VI.

CONTROL AND MANAGEMENT OF THE CORPORATION

Board of Directors
MANILA METAL CONTAINER CORP. v. PNB
A negotiation is formally initiated by an offer, which, however, must
be certain. At anytime prior to the perfection of the contract, either
negotiating party may stop the negotiation. At this stage, the offer
may be withdrawn; the withdrawal is effective immediately after its
manifestation. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional and without variance of
any sort from the proposal.

members with voting rights shall be counted in determining the

existence of a quorum during members meetings. Dead members
shall not be counted.

A qualified acceptance or one that involves a new proposal

constitutes a counter-offer and a rejection of the original offer. A
counter-offer is considered in law, a rejection of the original offer
and an attempt to end the negotiation between the parties on a
different basis. Consequently, when something is desired which is
not exactly what is proposed in the offer, such acceptance is not
sufficient to guarantee consent because any modification or
variation from the terms of the offer annuls the offer. The
acceptance must be identical in all respects with that of the offer so
as to produce consent or meeting of the minds.

In the absence of an express charter or statutory provision to the

contrary, the general rule is that every member of a nonstock
corporation, and every legal owner of shares in a stock corporation,
has a right to be present and to vote in all corporate meetings.
Conversely, those who are not stockholders or members have no
right to vote. Voting may be expressed personally, or through
proxies who vote in their representative capacities. Generally, the
right to be present and to vote in a meeting is determined by the
time in which the meeting is held.

There is no evidence that the SAMD was authorized by

respondent's Board of Directors to accept petitioner's offer and sell
the property for P1,574,560.47. Any acceptance by the SAMD of
petitioner's offer would not bind respondent.
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board
of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not
in the course of, or connected with the performance of authorized
duties of such director, is held not binding on the corporation.
TAN v. SYCIP
For stock corporations, the quorum referred to in Section 52 of
the Corporation Code is based on the number of outstanding voting
stocks. For nonstock corporations, only those who are actual, living

While stockholders and members (in some instances) are entitled

to receive profits, the management and direction of the corporation
are lodged with their representatives and agents -- the board of
directors or trustees. In other words, acts of management pertain
to the board; and those of ownership, to the stockholders or
members. In the latter case, the board cannot act alone, but must
seek approval of the stockholders or members.

In stock corporations, the presence of a quorum is ascertained and

counted on the basis of the outstanding capital stock. Neither the
stockholders nor the corporation can vote or represent shares that
have never passed to the ownership of stockholders; or, having so
passed, have again been purchased by the corporation. These
shares are not to be taken into consideration in determining
majorities. When the law speaks of a given proportion of the stock,
it must be construed to mean the shares that have passed from the
corporation, and that may be voted.
In nonstock corporations, the voting rights attach to membership.
Members vote as persons, in accordance with the law and the
bylaws of the corporation. Each member shall be entitled to one
vote unless so limited, broadened, or denied in the articles of
incorporation or bylaws. We hold that when the principle for
determining the quorum for stock corporations is applied by
analogy to nonstock corporations, only those who are actual
members with voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of the
members representing the actual number of voting rights, not the
number or numerical constant that may originally be specified in
the articles of incorporation, constitutes the quorum.

In stock corporations, shareholders may generally transfer their

shares. Thus, 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. Until a settlement and
division of the estate is effected, the stocks of the decedent are
held by the administrator or executor.
On the other hand, membership in and all rights arising from a
nonstock corporation are personal and non-transferable, unless the
articles of incorporation or the bylaws of the corporation provide
otherwise. In other words, the determination of 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.
Applying Section 91 to the present case, we hold that dead
members who are dropped from the membership roster in the
manner and for the cause provided for in the By-Laws of GCHS are
not to be counted in determining the requisite vote in corporate
matters or the requisite quorum for the annual members meeting.
With 11 remaining members, the quorum in the present case
should be 6. Therefore, there being a quorum, the annual
members meeting, conducted with six members present, was
valid.
Undoubtedly, trustees may fill vacancies in the board, provided that
those remaining still constitute a quorum. The phrase may be
filled in Section 29 shows that the filling of vacancies in the board
by the remaining directors or trustees constituting a quorum is
merely permissive, not mandatory. Corporations, therefore, may
choose how vacancies in their respective boards may be filled up -either by the remaining directors constituting a quorum, or by the
stockholders or members in a regular or special meeting called for
the purpose.
The 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. While a majority of
the remaining corporate members were present, however, the
election of the four trustees cannot be legally upheld for the
obvious reason that it was held in an annual meeting of the
members, not of the board of trustees. We are not unmindful of the
fact that the members of GCHS themselves also constitute the
trustees, but we cannot ignore the GCHS bylaw provision, which
specifically prescribes that vacancies in the board must be filled up
by the remaining trustees. In other words, these remaining

member-trustees must sit as a board in order to validly elect the

new ones.
Indeed, there is a well-defined distinction between a corporate act
to be done by the board and that by the constituent members of
the corporation. The board of trustees must act, not individually or
separately, but as a body in a lawful meeting. On the other hand, in
their annual meeting, the members may be represented by their
respective proxies, as in the contested annual members meeting
of GCHS.
GAMBOA v. VICTORIANO
Courts cannot undertake to control the discretion of the board of
directors about administrative matters as to which they have
legitimate power of, action and contracts intra vires entered into by
the board of directors are binding upon the corporation and courts
will not interfere unless such contracts are so unconscionable and
oppressive as to amount to a wanton destruction of the rights of
the minority. In the instant case, the plaintiffs aver that the
defendants have concluded a transaction among themselves as will
result to serious injury to the interests of the plaintiffs, so that the
trial court has jurisdiction over the case.
An individual stockholder is permitted to institute a derivative suit
on behalf of the corporation wherein he holds stock in order to
protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued or hold the
control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party
in interest. In the case at bar, however, the plaintiffs are alleging
and vindicating their own individual interests or prejudice, and not
that of the corporation. At any rate, it is yet too early in the
proceedings since the issues have not been joined. Besides,
misjoinder of parties is not a ground to dismiss an action.
Board Must Act as a Body in a Meeting
FIRME v. BUKAL
There was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses
Firme. Aviles did not have the proper authority to negotiate for
Bukal Enterprises.Aviles testified that his friend, De Castro, had
asked him to negotiate with the Spouses Firme to buy the Property.
De Castro, as Bukal Enterprises vice president, testified that he

authorized Aviles to buy the Property. However, there is no Board

Resolution authorizing Aviles to negotiate and purchase the
Property on behalf of Bukal Enterprises. It is the board of directors
or trustees which exercises almost all the corporate powers in a
corporation.
The power to purchase real property is vested in the board of
directors or trustees. While a corporation may appoint agents to
negotiate for the purchase of real property needed by the
corporation, the final say will have to be with the board, whose
approval will finalize the transaction. A corporation can only
exercise its powers and transact its business through its board of
directors and through its officers and agents when authorized by a
board resolution or its by-laws.
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board
of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not
in the course of, or connected with the performance of authorized
duties of such director, is held not binding on the corporation.
The power of a corporation to sue and be sued is exercised by the
board of directors. The physical acts of the corporation, like the
signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate by-laws or by a
specific act of the board of directors.
The purpose of verification is to secure an assurance that the
allegations in the pleading are true and correct and that it is filed in
good faith. True, this requirement is procedural and not
jurisdictional. However, the trial court should have ordered the
correction of the complaint since Aviles was neither an officer of
Bukal Enterprises nor authorized by its Board of Directors to act on
behalf of Bukal Enterprises.
HORNILLA v. SALUNAT
There is conflict of interest when a lawyer represents inconsistent
interests of two or more opposing parties. The test is whether or

not in behalf of one client, it is the lawyers duty to fight for an

issue or claim, but it is his duty to oppose it for the other client. In
brief, if he argues for one client, this argument will be opposed by
him when he argues for the other client. This rule covers not only
cases in which confidential communications have been confided,
but also those in which no confidence has been bestowed or will be
used. Also, there is conflict of interests if the acceptance of the new
retainer will require the attorney to perform an act which will
injuriously affect his first client in any matter in which he represents
him and also whether he will be called upon in his new relation to
use against his first client any knowledge acquired through their
connection. Another test of the inconsistency of interests is
whether the acceptance of a new relation will prevent an attorney
from the full discharge of his duty of undivided fidelity and loyalty
to his client or invite suspicion of unfaithfulness or double dealing
in the performance thereof.
In this jurisdiction, a corporations board of directors is understood
to be that body which (1) exercises all powers provided for under
the Corporation Code; (2) conducts all business of the corporation;
and (3) controls and holds all property of the corporation. Its
members have been characterized as trustees or directors clothed
with a fiduciary character. It is clearly separate and distinct from
the corporate entity itself.
Where corporate directors have committed a breach of trust either
by their frauds, ultra vires acts, or negligence, and the corporation
is unable or unwilling to institute suit to remedy the wrong, a
stockholder may sue on behalf of himself and other stockholders
and for the benefit of the corporation, to bring about a redress of
the wrong done directly to the corporation and indirectly to the
stockholders. This is what is known as a derivative suit, and settled
is the doctrine that in a derivative suit, the corporation is the real
party in interest while the stockholder filing suit for the
corporations behalf is only nominal party. The corporation should
be included as a party in the suit.
In other jurisdictions, the prevailing rule is that a situation wherein
a lawyer represents both the corporation and its assailed directors
unavoidably gives rise to a conflict of interest. The interest of the
corporate client is paramount and should not be influenced by any
interest of the individual corporate officials. The rulings in these
cases have persuasive effect upon us. After due deliberation on the
wisdom of this doctrine, we are sufficiently convinced that a lawyer
engaged as counsel for a corporation cannot represent members of
the same corporations board of directors in a derivative suit

brought against them. To do so would be tantamount to

representing conflicting interests, which is prohibited by the Code
of Professional Responsibility?
SAFIC ALCAN & CIE v. IMPERIAL VEGETABLE OIL., INC.
It is the Board of Directors, not the President that exercises
corporate powers.
It can be clearly seen from the foregoing provision of IVO's By-laws
that Monteverde had no blanket authority to bind IVO to any
contract. He must act according to the instructions of the Board of
Directors. Even in instances when he was authorized to act
according to his discretion that discretion must not conflict with
prior Board orders, resolutions and instructions. The evidence
shows that the IVO Board knew nothing of the 1986 contracts and
that it did not authorize Monteverde to enter into speculative
contracts. In fact, Monteverde had earlier proposed that the
company engage in such transactions but the IVO Board rejected
his proposal. Since the 1986 contracts marked a sharp departure
from past IVO transactions, Safic should have obtained from
Monteverde the prior authorization of the IVO Board. Safic can not
rely on the doctrine of implied agency because before the
controversial 1986 contracts, IVO did not enter into identical
contracts with Safic. The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent.
Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not
make such inquiry, he is chargeable with knowledge of the agent's
authority, and his ignorance of that authority will not be any
excuse. Persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound at their
peril, if they would hold the principal, to ascertain not only the fact
of the agency but also the nature and extent of the authority, and
in case either is controverted, the burden of proof is upon them to
establish it.
Under Article 1898 of the Civil Code, the acts of an agent beyond
the scope of his authority do not bind the principal unless the latter
ratifies the same expressly or impliedly. It also bears emphasizing
that when the third person knows that the agent was acting beyond
his power or authority, the principal can not be held liable for the
acts of the agent. If the said third person is aware of such limits of
authority, he is to blame, and is not entitled to recover damages

from the agent, unless the latter undertook to secure the principal's
ratification.
There was no such ratification in this case. When Monteverde
entered into the speculative contracts with Safic, he did not secure
the Board's approval. He also did not submit the contracts to the
Board after their consummation so there was, in fact, no occasion
at all for ratification. The contracts were not reported in IVO's
export sales book and turn-out book. Neither were they reflected in
other books and records of the corporation. It must be pointed out
that the Board of Directors, not Monteverde, exercises corporate
power. Clearly, Monteverde's speculative contracts with Safic never
bound IVO and Safic can not therefore enforce those contracts
against IVO.
BOARD OF LIQUIDATORS v. HEIRS OF KALAW
A corporate officer, entrusted with the general management and
control of its business, has implied authority to make any contract
or do any other act which is necessary or appropriate to the
conduct of the ordinary business of the corporation. As such officer,
he may, without any special authority from the Board of Directors,
perform all acts of an ordinary nature, which by usage or necessity
are incident to his office, and may bind the corporation by contracts
in matters arising in the usual course of business.
Where similar acts have been approved by the directors as a
matter of general practice, custom, and policy, the general
manager may bind the company without formal authorization of the
board of directors. In varying language, existence of such authority
is established by proof of the course of business, the usages and
practices of the company and by the knowledge which the board of
directors has, or must be presumed to have, of acts and doings of
its subordinates in and about the affairs of the corporation. Where
the practice of the corporation has been to allow its general
manager to negotiate and execute contracts in its copra trading
activities for and in behalf of Nacoco without prior board approval,
and the board itself, by its acts and through acquiescence,
practically laid aside the by-law requirement of prior approval, the
contracts of the general manager, under the given circumstances,
are valid corporate acts.
Ratification by a corporation of an unauthorized act or contract by
its officers or others relates back to the time of the act or contract
ratified and is equivalent to original authority. The corporation and

the other party to the transaction are in precisely the same position
as if the act or contract had been authorized at the time. The
adoption or ratification of a contract by a corporation is nothing
more nor less than making of an original contract.
LOPEZ REALTY v. FONTECHA
The general rule is that a corporation, through its board of
directors, should act in the manner and within the formalities, if
any, prescribed by its charter or by the general law. Thus, directors
must act as a body in a meeting called pursuant to the law or the
corporation's by-laws, otherwise, any action taken therein may be
questioned by any objecting director or shareholder. Be that as it
may, jurisprudence 16 tells us that an action of the board of
directors during a meeting, which was illegal for lack of notice, may
be ratified either expressly, by the action of the directors in
subsequent legal meeting, or impliedly, by the corporation's
subsequent course of conduct.
Thus, acts of directors at a meeting which was illegal because of
want of notice may be ratified by the directors at a subsequent
legal meeting, or by the corporations course of conduct. Ratification
by directors may be by an express resolution or vote to that effect,
or it may be implied from adoption of the act, acceptance or
acquiescence. Ratification may be effected by a resolution or vote
of the board of directors expressly ratifying previous acts either of
corporate officers or agents; but it is not necessary, ordinarily, to
show a meeting and formal action by the board of directors in order
to establish a ratification.
Moreover, the unauthorized acts of an officer of a corporation may
be ratified by the corporation by conduct implying approval and
adoption of the act in question. Such ratification may be express or
may be inferred from silence and inaction.
Business Judgment Rule
ONG YONG v. TIU
The Trust Fund Doctrine, first enunciated by this Court in the 1923
case of Philippine Trust Co. vs. Rivera, provides that subscriptions
to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims.
This doctrine is the underlying principle in the procedure for the
distribution of capital assets, embodied in the Corporation Code,
which allows the distribution of corporate capital only in three

instances: (1) amendment of the Articles of Incorporation to reduce

the authorized capital stock, (2) purchase of redeemable shares by
the corporation, regardless of the existence of unrestricted retained
earnings, and (3) dissolution and eventual liquidation of the
corporation. Furthermore, the doctrine is articulated in Section 41
on the power of a corporation to acquire its own shares and in
Section 122 on the prohibition against the distribution of corporate
assets and property unless the stringent requirements there for are
complied with.
The distribution of corporate assets and property cannot be made
to depend on the whims and caprices of the stockholders, officers
or directors of the corporation, or even, for that matter, on the
earnest desire of the court a quo to prevent further squabbles and
future litigations unless the indispensable conditions and
procedures for the protection of corporate creditors are followed.
Otherwise, the corporate peace laudably hoped for by the court
will remain nothing but a dream because this time, it will be the
creditors turn to engage in squabbles and litigations should the
court order an unlawful distribution in blatant disregard of the Trust
Fund Doctrine.
The Tius case for rescission cannot validly be deemed a petition to
decrease capital stock because such action never complied with
the formal requirements for decrease of capital stock under Section
33 of the Corporation Code. No majority vote of the board of
directors was ever taken. Neither was there any stockholders
meeting at which the approval of stockholders owning at least twothirds of the outstanding capital stock was secured. There was no
revised treasurers affidavit and no proof that said decrease will not
prejudice the creditors rights. On the contrary, all their pleadings
contained were alleged acts of violations by the Ongs to justify an
order of rescission.
Furthermore, it is an improper judicial intrusion into the internal
affairs of the corporation to compel FLADC to file at the SEC a
petition for the issuance of a certificate of decrease of stock.
Decreasing a corporations authorized capital stock is an
amendment of the Articles of Incorporation. It is a decision that
only the stockholders and the directors can make, considering that
they are the contracting parties thereto. In this case, the Tius are
actually not just asking for a review of the legality and fairness of a
corporate decision. They want this Court to make a corporate
decision for FLADC. We decline to intervene and order corporate
structural changes not voluntarily agreed upon by its stockholders
and directors.

A judicial order to decrease capital stock without the assent of

FLADCs directors and stockholders is a violation of the business
judgment rule which states that: Contracts intra vires entered into
by the board of directors are binding upon the corporation and
courts will not interfere unless such contracts are so
unconscionable and oppressive as to amount to wanton destruction
to the rights of the minority, as when plaintiffs aver that the
defendants (members of the board), have concluded a transaction
among themselves as will result in serious injury to the plaintiffs
stockholders.
MONTELIBANO v. BACOLOD-MURCIA MILLING CO., INC.
If that act is one which is lawful in itself, and not otherwise
prohibited, is done for the purpose of serving corporate ends, and is
reasonably tributary to the promotion of those ends, in a
substantial, and not in a remote and fanciful sense, it may fairly be
considered within charter powers. The test to be applied is whether
the act in question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the corporation has
the power to do it; otherwise, not.
As the resolution in question was passed in good faith by the board
of directors, it is valid and binding, and whether or not it will cause
losses or decrease the profits of the central, the court has no
authority to review them.
Whether the business of a corporation should be operated at a loss
during depression, or close down at a smaller loss, is a purely
business and economic problem to be determined by the directors
of the corporation and not by the court. It is a well-known rule of
law that questions of policy or of management are left solely to the
honest decision of officers and directors of a corporation, and the
court is without authority to substitute its judgment of the board of
directors; the board is the business manager of the corporation,
and so long as it acts in good faith its orders are not reviewable by
the courts.
PHILIPPINE STOCKS EXCHANGE, INC. v. CA
The role of the SEC in our national economy cannot be minimized.
The legislature, through the Revised Securities Act, Presidential
Decree No. 902-A, and other pertinent laws, has entrusted to it the

serious responsibility of enforcing all laws affecting corporations

and other forms of associations not otherwise vested in some other
government office.
This is not to say, however, that the PSEs management
prerogatives are under the absolute control of the SEC. The PSE is,
after all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One of the
PSEs main concerns, as such, is still the generation of profit for its
stockholders. Moreover, the PSE has all the rights pertaining to
corporations, including the right to sue and be sued, to hold
property in its own name, to enter (or not to enter) into contracts
with third persons, and to perform all other legal acts within its
allocated express or implied powers.
A corporation is but an association of individuals, allowed to
transact under an assumed corporate name, and with a distinct
legal personality. In organizing itself as a collective body, it waives
no constitutional immunities and perquisites appropriate to such
body. As to its corporate and management decisions, therefore, the
state will generally not interfere with the same. Questions of policy
and of management are left to the honest decision of the officers
and directors of a corporation, and the courts are without authority
to substitute their judgment for the judgment of the board of
directors. The board is the business manager of the corporation,
and so long as it acts in good faith, its orders are not reviewable by
the courts.
Thus, notwithstanding the regulatory power of the SEC over the
PSE, and the resultant authority to reverse the PSEs decision in
matters of application for listing in the market, the SEC may
exercise such power only if the PSEs judgment is attended by bad
faith. In board of Liquidators vs. Kalaw, it was held that bad faith
does not simply connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious doing of
wrong. It means a breach of a known duty through some motive or
interest of ill will, partaking of the nature of fraud.
BENGUET ELECTRIC COOPERATIVE v. NLRC
The Board members and officers of a corporation who purport to
act for and in behalf of the corporation, keep within the lawful
scope of their authority in so acting, and act in good faith, do not
become liable, whether civilly or otherwise, for the consequences of
their acts, Those acts, when they are such a nature and are done
under such circumstances, are properly attributed to the

corporation alone and no personal liability is incurred by such

officers and Board members.
Section 31 of the Corporation Code is applicable in respect of
Beneco and other electric cooperatives similarly situated. Section 4
of the Corporation Code renders the provisions of that Code
applicable in a supplementary manner to all corporations, including
those with special or individual charters so long as those provisions
are not inconsistent with such charters. We find no provision in P.D.
No. 269, as amended, that would exclude expressly or by necessary
implication the applicability of Section 31 of the Corporation Code
in respect of members of the boards of directors of electric
cooperatives.
Respondent Board members were guilty of "gross negligence or
bad faith in directing the affairs of the corporation" in enacting the
series of resolutions noted earlier indefinitely suspending and
dismissing respondent Cosalan from the position of General
Manager of Beneco. Respondent Board members, in doing so, acted
belong the scope of their authority as such Board members. The
dismissal of an officer or employee in bad faith, without lawful
cause and without procedural due process, is an act that is contra
legem. It cannot be supposed that members of boards of directors
derive any authority to violate the express mandates of law or the
clear legal rights of their officers and employees by simply
purporting to act for the corporation they control.
Not only are Beneco and respondent Board members properly held
solidarily liable for the awards made by the Labor Arbiter, but also
that petitioner Beneco which was controlled by and which could act
only through respondent Board members, has a right to be
reimbursed for any amounts that Beneco may be compelled to pay
to respondent Cosalan. Such right of reimbursement is essential if
the innocent members of Beneco are not to be penalized for the
acts of respondent Board members which were both done in bad
faith and ultra vires. The liability-generating acts here are the
personal and individual acts of respondent Board members, and are
not properly attributed to Beneco itself.
Requirements of Meeting
EXPERTRAVEL & TOURS, INC. v. CA
In this age of modern technology, the courts may take judicial
notice that business transactions may be made by individuals
through teleconferencing. Teleconferencing is interactive group

communication (three or more people in two or more locations)

through an electronic medium. In general terms, teleconferencing
can bring people together under one roof even though they are
separated by hundreds of miles.This type of group communication
may be used in a number of ways, and have three basic types: (1)
video conferencing - television-like communication augmented with
sound; (2) computer conferencing - printed communication through
keyboard terminals, and (3) audioconferencing-verbal
communication via the telephone with optional capacity for
telewriting or telecopying.
A teleconference represents a unique alternative to face-to-face
(FTF) meetings. It was first introduced in the 1960s with American
Telephone and Telegraphs Picturephone. At that time, however, no
demand existed for the new technology. Travel costs were
reasonable and consumers were unwilling to pay the monthly
service charge for using the picturephone, which was regarded as
more of a novelty than as an actual means for everyday
communication.
In the Philippines, teleconferencing and videoconferencing of
members of board of directors of private corporations is a reality, in
light of Republic Act No. 8792. The Securities and Exchange
Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied with
related to such conferences. Thus, the Court agrees with the RTC
that persons in the Philippines may have a teleconference with a
group of persons in South Korea relating to business transactions or
corporate governance.
The respondents allegation that its board of directors conducted a
teleconference on June 25, 1999 and approved the said resolution
(with Atty. Aguinaldo in attendance) is incredible, given the
additional fact that no such allegation was made in the complaint. If
the resolution had indeed been approved on June 25, 1999, long
before the complaint was filed, the respondent should have
incorporated it in its complaint, or at least appended a copy
thereof. The respondent failed to do so. It was only on January 28,
2000 that the respondent claimed, for the first time, that there was
such a meeting of the Board of Directors held on June 25, 1999; it
even represented to the Court that a copy of its resolution was with
its main office in Korea, only to allege later that no written copy
existed. It was only on March 6, 2000 that the respondent alleged,
for the first time, that the meeting of the Board of Directors where
the resolution was approved was held via teleconference.

