CIR v club Filipino Manuel dulay Philips Export BV v CA PC Javier and Sons v CA !

all v Piccio Salvatierra v "arlitos Chain# $ai She% School v CA &'() S *+,.o/ano v delos Santos .oyola "rand Villas !o0eo1ners south Assoc Inc &South Assoc- v CA &)(2 S 2+'Fleischer v Botica 3olasco "ov4t o5 Phils V El !o#ar "uan/on v Re#ister o5 6eeds 7ra0at Mercantile Inc v CA Ca#ayan Fishin# v Sandi%o RP v Aco8e Minin# Madri#al 9 Co v :a0ora "ov4t o5 Philippines v El !o#ar Pirovano v 6ela Ra0a Ra0ire/ v ;rientalist Co 9 Fernande/ .ope/ v Ericta Expertravel 9 7ours v CA and $orean Airlines Pri0e <hite Ce0ent v IAC =u Chuc% v $on# .i Po Board o5 .i>uidators v $ala1 :a0boan#a 7ransportation v Bachrach Motor Ponce et al v Encarnacion 6etective 9 Protective Bureau v Cloribel "o%on#1ei v SEC Roxas v 6ela Rosa An#eles v Santos 6ela Ra0a et al v Ma?ao Su#ar Everett v Asia Ban%in# Montelibano et al v Bacolod?Murcia Millin# Co Inc Steinber# v Velasco Mead v EC McCullou#h Barretto v .a Previsora Filipina Pardo v !ercules .u0ber "on/ales v P3B Vera#uth v Isabela Su#ar Co "o%on#1ei v SEC Evan#elista et al v Santos Republic Ban% v Cuaderno Republic Ban% v Cuaderno Bayla et al v Silan# 7ra55ic Co Inc Benito v SEC Velasco v Poi/at .in#ayen "ul5 Electric v Balta/ar 6a Silva v Aboiti/ 9 Co Inc 3ational Exchan#e v 6exter Fua Cun v Su00ers Balta/ar v .in#ayen "ul5 Electric 3ava v Peers Mar%etin# Corp 3ielson 9 Co v .epanto Consolidated Minin# Co Philippine 7rust Co v Rivera Ra/on v IAC Rural Ban% o5 Salinas v CA Financin# Corporation v 7eodoro Republic v Bisaya .and 7rans Co Pepsi?Cola Products Phils v CA 3ational Abaca v Pore Republic v Mars0an 6evt Co Reyes v Blouse et al Ed1ard 3ell Co0pany v Paci5ic Far0s Inc Colu0bia Pictures v CA "eneral "ar0ents Corp v 6irector o5 Patents .e Che0ise .acoste v Fernande/

Mentholatu0 v Man#ali0an A#ilent 7echnolo#ies Sin#apore v Inte#rated Silicon 7echnolo#y Phils Merrill .ynch Futures v CA Anta0 Consolidated v CA Municipality of Malabang vs. Benito (1969) Lee vs. CA (1992)

Western Institute of Technology v Salas (1997) Bitong v CA (1998)

Tan v SEC (1992) Sunset View Condominium Corp v Campos elano v. CA (19!1 CL"M"N#"$ "#. AL. v. CA (199% A&&'C(A#") BAN* v. CA (199! Co++unications Mate,ials vs. CA$ (1996) San Juan Structural and Steel Fabricatiors vs. CA (1998)
Uichico, et al. vs. NLRC Tramat Mercantile, Inc. vs. CA

Apocada v NLRC

C(R v Club -ilipino. The "Club Filipino, nc. de Cebu," (Club, !or short), is a civic corporation, o"nin# and operatin# a club house, a bo"lin# alle$, a #ol! course, and a bar%restaurant "here it sells "ines and li&uors, so!t drin's, (eals and short orders to its (e(bers and their #uests. The bar%restaurant "as a necessar$ incident to the operation o! the club and %its #ol!%course. The club is operated (ainl$ "ith !unds derived !ro( (e(bership !ees and dues. )hatever pro!its it had, "ere used to de!ra$ its overhead e*penses and to i(prove its #ol!%course. n 19+1, as a result o! a capital surplus, arisin# !ro( the re%valuation o! its real properties, the value or price o! "hich increased, the Club declared stoc' dividends, but no actual cash dividends "ere distributed to the stoc'holders. n 19+-, a . / a#ent discovered that the Club has never paid percenta#e ta* on the #ross receipts o! its bar and restaurant. The Collector o! nternal /evenue assessed a#ainst and de(anded !ro( the Club, percenta#e ta*es on its #ross receipts as "ell as !i*ed ta*es and co(pro(ise penalt$. The Club "rote the Collector, re&uestin# !or the cancellation o! the assess(ent. The re&uest havin# been denied, the Club !iled the instant petition !or revie". 0 )12 the respondent Club is liable !or the pa$(ent o! the su( o! 31-,458.86, as !i*ed and percenta#e ta*es and surchar#es prescribed in sections 18-, 187 and 191 o! the Ta* Code, under "hich the assess(ent "as (ade, in connection "ith the operation o! its bar and restaurant, durin# the periods (entioned 80 t has been held that the liabilit$ !or !i*ed and percenta#e ta*es, as provided b$ these sections, does not ipso !acto attach b$ (ere reason o! the operation o! a bar and restaurant. For the liabilit$ to attach, the operator thereo! (ust be en#a#ed in the business as a bar'eeper and restaurateur. The plain and ordinar$ o! a business is restricted to activities or a!!airs "here pro!it is the purpose or livelihood is the (otive, and the ter( business "hen used "ithout &uali!ication, should be construed in its plain and ordinar$ (eanin#, restricted to activities !or pro!it or livelihood. 8avin# !ound as a !act that the Club "as or#ani9ed to develop and cultivate sports o! all, class and deno(ination, !or the health!ul recreation and entertain(ent o! its stoc'holders and (e(bers, that upon its dissolution, its re(ainin# assests, a!ter pa$in# debts, shall be donated to a charitable 3hilippine nstitution in Cebu, that it is operated (ainl$ "ith !unds derived !ro( (e(bership !ees and dues, that the Club:s bar and restaurant catered onl$ to its (e(bers and their #uests, that there "as in !act no cash dividend distribution to its stoc'holders and that "hatever "as derived on retail !ro( its bar and restaurant "as used to de!ra$ its overall overhead e*penses and to i(prove its #ol!%course (cost%plus%e*penses%basis), it stands to reason that the Club is not en#a#ed in the business o! an operator o! bar and restaurant (sa(e authorities, cited above). t is conceded that the Club derived pro!it !ro( the operation o! its bar and restaurant, but such !act does not necessaril$ convert it into a pro!it%(a'in# enterprise. The bar and restaurant are necessar$ ad;uncts o! the Club to !oster its purposes and the pro!its derived there!ro( are necessaril$ incidental to the pri(ar$ ob;ect o! developin# and cultivatin# sports !or the health!ul recreation and entertain(ent o! the stoc'holders and (e(bers. That a Club (a'es so(e pro!it, does not (a'e it a pro!it (a'in# club. The !act that the capital stoc' o! the respondent Club is divided into shares, does not detract !ro( the !indin# o! the trial court that it is not en#a#ed in the business o! operator o! bar and restaurant. )hat is deter(inative o! "hether or not the Club is en#a#ed in such business is its ob;ect or purpose, as stated in its articles and b$%la"s. t is a !a(iliar rule that the actual purpose is not controlled b$ the corporate !or( or b$ the co((ercial aspect o! the business prosecuted, but (a$ be sho"n b$ e*trinsic evidence, includin# the b$%la"s and the (ethod o! operation. <oreover, !or a stoc' corporation to e*ist, t"o re&uisites (ust be co(plied "ith, to "it0 (1) a capital stoc' divided into shares and (-) an authorit$ to distribute to the holders o! such shares, dividends or allot(ents o! the surplus pro!its on the basis o! the shares held (see. 7, Act 2o. 16+9). n the case at bar, "hile the respondent Club:s capital stoc' is divided into shares, no"here in its articles o! incorporation or b$%la"s could be !ound an authorit$ !or the distribution o! its dividends or surplus pro!its. Strictl$ spea'in#, it cannot, there!ore, be considered a stoc' corporation, "ithin the conte(plation o! the corporation la". "A ta* is a burden, and, as such, it should not be dee(ed i(posed upon !raternal, civic, non%pro!it, non% stoc' or#ani9ations, unless the intent to the contrar$ is (ani!est and patent."

