BS SAVINGS BANK V.

SIA
FACTS: A petition for certiorari filed by petitioner corp. BS Savings Bank was denied by the court of
Appeals on the ground that the Certification on anti-forum shopping incorporated in the petition was
signed not by the duly authorized representative of the petitioner, as required under Supreme Court
Circular No. 28-91, but by its counsel, in contravention of said circular. A Motion for Reconsideration
was subsequently filed by the petitioner corp. attached to it was a BA Savings Bank Corporate
Secretarys Certificate authorizing the petitioners lawyers to represent it in any action or proceeding
before any court, tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum
Shopping, among others. The Motion for Reconsideration was denied by the Court of Appeals on the
ground that Supreme Court Revised Circular No. 28-91 requires that it is the petitioner, not the
counsel, who must certify under oath to all of the facts and undertakings required therein. Hence, this
appeal.
ISSUE: Whether Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its counsel
to execute a certificate of non-forum shopping for and on its behalf.
RULING: A corporation, such as the petitioner, has no powers except those expressly conferred on it
by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a
corporation exercises said powers through its board of directors and/or its duly authorized officers and
agents. Physical acts, 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 of directors. All acts
within the powers of a corporation may be performed by agents of its selection; and, except so far as
limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the
same general principles of law which govern the relation of agency for a natural person govern the
officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the
corporation; and agents once appointed, or members acting in their stead, are subject to the same
rules, liabilities and incapacities as are agents of individuals and private persons.
In the present case, the corporations board of directors issued a Resolution specifically authorizing its
lawyers to act as their agents in any action or proceeding before the Supreme Court, the Court of
Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the
necessary pleadings, motions, verification, affidavit of merit, certificate of non-forum shopping and
other instruments necessary for such action and proceeding. The Resolution was sufficient to vest
such persons with the authority to bind the corporation and was specific enough as to the acts they
were empowered to do.
In the case of natural persons, Circular 28-91 requires the parties themselves to sign the certificate of
non-forum shopping. However, such requirement cannot be imposed on artificial persons, like
corporations, for the simple reason that they cannot personally do the task themselves. As already
stated, corporations act only through their officers and duly authorized agents. In fact, physical
actions, like the signing and the delivery of documents, may be performed, on behalf of the corporate
entity, only by specifically authorized individuals.
It is noteworthy that the Circular does not require corporate officers to sign the certificate.
important, there is no prohibition against authorizing agents to do so.

More

In fact, not only was BA Savings Bank authorized to name an agent to sign the certificate; it also
exercised its appointing authority reasonably well. For who else knows of the circumstances required
in the Certificate but its own retained counsel. Its regular officers, like its board chairman and
president, may not even know the details required therein.
Madrigal & Company, Inc. vs. Zamora
Facts: Petitioner and Rizal Cement Co were sister companies. Both were owned by the same
stockholders. Respondent Labor Union (Madrigal Employees Union) sought for the renewal of their CBA
with the petitioner which included a demand for wage increase and other economic benefits. However,
petitioner requested for deferment in the negotiations.

Petitioner reduced its capital stock on two occasions. Such was effected through the
distribution of the marketable securities owned by the petitioner to its stockholders in exchange for
their shares in an equivalent amount in the corporation.
Petitioner's failure to negotiate with the labor union regarding their CBA prompted the latter to
file a complaint for ULP. Petitioner answered alleging that it has ceased operating temporarily because
of the stockholders' desire to phase out the operations of Madrigal & Co due to lack of business
incentives and prospects and in order to prevent further losses it has to reduce its capital stock and
effect retrenchment. LA rendered a decision in favor of the labor union. NLRC affirmed the said
decision.
Issue: W/N petitioner's reduction of its capital stock is justified.
Held: SC held that it was shown in the petitioner company's financial records that it had been making
substantial profits in its operation from 1972-1975. Its act of reducing its capital stock was done to its
responsibility to evade its responsibility towards the employees. The dividends received by the
company are corporate earnings arising from corporate investment." The petitioner company had
entered such earnings in its financial statements as profits, which it would not have done if they were
not in fact profits.
SC further held that it is incorrect to say that such profits in the form of dividends are
beyond the reach of the petitioner's creditors since the petitioner had received them as compensation
for its management services in favor of the companies it managed as a shareholder thereof. As such
shareholder, the dividends paid to it were its own money, which may then be available for wage
increments. It is not a case of a corporation distributing dividends in favor of its stockholders, in which
case, such dividends would be the absolute property of the stockholders and hence, out of reach by
creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in that case, the
right to a share in such dividends, by way of salary increases, may not be denied its employees.
Capital reduction was nothing but a premature and plain distribution of corporate assets to
obviate a just sharing to labor of the vast profits obtained by its joint efforts with capital through the
years.
PENA VS. CA (digested by m.presquito 8/2/10)
Facts:
Pampanga Bus Co. (PAMBUSCO) was the original owner of 3 parcel of lots which were mortgaged to
the Development Bank of the Philippines. This mortgage was foreclosed and in the foreclosure sale,
the said properties were awarded to Petitioner Pena as the highest bidder. A certificate of sale was
issued in her favor.
The Board of Directors of PAMBUSCO, through 3 out of its 5 directors, resolved to assign its right of
redemption over said lots and authorized one of its members, Atty. Joaquin Briones to execute and
sign a Deed of Assignment for and in behalf of PAMBUSCO in favor of any interested party.
Consequently, Briones executed a Deed of Assignment of PAMBUSCOs redemption right over the
subject lots in favor of Marcelino Enriquez, who then redeemed the said properties. A day after the
certificate of redemption was issued in his favor, Enriquez executed a Deed of Absolute Sale of the
subject properties in favor of spouses Rising T. Yap and Catalina Lugue.
Pena wrote then the Sheriff notifying him that the redemption made by Marcelino Enriquez was not
valid as it was made under a void deed of assignment. Pena requested the recall of said redemption
and a restraint on any registration of transaction regarding the lots in question, which the CFI granted.
Pena then asked for the execution of a deed of a final sale in her favor on the ground that the one (1)
year period of redemption has long elapsed without any valid redemption having been exercised,
hence, she will refuse to receive the redemption money.
In the meantime, the Land Registration Commission registered the subject lots in the name of spouses
Yap, who then filed a complaint for recovery of possession of said land from Petitioner Pena.
Issue: Whether or not the Resolution of the BOD of PAMBUSCO assigning its right of Redemption is
valid.
Ruling: No.