While Atty. Aguinaldo is the resident agent of the respondent in the

Philippines, this does not mean that he is authorized to execute the
requisite certification against forum shopping. Under Section 127,
in relation to Section 128 of the Corporation Code, the authority of
the resident agent of a foreign corporation with license to do
business in the Philippines is to receive, for and in behalf of the
foreign corporation, services and other legal processes in all actions
and other legal proceedings against such corporation.

corporation's Board of Directors. An amendment which renders

ineligible, or if elected, subjects to removal, a director if he be also
a director in a corporation whose business is in competition with or
is antagonistic to the other corporation is valid." This is based upon
the principle that where the director is so employed in the service
of a rival company, he cannot serve both, but must betray one or
the other. Such an amendment "advances the benefit of the
corporation and is good."

Qualifications of Directors and Trustees

The doctrine of "corporate opportunity" is precisely a recognition by

the courts that the fiduciary standards could not be upheld where
the fiduciary was acting for two entities with competing interests.
This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an
opportunity for his own personal profit when the interest of the
corporation justly calls for protection.

GOKONGWEI JR. v. CA
It is recognized by an 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
members towards itself and among themselves in reference to the
management of its affairs. At common law, the rule was "that the
power to make and adopt by-laws was inherent in every
corporation as one of its necessary and inseparable legal incidents.
And it is settled throughout the United States that in the absence of
positive legislative provisions limiting it, every private corporation
has this inherent power as one of its necessary and inseparable
legal incidents, independent of any specific enabling provision in its
charter or in general law, such power of self-government being
essential to enable the corporation to accomplish the purposes of
its creation.
In this jurisdiction, under section 21 of the Corporation Law, a
corporation may prescribe in its by-laws "the qualifications, duties
and compensation of directors, officers and employees" This must
necessarily refer to a qualification in addition to that specified by
section 30 of the Corporation Law, which provides that "every
director must own in his right at least one share of the capital stock
of the stock corporation of which he is a director" In Government v.
El Hogar, the Court sustained the validity of a provision in the
corporate by-law requiring that persons elected to the Board of
Directors must be holders of shares of the paid up value of
P5,000.00, which shall be held as security for their action, on the
ground that section 21 of the Corporation Law expressly gives the
power to the corporation to provide in its by-laws for the
qualifications of directors and is "highly prudent and in conformity
with good practice."
Corporations have the power to make by-laws declaring a person
employed in the service of a rival company to be ineligible for the

In McKee the Court further listed qualificational by-laws upheld by

the courts, as follows:
(1) A director shall not be directly or indirectly interested as a
stockholder in any other firm, company, or association which
competes with the subject corporation.
(2) A director shall not be the immediate member of the family of
any stockholder in any other firm, company, or association which
competes with the subject corporation,
(3) A director shall not be an officer, agent, employee, attorney, or
trustee in any other firm, company, or association which compete
with the subject corporation.
(4) A director shall be of good moral character as an essential
qualification to holding office.
(5) No person who is an attorney against the corporation in a law
suit is eligible for service on the board.
A director must own at least one share of stock
NAUTICA CANNING CORP. v. YUMUL
Indeed, it is possible for a business to be wholly owned by one
individual. The validity of its incorporation is not affected when
such individual gives nominal ownership of only one share of stock
to each of the other four incorporators. This is not necessarily
illegal. But, this is valid only between or among the incorporators
privy to the agreement. It does bind the corporation which, at the
time the agreement is made, was non-existent. Thus, incorporators
continue to be stockholders of a corporation unless, subsequent to
the incorporation, they have validly transferred their subscriptions

to the real parties in interest. As between the corporation on the

one hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining
who its shareholders are.
A transfer of shares of stock not recorded in the stock and transfer
book of the corporation is non-existent as far as the corporation is
concerned. As between the corporation on one hand, and its
shareholders and third persons on the other, the corporation looks
only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in
the stock and transfer book that a corporation may rightfully regard
the transferee as one of its stockholders. From this time, the
consequent obligation on the part of the corporation to recognize
such rights as it is mandated by law to recognize arises. Hence,
without such recording, the transferee may not be regarded by the
corporation as one among its stockholders and the corporation may
legally refuse the issuance of stock certificates.

members must be present to constitute a quorum in a special

meeting of the board of directors of respondent PAMBUSCO.
Under Section 25 of the Corporation Code of the Philippines, the
articles of incorporation or by-laws of the corporation may fix a
greater number than the majority of the number of board members
to constitute the quorum necessary for the valid transaction of
business. Any number less than the number provided in the articles
or by-laws therein cannot constitute a quorum and any act therein
would not bind the corporation; all that the attending directors
could do is to adjourn.

Section 23 of Batas Pambansa (BP) Blg. 68 or The Corporation Code

of the Philippines requires that every director must own at least one
share of the capital stock of the corporation of which he is a
director. Before one may be elected president of the corporation, he
must be a director. Since Yumul was elected as Nauticas Director
and as President thereof, it follows that he must have owned at
least one share of the corporations capital stock.

Moreover, the records show that respondent PAMBUSCO ceased to

operate as of November 15, 1949 as evidenced by a letter of the
SEC to said corporation dated April 17, 1980. Being a dormant
corporation for several years, it was highly irregular, if not
anomalous, for a group of three (3) individuals representing
themselves to be the directors of respondent PAMBUSCO to pass a
resolution disposing of the only remaining asset of the corporation
in favor of a former corporate officer. As a matter of fact, the three
(3) alleged directors who attended the special meeting on
November 19, 1974 were not listed as directors of respondent
PAMBUSCO in the latest general information sheet of respondent
PAMBUSCO filed with the SEC dated 18 March 1951. Similarly, the
latest list of stockholders of respondent PAMBUSCO on file with the
SEC does not show that the said alleged directors were among the
stockholders of respondent PAMBUSCO.

PENA v. CA

DETECTIVE & PROTECTIVE BUREAU, INC. v. CLORIBEL

Neither petitioner nor respondents Yap spouses are stockholders or

officers of PAMBUSCO. Consequently, the issue of the validity of the
series of transactions resulting in the subject properties being
registered in the names of respondents Yap may be resolved only
by the regular courts.

There is in the record no showing that Jose de la Rosa owned a

share of stock in the corporation. If he did not own any share of
stock, certainly he could not be a director pursuant to the
mandatory provision of Section 30 of the Corporation Law, which in
part provides:

The by-laws of a corporation are its own private laws which

substantially have the same effect as the laws of the corporation.
They are in effect, written, into the charter. In this sense they
become part of the fundamental law of the corporation with which
the corporation and its directors and officers must comply.

Sec. 30. Every director must own in his own right at least one share
of the capital stock of the stock corporation of which he is a
director, which stock shall stand in his name on the books of the
corporations....

Apparently, only three (3) out of five (5) members of the board of
directors of respondent PAMBUSCO convened on November 19,
1974 by virtue of a prior notice of a special meeting. There was no
quorum to validly transact business since, under Section 4 of the
amended by-laws hereinabove reproduced, at least four (4)

If he could not be a director, he could also not be a managing

director of the corporation, pursuant to Article V, Section 3 of the
By-Laws of the Corporation which provides that:
The manager shall be elected by the Board of Directors from
among its members.

If the managing director-elect was not qualified to become

managing director, respondent Fausto Alberto could not be
compelled to vacate his office and cede the same to the managing
director-elect because the by-laws of the corporation provides in
Article IV, Section 1 that "Directors shall serve until the election and
qualification of their duly qualified successor."
Mere beneficial ownership in a voting trust agreement no longer
qualifies
LEE v. CA
Voting trust is a trust created by an agreement between a group of
the stockholders of a corporation and the trustee or by a group of
identical agreements between individual stockholders and a
common trustee, whereby it is provided that for a term of years, or
for a period contingent upon a certain event, or until the agreement
is terminated, control over the stock owned by such stockholders,
either for certain purposes or for all purposes, is to be lodged in the
trustee, either with or without a reservation to the owners, or
persons designated by them, of the power to direct how such
control shall be used.
By its very nature, a voting trust agreement results in the
separation of the voting rights of a stockholder from his other rights
such as the right to receive dividends, the right to inspect the
books of the corporation, the right to sell certain interests in the
assets of the corporation and other rights to which a stockholder
may be entitled until the liquidation of the corporation. However, in
order to distinguish a voting trust agreement from proxies and
other voting pools and agreements, it must pass three criteria or
tests, namely: (1) that the voting rights of the stock are separated
from the other attributes of ownership; (2) that the voting rights
granted are intended to be irrevocable for a definite period of time;
and (3) that the principal purpose of the grant of voting rights is to
acquire voting control of the corporation.
Under section 59 of the Corporation Code, a voting trust agreement
may confer upon a trustee not only the stockholder's voting rights
but also other rights pertaining to his shares as long as the voting
trust agreement is not entered "for the purpose of circumventing
the law against monopolies and illegal combinations in restraint of
trade or used for purposes of fraud." (section 59, 5th paragraph of
the Corporation Code) Thus, the traditional concept of a voting
trust agreement primarily intended to single out a stockholder's

right to vote from his other rights as such and made irrevocable for
a limited duration may in practice become a legal device whereby a
transfer of the stockholder's shares is effected subject to the
specific provision of the voting trust agreement.
The execution of a voting trust agreement, therefore, may create a
dichotomy between the equitable or beneficial ownership of the
corporate shares of stockholders, on the one hand, and the legal
title thereto on the other hand.
The law simply provides that a voting trust agreement is an
agreement in writing whereby one or more stockholders of a
corporation consent to transfer his or their shares to a trustee in
order to vest in the latter voting or other rights pertaining to said
shares for a period not exceeding five years upon the fulfillment of
statutory conditions and such other terms and conditions specified
in the agreement. The five year-period may be extended in cases
where the voting trust is executed pursuant to a loan agreement
whereby the period is made contingent upon full payment of the
loan.
Both under the old and the new Corporation Codes there is no
dispute as to the most immediate effect of a voting trust
agreement on the status of a stockholder who is a party to its
execution from legal titleholder or owner of the shares subject of
the voting trust agreement, he becomes the equitable or beneficial
owner.
The facts of this case show that the petitioners, by virtue of the
voting trust agreement executed in 1981 disposed of all their
shares through assignment and delivery in favor of the DBP, as
trustee. Consequently, the petitioners ceased to own at least one
share standing in their names on the books of ALFA as required
under Section 23 of the new Corporation Code. They also ceased to
have anything to do with the management of the enterprise. The
petitioners ceased to be directors. Hence, the transfer of the
petitioners' shares to the DBP created vacancies in their respective
positions as directors of ALFA.
Directors
PREMIUM MARBLE RESOURCES v. CA
In the absence of any board resolution from its board of directors
the authority to act for and in behalf of the corporation, the present
action must necessarily fail. The power of the corporation to sue

and be sued in any court is lodged with the board of directors that
exercises its corporate powers. Thus, the issue of authority and the
invalidity of plaintiff-appellants subscription which is still pending,
is a matter that is also addressed, considering the premises, to the
sound judgment of the Securities & Exchange Commission.
By the express mandate of the Corporation Code (Section 26), all
corporations duly organized pursuant thereto are required to
submit within the period therein stated (30 days) to the Securities
and Exchange Commission the names, nationalities and residences
of the directors, trustees and officers elected.
Evidently, the objective sought to be achieved by Section 26 is to
give the public information, under sanction of oath of responsible
officers, of the nature of business, financial condition and
operational status of the company together with information on its
key officers or managers so that those dealing with it and those
who intend to do business with it may know or have the means of
knowing facts concerning the corporations financial resources and
business responsibility.
Removal of Directors or Trustees
ROXAS v. DELA ROSA
Under the law the directors of a corporation can only be removed
from office by a vote of the stockholders representing at least twothirds of the subscribed capital stock entitled to vote (Act No. 1459,
sec. 34); while vacancies in the board, when they exist, can be
filled by mere majority vote, (Act No. 1459, sec. 25). Moreover, the
law requires that when action is to be taken at a special meeting to
remove the directors, such purpose shall be indicated in the call
(Act No. 1459, sec. 34).
The law contemplates and intends that there will be one of
directors at a time and that new directors shall be elected only as
vacancies occur in the directorate by death, resignation, removal,
or otherwise.
Vacancy in Board
GRACE CHRISTIAN HIGH SCHOOL v. CA
The members of the Association by an affirmative vote of the
majority at any regular or special meeting called for the purpose,
may alter, amend, change or adopt any new by-laws.

This provision of the by-laws actually implements 22 of the

Corporation Law (Act No. 1459) which provides:
Sec. 22. The owners of a majority of the subscribed capital stock,
or a majority of the members if there be no capital stock, may, at a
regular or special meeting duly called for the purpose, amend or
repeal any by-law or adopt new by-laws. The owners of two-thirds
of the subscribed capital stock, or two-thirds of the members if
there be no capital stock, may delegate to the board of directors
the power to amend or repeal any by-law or to adopt new bylaws: Provided, however, That any power delegated to the board of
directors to amend or repeal any by-law or adopt new by-laws shall
be considered as revoked whenever a majority of the stockholders
or of the members of the corporation shall so vote at a regular or
special meeting. And provided, further, That the Director of the
Bureau of Commerce and Industry shall not hereafter file an
amendment to the by-laws of any bank, banking institution or
building and loan association, unless accompanied by certificate of
the Bank Commissioner to the effect that such amendments are in
accordance with law.
These provisions of the former and present corporation law leave
no room for doubt as to their meaning: the board of directors of
corporations must be elected from among the stockholders or
members. There may be corporations in which there are unelected
members in the board but it is clear that in the examples cited by
petitioner the unelected members sit as ex officio members, i.e., by
virtue of and for as long as they hold a particular office. But in the
case of petitioner, there is no reason at all for its representative to
be given a seat in the board. Nor does petitioner claim a right to
such seat by virtue of an office held. In fact it was not given such
seat in the beginning. It was only in 1975 that a proposed
amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the fact that for
fifteen years it has not been questioned or challenged but, on the
contrary, appears to have been implemented by the members of
the association cannot forestall a later challenge to its
validity. Neither can it attain validity through acquiescence
because, if it is contrary to law, it is beyond the power of the
members of the association to waive its invalidity. For that matter
the members of the association may have formally adopted the
provision in question, but their action would be of no avail because
no provision of the by-laws can be adopted if it is contrary to law.

Nor can petitioner claim a vested right to sit in the board on the
basis of practice. Practice, no matter how long continued, cannot
give rise to any vested right if it is contrary to law. Even less
tenable is petitioners claim that its right is coterminus with the
existence of the association.
Term of Office; Hold-over Principle
GOVERNMENT v. EL HOGAR FILIPINO
No fault can be imputed to the corporation on account of the failure
of the shareholders to attend the annual meetings; and their nonattendance at such meetings is doubtless to be interpreted in part
as expressing their satisfaction of the way in which things have
been conducted. Upon failure of a quorum at any annual meeting
the directorate naturally holds over and continues to function until
another directorate is chosen and qualified. Unless the law or the
charter of a corporation expressly provides that an office shall
become vacant at the expiration of the term of office for which the
officer was elected, the general rule is to allow the officer to
holdover until his successor is duly qualified. Mere failure of a
corporation to elect officers does not terminate the terms of
existing officers nor dissolve the corporation. The doctrine above
stated finds expressions in article 66 of the by-laws of the
respondent which declares in so many words that directors shall
hold office "for the term of one year on until their successors shall
have been elected and taken possession of their offices."
It result that the practice of the directorate of filling vacancies by
the action of the directors themselves is valid. Nor can any
exception be taken to the personality of the individuals chosen by
the directors to fill vacancies in the body. Certainly it is no fair
criticism to say that they have chosen competent businessmen of
financial responsibility instead of electing poor persons to so
responsible a position. The possession of means does not disqualify
a man for filling positions of responsibility in corporate affairs.
NUENO v. ANGELES
The rule is, as enunciated in 46 Corpus Juris, 968, that "in the
absence of an express or implied constitutional or statutory
provision to the contrary, an officer is entitled to hold his office until
his successor is appointed or chosen and has qualified. The
legislative intent not to permit holding over may therefore be
express or implied in legislative acts.

The term means the time during which the officer may claim to
hold the office as of light, and fixes the interval after which the
several incumbents shall succeed one another. The tenure
represents the term during which the incumbent actually holds the
office. The term of office is not affected by the hold-over. The
tenure may be shorter than the term for reasons within or beyond
the power of the incumbent. There is no principle, law or doctrine
by which the term of an office may be extended by reason of war.
Petitioners Jose Topacio Nueno and Delia C. Dio can not claim the
right to hold-over as elective officers of the Municipal Board of
Manila, because, as above stated, they held the office before the
war by appointment under subsection (b) to fill the vacancies cause
by resignation of the elective incumbents, one of them the same
petitioner Nueno, and to hold the office for the unexpired term in
accordance with subsection (f), section 16, of said Commonwealth
Act No. 357. And that petitioner Dio's claim is based on the
incorrect assumption that the respondents were appointed under
subsection (b) of said Act.
Petitioners are not entitled to hold-over, and after the expiration of
their term of office on December 31, 1943, the offices of members
of the Municipal Board of Manila became vacant from January 1,
1944, because of failure to hold the regular election on the second
Tuesday of December 1943 and the special election, and
consequently to elect the would-be incumbents. And during the
interregnum or temporary vacancy from January 1, 1944, until the
said special election is held and new members elected or, in case of
failure to elect, appointed by the President (under section 16 [c]
and [d] of Commonwealth Act No. 357) the President had, under
section 16 (a) of the same Act, the power to appoint the
respondents or any other, at his discretion, to fill said temporary
vacancy or vacancies. As the petitioners are not entitled to holdover or continue, after the expiration of their term, in the offices
claimed by them and held now by the respondents, they have no
right to bring the present action and impugn the validity of the
latter's appointments, according to the provisions of section 6, Rule
68, of the Rules of Court.
PONCE v. ENCARNACION
Whenever, from any cause, there is no person authorized to call a
meeting, or when the officer authorized to do so refuses, fails or
neglects to call a meeting, any judge of a Court of First Instance on
the showing of good cause therefor, may issue an order to any
stockholder or member of a corporation, directing him to call a

meeting of the corporation by giving the proper notice required by

this Act or by-laws; and if there be no person legally authorized to
preside at such meeting, the judge of the Court of First Instance
may direct the person calling the meeting to preside at the same
until a majority of the members or stockholders representing a
majority of the stock members or stockholders presenting a
majority of the stock present and permitted by law to be voted
have chosen one of their number to act as presiding officer for the
purposes of the meeting.
On the showing of good cause therefor, the court may authorize a
stockholder to call a meeting and to preside threat until the
majority stockholders representing a majority strockholders
representing a majority of the stock present and permitted to be
voted shall have chosen one among them to preside it. And this
showing of good cause therefor exists when the court is apprised of
the fact that the by-laws of the corporation require the calling of a
general meeting of the stockholders to elect the board of directors
but call for such meeting has not been done.
Compensation of Directors
SINGSON v. COA
Sec. 30. Compensation of Directors. In the absence of any
provision in the by-laws fixing their compensation, the directors
shall not receive any compensation, as such directors, except for
reasonable per diems; Provided, however, that any such
compensation (other than per diems) may be granted to directors
by the vote of the stockholders representing at least a majority of
the outstanding capital stock at a regular or special stockholders
meeting. In no case shall the total yearly compensation of
directors, as such directors, exceed ten (10%) percent of the net
income before income tax of the corporation during the preceding
year.
In construing the said provision, it bears stressing that the directors
of a corporation shall not receive any compensation for being
members of the board of directors, except for reasonable per
diems. The two instances where the directors are to be entitled to
compensation shall be when it is fixed by the corporations by-laws
or when the stockholders, representing at least a majority of the
outstanding capital stock, vote to grant the same at a regular or
special stockholders meeting, subject to the qualification that, in
any of the two situations, the total yearly compensation of
directors, as such directors, shall in no case exceed ten (10%)

percent of the net income before income tax of the corporation

during the preceding year.
The prohibition in NCC No. 67 is only against the dual or multiple
collection of RATA by a national official from the budgets of two or
more national agencies. Stated otherwise, when a national official
is on detail with another national agency, he should get his RATA
only from his parent national agency and not from the other
national agency he is detailed to.
WESTERN INSTITUTE OF TECHNOLOGY v. SALAS
There is no argument that directors or trustees, as the case may
be, are not entitled to salary or other compensation when they
perform nothing more than the usual and ordinary duties of their
office. This rule is founded upon a presumption that
directors/trustees render service gratuitously and that the return
upon their shares adequately furnishes the motives for service,
without compensation. Under the foregoing section, there are only
two (2) ways by which members of the board can be granted
compensation apart from reasonable per diems: (1) when there is a
provision in the by-laws fixing their compensation; and (2) when
the stockholders representing a majority of the outstanding capital
stock at a regular or special stockholders meeting agree to give it
to them.
This proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule. Worthy of
note is the clear phraseology of Section 30 which states: xxx [T]he
directors shall not receive any compensation, as such directors,
xxx. The phrase as such directors is not without significance for it
delimits the scope of the prohibition to compensation given to them
for services performed purely in their capacity as directors or
trustees. The unambiguous implication is that members of the
board may receive compensation, in addition to reasonable per
diems, when they render services to the corporation in a capacity
other than as directors/trustees. In the case at bench, Resolution
No. 48, s. 1986 granted monthly compensation to private
respondents not in their capacity as members of the board, but
rather as officers of the corporation, more particularly as Chairman,
Vice-Chairman, Treasurer and Secretary of Western Institute of
Technology.
A derivative suit is an action brought by minority shareholders in
the name of the corporation to redress wrongs committed against

it, for which the directors refuse to sue. It is a remedy designed by

equity and has been the principal defense of the minority
shareholders against abuses by the majority. Among the basic
requirements for a derivative suit to prosper is that the minority
shareholder who is suing for and on behalf of the corporation must
allege his complaint before the proper forum that he is suing on a
derivative cause of action on behalf of the corporation and all other
shareholders similarly situated who wish to join. This is necessary
to vest jurisdiction upon the tribunal in line with the rule that it is
the allegations in the complaint that vests jurisdiction upon the
court or quasi-judicial body concerned over the subject matter and
nature of the action.
KUENZLE & STREIFF, INC. v. CIR
It is a general rule that bonuses to employees made in good faith
and as additional compensation for the services actually rendered
by the employees are deductible provided such payments, when
added to the stipulated salaries, do not exceed a reasonable
compensation for the services rendered. The condition precedents
to the deduction of bonuses to employees are, (1) the payment of
bonuses are in fact compensation, (2) it must be for personal
services actually rendered, (3) bonuses, when added to the
salaries, are reasonable.
CENTRAL COOPERATION EXCHANGE, INC. v. ENCISO
The right of the stockholders to determine the compensation of the
Board of Directors was explicitly reserved and even without said
reservation, the directors are not entitled to compensation.
Moreover, this Court declared that the law is well settled that
directors of corporations presumptively serve without
compensation so that while the directors, in assigning themselves
additional duties acted within their power, they nonetheless acted
in excess of their authority by voting for themselves compensation
for such additional duties.
The board of directors under the By-Laws of the Corporation had
the control of the affairs of the corporation and it is not to be
expected that the board would sue its members to recover the
sums of money voted by and for themselves. Thus, under the
circumstances, where the corporation was virtually immobilized
from commencing suit against its directors, laches does not begin
to attach against the corporation until the directors cease to be
such.

