BS SAVING BANK VS SIA

FACTS:

On August 6, 1997, the Court of Appeals issued a Resolution denying due

course to a Petition for Certiorari filed by BA Savings Bank, on the
ground that the Certification on anti-forum shopping incorporated in the
petition was signed not by the duly authorized representative of the
petitioner, as required under Supreme Court Circular No. 28-91, but by its
counsel, in contravention of said circular x x x.

A Motion for Reconsideration was subsequently filed by the petitioner, attached

to which was a BA Savings Bank Corporate Secretarys Certificate,[4]
dated August 14, 1997. The Certificate showed that the petitioners
Board of Directors approved a Resolution on May 21, 1996, authorizing
the petitioners lawyers to represent it in any action or proceeding
before any court, tribunal or agency; and to sign, execute and deliver
the Certificate of Non-forum Shopping, among others.

On October 24, 1997, the Motion for Reconsideration was denied by the
Court of Appeals on the ground that Supreme Court Revised Circular No.
28-91 requires that it is the petitioner, not the counsel, who must certify
under oath to all of the facts and undertakings required therein.

Hence, this appeal

ISSUE:

Whether or not the certification of petitioners authorized lawyers will bind the
corporation. (YES!)

HELD:

A corporation, such as the petitioner, has no powers except those expressly

conferred on it by the Corporation Code and those that are implied by or are
incidental to its existence. In turn, a corporation exercises said powers through its
board of directors and/or its duly authorized officers and agents. Physical acts,
like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate bylaws or by a specific act
of the board of directors.

*** All acts within the powers of a corporation may be performed by

agents of its selection; and, except so far as limitations or restrictions
which may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the relation
of agency for a natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to his power to act
for the corporation; and agents once appointed, or members acting in
their stead, are subject to the same rules, liabilities and incapacities as
are agents of individuals and private persons.[7]

In the present case, the corporations board of directors issued a

Resolution specifically authorizing its lawyers to act as their agents in
any action or proceeding before the Supreme Court, the Court of
Appeals, or any other tribunal or agency[;] and to sign, execute and
deliver in connection therewith the necessary pleadings, motions,
verification, affidavit of merit, certificate of non-forum shopping and
other instruments necessary for such action and proceeding. The
Resolution was sufficient to vest such persons with the authority to bind
the corporation and was specific enough as to the acts they were
empowered to do.

In the case of natural persons, Circular 28-91 requires the parties

themselves to sign the certificate of non-forum shopping. However, such
requirement cannot be imposed on artificial persons, like corporations,
for the simple reason that they cannot personally do the task
themselves. As already stated, corporations act only through their
officers and duly authorized agents. In fact, physical actions, like the
signing and the delivery of documents, may be performed, on behalf of
the corporate entity, only by specifically authorized individuals.

It is noteworthy that the Circular does not require corporate officers to sign the
certificate. More important, there is no prohibition against authorizing agents to
do so.

MADRIGAL VS ZAMORA

FACTS:

Madrigal & Company, Inc. (MCI) manages the business of another corporation,
Rizal Cement Co., Inc. (RCC). In 1973, a labor union in MCI sought the renewal of
the collective bargaining agreement (CBA). The union proposes a P200.00
monthly wage increase and an additional P100 monthly allowance. MCI refused to
negotiate. Later, MCI reduced its authorized capital stocks. It then wrote a
letter to the Department of Labor averring that it is incurring losses and
so it will enforce a retrenchment program. The letter is however
unsupported by documents and so the Department of Labor ignored it.
However, MCI went on to dismiss several employees which led the labor
union to sue MCI for unfair labor practices and illegal dismissal. The
labor arbiter ruled in favor of the labor union. The issue reached the Office
of the President. The then Presidential Assistant For Legal Affairs, Ronaldo
Zamora, denied MCIs appeal.

On appeal, MCI insists that it is incurring losses; that as such, it has to

reduce its capitalization; that the profits it is earning are cash dividends
from RCC; that under the law, dividends are the absolute property of a
stockholder like MCI and cannot be compelled to share it with creditors
(like the employees).

ISSUE:

Whether or not the dividends in this case, as understood by MCI, cannot be made
available to meet its employees economic demands. (YES!)

HELD:

No. As found by the labor arbiter, MCI is in fact making significant profits. MCIs
reduction of its capitalization is simply a scheme to avoid negotiations with the
labor union. It is therefore correct for the arbiter to order MCI to comply
with the unions demands.