C(R vs. Club -ilipino$ (nc de Cebu (196.) Club Filipino is a civic corporation or#ani9ed to develop and cultivate sport o! all class and deno(ination !or the health!ul recreation and entertain(ent o! its S8 and (e(bers. ts A= and b$%la"s are silent as to dividends and their distribution but it "as provided that

upon its dissolution, the Club>s re(ainin# assets a!ter pa$in# debts shall be donated to a charitable 3hil. nstitution. 8?@A0 Club Filipino is a non%stoc' corporation. Accordin# to Section 7 o! the Corporation Code, there are t"o ele(ents !or a stoc' corporation to e*ist0 1) capital stoc' divided into shares, and -) an authorit$ to distribute to the holders o! such shares, dividends or allot(ents o! the surplus pro!its on the basis o! shares held. 2o"here in Club Filipino>s A= or .@ could be !ound an authorit$ !or the distribution o! its dividends or surplus pro!its.
Manual R. )ulay "nt. (nc. v. CA (..%& 6/!). 3etitioner corporation throu#h its president, <anuel Aula$, obtained various loans !or the construction o! its hotel pro;ect, Aula$ Continental 8otel (no" Frederic' 8otel). t even had to borro" (one$ !ro( petitioner Bir#ilio Aula$ to be able to continue the hotel pro;ect. As a result o! said loan, petitioner Bir#ilio Aula$ occupied one o! the unit apart(ents o! the sub;ect propert$ since 19C7 "hile at the sa(e ti(e (ana#in# the Aula$ Apart(ent as his shareholdin#s in the corporation "as subse&uentl$ increased b$ his !ather. <anuel Aula$ b$ virtue o! .oard /esolution 2o. 185 o! petitioner corporation sold the sub;ect propert$ to private respondents spouses, <aria Theresa and Castrense Beloso in the a(ount o! 3744,444.44. The parties then e*ecuted a <e(orandu( to the Aeed o! Absolute, #ivin# <anuel Aula$ "ithin t"o (-) $ears or until Aece(ber 9, 19C9 to repurchase the sub;ect propert$ !or 3-44,444.44 "hich "as ho"ever, not annotated. Therea!ter private respondent <aria Beloso, "ithout the 'no"led#e o! <anuel Aula$, (ort#a#ed the sub;ect propert$ to private respondent <anuel A. Torres !or a loan o! 3-+4,444.44 "hich "as dul$ annotated. The sub;ect propert$ "as sold on April 1, 19C8 to private respondent Torres as the hi#hest bidder in an e*tra;udicial !oreclosure, upon de!ault o! Beloso to pa$ the loan. Beloso then e*ecuted a Aeed o! Absolute Assi#n(ent o! the /i#ht to /edee( in !avor o! <anuel Aula$ assi#nin# her ri#ht to repurchase the sub;ect propert$ !ro( private respondent Torres. As neither private respondent <aria Beloso nor her assi#nee <anuel Aula$ "as able to redee( the sub;ect propert$ "ithin the one $ear statutor$ period !or rede(ption, private respondent Torres sou#ht to consolidate his o"nership over the propert$. 3etitioner Bir#ilio Aula$ appeared in court to intervene in said case alle#in# that <anuel Aula$ "as never authori9ed b$ the petitioner corporation to sell or (ort#a#e the sub;ect propert$, and sou#ht to cancel the sheri!! sale to Torres and re#ain possession o! the propert$. TC rules i!o Torres, Beloso et al. The corporation and Bir#ilio Aula$ contend that the respondent court had acted "ith #rave abuse o! discretion "hen it applied the doctrine o! piercin# the veil o! corporate entit$ in the instant case considerin# that the sale o! the sub;ect propert$ bet"een private respondents spouses Beloso and <anuel Aula$ has no bindin# e!!ect on petitioner corporation as .oard /esolution 2o. 18 "hich authori9ed the sale o! the sub;ect propert$ "as resolved "ithout the approval o! all the (e(bers o! the board o! directors and said .oard /esolution "as prepared b$ a person not desi#nated b$ the corporation to be its secretar$. 80 n the instant case, petitioner corporation is classi!ied as a close corporation and conse&uentl$ a board resolution authori9in# the sale or (ort#a#e o! the sub;ect propert$ is not necessar$ to bind the corporation !or the action o! its president. At an$ rate, a corporate action ta'en at a board (eetin# "ithout proper call or notice in a close corporation is dee(ed rati!ied b$ the absent director unless the latter pro(ptl$ !iles his "ritten ob;ection "ith the secretar$ o! the corporation a!ter havin# 'no"led#e o! the (eetin# "hich, in this case, petitioner Bir#ilio Aula$ !ailed to do. t is relevant to note that althou#h a corporation is an entit$ "hich has a personalit$ distinct and separate !ro( its individual stoc'holders or (e(bers, the veil o! corporate !iction (a$ be pierced "hen it is used to de!eat public convenience, ;usti!$ "ron#, protect !raud or de!end cri(e. The privile#e o! bein# treated as an entit$ distinct and separate !ro(. its stoc'holders or (e(bers is there!ore con!ined to its le#iti(ate uses and is sub;ect to certain li(itations to prevent the co((ission o! !raud or other ille#al or un!air act. )hen the corporation is used (erel$ as an alter e#o or business conduit o! a person, the la" "ill re#ard the corporation as the act o! that person. The Supre(e Court had repeatedl$ disre#arded the separate personalit$ o! the corporation "here the corporate entit$ "as used to annul a valid contract e*ecuted b$ one o! its (e(bers. 3etitioners: clai( that the sale o! the sub;ect propert$ b$ its president, <anuel Aula$, to private respondents spouses Beloso is null and void as the alle#ed .oard /esolution 2o. 18 "as passed "ithout the 'no"led#e and consent o! the other (e(bers o! the board o! directors cannot be sustained. Bir#ilio is ver$ (uch priv$ to the transactions involved. To be#in "ith, he is an incorporator and one o! the board o! directors desi#nated at the ti(e o! the or#ani9ation o! <anuel /. Aula$ ?nterprises, nc. n ordinar$ parlance, the said entit$ is loosel$ re!erred to as a !a(il$ corporation:. The no(enclature, i! i(precise, ho"ever, !airl$ re!lects the cohesiveness o!

a #roup and the parochial instincts o! the individual (e(bers o! such an a##rupation o! "hich <anuel /. Aela$ ?nterprises, nc. is t$pical0 !our%!i!ths o! its incorporators bein# close relatives na(el$, three (7) children and their !ather "hose na(e identi!ies their corporation. 3etitioner corporation is liable !or the act o! <anuel Aula$ and the sale o! the sub;ect propert$ to private respondents b$ <anuel Aula$ is valid and bindin#. The sale bet"een <anuel /. Aula$ ?nterprises, nc. and the spouses <aria Theresa B. Beloso and Castrense C. Beloso, "as a corporate act o! the !or(er and not a personal transaction o! <anuel /. Aula$. This is so because <anuel /. Aula$ "as not onl$ president and treasurer but also the #eneral (ana#er o! the corporation. The corporation, "as a closed !a(il$ corporation, "here the incorporators and directors belon# to one sin#le !a(il$. t cannot be concealed that <anuel /. Aula$ as president, treasurer and #eneral (ana#er al(ost had absolute control over the business and a!!airs o! the corporation. 01ilips "2po,t B3 v CA (.46 & 5%/) . 3hilips o! the 2etherlands !iles an action "ith the S?C to delete the na(e D3hilipsE !ro( the corporate na(e o! Standard 3hilips Co(pan$. Standard re!uses, and 3hilips sou#ht an in;unction to en;oin Standards !ro( the use i! the na(e 3hilips. S?C 8earin# =!!icer dis(isses 3hilips petition, ar#uin# that Sec 18 o! Corpo Code is onl$ applicable "hen the corporate na(es are identical. S?C en banc a!!ir(s 8=>s decision, corporate na(es contain at least t"o di!!erent "ords and rules out con!usion. CA dis(isses 3hilips petition, sa$in# that Standard>s products are unrelated and do not co(pete "ith 3hilips products and "ould not (islead consu(ers. 0 )12 Standard>s use o! the "ord 3hilips in its corporate na(e is unla"!ul and (a$ be re(oved under the Corpo Code. 80 Fes. The corporation>s ri#ht to use its corporate na(e is a propert$ ri#ht, a ri#ht in re( "hich it (a$ assert and protect a#ainst the "orld. A na(e is secularl$ i(portant as necessar$ to the ver$ e*istence o! a corporation. ts na(e is one o! its attributes, an ele(ent o! its e*istence, and essential to its identit$. G/0 each corp (ust have a na(e b$ "hich it is to sue and be sued and do all le#al acts. A corp ac&uires its na(e b$ choice and need not select a na(e identical "ith or si(ilar to one alread$ appropriated. To co(e under the application o! Sec 18 o! the Corpo Code, - re&uisites (ust be proven0 (1) corp has a prior ri#ht over the use o! the na(e, or, (-) proposed na(e is either identical or deceptivel$1con!usin#l$ si(ilar, or, (7) it is patentl$ deceptive, con!usin# or contrar$ to e*istin# la". The ri#ht to e*clusive use o! corporate na(e is deter(ined b$ priorit$ o! adoption. 3hilips "as incorporated on 19+5 and Standard onl$ - $ears later. n deter(inin# the e*istence o! con!usin# si(ilarit$ in corporate na(es, the test is "1n the si(ilarit$ is such as to (islead a person usin# ordinar$ care and discri(ination. A readin# o! the na(es o! 3hilips and its subsidiar$ co(panies indicate that 3hilips is indeed a do(inant "ord in that all co(panies a!!iliated "ith the principal corp are 'no"n in the /3. Given also Standard>s pri(ar$ purpose, nothin# could prevent it !ro( dealin# in the sa(e line o! business o! electrical devices, products, or supplies "hich !all under its pri(ar$ purposes. Standard>s use also tends to sho" its intention to ride on the popularit$ and established #ood"ill o! 3hilips. Further(ore, because 3hilips is a trade(ar' or trade na(e re#istered as !ar bac' as 19--, the$ have the e*clusive ri#ht to use the na(e !ree !ro( in!rin#e(ent b$ si(ilarit$.

