corp writing digests.doc

8/14/2019 corp writing digests.doc

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CIR v club FilipinoManuel dulayPhilips Export BV v CAPC Javier and Sons v CA!all v PiccioSalvatierra v "arlitos

Chain# $ai She% School v CA &'() S *+,-.o/ano v delos Santos.oyola "rand Villas !o0eo1ners south Assoc Inc &South Assoc- v CA &)(2 S 2+'-Fleischer v Botica 3olasco"ov4t o5 Phils V El !o#ar"uan/on v Re#ister o5 6eeds7ra0at Mercantile Inc v CACa#ayan Fishin# v Sandi%oRP v Aco8e Minin#Madri#al 9 Co v :a0ora"ov4t o5 Philippines v El !o#arPirovano v 6ela Ra0aRa0ire/ v ;rientalist Co 9 Fernande/.ope/ v Ericta

Expertravel 9 7ours v CA and $orean AirlinesPri0e uidators v $ala1:a0boan#a 7ransportation v Bachrach MotorPonce et al v Encarnacion6etective 9 Protective Bureau v Cloribel"o%on#1ei v SECRoxas v 6ela RosaAn#eles v Santos6ela Ra0a et al v Ma?ao Su#arEverett v Asia Ban%in#Montelibano et al v Bacolod?Murcia Millin# Co IncSteinber# v VelascoMead v EC McCullou#hBarretto v .a Previsora FilipinaPardo v !ercules .u0ber"on/ales v P3BVera#uth v Isabela Su#ar Co"o%on#1ei v SECEvan#elista et al v SantosRepublic Ban% v CuadernoRepublic Ban% v CuadernoBayla et al v Silan# 7ra55ic Co IncBenito v SECVelasco v Poi/at.in#ayen "ul5 Electric v Balta/ar6a Silva v Aboiti/ 9 Co Inc3ational Exchan#e v 6exter

Fua Cun v Su00ersBalta/ar v .in#ayen "ul5 Electric3ava v Peers Mar%etin# Corp3ielson 9 Co v .epanto Consolidated Minin# CoPhilippine 7rust Co v RiveraRa/on v IACRural Ban% o5 Salinas v CAFinancin# Corporation v 7eodoroRepublic v Bisaya .and 7rans CoPepsi?Cola Products Phils v CA3ational Abaca v PoreRepublic v Mars0an 6evt CoReyes v Blouse et alEd1ard 3ell Co0pany v Paci5ic Far0s Inc

Colu0bia Pictures v CA"eneral "ar0ents Corp v 6irector o5 Patents.e Che0ise .acoste v Fernande/


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Mentholatu0 v Man#ali0anA#ilent 7echnolo#ies Sin#apore v Inte#rated Silicon 7echnolo#y PhilsMerrill .ynch Futures v CAAnta0 Consolidated v CA

Municipality of Malabang vs. Benito (1969)Lee vs. CA (1992)

Western Institute of Technology v Salas (1997)

Bitong v CA (1998)Apocada v NLRC

Tan v SEC (1992)Sunset View Condominium Corp v Campos

elano v. CA (19!1CL"M"N#"$ "#. AL. v. CA (199%

A&&'CA#" BAN* v. CA (199!Co++unications Mate,ials vs. CA$ (1996)San Juan Structural and Steel Fabricatiors vs. CA (1998)

Uichico, et al. vs. NLRC

Tramat Mercantile, Inc. vs. CA


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CR v Club -ilipino. The "Club Filipino, nc. de Cebu," (Club, !or short), is a civic corporation,onin# and operatin# a club house, a bolin# alle$, a #ol! course, and a bar%restaurant here itsells ines and li&uors, so!t drin's, eals and short orders to its ebers and their #uests. Thebar%restaurant as a necessar$ incident to the operation o! the club and %its #ol!%course. Theclub is operated ainl$ ith !unds derived !ro ebership !ees and dues. hatever pro!its it

had, ere used to de!ra$ its overhead e*penses and to iprove its #ol!%course. n 19+1, as aresult o! a capital surplus, arisin# !ro the re%valuation o! its real properties, the value or priceo! hich increased, the Club declared stoc' dividends but no actual cash dividends eredistributed to the stoc'holders. n 19+-, a / a#ent discovered that the Club has never paidpercenta#e ta* on the #ross receipts o! its bar and restaurant. The Collector o! nternal /evenueassessed a#ainst and deanded !ro the Club, percenta#e ta*es on its #ross receipts as ell as!i*ed ta*es and coproise penalt$. The Club rote the Collector, re&uestin# !or thecancellation o! the assessent. The re&uest havin# been denied, the Club !iled the instantpetition !or revie.0 2 the respondent Club is liable !or the pa$ent o! the su o! 31-,458.86, as !i*ed andpercenta#e ta*es and surchar#es prescribed in sections 18-, 187 and 191 o! the Ta* Code,under hich the assessent as ade, in connection ith the operation o! its bar andrestaurant, durin# the periods entioned0 t has been held that the liabilit$ !or !i*ed and percenta#e ta*es, as provided b$ these

sections, does not ipso !acto attach b$ ere reason o! the operation o! a bar and restaurant. Forthe liabilit$ to attach, the operator thereo! ust be en#a#ed in the business as a bar'eeper andrestaurateur. The plain and ordinar$ o! a business is restricted to activities or a!!airs herepro!it is the purpose or livelihood is the otive, and the ter business hen used ithout&uali!ication, should be construed in its plain and ordinar$ eanin#, restricted to activities !orpro!it or livelihood. avin# !ound as a !act that the Club as or#anied to develop and cultivatesports o! all, class and denoination, !or the health!ul recreation and entertainent o! itsstoc'holders and ebers that upon its dissolution, its reainin# assests, a!ter pa$in# debts,shall be donated to a charitable 3hilippine nstitution in Cebu that it is operated ainl$ ith!unds derived !ro ebership !ees and dues that the Club:s bar and restaurant catered onl$to its ebers and their #uests that there as in !act no cash dividend distribution to itsstoc'holders and that hatever as derived on retail !ro its bar and restaurant as used tode!ra$ its overall overhead e*penses and to iprove its #ol!%course (cost%plus%e*penses%basis),it stands to reason that the Club is not en#a#ed in the business o! an operator o! bar andrestaurant (sae authorities, cited above).t is conceded that the Club derived pro!it !ro the operation o! its bar and restaurant, but such!act does not necessaril$ convert it into a pro!it%a'in# enterprise. The bar and restaurant arenecessar$ ad;uncts o! the Club to !oster its purposes and the pro!its derived there!ro arenecessaril$ incidental to the priar$ ob;ect o! developin# and cultivatin# sports !or the health!ulrecreation and entertainent o! the stoc'holders and ebers. That a Club a'es soe pro!it,does not a'e it a pro!it a'in# club.

The !act that the capital stoc' o! the respondent Club is divided into shares, does not detract!ro the !indin# o! the trial court that it is not en#a#ed in the business o! operator o! bar andrestaurant. hat is deterinative o! hether or not the Club is en#a#ed in such business is itsob;ect or purpose, as stated in its articles and b$%las. t is a !ailiar rule that the actualpurpose is not controlled b$ the corporate !or or b$ the coercial aspect o! the businessprosecuted, but a$ be shon b$ e*trinsic evidence, includin# the b$%las and the ethod o!operation.


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upon its dissolution, the Club>s reainin# assets a!ter pa$in# debts shall be donated to acharitable 3hil. nstitution.

?@0 Club Filipino is a non%stoc' corporation. Accordin# to Section 7 o! the CorporationCode, there are to eleents !or a stoc' corporation to e*ist0 1) capital stoc' divided intoshares, and -) an authorit$ to distribute to the holders o! such shares, dividends or

allotents o! the surplus pro!its on the basis o! shares held. 2ohere in Club Filipino>sA= or @ could be !ound an authorit$ !or the distribution o! its dividends or surplus pro!its.

Manual R. ulay "nt. nc. v. CA (%& 6/!). 3etitioner corporation throu#h its president,


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a #roup and the parochial instincts o! the individual ebers o! such an a##rupation o! hich


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T?ST =F C=2FHS2G S


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because such unincorporated association is incopetent to act and appropriate !or itsel! thepoers and attributes o! a corporation and cannot create a#ents or con!er authorit$. Thus thoseho act or purport to act as its representatives or a#ents do so ithout authorit$ and at theiron ris'. Considerin# that /e!uero as the ovin# spirit behind the consuation o! the leasea#reeent b$ actin# as the representative o! 3F3, his liabilit$ cannot be liited or restricted tothat iposed upon corporate shareholders. n actin# in behal! o! a corporation he 'ne to beunre#istered, he assued the ris' o! reapin# the conse&uential daa#es or resultant ri#hts i!

an$ arisin# out o! the transaction.

Caing *ai &e8 &cool v CA (1/ & !9). ?leentar$ schoolteacher Fausto =h, a teachin#in the Chian# Iai She' School in Sorso#on !or 77 $ears, as suaril$ disissed !ro theschool. n her suit a#ainst the school she deanded separation pa$, SSS bene!its, anddaa#es. She ipleaded the other o!!icials o! the school. TC disissed the coplaint but asreversed b$ the CA hich held the school liable, but not the school o!!icials. 0 2 a school thathas not been incorporated a$ be sued b$ reason alone o! its lon# continued e*istence. 0School a$ be sued. The school is #overned b$ Act -45 as aended b$ CA 184. avin#reco#nied b$ the #overnent, it as under obli#ation to incorporate under the Corporation @aithin 94 da$s !ro reco#nition. Althou#h in e*istence since 197-, it had never ade an$attept to incorporate, and thus cannot invo'e its on noncopliance ith the la to iunieit !ro =h>s coplaint. avin# contracted ith =h !or 7- $ears hile representin# itsel! aspossessed o! ;uridical personalit$, the school is no estopped !ro den$in# such personalit$.

