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Corporation Law 30/04/2019

W.S. PRICE vs. H. MARTIN

GR No. 37281, Nov 10, 1933

FACTS: Plaintiffs pray that a mortgage executed by the Sulu Development Company on its properties in favor of the Agusan
Coconut Company be dissolved and declared null and void, contending that at the stockholders' meeting in which the officers of the
Sulu Development Company were elected and at which the proposed mortgage was approved of, 97 shares of stock of the Sulu
Development Company were voted by the proxy of Mrs. Worcester, in whose name the stock at that time stood upon the books of
the company, whereas defendant Martin claimed that he was the true owner and that he should have voted the stock.

Records of Sulu Development Company show that at the meeting of November 12, 1925, Martin presented evidence to the effect
that he, and not Mrs. Worcester, was the owner of the 97 shares of stock. Copies of the documents relied upon by Martin were
made a part of the record, but apparently no action was taken by the stockholders or by the directors, and at the meetings of
November 12, 17, and 19, Mrs. Worcester's proxy apparently voted the stock without protest on the part of Martin or any other
stockholder. Every formal action taken at those three meetings was unanimous, and Martin at the last two meetings was
accompanied by two lawyers as his counsel.

ISSUE: Whether or not Mrs. Worcester had the right to Vote and attend in the meetings of the corporation.

RULING: YES. Plaintiffs contend that the transference on the books of the company of 97 shares of stock in the name of Mrs.
Worcester was fraudulent and illegal. The evidence of record, however, under all the circumstances of the case, fails to
demonstrate the allegation of fraud, and this court believes that she acted in good faith and in the honest belief that she had not
only a legal right but a duty to participate in the stockholders' meeting.

As to whether the stock was rightfully the property of Martin, that is a question for the courts and not for a stockholder's meeting.
Until challenged in a proper proceeding, a stockholder according to the books of the company has a right to participate in that
meeting, and in the absence of fraud the action of the stockholders' meeting cannot be collaterally attacked on account of such
participation. "A person who has purchased stock, and who desires to be recognized as a stockholder, for the purpose of voting,
must secure such a standing by having the transfer recorded upon the books. If the transfer is not duly made upon request, he has,
as his remedy, to compel it to be made."

DE LA RAMA vs. MA-AO SUGAR CENTRAL CO., INC.

G.r.No. L-17504 & l-17506; February 28, 1969

FACTS: In 1950 the MSCCI through its President, J. Amado, subscribed for P300k worth of capital stock of the Philippine Fiber
Processing Co., Inc. (PFPC). Payments of the subscription were made on 3 installments, but at the time the first two payments were
made there was no board resolution authorizing the investment; and that it was only on November 26, 1951, that J. Amado was so
authorized by the BOD, by the way, making the third payment made in March 1952 authorized.

In addition, 355k shares of PFPC, owned by Luzon Industrial Corporation (LIC) were transferred on May 31, 1952, to MSCCI. Again,
the investment was made without prior board resolution, the authorizing resolution having been subsequently approved only on
June 4, 1952. A derivative suit was filed by 4 minority SHs of MSCCI which stated 5 causes of action: (1) for alleged illegal and
ultra-vires acts consisting of self-dealing, irregular loans, and unauthorized investments; (2) for alleged gross mismanagement; (3)
for alleged forfeiture of corporate rights warranting dissolution; (4) for alleged damages and attorney's fees; and (5) for
receivership.

ISSUE: Whether or not a corporation can invest in another corporation.

RULING: YES. The law requiring the votes does not apply in the case because of MSCCI’s contention that since said PFPC was
engaged in the manufacture of sugar bags it was perfectly legitimate for MSCCI either to manufacture sugar bags or invest in
another corporation engaged in said manufacture.

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SC also quoted the interpretation of Professor Guevara, a well-known authority in Commercial Law: A private corporation, in order
to accomplish its purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law,
has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of
any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of the
stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the
purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such shares or
securities must be subject to the limitations established by the Corporation Law; namely, (a) that no agricultural or mining
corporation shall in anywise be interested in any other agricultural or mining corporation; or (b) that a non-agricultural or
non-mining corporation shall be restricted to own not more than 15% of the voting stock of any agricultural or mining corporation;
and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of
commerce or combination in restraint of trade."

Power to invest corporate funds - A private corporation has the power to invest its corporate funds 'in any other corporation or
business, or for any purpose other than the main purpose for which it was organized,' provided that 'its board of directors has been
so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at
least two-thirds of the voting power on such a proposal at a stockholders' meeting called for that purpose,' and provided further,
that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the
investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation, the approval of the
stockholders is not necessary."

GOKONGWEI vs. SECURITIES AND EXCHANGE COMMISSION

G.R. No. L-45911. April 11, 1979

FACTS: On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and
Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended
by- laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of
Directors and San Miguel Corporation as an unwilling petitioner.

Petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation, basing their
authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of
respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000
preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,047 with
a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the
by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors
only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the
corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the
amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation
of the power of the stockholders.

ISSUES: Whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of
the Annual Stockholders' Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate
funds, allegedly in violation of section 17-1/2 of the Corporation Law.

RULING: NO. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or
business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been
so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting
power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is
only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote
of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary.

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As stated by Respondent Corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same
business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market beer. It appears that the
original investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong
(Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the
investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization.

LANUZA vs. COURT OF APPEALS

G.R. No. 131394, March 28, 2005

FACTS: Philippine Merchant Marine School, Inc. (PMMSI) had seven hundred founders’ shares and seventy-six common shares
as its initial capital stock subscription reflected in the articles of incorporation. However, private respondents and their
predecessors who were in control of PMMSI registered the company’s stock and transfer book for the first time in 1978, recording
thirty-three (33) common shares as the only issued and outstanding shares of PMMSI.

Sometime in 1979, a special stockholders’ meeting was called and held on the basis of what was considered as a quorum of
twenty-seven common shares, representing more than two-thirds of the common shares issued and outstanding. In 1982, the heirs
of one of the original incorporators, Juan Acayan, filed a petition with the SEC for the registration of their property rights over one
hundred (120) founders’ shares and twelve (12) common shares owned by their father. The SEC held that the heirs were entitled
to the claimed shares and called for a special stockholders’ meeting to elect a new set of officers. As a result, the shares of Acayan
were recorded in the stock and transfer book.

A special stockholders’ meeting was held to elect a new set of directors. Private respondents thereafter filed a petition with the SEC
questioning the validity of the 06 May 1992 stockholders’ meeting, alleging that the quorum for the said meeting should not be
based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of
seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation.

ISSUE: Whether or not the basis of quorum for a stockholders’ meeting is the outstanding capital stock as indicated in the
articles of incorporation.

RULING: YES. The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not
reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger
amount of shares issued and outstanding as compared to that listed in the stock and transfer book. A stock and transfer book is one
which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for
which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock made,
the date thereof and by and to whom made; and such other entries as may be prescribed by law.

To base the computation of quorum solely on the deficient stock and transfer book, and completely disregarding the issued and
outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of
the said shares.

It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed, the Stock and Transfer Book
should likewise reflect 771 shares. Any sale, disposition or even reacquisition of the company of its own shares, in which it becomes
treasury shares, would not affect the total number of shares in the Stock and Transfer Book. All that will change are the entries as
to the owners of the shares but not as to the amount of shares already subscribed.

LEE vs. COURT OF APPEALS

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G.R. No. 93695, February 4, 1992

FACTS: A complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents
who, in turn, filed a third party complaint against ALFA and the petitioners. The trial court denied the motion to dismiss the 3rd
party complaint filed by petitioners and ordered the respondents to serve summons to ALFA. Initially the summons was served to
ALFA through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously
served upon them considering that the management of ALFA had been transferred to the DBP. On the other hand, the DBP claimed
that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a
separate and distinct corporate personality and existence. Private respondents filed a Manifestation and Motion for the Declaration
of Proper Service of Summons which the trial court granted, and which was opposed by the petitioners contending that there was
improper service of summons because they were no longer officers of ALFA by virtue of a voting trust agreement.

ISSUE: Whether or not the petitioners are correct.

RULING: YES. The petitioners argue that by virtue of the voting trust agreement the petitioners can no longer be considered
directors of ALFA. They cited that to be directors, the Corporation Code requires that it must own at least 1 one (1) share of the
capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. The
voting trust agreement effectively transferred to DBP, as the trustee, legal ownership of the stock covered by the agreement and
the latter became the stockholder of record with respect to the said shares of stocks. Since the petitioners no longer had in their
names even a single share in the corporation, they ceased to be qualified as directors, hence they are no longer authorized to
receive summons. Being so, the service of summons upon the petitioners was invalid.

