Philpotts v.

PMC
Philpotts = stockholder in the Philippine Manufacturing Company
= seeks to obtain a writ of mandamus to compel the Phil Manufacturing to permit
him or by some authorized agent or attorney to inspect and examine the records
of the business transacted by said company since January 1, 1918.
PMC contends that the right of examination granted under section 51 of the
Corporation Law = must be exercised in person.
Issue:
WON the right inspect the records can be exercised by a proper agent or attorney
of the stockholder as well as by the stockholder in person?
Held: YES
The record of all business transactions of the corporation and the minutes
of any meeting shall be open to the inspection of any director, member or
stockholder of the corporation at reasonable hours."
right of inspection = can be exercised by any proper representative or attorney
in fact ( w/ or w/o the attendance of the stockholder )
NO JUSTIFICATION in qualifying the right in the manner suggested by the
respondents
It is advisable to say that there are some things which a corporation may
undoubtedly keep secret, notwithstanding the right of inspection given by
law to the stockholder ( Secret Formula )
But there nothing in the petition which would indicate that the petitioner in this
case is seeking to discover anything which the corporation is entitled to keep
secret
Pardo v. Hercules Lumber
Pardo = stockholder of Hercules Lumber
Ferrer ( acting secretary of the said company ) = refused to permit Pardo to
inspect the records and business transactions of the company.
Reason = Hecules Lumber had designated certain times to which the
stockholders can inspect the books.
Hence this petition.
Issue:
WON the company can validly restrict the frequency to which shareholders can
inspect its books?
Held: NO
Such restriction made by the company is invalid.
executive officers / board of directors = (X) have the power to deny a
stockholder of the right all together.
It will be noted that such right can be exercised at reasonable hours=
meaning reasonable hours on business days through out the year
(X) merely during some arbitrary period chosen by the officers.
motive of the shareholder exercising the right is immaterial.
Veraguth v. Isabela Sugar Co.
Veraguth = a director of Isabela Sugar Company, Inc.
= filed a petition writ of mandamus against all directors to:
a) notify him of all regular and special meetings of the board of directors of the
Company
b) place at his disposal at reasonable hours the minutes, documents, and books
of said corporation for his inspection as director and stockholder
REASON = Veraguth has not been informed of previous meetings.
= denied access and inspection = Grounds: Resolution providing for
inspection of the books and the taking of copies only "by authority of the
President of the corporation previously obtained in each case."
Issue:
Is Veraguth entitled to inspect the books of the corporation?
Held: YES
Directors of a corporation have the unqualified right to inspect the books
and records of the corporation at all reasonable times.
right of inspection is not to be denied on the ground = that the director or
shareholder is on unfriendly terms with the officers of the corporation
A director or stockholder can of course make copies, abstracts, and
memoranda of documents, books, and papers as an incident to the right of
inspection,
RESTRICTIONS:
a) without an order of a court = (X) permitted to take books from the office of the
corporation.
b) (X) absolute right to secure certified copies of the minutes of the corporation
until these minutes have been written up and approved by the directors.
Supplementary Notes:
"All business corporations shall keep and carefully preserve a record of all
business transactions, and a minute of all meetings of directors, members, or
stockholders, in which shall be set forth in detail the time and place of holding the
meeting, how authorized, the notice given, whether the meeting was regular or

