Corpo Digested

8/13/2019 Corpo Digested

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PHILIPPINE STOCK EXCHANGE, INC. vs. COURT OF APPEALS

G.R. No. 125469

Octo!" 2#, 199#

F$cts% The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had

sought to offer its shares to the public in order to raise funds allegedly to develop its

properties and pay its loans ith several ban!ing institutions. In "anuary, #$$%, PALI

as issued a Permit to &ell its shares to the public by the &ecurities and 'change

ommission (&'). To facilitate the trading of its shares among investors, PALIsought to course the trading of its shares through the Philippine &toc! 'change, Inc.

(P&'), for hich purpose it filed ith the said stoc! echange an application to list

its shares, ith supporting documents attached. *n +ebruary , #$$-, the Listing

ommittee of the P&', upon a perusal of PALIs application, recommended to the

P&'s /oard of 0overnors the approval of PALIs listing application. *n +ebruary

#1, #$$-, before it could act upon PALIs application, the /oard of 0overnors of the

P&' received a letter from the heirs of +erdinand '. 2arcos, claiming that the late

President 2arcos as the legal and beneficial oner of certain properties forming

part of the Puerto Azul /each 3otel and 4esort omple hich PALI claims to be

among its assets and that the Ternate 5evelopment orporation, hich is among the

stoc!holders of PALI, li!eise appears to have been held and continue to be held in

trust by one 4ebecco Panlilio for then President 2arcos and no, effectively for hisestate, and re6uested PALIs application to be deferred. PALI as re6uested to

comment upon the said letter.

PALIs anser stated that the properties forming part of the Puerto Azul

/each 3otel and 4esort omple ere not claimed by PALI as its assets. *n the

contrary, the resort is actually oned by +antasia +ilipina 4esort, Inc. and the Puerto

Azul ountry lub, entities distinct from PALI. +urthermore, the Ternate

5evelopment orporation ons only #.789 of PALI. The 2arcoses responded that

their claim is not confined to the facilities forming part of the Puerto Azul 3otel and

4esort omple, thereby implying that they are also asserting legal and beneficial

onership of other properties titled under the name of PALI. *n +ebruary 78, #$$-,

the P&' rote hairman 2agtanggol 0unigundo of the Presidential ommission on0ood 0overnment (P00) re6uesting for comments on the letters of the PALI and

the 2arcoses. *n 2arch 1, #$$-, the P&' as informed that the 2arcoses received a

Temporary 4estraining *rder on the same date, en:oining the 2arcoses from, among

others, ;further impeding, obstructing, delaying or interfering in any manner by or

any means ith the consideration, processing and approval by the P&' of the initial

public offering of PALI.; The T4* as issued by "udge 2artin &. <illarama,

'ecutive "udge of the 4T of Pasig ity in ivil ase =o. -%%-#, pending in

/ranch -$ thereof. In its regular meeting held on 2arch 7>, #$$-, the /oard of

0overnors of the P&' reached its decision to re:ect PALIs application, citing the

eistence of serious claims, issues and circumstances surrounding PALIs onership

over its assets that adversely affect the suitability of listing PALIs shares in the stoc!

echange.

*n April ##, #$$-, PALI rote a letter to the &' addressed to the then

Acting hairman, Perfecto 4. ?asay, "r., bringing to the &'s attention the action

ta!en by the P&' in the application of PALI for the listing of its shares ith the P&',

and re6uesting that the &', in the eercise of its supervisory and regulatory poers

over stoc! echanges under &ection -(:) of P.5. =o. $87@A, revie the P&'s action

on PALIs listing application and institute such measures as are :ust and proper under

the circumstances. *n the same date, or on April ##, #$$-, the &' rote to the

P&', attaching thereto the letter of PALI and directing the P&' to file its comments

thereto ithin five days from its receipt and for its authorized representative toappear for an ;in6uiry; on the matter. *n April 77, #$$-, the P&' submitted a letter

to the &' containing its comments to the April ##, #$$- letter of PALI. *n April

71, #$$-, the &' rendered its *rder, reversing the P&'s decision.

Iss&!% hether or not &' has the poer or :urisdiction to reverse the ruling of

Philippine &toc! 'change in this case.

H!'(% =o. The role of the &' in our national economy cannot be minimized. The

legislature, through the 4evised &ecurities Act, Presidential 5ecree =o. $87@A, and

other pertinent las, has entrusted to it the serious responsibility of enforcing all

las affecting corporations and other forms of associations not otherise vested in

some other government office. This is not to say, hoever, that the P&'smanagement prerogatives are under the absolute control of the &'. The P&' is,

alter all, a corporation authorized by its corporate franchise to engage in its proposed

and duly approved business. *ne of the P&'s main concerns, as such, is still the

generation of profit for its stoc!holders. 2oreover, the P&' has all the rights

pertaining to corporations, including the right to sue and be sued, to hold property in

its on name, to enter (or not to enter) into contracts ith third persons, and to

perform all other legal acts ithin its allocated epress or implied poers.

A corporation is but an association of individuals, alloed to transact under an

assumed corporate name, and ith a distinct legal personality. In organizing itself as

a collective body, it aives no constitutional immunities and per6uisites appropriate

to such a body. 11 As to its corporate and management decisions, therefore, the stateill generally not interfere ith the same. Buestions of policy and of management

are left to the honest decision of the officers and directors of a corporation, and the

courts are ithout authority to substitute their :udgment for the :udgment 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 revieable by the courts.

