Islamic Directorate of the Phils. vs.

Court of Appeals

DOCTRINES:

-A juridical person can not be considered essentially a formal party to a case where it was not duly
represented by its legitimate governing board.

-petitioner corporation, for want of legitimate representation, was effectively deprived of its day in
court in said case.

-Securities and Exchange Commission; The SEC has the unquestionable authority to pass upon the
issue as to who among the different contending groups is the legitimate governing board of a corporate
body.

-Where a corporate body never gave its consent, thru a legitimate governing board, to a deed of
absolute sale, the subject sale is void and produces no effect whatsoever.

-For the sale of the only property of a corporation to be valid, the majority vote of the legitimate board,
concurred in by the vote of at least 2/3 of the bona fide m embers of the corporation, should be
obtained.

FACTS OF THE CASE:

-ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), primary purpose of which is to establish an

Islamic Center in Quezon City for the construction of a “Mosque (prayer place), Madrasah (Arabic
School), and other religious infrastructures” so as to facilitate the effective practice of Islamic faith in
the area.

-the Libyan government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon
City, to be used as a Center for the Islamic populace.

-after the purchase of the land by the Libyan government in the name of IDP, Martial Law was declared
by the late President Ferdinand Marcos.

-Most of the members of the 1971 Board of Trustees flew to the Middle East to escape political
persecution.

-SEC declared the election of both the Carpizo Group and the Abbas Group as IDP board members
to be null and void.

-Neither group, however, took the necessary steps prescribed by the SEC in its October 3, 1986
Decision, and, thus, no valid election of the members of the Board of Trustees of IDP was ever called.

-without having been properly elected as new members of the Board of Trustees of IDP, the Carpizo
Group caused to be signed an alleged Board Resolution11 of the IDP, authorizing the sale of the
subject two parcels of land to the private respondent INC for a consideration of P22,343,400.00, which
sale was evidenced by a Deed of Absolute Sale.

-the petitioner 1971 IDP Board of Trustees headed by former Senator Mami nt al Taman o, or the
Tamano Group, filed a petition before the SEC, docketed as SEC Case No. 4012, seeking to declare
null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group of
Engineer Carpizo was not the legitimate Board of Trustees of the IDP.

-Meanwhile, private respondent INC, pursuant to the Deed of Absolute Sale executed in its favor filed
an action for Specific Performance with Damages against the vendor, Carpizo Group,

-rendered Partial Judgment in Civil Case No. Q-90-6937 ordering the IDP-Carpizo Group to comply
with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering
the actual possession thereof to INC.

-Undaunted, Ligon, the mortgagee of the subject lots, filed a petition for review before The Supreme
Court.

-Declaring the by-laws submitted by the respondents as unauthorized, and hence, null and void.

-INC elevated SEC Case to the public respondent Court of Appeals by way of a special civil action for
certiorari, the court a quo granted INC’s petition

-Thus, the IDP-Tamano Group brought the instant petition for review.

ISSUE: whether or not the contract of sale entered into by the Carpizo group valid or not?

RULING:

-the SEC can declare who is the legitimate IDP Board, then by parity of reasoning, it can also declare
who is not the legitimate IDP Board.

-the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board of
Trustees.

-the Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind of transaction
including the sale or disposition of IDP property.

-all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly
in the nam e of the IDP, have to be struck down for having been done without the consent of the IDP
thru a legitimate Board of Trustees.

-The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group’s
failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or
substantially all assets of the corporation.

-The Tandang Sora property, it appears from the records, constitutes the only property of the IDP.