1) There was no quorum to validly transact business since under Section 4 of the amended bylaws of the PAMBUSCO, at least 4 members must be present to constitute a quorum in a
special meeting of the BOD of PAMBUSCO.
2) Section 40 of the Corporation Law provides that the sale or disposition of all and/or
substantially all properties of the corporation requires, in addition to a proper board Resolution,
the affirmative votes of the stockholders holding at least 2/3 of the voting power in the
corporation in a meeting duly called for that purpose. The questioned Resolution failed to
comply with said requirement of the law.
3) Also, at the time of the passage of the questioned Resolution, PAMBUSCO was insolvent. Its
only remaining asset was its right of redemption over the subject properties. Since the
disposition of said redemption right of PAMBUSCO by virtue of the questioned Resolution was
not approved by the required number of Stockholders under the law, the said Resolution, as
well as the mortgaged assignment assigning to Enriquez the said right of redemption, is null
and void.
Islamic Directorate of the Phils. V. CA
Facts:
The subject of this petition for review is the Decision of the public respondent Court of
Appeals, dated October 28, 1994, setting aside the portion of the Decision of the Securities and
Exchange Commission (SEC, for short) in SEC Case No. 4012 which declared null and void the sale of
two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by and
between private respondent Iglesia Ni Cristo (INC, for short) and the Islamic Directorate of the
Philippines, Inc., Carpizo Group, (IDP, for short).
Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic leaders of all Muslim major
tribal groups in the Philippines headed by Dean Cesar Adib Majul organized and incorporated the
ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to establish an
Islamic Center in Quezon City for the construction of a "Mosque (prayer place), Madrasah (Arabic
School), and other religious infrastructures" so as to facilitate the effective practice of Islamic faith in
the area.
In 1972, after the purchase of the land by the Libyan government in the name of IDP, Martial Law was
declared by the late President Ferdinand Marcos. Most of the members of the 1971 Board of Trustees
like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and Congressman Al-Rashid
Lucman flew to the Middle East to escape political persecution. Thereafter, two Muslim groups sprung,
the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda
Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP.
Without having been properly elected as new members of the Board of Trustee of IDP, the Carpizo
Group caused to be signed an alleged Board Resolution of the IDP, authorizing the sale of the subject
two parcels of land to the private respondent INC for a consideration.
Issue: Whether or not the Carpizo group had a right to sell the two parcel of land to INC?
Held: The Carpizo group had no right to sell the property. Premises considered, all acts carried out by
the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of the IDP,
have to be struck down for having been done without the consent of the IDP thru a legitimate Board of
Trustees.
In SEC Case No. 4012, the SEC in effect made the unequivocal finding that the IDP-Carpizo
Group is a bogus Board of Trustees. Consequently, the Carpizo Group is bereft of any authority
whatsoever to bind IDP in any kind of transaction including the sale or disposition of ID property.
The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group's
failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or
substantially all assets of the corporation:
Sec. 40. Sale or other disposition of assets. Subject to the provisions of existing laws on illegal
combinations and monopolies, a corporation may, by a majority vote of its board of directors or
trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its
property and assets, including its goodwill, upon terms and conditions and for such consideration,
which may be money, stocks, bonds or other instruments for the payment of money or other property
or consideration, as its board of directors or trustees may deem expedient, when authorized by the

vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in
case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members, in a
stockholders' or members' meeting duly called for the purpose. Written notice of the proposed action
and of the time and place of the meeting shall be addressed to each stockholder or member at his
place of residence as shown on the books of the corporation and deposited to the addressee in the
post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may
exercise his appraisal right under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate property and assets
if thereby the corporation would be rendered incapable of continuing the business or accomplishing
the purpose for which it was incorporated.
The Tandang Sora property, it appears from the records, constitutes the only property of the IDP.
Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP
falling squarely within the contemplation of the foregoing section. For the sale to be valid, the majority
vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide
members of the corporation should have been obtained. These twin requirements were not met as the
Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those
whose names and signatures were affixed by the Carpizo Group together with the sham Board
Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of
the IDP as they were made to appear to be. Apparently, there are only fifteen (15) official members of
the petitioner corporation including the eight (8) members of the Board of Trustees.
Furthermore, the Court observes that the INC bought the questioned property from the Carpizo Group
without even seeing the owner's duplicate copy of the titles covering the property. This is very strange
considering that the subject lot is a large piece of real property in Quezon City worth millions, and that
under the Torrens System of Registration, the minimum requirement for one to be a good faith buyer
for value is that the vendee at least sees the owner's duplicate copy of the title and relies upon the
same. 41 The private respondent, presumably knowledgeable on the aforesaid workings of the Torrens
System, did not take heed of this and nevertheless went through with the sale with undue haste. The
unexplained eagerness of INC to buy this valuable piece of land in Quezon City without even being
presented with the owner's copy of the titles casts very serious doubt on the rightfulness of its position
as vendee in the transaction.
DATU vs. SEC and Diamatul Philippines-al Islamia Inc.
123 SCRA 722 (Power to deny pre-emptive rights)
Facts:
The Articles of Incorporation of respondent Jamiatul Philippine-Al Islamia, Inc. (originally Kamilol Islam
Institute, Inc.) were filed with the SEC and approved with an authorized capital stock of P200,000
divided into 20,000 shares at a par value of P10.00 each. Of the authorized capital stock, 8,058 shares
worth P80,580 were subscribed and fully paid for. Herein petitioner Datu Tagoranao Benito subscribed
to 460 shares. Later the capital stock was increased from 200,000 to 1M P110,980 worth of shares
were subsequently issued by the corporation from the unissued portion of the authorized capital stock.
From the increased capital stock of P1,M, P160,000.00 worth of shares were subscribed by Mrs. Fatima
A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto. Hence, petitioner Datu Tagoranao filed with
respondent SEC a petition alleging that the additional issue (worth P110,980.00) of previously
subscribed shares of the corporation was made in violation of his pre-emptive right to said additional
issue and that the increase in the authorized capital stock of the corporation from was illegal
considering that the stockholders of record were not notified of the meeting wherein the proposed
increase was in the agenda.
The Commission en banc affirmed the decision of the SEC declaring that there is a valid issuance of
unissued shares and it was not subject to the pre-emptive rights of stockholders, including the
petitioner. Hence, this petition for review was filed.
Issues: W/N the increase in the capital stock and the issuance of shares without the consent of the
stockholders is valid?
Held:

The questioned issuance of the unsubscribed portion of the capital stock worth is ' not invalid even if
assuming that it was made without notice to the stockholders as claimed by petitioner. 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 re-offered, he cannot therefore claim a dilution of interest.
The petition was dismissed for lack of merit.
PHILIPPINE TRUST COMPANY, Filipina vs. MARCIANO RIVERA
G.R. No. L-19761
January 29, 1923
FACTS: Cooperativa Naval Filipina is a corporation duly organized under the laws of the Philippines.
Respondent Rivera is a subscriber of the capital stocks of such corporation. In the course of time the
company became insolvent and went into the hands of the Philippine Trust Company, as assignee in
bankruptcy. This action was instituted to recover one-half of the stock subscription made by the
respondent, which admittedly has never been paid. Respondent did not pay said subscription on the
ground that in a meeting of the stockholders, a resolution was adopted to the effect that the capital
should be reduced by 50% and the subscribers released from the obligation to pay any unpaid balance
of their subscription in excess of 50 per centum of the same.
ISSUE: W/N Respondent is liable for the unpaid balance of his subscription.
HELD: Respondent is liable. The resolution relied upon by the respondent was without effect.
It is established doctrine that subscription to the capital of a corporation constitute a find to
which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of
its debts. A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable consideration for such release; and as against
creditors a reduction of the capital stock can take place only in the manner an under the conditions
prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance
with the statutory regulations is necessary
BOMAN
ENVIRONMENTAL
DEVELOPMENT
CORPORATION,
petitioners,
vs.
HON. COURT OF APPEALS and NILCAR Y. FAJILAN, respondents. (Power to purchase own
shares)
FACTS:
Respondent Nilcar Y. Fajilan offered in writing to resign as President and Member of the Board of
Directors of petitioner, Boman Environmental Development Corporation (BEDECO), and to sell to the
company all his shares, rights, and interests therein for P 300,000 plus the transfer to him of the
company's Isuzu pick-up truck which he had been using.
However, BEDECO paid only P50,000 on July 15, 1984 and another P50,000 on August 31, 1984 and
defaulted in paying the balance of P200,000.
On April 30, 1985, Fajilan filed a complaint in the Regional Trial Court of Makati for collection of that
balance from BEDECO.
In an order dated September 9, 1985, the trial court, through Judge Ansberto Paredes, dismissed the
complaint for lack of jurisdiction. It ruled that the controversy arose out of intracorporate relations,