Thus, notithstanding the regulatory poer of the &' over the P&', and

the resultant authority to reverse the P&'s decision in matters of application for

listing in the mar!et, the &' may eercise such poer only if the P&'s :udgment is

attended by bad faith. In /oard of Li6uidators vs. Cala, 1) it as held that bad faith

does not simply connote bad :udgment or negligence. It imports a dishonest purpose

or some moral obli6uity and conscious doing of rong. It means a breach of a





G.R. No. 12/690

$&$"3 21, 1999

F$cts%

In #$$8, A/&@/= and <iva eecuted a +ilm 'hibition Agreement

hereby A/&@/= as given the right of first refusal to the net tenty@four (71)

<iva films for T< telecast under such terms as may be agreed upon by the parties

hereto, provided, hoever, that such right shall be eercised by A/&@/= from theactual offer in riting. onse6uently, <iva, through defendant 5el 4osario, offered

A/&@/=, through its vice@president haro &antos@oncio, a list of three(D) film

pac!ages (D- titles) from hich A/&@/= may eercise its right of first refusal

under the afore@said agreement. A/& /= re:ected said list. *n +ebruary 7>, #$$7,

5el 4osario approached 2s. oncio, ith a list consisting of %7 original movie

titles, as ell as #81 re@runs from hich A/&@/= may choose another %7 titles, or

a total of #%- titles, proposing to sell to A/&@/= airing rights over this pac!age of

%7 originals and %7 re@runs for P-8,888,888.88. The pac!age as re:ected by A/&@

/=. *n April 8-, #$$7, 5el 4osario and 2r. 0raciano 0ozon of 4/& discussed

the terms and conditions of <ivaEs offer to sell the #81 films. *n April 8>, #$$7,

defendant 5el 4osario received through his secretary, a handritten note from 2s.

oncio hich readsF G3ereEs the draft of the contract. I hope you find everything in

order,H to hich as attached a draft ehibition agreement, a counter@proposal

covering %D films for a consideration of PD% million. The said counter@proposal as

hoever re:ected by <ivaEs /oard of 5irectors. *n April 7$, #$$7, <iva granted

4/& the eclusive right to air #81 <iva@produced andor ac6uired films including the

fourteen (#1) films sub:ect of the present case. A/&@/= then filed a a complaint

for specific performance. 4T rendered a decision in favor of 4/& and <I<A and

against A/&@/=, ruling that there as no meeting of minds on the price and terms

of the offer. +urthermore, the right of first refusal under the #$$8 +ilm 'hibition

Agreement had previously been eercised per 2s. oncioEs letter to 5el 4osariotic!ing off ten titles acceptable to them, hich ould have made the #$$7 agreement

an entirely ne contract. The ourt of Appeals affirmed the decision of the 4T.

3ence, this petition.

ISSUES%

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A& P'4+'T'5

7. 3'T3'4 T3' 4'&P*=5'=T 4/& I& '=TITL'5 T* 2*4AL

5A2A0'&

HEL-%

1. ontracts that are consensual in nature are perfected upon mere meeting of

the minds, once there is concurrence beteen the offer and the acceptance

upon the sub:ect matter, consideration, and terms of payment a contract is

produced. The offer must be certain. To convert the offer into a contract, the

acceptance must be absolute and must not 6ualify the terms of the offerK it

must be plain, une6uivocal, unconditional, and ithout variance of any sort

from the proposal. A 6ualified acceptance, or one that involves a ne

proposal, constitutes a counter@offer and is a re:ection of the original offer.onse6uently, hen something is desired hich is not eactly hat is

proposed in the offer, such acceptance is not sufficient to generate consent

because any modification or variation from the terms of the offer annuls the

offer. nder orporation ode, unless otherise provided by said ode,

corporate poers, such as the poerK to enter into contractsK are eercised

by the /oard of 5irectors. 3oever, the /oard may delegate such poers

to either an eecutive committee or officials or contracted managers. The

delegation, ecept for the eecutive committee, must be for specific

purposes, 5elegation to officers ma!es the latter agents of the corporationK

accordingly, the general rules of agency as to the bindings effects of their

acts ould apply. +or such officers to be deemed fully clothed by the

corporation to eercise a poer of the /oard, the latter must specially

authorize them to do so. That 5el 4osario did not have the authority to

accept A/&@/=s counter@offer as best evidenced by his submission of

the draft contract to <I<As /oard of 5irectors for the latters approval. In

any event, there as beteen 5el 4osario and Lopez III no meeting of

minds.

2oral damages are in the category of an aard designed to compensate the claimant

for actual in:ury suffered. And not to impose a penalty on the rongdoer. The aard

is not meant to enrich the complainant at the epense of the defendant, but to enablethe in:ured party to obtain means, diversion, or amusements that ill serve to obviate

then moral suffering he has undergone. It is aimed at the restoration, ithin the limits

of the possible, of the spiritual status 6uo ante, and should be proportionate to the

suffering inflicted. Trial courts must then guard against the aard of eorbitant

damagesK they should eercise balanced restrained and measured ob:ectivity to avoid

suspicion that it as due to passion, pre:udice, or corruption on the part of the trial

court. The aard of moral damages cannot be granted in favor of a corporation

because, being an artificial person and having eistence only in legal contemplation,

it has no feelings, no emotions, no senses, It cannot, therefore, eperience physical

suffering and mental anguish, hich call be eperienced only by one having a

nervous system. The statement in People v. 2anero and 2ambulao Lumber



o. v. P=/ that a corporation may recover moral damages if it ;has a good

reputation that is debased, resulting in social humiliation; is an obiter dictum. *n

this score alone the aard for damages must be set aside, since 4/& is a corporation.

ONG ONG vs. -AI- S. TIU

G.R. No. 1444#6

A"' /, 200)

F$cts%

The construction of the 2asagana itimall as threatened ith stoppage

and incompletion hen its oner, the +irst Landlin! Asia 5evelopment orporation

(+LA5), hich as oned by the Tius, encountered dire financial difficulties. To

prevent foreclosure of the mortgage on the to lots here the mall as being built,

the Tius invited the *ngs, to invest in +LA5 through a Pre@&ubscription

Agrrement.

Tius committed to contribute a four@storey building and to parcels of land

to cover their additional stoc! subscription. The Tuis subse6uently rescinded the Pre@&ubscription Agreement.and alleged that the *ngs refused to give them the shares

corresponding to their property contributions of a four@story building, a #,$87.D8

s6uare@meter lot and a #%# s6uare@meter lot. 3ence, they felt they ere :ustified in

setting aside their Pre@&ubscription Agreement ith the *ngs ho allegedly refused

to comply ith their underta!ings.

The *ngs later on discovered that +LA5 had in reality oned the

property all along, even before their Pre@&ubscription Agreement as eecuted. This

meant that the #%# s6uare@meter property as at that time already the corporate

property of +LA5 for hich the Tius ere not entitled to the issuance of neshares of stoc!.