special, if special its object, those present and absent, and every act done or
ordered done at the meeting. . . .
"The record of all business transactions of the corporation and the minutes of
any meeting shall be open to the inspection of any director, member, or
stockholder of the corporation at reasonable hours."
Gonzalez v. PNB
Gonzalez = bought a share of stock from the PNB
= sought to look over the books and records of PNB.
Purpose: a) verify the truth on certain transactions which the bank entered
b) Inquire into the validity of said transactions.
Undertakings
1. to finance Southern Negros Devt Bank in the latters purchase of a sugar mill
2. the financing of the Cebu-Mactan Bridge
3. the construction of Passi Sugar Mill at Ilo-ilo
Gonzalezs right to inspect = denied by the officers of the bank
PNB Contended = request was not germane to his interest as one-stock
shareholder.
Thus, Gonzalez instituted an action for mandamus against PNB.
Issue:
WON the officers of PNB can be compelled to allow Gonzalez to inspect the
records of the former?
Held: NO
The Corporation Code has prescribed a limitation to the same by requiring as
a condition precedent
1. the one requesting the information must not have used improperly any
information secured through prior examination.
2. the request must be in good faith and for a legitimate purpose.
procured a share of stock purposely to exercise the right of inspection = (X)
good faith
Having its own charter = PNB is not governed by the Corp Code
charter limits the inspection of the banks records = ONLY TO certain qualified
officials
right of inspection = (X) apply given the express restriction in its charter.
RICHARDSON vs ARIZONA FUELS CORPORATION
Richardson et al = stockholders of Major Oil Corporation
= brought this action individually and on behalf of all other stockholders of Major
= moved for an order certifying this suit as a class action and for appointment of a
receiver
original complaint named as defendants Arizona Fuels, Inc. and stock holders
subsequently amended = "some" of the causes of action found therein belong to
Major, and that as to those causes plaintiffs bring the suit derivatively on behalf of
the corporation pursuant to Rule 23.1
Issue:
Whether the district court erred in certifying this matter as a class action?
Held:
A derivative action must necessarily be based on a claim for relief which is
owned by the stockholders' corporation.
prerequisite for filing = failure of the corporation to initiate the action in its
own name.
stockholder = as a nominal party ( no right, title or interest whatsoever in the
claim itself ) -- whether the action is brought by the corporation or by the
stockholder on behalf of the corporation.
A class action = is predicated on ownership of the claim for relief sued upon
in the representative of the class and all other class members in their
capacity as individuals.
claims for relief directly against the corporation itself for violation of their rights
CLASS ACTION would be an appropriate means for enforcing their claims.
RULE = A recovery in a class action is a recovery which belongs directly
to the shareholders. However, in a derivative action, the plaintiff
shareholder recovers nothing and the judgment runs in favor of the
corporation.
Supplementary Notes:
Difference in the two procedures and their relationship to underlying substantive
law has been stated as follows:
Derivative suit = seek to enforce any right which belongs to the corporation BUT
NOT BEING ENFORCED
= such as :
a) the liability of corporate officers / majority shareholders for mismanagement, to
recover corporate assets and related claims
b) to enforce rights of the corporation by virtue of its contract with a third person
c) to enjoin those in charge of the corporation from causing it to commit an ultra
vires act
Bitong v CA
Bitong = filed a derivative suit was for the benefit of Mr. & Ms. Publishing Co
= complained of irregularities committed by officers of the Company.

Complaints:
1. transactions and agreements entered into = (X) supported by any bond and/or
stockholders resolution
2. several cash advances be made = without any board or stockholders
resolution, nor any document or contract which would legally authorize such
transactions.
The SEC dismissed the derivative suit. Bitong appealed to SEC en banc, which
reversed the decision
The CA however reversed the said decision, on the ground that petitioner is
could not file the instant action, not being an owners of any share of stock
in the Company.
Issue:
Whether petitioner is an owner of shares of stock in the Company to allow her to
file a derivative suit.
Held: No.
Bitong = (X) bona fide stockholder of the Company at the time the acts
complained of were carried out by the Apostols.
true party in interest was actually JAKA ( from whom petitioner acquired her
shares of stock
Although her buying of the shares were recorded in the Stock and Transfer
Book of the corporation = this provision is not conclusive even against the
corporation but are prima facie evidence only.
the provision envisions a formal certificate of stock which can be issued only
upon compliance with certain requisites:
1. certificates must be signed by the president or vice president, countersigned by
the secretary or assistant secretary, and sealed with the seal of the corporation
** A mere typewritten statement advising a stockholder of the extent of his
ownership in a corporation withoutqualification and/or authentication cannot be
considered as a formal certificate of stock
2. delivery of the certificate
3. the par value, as to par value shares, or the full subscription as to no par value
shares, must be first fully paid
4. the original certificate must be surrendered where the person requesting the
issuance of a certificate is a transferee from a stockholder
RULE = stock issued without authority and in violation of the law is void
and confers no rights on the person to whom it is issued and subjects him
to no liabilities
Supplementary Notes:
Where there is an inherent lack of power in the corporation to issue the stock,
neither the corporation nor the person to whom the stock is issued is estopped to
question its validity since an estoppel cannot operate to create stock which under
the law cannot have existence.
Certificate of stock itself, once issued, is a continuing affirmation or
representation that the stock described therein is valid and genuine and is at least
prima facie evidence that it was legally issued in the absence of evidence to the
contrary
GR: Books and records of a corporation = best evidence of corporate
acts and proceedings
Exception: PAROL EVIDENCE may REFUTE the records
San Miguel Corp. v. Khan
Neptunia Corporation bought the shares 33K SMC shares = made downpayment
the 33K SMC shares were sequestered by the PCGG = Ground:
** that the stock belonged to Cojuangco and that the sale thereof violated EO1
and EO 2.
Forbade SMC secretary = to register any transfer or encumbrance of any of the
stock without the PCGGs prior written approval.
PCGG then directed SMC to issue qualifying shares to individuals =
including De los Angeles
SMC decided to assume the loans incurred by Neptunia for the downpayment
At a meeting, de los Angeles (one of the) questioned the said resolution.
De los Angeles ( PCGG representatives in the SMC board ) = filed a derivative
suit in behalf of SMC
= questioned the resolution
Khan moved to dismiss the case = ground:
** de los Angeles has no legal standing to bring a minority derivative suit.
Issue:
WON de los Angeles has personality to bring suit in behalf of the corporation?
Held: YES
There is no law that requires for a stockholder, to be considered as qualified
to bring a derivative suit, must hold substantial or significant block of stock.
The bona fide ownership by a stockholder of stock in his own right suffices
to invest him with standing to bring a derivative action for the benefit of the
corporation.
The number of his shares is immaterial since he is not suing in his own behalf
for the protection or vindication of his own particular right