In general, the authority to supervise the business and affairs of the

corporation includes the authority to institute proceedings against
all accountable persons in order to protect and preserve the assets
of the corporation and to prevent their dissipation. Even granting
that the authority of the stockholders is necessary in the institution
of the suit, the lack of authority was corrected by ratification or
conformation of the stockholders as expressed in their resolution of
May 25, 1962, when a meeting was held with the presence of a
quorum.
Duties of Directors
Duty of Diligence
PARK HOTEL v. SORIANO
Corporate officers may be deemed solidarily liable with the
corporation for the termination of employees if they acted with
malice or bad faith.
Section 31 makes a director personally liable for corporate debts if
he willfully and knowingly votes for or assents to patently unlawful
acts of the corporation. It also makes a director personally liable if
he is guilty of gross negligence or bad faith in directing the affairs
of the corporation.
URBAN BANK v. PENA
To hold a director or an officer personally liable for corporate
obligations, two requisites must concur: (1) the complainant must
allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation or that the officer must be
guilty of gross negligence or bad faith; and (2) the complainant
must clearly and convincingly prove such unlawful acts, negligence
or bad faith.
ALERT SECURITY AND INVESTIGATION AGENCY v. PASAWILAN
The managerial prerogative to transfer personnel must be
exercised without grave abuse of discretion, bearing in mind the
basic elements of justice and fair play. Having the right should not
be confused with the manner in which that right is exercised. Thus,
it cannot be used as a subterfuge by the employer to rid himself of
an undesirable worker. In particular, the employer must not be able
to show that the transfer is not unreasonable, inconvenient or

prejudicial to the employee; nor does it involve a demotion in rank

or a diminution of his salaries, privileges and other benefits.
Thus, the rule is still that the doctrine of piercing the corporate veil
applies only when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime. In the
absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made
personally liable for corporate liabilities.
In the present case, there is no evidence to indicate that Manuel D.
Dasig, as president and general manager of Alert Security, is using
the veil of corporate fiction to defeat public convenience, justify
wrong, protect fraud, or defend crime. Further, there is no showing
that Alert Security has folded up its business or is reneging in its
obligations. In the final analysis, it is Alert Security that
respondents are after and it is also Alert Security who should take
responsibility for their illegal dismissal.
CEBU COUNTRY CLUB v. ELIZAGAQUE
In rejecting respondents application for proprietary membership,
we find that petitioners violated the rules governing human
relations, the basic principles to be observed for the rightful
relationship between human beings and for the stability of social
order. The trial court and the Court of Appeals aptly held that
petitioners committed fraud and evident bad faith in disapproving
respondents applications. This is contrary to morals, good custom
or public policy. Hence, petitioners are liable for damages pursuant
to Article 19 in relation to Article 21 of the same Code.
It bears stressing that the amendment to Section 3(c) of CCCIs
Amended By-Laws requiring the unanimous vote of the directors
present at a special or regular meeting was not printed on the
application form respondent filled and submitted to CCCI. What was
printed thereon was the original provision of Section 3(c) which was
silent on the required number of votes needed for admission of an
applicant as a proprietary member.
The exercise of a right, though legal by itself, must nonetheless be
in accordance with the proper norm. When the right is exercised
arbitrarily, unjustly or excessively and results in damage to
another, a legal wrong is committed for which the wrongdoer must
be held responsible. It bears reiterating that the trial court and the
Court of Appeals held that petitioners disapproval of respondents
application is characterized by bad faith.

GARCIA v. SOCIAL SECURITY COMMISSION

Basic is the rule that a corporation is invested by law with a
personality separate and distinct from that of the persons
composing it as well as from that of any other legal entity to which
it may be related. A corporation is a juridical entity with legal
personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. Following
this, the general rule applied is that obligations incurred by the
corporation, acting through its directors, officers and employees,
are its sole liabilities. A director, officer, and employee of a
corporation are generally not held personally liable for obligations
incurred by the corporation.
A corporate director, a trustee or an officer, may be held solidarily
liable with the corporation in the following instances:
(1) When directors and trustees or, in appropriate cases, the
officers of a corporation-(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the
corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons.
(2) When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not forthwith
file with the corporate secretary his written objection thereto.
(3) When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
Corporation.
(4) When a director, trustee or officer is made, by specific provision
of law, personally liable for his corporate action.
SEC. 31. Liability of directors, trustees or officers. - Directors or
trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty
as such directors, or trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
Anent the unpaid SSS contributions of Impact Corporations
employees, the officers of a corporation are liable in behalf of a
corporation, which no longer exists or has ceased operations.
Although as a rule, the officers and members of a corporation are

not personally liable for acts done in performance of their duties,

this rule admits of exception, one of which is when the employer
corporation is no longer existing and is unable to satisfy the
judgment in favor of the employee, the officers should be held
liable for acting on behalf of the corporation. Following the
foregoing pronouncement, petitioner, as one of the directors of
Impact Corporation, together with the other directors of the defunct
corporation, are liable for the unpaid SSS contributions of their
employees
POWTON CONGLOMERATE, INC. v. AGCOLICOL
In addition to the owner's authorization for any change in the plans
and specifications, Article 1724 requires that the additional price to
be paid for the contractor be likewise reduced in writing.
Compliance with the two requisites in Article 1724, a specific
provision governing additional works, is a condition precedent to
recovery. The absence of one or the other bars the recovery of
additional costs. Neither the authority for the changes made nor
the additional price to be paid therefor may be proved by any other
evidence for purposes of recovery.
In the absence of a written authority by the owner for the changes
in the plans and specifications of the building and of a written
agreement between the parties on the additional price to be paid to
the contractor, as required by Article 1724, the claim for the cost of
additional works on the Gay Theater building must be denied.
The settled rule is that, a corporation is invested by law with a
personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate
officers who entered into contracts in behalf of the corporation
cannot be held personally liable for the liabilities of the latter.
Personal liability of a corporate director, trustee or officer along
(although not necessarily) with thecorporation may so validly
attach, as a rule, only when (1) he assents to a patently unlawful
act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders or
other persons; (2) he consents to the issuance of watered down
stocks or who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with the
corporation; or (4) he is made by a specific provision of law
personally answerable for his corporate action.[26] Considering
that none of the foregoing exceptions was established in the case

at bar, petitioner Chien, who entered into a contract with

respondent in his capacity as President and Chairman of the Board
of Powton, cannot be held solidarily liable with the latter.
BENGUET ELECTRIC COOPERATIVE v. NLRC
The board members and officers of a corporation who purports to
act for and in behalf of the corporation, keep within the lawful
scope of their authority in so acting and act in good faith, do not
become liable whether civilly or otherwise for the consequences of
their acts.
BOARD OF LIQUIDATORS v. KALAW
Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through some
motive or interest or ill-will; it partakes of the nature of fraud.
MONTELIBANO v. BACOLOD-MURCIA MILLING CO.
If the act is one which is lawful in itself and not otherwise
prohibited, is done for the purposes of serving corporate ends, and
is reasonably tributary to the promotion of those ends, in a
substantial and not in a remote sense, it may fairly be considered,
within charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the corporation's
business, fairly incident to the express powers and reasonably
necessary to their exercise. If so, the corporation has the power to
do it; otherwise, not.
STEINBERG v. VELASCO
General Duty to Exercise Reasonable Care. The directors of a
corporation are bound to care for its property and manage its
affairs in good faith, and for a violation of these duties resulting in
waste of its assets or injury to the property they are liable to
account the same as other trustees. Are there can be no doubt that
if they do acts clearly beyond their power, whereby loss ensues to
the corporation, or dispose of its property or pay away its money
without authority, they will be required to make good the loss out of
their private estates. This is the rule where the disposition made of
money or property of the corporation is one either not within the
lawful power of the corporation, or, if within the authority of the
particular officer or officers.

Want of Knowledge, Skill, or Competency. It has been said that

directors are not liable for losses resulting to the corporation from
want of knowledge on their part; or for mistake of judgment,
provided they were honest, and provided they are fairly within the
scope of the powers and discretion confided to the managing body.
But the acceptance of the office of a director of a corporation
implies a competent knowledge of the duties assumed, and
directors cannot excuse imprudence on the ground of their
ignorance or inexperience; and if they commit. Man error of
judgment through mere recklessness or want of ordinary prudence
or skill, they may be held liable for the consequences. Like a
mandatory, to whom he has been likened, a director is bound not
only to exercise proper care and diligence, but ordinary skill and
judgment. As he is bound to exercise ordinary skill and judgment,
he cannot set up that he did not possess them.
Creditors of a corporation have the right to assume that so long as
there are outstanding debts and liabilities, the board of directors
will not use the assets of the corporation to purchase its own stock,
and that it will not declare dividends to stockholders when the
corporation is insolvent.
A director of a corporation is bound to exercise ordinary skill and
judgment and cannot excuse his negligence or unlawful acts on the
ground of ignorance or inexperience.
Fiduciary Duty
GOKONGWEI v. SEC
A director is a fiduciary. ... Their powers are powers in trust. ... He
who is in such fiduciary position cannot serve himself first and his
cestuis second. ... He cannot manipulate the affairs of his
corporation to their detriment and in disregard of the standards of
common decency. He cannot by the intervention of a corporate
entity violate the ancient precept against serving two masters ...
He cannot utilize his inside information and strategic position for his
own preferment. He cannot violate rules of fair play by doing
indirectly through the corporation what he could not do so directly.
He cannot violate rules of fair play by doing indirectly though the
corporation what 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 how meticulous he is to satisfy
technical requirements. For that power is at all times subject to the
equitable limitation that it may not be exercised for the

aggrandizement, preference or advantage of the fiduciary to the

exclusion or detriment of the cestuis.
A person cannot serve two hostile and adverse master, without
detriment to one of them. A judge cannot be impartial if personally
interested in the cause. No more can a director. Human nature is
too weak for this. Take whatever statute provision you please giving
power to stockholders to choose directors, and in none will you find
any express prohibition against a discretion to select directors
having the company's interest at heart, and it would simply be
going far to deny by mere implication the existence of such a
salutary power
Doctrine of Corporate Opportunity
GOKONGWEI v. SEC
The doctrine of "corporate opportunity" is precisely a recognition by
the courts that the fiduciary standards could not be upheld where
the fiduciary was acting for two entities with competing interests.
This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an
opportunity for his own personal profit when the interest of the
corporation justly calls for protection.
Self-dealing Directors
PRIME WHITE CEMENT CORP. v. IAC
A board director or other corporate officer cannot readily enter into
a contract with his own corporation.
A director of a corporation holds a position of trust and as such, he
owes a duty of loyalty to his corporation. In case his interests
conflict with those of the corporation, he cannot sacrifice the latter
to his own advantage and benefit. As corporate managers,
directors are committed to seek the maximum amount of profits for
the corporation. This trust relationship is not a matter of statutory
or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence of
the property interests of the stockholders.
On the other hand, a directors contract with his corporation is not
in all instances void or voidable. If the contract is fair and
unreasonable under the circumstances, it may be ratified by the

stockholders provided a full disclosure of his adverse interest is

made.
Duty of Obedience
LOPEZ REALTY v. FONTECHA
A corporation through its board of directors must act in the manner
and within the formalities, if any, prescribed by its charter or by the
general law
Duty to Creditors

Securities and Exchange Commission (SEC), because the

controversy arises out of intra-corporate or partnership relations
between and among stockholders, members, or associates, or
between any or all of them and the corporation, partnership, or
association of which they are stockholders, members, or
associates, respectively; and between such corporation,
partnership, or association and the State insofar as the controversy
concerns their individual franchise or right to exist as such entity;
or because the controversy involves the election or appointment of
a director, trustee, officer, or manager of such corporation,
partnership, or association. Such controversy, among others, is
known as an intra-corporate dispute.

STEINBERG v. VELASCO
Creditors of a corporation have the right to assume that so long as
there are outstanding debts and liabilities, the board of directors
will not use the assets of the corporation to purchase its own stock,
and that it will not declare dividends to stockholders when the
corporation is insolvent.

Effective on August 8, 2000, upon the passage of Republic Act No.

8799 otherwise known as The Securities Regulation Code, the SECs
jurisdiction over all intra-corporate disputes was transferred to the
RTC, pursuant to Section 5.2 of RA No. 8799.

Corporate Officers

Section 25. Corporate officers, quorum.--Immediately after their

election, the directors of a corporation must formally organize by
the election of a president, who shall be a director, a treasurer who
may or may not be a director, a secretary who shall be a resident
and citizen of the Philippines, and such other officers as may be
provided for in the by-laws. Any two (2) or more positions may be
held concurrently by the same person, except that no one shall act
as president and secretary or as president and treasurer at the
same time.

BARBA v. LICEO CAGAYAN UNIVERSITY

Corporate officers are elected or appointed by the directors or
stockholders, and are those that are given that character either by
the Corporation Code or by the corporation by-laws.
Section 25 enumerates the corporate officers as the president, the
secretary, the treasurer and such other officers as may be provided
for in the by-laws.
The rest of the corporate officers could be considered only as
employees of subordinate officials
An office is created by the charter of the corporation and the officer
is elected by the directors or stockholders. On the other hand, an
employee occupies no office and generally is employed not by the
action of the directors or stockholders but by the managing officer
of the corporation who also determines the compensation to be
paid to such employee.

Section 25 of the Corporation Code provides:

The directors or trustees and officers to be elected shall perform

the duties enjoined on them by law and the by-laws of the
corporation. Unless the articles of incorporation or the by-laws
provide for a greater majority, a majority of the number of directors
or trustees as fixed in the articles of incorporation shall constitute a
quorum for the transaction of corporate business, and every
decision of at least a majority of the directors or trustees present at
a meeting at which there is a quorum shall be valid as a corporate
act, except for the election of officers which shall require the vote
of a majority of all the members of the board.

MATLING INDUSTRIAL AND COMMERCIAL

Directors or trustees cannot attend or vote by proxy at board

meetings.

Where the complaint for illegal dismissal concerns a corporate

officer, however, the controversy falls under the jurisdiction of the

Conformably with Section 25, a position must be expressly

mentioned in the By-Laws in order to be considered as a corporate

office. Thus, the creation of an office pursuant to or under a By-Law

enabling provision is not enough to make a position a corporate
office. Guerrea v. Lezama, the first ruling on the matter, held that
the only officers of a corporation were those given that character
either by the Corporation Code or by the By-Laws; the rest of the
corporate officers could be considered only as employees or
subordinate officials.

Under Section 25 of the Corporation Code, three officers are

specifically provided for which a corporation must have: president,
secretary, and treasurer. The law, however, does not limit
corporate officers to these three. Section 25 gives corporations the
widest latitude to provide for such other offices, as they may deem
necessary. The by-laws may and usually do provide for such other
officers, e.g., vice-president, cashier, auditor, and general manager.

This interpretation is the correct application of Section 25 of

the Corporation Code, which plainly states that the corporate
officers are the President, Secretary, Treasurer and such other
officers as may be provided for in the By-Laws. Accordingly, the
corporate officers in the context of PD No. 902-A are exclusively
those who are given that character either by the Corporation
Code or by the corporations By-Laws.

In this case, there is no basis from which it may be deduced that

Bondoc, as manager of petitioner, is also a corporate officer such
that he may be held liable for the money claims awarded in favor of
respondents. Even assuming that he is a corporate officer, still,
there is no showing that he acted with evident malice and bad
faith. Bondoc may have signed and approved the payrolls;
nevertheless, it does not follow that he had a direct hand in
determining the amount of respondents corresponding salaries and
other benefits. Bondoc, therefore, should not have been held liable
together with petitioner.

The criteria for distinguishing between corporate officers who may

be ousted from office at will, on one hand, and ordinary corporate
employees who may only be terminated for just cause, on the other
hand, do not depend on the nature of the services performed, but
on the manner of creation of the office. In the respondents case,
he was supposedly at once an employee, a stockholder, and a
Director of Matling. The circumstances surrounding his
appointment to office must be fully considered to determine
whether the dismissal constituted an intra-corporate controversy or
a labor termination dispute. We must also consider whether his
status as Director and stockholder had any relation at all to his
appointment and subsequent dismissal as Vice President for
Finance and Administration.
PAMPLONA PLANTATION COMP. v. ACOSTA
The rule is that officers of a corporation are not personally liable for
their official acts unless it is shown that they have exceeded their
authority. However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and members
may be disregarded if it is used as a means to perpetuate fraud or
an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate
issues.
Moreover, a corporate officer is not personally liable for the money
claims of discharged corporate employees unless he acted with
evident malice and bad faith in terminating their employment .

METRO DRUG INC. v. NARCISO

The same error occurred with respect to their certificate against
forum shopping which failed to conform to the requirements of
Section 1 (2), Rule 65 and Section 3 (3), Rule 46. The appellate
court correctly ruled that the certificate was defective because it
was signed by the Vice-President for Finance and Human Resources
without evidence of her authority to represent Petitioner
Corporation and the officers impleaded. Again, despite the
dismissal of the petition on this ground, petitioners repeated the
omission in their motion for reconsideration. They failed to attach
the required proof. The appellate court therefore found no reason
to reconsider the dismissal of the petition.
The requirement for petitioner to sign the certificate of non-forum
shopping applied even to corporations, considering that the
mandatory directives of the Rules of Court made no distinction
between natural and juridical persons. In case of a corporation, it
has long been settled that the certificate must be signed for and on
its behalf by a specifically authorized officer or agent who has
personal knowledge of the facts required to be disclosed.
The corporation, such as the petitioner, has no powers except those
expressly conferred on it by the Corporation Code and those that
are implied or incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and/ or its duly
authorized officers or agents. Physical acts, like the signing of

documents, can be performed only by natural persons duly

authorized for the purpose by corporate by-laws or by specific act
of the board of directors.

formed under this Code shall be exercised, all business conducted

and all property of such corporations controlled and held by the
board of directors or trustees

Consequently, without the needed proof from the board of

directors, the certificate would be considered defective. Thus, in
another case, we held that even the regular officers of a
corporation, like the chairman and president, may not even know
the details required in a certificate of non-forum shopping; they
must therefore be authorized by the board of directors just like any
other officer or agent.

xxx xxx xxx

Agent of Corporation
REYES v. RCPI EMPOYEES CERDIT UNION, INC.
A corporation may only act through its board of directors or when
authorized ether by its by-laws or by a board resolution, through its
officers or agents in the normal course of business.
The evidence adduced by petitioner is bereft of any proof of
authority on the part of Halican and Estremera, either by way a
provision on the respondents by-laws or a board resolution, to
contract the alleged loan and to execute relative thereto the
promissory note in dispute.
As a general rule, the acts of corporate officers within the scope of
their authority are binding on the corporation, but when these
officers exceeded their authority, their actions cannot bind the
corporation, unless it has ratified such acts or is estopped from
disclaiming them.
Petitioner has not shown that the respondent credit union ratified,
expressly or impliedly, the act of Halican in executing and signing
in its behalf the promissory note.
YASUMA v. HEIRS OF CECILIO DE VILLA
A corporation is a juridical person, separate and distinct from its
stockholders. Being a juridical entity, a corporation may act
through its board of directors, as provided in Section 23 of the
Corporation Code of the Philippines:
Sec. 23. The Board of Directors or Trustees. Unless otherwise
provided in this Code, the corporate powers of all corporations

The corporation can also act through its corporate officers who may
be authorized either expressly by the by-laws or board resolutions
or impliedly such as by general practice or policy or as are implied
from express powers. The general principles of agency govern the
relation between the corporation and its officers or agents. When
authorized, their acts can bind the corporation. Conversely, when
unauthorized, their acts cannot bind it.
However, the corporation may ratify the unauthorized act of its
corporate officer. Ratification means that the principal voluntarily
adopts, confirms and gives sanction to some unauthorized act of its
agent on its behalf. It is this voluntary choice, knowingly made,
which amounts to a ratification of what was theretofore
unauthorized and becomes the authorized act of the party so
making the ratification. The substance of the doctrine is
confirmation after conduct, amounting to a substitute for a prior
authority. Ratification can be made either expressly or impliedly.
Implied ratification may take various forms like silence or
acquiescence, acts showing approval or adoption of the act, or
acceptance and retention of benefits flowing therefrom.
The power to borrow money is one of those cases where corporate
officers as agents of the corporation need a special power of
attorney. In the case at bar, no special power of attorney conferring
authority on de Villa was ever presented. The promissory notes
evidencing the loans were signed by de Villa (who was the
president of Respondent Corporation) as borrower without
indicating in what capacity he was signing them. In fact, there was
no mention at all of Respondent Corporation. On their face, they
appeared to be personal loans of de Villa.
A special power of attorney is necessary to create or convey real
rights over immovable property. Furthermore, the special power of
attorney must appear in a public document. In the absence of a
special power of attorney in favor of de Villa as president of the
corporation, no valid mortgage could have been executed by him.
Since the mortgage was void, it could not be ratified.
LITONJUA JR. v. ETERNIT CORPORATION

