STEINBERG VS. VELASCO ( 52 Phil.

953; 1929) FACTS: The board of directors of Sibuguey Trading Company authorized the purchase of 330 shares of stock of the corporation and declared payment of P3T as dividends to stockholders. The directors from whom 300 of the stocks were bought resigned before the board approved the purchase and declared the dividends. At the time of purchase of stock sand declaration of dividends, the corporation had accounts payable amounting to P9,241 and accounts receivable amounting to P12,512, but the receiver who made diligent efforts to collect the amounts receivable was unable to do so. It has been alleged that the payment of cash dividends to the stockholders was wrongfully done and in bad faith, and to the injury and fraud of the creditors of the corporation. The directors are sought to be made personally liable in their capacity as directors. HELD: Creditors of a corporation have the right to assume that so long as there are outstanding debts and liabilities, the BOD will not use the assets of the corporation to buy its own stock, and will not declare dividends to stockholders when the corporation is insolvent .In this case, it was found that the corporation did not have an actual bona fide surplus from which dividends could be paid. Moreover, the Court noted that the Board of Directors purchased the stock from the corporation and declared the dividends on the stock at the same Board meeting, and that the directors were permitted to resign so that they could sell their stock to the corporation. Given all of this, it was apparent that the directors did not act in good faith or were grossly ignorant of their duties. Either way, they are liable for their actions which affected the financial condition of the corporation and prejudiced creditors.

Nielson & Co. v. LEPANTO CONSOLIDATED (1968) 1)In its MR before SC, LEPANTO that this Court erred in ordering Lepanto to issue and deliver to Nielson shares of stock together with fruits thereof. 2)In Our decision, We declared that pursuant to the modified agreement regarding the compensation of Nielson which provides, among others, that Nielson would receive 10% of any dividends declared and paid, when and aspaid, Nielson should be paid 10% of the stock dividends declared by Lepanto during the period of extension of the contract. 3)It is not denied that on November 29, 1949, Lepanto declared stock dividends worth P1M and on August 22, 1950, it declared stock dividends worthP2M. In other words, during the period of extension Lepanto had declared stock dividends worth P3M. We held in Our decision that Nielson is entitled to receive10% of the stock dividends declared, or shares of stocks, worth P300T at the par value of PO.10 per share. We ordered Lepanto to issue and deliver to Nielson those shares of stocks as well as all the fruits or dividends that accrued to said shares. 4)Lepanto contends in its MR that: the payment to Nielson of stock dividends as compensation for its services under the management contract is a violation of the Corporation Law, and that it was not, and it could not be, the intention of Lepanto and Nielson-as contracting parties-that the services of Nielson should be paid in shares of stock taken out of stock dividends declared by Lepanto. HELD: Under Section 16 of the Corporation Law stock dividends can not be issued to a person who is not a stockholder in payment of services rendered .And so, in the case at bar Nielson can not be paid in shares of stock which form part of the stock dividends of Lepanto for services it rendered under the management contract. We sustain the contention of Lepanto that the understanding between Lepanto and Nielson was simply to make the cash value of the stock dividends declared as the basis for determining the amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends declared. And this conclusion of Ours finds support in the record. RATIO:The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the profits of the enterprise which the corporation, by its governing agents, sets apart for ratable division among the holders of the capital stock. It means the fund actually set aside, and declared by the directors of the corporation as a dividends, and duly ordered by the director, or by the stockholders at a corporate meeting, to be divided or distributed among the stockholders according to their respective interests.

J. M. TUASON & CO., INC., represented by it Managing PARTNER,GREGORIA ARANETA, INC., plaintiff-appellee,-versusQUIRINO BOLAOS, defendant-appellant. FACTS: This was an action to recover possession of a parcel of land where theplaintiff was represented by a corporation. Issue: WON the case should be dismissed on the ground that the case was notbrought by the real property in interest Held:No. there is nothing to the contention that the present action is not brought bythe real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rulesof Court require is that an action be brought in the name of,but not necessarily by , the real party in interest. (Section 2, Rule 2.) The complaint is signed by the law firm of Araneta and Araneta, "counsel forplaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta,Inc.", another corporation There is nothing against one corporation being represented byanother person, natural or juridical, in a suit in court. The contention that Gregorio Araneta Inc. cannot act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is that though a corporation has no power into a partnership, it may nevertheless enter into a joint venture with another where thenature of that venture is in line with the business authorized by its charter. NOTE: Point of the case is about joint ventures being treated separately from partnerships. Tuason does not explain why there was a difference in treatment of corporate involvement in partnerships as compared to that when it come to joint ventures.

Government of the Phil vs. El Hogar Facts: The Phil govt instituted a quo warranto proceeding against EL Hogar for the purpose of depriving it of its corporate franchise, excluding it from all corporate rights and privileges and effecting a final dissolution of the corpo. March 1906-Corpo law came into effect. Sec 171 to 190 are on building and loan association. El Hogar-first corpo in the Phil. Under the law then, the capital of an association was not permitted to exceed 3M but then amended to 10M. The by-laws of the corpo states a provision that: the BOD, by vote of an absolute majority of its members, is empowered to CANCEL SHARES AND RETURN TO THEOWNER thereof the balance resulting from the liquidation thereof, whenever, by reason of their conduct of any other motive, the continuation as members of the owners of such shares is not desirable. The govt questioned the validity because it conflicts with the Corpo Law which declares that the BOARD SHALL NOT HAVE THE POWER TO FORCE THE SURRENDERAND WITHRAWAL OF UNMATURED STOCK EXCEPT IN CASE OF LIQUIDATION OF THECORPORATION OR OF FORFEITURE OF THE STOCK FOR DELINQUENCY. The govt asserts that because of the existence of the provision in the bylaw, it justifies its dissolution. There is also a provision in the by-laws that the directors shall elect from among the shareholder members to fill the vacancies that may occur in the BOD until the election at the general meeting. Another cause of action of the govt was based on the BODs failure to hold annual meetings and fill vacancies. Third cause of action is the fact the directors of El Hogar have been receiving large compensation because the by-laws provide a 5% of the net profit shown by the annual balance sheet to be distributed to the directors in proportion to their attendance at meetings of the board. Fourth cause of action: Procedures to adopt when one is elected as a BOD=P5000pay-up of shares as securityonly the rich can be BOD and the waiver to receive loans form the corpo ISSUE: WON El Hogar may be dissolved on such grounds.

HELD: NO. The by-law is a mere nullity and could not be enforced if the directors attempt to do so. In the second cause of action, unless the law or the charter of the corporation expressly provides that an office shall become at the expiration of the term of office for which the officer was elected, the general rule is to allow the officer to hold over until his successor is duly qualified. MERE FAILURE OF ACORPO TO ELECT OFFICERS DOES NOT TERMINATE THE TERM OF EXISTINGOFFICERS AND DISSOLVE THE CORPORATION. On the third cause of action as to the compensation of the BOD=the question must be of the validity of the measure and not the propriety and wisdom of the measure adopted. The power to fix the compensation they shall receive, if any, is left to the corporation to be determined by the by-laws. The remedy is in the hands of the stockholder .On the fourth cause of action: The Corpo Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and the requirement of security from them for the proper discharge of the duties of their office