01ilips "2po,t B3 (0"B3) v CA (199.) 3?.B is a !orei#n corp under the la" o! 2etherlands, althou#h not en#a#ed in business in the 3hils. t is the re#istered o"ner o! the 3hilips trade(ar', and o"ns t"o local co(panies "ith the na(e 3hilips also. 3?.B as'ed the cancellation o! the "ord 3hilips !ro( Standard 3hilips, a local (anu!acturer, alle#in# in!rin#e(ent o! its e*clusive ri#ht to use the sa(e. S?C and CA ruled !or Std 3hilips, sa$in# there "as no con!usion (unli'e in Converse case). 8eld0 Corp>s ri#ht to use its corp and trade na(e is a propert$ ri#ht, a ri#ht in re(. General /ule0 Corp (ust have a na(e b$ "hich it is to sue and be sued and do all le#al acts. Accd# to Corp Code, no corp na(e (a$ be allo"ed 1) i! co(plainant corp ac&uired a prior ri#ht over na(e and -) proposed na(e is a) identical or b) deceptivel$ or con!usin#l$ si(ilar or c) patentl$ deceptive, con!usin# or contrar$ to e*istin# la" 3?.B>s local co(panies "ere incorporated -5 $rs be!ore Std 3hilips.

T?ST =F C=2FHS 2G S < @A/ TF 2 C=/3 2A<?S0 )hether si(ilarit$ is such as to (islead a person usin# ordinar$ care and discri(ination 3hilips is the do(inant "ord. 2o need to prove that there "as actual con!usion, as lon# as probable or li'el$ to occur. Std 3hilips> purpose, as per its articles o! incorp also includes sale and (anu!acture o! electrical products, "hich is 3?.B>s line o! business. ?ven i! S?C #uidelines (andate that a corp could add - other "ords to proposed na(e, onl$ one "ord DStdE "as added. DCorpE not counted. 2ote0 A prior user can consent to the use o! its na(e

0C 6avie, and &ons v CA. 80 Fro( the !ore#oin# docu(ents, it cannot be denied that petitioner corporation "as a"are o! First Su((a Savin#s and <ort#a#e .an':s chan#e o! corporate na(e to 3A C Savin#s and <ort#a#e .an', nc. Ino"in# !ull$ "ell o! such chan#e, petitioner corporation has no valid reason not to pa$ because the G@F loans "ere applied "ith and obtained !ro( First Su((a Savin#s and <ort#a#e .an'. First Su((a Savin#s and <ort#a#e .an' and 3A C Savin#s and <ort#a#e .an', nc., are one and the sa(e ban' to "hich petitioner corporation is indebted. A chan#e in the corporate na(e does not (a'e a ne" corporation, "hether e!!ected b$ a special act or under a #eneral la". t has no e!!ect on the identit$ o! the corporation, or on its propert$, ri#hts, or liabilities. The corporation, upon such chan#e in its na(e, is in no sense a ne" corporation, nor the successor o! the ori#inal corporation. t is the sa(e corporation "ith a di!!erent na(e, and its character is in no respect chan#ed. 7all v 0iccio. The 8alls, .ro"ns, Chap(an and Abella si#ned and ac'no"led#ed articles o! incorporation o! the Far ?astern @u(ber and Co((ercial Co nc. 3endin# action on the articles, the .ro"ns, Chap(an, and Abella sued the 8alls in the TC to dissolve "hat the$ call Dan unre#istered partnershipE because o! bitter dissension, (is(ana#e(ent, and !raud. 8all &uestions the ;urisdiction o! the TC over their dispute. Jud#e 3iccio then ordered the dissolution o! the partnership and appointed a receiver. The 8alls !iled a counterbond to dischar#e the receiver "hich "as denied b$ 3iccio. 0 )12 the TC had ;urisdiction over the case, considerin# Far ?astern @u(ber "as a de !acto corporation "hich can onl$ be dissolved in a &uo "arranto proceedin# in accordance "ith the Corpo @a". )12 the .ro"ns, upon si#nin# the articles o! inc, are estopped !ro( clai(in# that it is not a corporation. 80 (1) the rule on de !acto corps are not applicable to the case. 2ot havin# obtained the certi!icate o! incorporation, Far ?astern @u(ber and even it stoc'holders cannot clai( in GF to be a corporation. t is the issuance o! the certi!icate o! incorporation that calls a corporation into bein#. The i((unit$ o! collateral attac' is #ranted to corps clai(in# in GF to be a corporation. Further(ore, the corporation is not a part$ to the suit, it bein# a liti#ation bet stoc'holders o! the alle#ed corporation !or the purpose o! obtainin# its dissolution. ?ven the e*istence o! a de ;ure corp (a$ be ter(inated in a private suit bet"een the stoc'holders "ithout need !or inter!erence b$ the State. The petitioners also have their re(ed$ b$ appealin# the order o! dissolution at the proper ti(e. (-) Far ?astern not bein# a de !acto corp, the principle o! corporation b$ estoppel doesn>t also appl$. The co(plainin# partners have not represented the(selves that the$ "ere incorporated, and nobod$ "as led to believe an$thin# to his pre;udice and da(a#e. &alvatie,,a v a,litos$ et. al. Salvatierra entered into a lease contract "ith the 3hil. Fibers 3roducers Co. nc, alle#edl$ a corporation dul$ or#ani9ed and re#istered under the la"s o! /3, "ith /e!uer9o as its president. A(on# the obli#ations in the contract "ere0 period o! lease is 14 $ears, land "ould be planted "ith 'ena!, ra(ie, or other crops, the lessor "ould be entitled to 74J o! net inco(e and lessee should declare at the earliest possible ti(e the inco(e derived there!ro(. 3F3 !ailed to !ul!ill the obli#ations and Salvatierra sued the corp and /e!uer9o in the /TC !or an accountin#, rescission and da(a#es. TC #ranted her petition, but /e!uer9o countered that decision "as void "ith respect to hi(, there bein# no alle#ation as to his personal liabilit$ and that "hile he "as a si#nator$ to the contract, he did so in his capacit$ as president. TC #ranted his (otion and released all properties levied b$ its earlier ;ud#(ent. Salvatierra appealed, clai(in# that her !ailure to alle#e his personal liabilit$ "as because all this ti(e she "as under the i(pression that the 3F3 represented b$ /e!uer9o "as a dul$ re#istered corporation, but a subse&uent in&uir$ "ith the S?C revealed other"ise. 80 G/Ka person "ho contracted or dealt "ith an association in such a "a$ as to reco#ni9e its e*istence as a corporate bod$ is estopped !ro( den$in# the sa(e in an action arisin# out o! such dealin#L but this doctrine (a$ not be held to be applicable "here !raud ta'es a part in the transaction. A stoc'holder cannot be held liable !or an$ !inancial obli#ation b$ the corporation in e*cess o! his unpaid subscription. .ut this rule is understood to re!er (erel$ to re#istered corporations and cannot be (ade applicable to the liabilit$ o! (e(bers o! an unincorporated association. This is

because such unincorporated association is inco(petent to act and appropriate !or itsel! the po"ers and attributes o! a corporation and cannot create a#ents or con!er authorit$. Thus those "ho act or purport to act as its representatives or a#ents do so "ithout authorit$ and at their o"n ris'. Considerin# that /e!uer9o "as the (ovin# spirit behind the consu((ation o! the lease a#ree(ent b$ actin# as the representative o! 3F3, his liabilit$ cannot be li(ited or restricted to that i(posed upon corporate shareholders. n actin# in behal! o! a corporation he 'ne" to be unre#istered, he assu(ed the ris' o! reapin# the conse&uential da(a#es or resultant ri#hts i! an$ arisin# out o! the transaction. C1aing *ai &1e8 &c1ool v CA (1/. & 9!9). ?le(entar$ schoolteacher Fausto =h, a teachin# in the Chian# Iai She' School in Sorso#on !or 77 $ears, "as su((aril$ dis(issed !ro( the school. n her suit a#ainst the school she de(anded separation pa$, SSS bene!its, and da(a#es. She i(pleaded the other o!!icials o! the school. TC dis(issed the co(plaint but "as reversed b$ the CA "hich held the school liable, but not the school o!!icials. 0 )12 a school that has not been incorporated (a$ be sued b$ reason alone o! its lon# continued e*istence. 80 School (a$ be sued. The school is #overned b$ Act -C45 as a(ended b$ CA 184. 8avin# reco#ni9ed b$ the #overn(ent, it "as under obli#ation to incorporate under the Corporation @a" "ithin 94 da$s !ro( reco#nition. Althou#h in e*istence since 197-, it had never (ade an$ atte(pt to incorporate, and thus cannot invo'e its o"n nonco(pliance "ith the la" to i((uni9e it !ro( =h>s co(plaint. 8avin# contracted "ith =h !or 7- $ears "hile representin# itsel! as possessed o! ;uridical personalit$, the school is no" estopped !ro( den$in# such personalit$.