A corporation is a juridical person separate and distinct from its

members or stockholders and is not affected by the personal rights,
obligations and transactions of the latter. It may act only through
its board of directors or, when authorized either by its by-laws or by
its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject
to the articles of incorporation, by-laws, or relevant provisions of
law.
Under Section 36 of the Corporation Code, a corporation may sell or
convey its real properties, subject to the limitations prescribed by
law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation
incorporated under this Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as
the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the
stockholders or members, and as such, may not be sold without
express authority from the board of directors. Physical acts, like the
offering of the properties of the corporation for sale, or the
acceptance of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or
agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors. Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not
in the course of, or connected with, the performance of authorized
duties of such director, is not binding on the corporation.
While a corporation may appoint agents to negotiate for the sale of
its real properties, the final say will have to be with the board of
directors through its officers and agents as authorized by a board
resolution or by its by-laws. An unauthorized act of an officer of the
corporation is not binding on it unless the latter ratifies the same
expressly or impliedly by its board of directors. Any sale of real
property of a corporation by a person purporting to be an agent

thereof but without written authority from the corporation is null

and void. The declarations of the agent alone are generally
insufficient to establish the fact or extent of his/her authority.
By the contract of agency, a person binds himself to render some
service or to do something in representation on behalf of another,
with the consent or authority of the latter. Consent of both principal
and agent is necessary to create an agency. The principal must
intend that the agent shall act for him; the agent must intend to
accept the authority and act on it, and the intention of the parties
must find expression either in words or conduct between them.
An agency may be expressed or implied from the act of the
principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting on his
behalf without authority. Acceptance by the agent may be
expressed, or implied from his acts which carry out the agency, or
from his silence or inaction according to the circumstances. Agency
may be oral unless the law requires a specific form. However, to
create or convey real rights over immovable property, a special
power of attorney is necessary. Thus, when a sale of a piece of land
or any portion thereof is through an agent, the authority of the
latter shall be in writing, otherwise, the sale shall be void.
A real estate broker is one who negotiates the sale of real
properties. His business, generally speaking, is only to find a
purchaser who is willing to buy the land upon terms fixed by the
owner. He has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser of real
property does not include an authority to sell.
For an agency by estoppel to exist, the following must be
established: (1) the principal manifested a representation of the
agents authority or knowlingly allowed the agent to assume such
authority; (2) the third person, in good faith, relied upon such
representation; (3) relying upon such representation, such third
person has changed his position to his detriment. An agency by
estoppel, which is similar to the doctrine of apparent authority,
requires proof of reliance upon the representations, and that, in
turn, needs proof that the representations predated the action
taken in reliance. Such proof is lacking in this case. In their
communications to the petitioners, Glanville and Delsaux positively
and unequivocally declared that they were acting for and in behalf
of respondent ESAC.
DBP v. ONG

Judging from the findings of the two courts below and the
testimony of respondent Francisco Ong himself, it appears clear
that the transaction between the respondents and the petitioner
was limited to Palasan, one of the clerks of petitioners branch in
Cagayan de Oro City. Lagrito, the branch manager, had no
personal or direct communication with respondents to express his
alleged consent to the sale transaction. Thus, the undisputed
evidence showed that it was Palasan, a mere bank clerk, and not
the branch manager himself who assured respondents that theirs
was a closed deal.
True it is that the signature of branch manager Lagrito appears
below the typewritten word NOTED at the bottom of respondents
offer to purchase dated May 25, 1988. By no stretch of imagination,
however, can the mere NOTING of such an offer be taken to mean
an approval of the supposed sale. Quite the contrary, the very
circumstance that the offer to purchase was merely NOTED by
the branch manager and not approved, is a clear indication that
there is no perfected contract of sale to speak of.
The representation of Roy Palasan, a mere clerk at petitioners
Cagayan de Oro City branch, that the manager had already
approved the sale, even if true, cannot bind the petitioner bank to a
contract of sale with respondents, it being obvious that such a clerk
is not among the bank officers upon whom such putative authority
may be reposed by a third party. There is, thus, no legal basis to
bind petitioner into any valid contract of sale with the respondents,
given the absolute absence of any approval or consent by any
responsible officer of petitioner bank.
And because there is here no perfected contract of sale between
the parties, respondents action for breach of contract and/or
specific performance is simply without any leg to stand on and
must therefore fall.
VICENTE v. GERALDEZ
Special powers of attorney are necessary, among other cases, in
the following: to compromise and to renounce the right to appeal
from a judgment. Attorneys have authority to bind their clients in
any case by any agreement in relation thereto made in writing, and
in taking appeals, and in all matters of ordinary judicial procedure,
but they cannot, without special authority, compromise their
clients' litigation, or receive anything in discharge of their clients'
claims but the full amount in cash.
The Compromise Agreement was signed only by the lawyers for
petitioners and by the lawyers for private Respondent Corporation.
It is not disputed that the lawyers of Respondent Corporation had

not submitted to the Court any written authority from their client to
enter into a compromise.
The Rules require, for attorneys to compromise the litigation of
their clients, a special authority. And while the same does not state
that the special authority be in writing the court has every reason
to expect that, if not in writing, the same be duly established by
evidence other than the self-serving assertion of counsel himself
that such authority was verbally given him.
The law specifically requires that juridical persons may compromise
only in the form and with the requisites which may be necessary to
alienate their property. Under the corporation law the power to
compromise or settle claims in favor of or against the corporation is
ordinarily and primarily committed to the Board of Directors. The
right of the Directors to compromise a disputed claim against the
corporation rests upon their right to manage the affairs of the
corporation according to their honest and informed judgment and
discretion as to what is for the best interests of the corporation.
This power may however be delegated either expressly or impliedly
to other corporate officials or agents. Thus it has been stated, that
as a general rule an officer or agent of the corporation has no
power to compromise or settle a claim by or against the
corporation, except to the extent that such power is given to him
either expressly or by reasonable implication from the
circumstances.
In the absence of any proof that the governing body of respondent
corporation had knowledge, either actual or constructive, or the
contents of the compromise why should the nomination of Mr.
Marquez as commissioner, by Attys. Ventura, Cardenas and
Magpantay, be considered as a form of tacit ratification of the
compromise agreement by the corporation? In order to ratify the
unauthorized act of an agent and make it binding on the
corporation, it must be shown that the governing body or officer
authorized to ratify had full and complete knowledge of all the
material facts connected with the transaction to which it relates. It
cannot be assumed also that Atty. Cardenas, as administrative
manager of the corporation, had authority to ratify. For ratification
can never be made on the part of the corporation by the same
persons who wrongfully assume the power to make the contract,
but the ratification must be by the officer or governing body having
authority to make such contract and, as we have seen, must be
with full knowledge.

The acts or conduct for which the corporation may be liable under
the doctrine of estoppel must be those of the corporation, its
governing body or authorized officers, and not those of the
purported agent who is himself responsible for the
misrepresentation.
BOYER v. ROXAS
Properties registered in the name of the corporation are owned by
it as an entity separate and distinct from its members. While shares
of stock constitute personal property, they do not represent
property of the corporation. The corporation has property of its own
which consists chiefly of real estate. 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 is he entitled to the possession of any definite
portion of its property or assets. The stockholder is not a co-owner
or tenant in common of the corporate property.
The respondent corporation has a distinct personality separate
from its members. The corporation transacts its business only
through its officers or agents. Whatever authority these officers or
agents may have is derived from the board of directors or other
governing body unless conferred by the charter of the corporation.
An officer's power as an agent of the corporation must be sought
from the statute, charter, the by-laws or in a delegation of authority
to such officer, from the acts of the board of directors, formally
expressed or implied from a habit or custom of doing business.
The record shows that Eufrocino V. Roxas who then controlled the
management of the corporation, being the majority stockholder,
consented to the petitioners' stay within the questioned properties.
Specifically, Eufrocino Roxas gave his consent to the conversion of
the recreation hall to a residential house, now occupied by
petitioner Guillermo Roxas. The Board of Directors did not object to
the actions of Eufrocino Roxas. The petitioners were allowed to stay
within the questioned properties until August 27, 1983, when the
Board of Directors approved a Resolution ejecting the petitioners.
Under these circumstances, the Court agree with the petitioners
that the provision of Article 453 of the Civil Code should have been
applied by the lower courts which states that if there was bad faith,
not only on the part of the person who built, planted or sown on the
land of another but also on the part of the owner of such land, the

rights of one and the other shall be the same as though both had
acted in good faith.
Corporate Secretary
TORRES JR. v. CA
It is the corporate secretarys duty and obligation to register valid
transfers of stocks and if said corporate officer refuses to comply,
the transferor-stockholder may rightfully bring suit to compel
performance.
In the absence of (any) provision to the contrary, the corporate
secretary is the custodian of corporate records. Corollarily, he
keeps the stock and transfer book and makes proper and necessary
entries therein.
Contrary to the generally accepted corporate practice, the stock
and transfer book of TORMIL was not kept by Ms. Maria Cristina T.
Carlos, the corporate secretary but by respondent Torres, the
President and Chairman of the Board of Directors of TORMIL. In
contravention to the above cited provision, the stock and transfer
book was not kept at the principal office of the corporation either
but at the place of respondent Torres.
These being the obtaining circumstances, any entries made in the
stock and transfer book on March 8, 1987 by respondent Torres of
an alleged transfer of nominal shares to Pabalan and Co. cannot
therefore be given any valid effect. Where the entries made are not
valid, Pabalan and Co. cannot therefore be considered stockholders
of record of TORMIL. Because they are not stockholders, they
cannot therefore be elected as directors of TORMIL. To rule
otherwise would not only encourage violation of clear mandate of
Sec. 74 of the Corporation Code that stock and transfer book shall
be kept in the principal office of the corporation but would likewise
open the flood gates of confusion in the corporation as to who has
the proper custody of the stock and transfer book and who are the
real stockholders of records of a certain corporation as any holder
of the stock and transfer book, though not the corporate secretary,
at pleasure would make entries therein.
The fact that respondent Torres holds 81.28% of the outstanding
capital stock of TORMIL is of no moment and is not a license for
him to arrogate unto himself a duty lodged to (sic) the corporate
secretary.

All corporations, big or small, must abide by the provisions of the

Corporation Code. Being a simple family corporation is not an
exemption. Such corporations cannot have rules and practices
other than those established by law.
ESGUERRA v. CA
After a thorough review of the case at bench, the Court finds the
sale of Esguerra Building II by VECCI to private respondent Sureste
Properties, Inc. valid. The sale was expressly and clearly
authorized under the judicially-approved compromise agreement
freely consented to and voluntarily signed by petitioner Julieta
Esguerra. Thus, petitioners contention that the sale is
unenforceable as to her share for being unauthorized is plainly
incongruous with the express authority granted by the compromise
agreement to VECCI, which specified no condition that the latter
shall first consult with the former prior to selling any of the
properties listed there.
The compromise agreement expressly authorizes VECCI to sell the
subject properties, with the only condition that the sale be in a
lawful and convenient manner and under the terms and conditions
recited in the enabling resolutions of its Board of Directors and
stockholders. There is nothing in the said agreement requiring
VECCI to consult the private respondent Julieta Esguerra before any
sale (can be concluded). Thus, when VECCI sold the property to
(Sureste Properties, Inc.) as agreed upon, it need not consult the
private respondent.
VECCIs sale of all the properties mentioned in the judiciallyapproved compromise agreement was done on the basis of its
Corporate Secretarys Certification of these two resolutions. The
partial decision did not require any further board or stockholder
resolutions to make VECCIs sale of these properties valid. Being
regular on its face, the Secretarys Certification was sufficient for
private respondent Sureste Properties, Inc. to rely on. It did not
have to investigate the truth of the facts contained in such
certification. Otherwise, business transactions of corporations
would become tortuously slow and unnecessarily
hampered. Ineluctably, VECCIs sale of Esguerra Building II to
private respondent was not ultra vires but a valid execution of the
trial courts partial decision. Based on the foregoing, the sale is
also deemed to have satisfied the requirements of Section 40 of the
Corporation Code.
Corporate Treasurer

SAN JUAN STRUCTURAL AND STEEL FABRICATORS V. CA

A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and
may not be sold by the stockholders or members without express
authorization from the corporations board of director. Section 23 of
BP 68, otherwise known as the Corporation Code of the Philippines,
provides:
SEC. 23. The Board of Directors or Trustees. -- Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of
the corporation, who shall hold office for one (1) year and until their
successors are elected and qualified.
A corporation may act only through its board of directors, or, when
authorized either by its bylaws or by its board resolution, through
its officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation
and its officers or agents, subject to the articles of incorporation,
bylaws, or relevant provisions of law. Thus, this Court has held that
a corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that the
authority to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also such
powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent
powers as the corporation has caused persons dealing with the
officer or agent to believe that it has conferred.
The Court has also recognized the rule that persons dealing with an
assumed agent, whether the assumed agency be a general or
special one, are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it. Unless duly authorized,
a treasurer, whose powers are limited, cannot bind the corporation
in a sale of its assets.

As a general rule, the acts of corporate officers within the scope of

their authority are binding on the corporation. But when these
officers exceed their authority, their actions cannot bind the
corporation, unless it has ratified such acts or is estopped from
disclaiming them.
The Court is not unaware that there are exceptional cases where an
action by a director, who singly is the controlling stockholder, may
be considered as a binding corporate act and a board action as
nothing more than a mere formality. The present case, however, is
not one of them.

relations to others, even though he may not have the power to

enter into contracts. The rules on service of process make service
on agent sufficient. It does not in any way distinguish whether
the agent be general or special, but is complied with even by a
service upon an agent having limited authority to represent his
principal. As such, it does not necessarily connote an officer of
the corporation. However, though this may include employees
other than officers of a corporation, this does not include
employees whose duties are not so integrated to the business that
their absence or presence will not toll the entire operation of the
business.

Corporate Bookkeeper

General Manager

PABON v. NLRC

ELICE AGRO-INDUSTRIAL CORP. v. YOUNG

A bookkeeper can be considered as an agent of private Respondent

Corporation within the purview of Section 13, Rule 14 of the old
Rules of Court. The rationale of all rules with respect to service of
process on a corporation is that such service must be made to an
agent of a representative so integrated with the corporation sued
as to make it a priori supposable that he will realize his
responsibilities and know what he should do with any legal papers
served on him. The bookkeepers task is one under
consideration. The job of a bookkeeper is so integrated with the
corporation that his regular recording of the corporations business
accounts and essential facts about the transactions of a business
enterprise safeguards the corporation from possible fraud being
committed adverse to its own corporate interest.
Although it may be true that the service of summons was made on
a person not authorized to receive the same in behalf of the
petitioner, nevertheless since it appears that the summons and
complaint were in fact received by the corporation through its said
clerk, the Court finds that there was a substantial compliance with
the rule on service of summons. Indeed the purpose of said rule as
above stated to assure service of summons on the corporation had
thereby been attained. The need for speedy justice must prevail
over technicality.
Blacks Law Dictionary defines an agent as a business
representative, whose function is to bring about, modify, affect,
accept performance of, or terminate contractual obligations
between principal and third person. To this extent, an agent may
also be shown to represent his principal in some one or more of his

It is a settled rule that jurisdiction over the defendant is acquired

either upon a valid service of summons or the defendants
voluntary appearance in court. When the defendant does not
voluntarily submit to the courts jurisdiction or when there is no
valid service of summons, any judgment of the court which has no
jurisdiction over the person of the defendant is null and void. The
purpose of summons is not only to acquire jurisdiction over the
person of the defendant, but also to give notice to the defendant
that an action has been commenced against it and to afford it an
opportunity to be heard on the claim made against it. The
requirements of the rule on summons must be strictly followed,
otherwise, the trial court will not acquire jurisdiction over the
defendant.
Section 13, Rule 14 of the 1964 Rules of Civil Procedure, the
applicable rule on service of summons upon a private domestic
corporation then, provides:
Sec. 13. Service upon private domestic corporation or partnership.
If the defendant is a corporation organized under the laws of the
Philippines or a partnership duly registered, service may be made
on the president, manager, secretary, cashier, agent, or any of its
directors.
For service of summons upon a private domestic corporation, to be
effective and valid, should be made on the persons enumerated in
the rule. Conversely, service of summons on anyone other than the
president, manager, secretary, cashier, agent, or director, is not
valid. The purpose is to render it reasonably certain that the
corporation will receive prompt and proper notice in an action

against it or to insure that the summons be served on a

representative so integrated with the corporation that such person
will know what to do with the legal papers served on him.
In the present case, the 1996 GIS of EAIC, the pertinent document
showing EAICs composition at the time the summons was served
upon it, through Domingo, will readily reveal that she was not its
president, manager, secretary, cashier, agent or director. Due to
this fact, the Court is of the view that her honest belief that she
was the authorized corporate secretary was clearly mistaken
because she was evidently not the corporate secretary she claimed
to be. In view of Domingos lack of authority to properly represent
EAIC, the Court is constrained to rule that there was no valid
service of summons binding on it.
A corporation can only exercise its powers and transact its business
through its board of directors and through its officers and agents
when authorized by a board resolution or its bylaws. The power of a
corporation to sue and be sued is exercised by the board of
directors. The physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly
authorized for the purpose by corporate bylaws or by a specific act
of the board.
E.B. VILLAROSA & PARTNER CO. v. BENITO
The enumeration of persons to whom summons may be served is
restricted, limited and exclusive following the rule on statutory
construction expressio unios est exclusio alterius and if the Rules
of Court Revision Committee intended to liberalize the rule on
service of summons, it could have easily done so by clear and
concise language.
Earlier cases have uphold service of summons upon a construction
project manager; a corporations assistant manager; ordinary clerk
of a corporation; private secretary of corporate executives; retained
counsel; officials who had charge or control of the operations of the
corporation, like the assistant general manager; or the
corporations Chief Finance and Administrative Officer. In these
cases, these persons were considered as agent within the
contemplation of the old rule. Notably, under the new Rules, service
of summons upon an agent of the corporation is no longer
authorized.
The designation of persons or officers who are authorized to accept
summons for a domestic corporation or partnership is now limited

and more clearly specified in Section 11, Rule 14 of the 1997 Rules
of Civil Procedure. The rule now states general manager instead
of only manager; corporate secretary instead of secretary;
and treasurer instead of cashier. The phrase agent, or any of
its directors is conspicuously deleted in the new rule.
The then Sec. 13 of this Rule allowed service upon a defendant
corporation to be made on the president, manager, secretary,
cashier, agent or any of its directors. The aforesaid terms were
obviously ambiguous and susceptible of broad and sometimes
illogical interpretations, especially the word agent of the
corporation. The Filoil case, involving the litigation lawyer of the
corporation who precisely appeared to challenge the validity of
service of summons but whose very appearance for that purpose
was seized upon to validate the defective service, is an illustration
of the need for this revised section with limited scope and specific
terminology. Thus the absurd result in the Filoil case necessitated
the amendment permitting service only on the in-house counsel of
the corporation who is in effect an employee of the corporation, as
distinguished from an independent practitioner.
A strict compliance with the mode of service is necessary to confer
jurisdiction of the court over a corporation. The officer upon whom
service is made must be one who is named in the statute;
otherwise the service is insufficient. The purpose is to render it
reasonably certain that the corporation will receive prompt and
proper notice in an action against it or to insure that the summons
be served on a representative so integrated with the corporation
that such person will know what to do with the legal papers served
on him, in other words, to bring home to the corporation notice of
the filing of the action. The liberal construction rule cannot be
invoked and utilized as a substitute for the plain legal requirements
as to the manner in which summons should be served on a
domestic corporation.
Construction Project Manager
KANLAON CONSTRUCTION ENTERPRISES CO., INC. v. NLRC
Under the NLRC Rules of Procedure, summons on the respondent
shall be served personally or by registered mail on the party
himself. If the party is represented by counsel or any other
authorized representative or agent, summons shall be served on
such person.

To determine the scope or meaning of the term "authorized

representative" or "agent" of parties on whom summons may be
served, the provisions of the Revised Rules of Court may be
resorted to. Under the Revised Rules of Court, service upon a
private domestic corporation or partnership must be made upon its
officers, such as the president, manager, secretary, cashier, agent,
or any of its directors. These persons are deemed so integrated
with the corporation that they know their responsibilities and
immediately discern what to do with any legal papers served on
them.
In the case at bar, Engineer Estacio, assisted by Engineer Dulatre,
managed and supervised the construction project. According to the
Solicitor General and private respondents, Engineer Estacio
attended to the project in Iligan City and supervised the work of
the employees thereat. As manager, he had sufficient responsibility
and discretion to realize the importance of the legal papers served
on him and to relay the same to the president or other responsible
officer of petitioner. Summons for petitioner was therefore validly
served on him.
Engineer Estacio's appearance before the labor arbiters and his
promise to settle the claims of private respondents is another
matter.
The general rule is that only lawyers are allowed to appear before
the labor arbiter and respondent Commission in cases before
them. The Labor Code and the New Rules of Procedure of the
NLRC, nonetheless, lists three (3) exceptions to the rule, viz:
Section 6. Appearances.-- x
x
x.
A non-lawyer may appear before the Commission or any Labor
Arbiter only if:
(1) he represents himself as party to the case;
(2) he represents the organization or its members, provided that he
shall be made to present written proof that he is properly
authorized; or
(3) he is a duly-accredited member of any legal aid office duly
recognized by the Department of Justice or the Integrated Bar of
the Philippines in cases referred thereto by the latter
Corporations Assistant Manager
GESULGON v. NLRC

The fact that both the summons and the copy of the decision of the
Labor Arbiter had been served upon Mariscor by delivery thereof to
Ms. Trajeco, a clerk in the office of Mariscor's Assistant Manager
Hermosura, is of no moment. Under Section 13 of Rule 14 of the
Rules of Court, summons may be served upon a domestic
corporation like Mariscor by service made on "the president,
manager, secretary, cashier, agent, or any of its directors."
In Villa Rey Transit, Inc., et al v. Far East Motor Corporation, et al,
the Court held that service of summons made on petitioner
corporation through delivery of summons to its Assistant General
Manager for Operations was valid service which vested the trial
court with jurisdiction over the person of the corporation, and that
an Assistant General Manager for Operations is properly regarded
as falling within the term "manager" or "agent" used in Section 13,
Rule 14 of the Rules of Court. We note that in the Villa Rey Transit,
Inc. case, the papers were delivered by the sheriff not personally to
the Assistant General Manager for Operations, but rather were left
with one of the night tellers of the corporation.
The rationale of all rules for service of process on corporation(s) is
that service must be made on a representative so integrated with
the corporation sued as to make it a priori supposable that he will
realize his responsibilities and know what he should do with any
legal papers served on him.
Whether or not Assistant Manager Hermosura actually turned over
the papers received by him in his office to unspecified "appropriate
officers" of Mariscor, does not appear in the record. In any case,
Mariscor cannot be relieved of responsibility for the acts or
omissions of its officers. Mariscor is bound by the service of
summons effected upon its Assistant Manager. It would be contrary
to public policy to permit a corporation to free itself from the
consequences of service upon it of legal process by pleading the
supposed failure of one of its officers to carry out duties incumbent
upon such officer. The public is entitled to assume that an Assistant
General Manager of a corporation, like Mr. Hermosura in the case at
bar, will in fact do what was necessary to be done in respect of a
summons and a complaint like that filed by petitioner Gesulgon.
Ordinary Clerk of Corporation
GOLDEN COUNTRY FARMS, INC. v. SANVAR DEV. CORP.
Service of process on a corporation is controlled by Sec. 13, Rule 14
of the Revised Rules of Court, provides that if the defendant is a

corporation organized under the laws of the Philippines or a

partnership duly registered, service may be made on the president,
manager, secretary, cashier, agent, or any of its directors.
Although it maybe true that the service of summons was made on a
person not authorized to receive the same in behalf of the
petitioner, nevertheless since it appears that the summons and
complaint were in fact received by the corporation through its said
clerk, the Court finds that there was substantial compliance with
the rule on service of summons. Indeed the purpose of said rule as
above stated to assure service of summons on the corporation had
thereby been attained. The need for speedy justice must prevail
over a technicality.
In the case at bar, the fact that summons was received by
petitioner through Miss Lagrimas, is not disputed; rather, petitioner
admits that on March 18, 1980, the corporation and its legal
counsel were informed by Miss Lagrimas of the summons she
received. And indeed, by virtue of the receipt of the summons,
petitioner even filed a motion to dismiss.
The actual receipt by the clerk-typist of the correct address of the
corporation must be construed as receipt on behalf of the officer of
the corporation holding office at that address. Mr. Romualdez, the
general manager was holding office at that address, he received
the summons, and that summons must be binding on him
personally and on the corporation of which he is the general
manager. It is to be observed that the law firm of Avila, de los
Santos and Associates is the same counsel for both defendants,
and it is simply absurd to split the personality of defendant
Romualdez between himself as general manager of Defendant
Corporation and the defendant corporation of which he is the
general manager for purposes of service of summons.
G & G TRADING CORP. v. CA
The law applicable to this case is Section 13 of Rule 14 of the
Revised Rules of Court, which provides:
SEC. 13. Service upon private domestic corporation or
partnership. If the defendant is a corporation organized under
the laws of the Philippines or a partnership duly registered, service
may be made on the president, manager, secretary, cashier, agent,
or any of its directors.

