Professional Documents
Culture Documents
We think the true meaning of the language is, and the obvious G.R. No. L-49003 July 28, 1944
intention of the legislature in using it was, that all transfers of shares
should be entered, as here required, on the books of the ANTONIO ESCAÑO, plaintiff-appellee, vs. FILIPINAS MINING
CORPORATION, ET Al., defendants. STANDARD INVESTMENT OF
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 PHILIPPINES, appellant.
the assignors, as well as to the corporation and to subsequent On March 8, 1937, the plaintiff-appellee obtained judgment against
purchasers in good faith, and indeed, as to all persons interested, Silverio Salvosa whereby the latter was ordered to transfer and
except the parties to such transfers. All transfers not so entered on deliver to the former 116 active shares and an undetermined
the books of the corporation are absolutely void; not because they number of shares in escrow of the Filipinas Mining Corporation and
are without notice or fraudulent in law or fact, but because they are to pay the sum of P500 as damages, with the proviso that the
made so void by statute. escrow shares shall be transferred and delivered to the plaintiff only
after they shall have been released by the company. A writ of
Some of the states, including Wisconsin, which has held to the
rather, strict but judicial interpretation of the statutory language garnishment was served by the sheriff of Manila upon the Filipinas
Mining Corporation to satisfy the said judgment; and Filipinas
here in question have amended the statute so as to fall in line with
the more liberal and rational doctrine of the third group referred to Mining Corporation advised the sheriff of Manila that according to
its books the judgment debtor Silverio Salvosa was the registered
above. This court still adheres to the principle that its function is jus
dicere non jus dare. To us the language of the legislature is plain to owner of 1,000 active shares and about 21,339 unissued shares held
in escrow by the said corporation. The sheriff sold the 1,000 active
the effect that the right of the owner of the shares of stock of a
Philippine corporation to transfer the same by delivery of the shares at public auction.
certificate, whether it be regarded as statutory on common law It appears that Silverio Salvosa sold to Jose P. Bengzon all his right,
right, is limited and restricted by the express provision that "no title, and interest in and to 18,580 shares of stock of the Filipinas
transfer, however, shall be valid, except as between the parties, until Mining Corporation held in escrow which the said Salvosa was
the transfer is entered and noted upon the books of the entitled to receive, and which Bengzon in turn subsequently sold
corporation." Therefore, the transfer of the 75 shares in the North and transferred to Standard Investment of the Philippines. Neither
Electric Company, Inc., made by the defendant Diosomito to the
Salvosa's sale to Bengzon nor Bengzon's sale to the Standard Moreover, it seems illogical and unreasonable to hold that inactive
Investment of the Philippines was notified to and recorded in the or unissued shares still held by the corporation in escrow pending
books of the Filipinas Mining Corporation more than three years receipt of authorization from the Government to issue them, may
after the escrow shares in question were attached by garnishment be negotiated or transferred unrestrictedly and more freely than
served on the Filipinas Mining Corporation as hereinbefore set forth. active or issued shares evidenced by certificates of stock.
On January 24, 1941, the defendant Filipinas Mining Corporation We are, therefore, of the opinion and so hold that section 35 of the
issued in favor of the defendant Standard Investment certificate of Corporation Law, which requires the registration of transfers of
stock for the 18,580 shares formerly held in escrow by Silverio shares stock upon the books of the corporation as a condition
Salvosa and which had been adversely by the present plaintiff- precedent to their validity against the corporation and third parties,
appellee on the one hand and the Standard Investment of the is also applicable to unissued shares held by the corporation in
Philippines on the other, the first by virtue of garnishment escrow.
proceedings and the second by virtue of the sale made to it by Jose
P. Bengzon as aforesaid. Ponce vs. Alsons Cement Corporation
Issue: WON the courts have jurisdiction to issue writ of mandamus Batong Buhay vs. CA 147 SCRA 4 Jan. 7 , 1987
for the purpose of compelling the secretary of a private corporation
to transfer stock upon the books of the corporation. Batong Buhay Gold Mines, Inc. issued Stock Certificate No. 16807
covering 62,495 shares with a par value of P0.01 per share to
Held: NO. Francisco Aguac who was then legally married to Paula G. Aguac, but
the said spouses had lived separately for more than (14) years prior sufficiently established, that is, that the claimant must submit proof
to the said date. On December 16, 1969, Francisco Aguac sold his that it was in fact damaged because of petitioner's act or omission.
62,495 shares covered by Stock Certificate No. 16807 for the sum of
The stipulation of facts of the parties does not at all show that
P9,374.70 in favor of Inco Mining. The said sale was made by
Francisco Aguac without the knowledge or consent of his wife Paula 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
G. Aguac.
of stock may go up or down in value (as in fact the concerned shares
Paula subsequently called up Batong Buhay Gold Mines telling them here really rose from (15) centavos to (23/24) centavos per share
to withheld the transfer of stock to Inco. Since the stocks were and then fell to about (2) centavos per share, still whatever profits
conjugal property. Batong buhay complied. Inco thus sued Batong could have been made are purely SPECULATIVE, for it was difficult to
Buhay, questioning why Batong buhay withheld. predict with any degree of certainty the rise and fall in the value of
the shares. Thus this Court has ruled that speculative damages
CFI ordered that Batong Buhay to effect the transfer of stock cannot be recovered.
certificates to Inco. However Inco appealed to the CA citing that the
lower court failed to award damages for the wrongful refusal of It is easy to say now that had private respondent gained legal title to
petitioner to transfer the subject shares of stock and alleged failure the shares, it could have sold the same and reaped a profit of
to award attorney’s fees, cost of injunction bond and expenses of P5,624.95 but it could not do so because of petitioner's refusal to
litigation. 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,
ISSUE: private respondent's officials could also have refused to sell and
WON Inco can recover damages by way of unrealized profits when it instead wait for expected further increases in value.
has not shown that it was damaged in any manner by the act of G.R. No. L-10122 August 30, 1958
petitioner?
LEE E. WON alias RAMON LEE, vs. WACK WACK
HELD: NO.
On December 2, 1942, the Wack Wack Gold and Country Club (a
The petitioner alleges that the appellate court gravely and non-stock corporation) issued to Iwao Teruyama Membership
categorically erred in awarding damages by way of unrealized profit Certificate No. 201 which was assigned to M. T. Reyes on April 22,
(or lucro cesante) to private respondent. Petitioner company also 1944. Subsequently in the same year 1944, M. T. Reyes transferred
alleges that the claim for unrealized profit must be duly and and assigned said certificate to the plaintiff. On April 26, 1955, the
plaintiff filed an action against the defendant, alleging that shortly
after the rehabilitation of the defendant after the war, the plaintiff On the other hand, it appears that the plaintiff sought to register the
asked the defendant to register in its books the assignment in favor assignment on April 13, 1955; whereas it is alleged that it was only
of the plaintiff and to issue to the latter a new certificate, but that in February, 1955, when the defendant refused to recognize the
the defendant had refused; and praying that the plaintiff be plaintiff. If there is no fixed period for registering an assignment,
declared the owner of one share of stock of the defendant and that how can the complaint be considered as already barred by the
the latter be ordered to issue a correspondent new certificate. On Statute of Limitations when it was filed on April 26, 1955, or barely a
June 6, 1955, the defendant filed a motion to dismiss, alleging that few days (according to the lower court) and two months (according
from 1944, when the plaintiff's right of action had accrued, to April to the plaintiff), after the demand for registration and its denial by
26, 1955, when the complaint was filed, eleven years have elapsed, the defendant. Plaintiff's right was violated only sometime in 1955,
and that therefore the complaint was filed beyond the 5-year period and it could not accordingly have asserted any cause of action
fixed in Article 1149 of the Civil Code. On July 30, 1955, the lower against the defendant before that.
court dismissed the complaint.
The defendant seems to believe that the plaintiff was compelled
Notably, the certificate in question contains a condition to the effect immediately to register his assignment. Any such compulsion is
that no assignment thereof "shall be effective with respect to the obviously for the benefit of the plaintiff, because it is only after
club until such assignment is registered in the books of the club, as registration that the transfer would be binding against the
provided in the By-Laws." defendant. But we are not here concerned with a situation where
the plaintiff claims anything against the defendant allegedly accruing
ISSUE: WON the plaintiff was bound, under said condition and By- under the outstanding certificate in question between the date of
Laws of the defendant or any statutory rule for that matter, to the assignment to the plaintiff and the date of the latters demand
present and register the certificate assigned to him in 1944 within for registration and issuance of a new certificate.
any definite or fixed period.