NIDC vs. AQUINO

G.R. No. L-34192, June 30, 1988

FACTS: Batjak, is a Filipino-American corporation which has indebtedness to Philippine National Bank (PNB) amounted to
P11,915,000.00, As security for the payment of its obligations and advances against shipments, Batjak mortgaged its three (3)
coco-processing oil mills to Manila Bank, Republic Bank , and PCIB, respectively. In need for additional operating capital to place
the three (3) coco-processing mills at their optimum capacity and maximum efficiency and to settle, pay or otherwise liquidate
pending financial obligations with the different private banks, Batjak applied to PNB for additional financial assistance. A Financial
Agreement was submitted by PNB to Batjak for acceptance which was duly accepted by Batjak. Upon receiving payment, RB, PCIB,
and MBTC released in favor of PNB the first and any mortgages they held on the properties of Batjak. Batjak executed a first
mortgage in favor of PNB on all its properties A Voting Trust Agreement was executed in favor of NIDC by the stockholders
representing 60% of the outstanding paid-up and subscribed shares of Batjak. This agreement was for a period of five (5) years and,
upon its expiration, was to be subject to negotiation between the parties. Forced by the insolvency of Batjak, PNB instituted
extrajudicial foreclosure proceedings against the oil mills of Batjak. The properties were sold to PNB as the highest bidder. Three
years thereafter, Batjak wrote a letter to NIDC inquiring if the latter was still interested in negotiating the renewal of the Voting
Trust Agreement. Batjak wrote another letter to NIDC informing the latter that Batjak would now safely assume that NIDC was no
longer interested in the renewal of said Voting Trust Agreement.

ISSUE: Whether or not the NIDC and PNB acquired ownership over the assets of Batjak despite a voting trust agreement
between Batjak’s stockholders and NIDC.

RULING: YES. What was assigned to NIDC was the power to vote the shares of stock of the stockholders of Batjak, representing
60% of Batjak's outstanding shares, and who are the signatories to the agreement. The power entrusted to NIDC also included the
authority to execute any agreement or document that may be necessary to express the consent or assent to any matter, by the
stockholders. Nowhere in the said provisions or in any other part of the Voting Trust Agreement is mention made of any transfer or
assignment to NIDC of Batjak's assets, operations, and management. NIDC was constituted as trustee only of the voting rights of
60% of the paid-up and outstanding shares of stock in Batjak. Under the provision on termination what was to be returned by NIDC
as trustee to Batjak's stockholders, upon the termination of the agreement, are the certificates of shares of stock belonging to

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Batjak's stockholders, not the properties or assets of Batjak itself which were never delivered, in the first place to NIDC, under the
terms of said Voting Trust Agreement. A voting trust transfers only voting or other rights pertaining to the shares subject of the
agreement or control over the stock hence the acquisition by PNB-NIDC of the properties in question was not made or effected
under the capacity of a trustee but as a foreclosing creditor for the purpose of recovering on a just and valid obligation of Batjak.

W. G. PHILPOTTS vs. PHILIPPINE MANUFACTURING COMPANY

GR. No. L-15568, November 8, 1919

FACTS: W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the respondents herein, seeks by this
proceeding to obtain a writ of mandamus to compel the respondents to permit the plaintiff, in person or by some authorized agent
or attorney, to inspect and examine the records of the business transacted by said company since January 1, 1918. The petition is
filed originally in this court under the authority of section 515 of the Code of Civil Procedure, which gives to this tribunal concurrent
jurisdiction with the Court of First Instance in cases, among others, where any corporation or person unlawfully excludes the
plaintiff from the use and enjoyment of some right to which he is entitled. The respondents interposed a demurrer, and the
controversy is now before us for the determination of the questions thus presented.

ISSUE: Whether or not the right to inspect records and transactions of the corporation is permitted.

RULING: YES. Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder in the provision
above quoted can be exercised either by himself or by any proper representative or attorney in fact, and either with or without the
attendance of the stockholder. This is in conformity with the general rule that what a man may do in person he may do through
another; and we find nothing in the statute that would justify us in qualifying the right in the manner suggested by the respondents.

This conclusion is supported by the undoubted weight of authority in the United States, where it is generally held that the
provisions of law conceding the right of inspection to stockholders of corporations are to be liberally construed and that said right
may be exercised through any other properly authorized person. As was said in Foster vs. White (86 Ala., 467), "The right may be
regarded as personal, in the sense that only a stockholder may enjoy it; but the inspection and examination may be made by
another.

In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say that there are some
things which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given by law to the stockholder;
as for instance, where a corporation, engaged in the business of manufacture, has acquired a formula or process, not generally
known, which has proved of utility to it in the manufacture of its products. It is not our intention to declare that the authorities of
the corporation, and more particularly the Board of Directors, might not adopt measures for the protection of such process form
publicity. There is, however, nothing in the petition which would indicate that the petitioner in this case is seeking to discover
anything which the corporation is entitled to keep secret; and if anything of the sort is involved in the case it may be brought out at
a more advanced stage of the proceedings.

PARDO vs. THE HERCULES LUMBER CO., INC.

G.R. No. L-22442, August 1, 1924

FACTS: The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc., one of the respondents herein,
seeks by this original proceeding in the Supreme Court to obtain a writ of mandamus to compel the respondents to permit the
plaintiff and his duly authorized agent and representative to examine the records and business transactions of said company. To
this petition the respondents interposed an answer, in which, after admitting certain allegations of the petition, the respondents set
forth the facts upon which they mainly rely as a defense to the petition. To this answer the petitioner in turn interposed a demurrer,
and the cause is now before us for determination of the issue thus presented.

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ISSUE: Whether or not the respondent have the right to deny inspection request by petitioner.

RULING: YES. The general right given by the statute may not be lawfully abridged to the extent attempted in this resolution. It
may be admitted that the officials in charge of a corporation may deny inspection when sought at unusual hours or under other
improper conditions; but neither the executive officers nor the board of directors have the power to deprive a stockholder of the
right altogether. A by-law unduly restricting the right of inspection is undoubtedly invalid. Authorities to this effect are too
numerous and direct to require extended comment. Under a statute similar to our own it has been held that the statutory right of
inspection is not affected by the adoption by the board of directors of a resolution providing for the closing of transfer books thirty
days before an election.

It will be noted that our statute declares that the right of inspection can be exercised "at reasonable hours." This means at
reasonable hours on business days throughout the year, and not merely during some arbitrary period of a few days chosen by the
directors.

In addition to relying upon the by-law, to which reference is above made, the answer of the respondents calls in question the
motive which is supposed to prompt the petitioner to make inspection; and in this connection it is alleged that the information
which the petitioner seeks is desired for ulterior purposes in connection with a competitive firm with which the petitioner is alleged
to be connected. It is also insisted that one of the purposes of the petitioner is to obtain evidence preparatory to the institution of
an action which he means to bring against the corporation by reason of a contract of employment which once existed between the
corporation and himself. These suggestions are entirely apart from the issue, as, generally speaking, the motive of the shareholder
exercising the right is immaterial.

EUGENIO VERAGUTH vs ISABELA SUGAR COMPANY, INC.

G.R. No. L-37064, October 4, 1932

FACTS: The parties to this action are Eugenio Veraguth, a director and stockholder of the Isabela Sugar Company, Inc., who is
the petitioner, and the Isabela Sugar Company, Inc., Gil Montilla, acting president of the company, and Agustin B. Montilla,
secretary of the company, who are the respondents.

The petitioner prays: (a) That the respondents be required within five days from receipt of notice of this petition to show cause why
they refuse to notify the petitioner, as director, of the regular and special meetings of the board of directors, and to place at his
disposal at reasonable hours, the minutes, and documents, and books of the aforesaid corporation, for his inspection as director
and stockholder, and to issue, upon payment of the fees, certified copies of any documentation in connection with said minutes,
documents, and books of the corporation; and (b) that, in view of the memoranda and hearing of the parties, a final and absolute
writ of mandamus be issued to each and all of the respondents to notify immediately the petitioner within the reglamentary period,
of all regular and special meetings of the board of directors of the Isabela Sugar Central Company, Inc., and to place at his disposal
at reasonable hours the minutes, documents, and books of said corporation for his inspection as director and stockholder, and to
issue immediately, upon payment of the fees, certified copies of any documentation in connection with said minutes, documents,
and the books of the aforesaid corporation.

ISSUE: Whether or not a director has the unqualified right to inspect the books and records of the corporation.

RULING: YES. Section 51 of the Corporation Law, provides that: “All business corporations shall keep and carefully preserve a
record of all business transactions, and a minute of all meetings of directors, members, or stockholders, in which shall be set forth
in detail the time and place of holding the meeting was regular or special, if special its object, those present and absent, and every

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act done or ordered done at the meeting. . . . The record of all business transactions of the corporation and the minutes of any
meeting shall be open to the inspection of any director, member, or stockholder of the corporation at reasonable hours.”

Thus, directors of a corporation have the unqualified right to inspect the books and records of the corporation at all reasonable
times. However, a director or stockholder has no absolute right to secure certified copies of the minutes of the corporation until
these minutes have been written up and approved by the directors.