Lo:ano v delos &antos (./5 &5%.). Case involves a dispute bet"een t"o leaders o! ;eepne$ associations. @o9ano is president o! Iapatiran# <abalacat%An#eles JAA or IA<AJAA "hile Anda is president o! the Sa(ahan# An#eles%<abalacat J=AA or SA<AJ=AA. The t"o or#ani9ations (er#ed to !or( the Hni!ied An#eles%<abalacat J=AA or H<J=AA. @o9ano and Anda ran !or president o! the ne" or#ani9ation and @o9ano "on. Anda protested, alle#in# !raud and re!used to reco#ni9e the results o! the election. Anda also continued collectin# dues !ro( the (e(bers o! the SA<AJ=AA despite several de(ands to desist. @o9ano sues Anda in the TC, but Anda clai(s TC has no ;urisdiction, onl$ the S?C. <CTC rules i!o o! @o9ano, but "as reversed upon appeal b$ the /TC, "hich held the dispute to be intracorporate. 0 )12 the S?C or the TC has ;urisdiction over the dispute. 80 2ot intracorporate, S?C has no ;urisdiction. The ;urisdiction o! the S?C is deter(ined b$ t"o ele(ents0 (1) status or relationship o! the parties, "hich (ust arise out o! intracorporate or partnership relations bet"een the parties (-) nature o! the &uestion "hich is the sub;ect o! the controvers$, "hich re&uires that the dispute be intrinsicall$ connected "ith the re#ulation o! the corporation1association or deal "ith the internal a!!airs o! the corporation. There is no intracorporate dispute bet"een the parties in this case, because it arose out o! their plan to consolidate their associations, "hich is still a proposal and has not $et been approved b$ the S?C nor has the articles been sub(itted. Consolidation onl$ beco(es e!!ective not upon (ere a#ree(ent o! the (e(bers but onl$ upon issuance o! the certi!icate o! consolidation b$ the S?C. Thus the IA<AJAA and the SA<AJ=AA are t"o separate entities, and the dispute o! the parties in the case is not "ithin an$ o! the associations (entioned. t is bet"een (e(bers o! separate and distinct associations. The doctrine o! incorporation b$ estoppel advance b$ Anda is also not applicable, "hich is !ounded on principles o! e&uit$ and is desi#ned to prevent in;ustice and un!airness. t applies "hen persons assu(e to !or( corporations and e*ercise corporate !unctions and enter into business relations "ith third persons. )here there is no third person involved and the con!lict arises onl$ a(on# those assu(in# the !or( o! a corporation and "ho have 'no"led#e that it is not incorporated, there is no corporation b$ estoppel.

Lo:ano vs. delos &antos (199/) This case involved t"o incorporated drivers> associations that decided to unite and elect one set o! o!!icers to be #iven authorit$ to collect the dail$ dues o! the drivers "ho are (e(bers o! the consolidated association. 8?@A0 Aoctrine o! estoppel applies "hen persons assu(e to !or( a corporation and e*ercise corporate !unctions and enter into business relations "ith third persons. )here there are no third persons involved and the con!lict arises onl$ a(on# those assu(in# to !or( a corporation, "ho there!ore 'no" that it has not been re#istered, there is no corporation b$ estoppel.
Loyola ,and 3illas 7o+eo;ne,s sout1 Assoc (nc (&out1 Assoc) v CA (./6 & 6!1). @GB8A is the association o! ho(eo"ners and residents o! the @o$ola Grand Billas, dul$ re#istered "ith the 8 GC as the sole ho(eo"ners assoc in the @GB, but did not !ile its corporate

b$%la"s pro(ptl$. )hen it did atte(pt to !ile, - other assoc "ere alread$ in e*istenceKthe 2orth Assoc and the South AssocKeach "ith + re#istered ho(eo"ners "ho "ere also incorporators and o!!icers thereo!. 8 GC clai(s the @GB8A has been auto(aticall$ dissolved !or its !ailure to !ile its corporate b$%la"s and non%user o! the corporate charter. @GB8A !iles a co(plaint "ith the 8 GC, "hich the latter reco#ni9es in its rulin# and revo'es the certi!icates o! re#istration o! the 2orth and South Assoc. South appeals to Appeals .oard o! 8 GC, and upon dis(issal, appeals "ith CA. CA dis(isses appeal, holdin# that althou#h the Corpo Code does not provide !or auto(atic dissolution o! the corporation as a result o! dela$ in !ilin# o! b$%la"s, the S?C has the po"er to suspend or revo'e certi!icates o! re#istration, one o! the #rounds o! "hich is !ailure to !ile b$%la"s. .ut since there "as no sho"in# the @GB8A >s re#istration "as validl$ revo'ed, it continued to be the reco#ni9ed assoc in @GB. 0 )12 @GB8A >s !ailure to !ile its b$% la"s "ithin the period prescribed b$ the Corpo Code had the e!!ect o! auto(aticall$ dissolvin# the corporationM 80 2o. Sec 65 re&uirin# !ilin# o! b$la"s reveals the le#islative intent to attach a director$, not a (andator$, (eanin# o! the "ord D(ust.E .$%la"s (a$ be necessar$ !or the #overn(ent o! the corporation but these are (erel$ subordinate to the articles o! incorporation as "ell as to the Corpo Code and related statutes. n so(e cases, the b$ la"s "ere considered unnecessar$ to corporate e*istence or to the valid e*ercise o! corporate po"ers. The !ailure to e*ercise the po"er "ill be ascribed to (ere non%action and "ill no render void an$ acts o! the corporation "hich are other"ise valid. There can also be no auto(atic dissolution "ithout notice and co(pliance "ith the re&uire(ents o! due process. The Court also stressed that substantial co(pliance are (ere conditions subse&uent and not prere&uisites !or ac&uisition o! corporate responsibilit$.

Loyola ,and 3illas 7o+eo;ne,s Assn v. CA (199/)

The Supre(e Court held that althou#h the Corporation Code re&uires the !ilin# o! b$%la"s "ithin one (onth a!ter the issuance o! the Certi!icate o! ncorporation, it does not e*pressl$ provide !or the conse&uences o! non%!ilin# "ithin the said period. Failure to !ile the b$%la"s "ithin that period does not i(pl$ the "de(ise" o! the corporation. .$%la"s (a$ be re&uired b$ la" !or an orderl$ #overnance and (ana#e(ent o! corporations but the$ are not essential to corporate birth. There!ore, !ailure to !ile the( "ithin the period re&uired b$ la" b$ no (eans tolls the auto(atic dissolution o! a corporation.
-leisc1e, v Botica Nolasco . Fleischer "as the o"ner and trans!eree, !or valuable consideration, o! + shares o! stoc' o! the .otica 2olasco Corp, trans!erred to hi( b$ the ori#inal o"ner. The Corporation ho"ever invo'es Article 1- o! its corporate b$%la"s, "hich e!!ectivel$ #ives the corporation a pre!erential ri#ht o! the shares in &uestion. t clai(s it has a pre!erential ri#ht to bu$ the shares !ro( the ori#inal o"ner. )hen Fleischer re&uested .otica to re#ister his shares, the latter re!used, and Fleischer sues in the TC. TC ruled i!o Fleischer, holdin# that the &uestioned Art 1- is in direct con!lict "ith Sec 17 o! Act 16+9. 0 )12 Art 1- o! the b$%la"s o! the corporation is in direct con!lict "ith the Corporation @a"M 80 Fes. The Corpo @a" at the ti(e provides in Sec 17 that ever$ corporation has the po"er to (a'e their o"n b$%la"s, provided the$ are not inconsistent "ith an$ e*istin# la", #overnin# a(on# others the trans!er o! its stoc'. This section does not conte(plate an$ restriction on ho" and to "ho( the shares (a$ be trans!erred or sold, nor does it su##est an$ discri(ination i!o or a#ainst a certain purchaser. The holder o! these shares, as o"ner o! personal propert$, is at libert$ to dispose o! the( to an$one he pleases, "ithout an$ li(itation other than in the #eneral la". ?ver$ o"ner o! corporate shares has the sa(e uncontrollable ri#ht to alienate the( "hich attaches to the o"nership o! an$ other species o! propert$. Further(ore the SC sa$s Sec 17 should be har(oni9ed "ith Sec 7+ o! the sa(e la", "hich re&uires that shares o! capital stoc' are personal propert$ trans!erable b$ deliver$ o! the certi!icate indorsed b$ the trans!eror%o"ner. For a trans!er to be valid, it should be entered into the boo's o! the corporation. G/ is that b$la"s o! a corporation are valid i! the$ are reasonable and calculate to carr$ into e!!ect the ob;ectives o! the corporation, and al"a$s "ithin the li(its o! the charter. The$ (ust be subordinate to the Constitution and the la"s o! the land, (ust not in!rin#e public polic$ or be hostile to public "el!are, (ust not disturb vested ri#hts or i(pair obli#ations o! contracts. t cannot ta'e a"a$ or abrid#e the substantial ri#hts o! a stoc'holder. Hnder the statute authori9in# b$%la"s !or the trans!er o! stoc', a corporation can do no (ore than prescribe a #eneral (ode o! trans!er on the corporate boo's and cannot ;usti!$ an unreasonable restriction upon the ri#ht o! sale. The ri#ht o! unrestrained trans!er o! shares inheres in the ver$ nature o! a corporation. The ri#ht to i(pose restrictions on trans!er o! shares (ust be con!erred upon the corporation be the #overnin# statute or b$ the articles o! incorporation. t cannot be done b$ a