The defendant has also intimated property holdings of Japanese
HELD: NO. nationals were vested after the liberation upon the Alien Property
The defendant contends that from the moment the certificate was Administration or Custodian; that the plaintiff should have
assigned to the plaintiff, the latter's right to have the assignment thereupon registered the assignment to him of Certificate No. 201
registered commenced to exist. This contention is correct, but it issued to Iwao Teruyama; and that in the meantime rights to said
would not follow that said right should be exercised immediately or certificate by their pre-war registered American owners were filed
within a definite period. The existence of a right is one thing, and with the defendant and correspondingly acted upon. These,
the duration of said right is another. however, are matters which may affect the validity of the
assignment to the plaintiff or his right to register the same
constituting special defenses, but certainly have no bearing on the The judgment is reversed, the case remanded with
question of prescription. Thus, the appealed order is reversed and instructions to enter a judgment in favor of the plaintiff and
the case remanded to the court of origin for further proceedings. against the defendant for P1,000, with interest; without
costs in this instance.
VALIDITY OF TRANSFER parties expressly stipulated that the contract should last one
year regardless of the objective it should be applied
G.R. No. L-7991 January 29, 1914
parties who are competent to contract may make such
LEON J. LAMBERT vs. T. J. FOX agreements within the limitations of the law and public
policy as they desire, and that the courts will enforce them
Early in 1911: John R. Edgar & Co., engaged in the retail according to their terms
book and stationery business was taken over by its creditors The suspension of the power to sell has a beneficial
including Lambert and Fox purpose, results in the protection of the corporation as well
Lambert and Fox became the 2 largest stockholders in the as of the individual parties to the contract, and is reasonable
new corporation called John R. Edgar & Co., Incorporated as to the length of time of the suspension.
Lambert and Fox entered into an agreement wherein they
mutually and reciprocally agree not to sell, transfer, or G.R. No. L-23241 March 14, 1925
otherwise dispose of an part of the stock until after 1 year
from the agreement date unless consented in writing HENRY FLEISCHER vs. BOTICA NOLASCO CO., INC.
Violation: P1,000 pesos as liquidated damages
October 19, 1911: Fox sold his stock E. C. McCullough & Co.
This action was commenced in the CFI against the board of directors
of Manila, a strong competitor
of the Botica Nolasco, Inc., a corporation duly organized and existing
Sale was made by the defendant against the protest
under the laws of the Philippine Islands. The plaintiff prayed that
Fox offered to sell his shares of stock to the Lambert for the said board of directors be ordered to register in the books of the
same sum that McCullough was paying them less P1,000, corporation five shares of its stock in the name of Henry Fleischer,
the penalty specified in the contract the plaintiff, and to pay him the sum of P500 for damages sustained
Trial Court: dismissed by him resulting from the refusal of said body to register the shares
of stock in question.
ISSUE: W/N Fox should be penalized
HELD: YES. defendant answered the amended complaint denying generally and
specifically each and every one of the material allegations thereof,
and, as a special defense, alleged that the defendant, pursuant to
article 12 of its by-laws, had preferential right to buy from the (7) To make by-laws, not inconsistent with any existing law, for the
plaintiff said shares at the par value of P100 a share, plus P90 as fixing or changing of the number of its officers and directors within
dividends corresponding to the year 1922, and that said offer was the limits prescribed by law, and for the transferring of its stock, the
refused by the plaintiff. administration of its corporate affairs, etc.
Trial Court held that, in his opinion, article 12 of the by-laws of the SEC. 35. The capital stock of stock corporations shall de divided into
corporation which gives it preferential right to buy its shares from shares for which certificates signed by the president or the vice-
retiring stockholders, is in conflict with Act No. 1459 (Corporation president, countersigned by the secretary or clerk and sealed with
Law), especially with section 35 thereof; and rendered a judgment in the seal of the corporation, shall be issued in accordance with the
favor of plaintiff. by-laws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate indorsed by the owner or
his attorney in fact or other person legally authorized to make the
Hence, this appeal.
transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of
ISSUE: whether or not article 12 of the by-laws of the corporation is the corporation so as to show the names of the parties to the
in conflict with the provisions of the Corporation Law (Act No. transaction, that date of the transfer, the number of the certificate,
1459). and the number of shares transferred.
Questioned article 12 creates in favor of the Botica Nolasco, Inc., a No share of stock against which the corporation holds any unpaid
preferential right to buy, under the same conditions, the share or claim shall be transferable on the books of the corporation.
shares of stock of a retiring shareholder. Has said corporation any
power, under the Corporation Law (Act. No. 1459), to adopt such by-
The holder of shares, as owner of personal property, is at liberty,
law?
under said section (Sec. 35), to dispose of them in favor of
whomsoever he pleases, without any other limitation in this
HELD: respect, than the general provisions of law. Therefore, a stock
corporation in adopting a by-law governing transfer of shares of
stock should take into consideration the specific provisions of
The particular provisions of the Corporation Law referring to transfer
section 35 of Act No. 1459, and said by-law should be made to
of shares of stock are as follows:
harmonize with said provisions. It should not be inconsistent
therewith.
SEC. 13. Every corporation has the power:
The by-law now in question was adopted under the power conferred one person to another, nor can it question the consideration upon
upon the corporation by section 13, paragraph 7, above quoted; but which a sale is based. A by-law cannot take away or abridge the
in adopting said by-law the corporation has transcended the limits substantial rights of stockholder. Under a statute authorizing by-
fixed by law in the same section, and has not taken into laws for the transfer of stock, a corporation can do no more than
consideration the provisions of section 35 of Act No. 1459. prescribe a general mode of transfer on the corporate books and
cannot justify an unreasonable restriction upon the right of sale.
As a general rule, the by-laws of a corporation are valid if they are
reasonable and calculated to carry into effect the objects of the xxx
corporation, and are not contradictory to the general policy of the
laws of the land.
that a corporation has no power to prevent or to restrain transfers
of its shares, unless such power is expressly conferred in its charter
On the other hand, it is equally well settled that by-laws of a or governing statute. This conclusion follows from the further
corporation must be reasonable and for a corporate purpose, and consideration that by-laws or other regulations restraining such
always within the charter limits. They must always be strictly transfers, unless derived from authority expressly granted by the
subordinate to the constitution and the general laws of the land. legislature, would be regarded as impositions in restraint of trade.
They must not infringe the policy of the state, nor be hostile to
public welfare. They must not disturb vested rights or impair the
The only restraint imposed by the Corporation Law upon transfer of
obligation of a contract, take away or abridge the substantial rights
shares is found in section 35 of Act No. 1459, quoted above, as
of stockholder or member, affect rights of property or create
follows: “No transfer, however, shall be valid, except as between the
obligations unknown to the law.
parties, until the transfer is entered and noted upon the books of
the corporation xxx This restriction is necessary in order that the
Validity of the by-law of a corporation is purely a question of law. officers of the corporation may know who are the stockholders,
which is essential in conducting elections of officers, in calling
meeting of stockholders, and for other purposes. But any restriction
The power to enact by-laws restraining the sale and transfer of stock
of the nature of that imposed in the by-law now in question, is ultra
must be found in the governing statute or the charter. Restrictions
vires, violative of the property rights of shareholders, and in
upon the traffic in stock must have their source in legislative
restraint of trade.
enactment, as the corporation itself cannot create such
impediments. By-law are intended merely for the protection of the
corporation, and prescribe regulation and not restriction; they are And moreover, the by-laws now in question cannot have any effect
always subject to the charter of the corporation. The corporation, in on the appellee. He had no knowledge of such by-law when the
the absence of such a power, cannot ordinarily inquire into or pass shares were assigned to him. He obtained them in good faith and for
upon the legality of the transaction by which its stock passes from a valuable consideration. He was not a privy to the contract created
by said by-law between the shareholder Manuel Gonzalez and the plus the interest thereon, or that he be authorized to sell
Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights them to other persons
as a purchaser. The corporation bought similar shares belonging to other
employees, at par value.
A by-law of a corporation which provides that transfers of stock shall Sometime later, the president offered to buy his shares first
not be valid unless approved by the board of directors, while it may at P85 each and then at P80.
be enforced as a reasonable regulation for the protection of the Padgett did not agree.
corporation against worthless stockholders, cannot be made
available to defeat the rights of third persons. ISSUE: W/N the shares are transferable despite the restriction
appearing therein.
