Corpo Part 2 Digest

7/26/2019 Corpo Part 2 Digest

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REMINDERS: 1. PLEASE FOLLOW THE FORMAT.FORMAT:Doctrine:Facts: (Please include the decisions of the lower courts) + ADDITIONAL NOT!(include necessar" infor#ation in $or%oration Law such &ut not li#ited to 'ind of&usiness+ca%ital+etc)

Issue(s):eld:2. Cases placed in ode. !"s# inse# $o" assi%ned case &'en $o"(e done.). La#es# possi*le "pload "n#il +:,, p.-. T"esda$/ Oc#o*e 0.* Please read the cases in their full tet (not $a#%os se#i,di-est cases)

Detecti.e / Protecti.e 0ureau Inc . on 1audenciao $lori&el2 Faustino Al&erto,3saDoctrine.er" director #ust own at least one (4) share of the ca%ital stoc' of thecor%oration

FactsPetitioner is a %hili%%ine cor%oration and res%ondent Fausto s Al&erto was the#ana-in- director of %etitioner cor%oration fro# 4567 until 8anuar" 4*2 459* In

8une 4592 res%ondent Al&erto ille-all" sei;ed and too' control of all the assets aswell as the &oo's2 records2 .ouchers and recei%ts of the cor%oration fro# theaccountant,cashier2 concealed the# ille-all" and refused to allow an" #e#&er ofthe cor%oration to see and ea#ine the sa#e

On 8anuar" 4*2 459*2 the stoc'holders2 in a #eetin-2 re#o.ed res%ondent as#ana-in- director and elected 8ose de la Rosa instead Plainti< alle-ed thatres%ondent Al&erto refused to .acate his o=ce and to deli.er the assets and &oo'sto 8ose de la Rosa2 and also continued to %erfor# unauthori;ed acts for and in&ehalf of the cor%oration Al&erto was re>uired to suit a ?nancial state#ent andto render an accountin- of his ad#inistration fro# 4567 &ut failed to do so e hasalso &een alle-edl" dis%osin- cor%orate funds contrar" to a resolution ado%ted &"the 0oard of Directors on No.e#&er 7*2 459

Petitioner ?led a case a-ainst res%ondent Al&erto for accountin- with %reli#inar"in@unction and recei.ershi% (8ose 0arredo)

Res%ondent @ud-e 1audencio $lori&el -ranted writ of %reli#inar" in@unctionrestrainin- defendant Al&erto fro# eercisin- the functions of #ana-in- directorand fro# dis&ursin- and dis%osin- of cor%orate funds 0ut res%ondent @ud-ead#itted the counter&ond and set aside the writ of %reli#inar" in@unction ence2this a%%eal for certiorari

The fourth reason alle-ed &" %etitioner in su%%ort of its stand is that %u&lic interestde#anded that the writ en@oinin- res%ondent Fausto Al&erto fro# eercisin- thefunctions of #ana-in- director &e #aintained Petitioner contended that res%ondentAl&erto had arro-ated to hi#self the %ower of the 0oard of Directors of thecor%oration &ecause he refused to .acate the o=ce and surrender the sa#e to 8osede la Rosa who had &een elected #ana-in- director &" the 0oard to succeed hi#


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IssueON res%ondent Al&erto should &e restrained fro# eercisin- the functions of#ana-in- director and &e re%laced &" 8ose Dela Rosa

eldNo It was dis%uted &" res%ondent Al&erto that 8ose de la Rosa could not &e elected

#ana-in- director &ecause he did not own an" stoc' in the cor%oration

There is in the record no showin- that 8ose de la Rosa owned a share of stoc' in thecor%oration If he did not own an" share of stoc'2 certainl" he could not &e adirector %ursuant to the #andator" %ro.ision of !ection B of the $or%oration Law2which in %art %ro.ides:

!ec B .er" director #ust own in his own ri-ht at least one share of the ca%italstoc' of the stoc' cor%oration of which he is a director2 which stoc' shall stand in hisna#e on the &oo's of the cor%orations

If he could not &e a director2 he could also not &e a #ana-in- director of the

cor%oration2 %ursuant to Article C2 !ection of the 0",Laws of the $or%oration which%ro.ides that:

The #ana-er shall &e elected &" the 0oard of Directors fro# a#on- its #e#&ers

If the #ana-in- director,elect was not >uali?ed to &eco#e #ana-in- director2res%ondent Fausto Al&erto could not &e co#%elled to .acate his o=ce and cede thesa#e to the #ana-in- director,elect &ecause the &",laws of the cor%oration%ro.ides in Article IC2 !ection 4 that Directors shall ser.e until the election and>uali?cation of their dul" >uali?ed successor

1o'on-wei . !$2 et al, Ni''i / Ali (Facts fro# TriciaEs di-est)

DO$TRIN!: An a#end#ent to the cor%oration &",law which renders a stoc'holderineli-i&le to &e a director2 if he &e also director in a cor%oration whose &usiness is inco#%etition with that of the other cor%oration has &een sustained as .alid

Mere ultra .ires acts or those which are not ille-al and .oid a& initio2 &ut are notwithin the sco%e of the articles of incor%oration are #erel" .oida&le and #a"&eco#e &indin- and enforcea&le when rati?ed &" the stoc'holders

FA$T!:, 8ohn 1o'on-wei 8r (stoc'holder of !an Mi-uel $or%oration!M$) ?led with the!ecurities and chan-e $o##ission a %etition for declaration of nullit" ofa#ended &",laws2 cancellation of certi?cate of ?lin- of a#ended &",laws2 in@unctionand da#a-es with %ra"er for a %reli#inar" in@unction a-ainst the #a@orit" of the#e#&ers of the 0oard of Directors and !an Mi-uel $or%oration as an unwillin-%etitioner

o First cause of action: 1o'on-wei alle-ed that on 4G !e%te#&er 45H92res%ondents Andres !oriano2 8r2 8ose M !oriano2 nri>ue o&el2 Antonio Roas2#eterio 0uJao2 althrode 0 $onde2 Mi-uel Orti-as2 and Antonio Prieto a#endedthe &"laws of the cor%oration2 &asin- their authorit" to do so on a resolution of thestoc'holders ado%ted on 4 March 45942 when the outstandin- ca%ital stoc' of the


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cor%oration was onl" PHB245H*BBB2 di.ided into 626425H* co##on shares atP4BBB %er share and 46B2BBB %referred shares at P4BBBB %er share At the ti#e ofthe a#end#ent2 the outstandin- and %aid u% shares totalled B247H2B*2 with atotal %ar .alue of PB427HB2*BBB It was contended that accordin- to section 77 ofthe $or%oration Law and Article CIII of the &",laws of the cor%oration2 the %ower toa#end2 #odif"2 re%eal or ado%t new &",laws #a" &e dele-ated to the 0oard of

Directors onl" &" the a=r#ati.e .ote of stoc'holders re%resentin- not less than 7of the su&scri&ed and %aid u% ca%ital stoc' of the cor%oration2 which 7 shouldha.e &een co#%uted on the &asis of the ca%itali;ation at the ti#e of thea#end#ent !ince the a#end#ent was &ased on the 4594 authori;ation2 %etitionercontended that the 0oard acted without authorit" and in usur%ation of the %ower ofthe stoc'holders

o !econd cause of action: It was alle-ed that the authorit" -ranted in 4594had alread" &een eercised in 4597 and 4592 after which the authorit" of the0oard ceased to eist

o Third cause of action: 1o'on-wei a.erred that the #e#&ershi% of the 0oardof Directors had chan-ed since the authorit" was -i.en in 45942 there &ein- 9 newdirectors

o Fourth cause of action: It was clai#ed that %rior to the >uestioneda#end#ent2 1o'on-wei had all the >uali?cations to &e a director of the cor%oration2&ein- a su&stantial stoc'holder thereofK that as a stoc'holder2 1o'on-wei hadac>uired ri-hts inherent in stoc' ownershi%2 such as the ri-hts to .ote and to &e.oted u%on in the election of directorsK and that in a#endin- the &",laws2 !oriano2et al %ur%osel" %ro.ided for 1o'on-weis dis>uali?cation and de%ri.ed hi# of his.ested ri-ht as afore#entioned2 hence the a#ended &",laws are null and .oid

o AddtEl cause of action: It was alle-ed that cor%orations ha.e no inherent%ower to dis>ualif" a stoc'holder fro# &ein- elected as a director and2 therefore2the >uestioned act is ultra .ires and .oidK that Andres M !oriano2 8r andor 8ose M!oriano2 while re%resentin- other cor%orations2 entered into contracts (s%eci?call" a#ana-e#ent contract) with the cor%oration2 which was a.owed &ecause the