-its sale to a third-party is a sale or disposition of all the corporate property and assets of ID P falling
squarely within the contemplation of the foregoing section. 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.
SME BANK, INC., ABELARDO P. SAMSON, OLGA SAMSON and AURELIO VILLAFLOR, JR.,
petitioners, vs. PEREGRIN T. DE GUZMAN,

DOCTRINE:
-There are two types of corporate acquisitions: asset sales and stock sales. In asset sales, the
corporate entity sells all or substantially all of its assets to another entity.
-In stock sales, the individual or corporate shareholders sell a controlling block of stock to new or
existing shareholders.
-In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected
employees,but is liable for the payment of separation pay under the law. The buyer in good faith, on
the other hand, is not obliged to absorb the employees affected by the sale, nor is it liable for the
payment of their claims. The most that it may do, for reasons of public policy and social justice, is to
give preference to the qualified separated personnel of the selling firm.

-In contrast with asset sales, in which the assets of the selling corporation are transferred to another
entity, the transaction in stock sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its shareholders, a shift in the composition

of its shareholders will not affect its existence and continuity. Thus, notwithstanding the stock sale,
the corporation continues to be the employer of its people and continues to be liable for the payment
of their just claims. Furthermore, the corporation or its new majority shareholders are not entitled
to lawfully dismiss corporate employees absent a just or authorized cause.
-In a stock sale, the employees are not transferred to a new employer, but remain with the original
corporate employer, notwithstanding an equity shift in its majority shareholders.

FACTS OF THE CASE:

-SME Bank experienced financial difficulties. To remedy the situation, the bank officials proposed its
sale to Abelardo Samson (Samson)
-Originally, the principal shareholders and corporate directors of the bank were Eduardo M. Agustin,
Jr.(Agustin) and Peregrin de Guzman, Jr. (De Guzman).
-Agustin and De Guzman accepted the terms and conditions proposed by Samson and signed the
conforme portion of the Letter Agreements.

-Simeon Espiritu (Espiritu), then the general manager of SME Bank, held a meeting with all the
employees of the head office and of the Talavera and Muñoz branches of SME Bank and persuaded
them to tender their resignations,11 with the promise that they would be rehired upon reapplication.

-Agustin and De Guzman signified their conformity to the Letter Agreements and sold 86.365% of the
shares of stock of SME Bank to spouses Abelardo and Olga Samson. Spouses Samson then became
RR the principal shareholders of SME Bank, while Aurelio Villaflor, Jr. was appointed bank president.
As it turned out, respondent employees, except for Simeon, Jr.,26 were not rehired. After a month in
service, Simeon, Jr. again resigned on October 2001.

-Aggrieved by the loss of their jobs, respondent employees filed a Complaint before the National Labor
Relations Commission (NLRC) — Regional Arbitration Branch No. III and sued SME Bank, spouses
Abelardo and Olga Samson and Aurelio Villaflor (the Samson Group) for unfair labor practice

-the labor arbiter ruled that the buyer of an enterprise is not bound to absorb its employees, unless
there is an express stipulation to the contrary.
-he also found that respondent employees were illegally dismissed, because they had involuntarily
executed their resignation letters after relying on representations that they would be given their
separation benefits and rehired by the new management.

-Agustin and De Guzman contended that they should not be held liable for the payment of the
employees’ claims.
-NLRC found that there was only a mere transfer of shares — and therefore, a mere change of
management — from Agustin and De Guzman to the Samson Group.

-As the change of management was not a valid ground to terminate respondent bank employees, the
NLRC ruled that they had indeed been illegally dismissed. It further ruled that Agustin, De Guzman
and the Samson Group should be held jointly and severally liable for the employees’ separation pay
and backwages.
-CA rendered a Decision in affirming that of the NLRC.

ISSUE:
which of the parties are liable for the claims of the employees and the extent of the reliefs that may
be awarded to these employees.

RULING:

-the records show that Elicerio, Ricardo, Fidel, and Liberato only tendered resignation letters because
they were led to believe that, upon reapplication, they would be reemployed by the new management.
-The law permits an employer to dismiss its employees in the event of closure of the business
establishment. However, the employer is required to serve written notices on the worker and the
Department of Labor at least one month before the intended date of closure.

-The settled rule is that an employer who terminates the employment of its employees without lawful
cause or due process of law is liable for illegal dismissal.
-SME Bank continued to be the employer of respondent employees notwithstanding the equity change
in the corporation.

