FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C.

CRUZ and MINDANAO TERMINAL AND BROKERAGE SERVICES, INC., Petitioners,

vs.
VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD,
HERMENEGILDO M. TRINIDAD, JESUS SYBICO, MARY JEAN D. CO, HENRY CHUA,
JOSELITO S. JAYME, ERNESTO S. JAYME, and ELIEZER B. DE JESUS, Respondents.
FACTS:

Eliodoro C. Cruz, Filports president from 1968-1991, wrote a letter to the

corporations BOD questioning the creation and election of the following
positions with a monthly remuneration of P13,050.00 each. Cruz requested
the board to take necessary action/actions to recover from those elected to
the aforementioned positions the salaries they have received.
Cruz, purportedly in representation of Filport and its stockholders, among
which is herein co-petitioner Mindanao Terminal and Brokerage Services, Inc.
(Minterbro), filed with the SEC a derivative suit against Filport's BOD for acts
of mismanagement detrimental to the interest of the corporation and its
shareholders at large.
Cruz prayed that the BOD be made to pay Filport, jointly and severally, the
sums of money variedly representing the damages incurred as a result of the
creation of the offices/positions complained of and the aggregate amount of
the questioned increased salaries.
RTC ruled that BOD have the power to create positions not in the by-laws and
can increase salaries. But Edgar C. Trinidad under the third and fourth
causes of action to restore to the corporation the total amount of salaries he
received as assistant vice president for corporate planning; and likewise
ordering Fortunato V. de Castro and Arsenio Lopez Chua under the fourth
cause of action to restore to the corporation the salaries they each received
as special assistants respectively to the president and board chairman. In
case of insolvency of any or all of them, the members of the board who
created their positions are subsidiarily liable.
CA granted the respondents motion and accordingly effected the desired correction.

Issue:
Whether or not the creation of an executive committee and other offices in the corporation
with corresponding remunerations are within the corporate powers of the Board of Director.
Held:
The governing body of a corporation is its board of directors. Section 23 of the Corporation
Code explicitly provides that unless otherwise provided therein, the corporate powers of all
corporations formed under the Code shall be exercised, all business conducted and all
property of the corporation shall be controlled and held by a board of directors. Thus, with
the exception only of some powers expressly granted by law to stockholders (or members, in
case of non-stock corporations), the board of directors (or trustees, in case of non-stock
corporations) has the sole authority to determine policies, enter into contracts, and conduct
the ordinary business of the corporation within the scope of its charter, i.e., its articles of
incorporation, by-laws and relevant provisions of law. Verily, the authority of the board of

directors is restricted to the management of the regular business affairs of the corporation,
unless more extensive power is expressly conferred.
The concentration in the board of the powers of control of corporate business and of
appointment of corporate officers and managers is necessary for efficiency in any large
organization. Stockholders are too numerous, scattered and unfamiliar with the business of a
corporation to conduct its business directly. And so the plan of corporate organization is for
the stockholders to choose the directors who shall control and supervise the conduct of
corporate business.
In the present case, the boards creation of the positions was in accordance with the regular
business operations of Filport as it is authorized to do so by the corporations by-laws,
pursuant to the Corporation Code. Likewise, the fixing of the corresponding remuneration for
the positions in question is provided for in the same by-laws of the corporation.
The Court cannot rule that the creation of the executive committee by the board of directors
is illegal or unlawful. One reason is the absence of a showing as to the true nature and
functions of said executive committee considering that the "executive committee," referred
to in Section 35 of the Corporation Code which is as powerful as the board of directors and in
effect acting for the board itself, are within the competency of the board to create at any
time and whose actions require ratification and confirmation by the board. Another reason is
that, the Board of Directors has the power to create positions not provided for in Filports
bylaws since the board is the corporations governing body, clearly upholding the power of
its board to exercise its prerogatives in managing the business affairs of the corporation.
With regard to the increased emoluments, the increases in the salaries are indeed
reasonable enough to be able to effectively discharge their respective functions and duties.
To the mind of the Court, Cruz testimony on the matter of mismanagement is bereft of any
foundation. Respondents may not be held liable in the absence of a showing of bad faith in
doing the acts complained of. If the cause of the losses is merely error in business judgment,
not amounting to bad faith or negligence, directors and/or officers are not liable. For them to
be held accountable the mismanagement and the resulting losses on account thereof are
not the only matters to be proven; it is likewise necessary to show that the directors and/or
officers acted.