>uestioned a#end#ent -a.e the 0oard itself the %rero-ati.e of deter#inin-whether the" or other %ersons are en-a-ed in co#%etiti.e or anta-onistic &usinessKthat the %ortion of the a#ended &",laws which states that in deter#inin- whetheror not a %erson is en-a-ed in co#%etiti.e &usiness2 the 0oard #a" consider suchfactors as &usiness and fa#il" relationshi%2 is unreasona&le and o%%ressi.e and2therefore2 .oidK and that the %ortion of the a#ended &",laws which re>uires that allno#inations for election of directors shall &e suitted in writin- to the 0oard ofDirectors at least ?.e (6) wor'in- da"s &efore the date of the Annual Meetin- isli'ewise unreasona&le and o%%ressi.e, It was2 therefore2 %ra"ed that the a#ended &",laws &e declared null and .oid andthe certi?cate of ?lin- thereof &e cancelled2 and that !oriano2 et al &e #ade to %a"da#a-es2 in s%eci?ed a#ounts2 to 1o'on-wei, On 7G Octo&er 45H92 in connection with the sa#e case2 1o'on-wei ?led with the!ecurities and chan-e $o##ission an r-ent Motion for Production andIns%ection of Docu#ents2 alle-in- that the !ecretar" of the cor%oration refused toallow hi# to ins%ect its records des%ite re>uest #ade &" 1o'on-wei for %roductionof certain docu#ents enu#erated in the re>uest2 and that the cor%oration had &eenatte#%tin- to su%%ress infor#ation fro# its stoc'holders des%ite a ne-ati.e re%l"&" the !$ to its >uer" re-ardin- their authorit" to do so


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, The #otion was o%%osed &" res%ondents alle-in- a#on- others that it has nole-al &asisK de#and is not &ased on -ood faithK that the #otion is %re#atureK andthat it fails to show -ood cause and constitutes continued harass#ent and so#e%arts of records are %ri.ile-ed, Meanwhile2 on 4B Dece#&er 45H92 while the %etition was "et to &e heard2 thecor%oration issued a notice of s%ecial stoc'holders #eetin- for the %ur%ose of

rati?cation and con?r#ation of the a#end#ent to the 0",laws2 settin- such#eetin- for 4B Fe&ruar" 45HH This %ro#%ted 1o'on-wei to as' the !$ for asu##ar" @ud-#ent insofar as the ?rst cause of action is concerned2 for the alle-edreason that &" callin- a s%ecial stoc'holders #eetin- for the aforesaid %ur%ose2 theres%ondents ad#itted the in.alidit" of the a#end#ents of 4G !e%te#&er 45H9, The #otion for su##ar" @ud-#ent was o%%osed &" the res%ondents Pendin-action on the #otion2 1o'on-wei ?led an r-ent Motion for the Issuance of a

Te#%orar" Restrainin- Order2 %ra"in- that %endin- the deter#ination of1o'on-weis a%%lication for the issuance of a %reli#inar" in@unction andor1o'on-weis #otion for su##ar" @ud-#ent2 a TRO #a" &e issued2 restrainin-!oriano2 et al fro# holdin- the s%ecial stoc'holders #eetin- as scheduled This#otion was dul" o%%osed &" the res%ondents

, On 4B Fe&ruar" 45HH2 Res%ondent $o##ission issued an order den"in- the #otionfor issuance of te#%orar" restrainin- order After recei%t of the order of denial2 theres%ondents conducted the s%ecial stoc'holders #eetin- wherein the a#end#entsto the &",laws were rati?ed, On 4* Fe&ruar" 45HH2 1o'on-wei ?led a consolidated #otion for conte#%t and fornulli?cation of the s%ecial stoc'holders #eetin-, A #otion for reconsideration of the order den"in- 1o'on-weis #otion forsu##ar" @ud-#ent was ?led &" 1o'on-wei &efore the !$ on 4B March 45HH, !$ $ase 4*7: 1o'on-wei alle-ed that2 ha.in- disco.ered that the cor%orationhas &een in.estin- cor%orate funds in other cor%orations and &usinesses outside ofthe %ri#ar" %ur%ose clause of the cor%oration2 in .iolation of section 4H,47 of the$or%oration Law2 he ?led with !$2 on 7B 8anuar" 45HH2 a %etition see'in- to ha.e

Andres M !oriano2 8r and 8ose M !oriano2 as well as the cor%oration declared -uilt"of such .iolation2 and ordered to account for such in.est#ents and to answer forda#a-es, On * Fe&ruar" 45HH2 #otions to dis#iss were ?led &" the res%ondents to which aconsolidated #otion to stri'e and to declare !oriano2 et al in default and ano%%osition ad abundantiorem cautelamwere ?led &" 1o'on-wei Des%ite the factthat said #otions were ?led as earl" as * Fe&ruar" 45HH2 the $o##ission actedthereon onl" on 76 A%ril 45HH2 when it denied the res%ondents #otions to dis#issand -a.e the# 7 da"s within which to ?le their answer2 and set the case for hearin-on A%ril 75 and Ma" 2 45HH, The res%ondents issued notices of the annual stoc'holders #eetin-2 includin- inthe A-enda thereof2 the rea=r#ation of the authori;ation to the 0oard of Directors&" the stoc'holders at the #eetin- on 7B March 45H7 to in.est cor%orate funds inother co#%anies or &usinesses or for %ur%oses other than the #ain %ur%ose forwhich the $or%oration has &een or-ani;ed2 and rati?cation of the in.est#entsthereafter #ade %ursuant thereto 0" reason of the fore-oin-2 on 7G A%ril 45HH21o'on-wei ?led with the !$ an ur-ent #otion for the issuance of a writ of%reli#inar" in@unction to restrain the res%ondents fro# ta'in- u% Ite# 9 of theA-enda at the annual stoc'holders #eetin-2 re>uestin- that the sa#e &e set for


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hearin- on Ma" 45HH2 the date set for the second hearin- of the case on the#erits, The !$2 howe.er2 cancelled the dates of hearin- ori-inall" scheduled and resetthe sa#e to Ma" 49 and 4H2 45HH2 or after the scheduled annual stoc'holders#eetin-, For the %ur%ose of ur-in- the $o##ission to act2 1o'on-wei ?led an ur-ent

#anifestation on Ma" 45HH2 &ut this notwithstandin-2 no action has &een ta'en u%to the date of the ?lin- of the instant %etition, 1o'on-wei ?led a %etition for %etition for certiorari2 #anda#us and in@unction2with %ra"er for issuance of writ of %reli#inar" in@unction2 with the !u%re#e $ourt2alle-in- that there a%%ears a deli&erate and concerted ina&ilit" on the %art of the!$ to act

I!!!:4) hether a cor%oration has the %ower to set a >uali?cation to dis>ualif" astoc'holder fro# &ein- a &oard #e#&erES.