-a corporation has a personality separate and distinct from that of its individual shareholders or
members, such that a change in the composition of its shareholders or members would not affect its
corporate liabilities.

-Unless they have exceeded their authority, corporate officers are, as a general rule, not personally
liable for their official acts, because a corporation, by legal fiction, has a personality separate and
distinct from its officers, stockholders and members. However, this fictional veil may be pierced
whenever the corporate personality is used as a means of perpetuating a fraud or an illegal act,
evading an existing obligation, or confusing a legitimate issue.

-In cases of illegal dismissal, corporate directors and officers are solidarily liable with the corporation,
where terminations of employment are done with malice or in bad faith.
-in order to determine the respective liabilities of Agustin, De Guzman and the Samson Group under
the afore-quoted rule, we must determine, first, whether they may be considered as corporate
directors or officers; and, second, whether the terminations were done maliciously or in bad faith.
-There is no question that both Agustin and De Guzman were corporate directors of SME Bank.
-An analysis of the facts likewise reveals that the dismissal of the employees was done in bad faith.
Motivated by their desire to dispose of their shares of stock to Samson, they agreed to and later
implemented the precondition in the Letter Agreements as to the termination or retirement of SME
Bank’s employees.
-We therefore rule that, as Agustin and De Guzman are corporate directors who have acted in bad
faith, they may be held solidarily liable with SME Bank for the satisfaction of the employees’ lawful
claims.
-There is no showing that his constructive dismissal amounted to more than a corporate act by SME
Bank, or that spouses Samson acted maliciously or in bad faith in bringing about his constructive
dismissal.
-Finally, as regards Aurelio Villaflor, while he may be considered as a corporate officer, being the
president of SME Bank, the records are bereft of any evidence that indicates his actual participation
in the termination of respondent employees. Not having participated at all in the illegal act, he may
not be held individually liable for the satisfaction of their claims.
Jiao vs. National Labor Relations Commission
DOCTRINES:

-As a rule, a corporation that purchases the assets of another will not be liable for the debts of the
selling corporation, provided the former acted in good faith and paid adequate consideration for such
assets; except when any of the following circumstances is present: (1) where the purchaser expressly
or impliedly agrees to assume the debts; (2) where the transaction amounts to a consolidation or
merger of the corporations; (3) where the purchasing corporation is merely a continuation of the
selling corporation; and (4) where the selling corporation fraudulently enters into the transaction to
escape liability for those debts.

FACTS OF THE CASE:

-Philbank merged with Global Business Bank, InC. (Globalbank), with the former as the surviving
corporation and the latter as the absorbed corporation, but the bank operated under the name Global
Business Bank, Inc. As a result of the merger, complainants’ respective positions became redundant.

- petitioners were required to sign two documents, namely, an Acceptance Letter and a Release,
Waiver, Quitclaim (quitclaim).
-In August 2002, respondent Metropolitan Bank and Trust Company (Metrobank) acquired the assets
and liabilities of Globalbank through a Deed of Assignment of Assets and Assumption of Liabilities.
-The petitioners asserted that, under the Old Plan, they were entitled to an additional 50% of their
gratuity pay on top of 150% of one month’s salary for every year of service they had already received.
-They insisted that 100% of the 150% rightfully belongs to them as their separation pay. Thus, the
remaining 50% was only half of the gratuity pay that they are entitled to under the Old Plan.
-The petitioners further argued that the quitclaims they signed should not bar them from claiming
their full entitlement under the law. They also claimed that they were defrauded into signing the same
without full knowledge of its legal implications.
-Globalbank asserted that the SSP should prevail and the petitioners were no longer entitled to the
additional 50% gratuity pay which was already paid, the same having been included in the
computation of their separation pay.
-Metrobank denied any liability, citing the absence of an employment relationship with the
petitioners.