b$%la" "ithout statutor$ or charter authorit$. There!ore b$%la"s or other re#ulations restrainin# such trans!ers, unless derived !ro( statutor$ authorit$, "ould be re#arded as i(positions in restraint o! trade. The b$%la" in &uestion cannot also have an$ e!!ect on Fleischer, since he had no 'no"led#e o! the b$%la" "hen the shares "ere trans!erred to hi( and obtained the sa(e in GF and !or value. )hen no restriction is placed b$ la" on the trans!er o! corporate stoc', a purchaser is not a!!ected b$ an$ contractual restriction o! "hich he had no notice or "asn>t a"are. A b$%la" o! a corporation "hich provides that trans!er o! stoc' shall not be valid unless approved b$ the board !or instance, or an$ other restriction i(posed, "hile it (a$ be en!orced as a reasonable re#ulation !or the protection o! the corporation a#ainst "orthless stoc'holders, cannot be (ade available to de!eat the ri#hts o! third persons. <anda(us "ill lie in !avor o! Fleischer to co(pel the Treasurer o! .otica to re#ister his shares. ov<t of 01ils. 3 "l 7oga,. (!or the !acts, #oto corporate po"ers section) 0 )1n the b$%la"s o! el 8o#ar, "hich e(po"ers the board to cancel shares and return to the o"ner the balance resultin# !ro( the li&uidation, b$ a vote o! absolute (a;orit$ o! the (e(bers. 80 The b$%la" provision is an absolute nullit$, since it is in direct con!lict "ith the Code "hich declares that the board shall not have the po"er to !orce the surrender and "ithdra"al o! un(atured stoc' e*cept in case o! li&uidation o! the corporation or !or!eiture o! stoc'. )hile it is a nullit$, it is insu!!icient to necessitate the involuntar$ dissolution o! the corporation throu#h a &uo "arranto proceedin#. t cannot be en!orced even i! the directors "ere to atte(pt to do so. 0 )1n a b$%la" provision "hich allo"s directors to !ill vacancies in the directorate b$ choosin# suitable persons !ro( a(on# the S8s to avert a !ailure o! a &uoru( in S8 (eetin#s is valid 80 The practice o! the directorate o! !illin# vacancies b$ the action o! the directors the(selves is valid. 2or can an$ e*ception be ta'en to the personalit$ o! individuals chosen b$ the directors to !ill the vacancies in the bod$. 0 )1n a b$%la" provision "hich authori9es the distribution to the directors o! el 8o#ar +J net pro!it in proportion to their attendance at board (eetin#s is valid 80 The Corporation @a" does not underta'e to prescribe the rate o! co(pensation !or the directors o! the corporation. The po"er to !i* co(pensation is le!t to the corporation itsel!, to be deter(ined in its b$%la"s. 3ursuant to this statutor$ authorit$, el 8o#ar has !i*ed the co(pensation !or its directors in its b$%la"s. ! a (ista'e has been (ade, or the rule adopted in the b$a"s has been !ound to "or' har(!ul results, the re(ed$ is in the hands o! the S8s "ho have the po"er at an$ la"!ul (eetin# to chan#e the rule. 0 )1n - b$%la" provisions "hich re&uire (1) persons elected to the board be holders o! shares "ith a paid%up value o! 3+I and (-) that directors "ho loan !ro( the association "aive their ri#ht as S8s are valid 80 the Code speci!icall$ #ives po"er to the corporation to provide in its b$%la"s !or the &uali!ications o! directors, and the re&uire(ent o! securit$ !ro( the( !or the proper dischar#e o! the duties o! their o!!ice, is hi#hl$ prudent and in con!or(it$ "ith #ood practice. The code also has sa!e#uards on directors !ro( (a'in# loans to the(selves, desi#ned to prevent the possibilit$ o! lootin# o! the corporation. The b$%la" provision is consistent "ith the code on this one. Balid. &toc81olde,s of - uan:on v Registe, of )eeds . + stoc'holders o! F Guan9on e*ecuted a certi!icate o! li&uidation o! the assets o! the corporation. .$ virtue o! a resolution dissolvin# the corporation, the$ "ish to distribute as li&uidated dividends a(on# the(selves and in proportion to their shareholdin#s, the assets o! the corporation, "hich includes real estate properties in <anila. The /e#ister o! Aeeds ho"ever, upon present(ent o! the certi!icate o! li&uidation b$ the + stoc'holders, denied re#istration o! the properties to be distributed on C #rounds, 7 o! "hich "ere &uestioned b$ the stoc'holders0 (1) no state(ent o! the N o! parcels o! land to be distributed (-) re#istration !ees iao 3674.+4 (7) doc sta(p ta* iao 3964.6+ (6) court ;ud#(ent approvin# the dissolution and directin# disposition o! the assets. The stoc'holders clai( that the certi!icate o! li&uidation (erel$ partitions1distributes the corporate assets a(on# the( because the corporation has alread$ been dissolved. 8ence the$ need not co(pl$ "ith the re&uire(ents i(posed b$ the /e#ister o! Aeeds and the @and /e#istration Authorit$. The @/A counters that the distribution o! the corporate assets upon dissolution o! the corporation, is ulti(atel$ a trans!er1conve$ance o! propert$ to the stoc'holders0 )12 the certi!icate o! li&uidation involves a (ere distribution o! corporate assets or a trans!er or conve$ance o! propert$. 80 t is a trans!er1conve$ance o! propert$. A corporation is a ;uridical person separate and distinct !ro( the stoc'holders. 3roperties re#istered in the na(e o! the corporation are o"ned b$ it as a separate entit$. The shares held b$ stoc'holders are their personal propert$ and not the corporation, and it onl$ t$pi!ies an ali&uot part o! the corporation>s propert$ or the ri#ht to

share in the proceeds. The holder o! such share is not the o"ner o! an$ part o! the capital o! the corporation, nor is he entitled to possession o! an$ de!inite portion o! its assets, neither is he a co%o"ner. @i&uidation b$ stoc'holders a!ter a corporation>s dissolution is not (ere partitionin# o! co((unit$ propert$, but alread$ a conve$ance or trans!er o! title to the( !ro( the corporation. The distribution o! the corporate properties to the S8s "as dee(ed not in the nature o! a partition a(on# co%o"ners, but rather a disposition b$ the corporation to the S8s as opposite parties to a contract 3roperties re#istered in the na(e o! the corporation are o"ned b$ it as an entit$ separate and distinct !ro( its (e(bers, shares o! stoc' are personal propert$, and 2=T corporate propert$ share o! stoc' t$pi!ies an ali&uot part o! the corporation>s propert$, or the ri#ht to share in the proceeds to that e*tent "hen distributed holder o! shares is not the o"ner o! an$ part o! the capital o! the corporation, nor is he entitled to the possession o! an$ de!inite portion o! its propert$ or assets