It is true that cash dividends are the absolute property of the

stockholders and cannot be made available for disposition to a
corporations creditors. However, this should be viewed in context. This is only
true in the case of corporation distributing dividends to its stockholders. If this is
the case (if the dividends are still with the corporation, in this case RCC), then
creditors cannot touch such dividends.
**** But if the stockholder already receives the dividends, then it
becomes a profit on the part of the stockholder hence its creditors (like
the employees) can make some demands out of it. In this case, MCI is a
stockholder of RCC. While RCC still has not distributed the dividends,
creditors cannot demand it because such dividends are owned by
stockholders like MCI. But when MCI already receives the dividends, then
MCIs creditors can already demand share from the dividends because
such dividends are already the profits of the stockholder/MCI. So in this
case, the employees can demand their share from said profits (not
strictly viewed as dividends now) by way of salary increase.

PENA VS CA

FACTS:

In 1962, the Pampanga Bus Company (PAMBUSCO) took out a loan from the
Development Bank of the Philippines (DBP). PAMBUSCO used the parcels of land it
owns to secure the loan. In October 1974, due to PAMBUSCOs nonpayment, DBP
foreclosed the parcels of land. Rosita Pea was the highest bidder. Meanwhile, in
November 1974, the Board of Directors of PAMBUSCO had a meeting. The meeting
was attended by only 3 out of the 5 Directors. In the said meeting, the Board,
through a resolution, authorized one of the directors, Atty. Joaquin Briones, to
assign the properties of PAMBUSCO. Pursuant to the resolution, Briones assigned
PAMBUSCOs assets to Marcelino Enriquez. Enriquez, knowing that the properties
were previously mortgaged and foreclosed, exercised PAMBUSCOs right to
redeem. So in August 1975, he redeemed the said properties and thereafter he
sold them to Rising Yap.

Yap then registered the properties under his name. He then demanded Pea to
vacate the properties. Pea refused to do hence Yap filed a complaint. In her
defense, Pea averred that Yap acquired no legal title over the property because
the board resolution issued by PAMBUSCO in November 1974 is void; that it is void
because the resolution was issued without a quorum; that there was no quorum
because under the by-laws of PAMBUSCO, a quorum constitutes the
presence of 4 out of 5 directors yet the meeting was only attended by
three directors. As such, the authority granted to Briones to assign the
properties is void; that the subsequent assignment by Briones to Enriquez is void;
that Enriquez acquired no title hence, likewise, Yap acquired no title. Yap insists
that Pea has no legal standing to question the board resolution because she is
not a stockholder.

ISSUE:

Whether or not the board resolution is valid. (NO!)

HELD:

No, it is void. The by-laws are the laws of the corporation. PAMBUSCOs
by-laws provides that a quorum consists of at least four directors.
Hence, the meeting attended by only three directors did not comply with
the required quorum. As such, the three directors were not able to come
up with a valid resolution which could bind the corporation. Anent the
issue of Pea being a third person, she can question the board
resolution. The resolution here is liken to a contract. Under the law, a
person who is not a party obliged principally or subsidiarily in a contract
may exercise an action for nullity of the contract if he or she is
prejudiced in his or her rights with respect to one of the contracting
parties, and can show the detriment which would positively result to him
or her from the contract in which he or she had no intervention.
Further, the sale of the properties of PAMBUSCO did not comply with the
procedure laid down by the Corporation Law. Under the law, the sale or
disposition of an and/or substantially all properties of the corporation
requires, in addition to a proper board resolution, the affirmative votes
of the stockholders holding at least two-thirds (2/3) of the voting power
in the corporation in a meeting duly called for that purpose. No doubt,
the questioned resolution was not confirmed at a subsequent
stockholders meeting duly called for the purpose by the affirmative
votes of the stockholders holding at least two-thirds (2/3) of the voting
power in the corporation.

Further still, the Supreme Court discovers a few other anomalies with PAMBUSCO.
One is that PAMBUSCO has been inactive since 1949 as per the records provided
by the Securities and Exchange Commission. Its general information sheet with
the SEC has not been updated regularly even. And the three directors present
were not even listed as current directors of PAMBUSCO.

ISLAMIC DIRECTORATE VS CA

FACTS:

1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP") was incorporated

with the primary purpose of establishing a mosque, school, and other religious
infrastructures in Quezon City.

IDP purchased a 49,652-square meter lot in Tandang Sora, QC, which

was covered by TCT Nos. RT-26520 (176616) and RT-26521 (170567).

When President Marcos declared martial law in 1972, most of the

members of the 1971 Board of Trustees ("Tamano Group")flew to the
Middle East to escape political persecution.

****Thereafter, two contending groups claiming to be the IDP Board of

Trustees sprung: the Carpizo group and Abbas group.

In a suit between the two groups, SEC rendered a decision in 1986

declaring both groups to be null and void. SEC recommeded that the a
new by-laws be approved and a new election be conducted upon the
approval of the by-laws. However, the SEC recommendation was not
heeded.