hence, the Securities and Exchange Commission has original and exclusive jurisdiction to hear and
decide it.
ISSUE:
Whether or not a suit brought by a withdrawing stockholder against the corporation to enforce
payment of the balance due on the consideration (evidenced by a corporate promissory note) for the
surrender of his shares of stock and interests in the corporation, involves an intra-corporate dispute.
RULING:
This case involves an intra-corporate controversy because the parties are a stockholder and the
corporation. As correctly observed by the trial court, the perfection of the agreement to sell Fajilan's
participation and interests in BEDECO and the execution of the promissory note for payment of the
price of the sale did not remove the dispute from the coverage of Section 5(b) of P.D. No. 902, as
amended, for both the said agreement (Annex C) and the promissory note (Annex D) arose from intracorporate relations. Indeed, all the signatories of both documents were stockholders of the corporation
at the time of signing the same. It was an intra-corporate transaction, hence, this suit is an intracorporate controversy.
Fajilan's offer to resign as president and director "effective as soon as my shares and interests thereto
(sic) are sold and fully paid" (Annex A-1, p. 239, Rollo) implied that he would remain a stockholder until
his shares and interests were fully paid for, for one cannot be a director or president of a corporation
unless he is also a stockholder thereof. The fact that he was replaced as president of the corporation
did not necessaryily mean that he ceased to be a stockholder considering how the corporation failed to
complete payment of the consideration for the purchase of his shares of stock and interests in the
goodwill of the business. There has been no actual transfer of his shares to the corporation. In the
books of the corporation he is still a stockholder.
Fajilan's suit against the corporation to enforce the latter's promissory note or compel the corporation
to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such
payment will not constitute a distribution of corporate assets to a stockholder in preference over
creditors of the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to
investigate whether the corporation has unrestricted retained earnings to cover the payment for the
shares, and whether the purchase is for a legitimate corporate purpose as provided in Sections 41 and
122 of the Corporation Code, which reads as follows:
SEC. 41. Power to acquire own shares.A stock corporation shall have the power to purchase or
acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the
following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover
the shares to be purchased or acquired;
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the
provisions of this Code,
Sec. 12. Corporate liquidation. ...
xxx xxx xxx
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon lawful dissolution and after payment of all its debts
and liabilities, (77a, 89a, 16a).
These provisions of the Corporation Code should be deemed written into the agreement between the
corporation and the stockholders even if there is no express reference to them in the promissory note.
The principle is well settled that an existing law enters into and forms part of a valid contract without
need for the parties' expressly making reference to it (Lakas ng Manggagawang Makabayan vs. Abiera,
36 SCRA 437).
The requirement of unrestricted retained earnings to cover the shares is based on the trust fund
doctrine which means that the capital stock, property and other assets of a corporation are regarded
as equity in trust for the payment of corporate creditors. The reason is that creditors of a corporation
are preferred over the stockholders in the distribution of corporate assets. There can be no distribution
of assets among the stockholders without first paying corporate creditors. Hence, any disposition of
corporate funds to the prejudice of creditors is null and void. "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 ..."(Steinberg vs. Velasco, 52 Phil. 953.)

De la Rama, et al. vs Ma-ao Sugar Central, et al.

Facts:

The minority stockholders (petitioners) sued defendant corporation and its directors (respondents) for
investing in another corporation (Philippine Fiber). The petitioners contend that the investment was
made without the requisite board resolution authorized by two-thirds (2/3) of the voting power of the
stockholders, contrary to the provision of the then Corporation Law (sec. 17 ). Respondents
meanwhile contended that such investment was later ratified by the board of directors in later
resolutions and that, (citing legal authorities like Professor Sulpicio Guevarra) since Philippine Fiber was
also engaged in the manufacture of sugar bags which defendant corporation is also engaged in, the
investment is legitimate.
Issue:
Is the investment by a corporation in another corporation without the requisite board resolution and
affirmative vote of the stockholders illegal?
Ruling:
No. It is not prohibited for a corporation to invest in shares of another corporation even if such
investment is not authorized by two-thirds (2/3) of the voting power of the stockholders if the purpose
of the investment is not foreign to the purpose of the corporation.
Sec. 17 of the old Corporation Law provided that, No corporation x x x shall invest its fund in any
other corporation or business, or for any other purpose other than the main purpose for which it was
organized, unless its board of directors has been so authorized in a resolution by the affirmative vote
of stockholders x x x two-thirds of the voting power on such proposal at a stockholders meeting called
for the purpose
The rule is that: if the investment is in pursuance of the corporate purpose, it does not need the
approval of the stockholders. But when the purchase of shares is done solely for investment and not to
accomplish the purpose of the corporation, the vote of approval of the stockholders is necessary.
LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES vs. FLORENTINA FONTECHA, ET AL.,
AND THE NATIONAL LABOR RELATIONS COMMISSION
FACTS:
Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez
Gonzales is one of its majority shareholders. Except for Arturo F. Lopez, the rest of the shareholders
also sit as members of the Board of Directors. Arturo Lopez submitted a proposal relative to the
distribution of certain assets of petitioner corporation among its three (3) main shareholders. The
proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2)
the transfer of certain assets of the company to its three (3) main shareholders, while some other
assets shall remain with the company; and (3) the reduction of employees with provision for their
gratuity pay. The proposal was deliberated upon and approved in a special meeting of the board of
directors. It appears that petitioner corporation approved two (2) resolutions providing for the gratuity
pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the stockholders in a special
meeting (Sept. 8, 1980), resolving to set aside, twice a year, a certain sum of money for the gratuity
pay of its retiring employees and to create a Gratuity Fund for the said contingency; and (b) Resolution
No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period
from 1950 up to 1980.
Except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of
Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special
meeting and passed a resolution which reads:
Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows: (Aug.
17, 1981)
(a) Those who will be laid of be given the full amount of gratuity;
(b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1, 1981, and
another 25% on January 1, 1982, and 50% to be retained by the office in the meantime.
Private respondents were the retained employees of petitioner corporation. In a letter, private
respondents requested for the full payment of their gratuity pay. Their request was granted in a special
meeting held September 1, 1981. At that, time, however, petitioner Asuncion Lopez Gonzales was still
abroad. Allegedly, she sent a cablegram to the corporation, objecting to certain matters taken up by
the board in her absence, such as the sale of some of the assets of the corporation. Upon her return,
she flied a derivative suit with the SEC against majority shareholder Arturo F. Lopez.
Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo
Lopez, the first two (2) installments of the gratuity pay of private respondents were paid by petitioner
corporation. Petitioner corporation had prepared the cash vouchers and checks for the third
installments of gratuity pay of said private respondents but for some reason, said vouchers were
cancelled by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated demands for