-It argued that its acquisition of the assets and liabilities of Globalbank did not include the latter’s
obligation to its employees.
-The LA ruled that the petitioners were not entitled to the additional 50% in gratuity pay that they
were asking for.
-The LA held that the 150% rate used by Globalbank could legally cover both the separation pay and
the gratuity pay of complainants.
-LA upheld the right of the employer to enact a new gratuity plan after finding that its enactment was
not attended by bad faith or any design to defraud complainants.
-the New Gratuity Plan must be deemed to have superseded the Old Plan.
-The LA also absolved Metrobank from liability. The LA found that the petitioners had already been
separated from Globalbank when Metrobank took over the former’s banking operations.
-NLRC dismissed the appeal and affirmed the LA’s decision.
-the NLRC held that the petitioners did not acquire a vested right to Philbank’s gratuity plans since,
at the outset, it was made clear that these plans would not perpetuate into eternity.

-the CA ruled that the petition was dismissible outright for failure of the petitioners to file a motion
for reconsideration of the decision under review before resorting to certiorari.
-the issuance of the SSP did not result to the repeal of the New Gratuity Plan.
-“the benefits under this Plan shall be deemed integrated with and in lieu of (i) statutory benefits
under the New Labor Code and Social Security Laws, as now or hereafter amended” and that “[t]his
Plan is not intended to duplicate or cause the double payment of similar or analogous benefits
provided for under existing labor and security laws.”
-Employers, therefore, have the right to create plans, providing for separation pay in an amount over
and above what is imposed by Article 283. There is nothing therein that prohibits employers and
employees from contracting on the terms of employment, or from entering into agreements on
employee benefits, so long as they do not violate the Labor Code or any other law, and are not contrary
to morals, good customs, public order, or public policy

-The petitioners insist that Metrobank is liable because it is the “parent” company of Globalbank and
that majority of the latter’s board of directors are also members of the former’s board of directors.
-This fiction of corporate entity can only be disregarded in cases when it is used to defeat public
convenience, justify wrong, protect fraud, or defend crime. Moreover, to justify the disregard of the
separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly
established.

-In the instant case, none of these circumstances is present such as to warrant piercing the veil of
corporate fiction and treating Globalbank and Metrobank as one.
BANK OF COMMERCE vs. RADIO PHILIPPINES G.R. No. 195615 April 21, 2014 Merger and De
Facto Merger, Corporation Code

DOCTRINES:
-Merger is a reorganization of two or more corporations that results in their consolidating into a single
corporation, which is one of the constituent corporations, one disappearing or dissolving and the
other surviving. To put it another way, merger is the absorption of one or more corporations by
another existing corporation, which retains its identity and takes over the rights, privileges,
franchises, properties, claims, liabilities and obligations of the absorbed corporation(s). The absorbing
corporation continues its existence while the life or lives of the other corporation(s) is or are
terminated.

-A merger does not become effective upon the mere agreement of the constituent corporations. All the
requirements specified in the law must be complied with in order for merger to take effect. Section 79
of the Corporation Code further provides that the merger shall be effective only upon the issuance by
the Securities and Exchange Commission (SEC) of a certificate of merger.

-the Supreme Court held, that authority to merge or consolidate can be derived from Section 28½
(now Section 40) of the former Corporation Law which provides, among others, that a corporation
may “sell, exchange, lease or otherwise dispose of all or substantially all of its property and assets” if
the board of directors is so authorized by the affirmative vote of the stockholders holding at least
twothirds of the voting power. The words “or otherwise dispose of,” according to the Supreme Court,
is very broad and in a sense, covers a merger or consolidation.

-under the Corporation Code, “a de facto merger can be pursued by one corporation acquiring all or
substantially all of the properties of another corporation in exchange of shares of stock of the
acquiring corporation. The acquiring corporation would end up with the business enterprise of the
target corporation; whereas, the target corporation would end up with basically its only remaining
assets being the shares of stock of the acquiring corporation.” (Emphasis supplied) No de facto merger
took place in the present case simply because the TRB owners did not get in exchange for the bank’s
assets and liabilities an equivalent value in Bancommerce shares of stock. Bancommerce and TRB
agreed with BSP approval to exclude from the sale the TRB’s contingent judicial liabilities, including
those owing to RPN, et al.