Lo:ano v delos &antos (/5 &5%).Case involves a dispute beteen to leaders o! ;eepne$associations. @oano is president o! Iapatiran#


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b$%las proptl$. hen it did attept to !ile, - other assoc ere alread$ in e*istenceKthe2orth Assoc and the South AssocKeach ith + re#istered hoeoners ho ere alsoincorporators and o!!icers thereo!. GC clais the @GBA has been autoaticall$ dissolved !orits !ailure to !ile its corporate b$%las and non%user o! the corporate charter. @GBA !iles acoplaint ith the GC, hich the latter reco#nies in its rulin# and revo'es the certi!icates o!re#istration o! the 2orth and South Assoc. South appeals to Appeals oard o! GC, and upondisissal, appeals ith CA. CA disisses appeal, holdin# that althou#h the Corpo Code does not

provide !or autoatic dissolution o! the corporation as a result o! dela$ in !ilin# o! b$%las, theS?C has the poer to suspend or revo'e certi!icates o! re#istration, one o! the #rounds o! hichis !ailure to !ile b$%las. ut since there as no shoin# the @GBA>s re#istration as validl$revo'ed, it continued to be the reco#nied assoc in @GB. 0 2 @GBA>s !ailure to !ile its b$%las ithin the period prescribed b$ the Corpo Code had the e!!ect o! autoaticall$ dissolvin#the corporationM 0 2o. Sec 65 re&uirin# !ilin# o! b$las reveals the le#islative intent to attach adirector$, not a andator$, eanin# o! the ord Dust.E $%las a$ be necessar$ !or the#overnent o! the corporation but these are erel$ subordinate to the articles o! incorporationas ell as to the Corpo Code and related statutes. n soe cases, the b$ las ere consideredunnecessar$ to corporate e*istence or to the valid e*ercise o! corporate poers. The !ailure toe*ercise the poer ill be ascribed to ere non%action and ill no render void an$ acts o! thecorporation hich are otherise valid. There can also be no autoatic dissolution ithout noticeand copliance ith the re&uireents o! due process. The Court also stressed that substantialcopliance are ere conditions subse&uent and not prere&uisites !or ac&uisition o! corporate

responsibilit$.

o Loyola ,and 3illas 7o+eo;ne,s Assn v. CA

(199/)

The Supree Court held that althou#h the Corporation Code re&uires the !ilin# o! b$%lasithin one onth a!ter the issuance o! the Certi!icate o! ncorporation, it does note*pressl$ provide !or the conse&uences o! non%!ilin# ithin the said period. Failure to !ilethe b$%las ithin that period does not ipl$ the "deise" o! the corporation. $%lasa$ be re&uired b$ la !or an orderl$ #overnance and ana#eent o! corporations butthe$ are not essential to corporate birth. There!ore, !ailure to !ile the ithin the periodre&uired b$ la b$ no eans tolls the autoatic dissolution o! a corporation.

-leisce, v Botica Nolasco. Fleischer as the oner and trans!eree, !or valuableconsideration, o! + shares o! stoc' o! the otica 2olasco Corp, trans!erred to hi b$ the ori#inaloner. The Corporation hoever invo'es Article 1- o! its corporate b$%las, hich e!!ectivel$#ives the corporation a pre!erential ri#ht o! the shares in &uestion. t clais it has a pre!erentialri#ht to bu$ the shares !ro the ori#inal oner. hen Fleischer re&uested otica to re#ister hisshares, the latter re!used, and Fleischer sues in the TC. TC ruled i!o Fleischer, holdin# that the&uestioned Art 1- is in direct con!lict ith Sec 17 o! Act 16+9. 0 2 Art 1- o! the b$%las o!the corporation is in direct con!lict ith the Corporation @aM 0 es. The Corpo @a at the tieprovides in Sec 17 that ever$ corporation has the poer to a'e their on b$%las, providedthe$ are not inconsistent ith an$ e*istin# la, #overnin# aon# others the trans!er o! itsstoc'. This section does not conteplate an$ restriction on ho and to ho the shares a$ betrans!erred or sold, nor does it su##est an$ discriination i!o or a#ainst a certain purchaser.The holder o! these shares, as oner o! personal propert$, is at libert$ to dispose o! the toan$one he pleases, ithout an$ liitation other than in the #eneral la. ?ver$ oner o!corporate shares has the sae uncontrollable ri#ht to alienate the hich attaches to theonership o! an$ other species o! propert$. Furtherore the SC sa$s Sec 17 should beharonied ith Sec 7+ o! the sae la, hich re&uires that shares o! capital stoc' arepersonal propert$ trans!erable b$ deliver$ o! the certi!icate indorsed b$ the trans!eror%oner.For a trans!er to be valid, it should be entered into the boo's o! the corporation. G/ is thatb$las o! a corporation are valid i! the$ are reasonable and calculate to carr$ into e!!ect theob;ectives o! the corporation, and ala$s ithin the liits o! the charter. The$ ust besubordinate to the Constitution and the las o! the land, ust not in!rin#e public polic$ or behostile to public el!are, ust not disturb vested ri#hts or ipair obli#ations o! contracts. tcannot ta'e aa$ or abrid#e the substantial ri#hts o! a stoc'holder. Hnder the statuteauthoriin# b$%las !or the trans!er o! stoc', a corporation can do no ore than prescribe a#eneral ode o! trans!er on the corporate boo's and cannot ;usti!$ an unreasonable restrictionupon the ri#ht o! sale. The ri#ht o! unrestrained trans!er o! shares inheres in the ver$ nature o!

a corporation. The ri#ht to ipose restrictions on trans!er o! shares ust be con!erred upon thecorporation be the #overnin# statute or b$ the articles o! incorporation. t cannot be done b$ a


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b$%la ithout statutor$ or charter authorit$. There!ore b$%las or other re#ulations restrainin#such trans!ers, unless derived !ro statutor$ authorit$, ould be re#arded as ipositions inrestraint o! trade.

The b$%la in &uestion cannot also have an$ e!!ect on Fleischer, since he had no 'noled#e o!the b$%la hen the shares ere trans!erred to hi and obtained the sae in GF and !or value.hen no restriction is placed b$ la on the trans!er o! corporate stoc', a purchaser is not

a!!ected b$ an$ contractual restriction o! hich he had no notice or asn>t aare. A b$%la o! acorporation hich provides that trans!er o! stoc' shall not be valid unless approved b$ the board!or instance, or an$ other restriction iposed, hile it a$ be en!orced as a reasonablere#ulation !or the protection o! the corporation a#ainst orthless stoc'holders, cannot be adeavailable to de!eat the ri#hts o! third persons.


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share in the proceeds. The holder o! such share is not the oner o! an$ part o! the capital o! thecorporation, nor is he entitled to possession o! an$ de!inite portion o! its assets, neither is he aco%oner. @i&uidation b$ stoc'holders a!ter a corporation>s dissolution is not ere partitionin# o!counit$ propert$, but alread$ a conve$ance or trans!er o! title to the !ro the corporation.

The distribution o! the corporate properties to the Ss as deeed not in the nature o! apartition aon# co%oners, but rather a disposition b$ the corporation to the Ss as

opposite parties to a contract 3roperties re#istered in the nae o! the corporation are oned b$ it as an entit$ separate

and distinct !ro its ebers shares o! stoc' are personal propert$, and 2=T corporate propert$ share o! stoc' t$pi!ies an ali&uot part o! the corporation>s propert$, or the ri#ht to share in

the proceeds to that e*tent hen distributed holder o! shares is not the oner o! an$ part o! the capital o! the corporation, nor is he

entitled to the possession o! an$ de!inite portion o! its propert$ or assets

In Stoc%holders o5 F "uan/on and Sons@ Inc v Re#ister o5 6eeds o5 Manila@the distribution o5 the corporate properties to the stoc%holders 1as dee0ednot in the nature o5 a partition a0on# co?o1ners@ but rather a disposition by

the corporation to the stoc%holders@ as opposite parties to a contract It heldthat a corporation is a 8uridical person distinct 5ro0 the 0e0bers co0posin#it and that properties re#istered in the na0e o5 the corporation are o1nedby it as an entity separate and distinct 5ro0 its 0e0bers uot part o5 thecorporationDs property@ or the ri#ht to share in its proceeds to that extent 1hendistributed accordin# to la1 and e>uity@ but its holder is not the o1ner o5 anypart o5 the capital o5 the corporation@ nor is he entitled to the possession o5any de5inite portion o5 its property or assets 7he stoc%holder is not a co?o1ner or tenant in co00on o5 the corporate property

#,a+at Me,cantile nc v CA. =n 49 April 1986,


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n the case at bench, there is no indication that petitioner avid =n# could be held personall$accountable under an$ o! the aboveentioned cases.

Tramat Mercantile, Inc. vs. CA

Personal liability of a corporate director, trustee or officer along (although not necessarily) with thecorporation may so validly attach, as a rule, only when:

o He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or grossnegligence in directing its affairs, or (c) for conflict of interest, resulting in damages tothe corporation, its stockholders or other persons;

o He consents to the issuance of watered stocks or who, having knowledge thereof, doesnot forthwith file with the corporate secretary his written objection thereto;

o He agrees to hold himself personally and soidarily liable with the corporation; orHe is made, by a specific provision of law, to personally answer for his corporate action

Cagayan -ising v &andi8o. Tabora oned 6 parcels o! land in Aparri. e sold the 6 parcels to

the Ca#a$an Fishin# evelopent Copan$, (o! hich he is a prooter) then under the processo! incorporation, !or one peso, sub;ect to the /?< i!o 32, and under the condition that titleshall not pass until Ca#a$an pa$s Tabora>s debt to 32. Ca#a$an Fishin# as then !ored, andthe oard adopted a resolution authoriin# the president to sell the lands to Sandi'o !or36-444. Ca#a$an e*ecuted a deed o! sale trans!errin# and cedin# all ri#hts titles and intereststo the land to Sandi'o. Sandi'o !ailed to a'e #ood on the 32. Ca#a$an Fishin# sues Sandi'o.TC disisses suit on the #round that the deed o! sale is void.0 Ca#a$an Fishin# as not $et in e*istence hen Tabora sold to it his lands. t as not even ade !acto corp at the tie, thus not bein# in le#al e*istence it does not $et possess ;uridicalcapacit$ to enter into contracts. The Tabora contract as entered into not onl$ beteen hi anda non%e*istent corporation, but beteen hi as oner and the sae Tabora, his i!e andothers, as ere prooters o! the corporation. The$ could not have acted as a#ents !or apro;ected corporation since that hich had no le#al e*istence could have no a#ent. Acorporation, until or#anied, has no li!e and there!ore no !aculties. The SC re!used to e*tend the

doctrine o! rati!ication hich ould result in the coission o! in;ustice or !raud to third parties.Tabora oned a a;orit$ o! the shares subscribed and paid. Tabor as also one o! the directors,and title reained under Tabora>s nae. Sandi'o the bu$er dealt ith Tabora directl$ andconsidered hi as the oner. ?ven 32 treated Tabora as the oner, not the corporation. ThusCa#a$an Fishin# never reall$ purchased the lands, and thus it did not have the ri#ht to disposeb$ sale to Sandi'o.

There are circustances here the acts o! prooters a$ be rati!ied b$ the corporation,but in Ca#a$an the SC declined to e*tend the doctrine o! rati!ication hich ould result inthe coission o! in;ustice or !raud, because the ob;ect o! the contracts ere treated aspersonal assets and not corporate assets

/ati!ication is the 'e$ eleent in upholdin# the validit$ and en!orceabilit$ o! prooter>scontracts

R0 v Aco=e Mining. F0 Aco;e


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?ven in the case o! ultra vires acts hich are not ille#al per se, a corporation cannot be heard tocoplain that it is not liable !or the acts o! its board, because o! estoppel b$ representation. Theter ultra vires should be distin#uished !ro an ille#al act !or the !orer is erel$ voidablehich a$ be en!orced b$ per!orance, rati!ication, or estoppel, hile the latter is void andcannot be invalidated. t bein# erel$ voidable, an ultra vires act can be en!orced or validated i!there are e&uitable #rounds !or ta'in# such action. n this case, it is !air that the resolution be

upheld at least on the #round o! estoppel.