their gratuity pay, corporation refused to pay the same. Labor Arbiter Raymundo R. Valenzuela
rendered judgment in favor of private respondents.
Petitioners appealed to public respondent National Labor Relations Commission. The appeal focused on
the alleged non-ratification and non-approval of the assailed Aug. 17, 1981 and Sept. 1, 1981 Board
Resolutions. Petitioners further insisted that the payment of the gratuity to some of the private
respondents was a mere "mistake" on the part of petitioner corporation since, pursuant to Resolution
Nos. 6 & 10 (1980), said gratuity pay should be given only upon the employees' retirement. NLRC
dismissed the appeal for lack of merit.
Petitioners contend that the 2 board resolutions, granting gratuity pay to their retained employees, are
ultra vires, ground that petitioner Asuncion Lopez Gonzales was not duly notified of the said special
meetings. They aver, further, that said board resolutions were not ratified by the stockholders of the
corporation pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code).
They also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of
the retained employees or those who voluntarily resigned from their posts.
ISSUE:
W/N private respondents are entitled to receive their gratuity pay under the assailed board
resolutions dated Aug. 17, 1951 and Sept. 1, 1981.
HELD:
The new ground of lack of notice was not raised before the labor arbiter, hence, petitioners are
barred from raising the same on appeal. It would be offensive to the basic rules of fair play and justice
to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the
public respondent NLRC. It is well settled that questions not raised in the lower courts cannot, be
raised for the first time on appeal. Hence, petitioners may not invoke any other ground, other than
those it specified at the labor arbiter level, to impugn the validity of the subject resolutions.
We now come to petitioners' argument that the resolutions passed by the board of directors during the
special meetings on Aug. 1, 1981, and Sept. 1, 1981, were ultra vires for lack of notice.
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 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.
In the case at bench, it was established that petitioner corporation did not issue any resolution
revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead,
they paid the gratuity pay, particularly, the 2 installments of private respondents.
Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed
resolutions were passed, we can glean from the records that she was aware of the corporation's
obligation under the said resolutions. More importantly, she acquiesced thereto. Petitioner
Asuncion Lopez Gonzales affixed her signature on Cash Vouchers, evidencing the 2nd
installment of the gratuity pay of private respondents.
We hold, therefore, that the conduct of petitioners after the passage of resolutions dated
Aug. 17, 1951 and Sept. 1, 1981, had estopped them from assailing the validity of said
board resolutions.
Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the special
meetings, it is erroneous to state that the resolutions passed by the board during the said
meetings were ultra vires. In legal parlance, "ultra vires" act refers to one which is not within
the corporate powers conferred by the Corporation Code or articles of incorporation or not
necessary or incidental in the exercise of the powers so conferred.
The assailed resolutions before us cover a subject which concerns the benefit and welfare of the
company's employees. To stress, providing gratuity pay for its employees is one of the express
powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the
doctrine of ultra vires to avoid any liability arising from the issuance the subject
resolutions.
We reject petitioners' allegation that private respondents, namely, Mila Refuerzo, Marissa Pascual and
Edward Mamaril who resigned from petitioner corporation after the filing of the case, are precluded
from receiving their gratuity pay. Pursuant to board resolutions dated Aug. 17, 1981 and Sept. 1, 1981,
respectively, petitioner corporation obliged itself to give the gratuity pay of its retained employees.