In 1989, the Carpizo group passed a Board Resolution authorizing the

sale of the land to Iglesia Ni Cristo ("INC"), and a Deed of Sale was
eventually executed.

In 1991, the Tamano Group filed a petition before the SEC questioning
the sale.

Meanwhile, INC filed a suit for specific performance before RTC Branch
81 against the Carpizo group. INC also moved to compel a certain
Leticia Ligon (who is apparently the mortgagee of the lot) to surrender
the title.

The Tamano group sought to intervene, but the intervention was denied despite
being informed of the pending SEC case. In 1992, the Court subsequently
ruled that the INC as the rightful owner of the land, and ordered Ligon to
surrender the titles for annotation. Ligon appealed to CA and SC, but her
appeals were denied.
In 1993, the SEC ruled that the sale was null and void . On appeal CA
reversed the SEC ruling.

ISSUE:

W/N the sale between the Carpizo group and INC is valid.

HELD:

NO.

Since the SEC has declared the Carpizo group as a void Board of
Trustees, the sale it entered into with INC is likewise void. Without a
valid consent of a contracting party, there can be no valid contract.

In this case, the IDP, never gave its consent, through a legitimate Board of
Trustees, to the disputed Deed of Absolute Sale executed in favor of INC.
Therefore, this is a case not only of vitiated consent, but one where
consent on the part of one of the supposed contracting parties is totally
wanting. Ineluctably, the subject sale is void and produces no effect
whatsoever.

****Further, the Carpizo group failed to comply with Section 40 of the

Corporation Code, which provides that: " ... a corporation may, by a
majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or substantially all of its
property and assets... when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock; or
in case of non-stock corporation, by the vote of at least two-thirds (2/3)
of the members, in a stockholders' or members' meeting duly called for
the purpose...."

The subject lot constitutes the only property of IDP. Hence, its sale to a third-
party is a sale or disposition of all the corporate property and assets of
IDP. For the sale to be valid, the majority vote of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the bona fide
members of the corporation should have been obtained. These twin
requirements were not met in the case at bar.

DATU VS SEC

FACTS:

On February 6, 1959, the Articles of Incorporation of respondent Jamiatul

Philippine-Al Islamia, Inc. (originally Kamilol Islam Institute, Inc.) were filed with
the Securities and Exchange Commission (SEC) and were approved on December
14, 1962. The corporation had an authorized capital stock of P200,000.00 divided
into 20,000 shares at a par value of P10.00 each. Of the authorized capital stock,
8,058 shares worth P80,580.00 were subscribed and fully paid for. Herein
petitioner Datu Tagoranao Benito subscribed to 460 shares worth P4,600.00.

On October 28, 1975, the respondent corporation filed a certificate of increase of

its capital stock from P200,000.00 to P1,000,000.00. It was shown in said
certificate that P191,560.00 worth of shares were represented in the stockholders'
meeting held on November 25, 1975 at which time the increase was approved.
Thus, P110,980.00 worth of shares were subsequently issued by the corporation
from the unissued portion of the authorized capital stock of P200,000.00. Of the
increased capital stock of P1,000,000.00, P160,000.00 worth of shares were
subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in
Alonto.

On November 18, 1976, petitioner Datu Tagoranao filed with respondent

Securities and Exchange Commission a petition alleging that the additional issue
(worth P110,980.00) of previously subscribed shares of the corporation was made
in violation of his pre-emptive right to said additional issue and that the increase
in the authorized capital stock of the corporation from P200,000.00 to
P1,000,000.00 was illegal considering that the stockholders of record were not
notified of the meeting wherein the proposed increase was in the agenda.
Petitioner prayed that the additional issue of shares of previously authorized
capital stock as well as the shares issued from the increase in capital stock of
respondent corporation be cancelled; that the secretary of respondent corporation
be ordered to register the 2,540 shares acquired by him (petitioner) from
Domocao Alonto and Moki-in Alonto; and that the corporation be ordered to
render an accounting of funds to the stockholders.

In their answer, respondents denied the material allegations of the petition and,
by way of special defense, claimed that petitioner has no cause of action and that
the stock certificates covering the shares alleged to have been sold to petitioner
were only given to him as collateral for the loan of Domocao Alonto and Moki-in
Alonto.