Iss&!% hether the Tuis ere correct in choosing rescission as remedy.

H!'(%

The parties Pre@&ubscription Agreement as in fact a subscription contract

as defined under &ection -8, Title <II of the orporation odeF

Any contract for the ac6uisition of unissued stoc! in

an eisting corporation or a corporation still to be formed shall be

deemed a subscription ithin the meaning of this Title,

notithstanding the fact that the parties refer to it as a purchase or

some other contract.

A subscription contract necessarily involves the corporation as one of the

contracting parties since the sub:ect matter of the transaction is property oned by

the corporation M its shares of stoc!. onsidering therefore that the real contracting

parties to the subscription agreement ere +LA5 and the *ngs alone, a civil casefor rescission on the ground of breach of contract filed by the Tius in their personal

capacities ill not prosper. Assuming it had valid reasons to do so, only +LA5 had

the legal personality to file suit rescinding the subscription agreement ith the *ngs

inasmuch as it as the real party in interest therein.

0ranting that the Tius possess the legal standing to sue for rescission based

on breach of contract, said action ill still not prosper since rescission ill violate

the Trust +und 5octrine and the procedures for the valid distribution of assets and

property under the orporation ode. In the instant case, the rescission of the Pre@

&ubscription Agreement ill effectively result in the unauthorized distribution of the

capital assets and property of the corporation, thereby violating the Trust +und

5octrine and the orporation ode, since rescission of a subscription agreement is

not one of the instances hen distribution of capital assets and property of the

corporation is alloed.

LEE S. COURT OF APPEALS

GR 9)695

4 F!"&$"3 1992

F$cts%

*n #% =ovember #$%, a complainant for sum of money as filed by theInternational orporate /an!, Inc. against &acoba 2anufacturing orp., Pablo

0onzales "r., and Tomas 0onzales ho, in turn, filed a third party complaint against

Alfa Integrated Tetile 2ills (AL+A), 4amon . Lee (AL+As president) and

Antonio 52. Lacdao (AL+As vice president) on #> 2arch #$-. *n #> &eptember

#$>, Lee and Lacdao filed a motion to dismiss the third party complaint hich the

4egional Trial ourt of 2a!ati, /ranch % denied in an *rder dated 7> "une #$.

*n # "uly #$, Lee and Lacdao filed their anser to the third party complaint.

2eanhile, on #7 "uly #$, the trial issued an order re6uiring the issuance of an

alias summons upon AL+A through the 5/P as a conse6uence of Lee and Lacdaos

letter informing the court that the summons for AL+A as erroneously served upon

them considering that the management of AL+A had been transferred to the 5/P. In



a manifestation dated 77 "uly #$, the 5/P claimed that it as not authorized to

receive summons on behalf of AL+A since the 5/P had not ta!en over the company

hich has a separate and distinct corporate personality and eistence. *n 1 August

#$, the trial court issued an order advising &acoba 2anufacturing, et. al. to ta!e

the appropriate steps to serve the summons to AL+A. *n #- August #$, &acoba

2anufacturing, et. al. filed a 2anifestation and 2otion for the 5eclaration of Proper

&ervice of &ummons hich the trial court granted on #> August #$. *n #7

&eptember #$, Lee and Lacdao filed a motion for reconsideration submitting thatthe 4ule #1, section #D of the 4evised 4ules of ourt is not applicable since they

ere no longer officers of AL+A and &acoba 2anufacturing, et. al. should have

availed of another mode of service under 4ule #1, &ection #- of the said 4ules, i.e.,

through publication to effect proper service upon AL+A. *n 7 "anuary #$$, the trial

court upheld the validity of the service of summons on AL+A through Lee and

Lacdao, thus, denying the latters motion for reconsideration and re6uiring AL+A to

file its anser through Lee and Lacdao as its corporate officers. *n #$ "anuary #$$,

a second motion for reconsideration as filed by Lee and Lacdao reiterating their

stand that by virtue of the voting trust agreement they ceased to be officers and

directors of AL+A, hence, they could no longer receive summons or any court

processes for or on behalf of AL+A. In support of their second motion for

reconsideration, Lee and Lacdao attached thereto a copy of the voting trust

agreement beteen all the stoc!holders of AL+A (Lee and Lacdao included), on the

one hand, and the 5/P, on the other hand, hereby the management and control of

AL+A became vested upon the 5/P. *n 7% April #$$, the trial court reversed itself

by setting aside its previous *rder dated 7 "anuary #$$ and declared that service

upon Lee and Lacdao ho ere no longer corporate officers of AL+A cannot be

considered as proper service of summons on AL+A. *n #% 2ay #$$, &acoba

2anufacturing, et. al. moved for a reconsideration of the *rder hich as affirmed

by the court in is *rder dated #1 August #$$ denying &acoba 2anufacturing, et.

al.s motion for reconsideration. *n # &eptember #$$, a petition for certiorari as belatedly submitted by &acoba 2anufacturing, et. al. before the ourt of Appeals

hich, nonetheless, resolved to give due course thereto on 7# &eptember #$$. *n

#> *ctober #$$, the trial court, not having been notified of the pending petition for

certiorari ith the appellate court issued an *rder declaring as final the *rder dated

7% April #$$. &acoba 2anufacturing, et. al. in the said *rder ere re6uired to ta!e

positive steps in prosecuting the third party complaint in order that the court ould

not be constrained to dismiss the same for failure to prosecute. &ubse6uently, on 7%

*ctober #$$ &acoba 2anufacturing, et. al. filed a motion for reconsideration on

hich the trial court too! no further action. *n #$ 2arch #$$8, after Lee and Lacdao

filed their anser to &acoba 2anufacturing, et. al.s petition for certiorari, the

appellate court rendered its decision, setting aside the orders of trial court :udge

dated 7% April #$$ and #1 August #$$. *n ## April #$$8, Lee and Lacdao moved

for a reconsideration of the decision of the appellate court hich resolved to deny the

same on #8 2ay #$$8. Lee and Lacdao filed the petition for certiorari. In the

meantime, the appellate court inadvertently made an entry of :udgment on #- "uly

#$$8 erroneously applying the rule that the period during hich a motion for

reconsideration has been pending must be deducted from the #%@day period to

appeal. 3oever, in its 4esolution dated D "anuary #$$#, the appellate court set aside

the aforestated entry of :udgment after further considering that the rule it relied onapplies to appeals from decisions of the 4egional Trial ourts to the ourt of

Appeals, not to appeals from its decision to the &upreme ourt pursuant to the

&upreme ourts ruling in the case of 4efractories orporation of the Philippines v.

