CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA
STOCKHOLDERS OF GUANZON v. REGISTER OF
DEEDS
G.R. No. L-18216
October 30, 1962
FACTS:
On September 19, 1960, the five stockholders of the F. Guanzon and
Sons, Inc. executed a certificate of liquidation of the assets of the
corporation. Upon dissolving the corporation, they have distributed
among themselves in proportion to their shareholdings, as liquidating
dividends, the assets of said corporation, including real properties
located in Manila.
The certificate of liquidation, when presented to the Register
of Deeds of Manila, was denied registration on seven grounds, of
which the following were disputed by the stockholders:
3. The number of parcels not certified to in the
acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be attached to the
document;
7. The judgment of the Court approving the dissolution
and directing the disposition of the assets of the
corporation need be presented (Rules of Court, Rule
104, Sec. 3).
Deciding the consulta elevated by the stockholders, the
Commissioner of Land Registration overruled ground No. 7 and
sustained requirements Nos. 3, 5 and 6. The stockholders interposed
the present appeal which contends that the certificate of liquidation is
not a conveyance or transfer but merely a distribution of the assets
of the corporation which has ceased to exist for having been
dissolved.
ISSUE:
Whether or not the certificate merely involves a distribution
of the corporation's assets.
HELD:
NO! A corporation is a juridical person distinct from the
members composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its
members. While shares of stock constitute personal property they do
not represent property of the corporation. The corporation has
property of its own which consists chiefly of real estate. A share of
stock only typifies an aliquot part of the corporation's property, or the
right to share in its proceeds to that extent when distributed
according to law and equity, but its holder is not the owner of any
part of the capital of the corporation. Nor is he entitled to the
possession of any definite portion of its property or assets. The
stockholder is not a co-owner or tenant in common of the corporate
property.
It is clear that the act of liquidation made by the stockholders
of the corporation's assets cannot be considered a partition of
community property, but rather a transfer or conveyance of the title
of its assets to the individual stockholders. Indeed, since the purpose
of the liquidation, as well as the distribution of the assets of the
corporation, is to transfer their title from the corporation to the
stockholders in proportion to their shareholdings, that transfer cannot
be effected without the corresponding deed of conveyance from the
corporation to the stockholders. It is, therefore, fair and logical to
consider the certificate of liquidation as one in the nature of a
transfer or conveyance.
 CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL v.
LIM
GR 165887
June 6, 2011
FACTS: Ruby Industrial Corporation is a domestic corporation
engaged in glass manufacturing. Reeling from severe liquidity
problems beginning in 1980, RUBY filed in December 1983 a petition
for suspension of payments with SEC. In August 1984, the SEC
Hearing Panel created the management committee for RUBY,
composed of representatives from Allied Leasing and Finance
Corporation (ALFC), Philippine Bank of Communications (PBCOM),
China Banking Corporation (China Bank), Pilipinas Shell Petroleum
Corporation (Pilipinas Shell), and RUBY represented by Mr. Yu Kim
Giang. The MANCOM was tasked to perform the following functions:
undertake the management of RUBY; determine the best way to
salvage and protect the interest of its investors and creditors; and
study, review and evaluate the proposed rehabilitation plan for
RUBY.
Two rehabilitation plans were submitted to the SEC: the
BENHAR/RUBY Rehabilitation Plan of the majority stockholders led
by Yu Kim Giang, and the Alternative Plan of the minority
stockholders represented by Miguel Lim (Lim).
Under the BENHAR Plan, Benhar International, Inc., a
domestic corporation engaged in the importation and sale of vehicle
spare parts which is wholly owned by the Yu family and headed by
Henry Yu, who is also a director and majority stockholder of RUBY --
shall lend its P60 million credit line in China Bank to RUBY.
Moreover, BENHAR shall purchase the credits of RUBYs creditors
and mortgage RUBYs properties to obtain credit facilities for RUBY.
Upon approval of the rehabilitation plan, BENHAR shall control and
manage RUBYs operations. For its service, BENHAR shall receive a
management fee equivalent to 7.5% of RUBYs net sales.
The BENHAR Plan was opposed by 40% of the
stockholders, including Lim, a minority shareholder of RUBY. ALFC,
the biggest unsecured creditor of RUBY and chairman of the
management committee, also objected as it would transfer RUBYs
assets to the prejudice of its unsecured creditors. A revision was
made. However, Lim, ALFC and Pilipinas Shell still opposed the
Revised BENHAR/RUBY Plan on grounds that: (1) it would legitimize
the entry of BENHAR, a total stranger, to RUBY as BENHAR would
become the biggest creditor of RUBY; (2) it would put RUBYs assets
beyond the reach of the unsecured creditors and the minority
stockholders; and (3) it was not approved by RUBYs stockholders in
a meeting called for the purpose.