The theory that since de los Angles 20 shares (owned by him since 1977)
represent only 0.00001644% of the total number of outstanding shares then he
cannot be deemed to fairly represent the interest of the minority stockholders
cannot be sustained.
Supplementary Notes:
The requisites for a derivative suit are:
1. the party bringing suit should be a shareholder as of the time of the act or
transaction complained of, the number of his shares not being material;
2. the has tried to exhaust intra-corporate remedies, i.e., has made a demand on
the board of directors for the appropriate relief but the latter has failed or refused
to heed to his plea; and
3. the cause of action actually devolves on the corporation, the wrongdoing or
harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit.
Pascual v. Orozco
Pascual became a stockholder of Banco Espanol-Filipino
Pascual filed this instant petition = alleged the illegal acts of the defendants and
their immediate predecessors in office (without knowledge and consent of the
stockholders)
= deducted their respective compensation from the gross income instead of
from the net profits of the bank
Issue:
Whether or not Pascual have a standing in the first cause of action.
Whether or not Pascual can maintain a suit against the defendants immediate
predecessor.
Whether or not Pascual can institue the present case even without the
authorization by the Board of Directors.
Held:
1. YES. Pascual has an interest and could question the legality of the defendants
right to take such salary = the act would affect his share in the dividends.
2. NO. Pascual has no right to maintain this second cause of action = he was not
injured or affected in any manner by the transactions since he was not yet a
stockholder at that time.
He ought to take things as he found them when he voluntarily acquired his ten
shares.
If he was defrauded in the purchase of these shares he should sue his vendor.
3. YES. the guilty party themselves controlled the directors and also a
majority of the stock, the minority is without remedy when they are being
defrauded of their rights.
Evangelista vs. Santos
Rafael Santos = the president, manager, and treasurer of Vitali
= negligently allowed its lumber concession to lapse causing the complete ruin of
the corporation and total depreciation of its stocks
Evangelista et al = minority stockholders of Vitali Lumber Company
= prays for judgment requiring Santos:
1. to render an account of his administration of the corporate affairs and assets
2. to pay value of their respective participation in said assets on the basis of the
value of the stocks held by each of them
ISSUE:
WON the plaintiff-stockholders has the right to bring suit in their benefit?
HELD: NO.
1. The injury complained of is thus primarily to the corporation = so that the suit
for the damages claimed should be by the corporation rather than by the
stockholders.
2. A derivative suit is brought by a stockholder as the nominal party plaintiff
for the benefit of the corporation, which is the real property in interest.
(X) Derivative suit because = brought the action not for the benefit of the
corporation but for their own benefit
ask that Santos to pay for the value of their respective participation in the
corporate assets on the basis of their respective holdings
Rule = TRUST FUND DOCTRINE APPLIES
complaint shows no cause of action in their favor
Supplementary Notes:
"No shall corporation shall make or declare any stock or bond dividend or any
dividend whatsoever from the profits arising from its business, or divide or
distribute its capital stock or property other than actual profits among its members
or stockholders until after the payment of its debts and the termination of its
existence by limitation or lawful dissolution." --- DOES NOT APPLY
RULE = The stockholders may not directly claim those damages for themselves
for that would result in the appropriation by and the distribution among them of
part of the corporate assets before the dissolution of the corporation and the
liquidation of its debts and liabilities something which cannot be legally done.
Republic Bank v. Cuaderno