In Stoc%holders o5 F "uan/on and Sons@ Inc v Re#ister o5 6eeds o5 Manila@ the distribution o5 the corporate properties to the stoc%holders 1as dee0ed not in the nature o5 a partition a0on# co?o1ners@ but rather a disposition by the corporation to the stoc%holders@ as opposite parties to a contract It held that ABaC corporation is a 8uridical person distinct 5ro0 the 0e0bers co0posin# it Band thatC BpCroperties re#istered in the na0e o5 the corporation are o1ned by it as an entity separate and distinct 5ro0 its 0e0bers <hile shares o5 stoc% constitute the personal property@ they do not represent property o5 the corporation x x x A share o5 stoc% only typi5ies an ali>uot part o5 the corporationDs property@ or the ri#ht to share in its proceeds to that extent 1hen distributed accordin# to la1 and e>uity@ but its holder is not the o1ner o5 any part o5 the capital o5 the corporation@ nor is he entitled to the possession o5 any de5inite portion o5 its property or assets 7he stoc%holder is not a co? o1ner or tenant in co00on o5 the corporate property A
#,a+at Me,cantile (nc v CA. =n 49 April 1986, <elchor de la Cuesta, doin# business under the na(e and st$le o! "Far(ers <achineries," sold to Tra(at <ercantile, nc. (Tra(at), one (1) unit 8 2=<=T= T/ACT=/ <odel <. 1144A po"ered b$ a 17 8.3. diesel en#ine. n pa$(ent, Aavid =n#, Tra(at:s president and (ana#er, issued a chec' !or 377,+44.44 (apparentl$ replacin# an earlier postdated chec' !or 377,484.44). Tra(at, in turn, sold the tractor, to#ether "ith an attached la"n (o"er !abricated b$ it, to the <etropolitan )ater"or's and Se"era#e S$ste( ("2A)ASA") !or 35C,444.44. Aavid =n# caused a stop pa$(ent o! the chec' "hen 2A)ASA re!used to pa$ the tractor and la"n (o"er a!ter discoverin# that, aside !ro( so(e stated de!ects o! the attached la"n (o"er, the en#ine (sold b$ de la Cuesta) "as a reconditioned unit. =n -8 <a$ 198+, de la Cuesta !iled an action !or the recover$ o! 377,+44.44, as "ell as attorne$:s !ees o! 314,444.44, and the costs o! suit. =n#, in his ans"er, averred, a(on# other thin#s, that de la Cuesta had no cause o! action, that the &uestioned transaction "as bet"een plainti!! and Tra(at <ercantile, nc., and not "ith =n# in his personal capacit$, and that the pa$(ent o! the chec' "as stopped because the sub;ect tractor had been priced as a brand ne", not as a reconditioned unit. TC ordered =n# to pa$ the plainti!! the su( o! 377,+44.44 "ith le#al interest thereon at the rate o! 1-J per annu( !ro( Jul$ C, 1986 until !ull$ paid. 80 t "as an error to hold Aavid =n# ;ointl$ and severall$ liable "ith T/A<AT to de la Cuesta under the &uestioned transaction. =n# had there so acted, not in his personal capacit$, but as an o!!icer o! a corporation, T/A<AT, "ith a distinct and separate personalit$. As such, it should onl$ be the corporation, not the person actin# !or and on its behal!, that properl$ could be (ade liable thereon. 3ersonal liabilit$ o! a corporate director, trustee or o!!icer alon# (althou#h not necessaril$) "ith the corporation (a$ so validl$ attach, as a rule, onl$ "hen K 1. 8e assents (a) to a patentl$ unla"!ul act o! the corporation, or (b) !or bad !aith, or (c) !or con!lict o! interest, resultin# in da(a#es to the corporation, its stoc'holders or other persons, -. 8e consents to the issuance o! "atered stoc's or "ho, havin# 'no"led#e thereo!, does not !orth"ith !ile "ith the corporate secretar$ his "ritten ob;ection thereto, 7. 8e a#rees to hold hi(sel! personall$ and solidaril$ liable "ith the corporation, 5 or 6. 8e is (ade, b$ a speci!ic provision o! la", to personall$ ans"er !or his corporate action.

n the case at bench, there is no indication that petitioner Aavid =n# could be held personall$ accountable under an$ o! the above(entioned cases.
Tramat Mercantile, Inc. vs. CA Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: o He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; o He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; o He agrees to hold himself personally and soidarily liable with the corporation; or He is made, by a specific provision of law, to personally answer for his corporate action

Cagayan -is1ing v &andi8o. Tabora o"ned 6 parcels o! land in Aparri. 8e sold the 6 parcels to the Ca#a$an Fishin# Aevelop(ent Co(pan$, (o! "hich he is a pro(oter) then under the process o! incorporation, !or one peso, sub;ect to the /?< i!o 32., and under the condition that title shall not pass until Ca#a$an pa$s Tabora>s debt to 32.. Ca#a$an Fishin# "as then !or(ed, and the .oard adopted a resolution authori9in# the president to sell the lands to Sandi'o !or 36-444. Ca#a$an e*ecuted a deed o! sale trans!errin# and cedin# all ri#hts titles and interests to the land to Sandi'o. Sandi'o !ailed to (a'e #ood on the 32. Ca#a$an Fishin# sues Sandi'o. TC dis(isses suit on the #round that the deed o! sale is void. 80 Ca#a$an Fishin# "as not $et in e*istence "hen Tabora sold to it his lands. t "as not even a de !acto corp at the ti(e, thus not bein# in le#al e*istence it does not $et possess ;uridical capacit$ to enter into contracts. The Tabora contract "as entered into not onl$ bet"een hi( and a non%e*istent corporation, but bet"een hi( as o"ner and the sa(e Tabora, his "i!e and others, as (ere pro(oters o! the corporation. The$ could not have acted as a#ents !or a pro;ected corporation since that "hich had no le#al e*istence could have no a#ent. A corporation, until or#ani9ed, has no li!e and there!ore no !aculties. The SC re!used to e*tend the doctrine o! rati!ication "hich "ould result in the co((ission o! in;ustice or !raud to third parties. Tabora o"ned a (a;orit$ o! the shares subscribed and paid. Tabor "as also one o! the directors, and title re(ained under Tabora>s na(e. Sandi'o the bu$er dealt "ith Tabora directl$ and considered hi( as the o"ner. ?ven 32. treated Tabora as the o"ner, not the corporation. Thus Ca#a$an Fishin# never reall$ purchased the lands, and thus it did not have the ri#ht to dispose b$ sale to Sandi'o. There are circu(stances "here the acts o! pro(oters (a$ be rati!ied b$ the corporation, but in Ca#a$an the SC declined to e*tend the doctrine o! rati!ication "hich "ould result in the co((ission o! in;ustice or !raud, because the ob;ect o! the contracts "ere treated as personal assets and not corporate assets /ati!ication is the 'e$ ele(ent in upholdin# the validit$ and en!orceabilit$ o! pro(oter>s contracts R0 v Aco=e Mining. F0 Aco;e <inin# re&uested the openin# o! a post o!!ice at its (inin# ca(p in Oa(bales to service e(plo$ees livin# in the ca(p. The Airector o! 3osts a#reed to set up the o!!ice, provided that in the (eanti(e that !unds are not available, the co(pan$ "ould provide !or all essential e&uip(ent and assi#n a responsible e(plo$ee to per!or( the duties o! a post(aster. 8e also added that the co(pan$ shall assu(e direct responsibilit$ !or "hatever pecuniar$ loss (a$ be su!!ered b$ the .ureau o! 3osts b$ reason o! the dishonest$ or ne#li#ence o! the e(plo$ee assi#ned. A /esolution b$ the Aco;e .oard o! Airectors "as passed. The post(aster assi#ned, 8ilario Sanche9, "ent on leave and never returned. t "as soon discovered that a shorta#e "as incurred iao 317,85C.-6, apparentl$ e(be99led b$ Sanche9. .ureau o! 3osts sues !or the shorta#e. Aco;e denied its liabilit$ contendin# that the resolution issued b$ the board "as ultra vires, and its liabilit$ i! an$ "ould onl$ be that o! a #uarantor. 80 t should be noted that it "as Aco;e itsel! that re&uested !or the settin# up o! a post o!!ice !or the convenience o! its e(plo$ees, "hich the SC held to cover a sub;ect "hich is Da reasonable and proper ad;unct to the conduct o! the business o! Aco;e <inin#.E An ultra vires act is one co((itted outside the ob;ect !or "hich a corporation is created, but there are certain corporate acts that (a$ be per!or(ed outside the scope o! the po"ers e*pressl$ con!erred i! the$ are necessar$ to pro(ote the interest and "el!are o! the corporation.E

?ven in the case o! ultra vires acts "hich are not ille#al per se, a corporation cannot be heard to co(plain that it is not liable !or the acts o! its board, because o! estoppel b$ representation. The ter( ultra vires should be distin#uished !ro( an ille#al act !or the !or(er is (erel$ voidable "hich (a$ be en!orced b$ per!or(ance, rati!ication, or estoppel, "hile the latter is void and cannot be invalidated. t bein# (erel$ voidable, an ultra vires act can be en!orced or validated i! there are e&uitable #rounds !or ta'in# such action. n this case, it is !air that the resolution be upheld at least on the #round o! estoppel. The de!ense o! ultra vires rests on violation o! trust or dut$ to"ards the stoc'holders, and should not be entertained "here its allo"ance "ill do #reater "ron# to innocent parties dealin# "ith the corporation. The acceptance o! bene!its arisin# !ro( the per!or(ance o! the other part$ #ives rise to an estoppel precludin# the repudiation o! the contract.

Republic of t1e 01ilippines vs. Aco=e Mining Co. (1969) Aco;e <inin# re&uested the Airector o! 3osts to open a post o!!ice in its (inin# ca(p !or the bene!it o! its e(plo$ee and their !a(ilies. n a resolution, Aco;e a#reed to be directl$ responsible !or the Ddishonest$, carelessness, or ne#li#ence o! the e(plo$ee it assi#nsE. Aco;e>s e(plo$ee, Sanche9, "as desi#nated as the post(aster but he later disappeared "ith 17I o! post o!!ice !unds. Aco;e denied liabilit$ on the #round that the resolution "as ultra vires%.=A had no authorit$ to act on the (atter.

8?@A0 The co(pan$ is estopped !ro( den$in# liabilit$ on the #round that the board resolution is ultra vires. Assu(in# ar#uendo that the resolution is an ultra vires act, the sa(e is not void !or it "as approved not in contravention o! la", custo(s, public order and public polic$. The ter( ultra vires should be distin#uished !ro( an ille#al act !or the !or(er is (erel$ voidable "hich (a$ be en!orced "hile the latter is void and cannot be validated.