ISSUE:

HELD:

With respect to the claim that the increase in the authorized capital stock was
without the consent, expressed or implied, of the stockholders, it was the finding
of the Securities and Exchange Commission that a stockholders' meeting was held
on November 25,1975, presided over by Mr. Ahmad Domocao Alonto, Chairman of
the Board of Trustees and, among the many items taken up then were the change
of name of the corporation from Kamilol Islam Institute Inc. to Jamiatul Philippine-
Al Islamia, Inc., the increase of its capital stock from P200,000.00 to
P1,000,000.00, and the increase of the number of its Board of Trustees from five
to nine. "Despite the insistence of petitioner, this Commission is inclined to
believe that there was a stockholders' meeting on November 25, 1975 which
approved the increase. The petitioner had not sufficiently overcome the evidence
of respondents that such meeting was in fact held. What petitioner successfully
proved, however, was the fact that he was not notified of said meeting and that
he never attended the same as he was out of the country at the time. The
documentary evidence of petitioner conclusively proved that he was attending the
Mecca pilgrimage when the meeting was held on November 25, 1975. (Exhs. 'Q',
'Q-14', 'R', 'S' and 'S-l'). While petitioner doubts the authenticity of the alleged
minutes of the proceedings (Exh. '4'), the Commission notes with significance that
said minutes contain numerous details of various items taken up therein that
would negate any claim that it was not authentic. Another thing that petitioner
was able to disprove was the allegation in the certificate of increase (Exh. 'E-l')
that all stockholders who did not subscribe to the increase of capital stock have
waived their pre-emptive right to do so. As far as the petitioner is concerned, he
had not waived his pre-emptive right to subscribe as he could not have done so
for the reason that he was not present at the meeting and had not executed a
waiver, thereof. Not having waived such right and for reasons of equity, he may
still be allowed to subscribe to the increased capital stock proportionate to his
present shareholdings." (pp. 36-37, Rollo)

Well-settled is the rule that the findings of facts of administrative bodies will not
be interfered with by the courts in the absence of grave abuse of discretion on the
part of said agencies, or unless the aforementioned findings are not supported by
substantial evidence. (Gokongwei, Jr. vs. SEC, 97 SCRA 78). In a long string of
cases, the Supreme Court has consistently adhered to the rule that decisions of
administrative officers are not to be disturbed by the courts except when the
former have acted without or in excess of their jurisdiction or with grave abuse of
discretion

PHIL TRUST VS RIVERA

FACTS:

This action was instituted on November 21, 1921, in the Court of First Instance of
Manila, by the Philippine Trust Company, as assignee in insolvency of La
Cooperativa Naval Filipina, against Marciano Rivera, for the purpose of recovering
a balance of P22,500, alleged to be due upon defendant's subscription to the
capital stock of said insolvent corporation. The trial judge having given judgment
in favor of the plaintiff for the amount sued for, the defendant appealed.

It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly
incorporated under the laws of the Philippine Islands, with a capital of P100,000,
divided into one thousand shares of a par value of P100 each. Among the
incorporators of this company was numbered the defendant Mariano Rivera, who
subscribed for 450 shares representing a value of P45,000, the remainder of the
stock being taken by other persons. The articles of incorporation were duly
registered in the Bureau of Commerce and Industry on October 30 of the same
year.

In the course of time the company became insolvent and went into the hands of
the Philippine Trust Company, as assignee in bankruptcy; and by it this action was
instituted to recover one-half of the stock subscription of the defendant, which
admittedly has never been paid.

The reason given for the failure of the defendant to pay the entire subscription is,
that not long after the Cooperativa Naval Filipina had been incorporated, a
meeting of its stockholders occurred, at which a resolution was adopted to the
effect that the capital should be reduced by 50 per centum and the subscribers
released from the obligation to pay any unpaid balance of their subscription in
excess of 50 per centum of the same. As a result of this resolution it seems to
have been supposed that the subscription of the various shareholders had been
cancelled to the extent stated; and fully paid certificate were issued to each
shareholders for one-half of his subscription. It does not appear that the
formalities prescribed in section 17 of the Corporation Law (Act No. 1459), as
amended, relative to the reduction of capital stock in corporations were observed,
and in particular it does not appear that any certificate was at any time filed in
the Bureau of Commerce and Industry, showing such reduction.

ISSUE:

HELD:

His Honor, the trial judge, therefore held that the resolution relied upon the
defendant was without effect and that the defendant was still liable for the unpaid
balance of his subscription. In this we think his Honor was clearly right.
It is established doctrine that subscription to the capital of a corporation
constitute a find to which creditors have a right to look for satisfaction of their
claims and that the assignee in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets for the payment of its debts.
(Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to release an
original subscriber to its capital stock from the obligation of paying for his shares,
without a valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner an under the
conditions prescribed by the statute or the charter or the articles of incorporation.
Moreover, strict compliance with the statutory regulations is necessary (14 C. J.,
498, 620).

In the case before us the resolution releasing the shareholders from their
obligation to pay 50 per centum of their respective subscriptions was an
attempted withdrawal of so much capital from the fund upon which the company's
creditors were entitled ultimately to rely and, having been effected without
compliance with the statutory requirements, was wholly ineffectual.