-De Facto Mergers; View that to find the existence of a de facto merger, this Court must at least
ascertain the presence of the most essential element of a merger apart from compliance with the
legalities set forth under the law: the dissolution of the separate judicial personality of the target
corporation in fact, if not in law.

FACTS:

Traders Royal Bank (TRB) proposed to sell to petitioner Bank of Commerce (Bancommerce) for its
banking business consisting of specified assets and liabilities. Bancommerce agreed subject to prior
BSP’s approval of their Purchase and Assumption (P & A) Agreement.

The BSP approved that agreement subject to the condition that Bancommerce and TRB would set up
an escrow fund of P5O million with another bank to cover TRB liabilities for contingent claims that
may subsequently be adjudged against it, which liabilities were excluded from the purchase.
Bancommerce acquired TRB’s specified assets and liabilities, excluding liabilities arising from judicial
actions which were to be covered by the BSP-mandated escrow of ₱50 million, which shall be kept for
15 years in the trust department of any other bank acceptable to the BSP.

The BSP finally approved such agreement.

Shortly after, in Traders Royal Bank v. Radio Philippines Network (TRB v. RPN), this Court ordered
TRB to pay respondents RPN, et al. actual damages plus 12% legal interest and some amounts.

RPN, et al.filed a motion for execution against TRB before the RTC, and a Supplemental Motion for
Execution where they described TRB as “now Bank of Commerce” based on the assumption that TRB
had been merged into Bancommerce.

Bancommerce questioned the jurisdiction of the RTC over it and denied that there was a merger
between TRB and Bancommerce.

The RTC issued an Order granting and issuing the writ of execution to cover any and all assets of
TRB, “including those subject of the merger/consolidation in the guise of a Purchase and Sale
Agreement with Bank of Commerce, and/or against the Escrow Fund established by TRB and Bank
of Commerce with the MetroBank.”

This prompted Bancommerce to file a petition for certiorari with the CA assailing the RTC’s Order.
The CA denied the petition. The CA pointed out that the Decision of the RTC was clear in that
Bancommerce was not being made to answer for the liabilities of TRB, but rather the assets or
properties of TRB under its possession and custody.

The RTC granted RPN’s motion for alias writ of execution against Bancommerce based on the CA
Decision.

The RTC issued the alias writ, hence, Bancommerce filed on a motion to quash the same.

The RTC issued the assailed Order denying Bancommerce’s pleas. It ordered the release to the Sheriff
of Bancommerce’s “garnished monies and shares of stock or their monetary equivalent” and for the
sheriff to pay to the respondents’ attorney’s fees, appearance fees and litigation expenses.

Aggrieved, Bancommerce immediately assailed the RTC Orders to the CA via a petition for certiorari
under Rule 65. The CA dismissed the petition outright and denied Bancommerce’s motion for
reconsideration prompting it to come to this Court.

ISSUE:

Whether or not the CA gravely erred in failing to rule that the RTC’s Order of execution against
Bancommerce was a nullity because TRB v. RPN held that TRB had not been merged into
Bancommerce as to make the latter liable for TRB’s judgment debts.

RULING:

Merger is a re-organization of two or more corporations that results in their consolidating into a single
corporation, which is one of the constituent corporations, one disappearing or dissolving and the
other surviving.
To put it another way, merger is the absorption of one or more corporations by another existing
corporation, which retains its identity and takes over the rights, privileges, franchises, properties,
claims, liabilities and obligations of the absorbed corporation(s). The absorbing corporation continues
its existence while the life or lives of the other corporation(s) is or are terminated.

The Corporation Code requires the following steps for merger or consolidation:

(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include
any amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case
of consolidation, all the statements required in the articles of incorporation of a corporation.