Mad,igal > Co v ?a+o,a. <adri#al P Co "as en#a#ed in the (ana#e(ent o! /i9al Ce(ent Co., nc. and is also its sister co(pan$, both bein# o"ned b$ the sa(e or practicall$ the sa(e stoc'holders. The <adri#al Central =!!ice ?(plo$ees Hnion sou#ht !or the rene"al o! its collective bar#ainin# a#ree(ent and proposed a "a#e increase o! 3-44.44 a (onth, an allo"ance o! 3144.44 a (onth, and other econo(ic bene!its. <adri#al re&uested !or a de!er(ent in the ne#otiations. Therea!ter, <adri#al on t"o occasions reduced its capital stoc' !ro( C5+,444 shares to -5C,755 shares and !ro( -5C,755 shares to 114,48+ shares b$ virtue o! t"o alle#ed resolutions o! its stoc'holders, "hich "as e!!ected throu#h the distribution o! the (ar'etable securities o"ned b$ the petitioner to its stoc'holders in e*chan#e !or their shares in an e&uivalent a(ount in the corporation. The Hnion !iled a case !or H@3 "ith the 2@/C. <adri#al ans"ered citin# operational losses. <adri#al then in!or(ed the Secretar$ o! @abor that /i9al Ce(ent Co., nc., "!ro( "hich it derives inco(e as the General <ana#er or A#ent" had "ceased operatin# te(poraril$. n addition, because o! the desire o! the stoc'holders to phase out the operations o! the <adri#al P Co., nc. due to lac' o! business incentives and prospects, and in order to prevent !urther losses," it had to reduce its capital stoc' on t"o occasions. The labor arbiter, havin# !ound that the petitioner "had been (a'in# substantial pro!its in its operation" since 19C- throu#h 19C+, #ranted the "a#e increase, and "as a!!ir(ed b$ 2@/C. <ean"hile <adri#al tried to ter(inate the services o! Hnion (e(bers citin# retrench(ent but its application "as declared ille#al b$ A=@?. Hpon appeal to =3, /onaldo Oa(ora a!!ir(ed the decision o! A=@?. 80 )hat clearl$ e(er#es !ro( the recorded !acts is that the petitioner, a"ash "ith pro!its !ro( its business operations but con!ronted "ith the de(and o! the union !or "a#e increases, decided to evade its responsibilit$ to"ards the e(plo$ees b$ a devised capital reduction. )hile the reduction in capital stoc' created an apparent need !or retrench(ent, it "as, b$ all indications, ;ust a (as' !or the pur#e o! union (e(bers, "ho, b$ then, had a#itated !or "a#e increases. n the !ace o! the petitioner co(pan$:s pilin# pro!its, the unionists had the ri#ht to de(and !or such salar$ ad;ust(ents. That the petitioner (ade &uite handso(e pro!its is clear !ro( the

records. )e a#ree "ith the 2ational @abor /elations Co((ission that "QtRhe dividends received b$ the co(pan$ are corporate earnin#s arisin# !ro( corporate invest(ent." 5. ndeed, as !ound b$ the Co((ission, the petitioner had entered such earnin#s in its !inancial state(ents as pro!its, "hich it "ould not have done i! the$ "ere not in !act pro!its. 59 <oreover, it is incorrect to sa$ that such pro!its K in the !or( o! dividends K are be$ond the reach o! the petitioner:s creditors since the petitioner had received the( as co(pensation !or its (ana#e(ent services in !avor o! the co(panies it (ana#ed as a shareholder thereo!. As such shareholder, the dividends paid to it "ere its o"n (one$, "hich (a$ then be available !or "a#e incre(ents. t is not a case o! a corporation distributin# dividends in !avor o! its stoc'holders, in "hich case, such dividends "ould be the absolute propert$ o! the stoc'holders and hence, out o! reach b$ creditors o! the corporation. 8ere, the petitioner "as actin# as stoc'holder itsel!, and in that case, the ri#ht to a share in such dividends, b$ "a$ o! salar$ increases, (a$ not be denied its e(plo$ees. Accordin#l$, this court is convinced that the petitioner:s capital reduction e!!orts "ere, to be#in "ith, a subter!u#e, a deception as it "ere, to ca(ou!la#e the !act that it had been (a'in# pro!its, and conse&uentl$, to ;usti!$ the (ass la$o!! in its e(plo$ee ran's, especiall$ o! union (e(bers. The$ "ere nothin# but a pre(ature and plain distribution o! corporate assets to obviate a ;ust sharin# to labor o! the vast pro!its obtained b$ its ;oint e!!orts "ith capital throu#h the $ears. Surel$, "e can neither countenance nor condone this. t is an un!air labor practice.

ov<t of 01ilippines v "l 7oga,. This is a quo warranto proceedin#, alle#in# 1C causes o! action, instituted ori#inall$ in this court b$ the Govern(ent o! the 3hilippine slands on the relation o! the Attorne$%General a#ainst the buildin# and loan association 'no"n as ?l 8o#ar Filipino, !or the purpose o! deprivin# it o! its corporate !ranchise, e*cludin# it !ro( all corporate ri#hts and privile#es, and e!!ectin# a !inal dissolution o! said corporation. The respondent, ?l 8o#ar Filipino, "as apparentl$ the !irst corporation or#ani9ed in the 3hilippine slands under the provisions cited, and the association has been !avored "ith e*traordinar$ success. The articles o! incorporation bear the date o! Aece(ber -8, 1914, at "hich ti(e capital stoc' in the association had been subscribed to the a(ount o! 31+4,444 o! "hich the su( o! 314,5-4 had been paid in. Hnder the la" as it then stood, the capital o! the Association "as not per(itted to e*ceed 37,444,444, but b$ Act 2o. -49-, passed Aece(ber -7, 1911, the statute "as so a(ended as to per(it the capitali9ation o! buildin# and loan associations to the a(ount o! ten (illions. Soon therea!ter the association too' advanta#e o! this enact(ent b$ a(endin# its articles so as to provide that the capital should be in an a(ount not e*ceedin# the then la"!ul li(it. Fro( the ti(e o! its !irst or#ani9ation the nu(ber o! shareholders has constantl$ increased, "ith the result that on Aece(ber 71, 19-+, the association had +,8-5 shareholders holdin# 1-+,C+4 shares, "ith a total paid%up value o! 38,C47,54-.-+. Aurin# the period o! its e*istence prior to the date last above%(entioned the association paid to "ithdra"in# stoc'holders the a(ount o! 3C,518,-+C,.C-, and in the sa(e period it distributed in the !or( o! dividends a(on# its stoc'holders the su( o! 3C,5-1,+5+.81. 0 )12 ?l 8o#ar is ille#all$ holdin# title to real propert$ in e*cess o! + $ears, in violation o! the la" that "hile corporations (a$ loan !unds upon real estate securit$, the$ shall dispose o! the sa(e "ithin + $ears a!ter receivin# title 80 the corporation has not been sho"n to have o!!ended a#ainst the la" in a (anner "hich "ould entail !or!eiture o! its charter. The evident purpose behind the la" restrictin# the ri#hts o! corporations "ith respect to the tenure o! land "as to prevent the revival o! the entail or other si(ilar institution b$ "hich land could be !ettered and its alienation ha(pered. n the case, ?l 8o#ar had in GF disposed o! the propert$ at the e*piration o! the period !i*ed b$ la". Hnder the circu(stances the destruction o! the corporation "ould brin# irreparable loss upon thousands o! innocent shareholders o! the corporation "ithout an$ correspondin# bene!it to the public. 0 )12 el 8o#ar is ille#all$ o"nin# and holdin# a business lot in e*cess o! the reasonable re&uire(ents and in contravention o! the Corpo la" that ever$ corporation has the po"er to purchase hold lease real propert$ as reasonable and necessar$ re&uired !or the transaction o! the la"!ul business 80 The la" e*pressl$ declares that corporations (a$ ac&uire such real estate as is reasonabl$ necessar$ to enable the( to carr$ out the purposes !or "hich the$ "ere created, and "e are o! the opinion that the o"nin# o! a business lot upon "hich to construct and (aintain its o!!ices is reasonabl$ necessar$ to a buildin# and loan association such as the respondent "as at the ti(e this propert$ "as ac&uired. A di!!erent rulin# on this point "ould co(pel i(portant enterprises to conduct their business e*clusivel$ in leased o!!ices K a result "hich could serve no use!ul end