Hence, at the time the aforenamed private respondents tendered their resignation,
aforementioned private respondents were already entitled to receive their gratuity pay.

the

TUASON VS. BOLANOS

GR. No. L-4935. May 28, 1954
95 Phil. 106
CASE DIGEST
Facts:
Plaintiffs complaint against defendant was to recover possession of a registered land. In
the complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta, Inc.,
another corporation. Defendant, in his answer, sets up prescription and title in himself thru
"open, continuous, exclusive and public and notorious possession under claim of ownership,
adverse to the entire world by defendant and his predecessors in interest" from "time
immemorial". After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession thereof to
plaintiff and to pay the latter a monthly rent. Defendant appealed directly to the Supreme Court
and contended, among others, that Gregorio Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a partnership
Issue:
Whether or not a corporation may enter into a joint venture with another corporation.
Ruling:
It is true that the complaint states that the plaintiff is "represented herein by its Managing
Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. cannot act as managing partner for plaintiff on the theory
that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is
that "though a corporation has no power to enter into a partnership, it may nevertheless enter
into a joint venture with another where the nature of that venture is in line with the business
authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2.
Fletcher Cyc. of Corp., 1082.). There is nothing in the record to indicate that the venture in
which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line
with the corporate business of either of them.
MONTELIBANO V. BACOLOD-MURCIA
18 MAY 1962
FACTS: Plaintiff-appellants Alfredo Montlibano, Alejandro Montelibano & the Limited copratnership Gonzaga & Co, had been and are sugar planters of defendant-appellee, BacolodMurcia Milling Co., Inc. under a milling contracts execeuted in 1919. Said contracts stipulates
that it will remain in force for 30 years starting with the 1920-1921 crop and provided for a

45% and 55% ratio in favor of the planters. Sometime in 1936, the Board of Directors of
defendant-appellee adopted a resolution increasing the planters share to 60% of the
manufactured sugar and extended the contract from 30 years to 45 years. Appellants filed
the present action demanding defendant-appellee to grant the increased participation in
accordance with paragraph 9 of the Amended Milling Contract. Defendant-appellee denies
the claim and contends that the stipulations contained in the resolution were made without
consideration; that the resolution in question was therefore null and void ab initio, being in
effect a donation that was ultra vires and beyond the powers of the corporate directors to
adopt.
ISSUE: WON the amended milling contract were ultra vires acts of the defendant-appellee
and beyond the powers of the BOD.
RULING: The SC upheld the authority of the Board acting for the corporation to modify the
terms of the amended milling contract for the purpose of making its terms more acceptable
to the other contracting parties. It gave the formula for determining the applicability of the
ultra vires doctrine.
It is a question, therefore, in each case of the logical relation of the act to the
corporate purpose expressed in the charter. 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, is 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 corporations 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.

Estefania R. Pirovano vs. Dela Rama Steamship Co., Inc.

Facts: Plaintiff Pirovano seeks to recover the balance of the amount of dividends to which
she is entitled as stockholder of the defendant corporation. Defendant denied the claim on
the ground that plaintiff is indebted to the corporation since the latter incurred damages for
commencement of suit against her. The Court dismissed the complaint. Plaintiff filed an
appeal.
Accdg. to the plaintiff, she made cash advances for her personal expenses and for the
education and support of her children. Such were assumed by Esteban de la Rama. The
money was debited to the other corporation (Hijos de I. de la Rama & Co., Inc.), also owned
by Esteban. Plaintiff also contended that the only amount which can be deducted from her
shares was those not assumed by Esteban.

The corporation denied the plaintiff's claim on the ground that the assumption made by
Esteban was never consented by them, hence not binding upon it. In addition, it stated that
the act of Esteban was in violation of the provision in the deed of trust.
Issue: W/N the assumption made by the late Esteban de la Rama in his lifetime is binding
upon the corporation and thus constitute novation.
Held: SC held that Express consent by the creditor is necessary to substitute another for the
debtor. Such consent was not given by the corporation's BOD nor does it appear in the books
or records of the same.
Plaintiff-appellant must answer for the personal advances made to her by the corporation
and the latter may set off the total sum of such advances against the amount of dividends to
which she is entitled.

LUNETA MOTOR COMPANY vs. A.D. SANTOS, INC., ET AL

G.R. No. L-17716
July 31, 1962

FACTS: Concepcion executed a chattel mortgage in favor of petitioner, Luneta Motor Co. covering
certificates of public convenience of a taxicab service of 27 units. To secure a subsequent loan
obtained by Concepcion from the Rehabilitation Finance Corporation (now Development Bank
of the Philippines) he constituted a second mortgage on the same certificate. This second
mortgage was approved by the respondent Commission, subject to the mortgage lien in favor
of petitioner. The certificate was later sold to Francisco Benitez, Jr., who resold it to Rodi
Taxicab Company. Both sales were made with assumption of the mortgage in favor of the RFC,
and were also approved provisionally by the Commission, subject to petitioner's lien.