The purpose of the rule is to render it reasonably certain that the

corporation will receive prompt and proper notice in an action
against it or to insure that the summons be served on a
representative so integrated with the corporation that such person
will know what to do with the legal papers served on him or, in
other words, to bring home to the corporation notice of the filing of
the action.
In the case at bar, the lower court concluded that there was valid
service of summons on Petitioner Corporation as Melinda C. Molo,
who received the summons, was the secretary of the corporation.
The basis of such finding was the lower court's belief that Melinda
Identified herself as the secretary of the corporation when she
wrote after her signature the word "secretary" in the return made
by the process server. However, this is denied by the petitioner
which insists on the other hand that Melinda is merely its clerical
secretary and not the official secretary of the corporation. To this
effect, evidence was presented by petitioner.
What the records show is that the petitioner had actually received
the summons and complaint when it was served on Miss Molo. The
Court of Appeals thus correctly maintained that the summons
served at the office of petitioner is a substantial compliance with
the rule on the service of summons.
Although it maybe true that the service of summons was made on a
person not authorized to receive the same in behalf of the
petitioner, nevertheless since it appears that the summons and
complaint were in fact received by the corporation through its said
clerk, the Court finds that there was substantial compliance with
the rule on service of summons. Indeed the purpose of said rule as
above stated to assure service of summons on the corporation had
thereby been attained. The need for speedy justice must prevail
over a technicality.
Private Secretary of Corporate Executives
SUMMIT TRADING AND DEV. CORP v. AVENDANO
It is true that Saquilayan is not among the persons mentioned in
section 13. However, she, being under the control of Summit
Trading, has not explained what she has done with the summons
and complaint. The logical assumption is that she delivered it to her
boss, the president of Summit Trading. As already stated, she
received a copy of the decision and Summit Trading became aware
of it. Summit Trading's motion for reconsideration was denied.

While Summit Trading is technically correct in contending that there

was no strict compliance with section 13, we cannot close our eyes
to the realities of the situation. Under the facts of this case,
Saquilayan, being the secretary of the president (whose contact
with the outside world is normally through his secretary), may be
regarded as an "agent" within the meaning of section 13.
Hence summons was validly served upon Summit Trading. Its
negligence in not answering the complaint was inexcusable. In fact,
up to this time, Summit Trading has not bothered to state its
defenses to the action nor stated whether it has a meritorious case
warranting the setting aside of the default judgment.
In the instant case, service was made on the president's secretary
who could have easily notified the president that an action was
filed against the corporation just as she had apprised him of the
judgment in this case.
VIASON ENTERPRISES CORP. v. CA
A corporation may be served summons through its agents or
officers who under the Rules are designated to accept service of
process. A summons addressed to a corporation and served on the
secretary of its president binds that corporation. This is based on
the rationale that service must be made on a representative so
integrated with the corporation sued, that it is safe to assume that
said representative had sufficient responsibility and discretion to
realize the importance of the legal papers served and to relay the
same to the president or other responsible officer of the corporation
being sued. The secretary of the president satisfies this
criterion. This rule requires, however, that the secretary should be
an employee of the corporation sought to be summoned. Only in
this manner can there be an assurance that the secretary will
bring home to the corporation the notice of the filing of the action
against it.
In the present case, Bebero was the secretary of Angliongto, who
was president of both VSI and petitioner, but she was an employee
of VSI, not of petitioner. The piercing of the corporate veil cannot
be resorted to when serving summons. Doctrinally, a corporation is
a legal entity distinct and separate from the members and
stockholders who compose it. However, when the corporate fiction
is used as a means of perpetrating a fraud, evading an existing
obligation, circumventing a statute, achieving or perfecting a
monopoly or, in generally perpetrating a crime, the veil will be

lifted to expose the individuals composing it. None of the foregoing

exceptions has been shown to exist in the present case. Quite the
contrary, the piercing of the corporate veil in this case will result in
manifest injustice. This cannot be allowed. Hence, the corporate
fiction remains.
Agent
FILIOIL MARKETING CORP.
Section 13, Rule 14 of the New Rules of Court, provides:
SEC. 13. Service upon private domestic corporation or partnership.
If the defendant is a corporation organized under the laws of the
Philippines or a partnership duly registered, service may be made
on the president, manager, secretary, cashier, agent, or any of its
directors.
It is admitted that in this case the summons and copy of the
complaint were served upon Atty. Paulino Al. Aquino, an Assistant
Attorney in the Syquia Law Offices and who, in three or four
instances, had already appeared in court in connection with the
Motions to Dismiss on the ground of improper service of summons.
Section 13, Rule 14 of the Revised Rules of Court, provides that
service of summons upon a domestic corporation may be made on
its agent. In the case at bar, where defendant- corporation's
counsel received the summons, he was acting for and in behalf of
the defendant in connection with the Motions to Dismiss on the
ground of lack of jurisdiction on the person of the defendant due to
improper service of summons. Perforce, he was the defendant's
agent and under the aforecited rule, service upon him is sufficient.
Liabilities of Corporate Officers
EVER ELECTRICAL MANUFACTURING, INC. v. SAMAHANG
MANGGAGAWA
As a general rule, corporate officers should not be held solidarily
liable with the corporation for separation pay for it is settled that a
corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that
of any other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate
personality.

Clearly, what can be inferred from the earlier cases is that the
doctrine of piercing the corporate veil applies only in three (3) basic
areas, namely: 1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of
another corporation. In the absence of malice, bad faith, or a
specific provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for corporate
liabilities.
In labor cases, corporate directors and officers may be held
solidarily liable with the corporation for the termination of
employment only if done with malice or in bad faith. Bad faith does
not connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it
means breach of a known duty through some motive or interest or
ill will; it partakes of the nature of fraud.
JAIME GOSIACO v. CHING
When a corporate officer issues a worthless check in the corporate
name he may be held personally liable for violating a penal
statute. The statute imposes criminal penalties on anyone who with
intent to defraud another of money or property, draws or issues a
check on any bank with knowledge that he has no sufficient funds
in such bank to meet the check on presentment. Moreover, the
personal liability of the corporate officer is predicated on the
principle that he cannot shield himself from liability from his own
acts on the ground that it was a corporate act and not his personal
act.
The general rule is that a corporate officer who issues a bouncing
corporate check can only be held civilly liable when he is convicted.
In the recent case of Bautista v. Auto Plus Traders Inc., the Court
ruled decisively that the civil liability of a corporate officer in a B.P.
Blg. 22 case is extinguished with the criminal liability. The Court is
not inclined through this case to revisit so recent a precedent, and
the rule of stare decisis precludes it to discharge Ching of any civil
liability arising from the B.P. Blg. 22 case against her, on account of
her acquittal in the criminal charge.

The Court do not agree with petitioner that he is entitled to implead

ASB in the B.P. Blg. 22 case, or any other corporation for that
matter, even if the Rules require the joint trial of both the criminal
and civil liability. A basic maxim in statutory construction is that the
interpretation of penal laws is strictly construed against the State
and liberally construed against the accused. Nowhere in B.P. Blg. 22
is it provided that a juridical person may be impleaded as an
accused or defendant in the prosecution for violations of that law,
even in the litigation of the civil aspect thereof.
In theory the B.P. Blg. 22 criminal liability of the person who issued
the bouncing check in behalf of a corporation stands independent
of the civil liability of the corporation itself, such civil liability arising
from the Civil Code. B.P. Blg. 22 itself fused this criminal liability of
the signer of the check in behalf of the corporation with the
corresponding civil liability of the corporation itself by allowing the
complainant to recover such civil liability not from the corporation,
but from the person who signed the check in its behalf. Prior to the
amendments to our rules on criminal procedure, it though clearly
was permissible to pursue the criminal liability against the
signatory, while going after the corporation itself for the civil
liability.
B.P. Blg. 22 imposes a distinct civil liability on the signatory of the
check which is distinct from the civil liability of the corporation for
the amount represented from the check. The civil liability attaching
to the signatory arises from the wrongful act of signing the check
despite the insufficiency of funds in the account, while the civil
liability attaching to the corporation is itself the very obligation
covered by the check or the consideration for its execution. Yet
these civil liabilities are mistaken to be indistinct. The confusion is
traceable to the singularity of the amount of each.
ELCEE FARMS, INC. v. NLRC
In the present case, Elcee Farms effectively ceased to operate and
manage Hacienda Trinidad when, through Garnele, it leased the
hacienda to Daniel Hilado. The validity of the aforementioned lease
was not questioned by any of the parties. There is no question that
the lease to Daniel Hilado effectively terminated the employeremployee relationship between Elcee Farms and the farmworkers.
The Court ruled that an employer whose lease agreement had
already expired, and therefore no longer manages and controls the

hacienda, is still required to pay the separation pay due to its

former employees in connection with their employment with such
employer, even if the said employees were terminated by the new
employer.
This Court finds merit in the petitioners allegation that Corazon
Saguemuller should not be subsidiarily liable with Elcee Farms for
separation pay and damages. It is basic that a corporation is
invested by law with a personality separate and distinct from those
of the persons composing it as well as from that of any other legal
entity to which it may be related. Mere ownership by a single
stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. In the case of
Santos v. National Labor Relations Commission, a corporate officer
was not held liable for the obligations incurred by the corporation,
where the corporate officer was not even shown to have had a
direct hand in the dismissal of the employee enough to attribute to
him an unlawful act.
The Court restated the rule that corporate directors and officers are
solidarily liable with the corporation for the termination of
employees done with malice or bad faith. Bad faith was defined by
the Court thus: "It has been held that bad faith does not connote
bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of wrong; it means
breach of a known duty through some motive or interest or ill will; it
partakes of the nature of fraud.
CHING v. SEC. OF JUSTICE
Section 13 of PD 115 which states in part that if the violation or
offense is committed by a corporation, partnership, association or
other judicial entities, the penalty provided for in this Decree shall
be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense.
There is no dispute that it was the respondent, who as senior vicepresident of PBM, executed the 13 trust receipts. As such, the law
points to him as the official responsible for the offense. Since a
corporation cannot be proceeded against criminally because it
cannot commit crime in which personal violence or malicious intent
is required, criminal action is limited to the corporate agents guilty
of an act amounting to a crime and never against the corporation

itself. Thus, the execution by respondent of said receipts is enough

to indict him as the official responsible for violation of PD 115.
The penalty clause of the law, Section 13 of P.D. No. 115 provides
that the failure of an entrustee to turn over the proceeds of the sale
of the goods, documents or instruments covered by a trust receipt
to the extent of the amount owing to the entruster or as appears in
the trust receipt or to return said goods, documents or instruments
if they were not sold or disposed of in accordance with the terms of
the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen,
paragraph one (b) of Act Numbered Three thousand eight hundred
and fifteen, as amended, otherwise known as the Revised Penal
Code.
Though the entrustee is a corporation, nevertheless, the law
specifically makes the officers, employees or other officers or
persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or
other officials or employees responsible for the offense. The
rationale is that such officers or employees are vested with the
authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held
criminally accountable; thus, they have a responsible share in the
violations of the law.
If the crime is committed by a corporation or other juridical entity,
the directors, officers, employees or other officers thereof
responsible for the offense shall be charged and penalized for the
crime, precisely because of the nature of the crime and the penalty
therefor. A corporation cannot be arrested and imprisoned; hence,
cannot be penalized for a crime punishable by
imprisonment. However, a corporation may be charged and
prosecuted for a crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may be fined.
TUPAZ IV v. CA
A corporation, being a juridical entity, may act only through its
directors, officers, and employees. Debts incurred by these
individuals, acting as such corporate agents, are not theirs but the
direct liability of the corporation they represent. As an exception,
directors or officers are personally liable for the corporations debts
only if they so contractually agree or stipulate.

In Ong v. Court of Appeals, a corporate representative signed a

solidary guarantee clause in two trust receipts in his capacity as
corporate representative. There, the Court held that the corporate
representative did not undertake to guarantee personally the
payment of the corporations debts.
In Prudential Bank v. Intermediate Appellate Court, the Court
interpreted a substantially identical clause in a trust receipt signed
by a corporate officer who bound himself personally liable for the
corporations obligation. The petitioner in that case contended that
the stipulation we jointly and severally agree and undertake
rendered the corporate officer solidarily liable with the corporation.
We dismissed this claim and held the corporate officer liable as
guarantor only. The Court further ruled that had there been more
than one signatories to the trust receipt, the solidary liability would
exist between the guarantors.
However, respondent banks suit against petitioner Jose Tupaz
stands despite the Courts finding that he is liable as guarantor
only. First, excussion is not a pre-requisite to secure judgment
against a guarantor. The guarantor can still demand deferment of
the execution of the judgment against him until after the assets of
the principal debtor shall have been exhausted. Second, the benefit
of excussion may be waived. Under the trust receipt (2nd TR),
petitioner Jose Tupaz waived excussion when he agreed that his
liability in the guaranty shall be DIRECT AND IMMEDIATE, without
any need whatsoever on the part of respondent bank to take any
steps or exhaust any legal remedies. The clear import of this
stipulation is that petitioner Jose Tupaz waived the benefit of
excussion under his guarantee.
Rights of Stockholders and Members
STOCKHOLDERS OF F. GUANZON AND SONS, INC. vs. REGISTER OF
DEEDS OF MANILA
Appellants 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. This is apparent in the minutes for dissolution attached
to the document. Not being a conveyance the certificate need not
contain a statement of the number of parcel of land involved in the
distribution in the acknowledgment appearing therein.
The Commissioner of Land Registration concurred in the view
expressed by the register of deed to the effect that the certificate

of liquidation in question, though it involves a distribution of the

corporation's assets, in the last analysis represents a transfer of
said assets from the corporation to the stockholders. Hence, in
substance it is a transfer or conveyance.
A corporation is a juridical person distinct from the members
composing it. Properties registered in the name of the corporation
are owned by it as an entity separate and distinct from its
members. While shares of stock constitute personal property they
do not represent property of the corporation. The corporation has
property of its own which consists chiefly of real estate. 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 is he entitled to the
possession of any definite portion of its property or assets. The
stockholder is not a co-owner or tenant in common of the corporate
property.
On the basis of the foregoing authorities, it is clear that the act of
liquidation made by the stockholders of the F. Guanzon and Sons,
Inc. of the latter's assets is not and cannot be considered a
partition of community property, but rather a transfer or
conveyance of the title of its assets to the individual stockholders.
Indeed, since the purpose of the liquidation, as well as the
distribution of the assets of the corporation, is to transfer their title
from the corporation to the stockholders in proportion to their
shareholdings, and this is in effect the purpose which they seek
to obtain from the Register of Deeds of Manila, that transfer
cannot be effected without the corresponding deed of conveyance
from the corporation to the stockholders. It is, therefore, fair and
logical to consider the certificate of liquidation as one in the nature
of a transfer or conveyance
Right to Vote and to Attend Meetings
REPUBLIC OF THE PHILIPPINES v. COCOFED
At the outset, it is necessary to restate the general rule that the
registered owner of the shares of a corporation exercises the right
and the privilege of voting. This principle applies even to shares
that are sequestered by the government, over which the PCGG as a
mere conservator cannot, as a general rule, exercise acts of
dominion. On the other hand, it is authorized to vote these
sequestered shares registered in the names of private persons and

acquired with allegedly ill-gotten wealth, if it is able to satisfy

the two-tiered test devised by the Court in Cojuangco v. Calpo
and PCGG v. Cojuangco Jr., as follows:
Is there prima facie evidence showing that the said shares are illgotten and thus belong to the State?
Is there an imminent danger of dissipation, thus necessitating their
continued sequestration and voting by the PCGG, while the main
issue is pending with the Sandiganbayan?
From the foregoing general principle, the Court in Baseco v. PCGG
and Cojuangco Jr. v. Roxas (Cojuangco-Roxas) has provided two
clear public character exceptions under which the government is
granted the authority to vote the shares:
Where government shares are taken over by private persons or
entities who/which registered them in their own names, and
Where the capitalization or shares that were acquired with public
funds somehow landed in private hands.
The exceptions are based on the common-sense principle that legal
fiction must yield to truth; that public property registered in the
names of non-owners is affected with trust relations; and that
the prima facie beneficial owner should be given the privilege of
enjoying the rights flowing from the prima facie fact of ownership.
The Court granted PCGG the right to vote the sequestered shares
because they appeared to be assets belonging to the government
itself.

entities are shown, prima facie, to have been (1) originally

government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not
apply. Rather, the public character exceptions in Baseco v.
PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government
shall vote the shares.
To stress, the two-tiered test is applied only when the sequestered
asset in the hands of a private person is alleged to have been
acquired with ill-gotten wealth. Hence, in PCGG v. Cojuangco, the
Court allowed Eduardo Cojuangco Jr. to vote the sequestered shares
of the San Miguel Corporation (SMC) registered in his name but
alleged to have been acquired with ill-gotten wealth. The Court did
so on his representation that he had acquired them with borrowed
fundsand upon failure of the PCGG to satisfy the two-tiered
test. This test was, however, not applied to sequestered SMC
shares that were purchased with coco levy funds.
Ownership includes the right to enjoy, dispose of, exclude and
recover a thing without limitations other than those established by
law or by the owner. Ownership has been aptly described as the
most comprehensive of all real rights. And the right to vote shares
is a mere incident of ownership. In the present case, the
government has been shown to be the prima facie owner of the
funds used to purchase the shares. Hence, it should be allowed the
rights and privileges flowing from such fact.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT vs. EDUARDO
COJUANGCO, JR et al

The PCGG cannot perform acts of strict ownership of sequestered

property. It is a mere conservator. It may not vote the shares in a
corporation and elect the members of the board of directors. The
only conceivable exception is in a case of a takeover of a business
belonging to the government or whose capitalization comes from
public funds, but which landed in private hands as in BASECO.

Since 1986, petitioner had been voting the sequestered SMC shares
and continued to exercise such right until 1997, except for some
period in the year 1991. During the latter year, the Court in the
case of Cojuangco, Jr. vs. Roxas, on which both respondent
stockholders and SB anchor their position in this case, ruled that
the PCGG had no right to vote the said shares.

The public character test was reiterated in many subsequent

cases. This Court said that in determining the issue of whether the
PCGG should be allowed to vote sequestered shares, it was crucial
to find out first whether these were purchased with public funds.

In that case the Court ruled that the PCGG cannot perform acts of
strict ownership of sequestered property. It is a mere
conservator. It may not vote the shares in a corporation and elect
the members of the board of directors. The only conceivable
exception is in a case of a takeover of a business belonging to the
government or whose capitalization comes from public funds, but
which landed in private hands as in BASECO. The PCGG has no
right to vote and the sequestered shares of petitioners including

In short, when sequestered shares registered in the names of

private individuals or entities are alleged to have been acquired
with ill-gotten wealth, then the two-tiered test is applied. However,
when the sequestered shares in the name of private individuals or

the sequestered corporate shares. Only their owners, duly

authorized representatives or proxies may vote the said shares.
In 1995, however, the Court en banc promulgated the consolidated
sequestration cases which includes PCGG v. Sandiganbayan.
Among others, the Court nullified in the latter case an earlier
resolution issued by the SB lifting the sequestration over the shares
of stock in the name of said stockholders. The respondents in the
latter case and in this case are the same because the former case
is merely an offshoot of the main sequestration suit. The fact that
the sequestration remains does not automatically deprive the
stockholders of their right to vote those shares which is a basic
feature of their ownership although questioned. But in resolving
who should vote the sequestered shares, necessitates a
determination of the alleged ill-gotten character of those shares
and consequently the rightful ownership thereof, which issue is still
the subject of the main case still pending in the courts. In any
case, what is involved herein is merely an incident of the main case
and is limited only to the stockholders meeting scheduled for April
20, 1998. This resolution is without prejudice to the final
disposition of the merits of the main suit.
Until the main sequestration suit is resolved, the right to vote the
SMC sequestered shares depends on whether the two-tiered set by
the Court in its June 10, 1993 Resolution in G.R. No. 115352
(Cojuangco v. Calpo) concurs. Those guidelines must be observed
by the SB in resolving similar motions involving the right to vote
the said shares, which are:
whether there is prima facie evidence showing that the said shares
are ill-gotten and thus belong to the state; and
whether there is an immediate danger of dissipation thus
necessitating their continued sequestration and voting by the PCGG
while the main issue pends with the Sandiganbayan.
W. S. PRICE and THE SULU DEVELOPMENT COMPANY vs. H.
MARTIN, THE AGUSAN COCONUT COMPANY
Plaintiffs contend that the transference on the books of the
company of 97 shares of stock in the name of Mrs. Worcester was
fraudulent and illegal. The evidence of record, however, under all
the circumstances of the case, fails to demonstrate the allegation
of fraud, and this court believes that she acted in good faith and in
the honest belief that she had not only a legal right but a duty to
participate in the stockholders meeting.