Whenever a corporation refuses to transfer and register stock in
HELD: NO.
cases like the present, mandamus will lie to compel the officers of
the corporation to transfer said stock upon the books of the Word "nontransferable" appearing on the 12 certificates of
corporation.
shares of stock, is declared null and void. to issue in lieu
thereof new ones without any restriction whatsoever, with
G.R. No. L-38684 December 21, 1933 the costs of both instances against the said defendant-
appellants.
Padgett vs. Babcock & Templation Inc. Shares of corporate stock being regarded as property, the
owner of such shares may, as a general rule, dispose of
January 1, 1923 to April 15, 1929: Padgett was an employee them as he sees fit, unless the corporation has been
of the Babcock & Templation Inc (Babcock) dissolved, or unless the right to do so is properly restricted,
He bought 35 shares at P100/share at the suggestion of the or the owner's privilege of disposing of his shares has been
president of Babcock. hampered by his own action.
He was likewise a recipient of 9 shares from Christmas Restriction consisting in the word "nontransferable"
bonus and the owner of 44 shares for which the 12 appearing on the 12 certificates is illegal and should be
certificates were issued eliminated.
Word "nontransferable" appears on each and every one of There has been no such contract, either express or implied,
these certificates between the plaintiff and the defendants.
Before leaving the corporation, he proposed to the In the absence of a similar contractual obligation and of a
president that thecorporation buy his 44 shares at par value legal provision applicable thereto, it is logical to conclude
that it would be unjust and unreasonable to compel the said
defendants to comply with a non-existent or imaginary It came into the possession of the HSBC because R.J. Campos had
obligation. opened an overdraft account with this bank and had executed a
document of hypothecation. As per request of Hongkong, Batangas
FORGED TRANSFERS issued Certificate No. 715 in lieu of Certificate No. 517, in the name
G.R. No. L-2808 August 31, 1951 of Robert W. Taplin as trustee.
JOSEFA SANTAMARIA, assisted by her husband, FRANCISCO CFI ordered HSBC to pay the plaintiff the sum of P8,041.20 plus the
SANTAMARIA, Jr. vs. THE HONGKONG AND SHANGHAI BANKING costs of suit. The case was certified to this Court of Appeals.
CORPORATION and R. W. TAPLIN, defendants-appellant.
RICARDO L. GAMBOA, et. al. v. HON. OSCAR R. VICTORIANO Besides, the order denying the petitioners’ motion to dismiss the
complaint was not capriciously, arbitrarily, or whimsically issued, or
Plaintiffs filed a complaint to nullify the sale of unissued 823 shares
that the respondent court lacked jurisdiction over the cause as to
of stock to defendants on the ground that such sale violated
warrant the issuance of the writ prayed for. As found by the
plaintiffs’ pre-emptive rights and was made without the approval of
respondent judge, the petitioners have not waived their cause of
the board of directors representing 2/3 of the outstanding capital
action against the petitioners by entering into a compromise
stock. After the issuance of an injunction, three of the defendants
agreement with the other defendants in view of the express
entered into a compromise agreement waiving their rights over the
provision of the compromise agreement that the same "shall not in
questioned shares of stock in favor of plaintiffs. The agreement,
any way constitute or be considered a waiver or abandonment of
however, provided that the same shall not be considered as a waiver
any claim or cause of action against the other defendants." There is
or abandonment of plaintiffs’ claim against the other defendants.
also no estoppel because there is nothing in the agreement which
Defendants, thereafter, moved to dismiss on the ground that
could be construed as an affirmative admission by the plaintiff of the
validity of the resolution of the defendants which is now sought to protect or vindicate corporate rights, whenever the officials of the
be judicially declared null and void. The foregoing circumstances and corporation refuse to sue, or are the ones to be sued or hold the
the fact that no consideration was mentioned in the agreement for control of the corporation. In such actions, the suing stockholder is
the transfer of rights to the said shares of stock to the plaintiffs are regarded as a nominal party, with the corporation as the real party
sufficient to show that the agreement was merely an admission by in interest. 12 In the case at bar, however, the plaintiffs are alleging
the defendants Ramon de la Rama, Paz de la Rama-Battistuzzi, and and vindicating their own individual interests or prejudice, and not
Enzo Battistuzzi of the validity of the claim of the plaintiffs. that of the corporation. At any rate, it is yet too early in the
proceedings since the issues have not been joined. Besides,
The claim of the petitioners, in their Addendum to the motion for misjoinder of parties is not a ground to dismiss an action.
reconsideration of the order denying the motion to dismiss the
complaint, questioning the trial court’s jurisdiction on matters [GR L-45911, 11 April 1979]
affecting the management of the corporation, is without merit. The
Gokongwei vs. Securities and Exchange Commission
well-known rule is that courts cannot undertake to control the
discretion of the board of directors about administrative matters as [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as
to which they have legitimate power of action, 10 and contracts stockholder of San Miguel Corporation, filed with the SEC a petition
intra vires entered into by the board of directors are binding upon for "declaration of nullity of amended by-laws, cancellation of
the corporation and courts will not interfere unless such contracts certificate of filing of amended by-laws, injunction and damages
are so unconscionable and oppressive as to amount to a wanton with prayer for a preliminary injunction" against the majority of the
destruction of the rights of the minority. 11 In the instant case, the members of the Board of Directors and San Miguel Corporation as
plaintiffs aver that the defendants have concluded a transaction an unwilling petitioner. As a first cause of action, Gokongwei alleged
among themselves as will result to serious injury to the interests of that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano,
the plaintiffs, so that the trial court has jurisdiction over the case. Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde,
Miguel Ortigas, and Antonio Prieto amended by bylaws of the
The petitioners further contend that the proper remedy of the
plaintiffs would be to institute a derivative suit against the corporation, basing their authority to do so on a resolution of the
stockholders adopted on 13 March 1961, when the outstanding
petitioners in the name of the corporation in order to secure a
binding relief after exhausting all the possible remedies available capital stock of the corporation was only P70,139.740.00, divided
into 5,513,974 common shares at P10.00 per share and 150,000
within the corporation.
preferred shares at P100.00 per share. At the time of the
An individual stockholder is permitted to institute a derivative suit amendment, the outstanding and paid up shares totalled
on behalf of the corporation wherein he holds stock in order to 30,127,043, with a total par value of P301,270,430.00.
It was contended that according to section 22 of the Corporation amendment gave the Board itself the prerogative of determining
Law and Article VIII of the by-laws of the corporation, the power to whether they or other persons are engaged in competitive or
amend, modify, repeal or adopt new by-laws may be delegated to antagonistic business; that the portion of the amended by-laws
the Board of Directors only by the affirmative vote of stockholders which states that in determining whether or not a person is engaged
representing not less than 2/3 of the subscribed and paid up capital in competitive business, the Board may consider such factors as
stock of the corporation, which 2/3 should have been computed on business and family relationship, is unreasonable and oppressive
the basis of the capitalization at the time of the amendment. Since and, therefore, void; and that the portion of the amended by-laws
the amendment was based on the 1961 authorization, Gokongwei which requires that "all nominations for election of directors shall be
contended that the Board acted without authority and in usurpation submitted in writing to the Board of Directors at least five (5)
of the power of the stockholders. As a second cause of action, it was working days before the date of the Annual Meeting" is likewise
alleged that the authority granted in 1961 had already been unreasonable and oppressive. It was, therefore, prayed that the
exercised in 1962 and 1963, after which the authority of the Board amended by-laws be declared null and void and the certificate of
ceased to exist. As a third cause of action, Gokongwei averred that filing thereof be cancelled, and that Soriano, et. al. be made to pay
the membership of the Board of Directors had changed since the damages, in specified amounts, to Gokongwei. On 28 October 1976,
authority was given in 1961, there being 6 new directors. As a fourth in connection with the same case, Gokongwei filed with the
cause of action, it was claimed that prior to the questioned Securities and Exchange Commission an "Urgent Motion for
amendment, Gokogwei had all the qualifications to be a director of Production and Inspection of Documents", alleging that the
the corporation, being a substantial stockholder thereof; that as a Secretary of the corporation refused to allow him to inspect its
stockholder, Gokongwei had acquired rights inherent in stock records despite request made by Gokongwei for production of
ownership, such as the rights to vote and to be voted upon in the certain documents enumerated in the request, and that the
election of directors; and that in amending the by-laws, Soriano, et. corporation had been attempting to suppress information from its
al. purposely provided for Gokongwei's disqualification and deprived stockholders despite a negative reply by the SEC to its query
him of his vested right as afore-mentioned, hence the amended by- regarding their authority to do so.