On the other hand, the Alternative Plan of RUBYs minority
stockholders proposed to: (1) pay all RUBYs creditors without
securing any bank loan; (2) run and operate RUBY without charging
management fees; (3) buy-out the majority shares or sell their shares
to the majority stockholders; (4) rehabilitate RUBYs two plants; and
(5) secure a loan at 25% interest, as against the 28% interest
charged in the loan under the BENHAR/RUBY Plan.
Both plans were endorsed by the SEC to the MANCOM for
evaluation. The SEC Hearing Panel approved the BENHAR Plan.
The minority stockholders thru Lim appealed to the SEC En Banc. It
granted the writ of preliminary injunction against the enforcement of
the plan. Meanwhile, BENHAR paid off Far East Bank & Trust
Company (FEBTC), one of RUBYs secured creditors. By May 30,
1988, FEBTC had already executed a deed of assignment of credit
and mortgage rights in favor of BENHAR. BENHAR likewise paid the
other secured creditors who, in turn, assigned their rights in favor of
BENHAR. These acts were done by BENHAR despite the SECs
TRO and injunction and even before the SEC Hearing Panel
approved the BENHAR/RUBY Plan. These acts were subsequently
nullified by the SEC Hearing Panel. However, it appears that even
during the pendency of the appeals in the CA, BENHAR and RUBY
have performed other acts in pursuance of the BENHAR Plan.
 CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA
ISSUE: Whether pre-emptive rights of stockholders were violated
HELD: YES. Pre-emptive right under Sec. 39 of the Corporation
Code refers to the right of a stockholder of a stock corporation to
subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings. The right may be
restricted or denied under the articles of incorporation, and subject to
certain exceptions and limitations. The stockholder must be given a
reasonable time within which to exercise their pre-emptive rights.
Upon the expiration of said period, any stockholder who has not
exercised such right will be deemed to have waived it.
The validity of issuance of additional shares may be
questioned if done in breach of trust by the controlling stockholders.
Thus, even if the pre-emptive right does not exist, either because the
issue comes within the exceptions in Section 39 or because it is
denied or limited in the articles of incorporation, an issue of shares
may still be objectionable if the directors acted in breach of trust and
their primary purpose is to perpetuate or shift control of the
corporation, or to freeze out the minority interest.
In this case, the following relevant observations should have
signaled greater circumspection on the part of the SEC -- upon the
third and last remand to it -- to demand transparency and
accountability from the majority stockholders, in view of the illegal
assignments and objectionable features of the Revised BENHAR
Plan.
There can be no gainsaying the well-established rule in
corporate practice and procedure that the will of the majority shall
govern in all matters within the limits of the act of incorporation and
lawfully enacted by-laws not proscribed by law. It is, however,
equally true that other stockholders are afforded the right to
intervene especially during critical periods in the life of a corporation
like reorganization, or in this case, suspension of payments, more
so, when the majority seek to impose their will and through
fraudulent means, attempt to siphon off Rubys valuable assets
to the great prejudice of Ruby itself, as well as the minority
stockholders and the unsecured creditors.
Minority stockholders and the unsecured creditors are given
some measure of protection by the law from the abuses and
impositions of the majority, more so in this case, considering the
give-away signs of private respondents perfidy strewn all over
the factual landscape. Equity cannot deprive the minority of a
remedy against the abuses of the majority, and the present action
has been instituted precisely for the purpose of protecting the true
and legitimate interests of Ruby against the Majority Stockholders.
Generally speaking, the voice of the majority of the stockholders is
the law of the corporation, but there are exceptions to this rule.
There must necessarily be a limit upon the power of the
majority. Without such a limit the will of the majority will be
absolute and irresistible and might easily degenerate into
absolute tyranny.
Under the circumstances, liquidation was the only hope of
the minority stockholders for effecting an orderly and equitable
settlement of RUBYs obligations, and compelling the majority
stockholders to account for all funds, properties and documents in
their possession, and make full disclosure on the nullified credit
assignments. Oblivious to these pending incidents so crucial to the
protection of the interest of the majority of creditors and minority
shareholders, the SEC simply stated that in the interim, RUBYs
corporate term was validly extended, as if such extension would
provide the solution to RUBYs myriad problems.
 CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA
FOREST HILLS GOLF & COUNTRY CLUB v. VERTEX
SALES AND TRADING, INC.