BOMAN ENVIRONMENTAL VS CA

FACTS:

Nilcar Fajilan was a stockholder and the president of Boman Environmental

Development Corporation (Boman). In 1984, he wrote a letter to the Board
tendering his resignation and his offer to sell his shareholdings for P300k. The
Board accepted the resignation as well as his offer to sell. The Board advised
Fajilan that Boman will be paying the shares in installment. Fajilan is to transfer
the shares upon completion of payment. Boman paid the first two P50k
installments but defaulted in paying the remaining P200k. Fajilan then sued
Boman in the RTC of Makati.

ISSUE:

Whether or not the RTC of Makati has jurisdiction.

HELD:

No. This is an intra-corporate dispute and as such the Securities and Exchange
Commission (SEC) has jurisdiction. This case involves an intra-corporate
controversy because the parties are a stockholder and the corporation. Fajilan is
still a stockholder. There has been no actual transfer of his shares to the
corporation. In the books of the corporation he is still a stockholder. Fajilans suit
against the corporation to enforce the latters promissory note or compel the
corporation to pay for his shareholdings is cognizable by the SEC alone which shall
determine whether such payment will not constitute a distribution of corporate
assets to a stockholder in preference over creditors of the corporation. The SEC
has exclusive supervision, control and regulatory jurisdiction to investigate
whether the corporation has unrestricted retained earnings to cover the payment
for the shares, and whether the purchase is for a legitimate corporate purpose.

DELA RAMA VS MA-AO SUGAR CENTRAL

FACTS:

This was a representative or derivative suit commenced on October 20, 1953, in

the Court of First Instance of Manila by four minority stockholders against the Ma-
ao Sugar Central Co., Inc. and J. Amado Araneta and three other directors of the
corporation.
The complaint comprising the period November, 1946 to October, 1952, stated
five causes of action, to wit: (1) for alleged illegal and ultra-vires acts consisting of
self-dealing irregular loans, and unauthorized investments; (2) for alleged gross
mismanagement; (3) for alleged forfeiture of corporate rights warranting
dissolution; (4) for alleged damages and attorney's fees; and (5) for receivership.

In their answer originally filed on December 1, 1953, and amended on February 1,

1955, defendants denied "the allegations regarding the supposed gross
mismanagement, fraudulent use and diversion of corporate funds, disregard of
corporate requirements, abuse of trust and violation of fiduciary relationship, etc.,
supposed to have been discovered by plaintiffs, all of which are nothing but
gratuitous, unwarranted, exaggerated and distorted conclusions not supported by
plain and specific facts and transactions alleged in the complaint."

After trial, the Lower Court rendered its Decision (later supplemented by an Order
resolving defendants' Motion for Reconsideration), the dispositive portion of which
reads:

IN VIEW WHEREOF, the Court dismisses the petition for dissolution but condemns
J. Amado Araneta to pay unto Ma-ao Sugar Central Co., Inc. the amount of
P46,270.00 with 8% interest from the date of the filing of this complaint, plus the
costs; the Court reiterates the preliminary injunction restraining the Ma-ao Sugar
Central Co., Inc. management to give any loans or advances to its officers and
orders that this injunction be as it is hereby made, permanent; and orders it to
refrain from making investments in Acoje Mining, Mabuhay Printing, and any other
company whose purpose is not connected with the Sugar Central business; costs
of plaintiffs to be borne by the Corporation and J. Amado Araneta.

From this judgment both parties appealed directly to the Supreme Court.

ISSUE:

HELD:

Plaintiffs-appellants also contend that even assuming, arguendo, that the said
Board Resolutions are valid, the transaction, is still wanting in legality, no
resolution having been approved by the affirmative vote of stockholders holding
shares in the corporation entitling them to exercise at least two-thirds of the
voting power, as required in Sec. 17- of the Corporation Law.

The legal provision invoked by the plaintiffs, as appellants, Sec. 17- of the
Corporation Law, provides:

No corporation organized under this act shall invest its funds in any other
corporation or business, or for any purpose other than the main purpose for which
it was organized, unless its board of directors has been so authorized in a
resolution by the affirmative vote of stockholders holding shares in the
corporation entitling them to exercise at least two-thirds of the voting power on
such proposal at a stockholders' meeting called for the purpose ....

On the other hand, the defendants, as appellees, invoked Sec. 13, par. 10 of the
Corporation Law, which provides:

SEC. 13. Every corporation has the power:

xxx xxx xxx

(9) To enter into any obligation or contract essential to the proper administration
of its corporate affairs or necessary for the proper transaction of the business or
accomplishment of the purpose for which the corporation was organized;

(10) Except as in this section otherwise provided, and in order to accomplish its
purpose as stated in the articles of incorporation, to acquire, hold, mortgage,
pledge or dispose of shares, bonds, securities and other evidences of
indebtedness of any domestic or foreign corporation.