laws are null and void. As additional causes of action, it was alleged
that corporations have no inherent power to disqualify a The motion was opposed by Soriano, et. al. The Corporation,
Soriano, et. al. filed their answer, and their opposition to the
stockholder from being elected as a director and, therefore, the
questioned act is ultra vires and void; that Andres M. Soriano, Jr. petition, respectively. Meanwhile, on 10 December 1976, while the
petition was yet to be heard, the corporation issued a notice of
and/or Jose M. Soriano, while representing other corporations,
entered into contracts (specifically a management contract) with the special stockholders' meeting for the purpose of "ratification and
confirmation of the amendment to the By-laws", setting such
corporation, which was avowed because the questioned
meeting for 10 February 1977. This prompted Gokongwei to ask the account for such investments and to answer for damages. On 4
SEC for a summary judgment insofar as the first cause of action is February 1977, motions to dismiss were filed by Soriano, et. al., to
concerned, for the alleged reason that by calling a special which a consolidated motion to strike and to declare Soriano, et. al.
stockholders' meeting for the aforesaid purpose, Soriano, et. al. in default and an opposition ad abundantiorem cautelam were filed
admitted the invalidity of the amendments of 18 September 1976. by Gokongwei. Despite the fact that said motions were filed as early
The motion for summary judgment was opposed by Soriano, et. al. as 4 February 1977, the Commission acted thereon only on 25 April
Pending action on the motion, Gokongwei filed an "Urgent Motion 1977, when it denied Soriano, et. al.'s motions to dismiss and gave
for the Issuance of a Temporary Restraining Order", praying that them two (2) days within which to file their answer, and set the case
pending the determination of Gokongwei's application for the for hearing on April 29 and May 3, 1977. Soriano, et. al. issued
issuance of a preliminary injunction and or Gokongwei's motion for notices of the annual stockholders' meeting, including in the Agenda
summary judgment, a temporary restraining order be issued, thereof, the "reaffirmation of the authorization to the Board of
restraining Soriano, et. al. from holding the special stockholders' Directors by the stockholders at the meeting on 20 March 1972 to
meeting as scheduled. This motion was duly opposed by Soriano, et. invest corporate funds in other companies or businesses or for
al. On 10 February 1977, Cremation issued an order denying the purposes other than the main purpose for which the Corporation
motion for issuance of temporary restraining order. After receipt of has been organized, and ratification of the investments thereafter
the order of denial, Soriano, et. al. conducted the special made pursuant thereto." By reason of the foregoing, on 28 April
stockholders' meeting wherein the amendments to the by-laws 1977, Gokongwei filed with the SEC an urgent motion for the
were ratified. On 14 February 1977, Gokongwei filed a consolidated issuance of a writ of preliminary injunction to restrain Soriano, et. al.
motion for contempt and for nullification of the special from taking up Item 6 of the Agenda at the annual stockholders'
stockholders' meeting. A motion for reconsideration of the order meeting, requesting that the same be set for hearing on 3 May
denying Gokongwei's motion for summary judgment was filed by 1977, the date set for the second hearing of the case on the merits.
Gokongwei before the SEC on 10 March 1977. The SEC, however, cancelled the dates of hearing originally
scheduled and reset the same to May 16 and 17, 1977, or after the
[SEC Case 1423] Gokongwei alleged that, having discovered that the scheduled annual stockholders' meeting. For the purpose of urging
corporation has been investing corporate funds in other the Commission to act, Gokongwei filed an urgent manifestation on
corporations and businesses outside of the primary purpose clause 3 May 1977, but this notwithstanding, no action has been taken up
of the corporation, in violation of section 17-1/2 of the Corporation to the date of the filing of the instant petition.
Law, he filed with SEC, on 20 January 1977, a petition seeking to
have Andres M. Soriano, Jr. and Jose M. Soriano, as well as the
corporation declared guilty of such violation, and ordered to
Gokongwei filed a petition for petition for certiorari, mandamus and necessarily refer to a qualification in addition to that specified by
injunction, with prayer for issuance of writ of preliminary injunction, section 30 of the Corporation Law, which provides that "every
with the Supreme Court, alleging that there appears a deliberate director must own in his right at least one share of the capital stock
and concerted inability on the part of the SEC to act. of the stock corporation of which he is a director." Any person "who
buys stock in a corporation does so with the knowledge that its
Issues: affairs are dominated by a majority of the stockholders and that he
Whether the corporation has the power to provide for the impliedly contracts that the will of the majority shall govern in all
(additional) qualifications of its directors. matters within the limits of the act of incorporation and lawfully
enacted by-laws and not forbidden by law." To this extent, therefore,
Whether the disqualification of a competitor from being elected to the stockholder may be considered to have "parted with his
the Board of Directors is a reasonable exercise of corporate personal right or privilege to regulate the disposition of his property
authority. which he has invested in the capital stock of the corporation, and
surrendered it to the will of the majority of his fellow incorporators.
Whether the SEC gravely abused its discretion in denying
It can not therefore be justly said that the contract, express or
Gokongwei's request for an examination of the records of San
implied, between the corporation and the stockholders is infringed
Miguel International, Inc., a fully owned subsidiary of San Miguel
by any act of the former which is authorized by a majority."
Corporation.
Pursuant to section 18 of the Corporation Law, any corporation may
Whether the SEC gravely abused its discretion in allowing the amend its articles of incorporation by a vote or written assent of the
stockholders of San Miguel Corporation to ratify the investment of stockholders representing at least two-thirds of the subscribed
corporate funds in a foreign corporation. capital stock of the corporation. If the amendment changes,
diminishes or restricts the rights of the existing shareholders, then
Held: the dissenting minority has only one right, viz.: "to object thereto in
writing and demand payment for his share." Under section 22 of the
1. “Every corporation has the inherent power to adopt by-laws 'for
same law, the owners of the majority of the subscribed capital stock
its internal government, and to regulate the conduct and prescribe
may amend or repeal any by-law or adopt new by-laws. It cannot be
the rights and duties of its members towards itself and among
said, therefore, that Gokongwei has a vested right to be elected
themselves in reference to the management of its affairs.'" In this
director, in the face of the fact that the law at the time such right as
jurisdiction under section 21 of the Corporation Law, a corporation
stockholder was acquired contained the prescription that the
may prescribe in its by-laws "the qualifications, duties and
corporate charter and the by-law shall be subject to amendment,
compensation of directors, officers and employees." This must
alteration and modification.