Intermediate Appellate ourt, #>- &4A %D$ N#$$O.

Issue:

(#) hether the eecution of the voting trust agreement by Lee

and Lacdao hereby all their shares to the corporation have

been transferred to the trustee deprives the stoc!holder of their

positions as directors of the corporation.

(7) hether the five@year period of the voting trust agreement in

6uestion had lapsed in #$- so that the legal title to the stoc!s

covered by the said voting trust agreement ipso facto reverted

to Lee and Lacdao as beneficial oners pursuant to the -th

paragraph of section %$ of the ne orporation ode.

H!'(%

718 Lee and Lacdao, by virtue of the voting trust agreement eecuted in #$#

disposed of all their shares through assignment and delivery in favor of the

5/P, as trustee. onse6uently, Lee and Lacdao ceased to on at least one

share standing in their names on the boo!s of AL+A as re6uired under&ection 7D of the ne orporation ode. They also ceased to have anything

to do ith the management of the enterprise. Lee and Lacdao ceased to be

directors. 3ence, the transfer of their shares to the 5/P created vacancies in

their respective positions as directors of AL+A. The transfer of shares from

the stoc!holders of AL+A to the 5/P is the essence of the sub:ect voting

trust agreement. onsidering that the voting trust agreement beteen AL+A

and the 5/P transferred legal onership of the stoc!s covered by the

agreement to the 5/P as trustee, the latter because the stoc!holder of record

ith respect to the said shares of stoc!s. In the absence of a shoing that

the 5/P had caused to be transferred in their names one share of stoc! for

the purpose of 6ualifying as directors of AL+A, Lee and Lacdao can no



longer be deemed to have retained their status as officers of AL+A hich

as the case before the eecution of the sub:ect voting trust agreement.

There is no dispute from the records that 5/P has ta!en over full control

and management of the firm.

728 The -th paragraph of section %$ of the ne orporation ode reads that

;nless epressly reneed, all rights granted in a voting trust agreement

shall automatically epire at the end of the agreed period, and the votingtrust certificates as ell as the certificates of stoc! in the name of the trustee

or trustees shall thereby be deemed cancelled and ne certificates of stoc!

shall be reissued in the name of the transferors.; 3oever, it is manifestly

clear from the terms of the voting trust agreement beteen AL+A and the

5/P that the duration of the agreement is contingent upon the fulfillment of

certain obligations of AL+A ith the 5/P. 3ad the five@year period of the

voting trust agreement epired in #$-, the 5/P ould not have transferred

an its rights, titles and interests in AL+A ;effective "une D8, #$-; to the

national government through the Asset Privatization Trust (APT) as attested

to in a ertification dated 71 "anuary #$$ of the <ice President of the

5/Ps &pecial Accounts 5epartment II. In the same certification, it is stated

that the 5/P, from #$> until #$$, had handled s account hich included

AL+As assets pursuant to a management agreement by and beteen the

5/P and APT. 3ence, there is evidence on record that at the time of the

service of summons on AL+A through Lee and Lacdao on 7# August #$>,

the voting trust agreement in 6uestion as not yet terminated so that the

legal title to the stoc!s of AL+A, then, still belonged to the 5/P.

GOKONGEI S. SECURITIES AN- EXCHANGE COISSION

GR L+45911

11 A"' 19#9

Facts:

N&' ase #D>%O *n 77 *ctober #$>-, "ohn 0o!ongei "r., as stoc!holder

of &an 2iguel orporation, filed ith the &ecurities and 'change ommission

(&') a petition for ;declaration of nullity of amended by@las, cancellation of

certificate of filing of amended by@las, in:unction and damages ith prayer for a

preliminary in:unction; against the ma:ority of the members of the /oard of

5irectors and &an 2iguel orporation as an unilling petitioner. As a first cause of

action, 0o!ongei alleged that on # &eptember #$>-, Andres &oriano, "r., "ose 2.

&oriano, 'nri6ue Jobel, Antonio 4oas, 'meterio /uao, althrode /. onde,

2iguel *rtigas, and Antonio Prieto amended by bylas of the corporation, basing

their authority to do so on a resolution of the stoc!holders adopted on #D 2arch

#$-#, hen the outstanding capital stoc! of the corporation as only

P>8,#D$.>18.88, divided into %,%#D,$>1 common shares at P#8.88 per share and

#%8,888 preferred shares at P#88.88 per share. At the time of the amendment, the

outstanding and paid up shares totalled D8,#7>,81D, ith a total par value of

PD8#,7>8,1D8.88. It as contended that according to section 77 of the orporation

La and Article <III of the by@las of the corporation, the poer to amend, modify,

repeal or adopt ne by@las may be delegated to the /oard of 5irectors only by theaffirmative vote of stoc!holders representing not less than 7D of the subscribed and

paid up capital stoc! of the corporation, hich 7D should have been computed on

the basis of the capitalization at the time of the amendment. &ince the amendment

as based on the #$-# authorization, 0o!ongei contended that the /oard acted

ithout authority and in usurpation of the poer of the stoc!holders. As a second

cause of action, it as alleged that the authority granted in #$-# had already been

eercised in #$-7 and #$-D, after hich the authority of the /oard ceased to eist.