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC.,
AND MCARTHUR MINING, INC., Petitioners, v. REDMONT CONSOLIDATED MINES CORP.,Respondent.
Facts:

G.R. No. 180416

June 2, 2014

ADERITO Z. YUJUICO and BONIFACIO C. SUMBILLA, Petitioners,

vs.
CEZAR T. QUIAMBAO and ERIC C. PILAPIL, Respondents.
Facts:
Strategic Alliance Development Corporation (STRADEC) is a domestic corporation
operating as a business development and investment company. During the annual
stockholder's meeting of STRADEC, petitioner Aderito Z. Yujuico (Yujuico) was elected as
president and chairman of the company. Yujuico replaced respondent Cezar T. Quiambao
(Quiambao), who had been the president and chairman of STRADEC since 1994.
4

With Yujuico at the helm, STRADEC appointed petitioner Bonifacio C. Sumbilla (Sumbilla)
as treasurer and one Joselito John G. Blando (Blando) as corporate secretary. Blando
replaced respondent Eric C. Pilapil (Pilapil), the previous corporate secretary of
STRADEC.
Petitioners filed a criminal complaint against respondents and one Giovanni T. Casanova
(Casanova). He alleges that demanded Quiambao for the turnover of the corporate
records of the company, particularly the accounting files, ledgers, journals and other
records of the corporation's business. Quiambao refused. Casanova was keeping
custody of the said records on behalf of Quiambao, who allegedly needed the same as
part of his defense in a pending case in court. Blando likewise demanded Pilapil for the
turnover of the stock and transfer book of STRADEC. Pilapil refused. Since Quiambao
and Pilapil still refused to turnover the stock and transfer book, Blando again acceded to
have the book deposited in a safety deposit box, this time, with the Export and Industry
Bank in San Miguel A venue, Pasig City.
7

Petitioners theorize the refusal by the respondents and Casanova to turnover STRADEC's
corporate records and stock and transfer book violates their right, as stockholders,
directors and officers of the corporation, to inspect such records and book under Section
7 4 of the Corporation Code. For such violation, petitioners conclude, respondents may
be held criminally liable pursuant to Section 144 of the Corporation Code.
Issue:
1. Whether the refusal of inspection of book of corporation constitute a criminal offense.
2. Whether respondent can be held liable.
Held:
1. The act of ref using to allow inspection of the stock and transfer book of a
corporation, when done in violation of Section 74(4) of the Corporation Code, is
punishable as an offense under Section 144 of the same code.
The records of all business transactions of the corporation and the minutes of any
meetings shall be open to inspection by any director, trustee, stockholder or member of
the corporation at reasonable hours on business days and he may demand, in writing,
for a copy of excerpts from said records or minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustees,
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.

We find inaccurate the pronouncement of the RTC that the act of

refusing to allow inspection of the stock and transfer book is not a
punishable offense under the Corporation Code. Such refusal, when
done in violation of Section 74( 4) of the Corporation Code, properly
falls within the purview of Section 144 of the same code and thus may
be penalized as an offense.
A perusal of the second and fourth paragraphs of Section 74, as well
as the first paragraph of the same section, reveal that they are
provisions that obligates a corporation: they prescribe what books or
records a corporation is required to keep; where the corporation shall
keep them; and what are the other obligations of the corporation to its
stockholders or members in relation to such books and records. Hence,
by parity of reasoning, the second and fourth paragraphs of Section 74,
including the first paragraph of the same section, can only be violated
by a corporation. It is clear then that a criminal action based on the
violation of the second or fourth paragraphs of Section 74 can only be
maintained against corporate officers or such other persons that are
acting on behalf of the corporation. Violations of the second and fourth
paragraphs of Section 74 contemplates a situation wherein a
corporation, acting thru one of its officers or agents, denies the right of
any of its stockholders to inspect the records, minutes and the stock
and transfer book of such corporation.
2.

The problem with the petitioners complaint and the evidence that they
submitted during preliminary investigation is that they do not establish
that respondents were acting on behalf of STRADEC. Quite the
contrary, the scenario painted by the complaint is that the respondents
are merely outgoing officers of STRADEC who, for some reason,
withheld and refused to tum-over the company records of STRADEC;
that it is the petitioners who are actually acting on behalf of STRADEC;

and that STRADEC 1s actually merely trying to recover custody of the

withheld records. In other words, petitioners are not actually invoking
their right to inspect the records and the stock and transfer book of
STRADEC under the second and fourth paragraphs of Section 74. What
they seek to enforce is the proprietary right of STRADEC to be in
possession of such records and book. Such right, though certainly
legally enforceable by other means, cannot be enforced by a criminal
prosecution based on a violation of the second and fourth paragraphs
of Section 74. That is simply not the situation contemplated by the
second and fourth paragraphs of Section 74 of the Corporation Code.