Perez complained of frauds allegedly committed the executive board committee

for granting loans to fictitious persons and to there close friends, who in reality
were their dummies.
Bank examiners investigated and revealed = mortgage loans were granted in
violation of the General Banking Act.
Monetary Board = ordered a new BOD to be elected.
Perez ( a stockholder of Republic Bank ) = instituted a derivative suit in behalf of
the bank against Cuaderno, Dizon and BOD of the Bank.
Alleging that:
1. the new BOD connived in approving the appointment and selection of
Cuaderno as technical consultant
2. Dizon as chairman of the BOD
3. to protect Roman from criminal prosecution because both Cuaderno and Dizon
are mere alter egos of Roman.
Hence this petition to enjoin the monetary board from approving the appointment
of Cuaderno and Dizon.
Issue:
WON there is a valid cause of action and Capacity to sue?
WON Perez has?
Held: YES.
A stockholder has a cause of action to annul certain action of the BOD of a
bank, which actions were considered anomalous and a breach of trust
prejudicial to the bank.
An individual stockholder may institute a derivative suit on behalf of the
corporation
1. wherein he holds stock
2. to protect or vindicate corporate rights
3. whenever the officials of the corporation refuse to sue, or are the ones to be
sued or hold control of the corporation.
4. In such action, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest.
objective is to nullify the actions of the BOD = intra-corporate remedy would be
futile.
The fact that no other stockholder has made common cause = Irrelevant
RULE = smallness of plaintiffs holding is no ground for denying him
relief.
Also, in such a suit, whether the corporation is named as plaintiff or
defendant is irrelevant, as long as the corporation is made a party therein
so as to make the courts judgment binding thereon
RURAL BANK OF MILLAOR VS OCFEMIA
doctrine: implied ?
Several parcels of land were mortgaged by the respondents during the lifetime of
the respondents grandparents to the Rural bank of Milaor as shown by the Deed
of Real Estate Mortgage and the Promissory Note. Spouses Felicisimo Ocfemia
and Juanita Ocfemia, one of the respondents, were not able to redeem the
mortgaged properties consisting of seven parcels of land and so the mortgage
was foreclosed and thereafter ownership was transferred to the petitioner bank.
Out of the seven parcels of land that were foreclosed, five of them are in the
possession of the respondents because these five parcels of land were sold by
the petitioner bank to the respondents as evidenced by a Deed of Sale. However,
the five parcels of land cannot be transferred in the name of the parents of Merife
Nino, one of the respondents, because there is a need to have the document of
sale registered. The Register of deeds, however, said that the document of sale
cannot be registered without the board resolution of the petitioner bank confirming
both the Deed of sale and the authority of the bank manager, Fe S. Tena, to enter
such transaction.
The petitioner bank refused her request for a board resolution and made many
alibis. Respondents initiated the present proceedings so that they could transfer
to their names the subject five parcel of land and subsequently mortgage said lots
and to use the loan proceeds for the medical expenses of their ailing mother.
ISSUE: May the Board of Directors of a rural banking corporation be compelled to
confirm a deed of absolute sale of real property owned by the corporation which
deed of sale was executed by the bank manager without prior authority of the
board of directors of the rural banking corporation?
HELD:
YES. The bank acknowledges, by its own acts or failure to act, the authority
of Fe S. Tena to enter into binding contracts. After the execution of the Deed of
Sale, respondents occupied the properties in dispute and paid the real estate
taxes. If the bank management believed that it had title to the property, it should
have taken measured to prevent the infringement and invasion of title thereto and
possession thereof. Likewise, Tena had previously transacted business on behalf
of the bank, and the latter had acknowledged her authority. A bank is liable to
innocent third persons where representation is made in the course of its normal
business by an agent like Manager Tena even though such agent is abusing her
authority. Clearly, persons dealing with her could not be blamed for believing that
she was authorized to transact business for and on behalf of the bank.
The bank is estopped from questioning the authority of the bank to enter into
contract of sale. If a corporation knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, it holds the agent out to the
public as possessing the power to do those acts; thus, the corporation will, as