In this case, when Veraguth telegraphed the secretary, asking the latter to forward a certified copy of the resolution of the BOD
concerning the payment of attorney’s fees in a certain case against Isabela Sugar Company and others, the secretary answered
stating that, since the minutes of the meeting in question had not been signed by the directors present, a certified copy could not
be furnished and that as to other proceedings of the stockholders, a request should be made to the president of Isabela Sugar
Company. It appears that the board of directors adopted a resolution providing for inspection of the books and the taking of copies
“by authority of the president of the corporation previously obtained in each case.” We do not think that anything improper
occurred when the secretary declined to furnish certified copies of minutes which had not been approved by the BOD, and that
while so much of the last resolution of the BOD as provides for prior approval of the president of the corporation before the books
of the corporation can be inspected puts an illegal obstacle in the way of a stockholder or director, that resolution, so far as we are
aware, has not been enforced to the detriment of anyone.

GONZALES vs. PNB

G.R. No. L-33320, May 30, 1983

FACTS: Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance of Manila a special civil action for
mandamus against the herein respondent praying that the latter be ordered to allow him to look into the books and records of the
respondent bank in order to satisfy himself as to the truth of the published reports that the respondent has guaranteed the
obligation of Southern Negros Development Corporation in the purchase of a US$ 23 million sugar-mill to be financed by Japanese
suppliers and financiers; that the respondent is financing the construction of the P 21 million Cebu-Mactan Bridge to be constructed
by V.C. Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by the Honiron Philippines, Inc., as well as to inquire into the
validity of Id transactions. The petitioner has alleged hat his written request for such examination was denied by the respondent.
The trial court having dismissed the petition for mandamus, the instant appeal to review the said dismissal was filed.

ISSUE: Whether or not the denial for the request of petitioner for inspection valid.

RULING: YES. Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of the
respondent bank, he has not set forth the reasons and the purposes for which he desires such inspection, except to satisfy himself
as to the truth of published reports regarding certain transactions entered into by the respondent bank and to inquire into their
validity. The circumstances under which he acquired one share of stock in the respondent bank purposely to exercise the right of
inspection do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry
into transactions entered into by the respondent bank even before he became a stockholder. His obvious purpose was to arm
himself with materials which he can use against the respondent bank for acts done by the latter when the petitioner was a total
stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be said that his
purpose is germane to his interest as a stockholder.

We also find merit in the contention of the respondent bank that the inspection sought to be exercised by the petitioner would be
violative of the provisions of its charter. The Superintendent of Banks and the Auditor General, or other officers designated by law
to inspect or investigate the condition of the National Bank, shall not reveal to any person other than the President of the
Philippines, the Secretary of Finance, and the Board of Directors the details of the inspection or investigation, nor shall they give any
information relative to the funds in its custody, its current accounts or deposits belonging to private individuals, corporations, or
any other entity, except by order of a Court of competent jurisdiction. Any director, officer, employee, or agent of the Bank, who
violates or permits the violation of any of the provisions of this Act, or any person aiding or abetting the violations of any of the

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provisions of this Act, shall be punished by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years,
or both such fine and imprisonment.

The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the
Corporation Code of the Philippines. The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with
respect to the right of a stockholder to demand an inspection or examination of the books of the corporation may not be reconciled
with the abovequoted provisions of the charter of the respondent bank.

RICHARDSON vs. ARIZONA FUELS CORP

614 P.2d 636, May 1, 1980.

FACTS: Plaintiffs are stockholders of Major who brought this action individually and on behalf of all other stockholders of
Major. Arizona Fuels is alleged to be the legal or beneficial owner of 47% of the issued and outstanding shares of stock of Major.
Eugene Dalton is alleged to be the controlling stockholder, officer and director of Arizona Fuels and the controlling officer and
director of Major. Deanna Dalton is alleged to be an officer and director of both Major and Arizona Fuels.

The complaint was subsequently amended, inter alia, to name Major as an involuntary defendant. The amended complaint
describes this action as one brought as a class action and as a stockholders' derivative action. Plaintiffs moved for an order
certifying this suit as a class action and for appointment of a receiver for Major. Both motions were granted by the district court.

Defendants attack the order on the grounds (1) that the appointment of a receiver was not justified, and (2) that certification of all
the claims in the suit as a class action was improper. Plaintiffs' motions were granted solely on the basis of the verified amended
complaint.

ISSUE: Whether or not the district court erred in certifying the matter as a class action

RULING: It is alleged in the amended complaint that "some" of the causes of action found therein belong to Major, and that as
to those causes plaintiffs bring the suit derivatively on behalf of the corporation.

A class action and a derivative action rest upon fundamentally different principles of substantive law; to ignore those differences is
not a minor procedural solecism. A derivative action must necessarily be based on a claim for relief which is owned by the
stockholders' corporation. Indeed, a prerequisite for filing a derivative action is the failure of the corporation to initiate the action in
its own name. The stockholder, as a nominal party, has no right, title or interest whatsoever in the claim itself whether the action is
brought by the corporation or by the stockholder on behalf of the corporation.

A class action, on the other hand, is predicated on ownership of the claim for relief sued upon in the representative of the class and
all other class members in their capacity as individuals. Shareholders of the corporation may, of course, have claims for relief
directly against their corporation because the corporation itself has violated rights possessed by the shareholders, and a class action
would be an appropriate means for enforcing their claims. A recovery in a class action is a recovery which belongs directly to the
shareholders. However, in a derivative action, the plaintiff shareholder recovers nothing and the judgment runs in favor of the
corporation.

The difference in the two procedures and their relationship to underlying substantive law has been stated as follows:

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Suits which are said to be derivative, and therefore come within the rule, are those which seek to enforce any right which belongs
to the corporation and is not being enforced, such as the liability of corporate officers or majority shareholders for mismanagement,
to recover corporate assets and related claims, to enforce rights of the corporation by virtue of its contract with a third person, and
to enjoin those in charge of the corporation from causing it to commit an ultra vires act.

On the other hand,

If the injury is one to the plaintiff as a stockholder and to him individually, and not to the corporation, as where the action is based
on a contract to which he is a party, or on a right belonging severally to him, or on a fraud affecting him directly, it is an individual
action.

It is the duty of the district court to apply carefully the criteria set forth in Rule 23(a) and (b) to the facts of the case to determine
whether an action may be maintained as a class action. If the criteria of Rule 23 are complied with, it is within the sound discretion
of the district court to determine whether a suit, or some of the issues in a lawsuit, should proceed as a class action.

In this case, neither the memorandum decision nor the order of the district court does any more than recite that the suit may be
maintained as a class action. Furthermore, the amended complaint in alleging that the action should be maintained as a class action,
does no more than mimic the language of Rule 23. As was pointed out in Jones v. Diamond, "Without more, mere mimicry is
insufficient to undergird a decision either way on the propriety of class certification."

BITONG vs. COURT OF APPEALS

G.R. No. 123553, July 13, 1998

FACTS: Bitong alleged that she was the treasurer and member of the BoD of Mr. & Mrs. Corporation. She filed a complaint
with the SEC to hold respondent spouses Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of
interest and mismanagement in directing the affairs of the corporation to the prejudice of the stockholders. She alleges that certain
transactions entered into by the corporation were not supported by any stockholder’s resolution. The complaint sought to enjoin
Apostol from further acting as president-director of the corporation and from disbursing any money or funds.

Apostol contends that Bitong was merely a holder-in-trust of the JAKA shares of the corporation, hence, not entitled to the relief
she prays for. SEC Hearing Panel issued a writ enjoining Apostol. After hearing the evidence, SEC Hearing Panel dissolved the writ
and dismissed the complaint filed by Bitong. Bitong appealed to the SEC en banc which reversed SEC Hearing Panel decision.
Apostol filed petition for review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the owner of any share of
stock in the corporation and therefore, not a real party in interest to prosecute the complaint.

ISSUE: Whether or not Bitong was the real party in interest.

RULING: NO. It could be gleaned that Bitong was not a bona fide stockholder of the corporation. Several corporate documents
disclose that the true party in interest was JAKA. Although her buying of the shares were recorded in the Stock and Transfer Book of
the corporation, and as provided by Sec. 63 of the Corp Code that no transfer shall be valid except as between the parties until the
transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny
the fact of transfer of said shares, this provision is not conclusive even against the corporation but are prima facie evidence only.

Parol evidence may be admitted to supply the omissions in the records, explain ambiguities, or show what transpired where no
records were kept, or in some cases where such records were contradicted.

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The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and
genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this
presumption may be rebutted. However, the books and records of a corporation are not conclusive even against the corporation
but are prima facie evidence only. The effect of entries in the books of the corporation which purport to be regular records of the
proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere
suspicion that there was an irregularity in the manner in which the books were kept.

SMC vs. KHAN

G.R. No. 85339, August 11, 1989

FACTS: Fourteen corporations initially acquired shares of outstanding capital stock of SMC and constituted a Voting Trust
thereon in favor of Andres Soriano, Jr. When the latter died Eduardo Cojuanco was elected as the substitute trustee. However, after
the EDSA revolution, Cojuanco fled out of the country, and subsequently an agreement was entered into between the 14
corporations and Andres Soriano III (as an agent of several persons) for the purchase of the shares held by the former.

Actually the buyer of the shares was Neptunia Corporation, a foreign corporation and wholly-owned subsidiary of another
subsidiary wholly owned by SMC. Neptunia paid the downpayment from the proceeds of certain loans. PCGG then sequestered the
shares subject of the sale so SMC suspended all the other installments of the price to the sellers. The 14 corporations then sued for
rescission and damages.