As a third cause of action, 0o!ongei averred that the membership of the /oard of

5irectors had changed since the authority as given in #$-#, there being - ne

directors. As a fourth cause of action, it as claimed that prior to the 6uestioned

amendment, 0o!ogei had all the 6ualifications to be a director of the corporation,

being a substantial stoc!holder thereofK that as a stoc!holder, 0o!ongei had

ac6uired rights inherent in stoc! onership, such as the rights to vote and to be voted

upon in the election of directorsK and that in amending the by@las, &oriano, et. al.

purposely provided for 0o!ongeis dis6ualification and deprived him of his vested

right as afore@mentioned, hence the amended by@las are null and void. As

additional causes of action, it as alleged that corporations have no inherent poer

to dis6ualify a stoc!holder from being elected as a director and, therefore, the

6uestioned act is ultra vires and voidK that Andres 2. &oriano, "r. andor "ose 2.

&oriano, hile representing other corporations, entered into contracts (specifically a

management contract) ith the corporation, hich as avoed because the6uestioned amendment gave the /oard itself the prerogative of determining hether

they or other persons are engaged in competitive or antagonistic businessK that the

portion of the amended by@las hich states that in determining hether or not a

person is engaged in competitive business, the /oard may consider such factors as

business and family relationship, is unreasonable and oppressive and, therefore, voidK

and that the portion of the amended by@las hich re6uires that ;all nominations for

election of directors shall be submitted in riting to the /oard of 5irectors at least

five (%) or!ing days before the date of the Annual 2eeting; is li!eise

unreasonable and oppressive. It as, therefore, prayed that the amended by@las be

declared null and void and the certificate of filing thereof be cancelled, and that

&oriano, et. al. be made to pay damages, in specified amounts, to 0o!ongei. *n 7



*ctober #$>-, in connection ith the same case, 0o!ongei filed ith the &ecurities

and 'change ommission an ;rgent 2otion for Production and Inspection of

5ocuments;, alleging that the &ecretary of the corporation refused to allo him to

inspect its records despite re6uest made by 0o!ongei for production of certain

documents enumerated in the re6uest, and that the corporation had been attempting

to suppress information from its stoc!holders despite a negative reply by the &' to

its 6uery regarding their authority to do so. The motion as opposed by &oriano, et.

al. The orporation, &oriano, et. al. filed their anser, and their opposition to the petition, respectively. 2eanhile, on #8 5ecember #$>-, hile the petition as yet

to be heard, the corporation issued a notice of special stoc!holders meeting for the

purpose of ;ratification and confirmation of the amendment to the /y@las;, setting

such meeting for #8 +ebruary #$>>. This prompted 0o!ongei to as! the &' for a

summary :udgment insofar as the first cause of action is concerned, for the alleged

reason that by calling a special stoc!holders meeting for the aforesaid purpose,

&oriano, et. al. admitted the invalidity of the amendments of # &eptember #$>-. The

motion for summary :udgment as opposed by &oriano, et. al. Pending action on the

motion, 0o!ongei filed an ;rgent 2otion for the Issuance of a Temporary

4estraining *rder;, praying that pending the determination of 0o!ongeis

application for the issuance of a preliminary in:unction and or 0o!ongeis motionfor summary :udgment, a temporary restraining order be issued, restraining &oriano,

et. al. from holding the special stoc!holders meeting as scheduled. This motion as

duly opposed by &oriano, et. al. *n #8 +ebruary #$>>, remation issued an order

denying the motion for issuance of temporary restraining order. After receipt of the

order of denial, &oriano, et. al. conducted the special stoc!holders meeting herein

the amendments to the by@las ere ratified. *n #1 +ebruary #$>>, 0o!ongei filed

a consolidated motion for contempt and for nullification of the special stoc!holders

meeting. A motion for reconsideration of the order denying 0o!ongeis motion for

summary :udgment as filed by 0o!ongei before the &' on #8 2arch #$>>.

N&' ase #17DO 0o!ongei alleged that, having discovered that the

corporation has been investing corporate funds in other corporations and businesses

outside of the primary purpose clause of the corporation, in violation of section #>@

#7 of the orporation La, he filed ith &', on 78 "anuary #$>>, a petition

see!ing to have Andres 2. &oriano, "r. and "ose 2. &oriano, as ell as the

corporation declared guilty of such violation, and ordered to account for such

investments and to anser for damages. *n 1 +ebruary #$>>, motions to dismiss

ere filed by &oriano, et. al., to hich a consolidated motion to stri!e and to declare

&oriano, et. al. in default and an opposition ad abundantiorem cautelam ere filed by

0o!ongei. 5espite the fact that said motions ere filed as early as 1 +ebruary

#$>>, the ommission acted thereon only on 7% April #$>>, hen it denied &oriano,

et. al.s motions to dismiss and gave them to (7) days ithin hich to file their

anser, and set the case for hearing on April 7$ and 2ay D, #$>>. &oriano, et. al.

issued notices of the annual stoc!holders meeting, including in the Agenda thereof,

the ;reaffirmation of the authorization to the /oard of 5irectors by the stoc!holders

at the meeting on 78 2arch #$>7 to invest corporate funds in other companies or

businesses or for purposes other than the main purpose for hich the orporation has

been organized, and ratification of the investments thereafter made pursuant thereto.;

/y reason of the foregoing, on 7 April #$>>, 0o!ongei filed ith the &' anurgent motion for the issuance of a rit of preliminary in:unction to restrain &oriano,

et. al. from ta!ing up Item - of the Agenda at the annual stoc!holders meeting,

re6uesting that the same be set for hearing on D 2ay #$>>, the date set for the second

hearing of the case on the merits. The &', hoever, cancelled the dates of hearing

originally scheduled and reset the same to 2ay #- and #>, #$>>, or after the

scheduled annual stoc!holders meeting. +or the purpose of urging the ommission

to act, 0o!ongei filed an urgent manifestation on D 2ay #$>>, but this

notithstanding, no action has been ta!en up to the date of the filing of the instant

petition.

0o!ongei filed a petition for petition for certiorari, mandamus and

in:unction, ith prayer for issuance of rit of preliminary in:unction, ith the

&upreme ourt, alleging that there appears a deliberate and concerted inability on the

part of the &' to act.

Issue:

hether the corporation has the poer to provide for the (additional)

6ualifications of its directors.