against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agents authority.
Lee vs. CA
International Corporate Bank = filed complainant for sum of money against
Sacoba Manufacturing Corp
Sacoba Manufacturing Corp filed a third party complaint against ALFA and Lee
and Lacdao
Lee contested that:
1. they ceased to be officers and directors of ALFA, hence, they could no longer
receive summons or any court processes for or on behalf of ALFA
2. DBP was the proper party to be called for
issue:
1. WON the execution of the voting trust agreement and transferring all their
shares to the trustees deprives the stockholder of their positions as directors of
the Corp?
2. WON the lapsed voting trust agreement ipso facto reverted the legal title to the
stocks o Lee and Lacdao?
3. WON proper service of summons on ALFA through Lee and Lacdao binding?
Held:
1. YES. DBP has taken over full control and management of the firm
Lee and Lacdao already disposed of all their shares
ceased to own at least one share standing as required under Section 23
of the new Corporation Code = HENCE ceased to be directors
The transfer of shares from the stockholders of ALFA to the DBP is the
essence of the subject voting trust agreement
2. NO. The duration of the agreement is contingent upon the fulfillment of
certain obligations of ALFA with the DBP Hence Not yet Lapsed.
the five-year period of the voting trust agreement expired in 1986 = DBP would
not have transferred an its rights
Due to the Asset Privatization Trust (APT)
stated that the DBP from 1987 until 1989, had handled accounts which
included ALFA's assets pursuant to a management agreement by and between
the DBP and APT
voting trust agreement in question was not yet terminated
3. NO. Corporation Law that a corporation has a personality separate and
distinct from the officers or members who compose it.
Rules of Court enumerates the representatives of a corporation who can validly
receive court processes on its behalf
Lee and Lacdao do not fall under any of the enumerated officers
Therefore service of summons through Lee and Lacdao, therefore, is not valid
Supplementary Notes
what is a voting trust?
trust created by an agreement between a group of the stockholders of a
corporation and the trustee or by a group of identical agreements between
individual stockholders and a common trustee, whereby it is provided that for a
term of years, or for a period contingent upon a certain event, or until the
agreement is terminated, control over the stock owned by such stockholders,
either for certain purposes or for all purposes, is to be lodged in the trustee, either
with or without a reservation to the owners, or persons designated by them, of the
power to direct how such control shall be used.
Gokongwei vs. SEC
Gokongwei = filed w/ SEC declaration of nullity of amended by-laws
Injunction against the majority of the members of the BOD of San Miguel
Contentions
1. Soriano, Jr. et al amended by bylaws of the corporation, basing their authority
to do so on a resolution of the stockholders adopted on
section 22 of the Corporation Law
Power to Amend may be delegated to the BOD ONLY by = vote of 2/3 SH
Computation of 2/3 = on the basis of the capitalization at the time of the
amendment
contended that the Board acted without authority and in usurpation of the
power of the stockholders
the authority granted in 1961 had already been exercised in 1962 and 1963,
after which the authority of the Board ceased to exist
the membership of the Board of Directors had changed since the authority was
given in 1961, there being 6 new directors
2. prior to the questioned amendment = Gokogwei had all the qualifications to be
a director of the corporation = being a substantial stockholder thereof
Gokongwei had acquired rights inherent in stock ownership
rights to vote and to be voted upon in the election of directors
Soriano, et purposely provided for Gokongwei's disqualification and deprived
him of his vested right as afore-mentioned
3. corporations have no inherent power to disqualify a stockholder from being
elected as a director = THEREFORE questioned act is ultra vires and void

 Soriano, Jr. while representing other corporations entered into management

contracts with San Miguel
WRONG = questioned amendment gave the Board itself the prerogative
of determining whether they or other persons are engaged in competitive or
antagonistic business
portion of the amended by-laws which states that in determining whether or not
a person is engaged in competitive business, the Board may consider such
factors as business and family relationship, is unreasonable and oppressive and,
therefore, void

C filed a complaint and asked for injunction for alberto to stop exercising his
former functions
CFI granted injunction but lifted it after filing counterbond
ALBERTO refused to vacate because Delarosa is not a SH.

4. the corporation has been investing corporate funds in other corporations and
businesses outside of the primary purpose clause of the corporation

Ruling:
yes it is needed There is in the record no showing that de la Rosa owned ashare
of stock in the C.If he did not own any share of stock,certainly he could not be a
D pursuant to the mandatory provision of CL
Ruling: No he may not, If he could not be a D, then he could also not be a
MDpursuant to the B-Ls
The manager shall be elected by the BOD from among itsmembers."
No he may not, If the MD-elect was not qualified to become
MD,respondentAlberto could not be compelledto vacate his office and cede the
sameto the MD-elect because theB-Ls provide that:
"Ds shall serve until the election and qualification of their duly qualified
successor.