G.R. No. 202205
March 6, 2013
FACTS:
Petitioner Forest Hills is a domestic non-profit stock corporation that
operates and maintains a golf and country club facility in Antipolo
City. Forest Hills was created as a result of a joint venture agreement
between Kings Properties Corporation (Kings) and Fil-Estate Golf
and Development, Inc. (FEGDI).
FEGDI sold to RS Asuncion Construction Corporation (RSACC) one
Class "C" common share of Forest Hills for P1.1 million. Before
paying the full payment of the price, RSACC transferred its
interests over FEGDI's Class "C" common share to respondent
Vertex. RSACC advised FEGDI of the transfer and FEGDI, in turn,
requested Forest Hills to recognize Vertex as a shareholder. Forest
Hills acceded to the request, and Vertex was able to enjoy
membership privileges in the golf and country club.
Despite the sale of FEGDI's Class "C" common share to Vertex, the
share remained in the name of FEGDI, prompting Vertex to
demand for the issuance of a stock certificate in its name. Due to
unheeded demands, Vertex then filed a complaint or rescission with
damages against defendants Forest Hills, FEGDI, and FELI.
Vertex averred that the defendants defaulted in their obligation as
sellers when they failed and refused to issue the stock certificate
covering the Class "C" common share. On the other hand, Forest
Hills denied transacting business with Vertex and claimed that it
was not a party to the sale of the share.
RTC RULING: Dismissed Vertex’ complaint after finding that the
failure to issue a stock certificate did not constitute a violation of the
essential terms of the contract of sale that would warrant its
rescission. The issuance of a stock certificate is a collateral matter in
the consummated sale of the share; the stock certificate is not
essential to the creation of the relation of a shareholder.
CA RULING: Reversed RTC’s ruling. It ordered rescission of sale. It
based its ruling on Section 63 of the Corporation Code, which
requires for a valid transfer of stock –
(1) the delivery of the stock certificate;
(2) the endorsement of the stock certificate by the owner or
his attorney-in-fact or other persons legally authorized to make the
transfer; and
(3) to be valid against third parties, the transfer must be
recorded in the books of the corporation.
Without the issuance of the stock certificate and despite Vertex’s full
payment of the purchase price, the share cannot be considered as
having been validly transferred.
ISSUE:
Whether the CA ruling which rescinded the sale is valid
HELD:
Yes. Ruling on rescission of sale is a settled matter.
As correctly pointed out by Forest Hills, it was not a party to the sale
even though the subject of the sale was its share of stock. The
corporation whose shares of stock are the subject of a transfer
transaction (through sale, assignment, donation, or any other mode
of conveyance) need not be a party to the transaction, as may be
inferred from the terms of Section 63 of the Corporation Code.
However, to bind the corporation as well as third parties, it is
necessary that the transfer is recorded in the books of the
corporation. In the present case, the parties to the sale of the share
were FEGDI as the seller and Vertex as the buyer (after it succeeded
 CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA
RSACC). As party to the sale, FEGDI is the one who may appeal the
ruling rescinding the sale. The remedy of appeal is available to a
party who has "a present interest in the subject matter of the litigation
and is aggrieved or prejudiced by the judgment. A party, in turn, is
deemed aggrieved or prejudiced when his interest, recognized by
law in the subject matter of the lawsuit, is injuriously affected by the
judgment, order or decree." The rescission of the sale does not in
any way prejudice Forest Hills in such a manner that its interest
in the subject matter – the share of stock – is injuriously
affected. Thus, Forest Hills is in no position to appeal the ruling
rescinding the sale of the share. Since FEGDI, as party to the
sale, filed no appeal against its rescission, we consider as final
the CA’s ruling on this matter.
LEON J. LAMBERT v. T. J. FOX
G.R. No. L-7991
January 29, 1914
FACTS:
This is an action brought to recover a penalty prescribed on a
contract as punishment for the breach thereof.
Early in 1911 the firm known as John R. Edgar & Co., engaged in the
retail book and stationery business, found itself in such condition
financially that its creditors, including the plaintiff and the defendant,
together with many others, agreed to take over the business,
incorporate it and accept stock therein in payment of their respective
credits. This was done, the plaintiff and the defendant becoming the
two largest stockholders in the new corporation called John R. Edgar
& Co., Incorporated. A few days after the incorporation was
completed plaintiff and defendant entered into the following
agreement:
Whereas the undersigned are, respectively, owners
of large amounts of stock in John R. Edgar and Co,
Inc; and,
Whereas it is recognized that the success of said
corporation depends, now and for at least one year
next following, in the larger stockholders retaining
their respective interests in the business of said
corporation:
Therefore, the undersigned mutually and reciprocally
agree not to sell, transfer, or otherwise dispose of
any part of their present holdings of stock in said
John R. Edgar & Co. Inc., till after one year from the
date hereof.