Petitioner filed an action to foreclose the chattel mortgage executed in its favor by Concepcion
in view of the failure of the latter and his guarantor to pay their overdue account. The RFC also
instituted foreclosure proceedings on its second chattel mortgage, and as a result of the
decision in its favor therein rendered, the certificate of public convenience was sold at public
auction in favor of Amador D. Santos, who immediately applied with the Commission for the
approval of the sale, and the same was approved subject to the mortgage lien in favor of
petitioner.
CFI of Manila rendered judgment, adjudging Concepcion indebted to petitioner and ordered
that the certificate of public convenience subject matter of the chattel mortgage be sold at
public auction. Accordingly, said certificate was sold at public auction to petitioner, and six
days thereafter the Sheriff of the City of Manila issued in its favor the corresponding certificate
of sale. Thereupon petitioner filed the application mentioned heretofore for the approval of the
sale. In the meantime and before his death, Amador D. Santos sold and transferred all his
rights and interests in the certificate of public convenience in question in favor of the now
respondent A.D. Santos, Inc., who opposed petitioner's application.

Respondent Commission, after considering the memoranda submitted by the parties, rendered
the appealed decision sustaining the ground relied upon in support thereof, namely, that under
petitioner's articles of incorporation it had no authority to engage in the taxicab business or
operate as a common carrier, and that, is a result, it could not acquire by purchase the
certificate of public convenience referred to above. Hence, the present appeal interposed by
petitioner who claims that, in accordance with the Corporation Law and its articles of
incorporation, it can acquire by purchase the certificate of public convenience in question,
maintaining inferentially that, after acquiring said certificate, it could make use of it by
operating a taxicab business or operate is a common carrier by land.
ISSUE: W/N petitioner is authorized to engage in the taxicab business or operate as a common carrier.
HELD: SC find nothing in the legal provision and the provisions of petitioner's articles of incorporation
relied upon that could justify petitioner's contention in this case. To the contrary, they are
precisely the best evidence that it has no authority at all to engage in the business of land
transportation and operate a taxicab service. That it may operate and otherwise deal in
automobiles and automobile accessories; that it may engage in the transportation of persons
by water does not mean that it may engage in the business of land transportation an
entirely different line of business. If it could not thus engage in the line of business, it follows
that it may not acquire a certificate of public convenience to operate a taxicab service, such as
the one in question, because such acquisition would be without purpose and would have no
necessary connection with petitioner's legitimate business.

CRISOLOGO-JOSE v. COURT OF APPEALS

177 SCRA 594
Facts:
Atty. Benares was the President of Movers Enterprise while Ricardo Santos Jr. was the VicePresident. On April 1980 Atty. Benares in accommodation of his clients, the spouses Jaime
and Clarita Ong issued a check drawn against Traders Royal Bank in the amount of 45,000
payable to Crisologo- Jose. Since the check was under the account of the corporation, the
president and the treasurer should sign the check. But since the treasurer was not available,
Benares asked Santos to be the alternate signatory. The check was issued to Crisologo-Jose
in consideration of the waiver of Crisologo over a certain property which the GAIA agreed to
sell to the clients of Benares (spouses Ong) with the understanding that upon approval of
the compromise agreement with the spouses Ong, the check will be encashed accordingly.
However, the compromise agreement was not approved within the expected period. So
Benares replaced the check with another one with the same amount also payable to Jose.
When petitioner deposited the check, it was dishonored for insufficiency of fund. Petitioner
filed criminal complaint for violation of BP 22. Meanwhile, during the preliminary
investigation, Santos tendered cashiers check in payment of the dishonored check but
petitioner refused to accept it. Santos then encashed the check and deposited the money to
the Clerk of Court. Incidentally, Benares purchased the cashiers check and gave it to the
plaintiff to be applied as payment of the dishonored check. RTC held that it was not
persuaded to believe that consignation is applicable here. So the complaint was dismissed.
CA reversed and set aside such decision. Petitioner contends that the accommodation party
in this case is Mover Enterprises and not private respondent who merely signed the check in
a representative capacity.

Issue: Assuming that Mover Enterprises is the accommodation party, WON it may be held
liable on
the accommodation instrument.
Held:
No. Corporation is not liable. The provisions of the NIL which holds an accommodation party
liable on the instrument to a holder for value, although such holder at the time of taking the
instrument knew him to be only an accommodation party, it does not apply to corporations
which are accommodation parties This is because issue or endorsement of negotiable paper
by a corporation without consideration and for the accommodation is an ultra vires act.
By way of a corporation, an officer or agent may do so ONLY IF specifically authorized to do
so. But where the facts show that the accommodation involved was for their personal
account, undertaking or purpose and the creditor was aware thereof.
NOTE: That while the public is not required to know that one is authorized or not to bind the
corporation for a certain obligation and that while the contract may be enforced even
without authority because the public dealing in good faith has the right to expect that the
obligation entered into shall be complied with, such doctrine does not apply when the
dealing public in the first place is in bad faith, as in this case; that is why the corporation
was not bound to such accommodation agreement.
Harden vs Benguet Consolidated Mining (Ulta vires acts)
Facts:
Benguet Mining (as a sociedad anonima) in an agreement with Balatoc Mining (a
corporation) undertook to build a milling plant and a power plant for the latter. In
consideration thereof, Balatoc in turn, delivered six hundred thousand shares of stock of the
company in favor of Benguet Mining. When the project became successful and the value of
the shares of Balatoc Mining appreciated, plaintiff Harden, being an owner of thousands of
shares in Balatoc mining sought to annul the transactions entered by the two mining entities
because the law prohibits mining companies like Benguet Mining to hold any interest in a
mining corporation like Balatoc Mining. It is the contention of Benguet Mining that it is not
prohibited from doing so because it is a sociedad anonima and not a corporation.