Meanwhile, PCGG directed SMC to issue qualifying shares to seven (7) individuals including Eduardo de los Angeles from the
sequestered shares for them to hold in trust. Then, the SMC’s board of directors passed a resolution assuming the loans incurred by
Neptunia for the downpayment. De los Angeles assailed the resolution alleging that it was not passed by the board aside from its
deleterious effects on the corporation’s interest. When his efforts to obtain relief within the corporation proved futile, he filed this
action with the SEC. Respondent directors alleged that de los Angeles has no legal standing having been merely “imposed” by the
PCGG and that the twenty (20) shares owned by him personally cannot fairly and adequately represent the interest of the minority.

ISSUE: Whether or not de los Angeles has legal standing to sue. (Derivative suit)

RULING: YES. The bona fide ownership by a stockholder in his own right suffices to invest him with the standing to bring a
derivative suit for the benefit of the corporation. The number of his shares is immaterial since he is not suing in his own behalf, or
for the protection or vindication of his own particular right, or the redress of a wrong committed against him individually but in
behalf and for the benefit of the corporation. The requisites of a derivative suit are: (1) the party bringing the suit should be a
stockholder as of the time of the act or transactions complained of, the number of shares not being material; (2) exhaustion of
intra-corporate remedies (has made a demand on the board of directors for the appropriate relief but the latter has failed or
refused to heed his plea); and (3) the cause of action actually devolves on the corporation and not to the particular stockholder
bringing the suit.

PASCUAL vs. OROZCO

G.R. No. L-5174, March 17, 1911

FACTS: This action was brought by the plaintiff Pascual, in his own right as a stockholder of the bank, for the benefit of the
bank, and all the other stockholders thereof. The Banco Español-Filipino is a banking corporation, constituted as such by royal
decree of the Crown of Spain in the year 1854, the original grant having been subsequently extended and modified by royal decree
of July 14, 1897, and by Act No. 1790 of the Philippine Commission.

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It is alleged in the amended complaint that the only compensation contemplated or provided for the managing officers of the bank
was a certain per cent of the net profits resulting from the bank's operations, as set forth in article 30 of its reformed charter or
statutes.

The gist of the first and second causes of action is as follows: The defendants constitute a majority of the present board of directors
of the bank, who alone can authorize an action against them in the name of the corporation. It appears that during the years 1903,
1904, 1905, and 1907 the defendants and appellees, without the knowledge, consent, or acquiescence of the stockholders,
deducted their respective compensation from the gross income instead of from the net profits of the bank, thereby defrauding the
bank and its stockholders of approximately P20,000 per annum.

The second cause of action sets forth that defendants' and appellees' immediate predecessors in office in the bank during the years
1899, 1900, 1901, and 1902, committed the same illegality as to their compensation as is charged against the defendants
themselves. In the four years immediately following the year 1902, the defendants and appellees were the only officials or
representatives of the bank who could and should investigate and take action in regard to the sums of money thus fraudulently
appropriated by their predecessors. They were the only persons interested in the bank who knew of the fraudulent appropriation
by their predecessors.

The court below sustained the demurrer as to the first and second causes of action on the ground that in actions of this character
the plaintiff must aver in his complaint that he was the owner of stock in the corporation at the time of the occurrences complained
of, or else that the stock has since devolved upon him by operation of law.

ISSUE: Whether or not the petitioner has a cause of action to file a derivative suit.

RULING: YES. As to the first cause of action: In suits of this character the corporation itself and not the plaintiff stockholder is
the real party in interest. The rights of the individual stockholder are merged into that of the corporation. It is a universally
recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these
are in the corporation itself for the benefit of all the stockholders. So it is clear that the plaintiff, by reason of the fact that he is a
stockholder in the bank (corporation) has a right to maintain a suit for and on behalf of the bank, but the extent of such a right must
depend upon when, how, and for what purpose he acquired the shares which he now owns.

As to the Second cause of action: It affirmatively appears from the complaint that the plaintiff was not a stockholder during any of
the time in question in this second cause of action. Upon the question whether or not a stockholder can maintain a suit of this
character upon a cause of action pertaining to the corporation when it appears that he was not a stockholder at the time of the
occurrence of the acts complained of and upon which the action is based, the authorities do not agree.

EVANGELISTA vs. SANTOS


GR L-1721, May 19, 1950

FACTS: Juan D. Evangelista, et. al. are minority stockholders of the Vitali Lumber Company, Inc., a Philippine corporation
organized for the exploitation of a lumber concession in Zamboanga, Philippines, while Rafael Santos holds more than 50% of the
stocks of said corporation and also is and always has been the president, manager, and treasurer thereof. Santos, in such triple
capacity, through fault, neglect, and abandonment allowed its lumber concession to lapse and its properties and assets, among
them machineries, buildings, warehouses, trucks, etc., to disappear, thus causing the complete ruin of the corporation and total
depreciation of its stocks. Evangelista, et. al. therefore prays for judgment requiring Santos: (1) to render an account of his
administration of the corporate affairs and assets: (2) to pay plaintiffs the value of t heir respective participation in said assets on
the basis of the value of the stocks held by each of them; and (3) to pay the costs of suit. Evangelista, et. al. also ask for such other
remedy as may be and equitable. The complaint does not give Evangelista, et. al.'s residence, but, but purposes of venue, alleges
that Santos resides at 2112 Dewey Boulevard, corner Libertad Street, Pasay, province of Rizal. Having been served with summons at

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that place, Santos filed a motion for the dismissal of the complaint on the ground of improper venue and also on the ground that
the complaint did not state a cause of action in favor of Evangelista, et. al. After hearing, the lower court rendered its order,
granting the motion for dismissal. Reconsideration of the order was denied. Evangelista, et. al. appealed to the Supreme Court.

ISSUE: Whether or not Evangelista, et. al. had the right to bring the action for damages resulting from mismanagement of the
affairs and assets of the corporation by its principal officer, it being alleged that Santos' maladministration has brought about the
ruin of the corporation and the consequent loss of value of its stocks.

RULING: The injury complained of is primarily to the corporation, so that the suit for the damages claimed should be by the
corporation rather than by the stockholders. The stockholders may not directly claim those damages for themselves for that would
result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of section 16 of the
Corporation Law, which provides that "No shall corporation shall make or declare any stock or bond dividend or any dividend
whatsoever from the profits arising from its business, or divide or distribute its capital stock or property other than actual profits
among its members or stockholders until after the payment of its debts and the termination of its existence by limitation or lawful
dissolution." But while it is to the corporation that the action should pertain in cases of this nature, however, if the officers of the
corporation, who are the ones called upon to protect their rights, refuse to sue, or where a demand upon them to file the necessary
suit would be futile because they are the very ones to be sued or because they hold the controlling interest in the corporation, then
in that case any one of the stockholders is allowed to bring suit.

But in that case it is the corporation itself and not the plaintiff stockholder that is the real property in interest, so that such damages
as may be recovered shall pertain to the corporation. In other words, it is a derivative suit brought by a stockholder as the nominal
party plaintiff for the benefit of the corporation, which is the real property in interest. Herein, Evangelista, et. al. have brought the
action not for the benefit of the corporation but for their own benefit, since they ask that Santos make good the losses occasioned
by his mismanagement and pay to them the value of their respective participation in the corporate assets on the basis of their
respective holdings.

Clearly, this cannot be done until all corporate debts, if there be any, are paid and the existence of the corporation terminated by
the limitation of its charter or by lawful dissolution in view of the provisions of section 16 of the Corporation Law. It results that
Evangelista, et. al.'s complaint shows no cause of action in their favor.

REPVBLIC BANK vs. CUADERNO

G.R. No. L-22399, March 30, 1967

FACTS: Damaso Perez, a stockholder of the Republic Bank, had complained to the Monetary Board of the Central Bank against
certain frauds allegedly committed by defendant Pablo Roman, in that being chairman of the Board of Directors of the Republic
Bank, and of its Executive Loan Committee, in 1957 to 1959, "in grave abuse of his fiduciary duty and taking advantage of his said
positions and in connivance with other officials of the Republic Bank", Roman had fraudulently granted or caused to be granted
loans to fictitious and non-existing persons and to their close friends, relatives and/or employees, who were in reality their
dummies,on the basis of fictitious and inflated appraised values of real estate properties.

Respondent Cuaderno, governor of the central bank, ordered an investigation, which was carried out of the Bank Examiners. They
reported that the bank has certain mortgage loans which were granted in violations of several provisions of General Banking
Act. The Monetary Board ordered a new Board of Directors of the Republic Bank to be elected, which was done, and
subsequently approved by the Monetary Board. The Monetary Board later accepted the offer of Pablo Roman to put up adequate
security for the questioned loans made by the Republic Bank, and such security was made a condition for the resumption of the
Bank's normal operations. However, no information was filed up to the time of the retirement of Cuaderno.