As to whether the stock was rightfully the property of Martin, that is

a question for the courts and for a stockholder's meeting. Until
challenged in a proper proceeding, a stockholder according to the
books of the company has a right to participate in that meeting,
and in the absence of fraud the action of the stockholders' meeting
cannot be collaterally attacked on account of such participation.
A person who has purchased stock, and who desires to be
recognized as a stockholder, for the purpose of voting, must secure
such a standing by having the transfer recorded upon the books. If
the transfer is not duly made upon request, he has, as his remedy,
to compel it to be made.
EDUARDO M. COJUANGCO, JR. vs. ANTONIO J. ROXAS
Nothing is more settled than the ruling of this Court in BASECO VS.
PCGG that the PCGG cannot exercise acts of dominion over
property sequestered. It may not vote sequestered shares of stock
or elect the members of the board of directors of the corporation
concerned .
In relation to the property sequestered, frozen or provisionally
taken over, the PCGG is a conservator, not an owner. Therefore, it
can not perform acts of strict ownership; and this is specially true in
the situations contemplated by the sequestration rules where,
unlike cases of receivership, for example, no court exercises
effective supervision or can upon due application and hearing,
grant authority for the performance of acts of dominion.
The PCGG may properly exercise the prerogative to vote
sequestered stock of corporations, granted to it by the President of
the Philippines through a memorandum dated June 1986. That
memorandum authorizes the PCGG pending the outcome of
proceedings to determine the ownership of sequestered shares of
stock, to vote such shares of stock as it may have sequestered in
corporations at all stockholders meetings called for the election of
directors, declaration of dividends, amendment of the Articles of
Incorporation, etc.
There should be no exercise of the right to vote simply because the
right exists, or because the stocks sequestered constitute the
controlling or a substantial part of the corporate voting power. The
stock is not to be voted to replace directors, or revise the articles or
by-laws, or otherwise bring about substantial changes in policy,
program of practice of the corporation except for demonstrably
weighty and defensible grounds, and always in the context of the

stated purposes of sequestration or provisional takeover, i.e., to

prevent the dispersion or undue disposal of the corporate
assets. Directors are not to be voted out simply because the power
to do so exists. Substitution of directors is not to be done without
reason or rhyme, should indeed be shunned if at all possible, and
undertaken only when essential to prevent disappearance or
wastage of corporate property, and always under such
circumstances as to assure that the replacements are truly
possessed of competence, experience and probity
The PCGG cannot perform acts of strict ownership of sequestered
property. It is a mere conservator. It may not vote the shares in a
corporation and elect the members of the board of directors. The
only conceivable exception is in a case of a takeover of a business
belonging to the government or whose capitalization comes from
public funds, but which landed in private hands as in BASECO.
The Court finds and so holds that the PCGG has no right to vote the
sequestered shares of petitioners including the sequestered
corporate shares. Only their owners, duly authorized
representatives or proxies may vote the said shares. Consequently,
the election of private respondents Adolfo Azcuna, Edison Coseteng
and Patricio Pineda as members of the board of directors of SMC for
1990-1991 should be set aside.
Nevertheless, the right of the Government, represented by the
PCGG, as conservator of sequestered assets must be adequately
protected.
Notice
THE BOARD OF DIRECTORS AND ELECTION COMMITTEE OF THE
SMB WORKERS SAVINGS AND LOAN ASSOCIATION, INC., ET AL. vs.
HON. BIENVENIDO A. TAN, ETC., ET AL.
Section 3, article III, of the constitution and by-laws the association
provides that the notice of the time and place of holding of any
annual meeting, or any special meeting, the members, shall be
given either by posting the same in a postage prepaid envelope,
addressed to each member on the record at the address left by
such member with the Secretary of the Association, or at his known
post-office address or by delivering the same person at least (5)
days before the date set for such meeting.
In lieu of addressing or serving personal notices to the members,
notice of the members, notice of a regular annual meeting or of a

special meeting of the members may be given by posting copies of

said notice at the different departments and plants of the San
Miguel Brewery Inc., not less than five (5) days prior to the date of
the meeting.
Notice of a special meeting of the members should be given at
leasts five days before the date of the meeting. Therefore, the five
days previous notice required would not be complied with.
Vote
LIM TAY vs. COURT OF APPEALS
The registration of shares in a stockholder's name, the issuance of
stock certificates, and the right to receive dividends which pertain
to the said shares are all rights that flow from ownership. The
determination of whether or not a shareholder is entitled to
exercise the above-mentioned rights falls within the jurisdiction of
the SEC. However, if ownership of the shares is not clearly
established and is still unresolved at the time the action for
mandamus is filed, then jurisdiction lies with the regular courts.
Thus, a controversy among stockholders, partners or associates
themselves is intra-corporate in nature and falls within the
jurisdiction of the SEC.
The contractual stipulation, which was part of the Complaint, shows
that plaintiff was merely authorized to foreclose the pledge upon
maturity of the loans, not to own them. Such foreclosure is not
automatic, for it must be done in a public or private sale. Nowhere
did the Complaint mention that petitioner had in fact foreclosed the
pledge and purchased the shares after such foreclosure. His status
as a mere pledgee does not, under civil law, entitle him to
ownership of the subject shares. It is also noteworthy that
petitioner's Complaint did not aver that said shares were acquired
through extraordinary prescription, novation or laches. Moreover,
petitioner's claim, subsequent to the filing of the Complaint, that he
acquired ownership of the said shares through these three modes is
not indubitable and still has to be resolved. In fact, as will be
shown, such allegation-has no merit. Manifestly, the Complaint by
itself did not contain any prima facie showing that petitioner was
the owner of the shares of stocks. Quite the contrary, it
demonstrated that he was merely a pledgee, not an owner.
Accordingly, it failed to lay down a sufficient basis for the SEC to
exercise jurisdiction over the controversy. In fact, the very

allegations of the Complaint and its annexes negated the

jurisdiction of the SEC.
Petitioners ownership over the shares in this case was not yet
perfected when the Complaint was filed. The contract of pledge
certainly does not make him the owner of the shares pledged.
Further, whether prescription effectively transferred ownership of
the shares, whether there was a novation of the contracts of
pledge, and whether laches had set in were difficult legal issues,
which were unpleaded and unresolved when herein petitioner
asked the corporate secretary of Go Fay to effect the transfer, in his
favor, of the shares pledged to him.
In Rural Bank of Salinas, Melenia Guerrero executed deeds of
assignment for the shares in favor of the respondents in that case.
When the corporate secretary refused to register the transfer, an
action for mandamus was instituted. Subsequently, a motion for
intervention was filed, seeking the annulment of the deeds of
assignment on the grounds that the same were fictitious and
antedated, and that they were in fact donations because the
considerations therefor were below the book value of the shares.
Like the Abejo spouses, the respondents in Rural Bank of
Salinas were already prima facie shareholders when the deeds of
assignment were questioned. If the said deeds were to be annulled
later on, respondents would still be considered shareholders of the
corporation from the time of the assignment until the annulment of
such contracts.
At the outset, it must be underscored that petitioner did not acquire
ownership of the shares by virtue of the contracts of pledge.
No Meeting Called
DOMINGO PONCE AND BUHAY L. PONCE vs. DEMETRIO B.
ENCARNACION
Whenever, from any cause, there is no person authorized to call a
meeting, or when the officer authorized to do so refuses, fails or
neglects to call a meeting, any judge of a Court of First Instance on
the showing of good cause therefor, may issue an order to any
stockholder or member of a corporation, directing him to call a
meeting of the corporation by giving the proper notice required by
this Act or by-laws; and if there be no person legally authorized to
preside at such meeting, the judge of the Court of First Instance
may direct the person calling the meeting to preside at the same

until a majority of the members or stockholders representing a

majority of the stock members or stockholders presenting a
majority of the stock present and permitted by law to be voted
have chosen one of their number to act as presiding officer for the
purposes of the meeting.
On the showing of good cause therefor, the court may authorize a
stockholder to call a meeting and to preside threat until the
majority stockholders representing a majority strockholders
representing a majority of the stock present and permitted to be
voted shall have chosen one among them to preside it. And this
showing of good cause therefor exists when the court is apprised of
the fact that the by-laws of the corporation require the calling of a
general meeting of the stockholders to elect the board of directors
but call for such meeting has not been done.
Election of Directors and Trustees
BARAYUGA v. ADVENTIST UNIVERSITY OF THE PHILIPPINES
Section 108 of the Corporation Code determines the membership
and number of trustees in an educational corporation. The second
paragraph of the provision, although setting the term of the
members of the Board of Trustees at five years, contains a proviso
expressly subjecting the duration to what is otherwise provided in
the articles of incorporation or by-laws of the educational
corporation. That contrary provision controls on the term of office.
Based on AUPs case, its amended By-laws, the members of the
Board of Trustees were to serve a term of office of only two years;
and the officers, who included the President, were to be elected
from among the members of the Board of Trustees during their
organizational meeting, which was held during the election of the
Board of Trustees every two years. Naturally, the officers, including
the President, were to exercise the powers vested by Section 2 of
the amended By-Laws for a term of only two years, not five years.
Investment in Another Business
GOKONGWEI, JR., vs. SECURITIES AND EXCHANGE COMMISSION
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 provided

that its Board of Directors has been so authorized by the

affirmative vote of stockholders holding shares entitling them to
exercise at least two-thirds of the voting power. If the investment is
made in pursuance of the corporate purpose, it does not need the
approval of the stockholders. It is only when the purchase of shares
is done 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.
If the investment is made in a corporation whose business is
important to the investing corporation and would aid it in its
purpose, to require authority of the stockholders would be to
unduly curtail the power of the Board of Directors.
A private corporation, in order to accomplish is purpose as stated in
its articles of incorporation, and subject to the limitations imposed
by the Corporation Law, has the power to acquire, hold, mortgage,
pledge or dispose of shares, bonds, securities, and other evidence
of indebtedness of any domestic or foreign corporation. Such an
act, if done in pursuance of the corporate purpose, does not need
the approval of stockholders; but when the purchase of shares of
another corporation is done solely for investment and not to
accomplish the purpose of its incorporation, the vote of approval of
the stockholders is necessary. In any case, the purchase of such
shares or securities must be subject to the limitations established
by the Corporations law; namely, (a) that no agricultural or mining
corporation shall be restricted to own not more than 15% of the
voting stock of nay agricultural or mining corporation; and (c) that
such holdings shall be solely for investment and not for the purpose
of bringing about a monopoly in any line of commerce of
combination in restraint of trade.
A private corporation has the power to invest its corporate funds in
any other corporation or business, or for any purpose other than
the main purpose for which it was organized, provide that 'its board
of directors has been so authorized in a resolution by the
affirmative vote of stockholders holding shares in the corporation
entitling them to exercise at least two-thirds of the voting power on
such a propose at a stockholders' meeting called for that purpose,'
and provided further, that no agricultural or mining corporation
shall in anywise be interested in any other agricultural or mining
corporation. When the investment is necessary to accomplish its
purpose or purposes as stated in its articles of incorporation the
approval of the stockholders is not necessary.

Assuming arguendo that the Board of Directors of SMC had no

authority to make the assailed investment, there is no question
that a corporation, like an individual, 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 is defective from a supported failure to observe
in its execution the requirement of the law that the investment
must be authorized by the affirmative vote of the stockholders
holding two-thirds of the voting power. This requirement is for the
benefit of the stockholders. The stockholders for whose benefit the
requirement was enacted may, therefore, ratify the investment and
its ratification by said stockholders obliterates any defect which it
may have had at the outset. "Mere ultra vires acts", said this Court
in Pirovano, "or those which are not illegal and void ab initio, but
are not merely within the scope of the articles of incorporation, are
merely voidable and may become binding and enforceable when
ratified by the stockholders.
CHAS REALTY AND DEVELOPMENT CORPORATION vs. HON. TOMAS
B. TALAVERA
Rule 4, Section 2(k), of the Interim Rules on Corporate
Rehabilitation provides:
Sec. 2. Contents of the Petition. The petition filed by the debtor
must be verified and must set forth with sufficient particularity all
the following material facts: (a) the name and business of the
debtor; (b) the nature of the business of the debtor; (c) the history
of the debtor; (d) the cause of its inability to pay its debts; (e) all
the pending actions or proceedings known to the debtor and the
courts or tribunals where they are pending; (f) threats or demands
to enforce claims or liens against the debtor; and (g) the manner by
which the debtor may be rehabilitated and how such rehabilitation
may benefit the general body of creditors, employees, and
stockholders.
Rule 4, Section 2(k), distinctly provides that, first, under letter (a),
the filing of the petition has been duly authorized; and, second,
under letter (b), the directors and stockholders have irrevocably
approved and/or consented to, in accordance with existing laws, all
actions or matters necessary and desirable to rehabilitate the
debtor including, but not limited to, amendments to the articles of
incorporation and by-laws or articles of partnership; increase or
decrease in the authorized capital stock; issuance of bonded

indebtedness, alienation, transfer, or encumbrance of assets of the

debtor; and modification of shareholders rights.
Observe that Rule 4, Section 2(k), prescribes the need for a
certification; one, to state that the filing of the petition has been
duly authorized, and two, to confirm that the directors and
stockholders have irrevocably approved and/or consented to, in
accordance with existing laws, all actions or matters necessary and
desirable to rehabilitate the corporate debtor, including, as and
when called for, such extraordinary corporate actions as may be
marked out. The phrase, in accordance with existing laws,
obviously would refer to that which is, or to those that are, intended
to be done by the corporation in the pursuit of its plan for
rehabilitation. Thus, if any extraordinary corporate action
(mentioned in Rule 4, Section 2(k), of the Interim Rules on
Corporate Rehabilitation) are to be done under the proposed
rehabilitation plan, the petitioner would be bound to make it known
that it has received the approval of a majority of the directors and
the affirmative votes of stockholders representing at least twothirds (2/3) of the outstanding capital stock of the
corporation. Where no such extraordinary corporate acts (or one
that under the law would call for a two-thirds (2/3) vote) are
contemplated to be done in carrying out the proposed rehabilitation
plan, then the approval of stockholders would only be by a
majority, not necessarily a two-thirds (2/3), vote, as long as, of
course, there is a quorum a fact which is not here being disputed.
Pre-emptive Right
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION v.
MIGUEL LIM
A stock corporation is expressly granted the power to issue or sell
stocks. The power to issue shares of stock in a corporation is
lodged in the board of directors and no stockholders meeting is
required to consider it because additional issuances of shares of
stock do not need approval of the stockholders. What is only
required is the board resolution approving the additional issuance
of shares. The corporation shall also file the necessary application
with the SEC to exempt these from the registration requirements
under the Revised Securities Act (now the Securities Regulation
Code).
Pre-emptive right under Sec. 39 of the Corporation Code refers to
the right of a stockholder of a stock corporation to subscribe to all
issues or disposition of shares of any class, in proportion to their

respective shareholdings. The right may be restricted or denied

under the articles of incorporation, and subject to certain
exceptions and limitations. The stockholder must be given a
reasonable time within which to exercise their preemptive
rights. Upon the expiration of said period, any stockholder who has
not exercised such right will be deemed to have waived it.
The validity of issuance of additional shares may be questioned if
done in breach of trust by the controlling stockholders. Thus, even
if the pre-emptive right does not exist, either because the issue
comes within the exceptions in Section 39 or because it is denied or
limited in the articles of incorporation, an issue of shares may still
be objectionable if the directors acted in breach of trust and their
primary purpose is to perpetuate or shift control of the corporation,
or to freeze out the minority interest. In this case, the following
relevant observations should have signaled greater circumspection
on the part of the SEC -- upon the third and last remand to it
pursuant to our January 20, 1998 decision -- to demand
transparency and accountability from the majority stockholders, in
view of the illegal assignments and objectionable features of the
Revised BENHAR/RUBY Plan, as found by the CA and as affirmed by
this Court.
Since the corporate life of RUBY as stated in its articles of
incorporation expired, without a valid extension having been
effected, it was deemed dissolved by such expiration without need
of further action on the part of the corporation or the State. With
greater reason then should liquidation ensue considering that the
last paragraph of Sec. 4-9 of the Rules of Procedure on Corporate
Recovery mandates the SEC to order the dissolution and liquidation
proceedings under Rule VI. Sec. 6-1, Rule VI likewise authorizes the
SEC on motion or motu proprio, or upon recommendation of the
management committee, to order dissolution of the debtor
corporation and the liquidation of its remaining assets, appointing a
Liquidator for the purpose, if the continuance in business of the
debtor is no longer feasible or profitable or no longer works to the
best interest of the stockholders, parties-litigants, creditors, or the
general public.
The SECs utter disregard of the rights of the minority in applying
the provisions of the Rules of Procedure on Corporate Recovery is
inconsistent with the policy of liberal construction of the said rules
to assist the parties in obtaining a just, expeditious and
inexpensive settlement of cases.
DEE v. SECURITIES AND EXCHANGE COMMISSION

Right to Dividends
The general rule is that pre-emptive right is recognized only with
respect to new issues of shares, and not with respect to additional
issues of originally authorized shares. This is on the theory that
when a corporation at its inception offers its first shares, it is
presumed to have offered all of those which it is authorized to
issue. An original subscriber is deemed to have taken his shares
knowing that they form a definite proportionate part of the whole
number of authorized shares. When the shares left unsubscribed
are later re-offered, he cannot therefore (sic) claim a dilution of
interest.
The questioned issuance of the 113,800 stocks is not invalid even
assuming that it was made without notice to the stockholders as
claimed by the petitioner. The power to issue shares of stocks in a
corporation is lodged in the board of directors and no stockholders
meeting is required to consider it because additional issuance of
shares of stocks does not need approval of the stockholders.
Consequently, no pre-emptive right of Natelco stockholders was
violated by the issuance of the 113,800 shares to CSI.
DATU TAGORANAO BENITO v. SEC
The power to issue shares of stocks in a corporation is lodged in the
board of directors and no stockholders' meeting is necessary to
consider it because additional issuance of shares of stocks does not
need approval of the stockholders. The by-laws of the corporation
itself states that 'the Board of Trustees shall, in accordance with
law, provide for the issue and transfer of shares of stock of the
Institute and shall prescribe the form of the certificate of stock of
the Institute.
Petitioner bewails the fact that in view of the lack of notice to him
of such subsequent issuance, he was not able to exercise his right
of pre-emption over the unissued shares. However, the general rule
is that pre-emptive right is recognized only with respect to new
issue of shares, and not with respect to additional issues of
originally authorized shares. This is on the theory that when a
corporation at its inception offers its first shares, it is presumed to
have offered all of those which it is authorized to issue. An original
subscriber is deemed to have taken his shares knowing that they
form a definite proportionate part of the whole number of
authorized shares. When the shares left unsubscribed are later reoffered, he cannot therefore claim a dilution of interest.

IMELDA O. COJUANGCO et al v. SANDIGANBAYAN

The term dividend in its technical sense and ordinary acceptation
is that part or portion of the profits of the enterprise which the
corporation, by its governing agents, sets apart for ratable division
among the holders of the capital stock. It is a payment to the
stockholders of a corporation as a return upon their investment,
and the right thereto is an incident of ownership of stock.
The SC, in directing the reconveyance to the Republic of the
111,415 shares of PLDT stock owned by PTIC in the name of Prime
Holdings, declared the Republic as the owner of said shares and,
necessarily, the dividends and interests accruing thereto.
Ownership is a relation in law by virtue of which a thing pertaining
to one person is completely subjected to his will in everything not
prohibited by law or the concurrence with the rights of another. Its
traditional elements or attributes include jus utendi or the right to
receive from the thing what it produces.
It would be absurd to award the shares to the Republic as their
owner and not include the dividends and interests accruing
thereto. An owner who cannot exercise the juses or attributes
of ownership -- the right to possess, to use and enjoy, to abuse or
consume, to accessories, to dispose or alienate, to recover or
vindicate, and to the fruits - is a crippled owner.
Dividends are payable to the stockholders of record as of the date
of the declaration of dividends or holders of record on a certain
future date, as the case may be, unless the parties have agreed
otherwise. And a transfer of shares which is not recorded in the
books of the corporation is valid only as between the parties,
hence, the transferor has the right to dividends as against the
corporation without notice of transfer but it serves as trustee of the
real owner of the dividends, subject to the contract between the
transferor and transferee as to who is entitled to receive the
dividends.
REPUBLIC PLANTERS BANK vs. AGANA, SR.
A preferred share of stock, on one hand, is one which entitles the
holder thereof to certain preferences over the holders of common
stock. The preferences are designed to induce persons to subscribe
for shares of a corporation. Preferred shares take a multiplicity of

forms. The most common forms may be classified into two: (1)
preferred shares as to assets; and (2) preferred shares as to
dividends. The former is a share which gives the holder thereof
preference in the distribution of the assets of the corporation in
case of liquidation; the latter is a share the holder of which is
entitled to receive dividends on said share to the extent agreed
upon before any dividends at all are paid to the holders of common
stock. There is no guaranty, however, that the share will receive
any dividends.
Dividends are thus payable only when there are profits earned by
the corporation and as a general rule, even if there are existing
profits, the board of directors has the discretion to determine
whether or not dividends are to be declared. Shareholders, both
common and preferred, are considered risk takers who invest
capital in the business and who can look only to what is left after
corporate debts and liabilities are fully paid.
Redeemable shares, on the other hand, are shares usually
preferred, which by their terms are redeemable at a fixed date, or
at the option of either issuing corporation, or the stockholder, or
both at a certain redemption price. A redemption by the
corporation of its stock is, in a sense, a repurchase of it for
cancellation. The present Code allows redemption of shares even if
there are no unrestricted retained earnings on the books of the
corporation. This is a new provision which in effect qualifies the
general rule that the corporation cannot purchase its own shares
except out of current retained earnings. However, while
redeemable shares may be redeemed regardless of the existence
of unrestricted retained earnings, this is subject to the condition
that the corporation has, after such redemption, assets in its books
to cover debts and liabilities inclusive of capital stock. Redemption,
therefore, may not be made where the corporation is insolvent or if
such redemption will cause insolvency or inability of the
corporation to meet its debts as they mature.
On the question of the redemption by the defendant of said
preferred shares of stock, the very wordings of the terms and
conditions in said stock certificates clearly allows the same.
Both Sec. 16 of the Corporation Law and Sec. 43 of the present
Corporation Code prohibit the issuance of any stock dividend
without the approval of stockholders, representing not less than
two-thirds (2/3) of the outstanding capital stock at a regular or
special meeting duly called for the purpose. These provisions
underscore the fact that payment of dividends to a stockholder is