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator,

THE PHILIPPINE DEPOSIT INSURANCE CORPORATION v. EDWARD WILLKOM; GILDA
GO; REMEDIOS UY; MALAYO BANTUAS, in his capacity as the Deputy Sheriff of RTC,
Branch 3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro City,
Respondent
2010 Oct 20 2nd Division G.R. No. 178618
NACHURA, J.:
FACTS
First Iligan Savings and Loan Association, Inc. (FISLAI) and Davao Savings and Loan
Association, Inc. (DSLAI) are entities duly registered with the SEC primarily engaged in the
business of granting loans and receiving deposits from the general public, and treated as
banks. In 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving
corporation but their articles of merger were not registered with the SEC due to incomplete
documentation. DSLAI changed its corporate name to MSLAI by way of an amendment to its
Articles of Incorporation which was approved by the SEC. In 1986, the Board of Directors of
FISLAI passed and approved Board Resolution assigning its assets in favor of DSLAI which in
turn assumed the formers liabilities. The business of MSLAI, however, failed. Hence, the
Monetary Board of the Central Bank of the Philippines ordered its liquidation with PDIC as its
liquidator.
Prior to the closure of MSLAI, Uy filed with the RTC of Iligan City, an action for
collection of sum of money against FISLAI. The RTC issued a summary decision in favor of
Uy, directing FISLAI to pay. As a consequence, 6 parcels of land owned by FISLAI were levied
and sold to Willkom. In 1995, MSLAI, represented by PDIC, filed before the RTC a complaint
for the annulment of the Sheriffs Sale alleging that the sale on execution of the subject
properties was conducted without notice to it and PDIC. Respondents, in its answer, averred
that MSLAI had no cause of action because MSLAI is a separate and distinct entity from
FISLAI on the ground that the unofficial merger between FISLAI and DSLAI (now MSLAI) did
not take effect considering that the merging companies did not comply with the formalities
and procedure for merger or consolidation as prescribed by the Corporation Code of the
Philippines. RTC dismissed the case for lack of jurisdiction. CA affirmed but ruled that there
was no merger between FISLAI and MSLAI (formerly DSLAI) for their failure to follow the
procedure laid down by the Corporation Code for a valid merger or consolidation.
ISSUE
Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective?
HELD
NO. In merger, one of the corporations survives while the rest are dissolved and all
their rights, properties, and liabilities are acquired by the surviving corporation. Although
there is a dissolution of the absorbed or merged corporations, there is no winding up of their
affairs or liquidation of their assets because the surviving corporation automatically acquires
all their rights, privileges, and powers, as well as their liabilities.
The merger, however, does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves fundamental changes in
the corporation, as well as in the rights of stockholders and creditors, there must be an
express provision of law authorizing them. The steps necessary to accomplish a merger or
consolidation, as provided for in Sections 76,[24] 77,[25] 78,[26] and 79[27] of the
Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such
plan must include any amendment, if necessary, to the articles of incorporation of
the surviving corporation, or in case of consolidation, all the statements required in
the articles of incorporation of a corporation;

(2) Submission of plan to stockholders or members of each corporation for approval.

A meeting must be called and at least two (2) weeks notice must be sent to all
stockholders or members, personally or by registered mail. A summary of the plan
must be attached to the notice. Vote of two-thirds of the members or of stockholders
representing two-thirds of the outstanding capital stock will be needed. Appraisal
rights, when proper, must be respected;
(3) Execution of the formal agreement, referred to as the articles of merger or
consolidation, by the corporate officers of each constituent corporation. These take
the place of the articles of incorporation of the consolidated corporation, or amend
the articles of incorporation of the surviving corporation;
(4) Submission of said articles of merger or consolidation to the SEC for approval;
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at
least two weeks before;
(6) Issuance of certificate of merger or consolidation.
Clearly, the merger shall only be effective upon the issuance of a certificate of
merger by the SEC, subject to its prior determination that the merger is not inconsistent with
the Corporation Code or existing laws. In this case, it is undisputed that the articles of
merger between FISLAI and DSLAI were not registered with the SEC due to incomplete
documentation. Consequently, the SEC did not issue the required certificate of merger. Even
if it is true that the Monetary Board of the Central Bank of the Philippines recognized such
merger, the fact remains that no certificate was issued by the SEC. Such merger is still
incomplete without the certification. The issuance of the certificate of merger is crucial
because not only does it bear out SECs approval but it also marks the moment when the
consequences of a merger take place. By operation of law, upon the effectivity of the
merger, the absorbed corporation ceases to exist but its rights and properties, as well as
liabilities, shall be taken and deemed transferred to and vested in the surviving corporation.
There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as
respondents, the two corporations shall not be considered as one but two separate
corporations. Being separate entities, the property of one cannot be considered the property
of the other.
Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI
remain as its assets and cannot be considered as belonging to DSLAI and MSLAI,
notwithstanding the Deed of Assignment wherein FISLAI assigned its assets and properties
to DSLAI, and the latter assumed all the liabilities of the former. As provided in Article 1625
of the Civil Code, an assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real property. The certificates of title of
the subject properties were clean and contained no annotation of the fact of assignment.
Respondents cannot, therefore, be faulted for enforcing their claim against FISLAI on the
properties registered under its name. Accordingly, MSLAI, as the successor-in-interest of
DSLAI, has no legal standing to annul the execution sale over the properties of FISLAI. With
more reason can it not cause the cancellation of the title to the subject properties of Willkom
and Go.