(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must
be called and at least two (2) weeks’ notice must be sent to all stockholders or members, personally
or by registered mail. A summary of the plan must be attached to the notice. Vote of two-thirds of the
members or of stockholders representing two thirds of the outstanding capital stock will be needed.
Appraisal rights, when proper, must be respected.

(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by the
corporate officers of each constituent corporation. These take the place of the articles of incorporation
of the consolidated corporation, or amend the articles of incorporation of the surviving corporation.

(4) Submission of said articles of merger or consolidation to the SEC for approval.

(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks
before.

(6) Issuance of certificate of merger or consolidation.

Indubitably, it is clear that no merger took place between Bancommerce and TRB as the requirements
and procedures for a merger were absent. A merger does not become effective upon the mere
agreement of the constituent corporations. All the requirements specified in the law must be complied
with in order for merger to take effect. Section 79 of the Corporation Code further provides that the
merger shall be effective only upon the issuance by the Securities and Exchange Commission (SEC)
of a certificate of merger.

Here, Bancommerce and TRB remained separate corporations with distinct corporate personalities.
What happened is that TRB sold and Bancommerce purchased identified recorded assets of TRB in
consideration of Bancommerce’s assumption of identified recorded liabilities of TRB including booked
contingent accounts. There is no law that prohibits this kind of transaction especially when it is done
openly and with appropriate government approval.

In strict sense, no merger or consolidation took place as the records do not show any plan or articles
of merger or consolidation. More importantly, the SEC did not issue any certificate of merger or
consolidation.

On the other hand, the idea of a de facto merger came about because, prior to the present Corporation
Code, no law authorized the merger or consolidation of Philippine Corporations, except insurance
companies, railway corporations, and public utilities. And, except in the case of insurance
corporations, no procedure existed for bringing about a merger.
In his book, Philippine Corporate Law, Dean Cesar Villanueva explained that under the Corporation
Code, “a de facto merger can be pursued by one corporation acquiring all or substantially all of the
properties of another corporation in exchange of shares of stock of the acquiring corporation. The
acquiring corporation would end up with the business enterprise of the target corporation; whereas,
the target corporation would end up with basically its only remaining assets being the shares of stock
of the acquiring corporation.”

No de facto merger took place in the present case simply because the TRB owners did not get in
exchange for the bank’s assets and liabilities an equivalent value in Bancommerce shares of stock.
Bancommerce and TRB agreed with BSP approval to exclude from the sale the TRB’s contingent
judicial liabilities, including those owing to RPN, et al.

Herein petition is granted.

The enforcement, therefore, of the decision in the main case should not include the assets and
properties that Bancommerce acquired from TRB. These have ceased to be assets and properties of
TRB under the terms of the BSP-approved P & A Agreement between them. They are not TRB assets
and properties in the possession of Bancommerce.
Republic Planters Bank vs. Agana Case Digest

DOCTRINES
-A preferred share of stock, on one hand, is one which entitles the holder thereof to certain preferences
over the holders of common stock. The preferences are designed to induce persons to subscribe for
shares of a corporation. Preferred shares take a multiplicity of forms. The most common forms may
be classi-fied into two:
(1) preferred shares as to assets; and
(2) preferredshares as to dividends.
The former is a share which gives the holder thereof preference in the distribution of the assets of the
corporation in case of liquidation; the latter is a share the holder of which is entitled to receive
dividends on said share to the extent agreed upon before any dividends at all are paid to the holders
of common stock. There is no guaranty, however, that the share will receive any dividends.

-Preferences granted to preferred stockholders, moreover, do not give them a lien upon the property
of the corporation nor make them creditors of the corporation, the right of the former being always
subordinate to the latter. Dividends are thus payable only when there are profits earned by the
corporation and as a general rule, even if there are existing profits, the board of directors has the
discretion to determine whether or not dividends are to be declared. Shareholders, both common and
preferred, are considered risk takers who invest capital in the business and who can look only to
what is left after corporate debts and liabilities are fully paid.