The de!ense o! ultra vires rests on violation o! trust or dut$ toards the stoc'holders, andshould not be entertained here its alloance ill do #reater ron# to innocent parties dealin#ith the corporation. The acceptance o! bene!its arisin# !ro the per!orance o! the otherpart$ #ives rise to an estoppel precludin# the repudiation o! the contract.

Republic of te 0ilippines vs. Aco=e Mining Co. (196)

Aco;e s eplo$ee, Sanche, as desi#nated as the postaster but he later disappearedith 17I o! post o!!ice !unds. Aco;e denied liabilit$ on the #round that the resolution as

ultra vires%= had no authorit$ to act on the atter.

?@0 The copan$ is estopped !ro den$in# liabilit$ on the #round that the boardresolution is ultra vires. Assuin# ar#uendo that the resolution is an ultra vires act, thesae is not void !or it as approved not in contravention o! la, custos, public order andpublic polic$. The ter ultra vires should be distin#uished !ro an ille#al act !or the!orer is erel$ voidable hich a$ be en!orced hile the latter is void and cannot bevalidated.

Mad,igal > Co v ?a+o,a.


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records. e a#ree ith the 2ational @abor /elations Coission that "QtRhe dividends receivedb$ the copan$ are corporate earnin#s arisin# !ro corporate investent." 5ndeed, as !oundb$ the Coission, the petitioner had entered such earnin#s in its !inancial stateents aspro!its, hich it ould not have done i! the$ ere not in !act pro!its. 5


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but ould retard industrial #roth and be iniical to the best interests o! societ$. e are!urtherore o! the opinion that, inasuch as the lot re!erred to as la!ull$ ac&uired b$ therespondent, it is entitled to the !ull bene!icial use thereo!. 2o le#itiate principle can discoveredhich ould den$ to one oner the ri#ht to en;o$ his (or its) propert$ to the sae e*tent that isconceded to an$ other oner.

0 2 el o#ar has en#a#ed in activities !orei#n to the purposes !or hich the corporation ascreated and not reasonabl$ necessar$ to its le#itiate ends, speci!icall$0 (1) the adinistrationo! the o!!ices in the ?l o#ar buildin# not used b$ the respondent itsel! and the rentin# o! sucho!!ices to the public (-) the adinistration and ana#eent o! properties belon#in# todelin&uent shareholders o! the association (7) the ana#eent o! soe parcels o! iprovedreal estate situated in


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soe Aerican ;urisdictions, are #enerall$ 'non as advance pa$ent shares in i! closeattention be paid to the lan#ua#e used in the last sentence o! section 18 o! the Corporation@a, it ill be !ound that special shares here evidentl$ created !or the purpose o! eetin# thecondition cause b$ the prepa$ent o! dues that is there peritted. The lan#ua#e o! thisprovision is as !ollo "pa$ent o! dues or interest a$ be ade in advance, but the corporationshall not allo interest on such advance pa$ent at a #reater rate than si* per centu perannu nor !or a lon#er period than one $ear." n one sort o! special shares the dues are prepaid

to the e*tent o! 3154 per share in the other sort prepa$ent is ade in the aount o! 314 pershare, and the subscribers assue the obli#ation to pa$ 314 onthl$ until 3154 shall have beenpaid.

t ill escape notice that the provision &uoted sa$ that interest shall not be alloed on theadvance pa$ents at a #reater rate than si* per centu per annu nor !or a lon#er period thanone $ear. The ord "interest " as there used ust be ta'en in its true sense o! copensation !orthe used o! one$ loaned, and it not ust not be con!used ith the dues upon hich it isconteplated that the interest a$ be paid. 2o, in the absence o! an$ shoin# to thecontrar$, e in!er that no interest is ever paid b$ the association in an$ aount !or the advancepa$ents ade on these shares and the reason is to be !ound in the !act that the participationo! the special shares in the earnin#s o! the corporation, in accordance ith section 188 o! theCorporation @a, su!!icientl$ copensates the shareholder !or the advance pa$ents ade b$hi and no other incentive is necessar$ to induce inventors to purchase the stoc'.

t ill be observed that the !inal -4 per centu o! the par value o! each special share is not paid!or b$ the shareholder ith !unds out o! the poc'et. The aount is satis!ied b$ appl$in# aportion o! the shareholder:s participation in the annual earnin#s. ut as the ri#ht o! ever$shareholder to such participation in the earnin#s is undeniable, the portion thus annuall$ appliedis as uch the propert$ o! the shareholder as i! it ere in !act ta'en out o! his poc'et. t !ollosthat the ission o! the special shares does not involve an$ violation o! the principle that theshares ust be sold at par.

Fro hat has been said it ill be seen that there is e*press authorit$, even in the ver$ lettero! the la, !or the eission o! advance%pa$ent or "special" shares, and the ar#uent thatthese shares are invalid is seen to be baseless. n addition to this it is satis!actoril$deonstrated in Severino vs. El Hogar Filipino, supra, that even assuin# that the statute hasnot e*pressl$ authoried such shares, $et the association has iplied authorit$ to issue the.

The coplaint conse&uentl$ !ails also as re#ards the stated in the ninth cause o! action.

0 n ?l o#ar is pursuin# ille#all$ a polic$ o! depreciatin#, at an e*cessive rate at thediscretion o! its oard, the value o! real properties ac&uired b$ it at its sales, thereb$ !rustratin#the ri#ht o! Ss to participate annuall$ and e&uall$ in the earnin#s.0 This count !or the coplaint proceeds, in our opinion, upon an erroneous notion as to hat acourt a$ do in deterinin# the internal polic$ o! a business corporation. ! the criticiscontained in the brie! o! the Attorne$%General upon the practice o! the respondent associationith respect to depreciation be ell !ounded, the @e#islature should suppl$ the reed$ b$de!inin# the e*tent to hich depreciation a$ be alloed b$ buildin# and loan associations.Certainl$ this court cannot underta'e to control the discretion o! the board o! directors o! theassociation about an adinistrative atter as to hich the$ have le#itiate poer o! action.The tenth cause o! action is there!ore not ell !ounded.

0 n el o#ar>s charter should be revo'ed because it ille#all$ aintains e*cessive reserve!unds and because it pursues a polic$, alle#edl$ unla!ul, o! pa$in# a strai#ht annual dividend o!14 re#ardless o! losses su!!ered and pro!its ade b$ the corporation and in violation o! there&uireent s o! the corpo code.0 t is insisted in the brie! o! the Attorne$%General that the aintenance o! reserve !unds isunnecessar$ in the case o! buildin# and loan associations, and at an$ rate the 'eepin# o!reserves is inconsistent ith section 188 o! the Corporation @a. Hpon care!ul consideration o!the &uestions involved e !ind no reason to doubt the ri#ht o! the respondent to aintain thesereserves. t is true that the corporation la does not e*pressl$ #rant this poer, but e thin' itis to be iplied. t is a !act o! coon observation that all coercial enterprises encounterperiods hen earnin#s !all belo the avera#e, and the prudent ana#er a'es provision !orsuch contin#encies. To re#ard all surplus as pro!it is to ne#lect one o! the priar$ canons o!#ood business practice. uildin# and loan associations, thou#h aon# the ost solid o! !inancialinstitutions, are nevertheless sub;ect to vicissitudes. Fluctuations in the dividend rate are hi#hl$detriental to an$ !iscal institutions, hile uni!orit$ in the pa$ents o! dividends, continued

over lon# periods, supplies the surest !oundations o! public con!idence.


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alone. t sees to be supposed that, hen the respondent sells propert$ ac&uired at its on!oreclosure sales and ta'es a ort#a#e to secure the de!erred pa$ents, the obli#ation o! thepurchaser is a true loan, and hence prohibited. ut in re&uirin# the respondent to sell realestate hich it ac&uires in connection ith the collection o! its loans ithin !ive $ears a!terreceivin# title to the sae, the la does not prescribe that the propert$ ust be sold !or cash orthat the purchaser shall be a shareholder in the corporation. Such sales can o! course be adeupon ters and conditions approved b$ the parties and hen the association ta'es a ort#a#e

to secure the de!erred pa$ents, the obli#ation o! the purchaser cannot be !airl$ described asarisin# out o! a loan. 2or does the !act that it is carried as a loan on the boo's o! therespondent a'e it a loan on the boo's o! the respondent a'e it a loan in la. The contentiono! the Governent under this head is untenable.

0i,ovano v ela Ra+a. Hnder the leadership and ana#eent o! ?nrico 3irovano, presidento! el /aa Steaship, the copan$ #re and pro#ressed until it becae a ulti%illioncorporation, the assets o! hich #re and increased !ro 3-64I to around 31+


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An ultra vires act a$ either be an act per!ored erel$ outside the scope o! the poers#ranted to the corporation b$ its A= or one hich is contrar$ to la or violative o! an$ principlehich ould void an$ contract. A distinction has to be ade ith respect to corporate actshich are ille#al and those erel$ ultra vires. The !orer are contrar$ to la, orals, publicorder or polic$, hile the latter are not void ab initio, but erel$ #o be$ond the scope o! thepoers in the A=, and hich renders the act erel$ voidable and thus rati!iable b$ the

stoc'holders.

0i,ovano v e la Ra+a &tea+sip (19%5)

Stoc's are oned b$ on de la /aa, his - dau#hters, and their ??s ith noinal shares.=ne o! the dau#hters as arried to the copan$ president, ?nrico 3irovano. hile thebusiness #re, the !ather distributed his stoc's aon# his + dau#hters and his i!e. 2Cas also represented in the o because the corp had a debt to it. To secure the debt, allassets ere ort#a#ed to 2C. ebt as later converted to stoc', such that 2C noheld 6 o! 9 seats in o. Such conversion released the ort#a#ed assets.

?nrico 3irovano died, so the = passed a resolution convertin# insurance proceeds on hisli!e to stoc's !or each o! his inor children. Approved b$ Ss.

oever, the other Ss realied that the$ ould actuall$ be donatin# 1.66 -e,nande:. =rientalist Co, en#a#ed in the theater business,desired to be the e*clusive a#ent o! /aire, ho is based in 3aris, !or to !il out!itsKclairFils and


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0 (1) it as incubent upon the corporation i! it desired to &uestion the authorit$ o! Fernandeto bind it, to den$ the due e*ecution o! the contract ade b$ hi. n pleadin# lac' o! authorit$o! an o!!icer o! a corporation to bind the latter throu#h a contract e*ecuted b$ the !orer is aspecial de!ense hich should be speciall$ pleaded and the anser settin# up this de!ense ustbe veri!ied under oath. The denial shall be speci!ic, and a ere attac' on the instruent in#eneral ters is insu!!icient, even thou#h under oath. n dealin# ith corporations the public at

lar#e is bound to rel$ to a lar#e e*tent upon outard appearances. ! a an is !ound actin# !ora corporation ith the e*ternal indicia o! authorit$, an$ person not havin# notice o! ant o!authorit$, a$ usuall$ rel$ upon those appearances, and i! it be !ound that the directors hadperitted the a#ent to e*ercise that authorit$ and thereb$ held hi out as a copetent personto bind the corporation, or had ac&uiesced in a contract and retained the bene!it supposed tohave con!erred b$ it, the corporation ill be bound, notithstandin# the actual authorit$ a$never have been #ranted. The public is not supposed nor re&uired to 'no the transactionshich happen around the table here the corporate board o! directors or the stoc'holders are!ro tie to tie convo'ed. t is there!ore reasonable, in a case here an o!!icer o! acorporation has ade a contract in its nae, that the corporation should be re&uired, is itdenies his authorit$, to state such de!ense in his anser. This !ailure o! =rientalist to a'e an$issue in its anser ith re#ard to the authorit$ o! /aon Fernande to bind it and its !ailure toden$ speci!icall$ under oath the #enuineness o! the due e*ecution o! the contracts sued upon,have the e!!ect o! eliinatin# the &uestion o! his authorit$ !ro the case.