A reading of the two afore-quoted provisions shows that there is need for
interpretation of the apparent conflict.

In his work entitled "The Philippine Corporation Law," now in its 5th edition,
Professor Sulpicio S. Guevara of the University of the Philippines, College of Law, a
well-known authority in commercial law, reconciled these two apparently
conflicting legal provisions, as follows:

j. Power to acquire or dispose of shares or securities. A private corporation, in

order to accomplish its purpose as stated in its articles of incorporation, and
subject to the limitations imposed by the Corporation Law, has the power to
acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other
evidences of indebtedness of any domestic or foreign corporation. Such an act, if
done in pursuance of the corporate purpose, does not need the approval of the
stockholders; but when the purchase of shares of another corporation is done
solely for investment and not to accomplish the purpose of its incorporation, the
vote of approval of the stockholders is necessary. In any case, the purchase of
such shares or securities must be subject to the limitations established by the
Corporation Law; namely, (a) that no agricultural or mining corporation shall in
anywise be interested in any other agricultural or mining corporation; or (b) that a
non-agricultural or non-mining corporation shall be restricted to own not more
than 15% of the voting stock of any agricultural or mining corporation; and (c)
that such holdings shall be solely for investment and not for the purpose of
bringing about a monopoly in any line of commerce or combination in restraint of
trade. (The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89.)
(Emphasis ours.)lawphi1.nt

40. Power to invest corporate funds. A private corporation has the power to
invest its corporate funds in any other corporation or business, or for any purpose
other than the main purpose for which it was organized, provided that 'its board of
directors has been so authorized in a resolution by the affirmative vote of
stockholders holding shares in the corporation entitling them to exercise at least
two-thirds of the voting power on such a proposal at a stockholders' meeting
called for that purpose,' and provided further, that no agricultural or mining
corporation shall in anywise be interested in any other agricultural or mining
corporation. When the investment is necessary to accomplish its purpose or
purposes as stated in it articles of incorporation, the approval of the stockholders
is not necessary. (Id., p. 108.) (Emphasis ours.)

We agree with Professor Guevara.

We therefore agree with the finding of the Lower Court that the investment in
question does not fall under the purview of Sec. 17- of the Corporation Law.

LOPEZ REALTY VS FONTECHA

FACTS:

The controversy at bench arose from a complaint filed by private respondents, 1

namely, Florentina Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista,
Edward Mamaril, Marissa Pascual and Allan Pimentel, against their employer
Lopez Realty Incorporated (petitioner) and its majority stockholder, Asuncion
Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits.
2 The case was docketed as NLRC-NCR Case No. 2-2176-82.

Lopez Realty, Inc., is a corporation engaged in real estate business, while

petitioner Asuncion Lopez Gonzales is one of its majority shareholders.

Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the
Board of Directors.

As found by the Labor arbiter. 3 sometime in 1978, Arturo Lopez submitted a

proposal relative to the distribution of certain assets of petitioner corporation
among its three (3) main shareholders. The proposal had three (3) aspects, viz:
(1) the sale of assets of the company to pay for its obligations; (2) the transfer of
certain assets of the company to its three (3) main shareholders, while some
other assets shall remain with the company; and (3) the reduction of employees
with provision for their gratuity pay. The proposal was deliberated upon and
approved in a special meeting of the board of directors held on April 17, 1978.

It appears that petitioner corporation approved two (2) resolutions providing for
the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed
by the stockholders in a special meeting held on September 8, 1980, resolving to
set aside, twice a year, a certain sum of money for the gratuity pay of its retiring
employees and to create a Gratuity Fund for the said contingency; and (b)
Resolution No. 10, Series of 1980, setting aside the amount of P157,750.00 as
Gratuity Fund covering the period from 1950 up to 1980.

Private respondents were the retained employees of petitioner corporation. In a

letter, dated August 31, 1981, private respondents requested for the full payment
of their gratuity pay. Their request was granted in a special meeting held on
September 1, 1981. The relevant, portion of the minutes of the said board
meeting reads:

In view of the request of the employees contained in the letter dated August 31,
1981, it was also decided that, all those remaining employees will receive another
25% (of their gratuity) on or before October 15, 1981 and another 25% on or
before the end of November, 1981 of their respective gratuity.

At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad.
Allegedly, while she was still out of the country, she sent a cablegram to the
corporation, objecting to certain matters taken up by the board in her absence,
such as the sale of some of the assets of the corporation. Upon her return, she
flied a derivative suit with the Securities and Exchange Commission (SEC) against
majority shareholder Arturo F. Lopez.

Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez

Gonzales and Arturo Lopez, the first two (2) installments of the gratuity pay of
private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and
Perfecto Bautista were paid by petitioner corporation.

Also, petitioner corporation had prepared the cash vouchers and checks for the
third installments of gratuity pay of said private respondents (Florentina Fontecha,
Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said
vouchers were cancelled by petitioner Asuncion Lopez Gonzales.

Likewise, the first, second and third installments of gratuity pay of the rest of
private respondents, particularly, Edward Mamaril, Marissa Pascual and Allan
Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales.
Despite private respondents' repeated demands for their gratuity pay, corporation
refused to pay the same. 4

On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in

favor of private respondents. 5

Petitioners appealed the adverse ruling of the Labor arbiter to public respondent
National Labor Relations Commission. The appeal focused on the alleged non-
ratification and non-approval of the assailed August 17, 1981 and September 1,
1981 Board Resolutions during the Annual Stockholders' Meeting held on March 1,
1982. Petitioners further insisted that the payment of the gratuity to some of the
private respondents was a mere "mistake" on the part of petitioner corporation
since, pursuant to Resolution No. 6, dated September 8, 1980, and Resolution No.
10, dated October 6, 1980, said gratuity pay should be given only upon the
employees' retirement.

On November 20, 1985, public respondent, through its Second Division, dismissed
the appeal for lack of merit,

ISSUE:

HELD:

We now come to petitioners' argument that the resolutions passed by the board of
directors during the special meetings on August 1, 1981, and September 1, 1981,
were ultra vires for lack of notice.

The general rule is that a corporation, through its board of directors, should act in
the manner and within the formalities, if any, prescribed by its charter or by the
general law. 14 Thus, directors must act as a body in a meeting called pursuant to
the law or the corporation's by-laws, otherwise, any action taken therein may be
questioned by any objecting director or shareholder. 15

Be that as it may, jurisprudence 16 tells us that an action of the board of directors

during a meeting, which was illegal for lack of notice, may be ratified either
expressly, by the action of the directors in subsequent legal meeting, or impliedly,
by the corporation's subsequent course of conduct. Thus, in one case, 17 it was
held:

. . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) sec.

429, at page 290, it is stated:

Thus, acts of directors at a meeting which was illegal because of want of notice
may be ratified by the directors at a subsequent legal meeting, or by the
corporations course of conduct
...

Fletcher, supra, further states in sec. 762, at page 1073-1074:

Ratification by directors may be by an express resolution or vote to that effect, or

it may be implied from adoption of the act, acceptance or acquiescence.
Ratification may be effected by a resolution or vote of the board of directors
expressly ratifying previous acts either of corporate officers or agents; but it is not
necessary, ordinarily, to show a meeting and formal action by the board of
directors in order to establish a ratification.

In American Casualty Co., v. Dakota Tractor and Equipment Co., 234 F. Supp. 606,
611 (D.N.D. 1964), the court stated:
Moreover, the unauthorized acts of an officer of a corporation may be ratified by
the corporation by conduct implying approval and adoption of the act in question.
Such ratification may be express or may be inferred from silence and inaction.

In the case at bench, it was established that petitioner corporation did not issue
any resolution revoking nor nullifying the board resolutions granting gratuity pay
to private respondents. Instead, they paid the gratuity pay, particularly, the first
two (2) installments thereof, of private respondents Florentina Fontecha, Mila
Refuerzo, Marcial Mamaril and Perfecto Bautista.

Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that
time the assailed resolutions were passed, we can glean from the records that she
was aware of the corporation's obligation under the said resolutions. More
importantly, she acquiesced thereto. As pointed out by private respondents,
petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos.
81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd
installment of the gratuity pay of private respondents Mila Refuerzo and
Florentina Fontecha. 18

We hold, therefore, that the conduct of petitioners after the passage of resolutions
dated August, 17, 1951 and September 1, 1981, had estopped them from
assailing the validity of said board resolutions.

Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez
during the special meetings held on August 17, 1981 and September 1, 1981, it is
erroneous to state that the resolutions passed by the board during the said
meetings were ultra vires. In legal parlance, "ultra vires" act refers to one which is
not within the corporate powers conferred by the Corporation Code or articles of
incorporation or not necessary or incidental in the exercise of the powers so
conferred. 19

The assailed resolutions before us cover a subject which concerns the benefit and
welfare of the company's employees. To stress, providing gratuity pay for its
employees is one of the express powers of the corporation under the Corporation
Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any
liability arising from the issuance the subject resolutions.

