, forged Gozons signature, and encashed it. Gozon learned about the transactionupon receipt of the banks statement of account, and requested the bank to recredit the amount to his account.The bank refused. Hence, the present action. Issue:Who shall bear the loss resulting from the forged check. Held:The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositoron the check being encashed. It is expected to use reasonable business prudence in accepting and cashing achec k b ei n g en ca s h ed or p res en t ed t o i t . Pa ym en t i n n egl ec t of d u t y p la c es u p on him t h e res u lt of s u c h negligence. Still, Gozons act in leaving his checkbook in the car, where his trusted friend remained in, cannotbe considered negligence sufficient to excuse the bank from its own negligence. The bank bears the loss. State Investment House vs. IACGR 72764, 13 July 1989Third Division, Fernan (J)Facts: Ne w S i k a t un a Wood In d u s t ri es In c . (NS W I) r eq u es t ed for a loa n from Ha rri s C h u a, wh o i ss u ed 3 crossed checks. Subsequently, NSWI entered in an agreement with the State Investment House Inc. (SIHI),under a deed of sale, where the former assigned and discounted 11 postdated checks including the 3 issued byC h ua . Wh en th e 3 ch ec k s wer e a ll eg ed l y d e p os i t ed b y S IH I, t h e c h ec k s wer e d i s h on ored b y re a s on of insufficient funds, stop payment and account closed. SIHI made demands upon Chua to make goodsaid checks, Chua failed to do so. Issue:Wh et h er S IH I i s a h old er i n d u e c ou rs e s o a s t o rec over t h e a m ou n t s i n th e c h ec k s from C hu a , th e drawer. Held:The Negotiable Instruments Law does not mention crossed checks but the Court has recognized thepractice that crossing the check (by two parallel lines in the upper left portion of the check) means that thecheck may only be deposited in the bank and that the check may be negotiated only once (to one who has anaccount with a bank). The act of crossing a check serves as a warning to the holder that the check has beeni s s u ed for a d efi n i t e p u rp os e s o t h a t h e m u s t in qu i re i f he h a s rec ei ved t h e c h ec k pu rs u a nt t o t ha t p u rp os e, otherwise he is not a holder in due course. Herein, SIHI rediscounted the check knowing that it was a crossedcheck. His failure to inquire from the holder (NSWI) the purpose for which the checks were crossed preventshi m from b ei n g c on si d ered i n good fa it h, an d t hu s , a s a h old er i n du e c ou rse. S IH I, t h ere for i s s u b j ec t t o personal defenses, such as the lack of consideration between the NSWI and Chua, i.e. resulting from the non-consummation of the loan. http://www.batasnatin.com/law-library/mercantile-law/jurisprudence/888-traders-royal-bank-v-ca-269-scra-15.html http://www.scribd.com/doc/53725328/9/CORPORATION-CODE http://www.scribd.com/doc/39812569/43/Moran-vs-CA-1994