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Subsequently, Pablo Roman engaged Miguel Cuaderno as technical consultant and selected Bienvenido Dizon as chairman of the
Board of Directors of the Republic Bank. Damaso Perez filed a derivative suit on behalf of the corporation for a writ of preliminary
injunction against the Monetary Board to prevent its confirmation of the appointments of Dizon and Cuaderno alleging that the
Board of Directors composed of individuals personally selected and chosen by Roman, connived and confederated in approving the
appointment and selection of Cuaderno and Dizon; that such action was motivated by bad faith and without intention to protect
the interest of the Republic Bank but were prompted to protect Pablo Roman from criminal prosecution.

The Monetary Board filed an answer with separate motion to dismiss on the ground of lack of legal capacity of plaintiff-relator to
sue and non-exhaustion of intra-corporate remedies. The court denied the petition for a writ of preliminary injunction and
dismissed the case. Hence, this direct appeal to the Court.

ISSUE: Whether or not Damaso Perez, a stockholder, has a right to question the appointment and selectionof defendants,
which can only be the result of corporate acts.

RULING: YES. Normally, an individual stockholder is permitted to institute a derivative or representative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation
refuse to sue, or are the ones to be sued or hold the control of the corporation.In such actions, the suing stockholder is regarded as
a nominal party, with the corporation as the real partyin interest. He is neither alleging nor vindicating his own individual interest or
prejudice, but the interest of the Republic Bank and the damage caused to it. The action he has brought is a derivative one,
expressly manifested to be for and in behalf of the Republic Bank, because it was futile to demand action by the corporation, since
its Directors were nominees and creatures of defendant Pablo Roman. The frauds charged by plaintiff are frauds against the Bank
that redounded to its prejudice.Defendants urge that the action is improper because the plaintiff was not authorized by the
corporation to bring suit in its behalf. Any such authority could not be expected as the suit is aimed to nullify the action taken by
the manager and the board of directors of the Republic Bank; and any demand for intra-corporate remedy would be futile, as
expressly pleaded in the complaint. These circumstances permit a stockholder to bring a derivative suit. That no other stockholder
has chosen to make common cause with plaintiff Perez is irrelevant, since the smallness of plaintiff's holdings is no ground for
denying him relief.

REYES vs. TAN

G.R. No. L-16982, September 30, 1961

FACTS: The corporation, Roxas-Kalaw Textile Mills, Inc., was organized on June 5, 1954 by defendants Cesar K. Roxas, Adelia K.
Roxas, Benjamin M. Roxas, Jose Ma. Barcelona and Morris Wilson, for and on behalf of the following primary principals with the
following shareholdings: Adelia K. Roxas, 1200 Class A shares; I. Sherman, 900 Class A shares; Robert W. Born, 450 Class A shares
and Morris Wilson, 450 Class A shares; that the respondent holds both Class A and Class B shares and number and value thereof are
is follows: Class A — 50 shares, Class B — 1,250 shares.

On May 8, 1957, the Board of Directors approved a resolution designating one Dayaram as co-manager and Morris Wilson was
likewise designated as co-manager with responsibilities for the management of the factory only’. An office in New York was opened
for the purpose of supervising purchases, which purchases must have the unanimous agreement of Cesar K. Roxas, New York
resident member of the board of directors, Robert Born and Wadhumal Dalamal or their respective representatives. Several
purchases aggregating $289,678.86 were made in New York for raw materials and shipped to the Philippines, which shipment were
found out to consist not of raw materials but already finished products, for which reasons the Central Bank of the Philippines
stopped all dollar allocations for raw materials for the corporation which necessarily led to the paralyzation of the operation of the
textile mill and its business.

ISSUES: Whether or not a derivative suit will prosper.

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RULING: NO. The claim that respondent Justiniani did not take steps to remedy the illegal importation for a period of two years
is without merit. During that period of time respondent had the right to assume and expect that the directors would remedy the
anomalous situation of the corporation brought about by their own wrong doing. Only after such period of time had elapsed could
respondent conclude that the directors were remiss in their duty to protect the corporation property and business. The fraud
consisted in importing finished textile instead of raw cotton for the textile mill; the fraud, therefore, was committed by the manager
of the business and was consented to by the directors, evidently beyond reach of respondent as treasurer for that period.

The directors permitted the fraudulent transaction to go unpunished and nothing appears to have been done to remove the erring
purchasing managers. In a way the appointment of a receiver may have been thought of by the court below so that the dollar
allocation for raw material may be revived and the textile mill placed on an operating basis.

RURAL BANK OF MILAOR vs. OCFEMIA

GR 137686, February 8, 2000

FACTS: The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the mortgaged properties
consisting of seven (7) parcels of land from Milaor and so the mortgage was foreclosed and thereafter ownership thereof was
transferred to the bank. Out of the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the Ocfemias
because these were sold by the [petitioner] bank to the parents of Marife Ocfemia Niño as evidenced by a Deed of Sale executed in
January 1988.

Marife went to the Register of Deeds of Camarines Sur with the Deed of Sale (Exh. C) in order to have the same registered. The
Register of Deeds, however, informed her that the document of sale cannot be registered without a board resolution of the Bank.
Marife then went to the bank, showed to it the Deed of Sale, the tax declaration and receipt of tax payments and requested the
bank for a board resolution so that the property can be transferred to the name of Marife’s parents Renato Ocfemia and Francisca
Ocfemia.

The bank, after requiring so many requirements and making so many alibis to Marife, refused to issue the board resolution. It
claims that its bank manager Fe Tena did not have authority to sell the properties to the Ocfemias therefore rendering the deed of
sale invalid.

ISSUE: Whether or not the bank manager has authority to act on behalf of the bank.

RULING: YES. There was an apparent authority bestowed with Tena. The bank acknowledged, by its own acts or failure to act,
the authority of Fe S. Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes due thereon. If the bank management believed that it had title to the property,
it should have taken some measures to prevent the infringement or invasion of its title thereto and possession thereof.

Likewise, Tena had previously transacted business on behalf of the bank, and the latter had acknowledged her authority. A bank is
liable to innocent third persons where representation is made in the course of its normal business by an agent like Manager Tena,
even though such agent is abusing her authority. Clearly, persons dealing with her could not be blamed for believing that she was
authorized to transact business for and on behalf of the bank.

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In this light, the bank is estopped from questioning the authority of the bank manager to enter into the contract of sale. If a
corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds the
agent out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agent’s authority.

More so, the bank is in default for failing to answer the complaint of the Ocfemias within the reglamentary period without any
justifiable excuse.

GRACE CHRISTIAN HIGH SCHOOL vs. COURT OF APPEALS

G.R. No. 108905, October 23, 1997

FACTS: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary
courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization
of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L.
Go were its president and chairman of the committee on election. For 15 years the petitioner had been occupying a permanent seat
in the Board of Directors of the respondent. However, the latter decided to “reexamine” the right of petitioner's representative to
continue as an unelected member of the board. As the board denied petitioner's request to be allowed representation without
election, petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by
the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals,
which in turn upheld the decision of the HIGC's appeals board. Hence this petition for review.

ISSUE: Whether or not the petitioner has acquired a vested right to be a permanent director in the association under the
drafted by –laws, but which were not submitted to the members for approval.

RULING: NO. The present Corporation Code states that the board of directors of corporations must be elected from among the
stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the
examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a
particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor
does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in
1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the
contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity.
Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the
association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in
question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law.

Also, petitioner cannot claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued,
cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminus with the
existence of the association."

PONCE vs. ENCARNACION

G.R. NO. L-5883, November 28, 1953

FACTS: Daguhoy Enterprises, Inc., was duly registered as such on 24 June 1948. On 16 April 1951 at a meeting duly called, the
voluntary dissolution of the corporation and the appointment of Gapol as receiver were agreed upon and to that end a petition for

15
voluntary dissolution was drafted which was sent to, and signed by, the petitioner Domingo Ponce. Instead of filing the petition for
voluntary dissolution of the corporation as agreed upon, Gapol, who is the largest stockholder, changed his mind and filed a
complaint in the CFI of Manila to compel the petitioners to render an accounting of the funds and assets of the corporation, to
reimburse it, jointly and severally, a total sum of P18,690, plus interest, which have been converted by the petitioner Domingo
Ponce to his own use and benefit.

On 18 May 1951 Gapol filed a motion praying that the petitioners be removed as members of the board of directors which was
denied by the court. On 3 January 1952 Gapol filed a petition praying for an order directing him to call a meeting of the
stockholders of the corporation and to preside at such meeting in accordance with section 26 of the Corporation Law. Two-days
later, without notice to the petitioners and to the other members of the board of directors and in violation of the Rules of Court
which require that the adverse parties be notified of the hearing of the motion three days in advance, the respondent court issued
the order as prayed for.

ISSUE: Whether or not under and pursuant to section 26 of the Corporation Law, the respondent court may issue the order
complained of.

RULING: NO. Article 9 of the by-laws of the Daguhoy Enterprises, Inc., provides: The Board of Directors shall compose of five (5)
members who shall be elected by the stockholders in a general meeting called for that purpose which shall be held every even year
during the month of January. Article 22 of the by-laws provides: The Chairman shall have the right to fix the date, the time and the
place where the general meeting shall be held, either special or general.