Either party violating this agreement shall pay to
the other the sum of P1,000 as liquidated
damages, unless previous consent in writing to
such sale, transfer, or other disposition be
obtained.
Notwithstanding this contract the defendant Fox on October 19,
1911, sold his stock in the said corporation to E. C. McCullough of
the firm of E. C. McCullough & Co. of Manila, a strong competitor of
the said John R. Edgar & Co., Inc.
This sale was made by the defendant against the protest of the
plaintiff and with the warning that he would be held liable under the
contract hereinabove set forth and in accordance with its terms. In
fact, the defendant Fox offered to sell his shares of stock to the
plaintiff for the same sum that McCullough was paying them less
P1,000, the penalty specified in the contract.
 CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA

The learned trial court decided the case in favor of the defendant on
the ground that the intention of the parties as it appeared from the
contract was to the effect that the agreement should be good and
shall continue only until the corporation reached a sound financial
basis. Upon reaching the said purpose before the expiration of the
year mentioned in the contract, the defendant accordingly should be
discharged of his obligation.
ISSUE: Whether the trial court erred in its construction of the
contract.
HELD: YES. The petition is granted.
The intention of parties to a contract must be determined, in the first
instance, from the words of the contract itself. It is to be presumed
that persons mean what they say when they speak plain English.
Interpretation and construction should by the instruments last
resorted to by a court in determining what the parties agreed to.
Where the language used by the parties is plain, then construction
and interpretation are unnecessary and, if used, result in making a
contract for the parties. (Lizarraga Hermanos vs. Yap Tico, 24 Phil.
Rep., 504.)
treat all such agreements as imposing a penalty and to allow a
recovery for actual damages only.
In this jurisdiction penalties provided in contracts of this character are
enforced. It is the rule that parties who are competent to contract
may make such agreements within the limitations of the law and
public policy as they desire, and that the courts will enforce them
according to their terms. The only case recognized by the Civil Code
in which the court is authorized to intervene for the purpose of
reducing a penalty stipulated in the contract is when the principal
obligation has been partly or irregularly fulfilled and the court can see
that the person demanding the penalty has received the benefit of
such or irregular performance.
It is also urged by the appellee in this case that the stipulation in the
contract suspending the power to sell the stock referred to therein is
an illegal stipulation, is in restraint of trade and, therefore, offends
public policy. The Court disagrees. The suspension of the power
to sell has a beneficial purpose, results in the protection of the
corporation as well as of the individual parties to the contract,
and is reasonable as to the length of time of the suspension.
The suspension in this particular case is legal and valid.

In the case at bar the parties expressly stipulated that the contract
should last one year. No reason is shown for saying that it shall last
only nine months. Whatever the object was in specifying the year, it
was their agreement that the contract should last a year and it was
their judgment and conviction that their purposes would not be
subversed in any less time.

The appellee urges that the plaintiff cannot recover for the reason
that he did not prove damages, and cites numerous American
authorities to the effect that because stipulations for liquidated
damages are generally in excess of actual damages and so work a
hardship upon the party in default, courts are strongly inclined to
 CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA

HENRY FLEISCHER v. BOTICA NOLASCO CO., INC.

G.R. No. 23241 (47 Phil. 583)
March 14, 1925
Right to Transfer or Dispose of Shareholdings; Right of Refusal
FACTS:
Petitioner Fleischer filed the case against respondent
corporation due to the latter’s refusal to register certain shares in his
name in the books of the corporation despite repeated demands. He
claimed that the acquired said shares, which are already fully paid,
by purchase from their original owner, Manuel Gonzales.
It started with Dr. Eduardo Miciano (Secretary-Treasurer of
respondent corporation) offering to buy, in behalf of the corporation,
the shares of stock from petitioner Fleischer. Fleischer refused
despite Miciano claiming that the corporation has the preferential
right to buy the shares.
1 a certain purchaser. The holder of shares, as owner of personal
In (Letter 1) Gonzales made a written statement to Botica
Nolasco, Inc. which requested that the 5 shares of stock not be
transferred to Fleischer’s name. He also acknowledged in said
written statement the preferential right of the corporation to buy said
five shares.
2 stock in cases like the present, mandamus will lie to compel the
A few months after Letter 1, he issued (Letter 2) wherein he
withdrew and cancelled Letter 1.
Respondent corporation replied that Letter 2 was of no
effect, and that the shares in question had been registered in the
name of the Botica Nolasco, Inc.
Respondent corporation’s defense was that Article 12 of its
by-laws provided that it had preferential right to buy the shares.