not a matter of right but a matter of consensus. Furthermore,

"interest bearing stocks", on which the corporation agrees
absolutely to pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring payment of
interest as dividends from net earnings or surplus only. Clearly, the
respondent judge, in compelling the petitioner to redeem the
shares in question and to pay the corresponding dividends,
committed grave abuse of discretion amounting to lack or excess of
jurisdiction in ignoring both the terms and conditions specified in
the stock certificate, as well as the clear mandate of the law.
FREDERICK C. FISHER vs. COLLECTOR OF INTERNAL REVENUE
Generally speaking, stock dividends represent undistributed
increase in the capital of corporations or firms, joint stock
companies, etc., etc., for a particular period. They are used to show
the increased interest or proportional shares in the capital of each
stockholder. In other words, the inventory of the property of the
corporation, etc., for particular period shows an increase in its
capital, so that the stock theretofore issued does not show the real
value of the stockholder's interest, and additional stock is issued
showing the increase in the actual capital, or property, or assets of
the corporation, etc.
A stock dividend really takes nothing from the property of the
corporation, and adds nothing to the interests of the shareholders.
Its property is not diminished and their interests are not increased.
The proportional interest of each shareholder remains the same. In
short, the corporation is no poorer and the stockholder is no richer
then they were before.
For bookkeeping purposes, when stock dividends are declared, the
corporation or company acknowledges a liability, in form, to the
stockholders, equivalent to the aggregate par value of their stock,
evidenced by a "capital stock account." If profits have been made
by the corporation during a particular period and not divided, they
create additional bookkeeping liabilities under the head of "profit
and loss," "undivided profits," "surplus account," etc., or the like.
None of these, however, gives to the stockholders as a body, much
less to any one of them, either a claim against the going concern or
corporation, for any particular sum of money, or a right to any
particular portion of the asset, or any shares sells or until the
directors conclude that dividends shall be made a part of the
company's assets segregated from the common fund for that
purpose. The dividend normally is payable in money and when so
paid, then only does the stockholder realize a profit or gain, which

becomes his separate property, and thus derive an income from

the capital that he has invested. Until that, is done the increased
assets belong to the corporation and not to the individual
stockholders.
When a corporation or company issues "stock dividends" it shows
that the company's accumulated profits have been capitalized,
instead of distributed to the stockholders or retained as surplus
available for distribution, in money or in kind, should opportunity
offer. Far from being a realization of profits of the stockholder, it
tends rather to postpone said realization, in that the fund
represented by the new stock has been transferred from surplus to
assets, and no longer is available for actual distribution. The
essential and controlling fact is that the stockholder has received
nothing out of the company's assets for his separate use and
benefit; on the contrary, every dollar of his original investment,
together with whatever accretions and accumulations resulting
from employment of his money and that of the other stockholders
in the business of the company, still remains the property of the
company, and subject to business risks which may result in wiping
out of the entire investment. Having regard to the very truth of the
matter, to substance and not to form, the stockholder by virtue of
the stock dividend has in fact received nothing that answers the
definition of an "income."
The stockholder who receives a stock dividend has received
nothing but a representation of his increased interest in the capital
of the corporation. There has been no separation or segregation of
his interest. All the property or capital of the corporation still
belongs to the corporation. There has been no separation of the
interest of the stockholder from the general capital of the
corporation. The stockholder, by virtue of the stock dividend, has
no separate or individual control over the interest represented
thereby, further than he had before the stock dividend was issued.
He cannot use it for the reason that it is still the property of the
corporation and not the property of the individual holder of stock
dividend. A certificate of stock represented by the stock dividend is
simply a statement of his proportional interest or participation in
the capital of the corporation. For bookkeeping purposes, a
corporation, by issuing stock dividend, acknowledges a liability in
form to the stockholders, evidenced by a capital stock account. The
receipt of a stock dividend in no way increases the money received
of a stockholder nor his cash account at the close of the year. It
simply shows that there has been an increase in the amount of the
capital of the corporation during the particular period, which may

be due to an increased business or to a natural increase of the

value of the capital due to business, economic, or other reasons.
The Legislature, when it provided for an "income tax," intended to
tax only the "income" of corporations, firms or individuals, as that
term is generally used in its common acceptation; that is that the
income means money received, coming to a person or corporation
for services, interest, or profit from investments. Legislature did
not intend that a mere increase in the value of the capital or assets
of a corporation, firm, or individual, should be taxed as "income."
Such property can be reached under the ordinary from of taxation.
A dividend is defined as a corporate profit set aside, declared, and
ordered by the directors to be paid to the stockholders on demand
or at a fixed time. Until the dividend is declared, these corporate
profits belong to the corporation, not to the stockholders, and are
liable for corporate indebtedness.
If the ownership of the property represented by a stock dividend is
still in the corporation and to in the holder of such stock, then it is
difficult to understand how it can be regarded as income to the
stockholder and not as a part of the capital or assets of the
corporation. The stockholder has received nothing but a
representation of an interest in the property of the corporation and,
as a matter of fact, he may never receive anything, depending
upon the final outcome of the business of the corporation. The
entire assets of the corporation may be consumed by
mismanagement, or eaten up by debts and obligations, in which
case the holder of the stock dividend will never have received an
income from his investment in the corporation. A corporation may
be solvent and prosperous today and issue stock dividends in
representation of its increased assets, and tomorrow be absolutely
insolvent by reason of changes in business conditions, and in such
a case the stockholder would have received nothing from his
investment. In such a case, if the holder of the stock dividend is
required to pay an income tax on the same, the result would be
that he has paid a tax upon an income which he never received.
Such a conclusion is absolutely contradictory to the idea of an
income. An income subject to taxation under the law must be an
actual income and not a promised or prospective income.
CONSOLIDATED MINING COMPANY
The claim of Nielson refers to four categories, namely: (1) cash
dividends; (2) stock dividends; (3) depletion reserves; and (4)
amount expended on capital investment.

Anent the first category, Lepanto's report for the calendar year
1954 contains a record of the cash dividends it paid up to the date
of said report, and the post-war dividends paid by it corresponding
to the years included in the period of extension of the management
contract.
According to the terms of the management contract as modified,
appellant is entitled to 10% of the P14,000,000.00 cash dividends
that had been distributed, as stated in the above-mentioned report,
or the sum of P1,400,000.00.
With regard to the second category, the stock dividends declared
by Lepanto during the period of extension of the contract are: On
November 28, 1949, the stock dividend declared was 50% of the
outstanding authorized capital of P2,000,000.00 of the company, or
stock dividends worth P1,000,000.00; and on August 22, 1950, the
stock dividends declared was 66-2/3% of the standing authorized
capital of P3,000,000.00 of the company, or stock dividends worth
P2,000,000.00.
Appellant's claim that it should be given 10% of the cash value of
said stock dividends with interest thereon at 6% from February 6,
1958 cannot be granted for that would not be in accordance with
the management contract which entitles Nielson to 10% of any
dividends declared paid, when and as paid. Nielson, therefore, is
entitled to 10% of the stock dividends and to the fruits that may
have accrued to said stock dividends pursuant to Article 1164 of
the Civil Code. Hence to Nielson is due shares of stock worth
P100,000.00, as per stock dividends declared on November 28,
1949 and all the fruits accruing to said shares after said date; and
also shares of stock worth P200,000.00 as per stock dividends
declared on August 20, 1950 and all fruits accruing thereto after
said date.
Right to Transfer Shares
REPUBLIC v. ESTATE OF HANS M. MENZI
The requirements for a valid transfer of stocks, namely: (1) there
must be delivery of the stock certificate; (2) the certificate must be
indorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and (3) the transfer must
be recorded in the books of the corporation in order to be valid
against third parties, have all been met.

The Corporation Code acknowledges that the delivery of a duly

indorsed stock certificate is sufficient to transfer ownership of
shares of stock in stock corporations. Such mode of transfer is
valid between the parties. In order to bind third persons, however,
the transfer must be recorded in the books of the corporation.
Clearly then, the absence of a deed of assignment is not a fatal
flaw which renders the transfer invalid as the Republic posits. In
fact, as has been held in Rural Bank of Lipa City, Inc. v. Court of
Appeals, the execution of a deed of sale does not necessarily make
the transfer effective.
A stock certificate is merely a tangible evidence of ownership of
shares of stock. Its presence or absence does not affect the right of
the registered owner to dispose of the shares covered by the stock
certificate.
The delivery of the stock certificate duly indorsed by the owner is
the operative act that transfers the shares. The absence of
delivery is a fatal defect which is not cured by mere execution of a
deed of assignment. Consequently, petitioners, as mere assignees,
cannot enjoy the status of a stockholder, cannot vote nor be voted
for, and will not be entitled to dividends, insofar as the assigned
shares are concerned.
THE RURAL BANK OF LIPA CITY, INC. vs. CA
Non-delivery of the stock certificate does not make the transfer of
the shares of stock effective. For an effective transfer of stock, the
mode of transfer as prescribed by law must be followed.
SECTION 63. Certificate of stock and transfer of shares. The
capital stock of stock corporations shall be divided into shares for
which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with
the by-laws. Shares of stocks so issued are personal property and
may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded
in the books of the corporation so as to show the names of the
parties to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid

claim shall be transferable in the books of the corporation.
The rule is that the delivery of the stock certificate duly endorsed
by the owner is the operative act of transfer of shares from the
lawful owner to the transferee. Thus, title may be vested in the
transferee only by delivery of the duly indorsed certificate of stock.
For a valid transfer of stocks, there must be strict compliance with
the mode of transfer prescribed by law. The requirements are:
(a) There must be delivery of the stock certificate; (b) The
certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and (c) To
be valid against third parties, the transfer must be recorded in the
books of the corporation. As it is, compliance with any of these
requisites has not been clearly and sufficiently shown.
MARSH THOMSON vs. COURT OF APPEALS
The Manila Polo Club does not necessarily prohibit the transfer of
proprietary shares by its members. The Club only restricts
membership to deserving applicants in accordance with its rules,
when the amended Articles of Incorporation states that: "No
transfer shall be valid except between the parties, and shall be
registered in the Membership Book unless made in accordance with
these Articles and the By-Laws". Thus, as between parties herein,
there is no question that a transfer is feasible. Moreover, authority
granted to a corporation to regulate the transfer of its stock does
not empower it to restrict the right of a stockholder to transfer his
shares, but merely authorizes the adoption of regulations as to the
formalities and procedure to be followed in effecting transfer.
In this case, the petitioner was the nominee of the private
respondent to hold the share and enjoy the privileges of the club.
But upon the expiration of petitioner's employment as officer and
consultant of AmCham, the incentives that go with the position,
including use of the MPC share, also ceased to exist. It now
behooves petitioner to surrender said share to private respondent's
next nominee, another natural person. Obviously this arrangement
of trust and confidence cannot be defeated by the petitioner's
citation of the MPC rules to shield his untenable position, without
doing violence to basic tenets of justice and fair dealing.
BATONG BUHAY GOLD MINES, INC. vs. CA
The petitioner alleges that the appellate court gravely and
categorically erred in awarding damages by way of unrealized profit
(or lucro cesante) to private respondent. Petitioner company also

alleges that the claim for unrealized profit must be duly and
sufficiently established, that is, that the claimant must submit proof
that it was in fact damaged because of petitioner's act or omission.
The stipulation of facts of the parties does not at all show that
private respondent intended to sell, or would sell or would have
sold the stocks in question on specified dates. While it is true that
shares of stock may go up or down in value (as in fact the
concerned shares here really rose from fifteen (15) centavos to
twenty three or twenty four (23/24) centavos per share and then
fell to about two (2) centavos per share, still whatever profits could
have been made are purely SPECULATIVE, for it was difficult to
predict with any decree of certainty the rise and fall in the value of
the shares. Thus this Court has ruled that speculative damages
cannot be recovered.
It is easy to say now that had private respondent gained legal title
to the shares, it could have sold the same and reaped a profit of
P5,624.95 but it could not do so because of petitioner's refusal to
transfer the stocks in the former's name at the time demand was
made, but then it is also true that human nature, being what it is,
private respondent's officials could also have refused to sell and
instead wait for expected further increases in value.
Forged and Unauthorized Transfer
JOSEFA SANTAMARIA vs. HSBC
It is a well-known rule that a bona fide pledgee or transferee of a
stock from the apparent owner is not chargeable with knowledge of
the limitations placed on it by the real owner, or of any secret
agreement relating to the use which might be made of the stock by
the holder.
The rule is where one of two innocent parties must suffer by reason
of a wrongful or unauthorized act, the loss must fall on the one who
first trusted the wrong doer and put in his hands the means of
inflicting such loss.
It is therefore clear that plaintiff, in failing to take the necessary
precautions upon delivering the certificate of stock to her broker,
was chargeable with negligence in the transaction which resulted to
her own prejudice, and as such, she is estopped from asserting title
to it as against the defendant Bank.

This certificate is what it is known as street certificate. Upon its

face, the holder was entitled to demand its transfer into his name
from the issuing corporation. The Bank was not obligated to look
beyond the certificate to ascertain the ownership of the stock at
the time it received the same from R.J. Campos & Co., Inc., for it
was given to the Bank pursuant to their letter of hypothecation.
Even if said certificate had been in the name of the plaintiff but
indorsed in blank, the Bank would still have been justified in
believing that R.J. Campos & Co., Inc. had title thereto for the
reason that it is a well-known practice that a certificate of stock,
indorsed in blank, is deemed quasi negotiable, and as such the
transferee thereof is justified in believing that it belongs to the
holder and transferor.
A mere claim and of ownership does not establish the fact of
ownership. The right of the plaintiff in such a case would be against
the transferor.

A transfer of shares is not valid unless recorded in the books of the

corporation.
The purpose of registration, therefore, is two-fold: to enable the
transferee to exercise all the rights of a stockholder, including the
right to vote and to be voted for, and to inform the corporation of
any change in share ownership so that it can ascertain the persons
entitled to the rights and subject to the liabilities of a
stockholder. Until challenged in a proper proceeding, a stockholder
of record has a right to participate in any meeting; his vote can be
properly counted to determine whether a stockholders resolution
was approved, despite the claim of the alleged transferee. On the
other hand, a person who has purchased stock, and who desires to
be recognized as a stockholder for the purpose of voting, must
secure such a standing by having the transfer recorded on the
corporate books. Until the transfer is registered, the transferee is
not a stockholder but an outsider.

NEUGENE MARKETING INC., LEONCIO TAN et al. vs. CA

Entries in the Stock and Transfer Book of NEUGENE, support the
disquisition and conclusion arrived at by the Court of Appeals that
at the time of dissolution of NEUGENE on November 30, 1987, the
private respondents, Suen, Sy and Yang, owned at least two-thirds
(2/3) of NEUGENEs outstanding capital stock, in sufficient
compliance with the germane provision of Section 118 of the
Corporation Code of the Philippines.
As shown in the Stock and Transfer Book of NEUGENE, private
respondents Suen is the holder of a total of 1,400 shares of
stock. Private respondents Sy as the holder of a total of 2,800
shares of stock, issued on the abovementioned dates except those
acquired from Eugenio Flores, Jr. which were issued on May 15,
1986. On the other hand, private respondent Yang is the holder of
1,050 shares, issued on the abovementioned dates, except those
acquired from Eugenio Flores, Jr. which were issued on May 15,
1986.
Therefore, the entries on the right hand portion of NEUGENES
Stock and Transfer Book, under the column Certificates Issued,
indubitably record the private respondents as the holders of 5,250
shares, constituting at least two-thirds (2/3) of NEUGENEs
outstanding capital stock of 7,000 shares.

FUA CUN (alias Tua Cun) vs. RICARDO SUMMERS

Stock and Transfer Book

There can be no doubt that an equity in shares of stock may be

assigned and that the assignment is valid as between the parties
and as to persons to whom notice is brought home. Such an
assignment exists here, though it was made for the purpose of
securing a debt.

BATANGAS LAGUNA TAYABAS BUS COMPANY, INC. vs. BITANGA

These certificates of stock are in the pockets of the owner, and go

with him where he may happen to locate, as choses in action, or
evidence of his right, without any means on the part of those with
whom he proposes to deal on the faith of such a security of
ascertaining whether or not this stock is in pledge or mortgaged to
others. He finds the name of the owner on the books of the
company as a subscriber of paid-up stock, amounting to 180
shares, with the certificates in his possession, pays for these
certificates their full value, and has the transfer to him made on the
books of the company, thereby obtaining a perfect title. What other
inquiry is he to make, so as to make his investment certain and
secure? Where is he to look, in order to ascertain whether or not
this stock has been mortgaged? The chief office of the company
may be at one place to-day and at another tomorrow. The owner
may have no fixed or permanent abode, and with his notes in one
pocket and his certificates of stock in the other the one
evidencing the extent of his interest in the stock of the corporation,
the other his right to money owing him by his debtor, we are asked
to say that the mortgage is effectual as to the one and inoperative
as to the other.

GARCIA vs. NICOLAS JOMOUAD

Sec. 63 of the Corporation Code reads:
Sec. 63 Certificate of stock and transfer of shares. The capital
stock of corporations shall be divided into shares for which
certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with
the by-laws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded
in the books of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation.
The true meaning of the language is, and the obvious intention of
the legislature in using it was, that all transfers of shares should be
entered, as here required, on the books of the corporation. And it is
equally clear to us that all transfers of shares not so entered are
invalid as to attaching or execution creditors of the assignors, as
well as to the corporation and to subsequent purchasers in good
faith, and, indeed, as to all persons interested, except the parties to
such transfers. All transfers not so entered on the books of the
corporation are absolutely void; not because they are without
notice or fraudulent in law or fact, but because they are made so
void by statute.
CHEMPHIL EXPORT & IMPORT CORPORATION (CEIC) vs. CA
Section 74 of the Corporation Code which enumerates the
instances where registration in the stock and transfer books of a
corporation provides:
Sec. 74. Books to be kept; stock transfer agent.
Stock corporations must also keep a book to be known as the stock
and transfer book, in which must be kept a record of all stocks in
the names of the stockholders alphabetically arranged; the
installments paid and unpaid on all stock for which subscription has
been made, and the date of payment of any settlement; a

statement of every alienation, sale or transfer of stock made, the

date thereof, and by and to whom made; and such other entries as
the by-laws may prescribe. The stock and transfer book shall be
kept in the principal office of the corporation or in the office of its
stock transfer agent and shall be open for inspection by any
director or stockholder of the corporation at reasonable hours on
business days.
Section 63 of the same Code states:
Sec. 63. Certificate of stock and transfer of shares. The capital
stock of stock corporations shall be divided into shares for which
certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with
the by-laws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded
in the books of the corporation so as to show the names of the
parties to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation.
Are attachments of shares of stock included in the term "transfer"
as provided in Sec. 63 of the Corporation Code? We rule in the
negative. As succinctly declared in the case of Monserrat
v. Ceron, "chattel mortgage over shares of stock need not be
registered in the corporation's stock and transfer book inasmuch as
chattel mortgage over shares of stock does not involve a transfer of
shares, and that only absolute transfers of shares of stock are
required to be recorded in the corporation's stock and transfer book
in order to have force and effect as against third persons.
Although the Monserrat case refers to a chattel mortgage over
shares of stock, the same may be applied to the attachment of the
disputed shares of stock in the present controversy since an
attachment does not constitute an absolute conveyance of property
but is primarily used as a means to seize the debtor's property in
order to secure the debt or claim of the creditor in the event that a
judgment is rendered.
Shares of stock being personal property, may be the subject matter
of pledge and chattel mortgage. Such collateral transfers are

however not covered by the registration requirement of Section 63,

since our Supreme Court has held that such provision applies only
to absolute transfers thus, the registration in the corporate books of
pledges and chattel mortgages of shares cannot have any legal
effect.
The requirement that the transfer shall be recorded in the books of
the corporation to be valid as against third persons has reference
only to absolute transfers or absolute conveyance of the ownership
or title to a share.
Consequently, the entry or notation on the books of the corporation
of pledges and chattel mortgages on shares is not necessary to
their validity (although it is advisable to do so) since they do not
involve absolute alienation of ownership of stock. To affect third
persons, it is enough that the date and description of the shares
pledged appear in a public instrument. With respect to a chattel
mortgage constituted on shares of stock, what is necessary is its
registration in the Chattel Mortgage Registry.
MANUEL A. TORRES, JR. et al. vs. CA
Contrary to the generally accepted corporate practice, the stock
and transfer book of TORMIL was not kept by Ms. Maria Cristina T.
Carlos, the corporate secretary but by respondent Torres, the
President and Chairman of the Board of Directors of TORMIL. In
contravention to the above cited provision, the stock and transfer
book was not kept at the principal office of the corporation either
but at the place of respondent Torres.
These being the obtaining circumstances, any entries made in the
stock and transfer book on March 8, 1987 by respondent Torres of
an alleged transfer of nominal shares to Pabalan and Co. cannot
therefore be given any valid effect. Where the entries made are not
valid, Pabalan and Co. cannot therefore be considered stockholders
of record of TORMIL. Because they are not stockholders, they
cannot therefore be elected as directors of TORMIL. To rule
otherwise would not only encourage violation of clear mandate of
Sec. 74 of the Corporation Code that stock and transfer book shall
be kept in the principal office of the corporation but would likewise
open the flood gates of confusion in the corporation as to who has
the proper custody of the stock and transfer book and who are the
real stockholders of records of a certain corporation as any holder
of the stock and transfer book, though not the corporate secretary,
at pleasure would make entries therein.