2. Although in the strict and technical sense, directors of a private doctrine of "corporate opportunity" is precisely a recognition by the
corporation are not regarded as trustees, there cannot be any doubt courts that the fiduciary standards could not be upheld where the
that their character is that of a fiduciary insofar as the corporation fiduciary was acting for two entities with competing interests. This
and the stockholders as a body are concerned. As agents entrusted doctrine rests fundamentally on the unfairness, in particular
with the management of the corporation for the collective benefit circumstances, of an officer or director taking advantage of an
of the stockholders, "they occupy a fiduciary relation, and in this opportunity for his own personal profit when the interest of the
sense the relation is one of trust." "The ordinary trust relationship of corporation justly calls for protection. It is not denied that a member
directors of a corporation and stockholders is not a matter of of the Board of Directors of the San Miguel Corporation has access
statutory or technical law. It springs from the fact that directors have to sensitive and highly confidential information, such as: (a)
the control and guidance of corporate affairs and property and marketing strategies and pricing structure; (b) budget for expansion
hence of the property interests of the stockholders. Equity and diversification; (c) research and development; and (d) sources of
recognizes that stockholders are the proprietors of the corporate funding, availability of personnel, proposals of mergers or tie-ups
interests and are ultimately the only beneficiaries thereof." A with other firms. It is obviously to prevent the creation of an
director is a fiduciary. Their powers are powers in trust. He who is in opportunity for an officer or director of San Miguel Corporation,
such fiduciary position cannot serve himself first and his cestuis who is also the officer or owner of a competing corporation, from
second. He cannot manipulate the affairs of his corporation to their taking advantage of the information which he acquires as director to
detriment and in disregard of the standards of common decency. He promote his individual or corporate interests to the prejudice of San
cannot by the intervention of a corporate entity violate the ancient Miguel Corporation and its stockholders, that the questioned
precept against serving two masters. He cannot utilize his inside amendment of the by-laws was made. Certainly, where two
information and strategic position for his own preferment. He corporations are competitive in a substantial sense, it would seem
cannot violate rules of fair play by doing indirectly through the improbable, if not impossible, for the director, if he were to
corporation what he could not do so directly. He cannot violate rules discharge effectively his duty, to satisfy his loyalty to both
of fair play by doing indirectly through the corporation what he corporations and place the performance of his corporation duties
could not do so directly. He cannot use his power for his personal above his personal concerns. The offer and assurance of Gokongwei
advantage and to the detriment of the stockholders and creditors no that to avoid any possibility of his taking unfair advantage of his
matter how absolute in terms that power may be and no matter position as director of San Miguel Corporation, he would absent
how meticulous he is to satisfy technical requirements. For that himself from meetings at which confidential matters would be
power is at all times subject to the equitable limitation that it may discussed, would not detract from the validity and reasonableness
not be exercised for the aggrandizement, preference, or advantage of the by-laws involved. Apart from the impractical results that
of the fiduciary to the exclusion or detriment of the cestuis. The would ensue from such arrangement, it would be inconsistent with
Gokongwei's primary motive in running for board membership — certain of the stockholders to the exclusion of others." While the
which is to protect his investments in San Miguel Corporation. More right of a stockholder to examine the books and records of a
important, such a proposed norm of conduct would be against all corporation for a lawful purpose is a matter of law, the right of such
accepted principles underlying a director's duty of fidelity to the stockholder to examine the books and records of a wholly-owned
corporation, for the policy of the law is to encourage and enforce subsidiary of the corporation in which he is a stockholder is a
responsible corporate management. different thing. Stockholders are entitled to inspect the books and
records of a corporation in order to investigate the conduct of the
3. Pursuant to the second paragraph of section 51 of the management, determine the financial condition of the corporation,
Corporation Law, "(t)he record of all business transactions of the and generally take an account of the stewardship of the officers and
corporation and minutes of any meeting shall be open to the directors. herein, considering that the foreign subsidiary is wholly
inspection of any director, member or stockholder of the owned by San Miguel Corporation and, therefore, under Its control,
corporation at reasonable hours." The stockholder's right of it would be more in accord with equity, good faith and fair dealing to
inspection of the corporation's books and records is based upon construe the statutory right of petitioner as stockholder to inspect
their ownership of the assets and property of the corporation. It is, the books and records of the corporation as extending to books and
therefore, an incident of ownership of the corporate property, records of such wholly owned subsidiary which are in the
whether this ownership or interest be termed an equitable corporation's possession and control.
ownership, a beneficial ownership, or a quasi-ownership. This right
is predicated upon the necessity of self-protection. It is generally 4. Section 17-1/2 of the Corporation Law allows a corporation to
held by majority of the courts that where the right is granted by "invest its funds in any other corporation or business or for any
statute to the stockholder, it is given to him as such and must be purpose other than the main purpose for which it was organized"
exercised by him with respect to his interest as a stockholder and for provided that its Board of Directors has been so authorized by the
some purpose germane thereto or in the interest of the corporation. affirmative vote of stockholders holding shares entitling them to
In other words, the inspection has to be germane to the petitioner's exercise at least two-thirds of the voting power. If the investment is
interest as a stockholder, and has to be proper and lawful in made in pursuance of the corporate purpose, it does not need the
character and not inimical to the interest of the corporation. The approval of the stockholders. It is only when the purchase of shares
"general rule that stockholders are entitled to full information as to is done solely for investment and not to accomplish the purpose of
the management of the corporation and the manner of expenditure its incorporation that the vote of approval of the stockholders
of its funds, and to inspection to obtain such information, especially holding shares entitling them to exercise at least two-thirds of the
where it appears that the company is being mismanaged or that it is voting power is necessary. As stated by the corporation, the
being managed for the personal benefit of officers or directors or purchase of beer manufacturing facilities by SMC was an investment
in the same business stated as its main purpose in its Articles of periodically submitting for the ratification of their stockholders the
Incorporation, which is to manufacture and market beer. It appears acts of their directors, officers and managers.
that the original investment was made in 1947-1948, when SMC,
MUST ACT AS A BODY
then San Miguel Brewery, Inc., purchased a beer brewery in
Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture G.R. No. 117897. May 14, 1997
and marketing of San Miguel beer thereat. Restructuring of the
investment was made in 1970-1971 thru the organization of SMI in ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and
Bermuda as a tax free reorganization. Assuming arguendo that the SECURITIES & EXCHANGE COMMISSION, petitioners, vs. COURT OF
Board of Directors of SMC had no authority to make the assailed APPEALS and IGLESIA NI CRISTO, respondents.
investment, there is no question that a corporation, like an
Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic
individual, may ratify and thereby render binding upon it the
leaders of all Muslim major tribal groups in the Philippines headed
originally unauthorized acts of its officers or other agents. This is
by Dean Cesar Adib Majul organized and incorporated the ISLAMIC
true because the questioned investment is neither contrary to law,
DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of
morals, public order or public policy. It is a corporate transaction or
which is to establish an Islamic Center in Quezon City for the
contract which is within the corporate powers, but which is
construction of a Mosque (prayer place), Madrasah (Arabic School),
defective from a purported failure to observe in its execution the
and other religious infrastructures so as to facilitate the effective
requirement of the law that the investment must be authorized by
practice of Islamic faith in the area.
the affirmative vote of the stockholders holding two-thirds of the
voting power. This requirement is for the benefit of the Towards this end, that is, in the same year, the Libyan government
stockholders. The stockholders for whose benefit the requirement donated money to the IDP to purchase land at Culiat, Tandang Sora,
was enacted may, therefore, ratify the investment and its ratification Quezon City, to be used as a Center for the Islamic populace.
by said stockholders obliterates any defect which it may have had at
the outset. Besides, the investment was for the purchase of beer According to the petitioner, in 1972, after the purchase of the land
manufacturing and marketing facilities which is apparently relevant by the Libyan government in the name of IDP, Martial Law was
to the corporate purpose. The mere fact that the corporation declared by the late President Ferdinand Marcos. Most of the
submitted the assailed investment to the stockholders for members of the 1971 Board of Trustees flew to the Middle East to
ratification at the annual meeting of 10 May 1977 cannot be escape political persecution. Thereafter, two Muslim groups sprung,
construed as an admission that the corporation had committed an the Carpizo Group, headed by Engineer Farouk Carpizo, and the
ultra vires act, considering the common practice of corporations of Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas.
Both groups claimed to be the legitimate IDP.
Significantly, on October 3, 1986, the SEC, in a suit between these On May 30, 1991, the petitioner 1971 IDP Board of Trustees headed
two contending groups, came out with a Decision declaring the by former Senator Mamintal Tamano, or the Tamano Group, filed a
election of both the Carpizo Group and the Abbas Group as IDP petition before the SEC, seeking to declare null and void the Deed of
board members to be null and void for being violative of the Articles Absolute Sale signed by the Carpizo Group and the INC since the
of Incorporation of IDP. SEC further ruled that, before any election of group of Engineer Carpizo was not the legitimate Board of Trustees
the members of the Board of Trustees could be conducted, there of the IDP.
must be an approved by-laws to govern the internal government of
Meanwhile, INC filed an action for Specific Performance with
the association including the conduct of election. And since the
election of both petitioners and respondents have been declared Damages against the vendor Carpizo Group with the RTC to compel
said group to clear the property of squatters and deliver complete
null and void, a vacuum is created as to who should adopt the by-
laws and certify its adoption. To remedy this, the members of IDP and full physical possession thereof to INC.
were authorized by SEC to prepare and adopt their by-laws for The IDP-Tamano Group, on June 11, 1991, sought to intervene in
submission to the Commission. Once approved, an election of the Civil Case No. Q-90-6937 averring, inter alia:
members of the Board of Trustees shall immediately be called
pursuant to the approved by-laws. 2. That the Intervenor has filed a case before the SEC against
Carpizo, et, al., who, through false schemes and machinations,
Neither group, however, took the necessary steps prescribed by the succeeded in executing the Deed of Sale between the IDP and INC;
SEC, and, thus, no valid election of the members of the Board of
Trustees of IDP was ever called. Although the Carpizo Group 3. That main issue of which is whether or not the aforesaid Deed of
attempted to submit a set of by-laws, the SEC found that, aside from Sale between IDP and INC is null and void;
Engineer Farouk Carpizo and Atty. Musib Buat, those who prepared
4. That, furthermore, Intervenor herein is the duly constituted body
and adopted the by-laws were not bona fide members of the IDP,
which can lawfully and legally represent the Islamic Directorate of
thus rendering the adoption of the by-laws likewise null and void.
the Philippines;
On April 20, 1989, without having been properly elected as new
INC opposed the motion arguing, inter alia, that the issue sought to
members of the Board of Trustees of IDP, the Carpizo Group caused
be litigated by way of intervention is an intra-corporate dispute
to be signed an alleged Board Resolution of the IDP, authorizing the
which falls under the jurisdiction of the SEC.
sale of the subject two parcels of land to the INC for a consideration
of P22,343,400.00. RTC denied petitioners motion to intervene on the ground of lack of
juridical personality of the IDP-Tamano Group and that the issues
being raised by way of intervention are intra-corporate in nature, ISSUE: WON the CA erred in setting aside the SEC’s Decision which
jurisdiction thereto properly pertaining to the SEC. declared the sale of the 2 parcels of land in question null and void?