-Redeemable shares are shares usually preferred, which by their terms are redeemable at a fixed date,
or at the option of either issuing corporation, or the stockholder, or both at a certain redemption
price; Redemption may not be made where the corporation is insolvent or if such redemption will
cause insolvency or inability of the corporation to meet its debts as they mature.

-A redemption by the corporation of its stock is, in a sense, a repurchase of it for cancellation.

Facts: On 18 September 1961, the Robes-Francisco Realty & Development Corporation (RFRDC)
secured a loan from the Republic Planters Bank in the amount of P120,000.00. As part of the proceeds
of the loan, preferred shares of stocks were issued to RFRDC through its officers then, Adalia F. Robes
and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to the full amount
of the loan, which is P120,000.00, the Bank lent such amount partially in the form of money and
partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par
value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were
in the name of Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares
in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the
following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly
dividend of 1%, cumulative and participating. xxx 2. That such preferred shares may be redeemed,
by the system of drawing lots, at any time after 2 years from the date of issue at the option of the
Corporation."

On 31 January 1979, RFRDC and Robes proceeded against the Bank and filed a complaint anchored
on their alleged rights to collect dividends under the preferred shares in question and to have the
bank redeem the same under the terms and conditions of the stock certificates. The bank filed a
Motion to Dismiss private respondents' Complaint on the following grounds: (1) that the trial court
had no jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under
substantive law; and (3) that the action was barred by the statute of limitations and/or laches. The
bank's Motion to Dismiss was denied by the trial court in an order dated 16 March 1979. The bank
then filed its Answer on 2 May 1979. Thereafter, the trial court gave the parties 10 days from 30 July
1979 to submit their respective memoranda after the submission of which the case would be deemed
submitted for resolution. On 7 September 1979, the trial court rendered the decision in favor of
RFRDC and Robes; ordering the bank to pay RFRDC and Robes the face value of the stock certificates
as redemption price, plus 1% quarterly interest thereon until full payment. The bank filed the petition
for certiorari with the Supreme Court, essentially on pure questions of law.

Issue:
Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes.
Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a
matter of right without necessity of a prior declaration of dividend.
Held:

1. While the stock certificate does allow redemption, the option to do so was clearly vested in the
bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise
provided in the stock certificate, the redemption rests entirely with the corporation and the
stockholder is without right to either compel or refuse the redemption of its stock. Furthermore, the
terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory
construction that the word "may" denotes discretion, and cannot be construed as having a mandatory
effect. The redemption of said shares cannot be allowed. The Central Bank made a finding that the
Bank has been suffering from chronic reserve deficiency, and that such finding resulted in a directive,
issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the President and
Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share,
on the ground that said redemption would reduce the assets of the Bank to the prejudice of its
depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason.
The directive issued by the Central Bank Governor was obviously meant to preserve the status quo,
and to prevent the financial ruin of a banking institution that would have resulted in adverse
repercussions, not only to its depositors and creditors, but also to the banking industry as a whole.
The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be
considered as an exercise of police power.

2. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit
the issuance of any stock dividend without the approval of stockholders, representing not less than
two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the
purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a
matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the
corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is
legal only when construed as requiring payment of interest as dividends from net earnings or surplus
only. In compelling the bank to redeem the shares and to pay the corresponding dividends, the Trial
committed grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the
terms and conditions specified in the stock certificate, as well as the clear mandate of the law.

-Dividends are thus payable only when there are profits earned by the corporation and as a general
rule, even if there are existing profits, the board of directors has the discretion to determine whether
or not dividends are to be declared.
-The redemption therefore is clearly the type known as “optional.” Thus, except as otherwise provided
in the stock certificate, the redemption rests entirely with the corporation and the stockholder is
without right to either compel or refuse the redemption of its stock.

-The redemption of said shares cannot be allowed. As pointed out by the petitioner, the Central Bank
made a finding that said petitioner has been suffering from chronic reserve deficiency.