7) hether res%ondent !$ -ra.el" a&used its discretion in allowin- the

stoc'holders of res%ondent cor%oration to ratif" the in.est#ent of cor%orate fundsin a forei-n cor%oration NO (Note: H 8ustices thou-ht that this issue was #oot

Thus dis#issin- the case as to this %articular issue)

LD:4)ES.The !u%re#e $ourt u%held the .alidit" of the additional >uali?cations as anecessar" #eans to safe-uard the cor%oration of its trade secrets and hi-hl"con?dential infor#ation wherein the access of such infor#ation to 1o'on-wei would&e detri#ental to the cor%orationEs #ana-e#ent and %ros%erit"

0ased on ! authorities2 in the a&sence of %ositi.e le-islati.e %ro.isionsli#itin- it2 e.er" %ri.ate cor%oration has this inherent %ower as one of its necessar"and le-al inse%ara&le le-al incidents2 inde%endent of an" s%eci?c ena&lin- %ro.ision

in its charter or in -eneral law2 such %ower of self,-o.ern#ent &ein- essential toena&le the cor%oration to acco#%lish the %ur%oses of its creation !ec 74 of of the$or%oration Law allows a cor%oration to %rescri&e in its &",laws the >uali?cationsduties and co#%ensation of directors2 o=cers and e#%lo"ees This refers toadditional >uali?cations that #a" &e i#%osed aside fro# those %ro.ided for under!ec B of the $or%oration $odeAddi#ional No#e: !M$ 0oard #e#&ers #a" access: (4) #ar'etin- strate-ies and%ricin- structure2 (7) &ud-et for e%ansion and di.ersi?cation2 () research andde.elo%#ent2 and (*) sources of fundin-2 a.aila&ilit" of %ersonnel2 %ro%osals of#er-ers or tie,u%s with other ?r#s

7) NO !ection 4H, of the $or%oration Law allows a cor%oration to in.est itsfunds in an" other cor%oration or &usiness or for an" other %ur%ose other than the#ain %ur%ose for which it is or-ani;ed

If not within cor%orate %ur%ose (%urchase of shares solel" for in.est#ent) , 0oard ofDirectors #ust &e authori;ed &" the a=r#ati.e .ote of stoc'holders holdin- sharesentitlin- the# to eercise at least of .otin- %ower


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If in.est#ent is #ade in %ursuance to the cor%orate %ur%ose , does not need thea%%ro.al of stoc'holders

The %urchase of &eer #anufacturin- facilities &" !M$ was an in.est#ent in thesa#e &usiness stated in its #ain %ur%ose in its Articles of Incor%oration which is to#anufacture and #ar'et &eer The court cited De la Ra#a . Ma,ao !u-ar $entral

$o Inc where it said that if the in.est#ent is #ade in a cor%oration whose&usiness is i#%ortant to the in.estin- cor%oration and would aid its %ur%ose2 tore>uire authorit" of the stoc'holders would &e to undul" curtail the %ower of the0oard of Directors (0oD)

Assu#inar-uendo that the 0oD does not ha.e authorit" to #a'e the in.est#ent2its act howe.er2 #a" &e rati?ed &" the stoc'holders

Mere ultra .ires acts or those which are not ille-al and .oid a& initio2 &ut are notwithin the sco%e of the articles of incor%oration are #erel" .oida&le and #a"&eco#e &indin- and enforcea&le when rati?ed &" the stoc'holders

Note: suission of assailed in.est#ent for rati?cation at the annual #eetin-cannot &e construed as ad#ission the res%ondent cor% had co##itted and ultra.ires act considerin- the co##on %ractice of cor%oration to %eriodicall" suittin-for the rati?cation of their stoc'holders the acts of their directors2 o=cers and#ana-ers

Roas2 et al . De la Rosa2 et al , # AsiddaoDOCTRINE:Q nder the Law2 directors can onl" &e re#o.ed fro# o=ce &" a .ote of thestoc'holders re%resentin- 7 of su&scri&ed ca%ital stoc'2 while .acancies can &e?lled &" a #ere #a@orit" A director cannot &e re#o.ed &" a #ere #a@orit" &"

dis-uisin- it as ?llin- a .acanc"FACTS:Q 0INAL0A1AN !TAT2 IN$ is a cor%oration ha.in- its %rinci%al %lant in Ne-rosOccidental where it is en-a-ed in the #anufacture of raw su-ar fro# canes2 -rownu%on far#s accessi&le to its centralQ In 8ul" 457*2 #a@orit" shareholders of 0INAL0A1AN !TAT2 IN$ for#ed aCotin- Trust co#%osed of #e#&ers (La-uda2 Monte&lanco2 and Fisher2 astrustees)a) the shareholders undertoo' to assi-n their shares to the trustees on the&oo's of the co#%an"&) the trustees were authori;ed to re%resent and .ote the shares %ertainin- totheir constituents

c) total nu#&er of outstandin- shares of the cor%oration is so#ewhat o.er626BB2 while the nu#&er of shares controlled &" the .otin- trust is less than 2BBB(#a@orit" &ut less than 7)Q In Fe&ruar" 4579the 3eneal Ann"al Mee#in% o4 #'e S'ae'oldestoo'%lace and:a) Mr eil&ronn a%%eared as re%resentati.e of the .otin- trust2 his authorit"&ein- reco-ni;ed &" the holders of all the other shares %resent at this #eetin-


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&) Mr eil&ronn (&" .irtue of controllin- the #a@orit" of the shares) was a&le tono#inate and elect a 0oard of Directors to his own li'in-2 without o%%osition fro#the #inorit"Q At the %resent ti#e the Petitioners Roas2 chaus2 and Lacson %resu#a&l"constitute #e#&ershi% of .otin- trustQ Al#'o"%' #'e 5oad o4 Diec#os o4 5INAL5A3AN ESTATE/ INC. &ee

elec#ed *$ #'e epesen#a#i6e o4 #'e 6o#in% #"s#/ #'e pesen# #"s#ees aeappaen#l$ desio"s o4 o"s#in% said o7ces/ &i#'o"# a&ai#in% #'e#e-ina#ion o4 #'ei o7cial #e- a# #'e e8pia#ion o4 one $ea 4o- #'eda#e o4 #'ei elec#ion.Q In A"%"s# 192, Petitioners (#e#&ers of the .otin- trust) caused thesecretar" of the 0INAL0A1AN !TAT2 IN$ to issue to the shareholders a noticecallin- for a s%ecial -eneral #eetin- of shareholders on Au-ust 492 45792 4B:BBa#:a 4o #'e elec#ion o4 #'e 5oad o4 Diec#os&) for the a#end#ent of the 0",Laws2 andc) for an" other &usiness that can &e dealt with in said #eetin-Q A few da"s after said notice was issued, $oruJa (as #e#&er of the eistin-

0oard of Directors) and Ledes#a (as a si#%le shareholder) instituted &efore $FINe-ros Occidental a ci.il action a-ainst the trustees and the 0INAL0A1AN !TAT2IN$ for the %ur%ose of en@oinin- the #eetin- conte#%lated in the notice a&o.e,#entionedQ CFI: issued restrainin- order In the dis%ositi.e %art of said order the0inal&a-an state2 Inc2 its law"ers2 a-ents2 re%resentati.es2 and all others who #a"&e assistin- or corro&oratin- with the#2 are restrained fro# holdin- the -eneralshareholders #eetin- called for the date #entioned and fro# electin- newdirectors for the co#%an" in su&stitution of the %resent incu#&ents2 said in@unctionto &e e


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&ein- the e.ident intention of the .otin- trust to elect a new &oard as if thedirectorate had &een then .acantQ 0ut the co#%laint in the ci.il action directl" asserts that the #e#&ers of the%resent directorate were re-ularl" elected at the -eneral annual #eetin- held inFe&ruar"2 4579 If that assertion &e true2 the %ro%osal to elect another directorate2as %er the call of Au-ust 72 if carried into eue Rice Mill2 Inc2 , a cor%oration or-ani;ed for the%ur%ose of o%eratin- a rice #ill in the #unici%alit" of ParaJa>ue2 Pro.ince of Ri;al, On !e%te#&er 92 4572 a co#%laint was ?led with the $FI of Ri;al