Apprised of the pendency of the SEC Case involving the HELD: YES.
controverted status of the IDP-Carpizo Group but without waiting
for the outcome of said case, the RTC rendered Partial Judgment There can be no question as to the authority of the SEC to pass upon
the issue as to who among the different contending groups is the
ordering the IDP-Carpizo Group to comply with its obligation under
the Deed of Sale of clearing the subject lots of squatters and of legitimate Board of Trustees of the IDP since this is a matter properly
falling within the original and exclusive jurisdiction of the SEC by
delivering the actual possession thereof to INC. Thereupon, RTC
Judge Reyes in another Order, treated INC as the rightful owner of virtue of Sections 3 and 5(c) of Presidential Decree No. 902.
the real properties. If the SEC can declare who is the legitimate IDP Board, then by parity
In the meantime, the SEC, on July 5, 1993, finally came out with a of reasoning, it can also declare who is not the legitimate IDP Board.
This is precisely what the SEC did when it adjudged the election of
Decision in SEC Case No. 4012 in this wise:
the Carpizo Group to the IDP Board of Trustees to be null and void.
1. Declaring the by-laws submitted by the Carpizo Group as By this ruling, the SEC in effect made the unequivocal finding that
unauthorized, and hence, null and void. the IDP-Carpizo Group is a bogus Board of Trustees. Consequently,
the Carpizo Group is bereft of any authority whatsoever to bind IDP
2. Declaring the sale of the two parcels of land in Quezon City in any kind of transaction including the sale or disposition of IDP
entered into by INC and IDPnull and void. property. Nothing thus becomes more settled than that the IDP-
3. Declaring the election of the Board of Directors of the corporation Carpizo Group with whom private respondent INC contracted is a
from 1986 to 1991 as null and void; fake Board.
4. Declaring the acceptance of the respondents, except Farouk Premises considered, all acts carried out by the Carpizo Board,
Carpizo and Musnib Buat, as members of the IDP null and void. particularly the sale of the Tandang Sora property, allegedly in the
name of the IDP, have to be struck down for having been done
INC elevated the SEC Case to the CA by way of a special civil action without the consent of the IDP thru a legitimate Board of Trustees.
for certiorari. Accordingly, the portion of the SEC Decision in which
declared the sale of the 2 lots in question to INC as void was set Consent is essential for the existence of a contract, and where it is
aside. Thus, the IDP-Tamano Group brought the instant petition. wanting, the contract is non-existent. In this case, the IDP, owner
of the subject parcels of land, never gave its consent, thru a
legitimate Board of Trustees, to the disputed Deed of Absolute
Sale executed in favor of INC. This is, therefore, a case not only of property in Quezon City worth millions, and that under the Torrens
vitiated consent, but one where consent on the part of one of the System of Registration, the minimum requirement for one to be a
supposed contracting parties is totally wanting. Ineluctably, the good faith buyer for value is that the vendee at least sees the
subject sale is void and produces no effect whatsoever. owners duplicate copy of the title and relies upon the same. INC,
presumably knowledgeable on the aforesaid working of the Torrens
The Carpizo Group-INC sale is further deemed null and void ab initio System, did not take heed of this and nevertheless went through
because of the Carpizo Groups failure to comply with Section 40 of with the sale with undue haste. The unexplained eagerness of INC to
the Corporation Code pertaining to the disposition of all or buy this valuable piece of land in Quezon City without even being
substantially all assets of the corporation. presented with the owners copy of the titles casts very serious
The Tandang Sora property, it appears from the records, doubt on the rightfulness of its position as vendee in the
constitutes the only property of the IDP. Hence, its sale to a third- transaction.
party is a sale or disposition of all the corporate property and Ramirez v. Orientalist Co. and Fernandez (1918)
assets of IDP falling squarely within the contemplation of the
foregoing section. For the sale to be valid, the majority vote of the Orientalist Company (Orientalist for brevity) exhibited films in a
legitimate Board of Trustees, concurred in by the vote of at least theatre in Manila. Plaintiff JF Ramirez, a resident of Paris and
2/3 of the bona fide members of the corporation should have been represented in Manila by his son Jose Ramirez, was engaged in
obtained. These twin requirements were not met as the Carpizo business of marketing films for manufacturers and in the production
Group which voted to sell the Tandang Sora property was a fake or distribution of cinematographic material. In 1913, there were
Board of Trustees, and those whose names and signatures were negotiations between the officials of Orientalist and Jose Ramirez, as
affixed by the Carpizo Group together with the sham Board agent of JF Ramirez, for the exclusive agency of two films in the
Resolution authorizing the negotiation for the sale were, from all hands of Orientalist. Jose Ramirez placed a formal offer stating in
indications, not bona fide members of the IDP as they were made to detail the terms upon which Ramirez would undertake to supply
appear to be. Apparently, there are only 15 official members of the from Paris the films. The board of directors approved and accepted
petitioner corporation including the 8 members of the Board of the offer. The most important portion of the two letters of
Trustees. acceptance written by Fernandez to Ramirez is in the following
terms: “These communications were signed in the following form,
Furthermore, the Court observed that the INC bought the in which it will be noted the separate signature of RJ Fernandez, as
questioned property from the Carpizo Group without even seeing an individual, is placed somewhat below and to the left of the
the owners duplicate copy of the titles covering the property. This is signature of the Orientalist Company, as signed by RJ Fernandez, in
very strange considering that the subject lot is a large piece of real the capacity of treasurer:
plaintiff’s claim. Judgment was given for the balance due to Ramiez.
THE ORIENTALIST COMPANY, Orientalist was declared to be a principal debtor and Fernandez was
By R. J. FERNANDEZ, declared to be subsidiarily liable as guarantor. Defendants appealed.
Treasurer, The Court noted that the action is primarily founded upon the
liability created by the two acceptance letters.
R. J. FERNANDEZ.
The record showed that JF Ramirez himself procured the films upon ISSUES:
his own responsibility. Thus, the only contracting parties in this case
1. WON Fernandez’s actions bound the company .
are JF Ramirez (first party), and Orientalist with RJ Fernandez
(second party). The films arrived in Manila but Orientalist had no 2. WON the company is still liable, assuming that the company
funds to meet its obligations. Hence, the first few drafts were was able to deny the authority of Fernandez.
accepted in the name of Orientalist by its president B Hernandez,
and were taken up by him with his own funds. As the drafts had 3. What is the character of liability assumed by Fernandez?
been paid by Hernandez, he treated the films as his own property, HELD:
and they never came into the actual possession of Orientalist as
owner at all. Hernandez rented the films to Orientalist and they 1. YES. The corporation was not able to deny the genuineness
were exhibited by it in the Oriental Theater under an arrangement and due execution of the contracts in question and the authority of
made between him and the theater’s manager. Several remittances Fernandez to bind the Orientalist Company. Sec. 103 of the Code of
of films from Paris arrived. All of the drafts accompanying these Civil Procedure requires that the Answer setting up the defense of
films were drawn upon the Orientalist Company; and all were lack of authority of an officer of a corporation to bind it by a
accepted in the name of Orientalist by its president, B Hernandez, contract should be verified and the denial contemplated must be
except the last which was accepted by Hernandez individually. None specific. In this case, the failure of the corporation to make any issue
of the drafts thus accepted were taken up by the drawee or by in its answer with regard to the authority of Fernandez to bind it,
Hernandez when they fell due; and it was finally necessary for and particularly its failure to deny specifically under oath the
Ramirez to take them up as dishonoured by non-payment. genuineness and due execution of the contracts sued upon, have
the effect of eliminating the question of his authority from the case.