HELD:
Yes.
As a general rule, the by-laws of a corporation are valid if
they are reasonable and calculated to carry into effect the objects of
the corporation, and are not contradictory to the general policy of the
laws of the land.
However, under Section 35 of the Corporation Law (now
Section 63), the law specifically provides that the shares of stock
“are personal property and may be transferred by delivery of
the certificate indorsed by the owner, etc.” Said Section defines
the nature, character and transferability of shares of stock. The
shares of stock are personal property and may be transferred as
therein provided and it does not contemplate a restriction as to whom
they may be transferred or sold. It does not suggest that any
discrimination may be created by the corporation in favor or against
property, is at liberty, under said section, to dispose of them in
favor of whomsoever he pleases, without any other limitation in
this respect, than the general provisions of law.
“Whenever a corporation refuses to transfer and register
officers of the corporation to transfer said stock upon the books of
the corporation.”

ISSUE:
Whether Article 12 of the by-laws of the corporation is in
conflict with the provisions of the Corporation Law (Act No. 1459).

1
For easy understanding. Not the actual terms used in the case
2
For easy understanding. Not the actual terms used in the case
 CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA
CYRUS PADGETT v. BABCOCK & TEMPLETON, INC
G.R. No. 38684
December 21, 1933
Chapter X, 3. Right to Transfer/Dispose of Shareholdings, b.
Right of First Refusal
Facts:
Padgett was an employee of Babcock & Templeton. From 1923-
1929, he bought 35 shares at P100 a share and was a recipient of 9
shares by way of a bonus during during Christmas seasons. He
became the owner of 44 shares for which the 12 certificates were
issued in his favor. Each certificate bore the word “nontransferable”.
Before leaving the corporation, Padgett proposed to the
President that the corporation buy the 44 shares at par value plus
interest, or that he be authorized to sell them to other persons. The
president offered to buy the shares at P85, then at P85 but Padgett
did not agree. The corporation posited that okay, fine, Padgett can
have the restriction “nontransferable” eliminated BUT there is no
existing law or authority that the corporation is bound to redeem or
buy said shares at par value. The corporation claimed that Padgett
can only sell said shares to anybody, at their market value or at any
price he sees fit.
Issue(s):
1. Whether the stocks may still be transferable despite the
word “nontransferable” printed on the certificates
2. Whether the corporation may be compelled to buy the
shares in question at par value
Held:
1. YES. The said restriction is null and void because it
constitutes an unreasonable limitation on the right of
ownership on the part of Padgett. He, as a general rule, has
the right to dispose the stocks as he sees fit, unless the
corporation has been dissolved or unless the right to do so is
properly restricted or his privilege of disposing has been
hampered by his own action.
2. NO. There is no existing law nor authority in support of
Padgett’s claim that the corporation is obliged or
compelled to buy his shares of stock at par value, plus
the interest demanded thereon.
There is no contract, either express or implied, between
Padgett and the corporation. In the absence of a
contractual obligation and of a legal provision
applicable thereto, it is unjust and unreasonable to
compel the corporation to comply with a non-existent or
imaginary obligation.
A. R. HAGER v. BRYAN
G.R. No. 6230 (19 Phil. 138)
March 21, 1911
Preemptive Rights; Remedy if Registration Refused
FACTS:
Petitioner A. R. Hager filed an original action to secure a writ
of mandamus against respondent Albert Bryan (Secretary of the
Visayan Electric Company), to compel the latter to transfer upon the
books of the company certain shares of stock. Petitioner further
claimed that the Visayan Electric Company holds no unpaid claims
against the shares of stock the subject of this action, and that
petitioner is not indebted in any manner to said Visayan Electric
Company.
Petitioner wished to transfer said shares of stock because he
alleged that, since he was the owner, he already sold such shares to
a certain Mr. Levering. However, on the books of the company,
petitioner’s claims are not supported. It was found that petitioner is
not the registered owner of the shares of stock that he sought to be
transferred.
 CORPORATION CODE DIGEST – CHAPTER 10
ARCAINA • AUSTRIA • BAÑADERA • CARAAN • CHENG • COLOQUIO • DIPLOMA • FAJARDO • LAYNO • LIM, JERRICK • PEREZ • REGIS • VILLARIN, LUISA • VILLARIN, PAULA
Petitioner’s only claim as owner is based on his averment
that such were “indorsed” to him on by the Bryan-Landon Company,
in whose name it is registered on the books of the Visayan Electric
Company. There was no allegation that the petitioner holds any
power of attorney from the Bryan-Landon Company authorizing him
to make a demand on the Secretary of the Visayan Electric
Company.