The co#%laint a.ers su&stantiall" the followin-:(a) That the plain#is ae s#oc='oldes and cons#i#"#e #'e -inoi#$ and #'ede4endan#s ae also s#oc='oldes and cons#i#"#e #'e -a?oi#$ o4 #'e *oado4 diec#os o4 #'e Paa@a"e Rice Mill/ Inc.(b) that at an etraordinar" #eetin- held on Fe&ruar" 742 4572 the stoc'holdersa%%ointed an in.esti-ation co##ittee of which the %lainti< 8ose de Lara waschair#an and the stoc'holders Dionisio To#as and A-uedo 0erna&e were #e#&ers2to in.esti-ate and deter#ine the %ro%erties2 o%erations2 and losses of thecor%oration as shown in the auditors re%ort corres%ondin- to the "ear 4542 *"##'e de4endan#s/ pa#ic"lal$ Teodoico 5. San#os/ &'o &as #'e pesiden# o4#'e copoa#ion/ denied access #o #'e pope#ies/ *oo=s and ecod o4 #'ecopoa#ion &'ic' &ee in #'ei possession(c) That the de4endan# Teodoico 5. San#os/ in 6iola#ion o4 #'e *$la&s o4#'e copoa#ion/ 'ad #a=en possession o4 #'e *oo=s/ 6o"c'es/ andcopoa#e ecods as &ell as o4 #'e 4"nds and inco-e o4 #'e Paa@a"e


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Rice Mill/ Inc.2 all of which2 accordin- to the &",laws2 should &e under the eclusi.econtrol and %ossession of the secretar",treasurer2 the %lainti< A-uedo 0erna&eK(d) That the said Teodoico 5. San#os/ 'ad appopia#ed #o 'is o&n *ene>#pope#ies/ 4"nds/ and inco-e o4 #'e copoa#ion in #'e s"- o4 P1,.(e) that Teodoo 5. San#os/ 4o #'e p"pose o4 ille%all$ con#ollin% #'eaais o4 #'e copoa#ion/ e4"se #o si%n and iss"e #'e coespondin%

ce#i>ca#e o4 s#oc= 4o #'e ,, 4"ll$ paid"p s'ae o4 #'e plain#i2Hi%inioAn%eles/o4 #'e #o#al 6al"e o4 P1G/,,,K( f ) that notwithstandin- written re>uests #ade in confor#it" with the &",laws ofthe cor%oration of #e#&ers of the 0oD who are holders of #ore than 4 of thesu&scri&ed ca%ital stoc' of the cor%oration2 the defendant Teodoico 5. San#os aspesiden# o4 #'e copoa#ion e4"se #o call a -ee#in% o4 #'e *oad o4diec#os and o4 #'e s#oc='oldesK(g) that in .iolation of the &",laws of the cor%oration2 #'e de4endan# &'ocons#i#"#e #'e -a?oi#$ o4 #'e *oad o4 diec#os e4"sed #o 'old odina$-on#'l$ -ee#in%s o4 #'e *oad since Mac'/ 19)2K(h) that Teodoico 5. San#os as pesiden# o4 #'e copoa#ion/ in conni6ance&i#' 'is code4endan#s/ &as disposin% o4 #'e pope#ies and ecods o4 #'e

copoa#ion &i#'o"# a"#'oi#$ 4o- #'e *oad o4 diec#os o #'es#oc='oldes o4 #'e copoa#ion and &i#'o"# -a=in% an$ epo# o4 'isac#s and that2 to %re.ent an" interference with or ea#ination of his ar&itrar"acts/ 'e a*i#ail$ s"spended plain#i !ose de Laa 4o- #'e o7ce o4%eneal -ana%e #o &'ic' o7ce #'e la##e 'ad *een la&4"ll$ elec#ed *$#'e s#oc='oldes(i) that the cor%oration had -ained a&out P*U durin- the ?rst half of the "ear 4572&ut that &ecause of the ille-al and ar&itrar" acts of the defendants not onl" #'e4"nds *"# also #'e *oo=s and ecods o4 #'e copoa#ion ae in dan%e o4disappeain%.

The co#%laint li'ewise %ra"s:

(a) Melc'o de Laa *e appoin#ed ecei6e o4 #'e pope#ies2 4"nds and*"siness o4 #'e Paa@a"e Rice Mill/ Inc./ as &ell as #'e *oo=s and ecod#'eeo4/with authorit" to continue the &usiness of the cor%orationK(b) Teodorico 0 !antos &e ordered to render a detailed accountin- of the %ro%erties2funds and inco#e of the cor%oration fro# the "ear 457H to dateK(c) Defendant &e re>uired to %a" to the cor%oration the a#ount of P4BU and othera#ounts which #a" &e found due to the said cor%oration as da#a-es or for #"other cause2(d) Defendant &e ordered to si-n the certi?cate of stoc' su&scri&ed to and %aid &"the %lainti< i-inio An-elesK and(e) Me-*es o4 #'e 5oD o4 #'e Paa@a"e Rice Mill/ Inc./ *e e-o6ed andan e8#aodina$ -ee#in% o4 #'e s#oc='oldes called 4o #'e p"pose o4elec#in% a ne& *oad o4 diec#os.

, The court issued an ex parteorder of recei.ershi% a%%ointin- Melchor deLara as recei.er of the cor%oration u%on the ?lin- of a &ond of P4U &" the %lainti


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the court2 after considerin- the #e#oranda ?led &" &oth %arties re.o'ed its ordera%%ointin- A-co as recei.er a #onth after, On 8ul" 472 452 the defendants %resented their a#ended answer to theco#%laint2 containin- a -eneral and s%eci?c denial2 and alle-in- as s%ecial defensethat the defendant Teodorico 0 !antos refused to si-n the certi?cate of stoc' infa.or of the %lainti< i-inio An-eles for 9BB shares .alued at P46 &ecause the &oard

of directors decided to -i.e i-inio An-eles onl" 7B shares of stoc' worth PGU, A cross,co#%laint was ?led a-ainst the %laintiue Rice Mill2 Inc is @oined as %art" defendant, The %lainti


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order of the court of Octo&er 42 45*2 a%%ointin- a recei.er2 on the -round that theParaJa>ue Rice Mill2 Inc2 was not a %art" to the %roceedin-s, On Dece#&er G2 45*2 the defendants ece%ted to the decision of the trialcourt and #o.ed for a new trial on the -round that the e.idence %resented wasinsu=cient to @ustif" the decision and that said decision was contrar" to law The#otions for reconsideration and new trial and the s%ecial a%%earance were2 &"

se%arate orders &earin- date of Dece#&er 452 45*2denied &" the trial court, $ase was ele.ated to the !$ &" &ill of ece%tions, DefendantsE contentions: (in case !ir as's)

4 The lower court erred in holdin- that it has @urisdiction to a%%oint arecei.er of the cor%oration2 ParaJa>ue Rice Mill2 Inc2 on Octo&er 42 45*7 The lower court erred in o.errulin- the #otion of the defendants theinclude the defendant cor%oration as %art" defendant and in holdin- that it isnot a necessar" %art" The lower court erred in not -rantin- a #otion for a new trial &ecausethere is a defect of %art" defendant* The lower court erred in not dis#issin- the case &ecause a necessar"defendant was not #ade a %art" in the case

6 The lower court erred in orderin- the defendant Teodorico 0 !antos torender a detailed accountin- of the %ro%erties2 funds and inco#e of thecor%oration ParaJa>ue Rice Mill2 Inc2 fro# the "ear 454 to this date9 The lower court erred in conde#nin- the defendant Teodorico 0 !antos to%a" the cor%oration whate.er su# or su#s which #a" &e found owin- to saidcor%oration2 in accordance with the said accountin- to &e one &" hi#H The lower court erred in orderin- the destitution of the defendants fro#their o=ce as #e#&ers of the &oard of directors of the cor%oration2 until thenew election of the stoc'holders which shall &e held once the decision has&eco#e ?nalG The lower court erred in declarin- that i-ino An-eles is entitled to ha.e inhis na#e 9BB shares of stoc' of the %ar .alue of P462BBB

5 The lower court erred in o.errulin- and den"in- a%%ellants #otion for thereconsideration and the dis#issal of the case dated No.e#&er 742 45*4B The lower court erred in den"in- the #otion of these a%%ellants for newtrial