Held:

It is recognized by all authorities that ;every corporation has the inherent

poer to adopt by@las for its internal government, and to regulate the conduct and

prescribe the rights and duties of its members toards itself and among themselves

in reference to the management of its affairs.; In this :urisdiction under section 7# of

the orporation La, a corporation may prescribe in its by@las ;the 6ualifications,

duties and compensation of directors, officers and employees.; This must necessarily

refer to a 6ualification in addition to that specified by section D8 of the orporation

La, hich provides that ;every director must on in his right at least one share of

the capital stoc! of the stoc! corporation of hich he is a director.; Any person ;ho

buys stoc! in a corporation does so ith the !noledge that its affairs are dominated



by a ma:ority of the stoc!holders and that he impliedly contracts that the ill of the

ma:ority shall govern in all matters ithin the limits of the act of incorporation and

lafully enacted by@las and not forbidden by la.; To this etent, therefore, the

stoc!holder may be considered to have ;parted ith his personal right or privilege to

regulate the disposition of his property hich he has invested in the capital stoc! of

the corporation, and surrendered it to the ill of the ma:ority of his fello

incorporators. It can not therefore be :ustly said that the contract, epress or implied,

beteen the corporation and the stoc!holders is infringed by any act of the formerhich is authorized by a ma:ority.; Pursuant to section # of the orporation La,

any corporation may amend its articles of incorporation by a vote or ritten assent of

the stoc!holders representing at least to@thirds of the subscribed capital stoc! of the

corporation. If the amendment changes, diminishes or restricts the rights of the

eisting shareholders, then the dissenting minority has only one right, viz.F ;to ob:ect

thereto in riting and demand payment for his share.; nder section 77 of the same

la, the oners of the ma:ority of the subscribed capital stoc! may amend or repeal

any by@la or adopt ne by@las. It cannot be said, therefore, that 0o!ongei has a

vested right to be elected director, in the face of the fact that the la at the time such

right as stoc!holder as ac6uired contained the prescription that the corporate

charter and the by@la shall be sub:ect to amendment, alteration and modification.

Issue [2]:

hether the dis6ualification of a competitor from being elected to the

/oard of 5irectors is a reasonable eercise of corporate authority.

Held[2]:

Although in the strict and technical sense, directors of a private corporation

are not regarded as trustees, there cannot be any doubt that their character is that of afiduciary insofar as the corporation and the stoc!holders as a body are concerned. As

agents entrusted ith the management of the corporation for the collective benefit of

the stoc!holders, ;they occupy a fiduciary relation, and in this sense the relation is

one of trust.; ;The ordinary trust relationship of directors of a corporation and

stoc!holders is not a matter of statutory or technical la. It springs from the fact that

directors have the control and guidance of corporate affairs and property and hence

of the property interests of the stoc!holders. '6uity recognizes that stoc!holders are

the proprietors of the corporate interests and are ultimately the only beneficiaries

thereof.; A director is a fiduciary. Their poers are poers in trust. 3e ho is in

such fiduciary position cannot serve himself first and his cestuis second. 3e cannot

manipulate the affairs of his corporation to their detriment and in disregard of the

standards of common decency. 3e cannot by the intervention of a corporate entity

violate the ancient precept against serving to masters. 3e cannot utilize his inside

information and strategic position for his on preferment. 3e cannot violate rules of

fair play by doing indirectly through the corporation hat he could not do so

directly. 3e cannot violate rules of fair play by doing indirectly through the

corporation hat he could not do so directly. 3e cannot use his poer for his

personal advantage and to the detriment of the stoc!holders and creditors no matter

ho absolute in terms that poer may be and no matter ho meticulous he is tosatisfy technical re6uirements. +or that poer is at all times sub:ect to the e6uitable

limitation that it may not be eercised for the aggrandizement, preference, or

advantage of the fiduciary to the eclusion or detriment of the cestuis. The doctrine

of ;corporate opportunity; is precisely a recognition by the courts that the fiduciary

standards could not be upheld here the fiduciary as acting for to entities ith

competing interests. This doctrine rests fundamentally on the unfairness, in particular

circumstances, of an officer or director ta!ing advantage of an opportunity for his

on personal profit hen the interest of the corporation :ustly calls for protection. It

is not denied that a member of the /oard of 5irectors of the &an 2iguel orporation

has access to sensitive and highly confidential information, such asF (a) mar!eting

strategies and pricing structureK (b) budget for epansion and diversificationK (c)research and developmentK and (d) sources of funding, availability of personnel,

proposals of mergers or tie@ups ith other firms. It is obviously to prevent the

creation of an opportunity for an officer or director of &an 2iguel orporation, ho

is also the officer or oner of a competing corporation, from ta!ing advantage of the

information hich he ac6uires as director to promote his individual or corporate

interests to the pre:udice of &an 2iguel orporation and its stoc!holders, that the

6uestioned amendment of the by@las as made. ertainly, here to corporations

are competitive in a substantial sense, it ould seem improbable, if not impossible,

for the director, if he ere to discharge effectively his duty, to satisfy his loyalty to

both corporations and place the performance of his corporation duties above his personal concerns. The offer and assurance of 0o!ongei that to avoid any

possibility of his ta!ing unfair advantage of his position as director of &an 2iguel

orporation, he ould absent himself from meetings at hich confidential matters

ould be discussed, ould not detract from the validity and reasonableness of the

by@las involved. Apart from the impractical results that ould ensue from such

arrangement, it ould be inconsistent ith 0o!ongeis primary motive in running

for board membership Q hich is to protect his investments in &an 2iguel

orporation. 2ore important, such a proposed norm of conduct ould be against all

accepted principles underlying a directors duty of fidelity to the corporation, for the

policy of the la is to encourage and enforce responsible corporate management.



Issue [3]:

hether the &' gravely abused its discretion in denying 0o!ongeis

re6uest for an eamination of the records of &an 2iguel International, Inc., a fully

oned subsidiary of &an 2iguel orporation.