ISSUE: Whether mandamus will lie under the circumstances and
allow the transfer of shares being requested by the petitioner.
HELD:
No. Petitioner did not have a right to transfer.
The true owner of the shares of stock being claimed by
petitioner was the Bryan-Landon Company. There was no indication
that the shares were transferred to the petitioner nor was petitioner
granted a special power of attorney in behalf of said shares. Thus,
there is no clear and legal obligation on the part of the respondent
that will justify the issuance of a writ to compel the latter to perform a
transfer.
(As found in the CLV outline) Mandamus will not lie to
compel the corporate secretary (Bryan, in this case) to register the
transfer of shares in the corporate books when the petitioner is not
the registered stockholder nor does he hold a power of attorney from
the latter.
This is under the general rule that as between the
corporation one the one hand and its shareholders on other, the
corporation looks only to its books for the purpose of determining
who its shareholders are, so that a mere indorsee of a certificate of
stock, claiming to be the owner, will not necessarily be recognized as
such by the corporation and its officers, in absence of express
instructions of the registered owner to make such transfer to the
indorsee, or a power of attorney authorizing such transfer.
Petition denied.
BATONG BUHAY GOLD MINES, INC v. THE COURT OF
APPEALS and INC. MINING CORPORATION
G.R. No. L-45048
January 7, 1987
Remedy if Registration is Refused
FACTS:
Batong Buhay Gold Mines, Inc. issued Stock Certificate No.
16807 covering 62,495 shares with a par value of P0.01 per share to
Francisco Aguac who was then legally married to Paula G. Aguac,
but the said spouses had lived separately for more than fourteen (14)
years prior to the said date. Thereafter Francisco Aguac sold his
62,495 shares for the sum of P9,374.70 in favor of the plaintiff
WITHOUT KNOWLEDGE OF HIS WIFE.
The wife wrote a letter to the president of defendant Batong
Buhay Gold Mines, Inc. asking that the transfer of the shares sold by
her husband be withheld, inasmuch as the same constituted conjugal
property and her share of proceeds of the sale was not given to her.
The plaintiffs did not then effect the transfer and justified their refusal
to transfer the shares of stock of Francisco Aguac in the name of the
plaintiff in view of their apprehension that they might he held liable
for damages under Article 173 of the Civil Code.
3
Respondent commenced an action to the CFI of Manila. The
CFI handed down its judgment ordering the herein petitioner to effect
the transfer of the shares. HOWEVER, Private respondent
seasonably appealed the aforesaid decision to the Court of Appeals
anchored on the lower court's alleged failure to award damages for
3
Art. 173. The wife may, during the marriage, and within ten years
from the transaction questioned, ask the courts for the annulment of
any contract of the husband entered into without her consent, when
such consent is required, or any act or contract of the husband which
tends to defraud her or impair her interest in the conjugal partnership
property. Should the wife fail to exercise this right, she or her heirs,
after the dissolution of the marriage, may demand the value of
property fraudulently alienated by the husband.
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the wrongful refusal of petitioner to transfer the subject shares
of stock and alleged failure to award attorney's fees, cost of
injunction bond and expenses of litigation.
The CA then granted their request and ordered Batong
Buhay Gold Mines, Inc. to pay to the plaintiff the sum of
P5,625.55, with interest.
ISSUE:
1. May the Court of Appeals award damages by way of unrealized
profits despite the absence of supporting evidence, or merely on
the basis of pure assumption, speculation or conjecture; or can
the respondent recover damages by way of unrealized profits
when it has not shown that it was damaged in any manner by the
act of petitioner?
HELD:
1. No
The stipulation of facts of the parties does not at all show
that private respondent intended to sell, or would sell or would have
sold the stocks in question on specified dates. While it is true that
shares of stock may go up or down in value (as in fact the concerned
shares here really rose from fifteen (15) centavos to twenty three or
twenty four (23/24) centavos per share and then fell to about two (2)
centavos per share, still whatever profits could have been made are
purely SPECULATIVE, for it was difficult to predict with any decree
of certainty the rise and fall in the value of the shares. Thus this
Court has ruled that speculative damages cannot be recovered.
It is easy to say now that had private respondent gained
legal title to the shares, it could have sold the same and reaped a
profit of P5,624.95 but it could not do so because of petitioner's
refusal to transfer the stocks in the former's name at the time
demand was made, but then it is also true that human nature, being
what it is, private respondent's officials could also have refused to
sell and instead wait for expected further increases in value.