TUASON VS BOLANOS

FACTS:

Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described
the land as a portion of a lot registered in plaintiff's name under Transfer
Certificate of Title No. 37686 of the land record of Rizal Province and as containing
an area of 13 hectares more or less. But the complaint was amended by reducing
the area of 6 hectares, more or less, after the defendant had indicated the
plaintiff's surveyors the portion of land claimed and occupied by him. The second
amendment became necessary and was allowed following the testimony of
plaintiff's surveyors that a portion of the area was embraced in another certificate
of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later,
in the course of trial, after defendant's surveyor and witness, Quirino Feria, had
testified that the area occupied and claimed by defendant was about 13 hectares,
as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its
complaint to make its allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute)
under claim of ownership, adverse to the entire world by defendant and his
predecessor in interest" from "time in-memorial". The answer further alleges that
registration of the land in dispute was obtained by plaintiff or its predecessors in
interest thru "fraud or error and without knowledge (of) or interest either personal
or thru publication to defendant and/or predecessors in interest." The answer
therefore prays that the complaint be dismissed with costs and plaintiff required
to reconvey the land to defendant or pay its value.

After trial, the lower court rendered judgment for plaintiff, declaring defendant to
be without any right to the land in question and ordering him to restore
possession thereof to plaintiff and to pay the latter a monthly rent of P132.62
from January, 1940, until he vacates the land, and also to pay the costs.

ISSUE:

HELD:

As to the first assigned error, there is nothing to the contention that the present
action is not brought by the real party in interest, that is, by J. M. Tuason and Co.,
Inc. What the Rules of 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.) In fact the
practice is for an attorney-at-law to bring the action, that is to file the complaint,
in the name of the plaintiff. That practice appears to have been followed in this
case, since the complaint is signed by the law firm of Araneta and Araneta,
"counsel for plaintiff" 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, but there is nothing against one corporation being
represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. can not 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 to enter into a partnership, it may nevertheless enter into a joint venture
with another where the nature of that venture is in line with the business
authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R.,
1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to
indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc.
as "its managing partner" is not in line with the corporate business of either of
them.

MONTELIBANO VS BACOLOD

FACTS:

Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited

co-partnership Gonzaga and Company, had been and are sugar planters adhered
to the defendant-appellee's sugar central mill under identical milling contracts.

The contracts were stipulated to be in force for 30 years and that the resulting
product should be divided in the ratio of 45% for the mill and 55% for the
planters. It was later proposed to execute amended milling contracts, increasing
the planters' share to 60% of the manufactured sugar and resulting molasses,
besides other concessions, but extending the operation of the milling contract
from the original 30 years to 45 years.
The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a
resolution granting further concessions to the planters over and above those
contained in the printed Amended Milling Contract. Appellants signed and
executed the printed Amended Milling Contract but a copy of the resolution was
not attached to the printed contract.

In 1953, the appellants initiated the present action, contending that three Negros
sugar centrals had already granted increased participation to their planters, and
that under paragraph 9 of the abovementioned resolution, the appellee had
become obligated to grant similar concessions to the plaintiffs (appellants herein).

However, the appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and
defended by urging that the stipulations contained in the resolution were made
without consideration; that the resolution in question was, therefore, null and void
ab initio, being in effect a donation that was ultra vires and beyond the powers of
the corporate directors to adopt.

After trial, the court below rendered judgment upholding the stand of the
defendant Milling company, and dismissed the complaint. Thereupon, plaintiffs
duly appealed to this Court.

ISSUE:

Whether or not the resolution is valid and binding between the corporation and
planters.

HELD:

The Supreme Court held in the affirmative. There can be no doubt that the
directors of the appellee company had authority to modify the proposed terms of
the Amended Milling Contract for the purpose of making its terms more
acceptable to the other contracting parties. The rule is that

It is a question, therefore, in each case of the logical relation of the act to the
corporate purpose expressed in the charter. If that act is one which is lawful in
itself, and not otherwise prohibited, is done for the purpose of serving corporate
ends, and is reasonably tributary to the promotion of those ends, in a substantial,
and not in a remote and fanciful sense, it may fairly be considered within charter
powers. The test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation's business, fairly incident to the express
powers and reasonably necessary to their exercise. If so, the corporation has the
power to do it; otherwise, not.

As the resolution in question was passed in good faith by the board of directors, it
is valid and binding, and whether or not it will cause losses or decrease the profits
of the central, the court has no authority to review them.

It is a well-known rule of law that questions of policy or of management are left

solely to the honest decision of officers and directors of a corporation, and the
court is without authority to substitute its judgment of the board of directors; the
board is the business manager of the corporation, and so long as it acts in good
faith its orders are not reviewable by the courts. Hence, the appellee Bacolod-
Murcia Milling Company is, under the terms of its Resolution, duty bound to grant
similar increases to plaintiffs-appellants herein.