Issue:

(1) whether the plaintiffs has a right of action against defendant corporation..
(2)

Ruling:

Assuming the first question to be answered in the affirmative, the Benguet

Company, which was organized as a sociedad anonima, is a corporation prohibited a
mining corporation from becoming interested in another mining corporation.

(1) The defendant Benguet Company has committed no civil wrong against the plaintiffs,
and if a public wrong has been committed, the directors of the Balatoc Company, and
the plaintiff Harden himself, were the active inducers of the commission of that
wrong. The contract, supposing it to have been unlawful in fact, has been performed
on both sides, by the building of the Balatoc plant by the Benguet Company and the
delivery to the latter of the certificate of 600,000 shares of the Balatoc Company.
There is no possibility of really undoing what has been done. Nobody would suggest
the demolition of the mill. The Balatoc Company is secure in the possession of that
improvement, and talk about putting the parties in status quo ante by restoring the
consideration with interest, while the Balatoc Company remains in possession of what
it obtained by the use of that money, does not quite meet the case. Also, to mulct the
Benguet Company in many millions of dollars in favor of individuals who have not the
slightest equitable right to that money in a proposition to which no court can give a
ready assent.

(2) Having shown that the plaintiffs in this case have no right of action against the
Benguet Company for the infraction of law supposed to have been committed, we
forego cny discussion of the further question whether a sociedad anonima created
under Spanish law, such as the Benguet Company, is a corporation within the
meaning of the prohibitory provision already so many times mentioned. That
important question should, in our opinion, be left until it is raised in an action brought
by the Government.

Carlos vs. Mindoro Sugar Co. (Ultra Vires Doctrine)

57 Phil. 343 October 26, 1932, Imperial, J.
FACTS:
Plaintiff Carlos brought this action to recover from the defendants the value of four bonds, with interest
thereon, issued by the Mindoro Sugar Company and placed in trust with the Philippine Trust Company
which, in turn, guaranteed them for value received.
ISSUE:
Whether the Philippine Trust Company acquired the four bonds in question, and whether as such it
bound itself legally and acted within its corporate powers in guaranteeing them.
HELD:
In adopting an affirmative conclusion we have relied principally on the following facts and
circumstances: Firstly, that PTC although secondarily engaged in banking, was primarily organized as a
trust corporation with full power to acquire personal property such as the bonds in question, according
to both section 13 (par. 5) of the Corporation Law and its duly registered by-laws and articles of
incorporation.
Secondly, that being thus authorized to acquire the bonds, it was given implied power to guarantee
them in order to place them upon the market under better, more advantageous conditions, and
thereby secure the profit derived from their sale.

It is not however, ultra vires for a corporation to enter into contracts of guaranty or suretyship where
it does so in the legitimate furtherance of its purposes and business. And it is well settled that where a
corporation acquires commercial paper or bonds in the legitimate transaction of its business it may sell
them, and in furtherance of such a sale it may, in order to make them more readily marketable,
indorse or guarantee their payment. (7 R.C.L., p. 604 and cases cited).
Whenever a corporation has the power to take and dispose of the securities of another corporation, of
whatsoever kind, it may, for the purpose of giving them a marketable quality, guarantee their
payment, even though the amount involved in the guaranty may subject the corporation to liabilities in
excess of the limit of indebtedness which is authorized to incur. And so guaranties of payment of bonds
taken by a loan and trust company in the ordinary course of its business, made in connection with their
sale, are not ultra vires, and are binding. (14-A C.J., pp. 742-743 and cases cited).
There are other considerations leading to the same result even in the supposition that PTC did not
acquire the bonds in question but only guaranteed them. In such a case the guarantee of these bonds
would, at any rate, be valid and the said corporation would be bound to pay Carlos in view of the fact
that they become due on account of the lapse of sixty (60) days, without the accrued interest due
having been paid, and the reason is that it is stopped from denying the validity of its guarantee. A
recovery directly upon the contract is permitted on the ground that the corporation, having received
money or property by virtue of a contract not immoral or illegal of itself, is stopped to deny liability;
and that the only remedy is one on behalf of the state to punish the corporation for violating the law.
(7 R.C.L. pp. 680-681 and cases cited).
Guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its
business, made in connection with their sale, are not ultra vires, and are binding. (Broadway Nat.
Bank v. baker, 57 N.E., p. 603).
The decision is reversed and the Philippine Trust Company is sentenced to pay to Carlos four thousand
dollars ($4,000) with interest.
3. a) Board Resolutions giving the proceeds of insurance policies to the minor children of the
companys former president are not ultra vires acts in view of the provisions of its articles of
incorporation; b) granting they are ultra vires acts, they are cured by ratification by the stockholders;
and c) ultra vires acts should be distinguished from illegal acts.