LEE and LACDAO v. COURT OF APPEALS
G.R. No. 93695 (205 SCRA 752)
February 4, 1992
Contracts and Agreement Affecting Shareholdings: Voting Trust
Agreements
FACTS:
It started with a complaint for a sum of money that was filed
by the International Corporate Bank (ICB) against the private
respondents (Sacoba Manufacturing Corp., Pablo Gonzales, Jr., and
Thomas Gonzales). Private respondents, in turn, filed a third party
complaint against Alfa Integrated Textile Mills (ALFA) and the
petitioners (President and Executive VP of ALFA).
The petitioners filed a motion to dismiss the third party
complaint, which was denied. Thereafter, the trial court issued an
order requiring the issuance of an alias summons upon ALFA
through the Development Bank of the Philippines (DBP). This order
arose from the fact that the petitioners claimed through a letter that
the ALFA management was transferred to DBP.
DBP claimed that it was not authorized to receive summons
on behalf of ALFA. So, the trial court issued an order advising the
private respondents to take the appropriate steps to serve the
summons to ALFA.
Petitioners argued that by virtue of the voting trust
agreement (VTA), they ceased to be officers and directors of
ALFA and owners of their respective shares. By ceasing to be the
P and the EVP, as well as no longer owning at least one share in
ALFA, they claimed that they could no longer receive summons or
any court processes for or on behalf of ALFA.
On the other hand, private respondents argued that said
VTA did not divest the petitioners of their positions; thus, that service
of summons upon ALFA via the petitioners as corporate officers was
proper.
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ISSUE: assets of the corporation and other rights to which a stockholder may
Whether there was proper service of summons on ALFA be entitled until the liquidation of the corporation.
through the petitioners as President and VP, allegedly, of The Court ruled that the VTA that ALFA and DBP executed
ALFA after the execution of a VTA between ALFA and the really disposed of all of the shares that the petitioners used to hold.
DBP. (Main issue presented by the Court, VTA explained in The petitioners ceased to own at least one share standing in their
Ratio) names on the books of ALFA and they also ceased to have anything
to do with the management of the enterprise. The petitioners ceased
HELD: to be directors.
No. Considering that the voting trust agreement between ALFA
and the DBP transferred legal ownership of the stocks covered by
Corporation Code: the agreement to the DBP as trustee, the latter became the
Section 59. Voting Trusts – One or more stockholders of a stock stockholder of record with respect to the said shares of stocks.
corporation may create a voting trust for the purpose of conferring
upon a trustee or trustees the right to vote and other rights pertaining Petition granted.
to the shares for a period not exceeding five (5) years at any one
time: Provided, that in the case of a voting trust specifically required
as a condition in a loan agreement, said voting trust may be for a
period exceeding (5) years but shall automatically expire upon full
payment of the loan. A voting trust agreement must be in writing and
notarized, and shall specify the terms and conditions thereof. A
certified copy of such agreement shall be filed with the corporation
and with the Securities and Exchange Commission; otherwise, said
agreement is ineffective and unenforceable. The certificate or
certificates of stock covered by the voting trust agreement shall be
cancelled and new ones shall be issued in the name of the trustee or
trustees stating that they are issued pursuant to said agreement. In
the books of the corporation, it shall be noted that the transfer in the
name of the trustee or trustees is made pursuant to said voting trust
agreement.

By its very nature, a voting trust agreement results in the

separation of the voting rights of a stockholder from his other
rights such as the right to receive dividends, the right to inspect the
books of the corporation, the right to sell certain interests in the
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GOKONGWEI JR. v. SEC
G.R. No. L-45911
April 11, 1979
FACTS:
Petitioner Gokongwei is a stockholder of San Miguel
Corporation (SMC). He filed a petition with the SEC for the
declaration of nullity of the amended by-laws, cancellation of
certificate of filing of amended by-laws and damages against the
majority members of the Board of Directors (BOD) and SMC He has
the following causes of action:
1. that the Board in amending the by-laws, had no authority
to do so because it was based on the a 1961
authorization and the amendment being contested was
in 1976, and the authorization should have been based
on votes made according to the 1976shares, not the
1961 shares,
2. the authority granted in 1961 had already been exercised in
1962 and 1963, after which the authority of the Board ceased to
exist,
3. membership of the Board changed since 1961, there are 6 new
directors,
4. that prior to the amendment of the by-laws1, he had all the
qualifications to be a director (he was a substantial stockholder)
and the amended by-laws disqualified him and deprived him of a
vested right to be voted,
5. that the corporation has no inherent power to disqualify a
stockholder from being elected and therefore it is an ultra vires
and void act.