I!!!: (in relation to re#o.al of directors V !ec 7G), N the lower court has @urisdiction in a%%ointin- a recei.er of thecor%orationpendente lite(, N lower court erred in orderin- the re#o.al of the defendants fro# theiro=ces as #e#&ers of the &oard of directors of the cor%oration

LD:WFirst2 second2 third and fourth assi-n#ent of error: OCRRLDWFifth and sith assi-n#ent of error: MODIFID The decision of the lower court inthis res%ect is therefore #odi?ed so that the defendant !antos shall render aco#%lete accountin- of all the cor%orate %ro%erties and funds that #a" ha.e co#eto his %ossession durin- the %eriod #entioned in the @ud-#ent of the lower court tothe new &oard of director to &e elected &" the stoc'holdersW!e.enth assi-n#ent of error: !!TAIND


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Wi-hth assi-n#ent of error: No error in the decision of the lower court orderin- theissuance of a certi?cate for 9BB shares of stoc' of the total %ar .alue of P462BBB toi-inio An-elesWNinth and tenth assi-n#ent of error: NN$!!AR3 to discuss accd- to !$

RATIO:

4 3! There is a#%le e.idence in the %resent case to show that the defendantsha.e &een -uilt" of &reach of trust as directors of the cor%oration and the lowercourt so found The &oard of directors of a cor%oration is a creation of thestoc'holders and controls and directs the auit" to redress wron-done to the cor%oration2 &ut that the action #ust &e &rou-ht &" the &oard ofdirectors

X$PTION: owe.er2 if the defendants in a case constitute the #a@orit" ofthe 0oD and that the %lainti< is under the co#%lete control of thefor#er%rinci%al defendants2 it is o&.ious that a de#and u%on the 0oD toinstitute action and %rosecute the sa#e eue Rice Mill2 Inc2 of%ro%ert" without due %rocess of law This ar-u#ents holds no water since therecei.er was %recisel" a%%ointed to %reser.e the %ro%erties of the cor%oration Therecei.ershi% in this case shall continue until a new &oard of directors shall ha.e&een elected and the cor%oration


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7 3! The a%%ellants contend (Hth assi-n#ent of error) that the lower court erredin orderin- the re#o.al of the defendants fro# their o=ces as #e#&ers of the&oard of directors of the cor%oration rror sustained

The $or%oration Law2 (Act No 4*65 V $or% Law at this ti#e)2 in section 75 to *2%ro.ide for the election and re#o.al of the directors of a cor%oration T'ese

sec#ions do no# con4e e8pessl$ "pon #'e co"# #'e po&e #o e-o6e adiec#o o4 a copoa#ion. In so#e @urisdictions2 statutes e%ressl" %ro.ide a#ore or less su##ar" #ethod for the con?r#ation of the election and for the#otion of the directors of a cor%oration This is true in New 3or'2 New 8erse"2Cir-inia and other states of the A#erican nion There are a&undant authorities2howe.er2 which hold that i4 #'e co"# 'as ac"ied ?"isdic#ion #o appoin# aecei6e *eca"se o4 #'e -is-ana%e-en# o4 diec#os/ #'ese diec#os -a$#'eea4#e *e e-o6ed and o#'es appoin#ed in #'ei place *$ #'e co"# in#'e e8ecise o4 i#s e"i#$ ?"isdic#ion.In the %resent case2 howe.er2 the %ro%erties and assets of the cor%oration &ein-a#%l" %rotected &" the a%%oint#ent of a recei.er and .iew of the statutor"%ro.isions a&o.e referred to2 the $ourt is of the o%inion that the re#o.al of the

directors is2 under the circu#stances2 unnecessar" and unwarrantedDI!PO!ITIC PORTION:(4) That the action in the %resent case was %ro%erl" instituted &" the %lainti< asstoc'holders for and in &ehalf of the cor%oration ParaJa>ue Rice Mill2 Inc2 and otherstoc'holders of the said cor%orationK(7) That the lower court co##itted no re.iewa&le error in a%%ointin- a recei.er ofthe cor%orationpendente liteK() That the lower court co##itted no error in orderin- an election of the new &oardof directors2 which election shall &e held within thirt" da"s fro# the date thisdecision &eco#es ?nalK(*) That Teodorico 0 !antos shall render an accountin- of all the %ro%erties2 fundsand inco#e of the cor%oration which #a" ha.e co#e into his %ossession to the new

&oard of directorsK(6) That the recei.er2 #ilio Fi-ueroa2 shall continue in o=ce until the election and>uali?cation of the #e#&ers of the new &oard of directorsK(9) That u%on the constitution of the new &oard of directors2 the said recei.er shallturn o.er all the %ro%erties of the cor%oration in his %ossession to the cor%oration2or such %erson or %ersons as #a" &e dul" authori;ed &" itK and(H) That i-inio An-eles2 or his successor in interest2 is entitled to 9BB shares ofstoc' at the %ar .alue of P462BBB and the lower court co##itted no error inorderin- the issuance of the corres%ondin- certi?cate of stoc'

$a#%&ell . LeowEs Incor%orated

$a#%&ell .s leowEs incor%oratedPlainti< Y $a#%&ellres%ondent Y loewEs incDO$TRIN: a director sou-ht to &e re#o.ed for a cause is entitled to an o%%ortunit"to &e heard &efore the stoc'holders .ote!toc'holders ha.e the %ower to .ote for the re#o.al of a director


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NATR: decision on %laintiuest for a %reli#inar" in@unction to restrain theholdin- of a stoc'holders #eetin- fro# considerin- certain #atters or to %re.entthe .otin- of certain %roiesNOT: nu#&er G,4* un- related sa directors since eto un- to%ic sa ca#%os

FA$T!: two factions ha.e &een ?-htin- for leows control One faction is lead &"@ose%h To#linson (To#linson faction) and the other is headed &" leows %resident28ose%h Co-el (Co-el faction)At the annual #eetin- in Fe&ruar"2 each factions no#inated 9 directors and the"no#inated a 4th director or a neutral director 8ul" 4H,4G2 7 out of 9 Cor-eldirectors and the 4th director resi-ned A >uoru# is se.enOn the 45th of 8ul"2 To#linson faction as'ed that a #eetin- &e called for 8ul" B toaddress the %ro&le# of ?llin- director .acancies On the e.e of this #eetin-2 one of

To#linson director resi-ned This left 6 to#linson director and * .o-el directorsOnl" the 6 to#linson director attended the #eetin- The court ruled in To#linson .sleows inc that the election of 7 directors attended &" 6 to#linson directors was not.alid for want of >uoru#

ON @ul" 752 the da" &efore the noticed directors #eetin-2 .o-el as %resident sentout a notice callin- a stoc'holderEs #eetin- for !e%te#&er 47 for the followin-%ur%oses:4 To ?ll director .acancies7 To a#end &",laws to increase the nu#&er of the &oard fro# 4,45K to increasethe >uoru# fro# H,4B and to elect si additional directors To re#o.e !tanle" Me"er and 8ose%h To#linson as directors and ?ll such.acanciesLater2 another notice for !e%te#&er 47 was sent as well as a %ro" state#ent wentout o.er the si-nature of 8ose%h R Co-el as %resident It was acco#%anied &" aletter fro# Co-el solicitin- stoc'holder su%%ort for the #atters a&o.e#entioned