(-) Fernande had no authorit$ to bind the corporation. Corporate poers is e*ercised b$ theboard o! directors, and is reco#nied in the b$las o! =rientalist. The !act that the poer toa'e contracts is thus vested in the borad does not ala$s si#ni!$ that a !oral vote o! theboard ust ala$s be ta'en be!ore contractual liabilit$ can be !i*ed the board can createliabilit$, li'e an individual, b$ other eans than b$ !oral e*pression o! its ill. t a$ beestablished ithout re!erence to o!!icial records o! the proceedin#s o! the board, b$ proo! o! theusa#e to hich the copan$ had peritted to #ro up in the business, and o! the ac&uiescenceo! the board char#ed ith the dut$ o! supervisin# and controllin# the copan$>s business.Fernande as the ost active in the e!!ort to secure the !ils. The ne#otiations ereconducted b$ hi ith the 'noled#e and consent o! the other ebers o! the board. Theboard, be!ore the !inancial inabilit$ o! the corporation as revealed, had alread$ reco#nied thecontracts as bein# in e*istence and had proceeded to ta'e the steps necessar$ to utilie the!ils, particularl$ the publication o! announceents in the papers. n li#ht o! this, the contractsin &uestion ere thus in!erentiall$ approved b$ the board and that the copan$ is bound unlessthe subse&uent !ailure o! the stoc'holders to approve the sae had the e!!ect o! abro#atin# theliabilit$ created.

(7) the action o! the stoc'holders, hatever its character, ust be i#nored. Stoc'holders orebers resolutions dealin# ith atters other than the e*ceptions are not le#all$ e!!ective norbindin# on the board, and a$ be treated as erel$ advisor$ or a$ even be copletel$disre#arded. The !unctions o! the stoc'holders o! a corporation are, o! a liited nature. Thetheor$ is that the stoc'holders a$ have all the pro!its but shall turn over the copleteana#eent o! the enterprise to their representatives or a#ents, called the directors, a'in#b$%las, and e*ercisin# special poers de!ined b$ la. Thus contracts beteen a corporationand third persons ust be ade b$ the directors and not b$ the stoc'holders. The corporationis represented b$ the directors and not the stoc'holders. Third persons can have little or noin!oration as to hat occurs in corporate eetin#s, and ust necessaril$ rel$ on e*ternalani!estations o! corporate consent. The inte#rit$ o! coercial transactions can onl$ be

aintained b$ holdin# the corporation strictl$ to the liabilit$ !i*ed upon in b$ its a#ents inaccordance ith la. ! a corporation 'noin#l$ perits one o! its o!!icers or an$ other personto do acts ithin the scope o! an apparent authorit$, and thus hold hi out to the public aspossessin# the poer to do these acts, the corporation ill be estopped !ro den$in# suchauthorit$ as a#ainst an$one ho has dealt ith the corporation in GF.

Lope: v ",icta. r Consuelo lanco as appointed ean ad interi o! the H3 Colle#e o!?ducation. The oard o! /e#ents et on -5


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nuber o! votes, the oard a#reed to e*pun#e the result o! the votin# !ro the records, on thecondition that the oard suspend action on the atter, hich had the e!!ect o! the terinationo! the lanco ad interi appointent. lanco &uestions the action o! the oard and thedesi#nation o! an o!!icer%in%char#e o! the C=? and sues in the TC. Jud#e ?ricta rules in!o rlanco.0 2 the 6 abstentions had the e!!ect o! a ne#ative vote a#ainst the ad interi appointent.0 ased on a readin# o! the inutes and the records o! the eetin#, it cannot be said that the

abstentions ere a!!irative i!o the ad interi appointent. t is clear that (1) the lancoappointent as re!erred !or stud$ b$ the Coittee hich recoended its re;ection (-)that it should be done in a diploatic a$ to avoid ebarrassent (7) the !inal decision as toas' the H3 3resident to tal' to lanco !or the appointent to be ithdran (6) a vote asta'en hich as +%7%6, and it as unclear hat it eant because the rules do not provide !orthe treatent o! abstentions (+) the Coittee ithdre its recoendation (5) the oardidenti!ied the issue o! n to con!ir the ad interi appointent () and that hile it ill de!eraction, it considered the appointent to have terinated, and thus a recoendation !or non%con!iration. Thus the votes o! abstention can in no a$ be construed as votes !or con!irationo! the appointent. There can be no doubt as to the decision o! the 3ersonnel CoitteeKitas !or re;ection o! the appointent. Also, the board resolved, ithout a vote o! dissent tocancel the action ta'en, includin# the results o! the votin#, and to return the case to its ori#inalstatus. n e!!ect, as announced b$ the Chairan, the oard has not acted on the con!irationeither adversel$ or !avorabl$, but that the ad interi appointent has terinated.

"2pe,t,avel > #ou,s v CA and *o,ean Ai,lines. F0 Iorean Airlines, throu#h Att$. A#uinaldo,!iled a Coplaint a#ainst ?*pertravel ith the /TC !or the collection o! the principal aount o!3-54,1+4.44, plus attorne$>s !ees and e*eplar$ daa#es. The veri!ication and certi!icationa#ainst !oru shoppin# as si#ned b$ Att$. A#uinaldo, ho indicated therein that he as theresident a#ent and le#al counsel o! IA@ and had caused the preparation o! the coplaint.?*pertravel !iled a otion to disiss the coplaint on the #round that Att$. A#uinaldo as notauthoried to e*ecute the veri!ication and certi!icate o! non%!oru shoppin# as re&uired b$ the/ules o! Court. IA@ opposed the otion, contendin# that Att$. A#uinaldo as its resident a#entand as re#istered as such ith the Securities and ?*chan#e Coission (S?C) as re&uired b$the CorpoCode, and as !urther alle#ed that Att$. A#uinaldo as also the corporate secretar$ o!IA@. Att$. A#uinaldo also claied that he had been authoried to !ile the coplaint throu#h aresolution o! the IA@ oard o! irectors approved durin# a special eetin# held on June -+,1999, herein the board o! directors conducted a special telecon!erence on June -+, 1999,hich he and Att$. A#uinaldo attended. t as also averred that in that sae telecon!erence,the board o! directors approved a resolution authoriin# Att$. A#uinaldo to e*ecute thecerti!icate o! non%!oru shoppin# and to !ile the coplaint. Su' I$oo Ii also alle#ed,hoever, that the corporation had no ritten cop$ o! the a!oresaid resolution. TC denies


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even represented to the Court that a cop$ o! its resolution as ith its ain o!!ice in Iorea,onl$ to alle#e later that no ritten cop$ e*isted. t as onl$ on s/esident A#ent>s Certi!icate alle#in# that the board o! directors held a

teleconference on June !, 1999. 2o such certi!icate as appended to the coplaint, hichas !iled on Septeber 5, 1999. s Certi!icateQ74Rdated Januar$ 14, -444.

The Court is, thus, ore inclined to believe that the alle#ed telecon!erence on June -+, 1999never too' place, and that the resolution alle#edl$ approved b$ the respondent>s oard o!irectors durin# the said telecon!erence as a ere concoction purpose!ull$ !oisted on the /TC,the CA and this Court, to avert the disissal o! its coplaint a#ainst the petitioner.

0,i+e @ite Ce+ent v AC. 3rie hite Ceent entered into a dealership a#reeent ithone o! its directors, Ale;andro Te, !or the latter to be the e*clusive distributor o! -4,444 ba#s o!3rie hite ceent per onth 39.4 per ba# !or the entire s contract ith his corporation is not in all instancesvoid or voidable. ! the contract is !air and reasonable under the circustances, it a$ berati!ied b$ the stoc'holders provided a !ull disclosure o! his adverse interest is ade. The

contract in this case is neither !air nor reasonable. At the tie o! the contract, the corporationhad not $et even started producin# the ceent. 3rices o! ceent, ;ust li'e an$ othercoodit$, are not stable and e*pected to rise. ithin a period o! si* $ears !ro the date o!dealership a#reeent the prices ere certain to rise, and $et the contract pe##ed the rate to39.4 per ba#. This accordin# to the Court as not !air and reasonable at all, and undul$pre;udiced the corporation. The contracts he entered into a!ter the dealership a#reeent eresuch as to copletel$ shield hi !ro an$ increase in the price o! ceent. The contracts ereonl$ !or to $ears at a tie, even i! the dealership as #ood !or +. e as atteptin# to enrichhisel! at the e*pense o! the corporation. There is no shoin# that the stoc'holders rati!ied thedealership a#reeent. Thus the sae as not valid and he cannot be alloed to reap the !ruitso! his dislo$alt$.

u Cuc8 v *ong Li 0o. Ion# @i 3o is a corporation en#a#ed in the publication o! a Chinesenespaper. ts A= provide !or a president ho shall si#n all contracts and other instruents o!

ritin#, but does not provide !or a business or #eneral ana#er. CC Chen or TC Chen asappointed #eneral business ana#er o! the paper. e then entered into an a#reeent ith uChuc' !or the printin# o! the nespaper !or 3+84 per onth. u Chuc' or'ed !or a $ear until
http://www.supremecourt.gov.ph/jurisprudence/2005/may2005/152392.htm#_ftn30http://www.supremecourt.gov.ph/jurisprudence/2005/may2005/152392.htm#_ftn30http://www.supremecourt.gov.ph/jurisprudence/2005/may2005/152392.htm#_ftn30


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the$ ere dischar#ed b$ the ne ana#er Tan Tian on# because CC Chen had le!t !or China.u Chuc' sues the paper, claiin# the the contract as !or a period o! 7 $ears, and thatdischar#e ithout ;ust cause be!ore the e*piration o! this ter entitles the to receive !ull pa$!or the reainder o! the ter. Ion# @i 3o counters that CC Chen as not authoried to enterinto the contract ith u Chuc'. TC ruled i!o o! u Chuc', concludin# that the contract had beenipliedl$ rati!ied b$ Ion# @i 3o and that althou#h he had no e*press authorit$ to enter into thecontract, since he as #eneral business ana#er in char#e o! the printin# o! the paper and thus

had iplied authorit$ to eplo$ the petitioners

0 2 CC Chen had the poer to bind the corporation throu#h the contract entioned.