Issue:
1. WON the corporation has the power to provide for the (additional) qualifications
of its directors?
2. WON the disqualification of a competitor from being elected to the Board of
Directors is a reasonable exercise of corporate authority?
3. WON the SEC gravely abused its discretion in denying Gokongwei's request for
an examination of the records of San Miguel International, Inc., a fully owned
subsidiary of San Miguel Corporation?
4. WON the SEC gravely abused its discretion in allowing the stockholders of San
Miguel Corporation to ratify the investment of corporate funds in a foreign
corporation?
Held:
1. YES. A corporation may prescribe in its by-laws "the qualifications, duties
and compensation of directors, officers and employees." -- Corporation Law
RULE = Any person "who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a majority of the stockholders
and that he impliedly contracts that the will of the majority shall govern in all
matters within the limits of the act of incorporation and lawfully enacted by-laws
and not forbidden by law."
SH = parted with his personal right or privilege to regulate his investment to the
will of the majority of his fellow incorporators
the owners of the majority of the subscribed capital stock may amend or repeal
any by-law or adopt new by-laws
Gokongwei has NO VESTED RIGHT to be elected director = By-laws is
SUBJECT TO CHANGE
2. YES. "they occupy a fiduciary relation, and in this sense the relation is
one of trust."
Directors = agents entrusted with the management of the corporation for the
collective benefit of the stockholders
He who is in such fiduciary position cannot serve himself first and his cestuis
second.
doctrine of "corporate opportunity" = the fiduciary standards could not
be upheld where the fiduciary was acting for two entities with competing
interests.
** based fundamentally on the unfairness officer or director taking advantage of
an opportunity for his own personal profit when the interest of the corporation
justly calls for protection
Amendment = obviously to prevent the creation of an opportunity for an officer
of a competing corporation from taking advantage of the information which he
acquires as director to promote his individual or corporate interests
3. NO. This right is predicated upon the necessity of self-protection.
where the right is granted by statute to the stockholder = it is given to him with
respect to his interest as a stockholder
has to be proper and lawful in character and not inimical to the interest of
the corporation
4. NO. If the investment is made in pursuance of the corporate purpose, it
does not need the approval of the stockholders.
the purchase of beer manufacturing facilities by SMC was an investment in the
same business stated as its main purpose in its Articles of Incorporation
Purpose = manufacture and market beer
Assuming arguendo No authority = there is no question that a corporation,
like 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 questioned investment is neither contrary to law,
morals, public order or public policy.
The mere fact that the corporation submitted the assailed investment to
the stockholders for ratification at the annual meeting cannot be construed
as an admission that the corporation had committed an ultra vires act
Detective and protective bureau vs Cloribel
doctrine : RULE is absolute every d needs to be a SH
Alberto was Managing director from (1952-1964)
On Jan 1963 at a SH meeting , alberto was removed by SH and elected someone
else (delarosa)
Delarosa is not SH
Alberto illegally seized and took conrol of all the assets and books of C ,
concealed them illegally and did not allow any member of C to examine it.
Alberto refused to vacate office

Issue:
WON being is SH is needed?
WON he can be a MD?
WON alberto may be compelled to vacate?

GRACE CHRISTIAN HS VS CA
Grace is an educ facility in QC, grace village assoc inc is a homeowners
association. In an annual SH meeting an amendment was made in the by laws
stating that grace Christian HS representative is a permanent director
Issue:
Won schools representative should be mandatory elected to have a sit in BOD of
grace home owners association?
Ruling:
No , corporation bylaws is invalid and it cant be waived even through
constant practice and lapse of time, No reason to give a seat to the board
It is actually 28 and 29 of the Corporation Law 23 of the present law; not
92 of the present law or 29 of the former one which require members of
the boards of directors of corporations to be elected. The board of directors
of corporations must be elected from among the stockholders or members.
There may be corporations in which there are unelected members in the board
but it is clear that in the examples cited by the school, the unelected members sit
as ex officio members, i.e., by virtue of and for as long as they hold a particular
office. But in the case of the school itself, there is no reason at all for its
representative to be given a seat in the board. Nor does the school claim a right to
such seat by virtue of an office held. In fact it was not given such seat in the
beginning. It was only in 1975 that a proposed amendment to the by-laws sought
to give it one. Since the provision in question is contrary to law, the fact that
for 15 years it has not been questioned or challenged but, on the contrary,
appears to have been implemented by the members of the association
cannot forestall a later challenge to its validity. Neither can it attain validity
through acquiescence because, if it is contrary to law, it is beyond the power of
the members of the association to waive its invalidity. For that matter the
members of the association may have formally adopted the provision in question,
but their action would be of no avail because no provision of the by-laws can be
adopted if it is contrary to law. It is probable that, in allowing the school's
representative to sit on the board, the members of the association were not aware
that this was contrary to law. It should be noted that they did not actually
implement the provision in question except perhaps insofar as it increased the
number of directors from 11 to 15, but certainly not the allowance of the school's
representative as an unelected member of the board of directors. It is more
accurate to say that the members merely tolerated the school's representative
and tolerance cannot be considered ratification. Nor can the school claim a vested
right to sit in the board on the basis of "practice." Practice, no matter how long
continued, cannot give rise to any vested right if it is contrary to law. Even less
tenable is the school's claim that its right is "coterminus with the existence of the
association."
PONCE (BOD) et al vs Encarnacion (largest SH)
in 1949 a meeting was conducted for the VOLUNTARY DISSOLUTION of
daguhoy enterprises
To this end, a Petition for Voluntary Dissolution was drafted and sent to and
signed by Petitioner Ponce(BOD Chairman)
Instead of filing the Petition, Respondent SH Gapol changed his mind and filed a
Complaint in CFI Manila to compel
Petitioners Ponce et al. to (inter alia) render an accounting of the corporate funds
and assets.
3 Jan 52
-Respondent Gapol filed a Petition praying for an Order directing him to call a
SHs Meeting and to preside in it (in accordance w/then Sec. 26 of CL)
5 Jan-Court (2 days after Petition filed): granted Order as prayed for (w/o notice to
Petitioners Ponce et al. and other BOD members)
27 Feb-Petitioners Ponce et al. only knew of the Court Order when a Bank
refused to recognize the new BODs elected and returned the check drawn upon it
by new BODs
ISSUE:
WON the court may issue the said Order
WON they have right to continue as Directorts?