CONCEPCION MAGSAYSAY-LABRADOR et al v. CA
While a share of stock represents a proportionate or aliquot interest
in the property of the corporation, it does not vest the owner
thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the owners of corporate
property, which is owned by the corporation as a distinct legal
person.
The petitioners cannot claim the right to intervene on the strength
of the transfer of shares allegedly executed by the late Senator. The
corporation did not keep books and records. Perforce, no transfer
was ever recorded, much less effected as to prejudice third parties.
The transfer must be registered in the books of the corporation to
affect third persons. The law on corporations is explicit. Section 63
of the Corporation Code provides, thus: "No transfer, however, shall
be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares transferred."
NORA A. BITONG vs. CA
The Corporation Code provides that no transfer shall be valid
except as between the parties until the transfer is recorded in the
books of the corporation, and upon its recording the corporation is
bound by it and is estopped to deny the fact of transfer of said
shares. Petitioner alleges that even in the absence of a stock
certificate, a stockholder solely on the strength of the recording in
the stock and transfer book can exercise all the rights as
stockholder, including the right to file a derivative suit in the name
of the corporation. And, she need not present a separate deed of
sale or transfer in her favor to prove ownership of stock.
The provision envisions a formal certificate of stock which can be
issued only upon compliance with certain requisites. First, the
certificates must be signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation. A mere typewritten statement
advising a stockholder of the extent of his ownership in a
corporation without qualification and/or authentication cannot be
considered as a formal certificate of stock. Second, delivery of the
certificate is an essential element of its issuance. Hence, there is
no issuance of a stock certificate where it is never detached from
the stock books although blanks therein are properly filled up if the
person whose name is inserted therein has no control over the

books of the company. Third, the par value, as to par value shares,
or the full subscription as to no par value shares, must first be fully
paid. Fourth, the original certificate must be surrendered where the
person requesting the issuance of a certificate is a transferee from
a stockholder.
The certificate of stock itself once issued is a continuing affirmation
or representation that the stock described therein is valid and
genuine and is at least prima facie evidence that it was legally
issued in the absence of evidence to the contrary. However, this
presumption may be rebutted. Similarly, books and records of a
corporation which include even the stock and transfer book are
generally admissible in evidence in favor of or against the
corporation and its members to prove the corporate acts, its
financial status and other matters including ones status as a
stockholder. They are ordinarily the best evidence of corporate
acts and proceedings.
However, the books and records of a corporation are not conclusive
even against the corporation but are prima facie evidence
only. Parol evidence may be admitted to supply omissions in the
records, explain ambiguities, or show what transpired where no
records were kept, or in some cases where such records were
contradicted. The effect of entries in the books of the corporation
which purport to be regular records of the proceedings of its board
of directors or stockholders can be destroyed by testimony of a
more conclusive character than mere suspicion that there was an
irregularity in the manner in which the books were kept.
The foregoing considerations are founded on the basic principle
that stock issued without authority and in violation of law is void
and confers no rights on the person to whom it is issued and
subjects him to no liabilities. Where there is an inherent lack of
power in the corporation to issue the stock, neither the corporation
nor the person to whom the stock is issued is estopped to question
its validity since an estoppel cannot operate to create stock which
under the law cannot have existence.
The rule is that the endorsement of the certificate of stock by the
owner or his attorney-in-fact or any other person legally authorized
to make the transfer shall be sufficient to effect the transfer of
shares only if the same is coupled with delivery. The delivery of the
stock certificate duly endorsed by the owner is the operative act of
transfer of shares from the lawful owner to the new transferee.
Thus, for a valid transfer of stocks, the requirements are as follows:
(a) There must be delivery of the stock certificate; (b) The
certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and, (c) to be
valid against third parties, the transfer must be recorded in the
books of the corporation. At most, in the instant case, petitioner

has satisfied only the third requirement. Compliance with the first
two requisites has not been clearly and sufficiently shown.
Situs of Shares of Stocks
TAYAG vs. BENGUET CONSOLIDATED, INC.
The actual situs of the shares of stock is in the Philippines, the
corporation being domiciled here.To the force of the above
undeniable proposition, not even appellant is insensible. It does not
dispute it. Nor could it successfully do so even if it were so minded.
Since there is a refusal, persistently adhered to by the domiciliary
administrator in New York, to deliver the shares of stocks of
appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or
arbitrary in considering them as lost and requiring the appellant to
issue new certificates in lieu thereof. Thereby, the task incumbent
under the law on the ancillary administrator could be discharged
and his responsibility fulfilled.
It may be admitted of course that such alleged loss as found by the
lower court did not correspond exactly with the facts. To be more
blunt, the quality of truth may be lacking in such a conclusion
arrived at.
A corporation is an artificial being created by operation of law. It
owes its life to the state, its birth being purely dependent on its will.
Classically, a corporation was conceived as an artificial person,
owing its existence through creation by a sovereign power.
A corporation is not in fact and in reality a person, but the law
treats it as though it were a person by process of fiction, or by
regarding it as an artificial person distinct and separate from its
individual stockholders. It owes its existence to law. It is an artificial
person created by law for certain specific purposes, the extent of
whose existence, powers and liberties is fixed by its charter.
As a matter of fact, a corporation once it comes into being,
following American law still of persuasive authority in our
jurisdiction, comes more often within the ken of the judiciary than
the other two coordinate branches. It institutes the appropriate
court action to enforce its right. Correlatively, it is not immune from
judicial control in those instances, where a duty under the law as
ascertained in an appropriate legal proceeding is cast upon it.

To assert that it can choose which court order to follow and which
to disregard is to confer upon it not autonomy which may be
conceded but license which cannot be tolerated. It is to argue that
it may, when so minded, overrule the state, the source of its very
existence; it is to contend that what any of its governmental organs
may lawfully require could be ignored at will. So extravagant a
claim cannot possibly merit approval.
Right to Certificate of Stock for Fully Paid Shares
MAKATI SPORTS CLUB, INC. v. CHENG
Upon payment by Mc Foods of P1,800,000.00 to MSCI and the
execution of the Deed of Absolute Sale on December 15, 1995, it
then had the right to demand the delivery of the stock certificate in
its name. The right of a transferee to have stocks transferred to its
name is an inherent right flowing from its ownership of the stocks.
A certificate of stock is the paper representative or tangible
evidence of the stock itself and of the various interests
therein. The certificate is not a stock in the corporation but is
merely evidence of the holders interest and status in the
corporation, his ownership of the share represented thereby. It is
not in law the equivalent of such ownership. It expresses the
contract between the corporation and the stockholder, but is not
essential to the existence of a share of stock or the nature of the
relation of shareholder to the corporation.
Neither can MSCI argue that Mc Foods was not yet a registered
owner of the share of stock when the latter offered it for resale, in
order to void the transfer from Mc Foods to Hodreal. The
corporations obligation to register is ministerial upon the buyers
acquisition of ownership of the share of stock. The corporation,
either by its board, its by-laws, or the act of its officers, cannot
create restrictions in stock transfers.
LAO vs. LAO
A certificate of stock is the evidence of a holder's interest and
status in a corporation. It is a written instrument signed by the
proper officer of a corporation stating or acknowledging that the
person named in the document is the owner of a designated
number of shares of its stock. It is prima facie evidence that the
holder is a shareholder of a corporation.
Absent a written document, petitioners must prove, at the very
least, possession of the certificates of shares in the name of the
alleged seller. Again, they failed to prove possession. They failed to

prove the due delivery of the certificates of shares of the sellers to

them. Section 63 of the Corporation Code provides:
Sec. 63. Certificate of stock and transfer of shares. - The capital
stock of stock corporations shall be divided into shares for which
certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with
the by-laws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded
in the books of the corporation so as to show the names of the
parties to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares transferred.
Mere inclusion in the General Information Sheets as stockholders
and officers does not make one a stockholder of a corporation, for
this may have come to pass by mistake, expediency or negligence.
As professed by respondent-appellee, this was done merely to
comply with the reportorial requirements with the SEC. This maybe
against the law but "practice, no matter how long continued,
cannot give rise to any vested right.
TAN vs. SECURITIES AND EXCHANGE COMMISSION
Delivery is not essential where it appears that the persons sought
to be held as stockholders are officers of the corporation, and have
the custody of the stockbook .
Furthermore, there is a necessity to delineate the function of the
stock itself from the actual delivery or endorsement of the
certificate of stock itself as is the question in the instant case. A
certificate of stock is not necessary to render one a stockholder in
corporation.
Nevertheless, a certificate of stock is the paper representative or
tangible evidence of the stock itself and of the various interests
therein. The certificate is not stock in the corporation but is merely
evidence of the holder's interest and status in the corporation, his
ownership of the share represented thereby, but is not in law the
equivalent of such ownership. It expresses the contract between
the corporation and the stockholder, but is not essential to the
existence of a share in stock or the nation of the relation of
shareholder to the corporation.
Besides, in Philippine jurisprudence, a certificate of stock is not a
negotiable instrument. Although it is sometime regarded as quasi-

negotiable, in the sense that it may be transferred by endorsement,

coupled with delivery, it is well-settled that it is non-negotiable,
because the holder thereof takes it without prejudice to such rights
or defenses as the registered owner/s or transferror's creditor may
have under the law, except insofar as such rights or defenses are
subject to the limitations imposed by the principles governing
estoppel.
In Fleisher v. Botica Nolasco Co., Inc., it was held that a by-law
which prohibits a transfer of stock without the consent or approval
of all the stockholders or of the president or board of directors is
illegal as constituting undue limitation on the right of ownership
and in restraint of trade.
Right of Inspection
GOKONGWEI, JR., vs. SECURITIES AND EXCHANGE COMMISSION
The doctrine of "corporate opportunity is precisely a recognition
by the courts that the fiduciary standards could not be upheld
where the fiduciary was acting for two entities with competing
interests. This doctrine rests fundamentally on the unfairness, in
particular circumstances, of an officer or director taking advantage
of an opportunity for his own personal profit when the interest of
the corporation justly calls for protection.
It is not denied that a member of the Board of Directors of the San
Miguel Corporation has access to sensitive and highly confidential
information, such as: (a) marketing strategies 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 is obviously to prevent the creation of an opportunity for an
officer or director of San Miguel 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 prejudice of San Miguel Corporation
and its stockholders, that the questioned amendment of the bylaws was made. Certainly, where two corporations are competitive
in a substantial sense, it would seem improbable, if not impossible,
for the director, if he were to discharge effectively his duty, to
satisfy his loyalty to both corporations and place the performance
of his corporation duties above his personal concerns.
Stock and Transfer Book
NAUTICA CANNING CORPORATION v. YUMUL
A transfer of shares of stock not recorded in the stock and transfer
book of the corporation is non-existent as far as the corporation is

concerned. As between the corporation on one hand, and its

shareholders and third persons on the other, the corporation looks
only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in
the stock and transfer book that a corporation may rightfully regard
the transferee as one of its stockholders. From this time, the
consequent obligation on the part of the corporation to recognize
such rights as it is mandated by law to recognize arises. Hence,
without such recording, the transferee may not be regarded by the
corporation as one among its stockholders and the corporation may
legally refuse the issuance of stock certificates.
Moreover, the contents of the articles of incorporation bind the
corporation and its stockholders. Its contents cannot be
disregarded considering that it was the basic document which
legally triggered the creation of the corporation.
JESUS V. LANUZA et al vs. COURT OF APPEALS
The articles of incorporation has been described as one that defines
the charter of the corporation and the contractual relationships
between the State and the corporation, the stockholders and the
State, and between the corporation and its stockholders.
A stock and transfer book is the book which records the names and
addresses of all stockholders arranged alphabetically, the
installments paid and unpaid on all stock for which subscription has
been made, and the date of payment thereof; a statement of every
alienation, sale or transfer of stock made, the date thereof and by
and to whom made; and such other entries as may be prescribed
by law. A stock and transfer book is necessary as a measure of
precaution, expediency and convenience since it provides the only
certain and accurate method of establishing the various corporate
acts and transactions and of showing the ownership of stock and
like matters. However, a stock and transfer book, like other
corporate books and records, is not in any sense a public record,
and thus is not exclusive evidence of the matters and things which
ordinarily are or should be written therein. In fact, it is generally
held that the records and minutes of a corporation are not
conclusive even against the corporation but are prima
facie evidence only, and may be impeached or even contradicted
by other competent evidence. Thus, parol evidence may be
admitted to supply omissions in the records or explain ambiguities,
or to contradict such records.
Quorum is based on the totality of the shares which have been
subscribed and issued, whether it be founders shares or common
shares.To base the computation of quorum solely on the obviously
deficient, if not inaccurate stock and transfer book, and completely
disregarding the issued and outstanding shares as indicated in the

articles of incorporation would work injustice to the owners and/or

successors in interest of the said shares.
A corporations records are not the only evidence of the ownership
of stock in a corporation. In an American case, persons claiming
shareholders status in a professional corporation were listed as
stockholders in the amendment to the articles of incorporation. On
that basis, they were in all respects treated as shareholders. In fact,
the acts and conduct of the parties may even constitute sufficient
evidence of ones status as a shareholder or member. In the instant
case, no less than the articles of incorporation declare the
incorporators to have in their name the founders and several
common shares. Thus, to disregard the contents of the articles of
incorporation would be to pretend that the basic document which
legally triggered the creation of the corporation does not exist and
accordingly to allow great injustice to be caused to the
incorporators and their heirs.
VICTOR AFRICA vs. PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT
When sequestered shares registered in the names of private
individuals or entities are alleged to have been acquired with illgotten wealth, then the two-tiered test is applied. However, when
the sequestered shares in the name of private individuals or
entities are shown, prima facie, to have been (1) originally
government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not
apply. Rather, the public character exception in Baseco v. PCGG and
Cojuangco Jr. v. Roxas prevail; that is, the government shall vote
the shares.
The Clerk of Court, who is already saddled with judicial
responsibilities, need not be burdened with the additional duties of
a corporate secretary. Moreover, the Clerk of Court may not have
the requisite knowledge and expertise to discharge the functions of
a corporate secretary. The creation of a committee empowered to
call, conduct and supervise the election of the board of directors.
Such a committee composed of impartial persons knowledgeable in
corporate proceedings would provide the needed expertise and
objectivity in the calling and the holding of the meeting without
compromising the Sandiganbayan or its officers. The appointment
of the committee members and the delineation of the scope of the
duties of the committee may be made pursuant to an agreement
by the parties or in accordance with the provisions of Rule 9
(Management Committee) of the Interim Rules of Procedure for
Intra-Corporate Controversies insofar as they are applicable.
PHILPOTTS vs. PHILIPPINE MANUFACTURING COMP.

There is no pretense that the respondent corporation or any of its

officials has refused to allow the petitioner himself to examine
anything relating to the affairs of the company, and the petition
prays for a peremptory order commanding the respondents to
place the records of all business transactions of the company,
during a specified period, at the disposal of the plaintiff or his duly
authorized agent or attorney, it being evident that the petitioner
desires to exercise said right through an agent or attorney. In the
argument in support of the demurrer it is conceded by counsel for
the respondents that there is a right of examination in the
stockholder granted under section 51 of the Corporation Law, but it
is insisted that this right must be exercised in person.
The right of inspection given to a stockholder in the provision above
quoted can be exercised either by himself or by any proper
representative or attorney in fact, and either with or without the
attendance of the stockholder. This is in conformity with the
general rule that what a man may do in person he may do through
another; and we find nothing in the statute that would justify us in
qualifying the right in the manner suggested by the respondents.
The right may be regarded as personal, in the sense that only a
stockholder may enjoy it; but the inspection and examination may
be made by another. Otherwise it would be unavailing in many
instances.
Stockholders have the right to inspect the books of the corporation,
taking minutes from the same, at all reasonable times, and may be
aided in this by experts and counsel, so as to make the inspection
valuable to them, is a principle too well settled to need discussion.
There are some things which a corporation may undoubtedly keep
secret, notwithstanding the right of inspection given by law to the
stockholder; as for instance, where a corporation, engaged in the
business of manufacture, has acquired a formula or process, not
generally known, which has proved of utility to it in the
manufacture of its products. It is not our intention to declare that
the authorities of the corporation, and more particularly the Board
of Directors, might not adopt measures for the protection of such
process form publicity. There is, however, nothing in the petition
which would indicate that the petitioner in this case is seeking to
discover anything which the corporation is entitled to keep secret;
and if anything of the sort is involved in the case it may be brought
out at a more advanced stage of the proceedings.
VERAGUTH vs. ISABELA SUGAR COMPANY, INC.

The Corporation Law, section 51, provides that:

All business corporations shall keep and carefully preserve a record
of all business transactions, and a minute of all meetings of
directors, members, or stockholders, in which shall be set forth in
detail the time and place of holding the meeting was regular or
special, if special its object, those present and absent, and every
act done or ordered done at the meeting.
The record of all business transactions of the corporation and the
minutes of any meeting shall be open to the inspection of any
director, member, or stockholder of the corporation at reasonable
hours.
Directors of a corporation have the unqualified right to inspect the
books and records of the corporation at all reasonable times.
Pretexts may not be put forward by officers of corporations to keep
a director or shareholder from inspecting the books and minutes of
the corporation, and the right of inspection is not to be denied on
the ground that the director or shareholder is on unfriendly terms
with the officers of the corporation whose records are sought to be
inspected. A director or stockholder can not of course make copies,
abstracts, and memoranda of documents, books, and papers as an
incident to the right of inspection, but cannot, without an order of a
court, be permitted to take books from the office of the corporation.
However, a director or stockholder has no absolute right to secure
certified copies of the minutes of the corporation until these
minutes have been written up and approved by the directors.
PARDO vs. THE HERCULES LUMBER CO., INC.
It may be admitted that the officials in charge of a corporation may
deny inspection when sought at unusual hours or under other
improper conditions; but neither the executive officers nor the
board of directors have the power to deprive a stockholder of the
right altogether. A by-law unduly restricting the right of inspection
is undoubtedly invalid. Under a statute similar to our own it has
been held that the statutory right of inspection is not affected by
the adoption by the board of directors of a resolution providing for
the closing of transfer books thirty days before an election.
Our statute declares that the right of inspection can be exercised
"at reasonable hours." This means at reasonable hours on business
days throughout the year, and not merely during some arbitrary
period of a few days chosen by the directors.
Remedy if Denied Rule 65
REPUBLIC (PCGG) vs. SANDIGANBAYAN

As just intimated, the deposition-discovery procedure was designed

to remedy the conceded inadequacy and cumbersomeness of the
pre-trial functions of notice-giving, issue-formulation and fact
revelation theretofore performed primarily by the pleadings.
The petitioner's objections to the interrogatories served on it in
accordance with Rule 25 of the Rules of Court cannot be sustained.
That the matters on which discovery is desired are the same
matters subject of a prior motion for bill of particulars addressed to
the PCGG's amended complaint and denied for lack of merit is
beside the point. Indeed, as already pointed out above, a bill of
particulars may elicit only ultimate facts, not socalled evidentiary facts. The latter are without doubt proper subject
of discovery.
As just suggested, the act of bringing suit must entail a waiver of
the exemption from giving evidence; by bringing suit it brings itself
within the operation and scope of all the rules governing civil
actions, including the rights and duties under the rules of discovery.
Otherwise, the absurd would have to be conceded, that while the
parties it has impleaded as defendants may be required to
"disgorge all the facts" within their knowledge and in their
possession, it may not itself be subject to a like compulsion.
The State is, of course, immune from suit in the sense that it
cannot, as a rule, be sued without its consent. But it is axiomatic
that in filing an action, it divests itself of its sovereign character
and sheds its immunity from suit, descending to the level of an
ordinary litigant. The PCGG cannot claim a superior or preferred
status to the State, even while assuming to represent or act for the
State.
The Court also finds itself unable to sustain the PCGG's other
principal contention, of the nullity of the Sandiganbayan's Order for
the production and inspection of specified documents and things
allegedly in its possession.
The claim that use of the documents is proscribed by Executive
Order No. 1 has already been dealt with. The PCGG is however at
liberty to allege and prove that said documents fall within some
other privilege, constitutional or statutory.
GONZALES vs. THE PHILIPPINE NATIONAL BANK
Any officer or agent of the corporation who shall refuse to allow any
director, trustee, stockholder or member of the corporation to
examine and copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall be liable to such

director, trustee, stockholder or member for damages, and in

addition, shall be guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such refusal;
and Provided, further, That it shall be a defense to any action under
this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has improperly
used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation,
or was not acting in good faith or for a legitimate purpose in
making his demand.
Among the changes introduced in the new Code with respect to the
right of inspection granted to a stockholder are the following the
records must be kept at the principal office of the corporation; the
inspection must be made on business days; the stockholder may
demand a copy of the excerpts of the records or minutes; and the
refusal to allow such inspection shall subject the erring officer or
agent of the corporation to civil and criminal liabilities.
It is now expressly required as a condition for such examination
that the one requesting it must not have been guilty of using
improperly any information through a prior examination, and that
the person asking for such examination must be "acting in good
faith and for a legitimate purpose in making his demand."
Although the petitioner has claimed that he has justifiable motives
in seeking the inspection of the books of the respondent bank, he
has not set forth the reasons and the purposes for which he desires
such inspection, except to satisfy himself as to the truth of
published reports regarding certain transactions entered into by the
respondent bank and to inquire into their validity. The
circumstances under which he acquired one share of stock in the
respondent bank purposely to exercise the right of inspection do
not argue in favor of his good faith and proper motivation.
Admittedly he sought to be a stockholder in order to pry into
transactions entered into by the respondent bank even before he
became a stockholder. His obvious purpose was to arm himself with
materials which he can use against the respondent bank for acts
done by the latter when the petitioner was a total stranger to the
same. He could have been impelled by a laudable sense of civic
consciousness, but it could not be said that his purpose is germane
to his interest as a stockholder.

We also find merit in the contention of the respondent bank that

the inspection sought to be exercised by the petitioner would be
violative of the provisions of its charter. (Republic Act No. 1300, as
amended.) Sections 15, 16 and 30 of the said charter provide
respectively.
The Philippine National Bank is not an ordinary corporation. Having
a charter of its own, it is not governed, as a rule, by the Corporation
Code of the Philippines.
The provision of Section 74 of Batas Pambansa Blg. 68 of the new
Corporation Code with respect to the right of a stockholder to
demand an inspection or examination of the books of the
corporation may not be reconciled with the abovequoted provisions
of the charter of the respondent bank. It is not correct to claim,
therefore, that the right of inspection under Section 74 of the new
Corporation Code may apply in a supplementary capacity to the
charter of the respondent bank.
PASCUAL and LORETA S. PASCUAL vs. CA
The Court of Appeals correctly ruled that the regular courts, not the
SEC, have jurisdiction over this case. Petitioners and private
respondent never had any corporate relations in Phillens. It
appears that private respondent was never a stockholder in
Phillens, of which the parties predecessor-in-interest, Luciano
Pascual, Sr., was a stockholder and whose properties are being
litigated. Private respondents allegation is that, upon the death of
their father, he became co-owner in the estate left by him, and part
of this estate includes the corporate interests in Phillens. He also
alleges that petitioners repudiated the trust relationship created
between them and appropriated to themselves even the property
that should have belonged to respondent. It is thus clear that there
is no corporate relationship involved here. That petitioner Alfredo
Pascual was a corporate officer holding in trust for his brother their
fathers corporate interests did not create an intra-corporate
relationship between them.
Nor is the controversy corporate in nature. As we have stated
before, the grant of jurisdiction must be viewed in the light of the
nature and function of the SEC under the law. P.D. No. 902-A, 3
gives the SEC jurisdiction, supervision, and control over all
corporations, partnerships or associations, who are the grantees of
primary franchise and/or a license or permit issued by the
government to operate in the Philippines. From this, it can be
deduced that the regulatory and adjudicatory functions of the SEC,
insofar as intra-corporate controversies are concerned, comes into
play only if a corporation still exists.

It is true that a complaint for accounting, reconveyance, etc. of

corporate properties has previously been held to be within the
jurisdiction of the SEC. Nonetheless, a distinction can be drawn
between those cases and the case at bar, for, in those cases, the
corporations involved were still existing, whereas in the present
case, there is no more corporation involved. There is no question
that assessing the financial status of an existing corporation, for
purposes of an action for accounting, requires the expertise of the
SEC. But in the case of a dissolved corporation, no such expertise
is required, for all its business has been properly accounted for
already, and what is left to be determined is properly within the
competence of regular courts.
It may be noted in this connection that pursuant to R.A. No. 8799,
5.2, which took effect on August 8, 2000, the jurisdiction of the
SEC to decide cases involving intra-corporate dispute was
transferred to courts of general jurisdiction and, in accordance
therewith, all cases of this nature, with the exception only of those
submitted for decision, were transferred to the regular
courts. Hence, the question whether this case should be filed in
the SEC is now only of academic interest. For even if it involves an
intra-corporate dispute, it would be remanded to the Regional Trial
Court just the same.