Ramirez instituted an action against Orientalist and RJ Fernandez.
Upon application of Ramirez, the films were sold and the amount Whether a particular officer actually possesses the authority which
realized from the sale was applied to the satisfaction of the he assumes to exercise is frequently known to very, very few and the
proof of it usually is not readily accessible to the stranger who deals Court was convinced that the responsibility of the later was that of a
with the corporation on the faith of the ostensible authority guarantor. Fernandez said that his name was signed as a guaranty
exercised by some of the corporate officers. that the contract would be approved by the corporation, while
Ramirez said that the name was put on the contract for the purpose
2. YES. If a corporation knowingly permits one of its officers, or of guaranteeing its performance. The Court believed that the latter
any other agent, to do acts within the scope of an apparent was the real intention of the parties.
authority and thus holds him out to the public as possessing power
to do those acts, the corporation will, as against anyone who has in BOARD OF LIQUIDATORS V KALAW
good faith dealt with the corporation through such agent, be
estopped from denying his authority; and where it is said “if the G.R. No. L-18805 August 14, 1967
corporation permits” this means the same as “if the thing is The National Coconut Corporation (NACOCO, for short) was
permitted by the directing power of the corporation.” chartered as a non-profit governmental organization on avowedly
for the protection, preservation and development of the coconut
The stockholders adopted a resolution to the effect that the
agencies of the two films should be accepted if the corporation industry in the Philippines. On August 1, 1946, NACOCO's charter
was amended [Republic Act 5] to grant that corporation the express
could obtain the money with which to meet the expenditure
involved, and to this end appointed a committee to apply to the power to buy and sell copra. The charter amendment was enacted
to stabilize copra prices, to serve coconut producers by securing
bank for a credit. An attempt to obtain credit was made, but failed.
Another special meeting of stockholders was held and a resolution advantageous prices for them, to cut down to a minimum, if not
altogether eliminate, the margin of middlemen, mostly aliens.
was passed to the effect that the company should pay to Hernandez,
Fernandez, Monroy and Papa an amount equal to 10% of their General manager and board chairman was Maximo M. Kalaw;
defendants Juan Bocar and Casimiro Garcia were members of the
outlay in importing the films, said payment to be made in shares of
the company. At the time this meeting was held three shipments of Board; defendant Leonor Moll became director only on December
22, 1947. NACOCO, after the passage of Republic Act 5, embarked
the film had already been received in Manila. Therefore, the body
was then cognizant that the offer had already been accepted in the on copra trading activities.
name of Orientalist Company and that the films which were then An unhappy chain of events conspired to deter NACOCO from
expected to arrive were being imported by virtue of such fulfilling the contracts it entered into. Nature supervened. Four
acceptance. devastating typhoons visited the Philippines in 1947. When it
3. In affixing his signature to the contracts, Fernandez was a became clear that the contracts would be unprofitable, Kalaw
submitted them to the board for approval. It was not until
guarantor. From the testimony of both Ramirez and Fernandez, the
December 22, 1947 when the membership was completed. Executive Order 372, dated November 24, 1950, NACOCO, together
Defendant Moll took her oath on that date. A meeting was then with other government-owned corporations, was abolished, and the
held. Kalaw made a full disclosure of the situation, apprised the Board of Liquidators was entrusted with the function of settling and
board of the impending heavy losses. No action was first taken on closing its affairs. CFI-Manila dismissed the complaint. Plaintiff was
the contracts but not long thereafter, that is, on January 30, 1948, ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for
the board met again with Kalaw, Bocar, Garcia and Moll in unpaid salaries and cash deposit due the deceased Kalaw from
attendance. They unanimously approved the contracts hereinbefore NACOCO.
enumerated.
ISSUES:
As was to be expected, NACOCO but partially performed the
1. Whether plaintiff Board of Liquidators has lost its legal personality
contracts. The buyers threatened damage suits, some of which were
settled. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in to continue with this suit since the three year period has elapsed,
the Board of Liquidators may not now continue with, and prosecute,
fact sue before the Court of First Instance of Manila. The cases
culminated in an out-of- court amicable settlement when the Kalaw the present case to its conclusion
management was already out. 2. Whether the action is unenforceable against Kalaw
With particular reference to the Dreyfus claims, NACOCO put up the 3. whether the case at bar is to be taken out of the general concept
defenses that: of the powers of a general manager, given the cited provision of the
(1) the contracts were void because Louis Dreyfus & Co. (Overseas) NACOCO by-laws requiring prior directorate approval of NACOCO
contracts.
Ltd. did not have license to do business here; and
(2) failure to deliver was due to force majeure, the typhoons. All the 4. Whether damages should be awarded
settlements sum up to P1,343,274.52. RULING:
In this suit started in February, 1949, NACOCO seeks to recover the 1. No, the provision should be read not as an isolated provision but
above sum of P1,343,274.52 from general manager and board in conjunction with the whole. So reading, it will be readily observed
chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro that no time limit has been tacked to the existence of the Board of
Garcia and Leonor Moll. It charges Kalaw with negligence under Liquidators and its function of closing the affairs of the various
Article 1902 of the old Civil Code (now Article 2176, new Civil Code); government owned corporations, including NACOCO.
and defendant board members, including Kalaw, with bad faith
and/or breach of trust for having approved the contracts. By
The President thought it best to do away with the boards of existence after the expiration of the period of three (3) years for the
directors of the defunct corporations; at the same time, however, settlement of its affairs is what impelled the President to create a
the President had chosen to see to it that the Board of Liquidators Board of Liquidators, to continue the management of such matters
step into the vacuum. And nowhere in the executive order was there as may then be pending."
any mention of the lifespan of the Board of Liquidators.
The Board of Liquidators thus became the trustee on behalf of the
3 methods by which corporation may wind up it its affairs: government. It was an express trust. The legal interest became
vested in the trustee — the Board of Liquidators. The beneficial
1. Voluntary dissolution, "such disposition of its assets as justice interest remained with the sole stockholder — the government. At
requires, and may appoint a receiver to collect such assets and pay no time had the government withdrawn the property, or the
the debts of the corporation; authority to continue the present suit, from the Board of
2. Corporate existence is terminated - "shall nevertheless be Liquidators. If for this reason alone, we cannot stay the hand of the
continued as a body corporate for three years after the time when it Board of Liquidators from prosecuting this case to its final
would have been so dissolved, for the purpose of prosecuting and conclusion. The provisions of Section 78 of the Corporation Law —
defending suits by or against it and of enabling it gradually to settle the third method of winding up corporate affairs — find application.
and close its affairs, to dispose of and convey its property and to 2. Action against the Kalaw heirs and, for the matter, against the
divide its capital stock, but not for the purpose of continuing the Estate of Casimiro Garcia survives.
business for which it was established;"
claims that are barred if not filed in the estate settlement
3. corporation, within the three year period just mentioned, "is proceedings(Rule 87, sec. 5)
authorized and empowered to convey all of its property to trustees
for the benefit of members, stockholders, creditors, and others > actions that are abated by death are:
interested
(1) claims for funeral expenses and those for the last sickness of the
Corpus Juris Secundum likewise is authority for the statement that decedent;
"[t]he dissolution of a corporation ends its existence so that there
must be statutory authority for prolongation of its life even for (2) judgments for money; and
purposes of pending litigation (3) "all claims for money against the decedent, arising from contract
Board of Liquidators escapes from the operation thereof for the express or implied."
reason that "[o]bviously, the complete loss of plaintiff's corporate
it is not enough that the claim against the deceased party be for These previous contract it should be stressed, were signed by Kalaw
money, but it must arise from "contract express or implied" without prior authority from the board. Existence of such authority
is established, by proof of the course of business, the usage and
actions that survive and may be prosecuted against the executor or practices of the company and by the knowledge which the board of
administrator (Rule 88, sec. 1) directors has, or must be presumed to have, of acts and doings of its
> 1. actions for damages caused by tortious conduct of a defendant subordinates in and about the affairs of the corporation.
(as in the case at bar) survive the death of the latter. If the by-laws were to be literally followed, the board should give its
actions that survive against a decedent's executors or stamp of prior approval on all corporate contracts. But that board
administrators, and they are: itself, by its acts and through acquiescence, practically laid aside the
by-law requirement of prior approval.