HELD 1:YES, the Court can issue the Order! Respondent Court was satisfied that
there was a showing of good cause for authorizing Respondent Gapol to call a
SHs Meeting to elect the BODs as required and provided for in the B-L
because the BOD Chairman called upon to do so had failed, neglected or refused
to perform his duty.
HELD 2:
Petitioners have no right to continue as Directors of the C unless re-elected by the
SHs in a meeting called for that purpose every even year.
They had no right to a hold-over brought about by the failure to perform the duty
incumbent upon one of them.
ROXAS (member of voting trust) vs Dela Rosa
doctrine: The law contemplates and intends that there shall be one set of
directors at a time and that new directors shall be elected only as vacancies
occur in the directorate by death, resignation, removal, or otherwise.
Binalbagan estate inc. formed a voting trust composed of 3 members
SH assign shares to trustees of company, represent majority of voting shares (not
2/3)
the annual meeting was conducted mr heilborn (voting trust representative) by
virtue of controlling the majority of the shares was able to nominate and elect a
BODs to his own liking, without opposition from the minority.
At present time roxas et al. Constitute membership of voting trust
Although the BODs of BINALBAGAN ESTATE, INC. were elected by the
representative of the voting trust, the present trustees are apparently desirous of
ousting said officers, w/o awaiting the termination of their official term at
the expiration of one year from the date of their election.
Members of the voting trust caused the secretary to issue a special meeting for
the Election of BOD and amendment of Bylaws
coruna (member of board) and ledesma (SH) filed for injunction
cfi granted
Issue:
Ruling:
Under the law the directors of a corporation can only be removed from office
by a vote of the stockholders representing at least2/3 of the subscribed
capital stock entitled to vote (Act No. 1459, sec.34);
while vacancies in the board, when they exist, can be filled by mere majority
vote
(Act No. 1459, sec. 25). Moreover, the law requires that when action is to be
taken at a special meeting to remove the directors, such purpose shall be
indicated in the call (Act No. 1459, sec.34)
While the voting trust controls a majority of the stock, it does not have a clear
2/3 majority.
It was therefore impolitic for the petitioners, in forcing the call for the meeting of
August 16, to come out frankly and say in the notice that one of the purposes of
the meeting was to remove the directors of the corporation from office. Instead,
the call was limited to the election of the board of directors, it being the evident
intention of the voting trust to elect a new board as if the directorate had been
then vacant.
INJUNCTION IS VALID BECAUSE 2 elections were conducted.
Expert travel and tours inc (ETI) vs CA
doctrine:
Koran air filed a complaint against ETI . During the suit ETI stated that the KAL
lawyer is not authorized to execute certificate of non forum shopping. KAL
answered that the lawyer was their company secretary and registered agent.
Atty aguinaldo (KAL) stated that a resolution of KAL BOD through a special
teleconference was conducted
TC denied ETI claim CA affirmed
issue:
WON court can take judicial notice of teleconference
ruling:
Things of common knowledge of which courts take judicial matters coming to
the knowledge of men generally in the course of the ordinary experiences of life,
or they may be matters which are generally accepted by mankind as true and are
capable of ready and unquestionable determination. As the common knowledge
of man ranges far and wide, a wide variety of particular facts have been judicially
noticed as being matters of common knowledge. But a court cannot take judicial
notice of any fact which, in part, is dependent on the existence or non-existence
of a fact of which the court has no constructive knowledge.
In this age of modern technology, the courts may take judicial notice that business
transactions may be made by individuals through teleconferencing.
Teleconferencing is interactive group communication through an electronic
medium, bringing people together under one roof even though they are separated
by hundreds of miles.
In the Philippines, teleconferencing and videoconferencing of members of the
board of directors of private corporation is is a reality, in light of RA 8792. The
SEC issued SEC memorandum Circular No. 15, on November 30, 2001,
providing the guidelines to be complied with related to such conferences.
The Court is not convinced that one was conducted; even if there had been
one, the Court is not inclined to believe that a board resolution was duly