0 G/0 The poer to bind a corporation b$ contract lies ith its board o! directors or trustees,but this poer a$ either be e*pressl$ or ipliedl$ dele#ated to other o!!icers or a#ents o! thecorporation. ?UC?3T=20 An o!!icer or a#ent ho has #eneral control and ana#eent o! thecorporation>s business or a speci!ic part thereo!, a$ bind the corporation b$ the eplo$ent o!such a#ents and eplo$ees as are usual and necessar$ in the conduct o! such business.?*ception to e*ception0 here the authorit$ is vested e*pressl$ in the =.

As to the ter o! eplo$ent, a ana#er has authorit$ to hire an eplo$ee !or such a periodas is custoar$ or proper under the circustances, but unless he is e*pressl$ authoried orheld out to have such authorit$, he cannot a'e a contract o! eplo$ent !or a lon# !uture

period, such as !or 7 $ears. There can be no doubt that CC Chen as #eneral ana#er o! theIon# @i 3o, had iplied authorit$ to bind the de!endant corporation b$ a reasonable and usualcontract o! eplo$ent ith the plainti!!s. ut the ter o! eplo$ent is unusuall$ lon#, andthe conditions are otherise so onerous to the de!endant corporation that the possibilit$ o! thecorporation bein# thron into insolvenc$ thereb$ is e*pressl$ conteplated in the saecontract.

The corporation also did not ipliedl$ rati!$ the contract, ;ust because the president o! Ion# @i3o sa the plainti!!s or' as printers in the o!!ice one da$. e!ore a contract can be rati!ied,'noled#e o! its e*istence ust, o! course, be brou#ht hoe to the parties ho have authorit$to rati!$ it or circustances ust be shon !ro hich such 'noled#e a$ be presued. 2osuch 'noled#e or circustances indicatin# 'noled#e is shon or proven in the case.t ean that he had poer to a'e thecontracts.

Boa,d of Liuidato,s v *ala;.


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These contracts ere contracted ithout prior authorit$ !ro the oard and ere 'non to allthe ebers, but nothin# as said b$ the. Also contracts entered into b$ Iala had beensubitted to the board a!ter e*ecution, not be!ore as re&uired b$ the b$%las. The oard has'noled#e o! this and did not ob;ect to the sae. Thus the practice o! the corporation has beento allo its G< to ne#otiate and e*ecute contracts in behal! o! 2AC=C= ithout prior oardapproval, and b$ its acts and throu#h ac&uiescence practicall$ laid aside the re&uireent in theb$%la. The contracts are there!ore valid.

/ati!ication b$ a corporation o! an unauthoried act or contract b$ its o!!icers relates bac' to thetie o! the act or contract rati!ied and is e&uivalent to ori#inal authorit$. The theor$ o!corporate rat!ication is predicated upon the ri#ht o! a corporation to contract, and an$rati!ication or adoption is e&uivalent to a #rant o! prior authorit$. /ati!ication Dcleanses thecontract !ro all its de!ects !ro the oent it as constituted. $ corporate con!iration o!the contracts in dispute on -4 Jan, the Iala contracts are thus pur#ed o! hatever vice orde!ects the$ a$ have. Thus even in the !ace o! an e*press b$%la re&uireent o! priorapproval, the la on corporations is not to be held so ri#id and in!le*ible as to !ail to reco#niee&uitable considerations.

There as no F or breach o! trust on the part o! Iala. The board 'ne, and Iala had soin!ored it, that the contracts ould cause heav$ losses. The Court !ound no trace o! an$dishonest purpose or oral obli&uit$ or ill ill that parta'es o! the nature o! !raud hich ould

consitute F on the part o! Iala. The oard did not eventhin' o! raisin# their voice in protesta#ainst past contracts hich brou#ht enorous pro!its to 2AC=C=. The rati!ication as an acto! siple ;ustice and !airness to the G< and to the best interest o! the corporation hosepresti#e ould have been seriousl$ ipaired b$ a re;ection o! the board o! those contractshich proved disadvanta#eous.

?a+boanga #,anspo,tation v Bac,ac Moto,. The Oaboan#a Transpo Corp, a corporationana#ed b$ a = coposed o! + stoc'holders, purchased truc's, autoobiles and parts !roachrach


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0once et al v "nca,nacion. At a stoc'holders eetin# o! the a#uho$ ?nterprises nc, thevoluntar$ dissolution o! the corporation and the appointent o! 3otenciano Gapol, the a;orit$stoc'holder, as receiver as a#reed upon, ith a petition !or voluntar$ dissolution dra!ted andsi#ned b$ 3once. nstead o! !ilin# the petition, Gapol chan#ed his ind and !iled a coplaint incourt to copel 3once et al to render an accountin# o! the !unds o! the corp, reiburse it !ore*penses and purchases, and other aounts hich ere alle#edl$ isspent and isappropriate

!or 3once>s on use. Gapol also sou#ht the reoval o! 3once et al as ebers o! the board,and pra$ed !or an order directin# hi to call a eetin# o! the stoc'holders and to presidethereat. - da$s later, ithout notice to the 3once #roup and to the other board ebers, theTC issued the order pra$ed !or. 3once onl$ #ot to 'no about the order hen the ban' re!usedto honor the chec's because o! its re!usal to reco#nie the ne board ebers.

0 The b$%las o! the corporation provide in part that its board shall be elected b$ thestoc'holders ever$ even $ear durin# the onth o! Januar$. The re&uireent in the Corp Codethat Don the shoin# o! #ood cause there!orE does not ean that the petition ust be set !orhearin# ith notice served upon the board. The TC as satis!ied that there as #ood causeconsiderin# that the chairan had !ailed, ne#lected, or re!used to per!or his dut$ to call aeetin# o! the stoc'holders to elect ne sets o! directors, in accordance ith the b$%las. The$had no ri#ht to continue as directors unless reelected b$ the stoc'holders in a eetin# called !orthat purpose ever$ even $ear. The$ had no ri#ht to hold%over brou#ht about b$ the !ailure to

per!or the dut$ incubent upon an$ o! the. The alle#ed ille#alit$ o! the election o! oneebers o! the board at the eetin# called b$ Gapol as authoried b$ the court bein#subse&uent to the order coplained o! and cannot a!!ect the validit$ and le#alit$ o! that order.! it be true that the director elected at the eetin# authoried b$ the court as not &uali!ied inaccordance ith the b$%las the reed$ !or the a##rieved part$ ould be a &uo arranto.

etective > 0,otective Bu,eau v Clo,ibel. Fausto Alberto as ana#in# director o! theetective and 3rotective ureau nc. ho ille#all$ seied and too' control o! the assets andboo's o! the corporation, concealed the ille#all$ and re!used to allo an$ eber o! thecorporation to e*aine. The stoc'holders in a eetin# reoved Alberto as ana#in# directorand elected Jose de la /osa, ho did not on a share o! stoc' o! the corporation. Albertore!used to vacate and surrender his o!!ice and continued to per!or unauthoried acts and touse corporate !unds. The corporation claied that Alberto arro#ated unto hisel! the poers o!the board because o! his re!usal to surrender his o!!ice despite reoval b$ the stoc'holders.

0 Since de la /osa did not on a share o! stoc' o! the corporation, he cannot becoe adirector in accordance ith the Corpo Code. ! he could not be director, then it !ollos that hecannot be ana#in# director. Since he is not &uali!ied, then Alberto cannot be copelled tovacate his o!!ice because the b$%las itsel! provide that directors shall serve until the electionand &uali!ication o! dul$ &uali!ied successor.

o8ong;ei v &"C. This involves to actions in the S?C !iled b$ John Go'on#ei, a San


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validit$ o! the b$%las has been settled.


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corporation and the stoc'holders as a bod$ are concerned. As a#ents entrusted ith theana#eent o! the corporation !or the collective bene!it o! the stoc'holders, "the$ occup$ a!iduciar$ relation, and in this sense the relation is one o! trust." DThe ordinar$ trust relationshipo! directors o! a corporation and stoc'holders", accordin# to4sha"an v. &iller," is not a attero! statutor$ or technical la. t sprin#s !ro the !act that directors have the control and#uidance o! corporate a!!airs and propert$ and hence o! the propert$ interests o! thestoc'holders. ?&uit$ reco#nies that stoc'holders are the proprietors o! the corporate interests

and are ultiatel$ the onl$ bene!iciaries thereo!.

0 %hether or not respondent San &iguel 'orporation could, as a "easure of self$ protection,disqualify a co"petitor fro" no"ination and election to its (oard of )irectors.

0 t is alle#ed that petitioner, as o!


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inalba#an ?state nc is en#a#ed in the !# o! ra su#ar !ro canes. 3ossessors o!a;orit$ o! shares !ored a votin# trust coposed o! 7 trustees. Trustees no controlled7,444 out o! +,+44 shares.

Botin# trust as able to vote =, ithout opposition !ro inorit$.

Trustees soon anted to reove the directors the$ had elected, even i! their ters had

not $et e*pired. Botin# trust caused S?C to issue notice !or a special #en t# to elect ane =.

eld0 Hnder the la, directors can onl$ be reoved b$ vote o! Ss representin# at least-7 o! the subscribed capital stoc' entitled to vote. hen the purpose is to reovedirectors, it ust be stated in call !or eetin#. ut vacancies in = can be !illed b$ erea;orit$ vote.

Trust does not have clear -7 a;orit$. Botin# trust should have stated in notice thatpurpose as to reove present =. t reove thru election o! ne o!!icers bec directors have !i*ed ter o! o!!ice

Angeles v &antos. An#eles et al ere inorit$ Ss, hile Santos et al ere the a;orit$ Sso! 3arana&ue /ice


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the corporation are apl$ protected b$ the appointent o! a receiver and thus the reoval o!the directors is unnecessar$ and unarranted.

ela Ra+a et al v Maao &uga,. erivative suit b$ 6 inorit$ Ss a#ainst the s #uarantee. Tractors ere returned to 3eabod$due to its bein# unsellable due to !inancial and a#ricultural depression in the /3. Teal orderedanother lot o! tractors !ro Sith Iir'patric', but shipent as dela$ed until the rescission o!the credit o! Teal ith Asia an'. et Sith still delivered the order, and Teal at the re&uest andadvice o! the an' accepted the dra!ts and stored the sae. Asia ban' persuaded Teal,3eabod$, and Sith Iir'patric' to enter into a Dcreditors a#reeentE herein it as utuall$a#reed that neither o! the parties should ta'e action to collect its debts !ro Teal !or - $ears.Teal soon becae indebted to Asia an' !or 3+4,444, secured b$ ort#a#e. The an' thensu##ested that, !or the utual protection o! Teal and itsel!, it as advisable that the an'should teporaril$ obtain control o! the ana#eent and a!!airs o! the copan$. To this end, itas necessar$ !or the Ss to place their shares in a votin# trust to be held b$ the an', then

the an' ould !inance Teal under its on supervision. The Teal Ss ere thus induced to enterinto the Botin# Trust A#reeent, ith the purpose that the a#reeent ill be intended !or theprotection o! all parties !ro outside creditors. Shortl$ a!ter the e*ecution and deliver$ o! thevotin# trust and the


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and above the aended contract. 1 $ears later, s stoc' !ro Ganon et al. Accd# toSteinber#, this diverted !unds supposed to be paid to creditors.