Held [3]:

Pursuant to the second paragraph of section %# of the orporation La,

;(t)he record of all business transactions of the corporation and minutes of any

meeting shall be open to the inspection of any director, member or stoc!holder of the

corporation at reasonable hours.; The stoc!holders right of inspection of the

corporations boo!s and records is based upon their onership of the assets and

property of the corporation. It is, therefore, an incident of onership of the corporate

property, hether this onership or interest be termed an e6uitable onership, a

beneficial onership, or a 6uasi@onership. This right is predicated upon the

necessity of self@protection. It is generally held by ma:ority of the courts that here

the right is granted by statute to the stoc!holder, it is given to him as such and must

be eercised by him ith respect to his interest as a stoc!holder and for some

purpose germane thereto or in the interest of the corporation. In other ords, the

inspection has to be germane to the petitioners interest as a stoc!holder, and has to

be proper and laful in character and not inimical to the interest of the corporation.

The ;general rule that stoc!holders are entitled to full information as to the

management of the corporation and the manner of ependiture of its funds, and to

inspection to obtain such information, especially here it appears that the company

is being mismanaged or that it is being managed for the personal benefit of officers

or directors or certain of the stoc!holders to the eclusion of others.; hile the right

of a stoc!holder to eamine the boo!s and records of a corporation for a laful

purpose is a matter of la, the right of such stoc!holder to eamine the boo!s andrecords of a holly@oned subsidiary of the corporation in hich he is a stoc!holder

is a different thing. &toc!holders are entitled to inspect the boo!s and records of a

corporation in order to investigate the conduct of the management, determine the

financial condition of the corporation, and generally ta!e an account of the

steardship of the officers and directors. herein, considering that the foreign

subsidiary is holly oned by &an 2iguel orporation and, therefore, under Its

control, it ould be more in accord ith e6uity, good faith and fair dealing to

construe the statutory right of petitioner as stoc!holder to inspect the boo!s and

records of the corporation as etending to boo!s and records of such holly oned

subsidiary hich are in the corporations possession and control.

Issue [4]:

hether the &' gravely abused its discretion in alloing the stoc!holders

of &an 2iguel orporation to ratify the investment of corporate funds in a foreign

corporation.

Held [4]:

&ection #>@#7 of the orporation La allos a corporation to ;invest its

funds in any other corporation or business or for any purpose other than the main

purpose for hich it as organized; provided that its /oard of 5irectors has been so

authorized by the affirmative vote of stoc!holders holding shares entitling them to

eercise at least to@thirds of the voting poer. If the investment is made in

pursuance of the corporate purpose, it does not need the approval of the stoc!holders.

It is only hen 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

stoc!holders holding shares entitling them to eercise at least to@thirds of the

voting poer is necessary. As stated by the corporation, the purchase of beer

manufacturing facilities by &2 as an investment in the same business stated as its

main purpose in its Articles of Incorporation, hich is to manufacture and mar!et

beer. It appears that the original investment as made in #$1>@#$1, hen &2,

then &an 2iguel /reery, Inc., purchased a beer breery in 3ong!ong (3ong!ong

/reery R 5istillery, Ltd.) for the manufacture and mar!eting of &an 2iguel beer

thereat. 4estructuring of the investment as made in #$>8@#$># thru the

organization of &2I in /ermuda as a ta free reorganization. Assuming arguendo

that the /oard of 5irectors of &2 had no authority to ma!e the assailed investment,

there is no 6uestion that a corporation, li!e an individual, may ratify and thereby

render binding upon it the originally unauthorized acts of its officers or other agents.This is true because the 6uestioned investment is neither contrary to la, morals,

public order or public policy. It is a corporate transaction or contract hich is ithin

the corporate poers, but hich is defective from a purported failure to observe in its

eecution the re6uirement of the la that the investment must be authorized by the

affirmative vote of the stoc!holders holding to@thirds of the voting poer. This

re6uirement is for the benefit of the stoc!holders. The stoc!holders for hose benefit

the re6uirement as enacted may, therefore, ratify the investment and its ratification

by said stoc!holders obliterates any defect hich it may have had at the outset.

/esides, the investment as for the purchase of beer manufacturing and mar!eting

facilities hich is apparently relevant to the corporate purpose. The mere fact that

the corporation submitted the assailed investment to the stoc!holders for ratification



at the annual meeting of #8 2ay #$>> cannot be construed as an admission that the

corporation had committed an ultra vires act, considering the common practice of

corporations of periodically submitting for the ratification of their stoc!holders the

acts of their directors, officers and managers.

GRACE CHRISTIAN HIGH SCHOOL vs. COURT OF APPEALS, GRACE

ILLAGE ASSOCIATION, INC., ALEAN-RO G. *ELTRAN, $(

ERNESTO L. GO

G.R. No. 10/905

Octo!" 2), 199#

2/1 SCRA 1))

F$cts%

0race hristian 3igh &chool (0race &chool, for brevity) is an educational

institution located in Buezon ity hile 0race <illage Association, Inc. (0race

Association, for short) on the other hand, is an organization of lot andor building

oners, lessees and residents at 0race <illage, hile private respondents Ale:andro

0. /eltran and 'rnesto L. 0o ere its president and chairman of the committee onelection, respectively, in #$$8, hen this suit as brought.

&ometime in #$-, the by@las of 0race Association provided that the

/oard of 5irectors ere composed of ## members to serve for # year until their

successors are duly elected. 3oever, in #$>%, the board of directors prepared a draft

of an amendment to the by@las, hich granted 0race &chool representative to be a

permanent director of 0race Association.The said draft as never presented to the

general membership for approval but it as presumably submitted to the board. ntil

the year #$$8, 0race &chool as given a permanent seat in the board of directors of

the association.

3oever, on +ebruary #D, #$$8, 0race AssociationEs committed on election

informed the principal of 0race &chool that to ma!e an entity a permanent 5irector

ould deprive the right of the voters to vote for #% members of the /oard and it is

undemocratic for an entity to hold office in perpetuity. 0race &chool made a re6uest

on the committee on election that the latter should follo the procedures in the

previous elections claiming that the notice issued for the #$$8 elections ill run

counter to the practice in the previous years and as in violation of the by@las of

#$>%. It further claimed that the proposal of the committee on election ould

unlafully deprive 0race &chool of its vested right to a permanent seat in the /oard.

As a result of the denial of 0race Association of its re6uest, 0race &chool

brought suit for mandamus in the 3ome Insurance and 0uaranty orporation to

compel the board of directors of the association to recognize its right to a permanent

seat in the board.