passed specifically authorizing Atty. Aguinaldo to file the complaint and

execute the required certification against non forum shopping.
Petition granted.
WESTERN INSTITUTE OF TECHNOLOGY VS SALAS
Salas are the majority controlling members of board of trustees of WIT. On a
special board meeting a resolution was made granting compensation to all the
officers of the corporation which applies retroactively monthly pay plus 10% net
profit equally distributed among them
a few years later Villasis filed a case against Salas for falsification and estafa.
Salas making it clear that the board resolution was passed the previous year and
not the current year. Salas was acquitted.
Significantly o a Motion for Intervention was filed before this Court by Western
Institute of Technology, Inc., disowning its inclusion in the petition and submitting
that Atty. Tranquilino R. Gale, counsel for Villasis, et. al., had no authority
whatsoever to represent the corporation in filing the petition. Intervenor likewise
prayed for the dismissal of the petition for being utterly without merit. The Motion
for Intervention was granted on 16 January 1995.
Issue:
Whether the grant of compensation to Salas, et. al. is proscribed under Section 30
of the Corporation Code.
Held:
Directors or trustees, as the case may be, are not entitled to salary or other
compensation when they perform nothing more than the usual and ordinary
duties of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return upon their
shares adequately furnishes the motives for service, without compensation. Under
Section 30 of the Corporation Code, there are only two (2) ways by which
members of the board can be granted compensation apart from reasonable
per diems: (1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing a majority of the
outstanding capital stock at a regular or special stockholders' meeting
agree to give it to them. Also, the proscription, however, against granting
compensation to director/trustees of a corporation is not a sweeping rule. Worthy
of note is the clear phraseology of Section 30 which state: "[T]he directors shall
not receive any compensation, as such directors." The phrase as such directors is
not without significance for it delimits the scope of the prohibition to compensation
given to them for services performed purely in their capacity as directors or
trustees. The unambiguous implication is that members of the board may receive
compensation, in addition to reasonable per diems, when they render services to
the corporation in a capacity other than as directors/trustees. Herein, resolution
48, s. 1986 granted monthly compensation to Salas, et. al. not in their capacity as
members of the board, but rather as officers of the corporation, more particularly
as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of
Technology. Clearly, therefore, the prohibition with respect to granting
compensation to corporate directors/trustees as such under Section 30 is not
violated in this particular case. Consequently, the last sentence of Section 30
which provides that "In no case shall the total yearly compensation of directors, as
such directors, exceed ten (10%) percent of the net income before income tax of
the corporation during the preceding year" does not likewise find application in
this case since the compensation is being given to Salas, et. al. in their capacity
as officers of WIT and not as board members.

WESTERN INSTITUTE OF TECHNOLOGY VS SALAS

doctrine
facts : Salas are the majority controlling members of board of trustees of WIT. On
a special board meeting a resolution was made granting compensation to all the
officers of the corporation which applies retroactively monthly pay plus 10% net
profit equally distributed among them
a few years later villasis filed a case against salas for falsification and estafa.
Salas making it clear that the board resolution was passed the previous year and
not the current year. Salas was acquitted.
Significantly o a Motion for Intervention was filed before this Court by Western
Institute of Technology, Inc., disowning its inclusion in the petition and submitting
that Atty. Tranquilino R. Gale, counsel for Villasis, et. al., had no authority
whatsoever to represent the corporation in filing the petition. Intervenor likewise
prayed for the dismissal of the petition for being utterly without merit. The Motion
for Intervention was granted on 16 January 1995.
Issue: Whether the grant of compensation to Salas, et. al. is proscribed under
Section 30 of the Corporation Code.
Held: Directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and
ordinary duties of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return upon their
shares adequately furnishes the motives for service, without compensation. Under
Section 30 of the Corporation Code, there are only two (2) ways by which
members of the board can be granted compensation apart from reasonable
per diems: (1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing a majority of the
outstanding capital stock at a regular or special stockholders' meeting

agree to give it to them. Also, the proscription, however, against granting

compensation to director/trustees of a corporation is not a sweeping rule. Worthy
of note is the clear phraseology of Section 30 which state: "[T]he directors shall
not receive any compensation, as such directors." The phrase as such directors is
not without significance for it delimits the scope of the prohibition to compensation
given to them for services performed purely in their capacity as directors or
trustees. The unambiguous implication is that members of the board may receive
compensation, in addition to reasonable per diems, when they render services to
the corporation in a capacity other than as directors/trustees. Herein, resolution
48, s. 1986 granted monthly compensation to Salas, et. al. not in their capacity as
members of the board, but rather as officers of the corporation, more particularly
as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of
Technology. Clearly, therefore, the prohibition with respect to granting
compensation to corporate directors/trustees as such under Section 30 is not
violated in this particular case. Consequently, the last sentence of Section 30
which provides that "In no case shall the total yearly compensation of directors, as
such directors, exceed ten (10%) percent of the net income before income tax of
the corporation during the preceding year" does not likewise find application in
this case since the compensation is being given to Salas, et. al. in their capacity
as officers of WIT and not as board members.