Ganon et al resi#ned as directors be!ore the o approved the purchase o! stoc's !rothe, orth 7,744. At that tie, corp oed 17I. The corp also declared dividends in !avoro! Ss, to be paid in installents so as Dnot to a!!ect !inancial condition o! the corp.E A/>shich appeared on boo's ere orthless, because receiver could not collect the.

?@0 ! directors dispose o! corp prop or pa$ aa$ its one$ ithout authorit$, the$ illbe re&uired to a'e #ood the loss out o! their private estates.

irectors are not liable !or loss to corp !ro ant o! 'noled#e, or !or ista'es o!;ud#ent, provided the$ ere honest and !airl$ ithin the scope o! the poers and

discretion con!ided to #t.ut acceptance o! o!!ice o! director iplies a copetent 'noled#e o! the duties assued,and directors cannot e*cuse iprudence bec o! their i#norance or ine*perience. ! the$coit error o! ;ud#ent throu#h ere rec'lessness or ant o! ordinar$ prudence or s'ill,the$ a$ be held liable !or conse&uences.

Creditors o! corp have ri#ht to assue that so lon# as there are outstandin# debts andliabilities, o ill not use assets o! corp to purchase its on stoc', and that it ill notdeclare dividends to Ss hen corp is insolvent.

irectors held liable.

Stoc' purchases and dividends ere !unded out o! reainin# assets. utassets W liabilities.

Ganon et al ere !avored bec the$ ere able to #et one$ ahead o! creditors/ecipients o! dividends can be held liable b$ receiver. /atio0 Ss are accessories./eeber, the$ ere the ones ho chose directors.


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Mead v "C McCulloug.0 hile a corporation reains solvent, there is no reason h$ a director or o!!icer, b$ authorit$o! a a;orit$ o! the Ss or board a$ not deal ith the corporation, loan it one$ or bu$propert$ !ro it. So lon# as a purel$ private corporation reains solvent, its director are a#entsor trustees !or the Ss. The$ oe no duties or obli#ations to others. ut the oent such acorporation becoes insolvent, its directors are trustees o! all the creditors, hether the$ areebers o! the corporation or not, and ust ana#e its propert$ and assets ith strict re#ardto their interest. A director or o!!icer a$ in GF and !or an ade&uate consideration purchase!ro a a;orit$ o! the directors or Ss the propert$ even o! an insolvent corporation, and a salethus ade to hi is valid and bindin# upon the inorit$.

here a director in a corporation accepts a position in hich his duties are incopatible iththose as such director it is presued that he has abandoned his o!!ice as director o! thecorporation

Ba,,etto v La 0,eviso,a -ilipina.F0 Suit b$ the resi#ned directors o! a buildin# and loan association to recover 1 o! the pro!itsto each coplainant in accordance ith an aendent to the b$%las, hich stipulate that the$are entitled to a li!etie annuit$ !ro the pro!its o! the corporation.

0 The aended b$%las does create an$ obli#ation to pa$ to the persons nae therein such ali!e #ratuit$ or pension out o! the pro!its. A b$%la o! this nature ust be clearl$ re#arded asbe$ond the la!ul poers o! a utual buildin# and loan association and is thus ultra vires. As itere, the b$%la cannot be held to establish a contractual relation beteen the parties.

The authorit$ con!erred upon corporations in the code re!ers to providin# copensation !or!uture services o! directors, o!!icers, and eplo$ees a!ter the adoption o! the b$%la and cannotin an$ sense be held to authorie the #ivin# o! continuous copensation to particular directorsa!ter their eplo$ent has terinated !or past services rendered #ratuitousl$ b$ the the tothe corporation. To perit the transaction ould be to create an obli#ation un'non to the la,and to countenance a isapplication o! !unds o! the buildin# and loan association to thepre;udice o! Ss.

Contracts beteen a corporation and third persons ust be ade b$ or under authorit$ o! its

board and not b$ the Ss. The action o! the Ss is onl$ advisor$ and is not bindin# on thecorporation.

Ba,,eto v La 0,eviso,a -ilipina (19)

arreto, et al. are directors o! @a 3revisora Filipina, a utual buildin# and loan assoc. $%las provide copensation o! 1 o! pro!its to each director. Copensation to appl$retroactivel$.

eld0 $%las do not create a le#al obl to pa$ li!e #ratuit$ or pension out o! its net pro!itsXY be$ond poers o! utual bld# and loan assoc.

Corp @a authories copensation onl$ !or !uture services, and cannot authoriecontinuous copensation to particular directors a!ter their eplo$ent has terinated !orpast services rendered #ratuitousl$ b$ the to the corp.

uildin# and loan associations are !ounded on strict utualit$ and e&ualit$ o! bene!its andobli#ations. An$ contract or b$%la in contravention o! a statute is ultra vires and void.There is an iplied contract ith ebers that it shall not divert !unds or poers topurposes other than !or hich it as created. All ebers ust participate e&uall$ inpro!its and bear losses. An$ diversion o! !unds to unauthoried purposes violates principleo! utualit$ beteen ebers.

Also, there as no valid consideration bec the past services ere rendered #ratuitousl$

0a,do v 7e,cules Lu+be,.F0 Corporate secretar$ o! ercules @uber re!used to perit 3ardo, a S, or his a#ent toinspect the records and business transactions o! the copan$ at the ties desired b$ 3ardo.asis o! the re!usal as the provision in the copan$>s b$%las hich stipulated that ever$ S

a$ e*aine the boo's o! the copan$ and other docuents upon the da$s hich the boardannuall$ !i*es.


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0 The resolution o! the board liitin# the ri#hts o! Ss to inspect its records to a period o! 14da$s prior to the annual S eetin# is an unreasonable restriction in accordance ith the CorpoCode, hich provides that the ri#ht to inspect can be e*ercised at reasonable hours. The ri#ht o!inspection as interpreted to ean that the ri#ht a$ be e*ercised at reasonable hours onbusiness da$s throu#hout the $ear, and not erel$ durin# an arbitrar$ period o! a !e da$schosen b$ the directors.

on:ales v 0NB.0 The Code has prescribed liitations to the ri#ht o! inspection, re&uirin# as a condition !ore*aination that the person re&uestin# ust not have been #uilt$ o! usin# iproperl$ an$in!oration secured throu#h a prior e*aination, and that the person as'in# !or such ust beactin# in GF and !or a le#itiate purpose. t is the S see'in# to e*ercise the ri#ht o! inspectionto set !orth the reasons and purposes !or hich he desires such inspection. SC held that thepurpose o! Gonales, hich as to ar hisel! ith evidence hich he can use a#ainst the ban'!or acts done b$ the latter hen he as still a total stran#er (i.e. not a S), ere not deeedproper otives and his re&uest as denied.

on:ales v. 0NB (19!)

Section 6 o! the Corporation Code has been interpreted b$ the Supree Court as no

lon#er alloin# the un&uali!ied ri#ht o! inspection o! stoc'holder o! corporate records andthat the person a'in# the deand has to sho that he is actin# in #ood !aith and !or ale#itiate purpose.

3e,agut v sabela &uga, Co.F0 irectors have the un&uali!ied ri#ht to inspect the boo's and records o! a corporation at allreasonable ties. 3rete*ts a$ not be put !orard b$ the o!!icers to 'eep a director or S !roinspectin# the boo's and inutes o! the corporation, and the ri#ht to inspect cannot be deniedon the #rounds that the director or Ss are on un!riendl$ ters ith the o!!icers. A director orS has no absolute ri#ht to secure certi!ied copies o! the inutes until these inutes have beenritten up and approved b$ the directors.

o8ong;ei v. &"C. F0 Go'on#ei, a a;or S o! San s interest as a S and has to be proper and la!ul in character and not iniical to theinterest o! the corporation.

The S>s ri#ht to inspect is based on his onership o! the assets and propert$ o! thecorporation. t is there!ore an incident o! onership o! the corporate propert$, hether thisonership or interest be tered an e&uitable onership, bene!icial onership, or &uasi%

onership, and is predicated upon the necessit$ o! sel!%protection.

=n application !or andaus to en!orce the ri#ht, it is proper !or the court to in&uire into andconsider the S>s GF and his purpose and otives in see'in# inspection. ut the ipropriet$ o!purpose such as ill de!eat en!orceent ust be set up b$ the corporation de!ensivel$ i! theCourt is to ta'e co#niance o! it as a &uali!ication. n other ords, the speci!ic provisions ta'e!ro the S the burden o! shoin# the propriet$ o! purpose and place upon the corporation theburden o! shoin# ipropriet$ o! purpose or otive.

The !orei#n subsidiar$ is holl$%oned b$ S


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the value o! their respective participation in said assets on the basis o! the value o! the sharesheld b$ the.

0 Suit ould not prosper. Ss brou#ht the action not !or the bene!it o! the corporation but !ortheir on bene!it since the$ as'ed that the de!endant a'e #ood the losses occasioned b$ hisisana#eent and pa$ the the value o! their respective participation in the corporate assetson the basis o! their respective holdin#s. The relie! sou#ht could not be done until all the

corporate debts, i! there are an$, are paid and the e*istence o! the corporation terinated b$the liitation o! its charter or b$ la!ul dissolution. Since it is the corporation hich is the realpart$%in%interest, then the relie!s pra$ed !or ust be !or the bene!it or interest o! thecorporation. hen the relie!s pra$ed !or do not pertain to the corporation, then it is an iproperderivative suit.

Republic Ban8 v Cuade,no.F0 A derivative suit as brou#ht a#ainst the o!!icers and the board. Coplaint alle#ed that thedirectors approved a resolution #rantin# e*cessive copensation to the corporate o!!icers. Suitas !iled in order to prevent dissipation o! the corporate !unds !or the pa$ent o! salaries o! thesaid o!!icers. oard clais the action cannot prosper !or !ailure to copel the board to !ile thesuit !or and in behal! o! the corporation.

0 Such a suit need not be authoried b$ the corporation here its ob;ective is to nulli!$ theaction ta'en b$ its ana#er and the board, in hich case an$ deand !or intra%corporatereed$ ould be !utile, and thus necessitatin# the court to intervene b$ #rantin# the petition!or a derivative suit.

A S in a ban'in# corporation has a ri#ht to aintain a suit !or an in behal! o! the corporation,but the e*tent o! such ri#ht depends upon hen and !or hat purpose he ac&uired the shares o!stoc' o! hich he is the oner.

=n the issue that the relators controverted the ri#ht to &uestion the appointent and selectiono! Cuaderno and ion, hich the$ contend to be the resilt o! corporate acts ith hich theplainti!! as S, cannot intervere, the SC held that an individual S is peritted to institute aderivative suit in behal! o! the corporation herein he holds stoc' in order to protect orvindicate corporate ri#hts, henever the o!!icial o! the corporation re!uses to sue, or are to ones

to be sued.

&an Miguel Co,po,ation v *an.