(1) actions to recover real and personal property from the estate; (2)
actions to enforce a lien thereon; and Under the given circumstances, the Kalaw contracts are valid
corporate acts. Bad faith does not simply connote bad judgment or
(3) actions to recover damages for an injury to person or property. negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of wrong; it means breach of a known duty thru
3. The movement of the market requires that sales agreements be
some motive or interest or ill will; it partakes of the nature of fraud.
entered into, even though the goods are not yet in the hands of the
Applying this precept to the given facts herein, we find that there
seller. Known in business parlance as forward sales, it is concededly
was no "dishonest purpose," or "some moral obliquity," or
the practice of the trade. Above all, NACOCO's limited funds
"conscious doing of wrong," or "breach of a known duty," or "Some
necessitated a quick turnover. Copra contracts then had to be
motive or interest or ill will" that "partakes of the nature of fraud."
executed on short notice — at times within twenty-four hours. To be
appreciated then is the difficulty of calling a formal meeting of the 4. No. This is a case of damnum absque injuria. Conjunction of
board damage and wrong is here absent. There cannot be an actionable
wrong if either one or the other is wanting. Of course, Kalaw could
So pleased was NACOCO's board of directors that, on December 5,
not have been an insurer of profits. He could not be expected to
1946, in Kalaw's absence, it voted to grant him a special bonus "in
predict the coming of unpredictable typhoons. And even as
recognition of the signal achievement rendered by him in putting
typhoons supervened Kalaw was not remissed in his duty. He
the Corporation's business on a self-sufficient basis within a few
exerted efforts to stave off losses. That Kalaw cannot be tagged with
months after assuming office, despite numerous handicaps and
crassa negligentia or as much as simple negligence, would seem to
difficulties."
be supported by the fact that even as the contracts were being
questioned in Congress and in the NACOCO board itself, President authorized defendant Leon Q. Verano, by a formal resolution, to
Roxas defended the actuations of Kalaw. execute any agreement with any person or entity, on behalf of the
corporation, and defendant Leon Q. Verano was acceptable to the
It is a well known rule of law that questions of policy of corporation, except that the remuneration for the plaintiff
management are left solely to the honest decision of officers and EmilianoAcuña’s services would be P0.30 per kilo of tobacco. The
directors of a corporation, and the court is without authority to formal "Agreement" was executed between plaintiff EmilianoAcuña
substitute its judgment for the judgment of the board of directors; and defendant Leon Q. Verano, as Manager of the defendant
the board is the business manager of the corporation, and so long as corporation, duly authorized by its Board of Directors for such
it acts in good faith its orders are not reviewable by the courts." purpose. On the same date, plaintiff gave EmilianoAcuña turned
Acuna v. Batac Producers over to the defendant corporation, thru its treasurer, the sum of
P20,000.00. From then on, plaintiff EmilianoAcuña diligently and
G.R. No. L-20333 June 30, 1967 religiously kept his part of the "Agreement;" that plaintiff even
furnished the defendant corporation, upon request of its Manager
Emiliano Acuña filed a complaint against the defendant Batac
Leon Q. Verano three thousand (3,000) sacks which it utilized in the
Producers Cooperative Marketing Association, Inc., (BatacProcoma).
shipment of its tobacco costing P6,000.00 and that plaintiff
The complaint alleged that on or about May 5, 1962 it was
EmilianoAcuña had personally advanced out of his own personal
tentatively agreed upon between plaintiff and defendant Leon Q.
funds the total sum of P5,000.00 with the full knowledge,
Verano, as Manager of the defendant BatacProcoma that the former
acquiescence and consent of all the individual defendants.
would seek and obtain the sum of not less, than P20,000.00 to be
advanced to the defendant BatacProcoma to be utilized by it as After the defendant corporation was enabled to replenish its funds
additional funds for its Virginia tobacco buying operations during with continuous collections from the PVTA for tobacco delivered due
the current redrying season. EmilianoAcuña would be constituted to the help, assistance and intervention of plaintiff EmilianoAcuña,
as the corporation's representative in Manila to assist in handling for which the said corporation collected from the PVTA the total sum
and facilitating its continuous shipments of tobacco and their of P381,495.00, the "Agreement" was disapproved by its Board of
delivery to the redrying plants and in speeding up the prompt Directors. Upon the foregoing allegations plaintiff filed a complaint
payment and collection of all amounts due to the corporation for before the court.
such shipments. For his services plaintiff EmilianoAcuña would be
paid a remuneration at the rate of P0.50 per kilo of tobacco. The The lower court ordered the issuance of a writ of preliminary
said tentative agreement was favorably received by the Board of attachment against the properties of the defendants and on the
Directors of the defendant BatacProcoma and unanimously following day, after the plaintiff had posted the required bond, the
writ was accordingly issued by the Clerk of Court. The defendants
filed a motion to dismiss the complaint on the ground that it stated 1. It is a settled principle that when a motion to dismiss is
no cause of action and to discharge the preliminary attachment on based on the ground that the complaint does not state a cause of
the ground that it was improperly or irregularly issued. In support of action, the averments in the complaint are deemed hypothetically
the motion defendants alleged that the contract for services was admitted and the inquiry is limited to whether or not they make out
never perfected because it was not approved or ratified but was a case on which relief can be granted. If said motion assails directly
instead disapproved by the Board of Directors of defendant or indirectly the veracity of the allegations, it is improper to grant
BatacProcoma, Inc., and that on the basis of plaintiff's pleadings the the motion upon the assumption that the averments therein are
contract is void and unenforceable. Defendants further denied the true and those of the complaint are not. The sufficiency of the
fact that plaintiff had performed his part of the contract, alleging motion should be tested on the strength of the allegations of facts
that he had not in any manner intervened in the delivery and contained in the complaint, and no other.
payment of tobacco pertaining to the defendant corporation. The
2. A perusal of the complaint reveals that it contains sufficient
trial court sustained defendants' motion and states that the
complaint states no cause of action and that contract in question is allegations indicating such approval or at least subsequent
ratification. On the first point we note the following averments, the
void ab initio.
plaintiff met with each and all of the individual defendants, who
Issue: constituted the entire Board of Directors and discussed with them
extensively the tentative agreement and he was made to
1. Whether or not the case at bar should be dismissed due to understand that it was acceptable to them, except as to plaintiff's
no cause of action? remuneration. It was finally agreed between plaintiff and all said
2. Whether or not the Board of Directors did not allow the Directors that his remuneration would be P0.30 per kilo of tobacco.
contract between them and petitioner Emilio Acuña. After the agreement was formally executed, he was assured by said
Directors that there would be no need of formal approval by the
Held: Board. It should be noted in this connection that although the
contract required such approval it did not specify just in what
1. No, the case at bar should not be dismissed due to no case
manner the same should be given.
of action.
On the question of ratification the complaint alleges that plaintiff
2. Yes, the Board of Directors allows the contract between
delivered to the defendant corporation the sum of P20,000.00 as
them and petitioner Emilio Acuña.
called for in the contract. He rendered the services by furnishing
Ratio: 3,000 sacks at a cost of P6,000.00 and advanced to it the further
sum of P5,000.00 and that he did all of these things with the full
knowledge, acquiescence and consent of each and all of the The Corporation Law of 1925 subjects sociedades anonimas to its
individual defendants who constitute the Board of Directors of the provisions “so far as such provisions may be applicable”. In 1929,
defendant corporation. There is abundant authority in support of the Corporation Law was amended and the prohibition cited by
the proposition that ratification may be express or implied, and that Harden was so modified as merely to prohibit any such corporation
implied ratification may take diverse forms, such as by silence or from holding more than fifteen per centum of the outstanding
acquiescence, by acts showing approval or adoption of the contract, capital stock of another such corporation.
or by acceptance and retention of benefits flowing therefrom.
Further and more importantly, the Corporation Law of 1925
HARDEN v. BENGUET CONSOLIDATED provides that if the person who allegedly violated the provisions of
said law is a corporation, the proper action is a quo warranto which
In 1927, Benguet Consolidated Mining Company, registered as a should be initiated by the Attorney-General or its deputized
sociedad anonima under the Spanish Law, agreed to invest and build provincial fiscal and not a private action as the one filed by Harden.
capital equipments in favor of Balatoc Mining Company, a
corporation registered under the then relatively new Corporation
Law of 1925. In exchange, Balatoc Mining agreed to give Benguet
Mining 600,000 shares.
HELD: NO.