Thereafter2 %lainti< &e-an this action

Plainti< contentions:4) Plainti< contends that %resident had not authorit" in fact to call a s%ecial#eetin- of stoc'holders to act u%on %olic" #atters which ha.e not &een de?ned &"the &oard of directorsAN!R: &"laws: !ec H of Article I %ro.ides: s%ecial #eetin-s of the stoc'holdersfor an" %ur%ose other than those re-ulated &" statute2 #a" &e called &" the%resident .en thou-h !ec G(44) of Article 7 %ro.ides that a &oard #a" call as%ecial #eetin- of stoc'holders for an" %ur%ose2 still accordin- to the &",laws ofleows2 %resident has the %ower to state these &road %ur%oses in his call7) Plainti< ar-ues that if this &",law %ur%orts to -i.e the %resident the %ower tocall s%ecial stoc'holders #eetin-s for the %ur%oses here stated2 then it is contrar"to G DL $ ! 4*4 (a) which %ro.ides:the &usiness of e.er" cor%oration or-ani;ed under the %ro.ision of this cha%tershall &e #ana-ed &" a &oard of directors ece%t as hereinafter or in its certi?cate ofincor%oration otherwise %ro.idedAN!R: the call of stoc'holders #eetin- for the %ur%oses #ention would noti#%in-e u%on the %ower -i.en the directors &" the statute A &" law -i.in- the%resident the %ower to suit #atters for stoc'holder action %resu#a&l" onl"e#&raced #atters which are a%%ro%riate for stoc'holder action


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) Plainti< contends that %resident has no authorit"2 without &oard a%%ro.al to%ro%ose an a#end#ent of the &",laws to enlar-e the 0ODEsAN!R: the &",law of section H which is &road co.ers this actionK hence the%resident has the %ower to do so*) Plainti< contends that the %resident had no %ower to call stoc'holderEs #eetin-to ?ll .acancies on the &oard

AN!R: ?rst of all2 the &",laws %er#it the %resident to call a #eetin- for an"%ur%ose and therefore include the %ower to call a #eetin- to ?ll .acancies The factthat the stoc'holders #a" on their initiati.e ha.e the ri-ht to call a #eetin- for that%ur%ose does not see# to &e a su=cient reason for i#%l"in- that the %resident isthere&" de%ri.ed of such %ower(note: ART C ! 7 of the &"laws %ro.ide the %ower of the stoc'holders to ?ll.acancies)6) Plainti< contends that the %residentEs action in callin- a stoc'holdersE #eetin-to ?ll .acancies was unlawful &ecause it was in conSict with the %re.iousl"scheduled action &" the &oard on the sa#e su&@ect (note: di&a sa&i sa factsna-schedule na n- #eetin- un- isan- faction2 ta%os later si %resident na- send n-notice of #eetin-)

AN!: the %ro" state#ent sent out &" the %resident states that the stoc'holderswould ONL3 ?ll the two .acancies2 IF their election &" the &oard was held to &eINCALID (eh in.alid un- #eetin- nun- TOMLIN!ON FA$TION 'asi want of >uoru#hence2 the issue is #oot)9) Plainti< contends that the %resident had no %ower to ? the record date for.otin- %ur%osesAN!R: %resident had the %ower to call the #eetin- for the %ur%ose noticed&ecause it turned out that the eecuti.e co##ittee ?ed the record date andPLAINTIFFEs counsel did not attac' the action of the eecuti.e co##ittee2 in e


16/32

re#o.al for cause the court is to conclude on reason that the stoc'holders ha.esuch inherent %ower The stoc'holders do ha.e the %ower to re#o.e directors forcause5) Plainti< ar-ues that the re#o.al of To#linson and Me"er as directors would.iolate the ri-ht of #inorit" shareholder to re%resentation on the &oard and would&e contrar" to the %olic" of the Delaware re-ardin- cu#ulati.e .otin-

AN!R: stoc'holders ha.e the %ower to re#o.e a director for cause e.en wherethere is a %ro.ision for cu#ulati.e .otin- To re#o.e such %ower would o%en thecor%oration for real da#a-e &ecause directors are now o%en to fraudulenttransactions and stoc'holders cannot re#o.e the# for an" cause4B) Plainti< contends that the stoc'holders can .ote to re#o.e a director forcause onl" after such director has &een -i.en ade>uate notice of char-es of -ra.ei#%ro%riet" and a


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AN!R: NO2 defendant cor%oration Satl" refused to -i.e To#linson director of astoc'holdersE list 0" this action2 the cor%oration throu-h the Co-el -rou% hasdeli&eratel" refused to auestion an ade>uate o%%ortunit" to&e heard &" the stoc'holders on the char-es #ade This is contrar" to the le-alre>uire#ents which #ust &e #et &efore a director can &e re#o.ed for a causeAlso2 onl" the Co-el accusations acco#%anied the re>uest for a %ro"2 thus while

the stoc'holder could for or a-ainst re#o.al2 he would &e .otin- with onl" one.iew%oint %resented In su#2 an o%%ortunit" #ust &e %ro.ided such directors to%resent their defense to the stoc'holders &" a state#ent which #ust acco#%an" or%recede the initial solicitation of %roies see'in- authorit" to .ote for the re#o.al ofsuch director for cause cor%oration has a dut" to see that this o%%ortunit" was-i.en the two directors in.ol.ed

Therefore2 %ro" solicited &" the Co-el -rou% &ased u%on unilateral %resentation ofthe facts &" those in control of the cor%orate facilities2 #ust &e declared in.alidinsofar as the" %ur%ort to -i.e authorit" to .ote for the re#o.al of the directors forcause

A %reli#inar" in@unction will issue restrainin- the cor%oration fro# reco-ni;in- or

countin- an" %roies held &" the CO1L -rou% and others insofar as such %roies%ur%ort to -rant authorit" to .ote for the re#o.al of To#linson and Me"er asdirectors of the cor%oration

De la Ra#a . Ma,Ao !u-ar $entral , 8e; a%antaDoctrine: )hen the in$estment is necessary to accomplish its purpose or purposesas stated in its articles of incorporation" the appro$al of the stockholders is notnecessaryFacts:

This was a re%resentati.e or deri.ati.e suit co##enced on Octo&er 7B2 4562 in the

$ourt of First Instance of Manila &" four #inorit" stoc'holders a-ainst the Ma,ao!u-ar $entral $o2 Inc and 8 A#ado Araneta and three other directors of thecor%oration

The co#%laint stated ?.e causes of action2 to wit: (4) for alle-ed ille-al and ultra,.ires acts consistin- of self,dealin- irre-ular loans2 and unauthori;ed in.est#entsK(7) for alle-ed -ross #is#ana-e#entK () for alle-ed forfeiture of cor%orate ri-htswarrantin- dissolutionK (*) for alle-ed da#a-es and attorne"s feesK and (6) forrecei.ershi%, Plaintiuentl" a%%ro.ed on 8une *2 4567


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, The lower court held that the in.est#ent of cor%orate funds was not a .iolationof the $or%oration Law It considered the defendants correct in contendin- thatsince the co#%an" was en-a-ed in the #anufacture of su-ar &a-s it wasle-iti#ate for Ma,ao to either #anufacture su-ar &a-s or in.est in anothercor%oration en-a-ed in said #anufacture

!tatin- in %art of their decision that while !ec 4H,47 of the $or%oration Law

%ro.ides that: No cor%oration or-ani;ed under this act shall in.est its funds in an" othercor%oration or &usiness or for an" %ur%ose other than the #ain %ur%ose for which itwas or-ani;ed unless its &oard of directors has &een so authori;ed in a resolution &"the a=r#ati.e .ote of stoc'holders holdin- shares in the cor%oration entitlin- the#to eercise at least two,thirds of the .otin- %ower on such %ro%osal at thestoc'holders #eetin- called for the %ur%ose, the $ourt is con.inced that that law should &e understood to #ean that it is%rohi&ited to the $or%oration to in.est in shares of another cor%oration unless suchan in.est#ent is authori;ed &" two,thirds of the .otin- %ower of the stoc'holders2 ifthe %ur%ose of the cor%oration in which in.est#ent is #ade is forei-n to the%ur%ose of the in.estin- cor%oration &ecause surel" there is #ore lo-ic in the stand

that if the in.est#ent is #ade in a cor%oration whose &usiness is i#%ortant to thein.estin- cor%oration and would aid it in its %ur%ose2 #o e"ie a"#'oi#$ o4 #'es#oc='oldes &o"ld *e #o "nd"l$ c"#ail #'e Po&e o4 #'e 5oad o4Diec#os K the onl" trou&le here is that the in.est#ent was #ade without an"%re.ious authorit" of the 0oard of Directors &ut was onl" rati?ed afterwardsK this ofcourse would ha.e the euired in !ec 4H, of the $or%oration LawDefendant,A%%ellees on the other hand2 in.o'ed !ec 42 %ar 4B of the $or%orationLaw2 which %ro.ides: !$ 4 .er" cor%oration has the %ower:


19/32

(5) To enter into an" o&li-ation or con#ac# essen#ial #o #'e popead-inis#a#ion o4 i#s copoa#e aais o necessa$ 4o #'e pope#ansac#ion o4 #'e *"sinessor acco#%lish#ent of the %ur%ose for which thecor%oration was or-ani;edK(4B) ce%t as in this section otherwise %ro.ided2 and in ode #o acco-plis' i#sp"pose as s#a#ed in #'e a#icles o4 incopoa#ion2 to ac>uire2 hold2 #ort-a-e2

%led-e or dis%ose of shares2 &onds2 securities and other e.idences of inde&tednessof an" do#estic or forei-n cor%oration

To reconcile the %ro.isions2 the !$ [uoted Professor !ul%ico 1ue.arra in his &oo':*. +ower to ac&uire or dispose of shares or securities A %ri.ate cor%oration2 inorder to acco#%lish its %ur%ose as stated in its articles of incor%oration2 and su&@ectto the li#itations i#%osed &" the $or%oration Law2 has the %ower to ac>uire2 hold2#ort-a-e2 %led-e or dis%ose of shares2 &onds2 securities2 and other e.idences ofinde&tedness of an" do#estic or forei-n cor%oration Such an act" if done in

pursuance of the corporate purpose" does not need the appro$al of thestockholders; but when the purchase of shares of another corporation is done solelyfor in$estment and not to accomplish the purpose of its incorporation" the $ote ofappro$al of the stockholders is necessary In an" case2 the %urchase of such shares

or securities #ust &e su&@ect to the li#itations esta&lished &" the $or%oration Law*B Power to in.est $or%orate funds A %ri.ate cor%oration has the %ower to in.estits cor%orate funds in an" other cor%oration or &usiness2 or for an" %ur%ose otherthan the #ain %ur%ose for which it was or-ani;ed2 %ro.ided that its &oard ofdirectors has &een so authori;ed in a resolution &" the a=r#ati.e .ote ofstoc'holders holdin- shares in the cor%oration entitlin- the# to eercise at leasttwo,thirds of the .otin- %ower on such a %ro%osal at a stoc'holders #eetin- calledfor that %ur%ose. )hen the in$estment is necessary to accomplish its purpose or

purposes as stated in it articles of incorporation" the appro$al of the stockholders isnot necessary The %ortion to refrain fro# #a'inin.est#ents in Aco@e Minin-2 Ma&uha"Printin- and an" other co#%an" whose %ur%ose is not connected with the su-ar

central &usiness !hould &e re.ersed &ecause2 !ec 4H, of the $or%oration Lawallows a cor%oration to in.est its fund in an" other cor%oration or &usiness2 or foran" %ur%ose other than the #ain %ur%ose for which it was or-ani;ed2 %ro.ided thatits &oard of directors has &een so authori;ed &" the a=r#ati.e .ote of stoc'holdersholdin- shares entitlin- the# to eercise at least two,thirds of the .otin- %ower Allother %arts2 a=r#ed

1o'on-wei . !$ , Ali a%ata (consolidated w Ni''is di-est)

In re 1iant Portland $e#ent $o , 8r

DOCTRINE: IN T L$TION OF DIR$TOR!2 COT! MAD 03 A PROX3 OF TR$ORD ONR !IN1 !TO$U !OLD ITIN 7B DA3! OF T L$TION I! CALIDKPROCIDD IT I! NOT IN8RIO! TO T TRAN!FR OF !TO$U

FACTS:Q The case ste#s fro# the results of an lection for the 0oard of Directors ofthe 1iant Portland $e#ent $o held in Fe&ruar" 7*2 45*4


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Q Nine Directors of the $or%oration were to &e elected2 and two tic'ets wereno#inated: The Mana-e#ent and The O%%osition owe.er2 four %ersons wereno#inated on &oth tic'ets V resultin- in their un>uestiona&le electionQ The lection resulted with the * no#inees on &oth tic'ets and the 6 no#ineesfro# The O%%osition &ein- electedQ Petitioners 0rown and Murra" >uestion the results of the lection2 ?llin- a

case in the $ourt of $hancer" of DelawareQ Petitioners contend that the election ins%ectors were incorrect in countin-certain .otes for The O%%ositionQ T'e con#en#ion is *ased on #'ese 4ac#s:

o In Fe&ruar" *2 45*4 (7B da"s %rior to the lection)2 in a resolution2 the0oard of Directors closed the !toc' Transfer 0oo's of the $or%orationo In !ec 4H of the 1eneral $or%oration Law2 it states:

\ (4) each stoc'holder2 shall at e.er" #eetin- of the stoc'holders &eentitled to one .ote in %erson or &" %ro" for each share of the ca%italstoc'\ (7) e8cep# &'ee #'e #ans4e *oo=s o4 #'e copoa#ion s'all'a6e *een closedor a date shall ha.e &een ?ed as a record date for

the deter#ination of its stoc'holders entitled to .ote no s'ae o4s#oc= s'all *e 6o#ed on a# an$ elec#ion 4o diec#os which shallha.e &een #ans4eed on the &oo's of the cor%oration &i#'in#&en#$ da$s ne8# pecedin% s"c' elec#ion o4 diec#os\ (*) onl" such stoc'holders2 as shall &e s#oc='oldes o4 ecod on#'e da#e so >8ed/ s'all *e en#i#led #o 6o#e a# s"c' -ee#in%

o !ection 4H was also incor%orated in the &",laws of the $or%orationo Durin- this %eriod2 no s#oc= &as #ans4eed on #'e copoa#e

ecodso owe.er2 ce#ain s'aes &ee sold *$ #'e ecod o&nesand thestoc' certi?cates were dul" assi-ned and deli.ered to the %urchasers %rior tothe stoc'holdersE #eetin-

o The record owners who sold their shares assi-ned %roies to .ote &asedon shares the" alread" soldo Of the shares sold within the 7B da" %eriod2 62*H7 were .oted in fa.or ofThe O%%osition while 42G* shares were .oted for The Mana-e#ent Inessence2 if these .otes are not counted V it #a" a


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Q owe.er2 in relation to the cor%oration2 "n#il s"c' #ans4e o4 s#oc= isecoded/ #'e eco%nied o&ne is #'e one on ecod.Q The .otes of the %ro" assi-ned &" the record owners are2 therefore2 .alid inthe electionsQ It is true that the record ownertransferor would &e lia&le to the%urchasertransferee if the .otes were in@urious to the latter owe.er2 no e.idence

was %resented that showed the %urchasers of the stoc' o&@ected to the .otes #ade&" the %roies of the record owners In fact2 e.idence was %resented wherein the.otes casted &" the %roies were in accordance with the wishes of the %urchasersQ In an" case2 a&sent e.idence2 consent is %resu#ed

!tate e Rel .erett Trust / !a.in-s 0an' . Paci?c aed Pa%er $o2 et al , Ulairesden

DO$TRIN:The -eneral rule is that a %ro" is re.oca&le e.en thou-h &" its e%ress ter#s it isirre.oca&le The ece%tions are: (a) when authorit" is cou%led with interestK (&)where authorit" is -i.en as %art of a securit" and is necessar" to e


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, .erett cause the .oluntar" dissolution of Paine Mitchell and as a result2 the stoc'owned it in Paci?c aed was transferred to .erett (as eecutor), .erett (as eecutor) sou-ht to .ote for the transfer of such shares in thestoc'holders #eetin- Paci?c aed did not reco-ni;e his ri-ht and u%held the.alidit" of the irre.oca&le %ro" a-ree#ent in fa.or of n-le

I!!:ON the irre.oca&le %ro" a-ree#ent was .alid]