0 /e&uisites !or a proper derivative suit0(a) part$ brin#in# suit should be a S as o! the tie o! the act or transaction coplained o!

and at the tie o! !ilin# o! the suit. 2uber o! shareholdin#s iaterial. A bona !ideonership b$ a S in his on ri#ht su!!ices to invest hi ith standin# to brin# aderivative action in behal! o! the corporation

(b) part$ has tried to e*hausted intra%corporate reedies (ade deand on the board tosue in behal! o! the corporation, but the latter !ailed or re!used)

(c) cause o! action actuall$ devolves on the corporation, the ron#doin# or har havin#been or bein# caused to the corporation itsel! and not to the suin# S

Bayla et al v &ilang #,affic Co nc.

-Da$la et al are Ss ho !ile an action to recover certain sus o! one$ hich the$ had paidto the corporation on account o! shares o! stoc' the$ individuall$ a#reed to ta'e and pa$ !orunder certain speci!ied conditions. The action is based on a resolution b$ the board o! Silan#Tra!!ic nc. The resolution revo'es the rescission o! the a#reeent. Silan# ar#ues that theresolution does not appl$ to a$la because on the date thereo! the subscribed shares hadalread$ autoaticall$ reverted to the corporation, and the installents paid had alread$ been!or!eited, ithout need !or deand, and that the resolution itsel! had been revo'ed. TC ruled i!oSilan# Tra!!ic, invo'in# the rulin# in Belasco v 3oiat that a corporation has no le#al capacit$ torelease an ori#inal subscriber to its capital stoc' !ro the obli#ation to pa$ !or its shares, andan$ a#reeent to this e!!ect is invalid. CA a!!irs. The parties, TC and CA treated thea#reeent as a contract o! subscription to the capital stoc' o! Silan# Tra!!ic. t should be notedthat the a#reeent is entitled, DA#reeent !or nstallent Sale o! Shares in the Silan# Tra!!icCo. nc, and that hile the purchaser is desi#nated as a DsubscriberE, the corporation isdescribed as Dseller.E The a#reeent too' e!!ect lon# a!ter incorporation o! the copan$.


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- resolutions ere adopted b$ the board0 (1) proposal that the directors or Ss a'e #ood b$ne subscription the 1+ shares h had been surrendered b$ n!ante, and that the latter ouldbe released !ro his obli#ation to the corporation (-) as to 3oiat, ho as absent, he shouldbe re&uired to pa$ the aount o! his subscription upon the 1+ shares he oes to thecorporation. 3oiat, in a letter states that he as also to be relieved !ro his subscription, andthat he pre!ers Dto lose the hole o! the -+ rather than continue investin# ore one$ in aL

ruinous proposition.ESoon the copan$ becae insolvent, and Belasco as assi#nee sues 3oiat !or his unpaidsubscription.

7D3oiat is still liable on his subscription. A stoc' subscription is a contract beteen thecorporation on one side, and the subscriber on the other. t is a rule that a subscription !orshares o! stoc' does not re&uire an e*press proise to pa$ the aount subscribed, as the laiplies a proise to pa$ on the part o! the subscriber. A stoc' subscription is a subsistin#liabilit$ !ro the tie the subscription is ade, since it re&uires the subscriber to pa$ interest&uarterl$ !ro that date unless he is relieved !ro such liabilit$ b$ the b$%las.

There are to (-) reedies !or the en!orceent o! stoc' subscriptions0 (1) the !irst is a specialreed$ hich consists in perittin# the corporation to put up the unpaid stoc' !or sale, and iserel$ a reed$ in addition to that hich proceeds b$ action in court (-) the other is an action

in court, hich e*ists even thou#h no ention thereo! is ade in statute.

Hnder the nsolvenc$ @a, the assi#nee o! the insolvent corporation succeeds to all thecorporate ri#hts o! action vested in the corporation prior to its insolvenc$, and the assi#neethere!ore has the sae !reedo ith respect to suin# upon a stoc' subscription as directorstheselves ould have had under Sec 69 above cited.

Another reason0 hen insolvenc$ supervenes upon a corporation and the court assues;urisdiction to ind it up, all unpaid stoc' subscriptions becoe pa$able on deand, and are atonce recoverable in an action instituted b$ the assi#nee in court.

t evidentl$ cannot be peritted that a subscriber should escape !ro his la!ul obli#ation b$reason o! the !ailure o! o!!icers to per!or their dut$ in a'in# the call and hen the ori#inalode o! a'in# the call becoes ipracticable, the obli#ation ust be treated as due upondeand.

As to the n!ante release, it is not pre;udicial to the ri#ht o! the corporation or its assi#nee torecover !ro 3oiat, althou#h in releasin# n!ante, the board overstepped its bounds and shouldstill be liable on shares that ere not ta'en up and paid !or b$ the corporation.

3oiat continued to be liable on his subscription hen insolvenc$ supervenes and court assues ;urisdction to ind up, unpaid stoc'

subscriptions becoe pa$able on deand and are at once recoverable in an action b$ theassi#nee in insolvenc$

Lingayen ulf "lect,ic v Balta:a,

-Daltaar subscribed !or 544 shares (3144 par value) o! @in#a$en Gul! and paid 31+444, plusanother pa$ent leavin# a balance o! 318+44 unpaid.n a S eetin# it as a#reed to call the balance o! all unpaid subscribed capital stoc', the !irst+4 pa$able ithin 54 da$s, reainin# +4 pa$able ithin 54 da$s hence. All unpaidsubscription a!ter due dates o! both calls ould be sub;ect to 1- interest. All reainin# unpaidshares ould revert to the corporation.

altaar o!!ered to ithdra copletel$ !ro the corporation b$ sellin# out all his shares o!stoc'. Another resolution (2o. 1) as adopted rescindin# the previous resolution because thecorporation as not in a !inancial position to absorb the unpaid balance o! the subscribed capitalstoc'. et another resolution (2o. 6) as adopted to revalue the stoc' and assets o! thecorporation to attract outside investors.Althou#h altaar as in!ored o! the deand !or pa$ent the call hoever as not publishedin a nespaper o! #eneral circulation. Another deand as ade upon altaar, ho i#noresthe sae upon the #rounds that 1. action is preature because there as no valid call, and -.#rantin# there as a valid call, he as released !ro liabilit$ thru S /es. 2os. 1 and 6. . The

corporation sues. TC rules i!o altaar, holdin# that the resolution as null and void !or lac' o!publication.


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7DTC as correct that the la re&uires that notice o! an$ call !or the pa$ent o! unpaidsubscription should be ade not onl$ personall$ but also b$ publication. The publicationre&uireent is andator$, and the reason is because it is not onl$ to assure notice to allsubscribers, but also to assure e&ualit$ and uni!orit$ in the assessent on Ss. 2ot onl$ ustpersonal notice be #iven in one o! these atters, but the notice ust also be published once aee', !or 6 consecutive ee's in soe nespapers.

The court reiterated the rulin# in Belasco v 3oiat, here the corporation involved asinsolvent, in hich case all unpaid stoc' subscriptions becoe pa$able on deand and areiediatel$ recoverable in an action instituted b$ the assi#nee. But ;en te co,po,ation isa solvent conce,n, the rule is that the suit deandin# !or pa$ent o! unpaid subscriptionsust be preceded b$ a call or assessent a#ainst the subscribers, and onl$ then ill there be ari#ht o! action.

As to clai o! altaar that /esolution 1 released hi !ro obli#ation to pa$, in order to e!!ectthe release, there ust be unanious consent o! the Ss (here, Ss ere absent hen said/es as ade) . The G/ is that a valid and bindin# subscription cannot be cancelled so as torelease the subscriber !ro liabilit$ thereon ithout the consent o! all the Ss. Furtherore, asubscription cannot be cancelled b$ the copan$, even under a secret or collateral a#reeent!or cancellation ade ith the subscriber at the tie o! the subscription, as a#ainst personsho subse&uentl$ suebscribed or purchased ithout notice o! such a#reeent.

?*ceptions0 pursuant to a bona !ide coproise, or to set o!! a debt due !ro the corporation,a release, supported b$ consideration, ill be e!!ectual as a#ainst dissentin# Ss andsubse&uent and e*istin# creditors. A release hich i#ht ori#inall$ have been held invalid a$be sustained a!ter a considerable lapse o! tie. n the present case, the release claied b$ thealtaar does not !all under the e*ceptions re!erred to, because it as not #iven pursuant to abona !ide coproise or to set o!! a debt due !ro the corporation and there as noconsideration !or it.

(7Dnot indivisible)

/eason !or andator$ provision that call should be strictl$ coplied it7Dto assure noticeto all subscribers, and to assure e&ualit$ and uni!orit$ in the assessent on Ss

A contract o! subscription is at least in the sense that it creates an estoppel, a contractaon# the several subscribers, and thus none o! the subscribers can ithdra !ro thecontract ithout the consent o! the rest and thereb$ diinish the coon !und hich allhave an interest in

2otice !or call o! pa$ent !or unpaid subscriptions ust be published, e*cept hen thecorporation is insolventKpa$ent is iediatel$ deandable

G/0 A valid and bindin# subscription !or stoc' o! a corporation cannot be cancelled so as torelease the subscriber !ro liabilit$ thereon, ithout the consent o! all the Ss

?*ceptions in @in#a$en reall$ do not constitute a #ratuitous release since a valuableconsideration is actuall$ received b$ the corporation such as the cancellation o! corporatedebt

a &ilva v Aboiti: > Co nc.

-D a Silva subscribes !or 5+4 shares (par value o! 3+44) o! Aboiti. e pa$s onl$ !or -44shares, as there are reainin# 6+4 shares unpaid (3--+,444). Thru a /es., the board declaredand in!ored all subscribers and Ss that all shares unpaid b$ 71


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application o! a part o! the 4 o! the pro!it distributable. t also shos that it is the board andnot he delin&uent subscriber that a$ and ust ;ud#e and decide hether or not such valueust be paid out o! the 4 o! the pro!it. t lies there!ore, ithin the discretion o! the board toa'e use o! such authorit$.

! the board opts not the a'e use o! such authorit$, it has to other reedies to accoplishthe sae purpose, as declared b$ the Court in Belasco v 3oiat0 (1) put up the unpaid stoc' !or

sale or (-) direct action in court. n this case the board elected to avail o! the !irst reed$, andcopl$in# strictl$ ith the re&uireents o! la, the directors ade use o! the discretionar$poer #ranted b$ the la and declared that the pa$ent o! the subscription to 6+4 unpaidshares as due and deandable, and that said shares ere delin&uent.

The oard has absolute discretion to choose hich reed$ it dees proper in order tocollect the unpaid subscriptions

To other reedies0 delin&uenc$ sale and action in court

National "2cange v e2te,

-D e*ter subscribed to 744 shares o! CS Salon P Co., hich shall be Dpa$able !ro the!irst dividends declared on an$ and all shares o! said copan$ oned b$ e at the tiedividends are declared, until !ull aount o! subscription has been paid.E The subscription as

initiall$ paid 31+,444, !ro a dividend declared b$ the copan$, suppleented b$ e*ter>s onone$.e*ter incurs a balance o! 31+444 (par value o! 1+4 shares) still unpaid on his subscription. Theassi#nee o! Salon, 2ational ?*chan#e Co, sues e*ter to recover the balance. TC ruled i!o2ational ?*chan#e.