Section 26 of the Corporation Code provides: - Whenever, from any cause, there is no person authorized to call a meeting, or when
the officer authorized to do so refuses, fails, or neglects to call a meeting, any judge of a Court of First Instance, on the showing of
good cause therefor, may issue an order to any stockholder or member of a corporation, directing him to call a meeting of the
corporation by giving the proper notice required by this Act or the by-laws; and if there be no person legally authorized to preside
at such meeting, the judge of the Court of First Instance may direct the person calling the meeting to preside at the same until a
majority of the members or stockholders representing a majority of the stock present and permitted by law to be voted have
chosen one of their number to act as presiding officer for the purposes of the meeting.

Petitioners were not deprived of their right without due process of law. They had no right to continue as directors of the
corporation unless reelected by the stockholders in a meeting called for that purpose every even year.

ROXAS vs. DE LA ROSA

G.R. No. L-26555, November 16, 1926

FACTS: Binalbagan Estate, Inc., is a corporation having its principal plant in Occidental Negros where it is engaged in the
manufacture of raw sugar from canes grown upon farms accessible to its central.The possessors of a majority of the share of the
Binalbagan Estate, Inc., formed a voting trust composed of members (Salvador Laguda, Segundo Monteblanco, and Arthur Fisher) as
trustees. The document constituting this voting trust authorized the trustees to represent and vote the shares pertaining to their
constituents, and to this end the shareholders under too) to assign their shares to the trustees on the books of the company. The
total number of outstanding shares of the corporation is somewhat over 5,500 while the number of shares controlled by the voting
trust is less than 3,000.

The general annual meeting of the shareholders of the Binalbagan Estate, Inc., took place, at which Mr. J.P. Heilbronn appeared as
representative of the voting trust, his authority being recognized by the holders of all the other shares present at this meeting.
Upon said occasion Heilbronn, by virtue of controlling the majority of the shares, was able to nominate and elect a board of
directors to his own liking, without opposition from the minority. After the board of directors had been thus elected and had

16
qualified, they chose a set of officers. "aid officials immediately entered upon the discharge of their duties and have continued in
possession of their respective offices until the present time.

Since the creation of the voting trust there have been a number of vacancies caused by resignation or the absence of members
from the Philippine Islands, with the result that various substitutions have been made in the personnel of the voting trust. At the
present time the petitioners Roxas, Echaus, and Lacson presumably constitute its membership. Although the present officers of the
Binalbagan Estate, Inc.,were elected by the representative of the voting trust, the present trustees want to oust the said officiers
without awaiting the termination of their official term at the expiration of one year from the date of their election. They caused the
secretary of the Binalbagan Estate Inc. to issue a notice calling for a general hearing for the election of the board of directors, for
the amendment of the by-laws and other businesses.

Because of this, Agustin Coruna, as member of the existing board, and Lauro Ledesma, as a simple shareholder of the corporation,
instituted a civil action in the CFI against the trustees for the purpose of enjoining the meeting. Respondent judge issued a writ of
preliminary injunction preventing the meeting from taking place. Petitioners now assert this was beyond the powers of the Judge.

ISSUE: Whether or not the meeting to replace the current directors can be held

RULING: NO. Upon examining into the number of shares controlled by the voting trust, it will be seen that, while the trust
controls a majority of the stock, it does not have a clear two-third majority. The intention of the planned meeting is obviously to
replace the current board of directors as if the directorate had been vacant. The law contemplates and intends that there shall be
one set of directors at a time and that new directors shall be elected only as vacancies occur in the directorate by death,resignation,
removal, or otherwise.There is insinuation that there was some irregularity in the election of the present directorate, but there is
no evidence of this. The present board of the directors are then the de facto incumbents whose acts will be valid until they are
lawfully removed/discharged.

EXPERTRAVEL & TOURS, INC. vs. COURT OF APPEALS

G.R. No. 152392, May 26, 2005

FACTS: Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do
business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario
Aguinaldo and his law firm.

KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the Regional Trial Court (RTC) of Manila, for the collection of a sum
of money. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he
was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. ETI filed a motion to dismiss the
complaint on the ground that Atty. Aguinaldo was not authorized to execute the verification and certificate of non-forum shopping
as required by Section 5, Rule 7 of the Rules of Court.

KAL later submitted an Affidavit executed by its general manager Suk Kyoo Kim, alleging that the board of directors conducted a
special teleconference, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of
directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the
complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution. The trial
court issued an Order denying the motion to dismiss, giving credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim that the
KAL Board of Directors indeed conducted a teleconference during which it approved a resolution as quoted in the submitted
affidavit. ETI filed a motion for the reconsideration of the Order, contending that it was inappropriate for the court to take judicial
notice of the said teleconference without any prior hearing.

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However, the trial court denied the motion in its Order dated August 8, 2000. ETI then filed a petition for certiorari and mandamus,
assailing the orders of the RTC. CA afterwards rendered judgment dismissing the petition, ruling that the verification and certificate
of non-forum shopping executed by Atty. Aguinaldo was sufficient compliance with the Rules of Court. According to the appellate
court, Atty. Aguinaldo had been duly authorized by the approved board resolution, and was the resident agent of KAL. As such, the
RTC could not be faulted for taking judicial notice of the said teleconference of the KAL Board of Directors. ETI filed a motion for
reconsideration of the said decision, which the CA denied.

ISSUE: Whether or not the courts can take judicial notice of said teleconference

RULING: YES. In this age of modern technology, the courts may take judicial notice that business transactions may be made by
individuals through teleconferencing. Teleconferencing is interactive group communication (three or more people in two or more
locations) through an electronic medium. It represents a unique alternative to face-to-face (FTF) meetings. In general terms,
teleconferencing can bring people together under one roof even though they are separated by hundreds of miles. This type of
group communication may be used in a number of ways, and have three basic types: (1) video conferencing – television-like
communication augmented with sound; (2) computer conferencing – printed communication through keyboard terminals, and (3)
audio-conferencing-verbal communication via the telephone with optional capacity for telewriting or telecopying.

Teleconferencing and videoconferencing of members of board of directors of private corporations is a reality, in light of Republic
Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing
the guidelines to be complied with related to such conferences. Thus, the Court agrees with the RTC that persons in the Philippines
may have a teleconference with a group of persons in South Korea relating to business transactions or corporate governance.

ONGKINGCO vs. NLRC

G.R. No. 119877, March 31, 1997

FACTS: Petitioner Galeria de Magallanes Condominium Association, Inc. is a non-stock, non-profit corporation with a primary
purpose of holding title to the common areas of the Galeria de Magallanes Condominium Project and to manage and administer the
same for the use and convenience of the residents and/or owners. Petitioner Bienvenido Ongkingco was the president of Galeria at
the time private respondent filed his complaint. Subsequently, Galeria's Board of Directors appointed private respondent Federico B.
Guilas as Administrator/Superintendent. Respondent, however, was no longer re-appointed as Administrator; hence he filed a case
for illegal dismissal. Petitioners filed a motion to dismiss alleging that it is the SEC, and not the labor arbiter, which has jurisdiction
over the subject matter of the complaint. The LA granted the motion to dismiss, which decision was reversed by the NLRC.

ISSUE: Whether or not respondent was a corporate officer.

RULING: YES. Private respondent is an officer of Petitioner Corporation and not its mere employee. The by-laws of the Galeria
de Magallanes Condominium Association specifically include the Superintendent/Administrator in its roster of corporate officers.
He was appointed directly by the Board of Directors not by any managing officer of the corporation and his salary was, likewise, set
by the same Board. Having thus determined, his dismissal or non-appointment is clearly an intra-corporate matter and jurisdiction,
therefore, properly belongs to the SEC and not the NLRC. Despite not being elected, P.D. 902-A Sec. 5(c) expressly covers both
election and appointment of corporate directors, trustees, officers and managers.

TABANG vs. NLRC

G.R. No. 121143, January 21, 1997

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FACTS: Purificacion Tabang was a founding member, a member of the Board of Trustees, and the corporate secretary of
private respondent Pamana Golden Care Medical Center Foundation, Inc., a non-stock corporation engaged in extending medical
and surgical services. Medical Director and Hospital Administrator of private respondent's Pamana Golden Care Medical Center in
Calamba, Laguna. Although the memorandum was silent as to the amount of remuneration for the position, petitioner claims that
she received a monthly retainer fee of five thousand pesos (P5,000.00) from private respondent, but the payment thereof was
allegedly stopped in November, 1991.

As medical director and hospital administrator, petitioner was tasked to run the affairs of the aforesaid medical center and perform
all acts of administration relative to its daily operations.Petitioner was allegedly informed personally by Dr. Ernesto Naval that in a
special meeting held on April 30, 1993, the Board of Trustees passed a resolution relieving her of her position as Medical Director
and Hospital Administrator, and appointing the latter and Dr. Benjamin Donasco as acting Medical Director and acting Hospital
Administrator, respectively. Petitioner averred that she thereafter received a copy of said board resolution. Petitioner then filed a
complaint for illegal dismissal and non-payment of wages, allowances and 13th month pay before the labor arbiter but the
complaint was dismissed for lack of jurisdiction.

ISSUE: Whether or not the NLRC has jurisdiction over the case.