LD: 3! hen a cor%oration is dissol.ed &" its .oluntar" acts2 the cor%orationre#ains &ound &" its outstandin- eecutor" contracts

1eneral rule: Pro" -i.en &" a stoc'holder to .ote his cor%orate stoc' at a #eetin-of stoc'holders is re.oca&le &" hi# e.en thou-h the %ro" &" its ter#s is e%ressl"#ade re.oca&le

ce%tions:A) here the authorit" or %ower if cou%led with an interest

, n-le has this More than &ein- an a-ent of Paine Mitchell2 he has interest in itsshare &ecause it is lin'ed with his .otin- %ower to control the a


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Petitioner o


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criticis# is .oiced a-ainst the -rant of #ore inclusi.e and onerous %ower tothe %led-ee (the %ower to sell the stoc')dFletcher2 an e#inent author on $or%oration law2 said that a %ro" is-enerall" irre.oca&le when it is with consideration and not contrar" to %u&lic%olic"

7 The %eculiar circu#stances (-ettin- %roies throu-h li&eral loans &" the) are not

contrar" to %u&lic %olic" for a nu#&er of reasonsa there is no showin- that PAM0L and PA!D$O 2in %rocurin- said irre.oca&le

%roies2 throu-h li&eral loans2 intended to co##it fraud a-ainst an"&od" or tosecure full control o.er PA!D$O in order to co##it in@ustice ah-ainst an"stoc'holder

& The desire and desi-n of #a@orit" of the stoc'holders of a %ri.ate cor% to controlits #ana-e#ent is le-iti#ate

c The stoc'holders who own the #a@orit" of the stoc' #a" a%%oint the#sel.es asdirecotors and for# and carr" into e


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!AM FA$T! IT 8ROME! DI1!T2 OCR TI! MPA!I! ON A DIFFRNTMATTRFA$T!: rele.ant to PROX3 TOPI$ (nu#&er 4*)DO$TRIN:Directors a-ainst who# %roies are solicited #ust &e allowed to send a state#ent intheir defense with the %ro" state#ent

FA$T!:Co-el was President of LoewEs Inc2 which was di.ided &" two factions Ci-el called as%ecial #eetin- of shareholders for the %ur%ose of enlar-in- the directorate andoustin- two directors fro# the ri.al faction2 To#linson and Me"er Co-el sent out a%ro" state#ent which accused the directors of .arious acts of #isfeasance Thedirectors were not o


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HELD: $A a=r#ed lower court A%%ellees acted in -ood faith in a contest o.er %olic"2 the" had the ri-ht to

incur reasona&le and %ro%er e%enses for the solicitation of %roies and indefense of their cor%orate %olicies2 and were not o&li-ed to sit idl" &"

!toc'holders had the ri-ht to rei#&urse successful contestants for reasona&le

and &ona ?de e%enses incurred &" the# in an" such %olic" contest2 su&@ectto court scrutin"

court noted that a%%ellant did not ar-ue that the funds were fraudulentl"etracted fro# the cor%oration2 &ut instead ad#itted that the char-es werefair and reasona&le

D!MOND2 8 V CONC;RRIN3 CAN COORI!2 8 , DISSENTIN3

Du


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7 hether or not a >uoru# was %resent for the transaction of &usiness]hether or not 772 G*B shares for which the Miller co##ittee held %roies can &e%ro%erl" counted as %resent] (If "es Y >uoru#K If No Y no >uoru#), Proies for those shares ran in fa.our of Miller2 !te.enson andor 1ra" The"are a%%ointed as%true and lawful attorney or attorneys" agent or agents, and proxy or proxiesof

the undersigned" with power of substitution" for" and in the name" place and steadof the undersigned to attend the annual meeting of the stockholders , , , and thenand there to $ote all steck held or owned by the undersigned , , , to represent andto $ote all shares of stock of the undersigned" according to the number of $oteswhich the undersigned would be entitled to cast if personally present. , , ,%, !hares for which Mr Miller and his associates held %roies were %resent, The %roies were solicited on the theor" that the shares re%resented &"the# would &e re%resented at the #eetin- and the a-ents desi-nated to re%resentthe# were in fact %resent ha.in- a -reat deal to sa", The a&sence or failure to show the written e.idence of their authorit"2 asalread" stated2 cannot destro" the fact of its eistence

The fact that the" were not the owners &ut onl" the re%resentati.es of the owners

does not2 under the circu#stances shown2 #a'e an" di


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TA$ #ade %a"#ents on its inde&tedness throu-h A0$ to Pea&od" and$o#%an"2 a#ountin- to the su# of at least P46B2BBB

TA$ had ordered another lot of tractors fro# !#ith2 Uir'%atric' and $o#%an" &utthat shi%#ent of such tractors had &een dela"ed until credit had &een rescinded &"A0$ and that u%on such rescission !#ith2 Uir'%atric' and $o2 had &een ad.ised &"

tele-ra%h that the order was cancelled and not to shi% the tractors

Re-ardless of ha.in- &een ad.ised2 !#ith Uir'%atric' and $o still shi%%ed thetractors which were stored in a warehouse in Manila with the concurrence of A0$

On March 45742 A0$ %ersuaded TA$ and Pea&od" and $o and !#ith2Uir'%atric' and $o to enter into a creditors a-ree#ent with itself2 wherein it was#utuall" a-reed that neither of the %arties should ta'e action to collect its de&tsfro# TA$ for the ter# of two "ears after the date thereof

On 75 Dece#&er 45772 TA$ was inde&ted to A0$ in a&out the su# of PH6BBBBwhich said su# was secured &" a #ort-a-e

Toward the end of the "ear 45772 A0$2 throu-h its #ana-er Mullen2 re%resented toTA$ and its #ana-ers that:

W For the %rotection of &oth A0$ and TA$2 it was ad.isa&le for the# &oth thatthe A0$ should te#%oraril" o&tain control of the #ana-e#ent and a


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On 4G Au-ust 4572 the defendants (Mullen2 etc) #ade2 eecuted and ?led in the0ureau of $o##erce and Industr" of the Phili%%ine Islands2 articles of incor%orationof a cor%oration called the Phili%%ine Motors $or%oration

At the ti#e of such incor%oration2 all of the defendants were an o=cer or e#%lo"eeof A0$

!u&se>uentl"2 A0$ turned o.er to the Phili%%ine Motors $or%oration all of the&usiness and assets of TA$

Phili%%ine Motors $or%oration continued to conduct the &usiness of TA$ to thedisre-ard and detri#ent to the ri-hts of %laintiuita&lerelief2 thou-h it #a" e.entuall" de.elo% into an action at law

In.o'in- the well,'nown rule that shareholders cannot ordinaril" sue in e>uit" toredress wron-s done to the cor%oration2 &ut that action #ust &e &rou-ht &" the0oard of Directors2 the defendants V and the court &elow held, that TA$ is anecessar" %art" %lainti< and that the %lainti< stoc'holders2 not ha.in- #ade an"de#and on the 0oard to &rin- the action2 are not the %ro%er %arties


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5;T2 it is alle-ed in the co#%laint and ad#itted throu-h the de#urrer that TA$ isunder the co#%lete control of the %rinci%al defendants and it would &e o&.ious thata de#and u%on the 0oard of Directors to institute an action and %rosecute the sa#ee demurrer iso$erruled" and it is ordered that the return of the record to the Court within tendays from the return of the records to the Cuired to select the#sel.es as directors and to re,elect the incu#&ent &oard so lon- as the" are suita&le

Mr Dion then eecuted the trust a-ree#ent and de%osited 726BB of his shares ofco##on stoc' while a-lin / !ons $o#%an" and ola&ird / Roach2 the otherco##on stoc'holders2 li'ewise eecuted the a-ree#ent and de%osited 429BB and


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*BB of their shares2 res%ecti.el" Accu#ulated2 was the co##on stoc' of the or-The trust deed securin- the _4GM of &onds was deli.ered and the #one" %ain tothe cor%

Plainti


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National In.est#ent / De.elo%#ent $or% . A>uino , Ui'o"

Documents

Corpo Part 2 Digest