Petitioner also wanted to inspect records and documents of
SMC but the request was denied because the request was said to
have been made in bad faith. Respondents filed their answer to the
petition, denying the substantial allegations therein and stating, by
way of affirmative defenses that "the action taken by the Board of
Directors on September 18, 1976 resulting in the amendments being
valid and legal because the power to 'amend, modify, repeal or adopt
new By-laws' delegated to said Board on March 13, 1961 and long
prior thereto has never been revoked, withdrawn or otherwise
nullified by the stockholders of SMC".
Also, it is said that the power of the Board to amend the by-
laws are broad, subject only to existing laws. August 1972, the
Universal Robina Corporation (URC), a corporation engaged in
business competitive to that of SMC, began acquiring shares of
SMC. In October 1972, the Consolidated Foods Corporation (CFC)
likewise began acquiring shares of SMC.
On January 12, 1976, petitioner, who is president and
controlling shareholder of URC and CFC purchased 5,000 shares of
stock of respondent corporation, and thereafter, in behalf of himself,
CFC and URC, "conducted malevolent and malicious publicity
campaign against SMC" to generate support from the stockholder "in
his effort to secure for himself and in representation of URC and
CFC interests, a seat in the Board of Directors of SMC".
Petitioner was rejected by the stockholders in his bid to
secure a seat in the Board of Directors on the basic issue that
petitioner was engaged in a competitive business and his securing a
seat would have subjected SMC to grave disadvantages.
On May 6, 1977, this Court issued a temporary restraining
order restraining private respondents from disqualifying or preventing
petitioner from running or from being voted as director of SMC and
from submitting for ratification or confirmation or from causing the
ratification or confirmation of the amendment.
While the SEC case was pending, the corporation called for
a stockholder’s meeting for the ratification of the amendment to the
by-laws. SMC reasoned out that petitioner is engaged in businesses
competitive and antagonistic to that of respondent SMC and that the
Board realized the clear and present danger in competitors being
directors because they would have easy and direct access to SMC’s
business and trade secrets.
This prompted petitioner to seek for summary judgment. This
was denied by the SEC. In another case filed by petitioner, he
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alleged that the corporation had been using corporate funds in other
corps and businesses outside the primary purpose clause of the
corporation in violation of the Corporation Code.
With respect to the SEC cases, it is petitioner's contention
SEC gravely abused its discretion when it failed to act with deliberate
dispatch on the motions of petitioner seeking to prevent illegal and/or
arbitrary impositions or limitations upon his rights as stockholder of
respondent corporation, and that respondent are acting oppressively
against petitioner, in gross derogation of petitioner's rights to
property and due process. He prayed that this Court direct
respondent SEC to act on collateral incidents pending before it.
ISSUE:
Whether or not the amended by-laws of SMC of disqualifying a
competitor from nomination or election to the Board of Directors of
SMC are valid and reasonable.
HELD:
YES. The validity and reasonableness of a by-law is purely a
question of law. Whether the by-law is in conflict with the law of the
land, or with the charter of the corporation or is in legal sense
unreasonable and therefore unlawful is a question of law. However,
this is limited where the reasonableness of a by-law is a mere matter
of judgment, and one upon which reasonable minds must
necessarily differ, a court would not be warranted in substituting its
judgment instead of the judgment of those who are authorized to
make by-laws and who have exercised authority.
The Court held that a corporation has authority
prescribed by law to prescribe the qualifications of directors. It
has the inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe the
rights and duties of its members towards itself and among
themselves in reference to the management of its affairs. A
corporation, under the Corporation law, may prescribe in its by-laws
the qualifications, duties and compensation of directors, officers, and
employees.
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 he impliedly contracts that the will of the majority
shall govern in all matters within the limits of the acts of incorporation
and lawfully enacted by-laws and not forbidden by law. Any
corporation may amend its by-laws by the owners of the majority of
the subscribed stock. It cannot thus be said that petitioners has the
vested right, as a stock holder, to be elected director, in the face of
the fact that the law at the time such stockholder's right was acquired
contained the prescription that the corporate charter and the by-laws
shall be subject to amendment, alteration and modification.
A Director stands in a fiduciary relation to the corporation
and its shareholders, which is characterized as a trust relationship.
An amendment to the corporate by-laws which renders a stockholder
ineligible to be director, if he be also director in a corporation whose
business is in competition with that of the other corporation, has
been sustained as valid. This is based upon the principle that
where the director is employed in the service of a rival
company, he cannot serve both, but must betray one or the
other. The amendment in this case serves to advance the benefit of
the corporation and is good. Corporate officers are also not permitted
to use their position of trust and confidence to further their private
needs, and the act done in furtherance of private needs is deemed to
be for the benefit of the corporation. This is called the doctrine of
corporate opportunity.