RULING: NO. It is the SEC which has jurisdiction over the case. The charges against private respondent partake of the nature of
an intra-corporate controversy. Similarly, the determination of the rights of petitioner and the concomitant liability of private
respondent arising from her ouster as a medical director and/or hospital administrator, which are corporate offices, is an
intra-corporate controversy subject to the jurisdiction of the SEC. Contrary to the contention of petitioner, a medical director and a
hospital administrator are considered as corporate officers under the by-laws of respondent corporation.

The president, vice-president, secretary and treasurer are commonly regarded as the principal or executive officers of a corporation
and modern corporation statutes usually designate them as the officers of the corporation. However, other offices are sometimes
created by the charter or by-laws of a corporation or the board of directors may be empowered under the by-laws of a corporation
to create additional offices as may be necessary.

In the case at bar, considering that herein petitioner, unlike an ordinary employee, was appointed by Respondent Corporation’s
Board of Trustees in its memorandum, she is deemed an officer of the corporation. Section 5(c) of Presidential Decree No. 902-A,
provides that the SEC exercises exclusive jurisdiction over controversies in the election appointment of directors, trustees, officers
or managers of corporations, partnerships or associations, applies in the present dispute. Accordingly, jurisdiction over the same is
vested in the SEC, and not in the Labor Arbiter or the NLRC.

A corporate officer's dismissal is always a corporate act, or an intra-corporate controversy, and the nature is not altered by the
reason or wisdom with which the Board of Directors may have in taking such action.

GURREA vs. LEZAMA

G.R. No. L-10556, April 30, 1958

FACTS: Gurrea sought to have Resolution No. 65 of the Board of Directors of the La Paz Ice Plant and Cold Storage Co.,
Inc., removing him from his position of manager of said corporation declared null and void and to recover damages incident thereto.
The action is predicated on the ground that said resolution was adopted in contravention of the provisions of the by-laws of the
corporation, of the Corporation Law and of the understanding, intention and agreement reached among its stockholders. Jose
Manuel Lezama answered the complaint setting up as defense that Gurrea had been removed by virtue of a valid resolution. Gurrea
moved for the issuance of a writ of preliminary injunction to restrain Lezama from managing the corporation pending the
determination of this case, but after hearing where parties presented testimonial and documentary evidence, the court denied the
motion. Thereafter, by agreement of the parties and without any trial on the merits, the case was submitted for judgment on the
sole legal question of whether plaintiff could be legally removed as manager of the corporation merely by resolution of the board of
directors or whether the affirmative vote of 2/3 of the paid shares of stocks was necessary for that purpose.

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The trial court held that the removal of Gurrea was legal and dismissed the complaint without pronouncement as to costs. Gurrea
appealed to the Court of Appeals but finding that the question at issue is one of law, the latter certified the case to the SC for
decision.

ISSUE: Whether or not Gurrea was properly removed from his position as manager of La Paz Ice Plant by a mere resolution.

RULING: YES. Section 33 of the Corporation Law provides: “Immediately after the election, the directors of a corporation must
organize by the election of a president, who must be one of their number, a secretary or clerk who shall be a resident of the
Philippines . . . and such other officers as may be provided for in the by-laws.”

The by-laws of the instant corporation in turn provide that in the board of directors there shall be a president, a vice-president, a
secretary and a treasurer. These are the only ones mentioned therein as officers of the corporation. The manager is not included
although the latter is mentioned as the person in whom the administration of the corporation is vested, and with the exception of
the president, the by-laws provide that the officers of the corporation may be removed or suspended by the affirmative vote of
2/3 of the corporation.

From the above the following conclusion is clear: that we can only regard as officers of a corporation those who are given that
character either by the Corporation Law or by its by-laws. The rest can be considered merely as employees or subordinate officials.
And considering that Guerra has been appointed manager by the board of directors and as such does not have the character of an
officer, the conclusion is inescapable that he can be suspended or removed by said board of directors under such terms as it may
see fit and not as provided for in the by-laws, without the 2/3 vote of the stockholders, as required when an officer is to be
removed.

Evidently, the power to appoint carries with it the power to remove, and it would be incongruous to hold that having been
appointed by the board of directors he could only be removed by the stockholders. One distinction between officers and agents of a
corporation lies in the manner of their creation.

An officer is created by the charter of the corporation, and the officer is elected by the directors or the stockholders. An agency
is usually created by the officers, or one or more of them, and the agent is appointed by the same authority. It is clear that the two
terms officers and agents are by no means interchangeable.

PSBA vs. LEANO

GR L- 58468, February 24, 1984

FACTS: Tan is one of the stockholders of PSBA. He was a director and Executive Vice- President enjoying salaries and
allowances. During a regular meeting, the Board of Directors declared all corporate positions vacant except those of the president
and chairman and at the same time elected new set of officers. Tan was not re elected for which he filed for illegal dismissal before
the NLRC. He also instituted a one million peso damage suit before the Court of First Instance for the illegal and oppressive removal.
He lodged another complaint with the SEC questioning the validity of the elections and his ouster. The SEC issued a subpoena duces
tecum commanding the production of all corporate documents, records, books. The Labor Arbiter also issued a subpoena duces
tecum for the production of the same records and documents. Petitioners moved for the dismissal of the complaint before the
NLRC invoking the principle against split jurisdiction.

ISSUE: Whether or not the NLRC has jurisdiction over the case.

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RULING: NO. PSBA is a domestic corporation duly organized and existing under our laws. General management is vested in a
Board of seven elected annually by stockholders entitled to vote, who serve until the election and qualification of their successors.
Any vacancy in the board of directors is filled up by a majority vote of the subscribed capital stock entitled to vote at a meeting
generally called for the purpose, and the directors so chosen shall hold office for the unexpired term. Corporate officers are
provided for, among them, the Executive Vice-President, who is elected by the board from their own number. The officers receive
such salaries as the board may fix. The by-laws likewise provide that should the office be rendered vacant by reason of death,
resignation, disqualification or otherwise, the board, by a majority vote may choose a successor who shall hold office for the
unexpired term of the predecessor.

The controversy is intra-corporate in nature. It revolves around the election of directors, officers and managers of PSBA, the
relation between and among its stockholders, and between them and the corporation. PD 902-A vests in the SEC the original and
exclusive jurisdiction to hear and decide cases involving controversies arising out of intra-corporate relations between and among
stockholders, and between the stockholders and the corporation. It also has exclusive jurisdiction over controversies involving the
election and appointment of officers, directors, trustees or managers of such corporation.

The case is not a case of dismissal. The case is that of a corporate office having been declared vacant and of Tan’s not having been
re-elected thereafter. The matter of whom to elect is a prerogative that belongs to the Board and involves the exercise of deliberate
choice and the faculty of discriminative selection. Generally speaking, the relationship of a person to the corporation, whether as an
officer or as agent or employee, is not determined by the services performed but by the incidents of the relationship as they
actually exist.

PEARSON & GEORGE, (S.E. ASIA), INC. vs. NLRC

G.R. No. 113928, February 1, 1996

FACTS: The petitioner insists that the Labor Arbiter and the NLRC do not have jurisdiction over the private respondent’s
complaint for illegal dismissal arising out of his removal as Managing Director of the petitioner due to his non-reelection and the
abolition of the said position. It claims that the matter is intra-corporate and thus falls within the exclusive jurisdiction of the
Securities and Exchange Commission pursuant to Section 5(c) of P.D. No. 902-A.

Private respondent Leopoldo Llorente was a member of the Board of Directors of the petitioner and was elected as Vice-Chairman
of the Board and as Managing Director for a term of one year and until his successor should have been duly elected pursuant to the
petitioner’s by-laws. On 29 January 1990, Llorente was preventively suspended, with pay, by reason of alleged anomalous
transactions entered by him, which were prejudicial to the interest of the petitioner. Llorente, protested his suspension and
requested an examination of the supporting documents to enable him to explain the accusations leveled against him, but to no
avail.

At the regular stockholders’ meeting on 5 March 1990, the stockholders of the petitioner elected a new set of directors. Llorente
was not reelected. On the same day, the new Board of Directors held a meeting wherein it elected a new set of officers and
abolished the position of Managing Director. The petitioner’s counsel informed Llorente of his non-reelection, the abolition of the
position of Managing Director, and his termination for cause. Llorente filed with the Labor Arbiter a complaint for unfair labor
practice, illegal dismissal, and illegal suspension alleging therein that he was dismissed without due process of law.

ISSUE: Whether or not it is the NLRC which has jurisdiction over the complaint for illegal dismissal which the private
respondent had filed with the NLRC.

RULING: NO. The removal of Llorente as Managing Director is purely an intra-corporate dispute which falls within the exclusive
jurisdiction of the SEC and not of the NLRC. In reality, Llorente was not dismissed. If he lost the position of Managing Director, it was
primarily because he was not reelected as Director during the regular stockholders’ meeting. The office of Managing Director

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presupposes that its occupant is a Director; hence, one who is not a Director of the petitioner or who has ceased to be a Director
cannot be elected or appointed as a Managing Director. The holding of the position of Director is a prerequisite for the election,
appointment, or designation of Managing Director. If a Managing Director should lose his position because he ceased to be a
Director for any reason, such as non-reelection as in the case of Liorente, such loss is not dismissal but failure to qualify or to
maintain a prerequisite for that position. Then too, the position of Managing Director was abolished.