The officer of the 3ome Insurance and 0uaranty orporation dismissed the

action filed by 0race school stating among others that the by@las of #$>% as

merely a proposal although implemented in the past, had not yet been ratified by the

members of the association nor approved by competent authority. In #$$8, the /oard

of 5irectors of 0race Association declared the said proposed by@las as null and

void.

Iss&!% hether or not 0race &chool has ac6uired a vested right to a permanent seat

in the /oard of 5irectors.

H!'(%

The present orporation ode (/.P. /lg. -), hich too! effect on 2ay #,

#$8, similarly providesF G7D. The /oard of 5irectors or Trustees. @ nless

otherise provided in this ode, the corporate poers of all corporations formedunder this ode shall be eercised, all business conducted and all property of such

corporations controlled and held by the board of directors or trustees to be elected

from among the holders of stoc!s, or here there is no stoc!, from among the

members of the corporation, ho shall hold office for one (#) year and until their

successors are elected and 6ualified.H

These provisions of the former and present corporation la leave no room

for doubt as to their meaningF the board of directors of corporations must be elected

from among the stoc!holders or members. There may be corporations in hich there

are unelected members in the board but it is clear that in the eamples cited by

petitioner the unelected members sit as e officio members, i.e., by virtue of and for

as long as they hold a particular office. /ut in the case of petitioner, there is no

reason at all for its representative to be given a seat in the board. =or does petitioner

claim a right to such seat by virtue of an office held. In fact it as not given such

seat in the beginning. It as only in #$>% that a proposed amendment to the by@las

sought to give it one.

&ince the provision in 6uestion is contrary to la, the fact that for fifteen

years it has not been 6uestioned 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. =either can it attain validity through ac6uiescence because,



if it is contrary to la, it is beyond the poer of the members of the association to

aive its invalidity. +or that matter the members of the association may have

formally adopted the provision in 6uestion, but their action ould be of no avail

because no provision of the by@las can be adopted if it is contrary to la.

It is probable that, in alloing petitionerEs representative to sit on the board,

the members of the association ere not aare that this as contrary to la. It

should be noted that they did not actually implement the provision in 6uestion ecept

perhaps insofar as it increased the number of directors from ## to #%, but certainly

not the alloance of petitionerEs representative as an unelected member of the board

of directors. It is more accurate to say that the members merely tolerated petitionerEs

representative and tolerance cannot be considered ratification.

=or can petitioner claim a vested right to sit in the board on the basis of

Gpractice.H Practice, no matter ho long continued, cannot give rise to any vested

right if it is contrary to la. 'ven less tenable is petitionerEs claim that its right is

Gcoterminus ith the eistence of the association.H

TAN S. SCIPG.R. No. 15)46/

A&:&st 1#, 2006

F$cts%

0race hristian 3igh &chool (03&) is a non@stoc! non@profit educational

corporation ith #% regular members, ho also constitute the board of trustees.

5uring the annual membersE meeting, there ere only ## living member@trustees as

1 had already died. > attended the meeting through their respective proies. The

meeting as convened and chaired by Atty. &abino Padilla "r. over the ob:ection of

Atty. Antonio . Pacis ho argued that there as no 6uorum. In the meeting,

Petitioners 'rnesto Tanchi, 'din =go, <irgin Choo, and "udith Tan ere voted to

replace the 1 deceased member@trustees. According to the &', the meeting as

void due to lac! of 6uorum based on the AI, also applying &ection 71 and &ection

$ of the orporation ode. hen it reached the A, the latter dismissed the case

due to technicalities.

Iss&!% hether or not the dead members should still be counted in the 6uorum.

H!'(%

/ased on the /y@Las of the corporation, the remaining members of the

board of trustees of the 03& may convene and fill up the vacancies in the board.

'cept as provided, the vote necessary to approve a particular corporate act as

provided in this ode shall be deemed to refer only to stoc!s ith voting rightsF (#)

Amendment of the articles of incorporationK (7) Adoption and amendment of by@

lasK (D) &ale, lease, echange, mortgage, pledge or other disposition of all or

substantially all of the corporation propertyK (1) Incurring, creating or increasing

bonded indebtednessK (%) Increase or decrease of capital stoc!K (-) 2erger or

consolidation of the corporation ith another corporation or other corporationsK (>)

Investment of corporate funds in another corporation or business in accordance ith

this odeK and () 5issolution of the corporation. A 6uorum in a membersE meeting

is to be rec!oned as the actual number of members of the corporation.

In stoc! corporations, the shareholders may generally transfer their shares

on the death of a shareholder, the eecutor or administrator duly appointed by the

ourt is vested ith the legal title to the stoc! and entitled to vote it. ntil a

settlement and division of the estate is effected, the stoc!s of the decedent are held

by the administrator or eecutor. As to non@stoc! corporations, the same is personal

and non@transferable unless the articles of incorporation or the bylas of the

corporation provide otherise.

nder &ection $# of the orporation ode, termination etinguishes all the

rights of a member of the corporation, unless otherise provided in the articles of

incorporation or the bylas. hether or not ;dead members; are entitled to eercise

their voting rights (through their eecutor or administrator), depends on those articles

of incorporation or bylas. nder the /y@Las of 03&, membership in the

corporation shall be terminated by the death of the member. 3ence, ith ##

remaining members, the 6uorum is -.

nder &ection 7$, vacancies in the office of the director or trustee is to be

filled by a ma:ority vote of the remaining directors or trustees if still constituting a

6uorum. *therise, said vacancies must be filled by the stoc!holders in a regular or

special meeting called for that purpose. A director or trustee so elected to fill a

vacancy shall be elected only for the unepired term of his predecessor in office.

The filling of vacancies in the board by the remaining directors or trustees

constituting a 6uorum is merely permissive, not mandatoryK either by the remaining

directors constituting a 6uorum, or by the stoc!holders or members in a regular or

special meeting called for the purpose. The /y@Las of 03& prescribed

the specific mode of filling up eisting vacancies in its board of directorsK that is, by

a ma:ority vote of the remaining members of the board. The said remaining member@



trustees must sit as a board (as a body in a laful meeting) in order to validly elect

the ne ones.

Documents

Corpo Digested