D=2 the subscription is pa$able !ro the !irst dividends declared has the e!!ect o! relievin#the subscriber !ro personal liabilit$ in an action to recover the balance

7D=! course not. A corporation has the poer to accept subscriptions upon an$ special tersnot prohibited or contrar$ to la or public polic$, provided it does not re&uire the per!oranceo! corporate acts be$ond the poers con!erred, and do not constitute a !raud upon othersubscribers, Ss, or creditors. ! it is unla!ul to issue stoc' otherise than as stated it is sel!%evident that a stipulation in a stoc' subscription that obli#ates the subscriber to pa$ nothin# !or

the shares e*cept as dividends a$ accrue upon the stoc' is ille#al. This is discriinator$ i!othe subscriber, to the detrient o! the others. 2or has a corporation the poer to receive asubscription such ters as ill operate as a !raud upon the other subscribers or Ss b$sub;ectin# the to li#hter burdens, or b$ #ivin# #reater ri#hts and privile#es, or as a !raud uponcreditors. As a #eneral rule, an a#reeent beteen a corporation and a subscriber, b$ hich thesubscription is not he be pa$able, or is to be pa$able in part onl$L is ille#al and void as in !raudo! creditors or other Ss.

Capos0 6(esides assuring equality a"ong SH, the law see-s to protect corporate creditors.&a-ing pay"ent of su#scription dependent on the eistience of profits or dividends would #econtrary to the policy #ehind the law.

-ua Cun v &u++e,s

-DChua Soco subscribed !or +44 shares (3144 par) o! China an'in# Corporation, pa$in# Z and

leavin# a balance o! 3-+,444.e issued a 32 i!o Fua Cun !or the balance, securin# the note ith a C< on the shares o! stoc',and endorsin# the receipt o! the stoc' purchase). Chua Soco as also indebted to China an'(37,71.58), and upon de!ault his interest in the +44 shareas as attached and the receiptseied b$ the sheri!!. The attachent as levied a!ter the ban' 'ne o! the !act that the receipthad been endorsed to Fua Cun.Fua Cun then sued, contendin# that b$ virtue o! pa$ent o! Z the subscription price o! theshares, Chua Soco in e!!ect becae the oner o! -+4 shares and sou#ht to have his lien on theshares be declared to hold priorit$ over the clai o! the ban'. China an' ar#ued that theinterest o! Chua Soco as erel$ an e&uit$ hich cannot be ade the sub;ect o! a Cs ri#hts consist inan e&uit$ o! +44 shares and upon pa$ent o! the unpaid portion, he becoes entitled to theissuance o! the certi!icate !or +44 shares in his !avor.


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As to the C


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o 3rovided the par value o! each represented b$ the certi!icate has been paido And it is not prohibited b$ the b$%las

Nava v 0ee,s Ma,8eting Co,p-D%%3o as an incorporator o! 3eers s nae. The court also ruled that there is no parallelis beteen 2ava and the altaarcase. n the latter, the S%incorporator as the holder o! a stoc' certi!icate, and the issue ashether the said shares had votin# ri#hts althou#h the incorporator had not !ull$ paid thesubscription, hich is not the issue in this case. There is no stoc' certi!icate issued to 3o, andithout itKhich is the evidence o! onership o! the stoc'Kthe assi#nent o! corporate sharesis e!!ective onl$ beteen the parties to the transaction. The deliver$ o! the stoc' certi!icate isessential !or the protection o! both the corporation and its Ss.

Nielson > Co v Lepanto Consolidated Mining Co.-D


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A corporation a$ le#all$ issue shares o! stoc' in consideration o! services rendered b$ aperson not a S, or in pa$ent o! indebtedness, hich is e&uivalent to issuin# a stoc' ine*chan#e !or cash. ut a share o! stoc' thus issued should be part o! the ori#inal capital stoc'o! the corporation, or part o! the stoc's issued hen the increase in capitaliation as properl$authoried. n other ords, it is the shares that are ori#inall$ issued b$ the corporation and!orin# the part o! capital that can be e*chan#ed !or cash or services rendered, or propert$Ki!the corporation has ori#inal shares o! stoc' unsold or unsubscribed, either coin# !ro the

ori#inal capitaliation or !ro the increased capitaliationKthese a$ be issued to a personalread$ a S.ut a share o! stoc' coin# !ro stoc' dividends cannot be issued to one ho is not a S o! acorporation.

A stoc' dividend is an$ dividend pa$able in shares o! stoc' o! the corporation declarin# orauthoriin# itKa distribution o! shares aon# Ss, as dividends. t is actuall$ - thin#s0 (1) adividend (-) the en!orced use o! dividend one$ to purchase additional shares at par. hen acorporation issues stoc' dividends, it shos that the corporation>s accuulated pro!its havebeen capitalied instead o! distributed to the SS or retained as surplus. Far !ro bein# arealiation o! pro!its, it tends rather to postpone said realiation, in that the !und represented b$the ne stoc' has been trans!erred !ro the surplus to the assets and are thus no lon#eravailable !or actual distribution. t reall$ adds nothin# to the interest o! each S theproportional interest reains the sae. t is the civil !ruits o! the ori#inal investent, and to the

oners o! the shares #o the !ruits.

Althou#h @epanto sa$s that the value o! the dividends declared should be the basis !ordeterinin# the aount o! copensation due to 2ielson, it does not ean that thecopensation should be ta'en !ro the aount actuall$ declared as cash dividends to bedistributed to the Ss. =therise there ould be a dilution o! the dividend that corresponds toeach share o! stoc' held b$ the Ss.

ecision odi!iedL.2ielson to #et 3744,444 in cash, as e&uivalent to 14 o! the value o! the7< stoc' dividend.

0ilippine #,ust Co. v. Rive,a.

-D3hilTrust is the assi#nee in the insolvenc$ case o! @a Cooperativa 2aval Filipina. t sues


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o! stoc' as in the possession o! de!endant /aon ho re!used to deliver said shares to theplainti!!, until the sae as surrendered b$ de!endant /aon and deposited in a sa!et$ bo* in3hilippine an' o! Coerce. 1,+44 shares o! stoo' under Stoc' Certi!icate 2o. 447 eredelivered b$ the late Chuidian to ?nri&ue because it as the latter ho paid !or all thesubscription on the shares o! stoc' in the de!endant corporation and the understandin# as thathe (de!endant /aon) as the oner o! the said shares o! stoc' and as to have possessionthereo! until such tie as he as paid there!or b$ the other noinal incorporators

stoc'holders. Since then, ?nri&ue /aon as in possession o! said stoc' certi!icate even durin#the li!etie o! the late Chuidian, !ro the tie the late Chuidian delivered the said stoc'certi!icate to /aon. $ a#reeent o! the parties delivered it !or deposit ith the ban' under the

;oint custod$ o! the parties. TC ruled /aon ons the shares, AC reverses.

/aon clais that the shares o! stoc' ere re#istered in the nae o! Chuidian onl$ as noinalstoc'holder and ith the a#reeent that the said shares o! stoc' ere oned and held b$ thepetitioner but Chuidian as #iven the option to bu$ the sae. Bicente . Chuidian insists thatthe appellate court:s decision declarin# his deceased !ather Juan T. Chuidian as oner o! the1,+44 shares o! stoc' o! ?. /aon, nc. should have included all cash and stoc' dividends and allthe pre%eptive ri#hts accruin# to the said 1,+44 shares o! stoc'.

Dho ons the sharesM oes onership o! the said shares include all cash and dividendsM7D(1) Chuidian ons the shares. For an e!!ective, trans!er o! shares o! stoc' the ode and

anner o! trans!er as prescribed b$ la ust be !olloed. Asprovidedunder the CorporationCode o! the 3hilippines, shares o! stoc' a$ be trans!erred b$ deliver$ to the trans!eree o! thecerti!icate properl$ indorsed. Title a$ be vested in the trans!eree b$ the deliver$ o! the dul$indorsed certi!icate o! stoc'. oever, no trans!er shall be valid, e*cept as beteen the partiesuntil the trans!er is properl$ recorded in the boo's o! the corporation. n the instant case, thereis no dispute that the &uestioned 1,+44 shares o! stoc' o! ?. /aon, nc. are in the nae o! thelate Juan Chuidian in the boo's o! the corporation.


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The la is clear that in order !or a trans!er o! stoc' certi!icate to be e!!ective, thecerti!icate ust be properl$ indorsed and that title to such certi!icate o! stoc' isvested in the trans!eree b$ deliver$ o! the dul$ indorsed stoc' certi!icate.

o Ra:on v AC

Chudian as issued 1,+44 shares at ? /aon nc ith the correspondin# stoc' certi!icateno 7. Said stoc' certi!icates ere delivered to ?nri&ue /aon alle#edl$ because it as thelatter ho paid !or all the subscription on the shares o! stoc' in de!endant corporation iththe understandin# that has as the oner o! said shares o! stoc' and as to havepossession until such tie as he as paid b$ other noinal incorporatorsstoc'holders.@ater on, parties delivered it !or deposit ith ban' under the ;oint custod$ o! the parties.Adinistrator o! the estate o! Chudian !iled a coplaint a#ainst ?nri&ue /aon et alpra$in# that the said stoc' certi!icates be delivered to estate o! Chudian alon# ith all cashand stoc' dividends and pre%eptive ri#hts accruin# thereto.

?@0 Chudian is still onera) Shares o! stoc' is trans!erred b$ deliver$ and endorseent o! the stoc'

certi!icateb) Such ode o! trans!er is not coplied ith in this case

c) n the boo's o! the corporation, Chudian is still the oner o! the stoc's.e as even elected eber o! the board hich proves that he is astoc'holder

d) =ne ho clais onership should sho that the sae as trans!erred tohi in accord ith the valid ode o! trans!er. This petitioner !ailed tosho

?ndorseent is a andator$ re&uireent o! la !or an e!!ective trans!er

Ru,al Ban8 of &alinas v. CA-DCleente G. Guerrero, 3resident o! the /ural an' o! Salinas, nc., e*ecuted a Special owerof 4ttorneyin !avor o! his i!e, private respondent


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inisterial capacit$, and does not tr$ to decide the &uestion o! onership. The dut$ o! thecorporation to trans!er is a inisterial one and i! it re!uses to a'e such transaction ithout#ood cause, it a$ be copelled to do so b$ "anda"us. For the petitioner /ural an' o!Salinas to re!use re#istration o! the trans!erred shares in its stoc' and trans!er boo', hich dut$is inisterial on its part, is to render nu#ator$ and ine!!ectual the spirit and intent o! Section 57o! the Corporation Code.

o Ru,al Ban8 of &alinas v

CA

Cleente, 3resident o! /ural an' o! Salinas and oner o! shares in said corporatione*ecuted a Special 3oer o! Attorne$ to his i!e


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recover 36< arisin# !or ille#al acts o! the corporation o! hich daa#e as caused

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