Any question relating or incident to the election of the new Board of Directors, the non-reelection of Liorente as a Director, his loss
of the position of Managing Director, or the abolition of the said office are intra-corporate matters. Disputes arising therefrom are
intra-corporate disputes which, if unresolved within the corporate structure of the petitioner, may be resolved in an appropriate
action only by the SEC pursuant to its authority under paragraphs (b) and (c), Section 5 of P.D. No. 902-A.

REAHS CORP. vs. NLRC

GR 117473, 15 April 1997

FACTS: Private respondents sued Reahs Corp. for unfair labor practice and illegal dismissal. They claim that they were
unlawfully dismissed and were not awarded nor given any separation pay.

On the other hand, respondents allege that sometime in 1986, a certain Ms Soledad Domingo, the sole proprietress and operator of
Rainbow Sauna located at 316 Araneta Avenue, Quezon City, offered to sell her business to respondent Reah's Corporation After
the sale, all the assets of Ms Domingo were turned over to respondent Reah's, which put a sing-along coffee shop and massage
clinic; that complainant Red started his employment on the first week of December 1988 as a room boy at P50.00/day and was
given living quarters inside the premises as he requested; that sometime in March 1989, complainant Red asked permission to go to
Bicol for a period of ten (10) days, which was granted, and was given an advance money of P1,200.00 to bring some girls from the
province to work as attendants at the respondent's massage clinic, that it was only on January 1, 1990 that complainant Red
returned and was re-hired under the same terms and conditions of his previous employment with the understanding that he will
have to refund the P1,200.00 cash advance given to him; that due to poor business, increase in the rental cost and the failure of
Meralco to reconnect the electrical services in the establishment, it suffered losses leading to its closure.

The NLRC ruled in favor of respondents. Together with the corporation, the NLRC also held Castulo, Romeo Pascua, and Daniel
Valenzuela solidarily liable due to their capacity as Chairman, Board Member and Accountant, and Acting Manager, respectively.

ISSUE: Whether or not Pascua, Castulo, and Valenzuela, may be held liable.

RULING: YES. They acted in bad faith in dismissing the respondents. As a general rule established by legal fiction, the
corporation has a personality separate and distinct from its officers, stockholders and members. Hence, officers of a corporation are
not personally liable for their official acts unless it is shown that they have exceeded their authority. This fictional veil, however, can
be pierced by the very same law which created it when "the notion of the legal entity is used as a means to perpetrate fraud, an
illegal act, as a vehicle for the evasion of an existing obligation, and to confuse legitimate issues". Under the Labor Code, for
instance, when a corporation violates a provision declared to be penal in nature, the penalty shall be imposed upon the guilty
officer or officers of the corporation.

In the case at bar, the thrust of petitioners' arguments was aimed at confining liability solely to the corporation, as if the entity were
an automaton designed to perform functions at the push of a button. The issue, however, is not limited to payment of separation
pay under Article 283 but also payment of labor standard benefits such as underpayment of wages, holiday pay and 13th month pay
to two of the private respondents. While there is no sufficient evidence to conclude that petitioners have indiscriminately stopped
the entity's business, at the same time, petitioners have opted to abstain from presenting sufficient evidence to establish the
serious and adverse financial condition of the company.

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SMITH vs. VAN GORKOM

488 A.2d 858, January 29, 1985

FACTS: Trans Union had large investment tax credits (ITCs) coupled with accelerated depreciation deductions with no
offsetting taxable income. Their short term solution was to acquire companies that would offset the ITCs, but the Chief Financial
Officer, Donald Romans, suggested that Trans Union should undergo a leveraged buyout to an entity that could offset the ITCs. The
suggestion came without any substantial research, but Romans thought that a $50-60 share price (on stock currently valued at a
high of $39 ½) would be acceptable. Van Gorkom did not demonstrate any interest in the suggestion, but shortly thereafter pursued
the idea with a takeover specialist, Jay Pritzker. With only Romans’ unresearched numbers at his disposal, Van Gorkom set up an
agreement with Pritzker to sell Pritzker Trans Union shares at $55 per share. Van Gorkom also agreed to sell Pritzker one million
shares of Trans Union at $39 per share if Pritzker was outbid. Van Gorkom also agreed not to solicit other bids and agreed not to
provide proprietary information to other bidders. Van Gorkom only included a couple people in the negotiations with Pritzker, and
most of the senior management and the Board of Directors found out about the deal on the day they had to vote to approve the
deal. Van Gorkom did not distribute any information at the voting, so the Board had only the word of Van Gorkom, the word of the
President of Trans Union (who was privy to the earlier discussions with Pritzker), advice from an attorney who suggested that the
Board might be sued if they voted against the merger, and vague advice from Romans who told them that the $55 was in the
beginning end of the range he calculated. Van Gorkom did not disclose how he came to the $55 amount. On this advice, the Board
approved the merger, and it was also later approved by shareholders.

ISSUE: Whether or not the business judgment by the Board to approve the merger was an informed decision.

RULING: The Delaware Supreme Court held the business judgment to be gross negligence, which is the standard for
determining whether the judgment was informed. The Board has a duty to give an informed decision on an important decision such
as a merger and can not escape the responsibility by claiming that the shareholders also approved the merger. The directors are
protected if they relied in good faith on reports submitted by officers, but there was no report that would qualify as a report under
the statute. The directors can not rely upon the share price as it contrasted with the market value. And because the Board did not
disclose a lack of valuation information to the shareholders, the Board breached their fiduciary duty to disclose all germane facts.

MONTELIBANO vs. CA and BACOLOD-MURCIA MILLING COMPANY, INC.

G.R. No. 85757, July 8, 1991

FACTS: Montelibano et al. are sugar planters adhered to the Bacolod-Murcia Milling Co., Inc’s sugar central mill under identical
milling contracts originally executed in 1919. In 1936, it was proposed to execute amended milling contracts, increasing the
planters’ share of the manufactured sugar, besides other concessions. To this effect, a printed Amended Milling Contract form was
drawn up.

The Board of Directors of Bacolod-Murcia Milling Co., Inc. adopted a resolution granting further concessions to the planters over
and above those contained in the printed Amended Milling Contract on August 10, 1936.

The printed Amended Milling Contract was signed by the Appellants on September 10, 1936, but a copy of the resolution was not
attached to the printed contract until April 17, 1937.

In 1953, the appellants initiated an action, contending that 3 Negros sugar centrals had already granted increased participation to
their planters, and that under paragraph 9 of the resolution of August 20, 1936, the appellee had become obligated to grant similar
concessions to the appellants herein.

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The Bacolod-Murcia Milling Co., inc., resisted the claim, urging that the resolution in question was null and void ab initio, being in
effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt.

ISSUE: Whether or not the act of the BOD was ultra vires

RULING: NO (The Bacolod-Murcia Milling Co., Inc. is ordered to pay appellants the increase of participation in the milled sugar in
accordance with paragraph 9 of the Resolution of August 20, 1936.)

As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will
cause losses or decrease the profits of the central, the court has no authority to review them.

Xx It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and
directors of a corporation, and the court is without authority to substitute its judgment of the board of directors; the board is the
business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts.

It must be remembered that the controverted resolution was adopted by appellee corporation as a supplement to, or further
amendment of, the proposed milling contract, and that it was approved on August 20, 1936, twenty-one days prior to the signing by
appellants on September 10, of the Amended Milling Contract itself; so that when the Milling Contract was executed, the
concessions granted by the disputed resolution had been already incorporated into its terms.

BOARD OF LIQUIDATORS vs. HEIRS OF MAXIMO KALAW

GR L-18805, August 14, 1967

FACTS: National Coconut Corporation (NACOCO) is with Maximo Kalaw as its General Manager and Chairman of the BOD.
Under his tenure NACOCO entered into different contracts involving the trade of coconuts. It failed, however, due to natural
calamities that greatly affected the production of coconuts. This led to some customers of NACOCO suing the corporation for
undelivered coconuts due to them under the contracts that they signed. This was settled by NACOCO by paying the customers.

Thereafter, NACOCO seeks to recover the above sum of P1,343,274.52 from general manager and board chairman Maximo M.
Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old
Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach trust
for having approved the contracts.

ISSUE: Whether or not Kalaw may be held liable by NACOCO for the debts the corporation incurred under his administration.

RULING: NO. They were done with implied authority from the BOD. These previous contracts, it should be stressed, were signed
by Kalaw without prior authority from the board. Said contracts were known all along to the board members. Nothing was said by
them. The aforesaid contracts stand to prove one thing. Obviously NACOCO board met the difficulties attendant to forward sales by
leaving the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw.

Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom,
and policy, the general manager may bind the company without formal authorization of the board of directors. In varying language,
existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the
knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the
affairs of the corporation.

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Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers
or others relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that "[t]he corporation
and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time."
The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more nor less than the
making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, and any
ratification or adoption is equivalent to a grant of prior authority.

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