-the petitioner bank prohibiting the latter from redeeming any preferred share, on the ground that
said redemption would reduce the assets of the Bank to the prejudice of its depositors and
creditors.Redemption of preferred shares was prohibited for a just and valid reason. The directive
issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent
the financial ruin of a banking institution that would have resulted in adverse repercussions, not only
to its depositors and creditors, but also to the banking industry as a whole.

RURAL BANK OF MILAOR v. OCFEMIA

FACTS:
The evidence presented by the respondents through the testimony of Marife O. Niño, shows that she
is the daughter of Francisca Ocfemia and the late Renato Ocfemia who died on July 23, 1994. The
parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and Felicisimo Ocfemia.
Marife O. Niño knows the five (5) parcels of land which are located in Bombon, Camarines Sur and
that they are the ones possessing them which were originally owned by her grandparents. During the
lifetime of her grandparents, respondents mortgaged the said five (5) parcels of land and two (2) others
to the Rural Bank of Milaor.

The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the mortgaged
properties consisting of 7 parcels of land and so the mortgage was foreclosed and thereafter ownership
thereof was transferred to the bank. Out of the 7 parcels that were foreclosed, 5 of them are in the
possession of the respondents because these 5 parcels of land were sold by the bank to the parents
of Marife O. Niño as evidenced by a Deed of Sale executed in January 1988.

The aforementioned 5 parcels of land subject of the deed of sale, have not been, however transferred
in the name of the parents of Merife O. Niño after they were sold to her parents by the bank because
according to the Assessor's Office the five (5) parcels of land, subject of the sale, cannot be transferred
in the name of the buyers as there is a need to have the document of sale registered with the Register
of Deeds of Camarines Sur.

In view of the foregoing, Marife O. Niño went to the Register of Deeds of Camarines Sur with the Deed
of Sale in order to have the same registered. The Register of Deeds, however, informed her that the
document of sale cannot be registered without a board resolution of the Bank. Marife Niño then went
to the bank, showed to it the Deed of Sale, the tax declaration and receipt of tax payments and
requested the bank for a board resolution so that the property can be transferred to the name of
Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other respondents
having died already.

Despite several requests, the bank refused her request for a board resolution and made many alibis.
She was told that the bank had a new manager and it had no record of the sale.
ISSUE:
Whether the board of directors of a rural banking corporation be compelled to confirm a deed of
absolute sale of real property which deed of sale was executed by the bank manager without prior
authority of the board of directors of the rural banking corporation

HELD:

Yes, the board of directors can be compelled to confirm a deed of absolute sale even though the bank
manager executed such deed without prior authority from the banking corporation.

The Supreme Court ruled that the bank acknowledged, by its own acts or failure to act, the authority
of the manager to enter into binding contracts. After the execution of the Deed of Sale, respondents
occupied the properties in dispute and paid the real estate taxes due thereon. If the bank management
believed that it had title to the property, it should have taken some measures to prevent the
infringement or invasion of its title thereto and possession thereof.

In this light, the bank is estopped from questioning the authority of the bank manager to enter into
the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, it holds the agent out to the public as possessing the power
to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agent's authority.

Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a
clear legal duty to issue the board resolution sought by respondents. Having authorized her to sell
the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full
use.

In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the
due execution of the said contract. Such admission means that it acknowledged that Tena was
authorized to sign the Deed of Sale on its behalf.13 Thus, defenses that are, inconsistent with the
due execution and the genuineness of the written instrument are cut off by an admission implied
from a failure to make a verified specific denial.

A bank is liable to innocent third persons where representation is made in the course of its normal
business by an agent like Manager Tena, even though such agent is abusing her authority.

where similar acts have been approved by the directors as a matter of general practice, custom, and
policy, the general manager may bind the company without formal authorization of the board of
directors.

Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official
capacity to manage its affairs, his authority to represent the corporation may be implied from the
manner in which he has been permitted by the directors to manage its business