but "ould retard industrial #ro"th and be ini(ical to the best interests o! societ$. )e are !urther(ore o! the opinion that, inas(uch as the lot re!erred to "as la"!ull$ ac&uired b$ the respondent, it is entitled to the !ull bene!icial use thereo!. 2o le#iti(ate principle can discovered "hich "ould den$ to one o"ner the ri#ht to en;o$ his (or its) propert$ to the sa(e e*tent that is conceded to an$ other o"ner. 0 )12 el 8o#ar has en#a#ed in activities !orei#n to the purposes !or "hich the corporation "as created and not reasonabl$ necessar$ to its le#iti(ate ends, speci!icall$0 (1) the ad(inistration o! the o!!ices in the ?l 8o#ar buildin# not used b$ the respondent itsel! and the rentin# o! such o!!ices to the public, (-) the ad(inistration and (ana#e(ent o! properties belon#in# to delin&uent shareholders o! the association, (7) the (ana#e(ent o! so(e parcels o! i(proved real estate situated in <anila not under (ort#a#e to it, but o"ned b$ shareholders, and has held itsel! out b$ advertise(ent as prepared to do so 80 (1) The activities here critici9ed clearl$ !all "ithin the le#iti(ate po"ers o! the respondent, as sho"n in "hat "e have said above relative to the second cause o! action. This (atter "ill there!ore no lon#er detain us. ! the respondent had the po"er to ac&uire the lot, construct the edi!ice and hold it bene!iciall$, as there decided, the bene!icial ad(inistration b$ it o! such parts o! the buildin# as are let to others (ust necessaril$ be la"!ul. (-) The case !or the #overn(ent supposes that the onl$ re(ed$ "hich the respondent has in case o! de!ault on the part o! its shareholders is to proceed to en!orce collection o! the "hole loan in the (anner conte(plated in section 18+ o! the Corporation @a". t "ill be noted, ho"ever, that, accordin# to said section, the association (a$ treat the "hole indebtedness as due, "at the option o! the board o! directors," and this re(ed$ is not (ade e*clusive. )e see no reason to doubt the validit$ o! the clause #ivin# the association the ri#ht to ta'e over the propert$ "hich constitutes the securit$ !or the delin&uent debt and to (ana#e it "ith a vie" to the satis!action o! the obli#ations due to the debtor than the i((ediate en!orce(ent o! the entire obli#ation, and the validit$ o! the clause allo"in# this course to be ta'en appears to us to be not open to doubt. (7) The practice described in the passa#e above &uoted !ro( the a#reed !acts is in our opinion unauthori9ed b$ la". The ad(inistration o! propert$ in the (anner described is (ore be!ittin# to the business o! a real estate a#ent or trust co(pan$ than to the business o! a buildin# and loan association. The practice to "hich this criticis( is directed relates o! course solel$ to the (ana#e(ent and ad(inistration o! properties "hich are not (ort#a#ed to the association. The circu(stance that the o"ner o! the propert$ (a$ have been re&uired to subscribe to one or (ore shares o! the association "ith a vie" to &uali!$in# hi( to receive this service is o! no si#ni!icance. t is a #eneral rule o! la" that corporations possess onl$ such e*press po"ers. The (ana#e(ent and ad(inistration o! the propert$ o! the shareholders o! the corporation is not e*pressl$ authori9ed b$ la", and "e are unable to see that, upon an$ !air construction o! the la", these activities are necessar$ to the e*ercise o! an$ o! the #ranted po"ers. The corporation, upon the point no" under the criticis(, has clearl$ e*tended itsel! be$ond the le#iti(ate ran#e o! its po"ers. .ut it does not result that the dissolution o! the corporation is in order, and it "ill (erel$ be en;oined !ro( !urther activities o! this sort. 0 )12 the ro$alt$ paid to the !ounder o! el 8o#ar, Antonio <elian, as co(pensation !or his services rendered b$ hi( durin# the earl$ sta#es o! the or#ani9ation o! the corporation, is unconscionable, e*cessive, and thus necessitates dissolution 80 2o possible doubt e*ists as to the po"er o! a corporation to contract !or services rendered and to be rendered b$ a pro(oter in connection "ith or#ani9in# and (aintainin# the corporation. t is true that contracts "ith pro(oters (ust be characteri9ed b$ #ood !aith, but could it be said "ith certaint$, in the li#ht o! !acts e*istin# at the ti(e this contract "as (ade, that the co(pensation therein provided "as e*cessiveM ! the a(ount o! the co(pensation no" appears to be a sub;ect o! le#iti(ate criticis(, this (ust be due to the e*traordinar$ develop(ent o! the association in recent $ears. ! the <elian contract had been clearl$ ultra vires K "hich is not char#ed and is certainl$ untrue K its continued per!or(ance (i#ht conceivabl$ be en;oined in such a proceedin# as this, but i! the de!ect !ro( "hich it su!!ers is (ere (atter !or an action because <elian is not a part$. t is rudi(entar$ in la" that an action to annul a contract cannot be (aintained "ithout ;oinin# both the contractin# parties as de!endants. <oreover, the proper part$ to brin# such an action is either the corporation itsel!, or so(e shareholder "ho has an interest to protect. 0 )12 el 8o#ar had abused its !ranchise in issuin# special shares, "hich is alle#ed to be ille#al and inconsistent "ith the plan and purposes o! buildin# and loan associations,and that these are held b$ "ell%to%do people purel$ !or invest(ent purposes and not b$ "a#e%earners !or savin#s 80 The #round !or supposin# the issuance o! the "special" shares to be unla"!ul is that special shares are not (entioned in the Corporation @a" as one o! the !or(s o! securit$ "hich (a$ be issued b$ the association. Hpon e*a(ination o! the nature o! the special shares in the li#ht o! A(erican usa#e, it "ill be !ound that said shares are precisel$ the sa(e 'ind o! shares that, in

so(e A(erican ;urisdictions, are #enerall$ 'no"n as advance pa$(ent shares, in i! close attention be paid to the lan#ua#e used in the last sentence o! section 1C8 o! the Corporation @a", it "ill be !ound that special shares "here evidentl$ created !or the purpose o! (eetin# the condition cause b$ the prepa$(ent o! dues that is there per(itted. The lan#ua#e o! this provision is as !ollo" "pa$(ent o! dues or interest (a$ be (ade in advance, but the corporation shall not allo" interest on such advance pa$(ent at a #reater rate than si* per centu( per annu( nor !or a lon#er period than one $ear." n one sort o! special shares the dues are prepaid to the e*tent o! 3154 per share, in the other sort prepa$(ent is (ade in the a(ount o! 314 per share, and the subscribers assu(e the obli#ation to pa$ 314 (onthl$ until 3154 shall have been paid. t "ill escape notice that the provision &uoted sa$ that interest shall not be allo"ed on the advance pa$(ents at a #reater rate than si* per centu( per annu( nor !or a lon#er period than one $ear. The "ord "interest " as there used (ust be ta'en in its true sense o! co(pensation !or the used o! (one$ loaned, and it not (ust not be con!used "ith the dues upon "hich it is conte(plated that the interest (a$ be paid. 2o", in the absence o! an$ sho"in# to the contrar$, "e in!er that no interest is ever paid b$ the association in an$ a(ount !or the advance pa$(ents (ade on these shares, and the reason is to be !ound in the !act that the participation o! the special shares in the earnin#s o! the corporation, in accordance "ith section 188 o! the Corporation @a", su!!icientl$ co(pensates the shareholder !or the advance pa$(ents (ade b$ hi(, and no other incentive is necessar$ to induce inventors to purchase the stoc'. t "ill be observed that the !inal -4 per centu( o! the par value o! each special share is not paid !or b$ the shareholder "ith !unds out o! the poc'et. The a(ount is satis!ied b$ appl$in# a portion o! the shareholder:s participation in the annual earnin#s. .ut as the ri#ht o! ever$ shareholder to such participation in the earnin#s is undeniable, the portion thus annuall$ applied is as (uch the propert$ o! the shareholder as i! it "ere in !act ta'en out o! his poc'et. t !ollo"s that the (ission o! the special shares does not involve an$ violation o! the principle that the shares (ust be sold at par. Fro( "hat has been said it "ill be seen that there is e*press authorit$, even in the ver$ letter o! the la", !or the e(ission o! advance%pa$(ent or "special" shares, and the ar#u(ent that these shares are invalid is seen to be baseless. n addition to this it is satis!actoril$ de(onstrated in Severino vs. El Hogar Filipino, supra , that even assu(in# that the statute has not e*pressl$ authori9ed such shares, $et the association has i(plied authorit$ to issue the(. The co(plaint conse&uentl$ !ails also as re#ards the stated in the ninth cause o! action. 0 )1n ?l 8o#ar is pursuin# ille#all$ a polic$ o! depreciatin#, at an e*cessive rate at the discretion o! its .oard, the value o! real properties ac&uired b$ it at its sales, thereb$ !rustratin# the ri#ht o! S8s to participate annuall$ and e&uall$ in the earnin#s. 80 This count !or the co(plaint proceeds, in our opinion, upon an erroneous notion as to "hat a court (a$ do in deter(inin# the internal polic$ o! a business corporation. ! the criticis( contained in the brie! o! the Attorne$%General upon the practice o! the respondent association "ith respect to depreciation be "ell !ounded, the @e#islature should suppl$ the re(ed$ b$ de!inin# the e*tent to "hich depreciation (a$ be allo"ed b$ buildin# and loan associations. Certainl$ this court cannot underta'e to control the discretion o! the board o! directors o! the association about an ad(inistrative (atter as to "hich the$ have le#iti(ate po"er o! action. The tenth cause o! action is there!ore not "ell !ounded. 0 )1n el 8o#ar>s charter should be revo'ed because it ille#all$ (aintains e*cessive reserve !unds and because it pursues a polic$, alle#edl$ unla"!ul, o! pa$in# a strai#ht annual dividend o! 14J re#ardless o! losses su!!ered and pro!its (ade b$ the corporation and in violation o! the re&uire(ent s o! the corpo code. 80 t is insisted in the brie! o! the Attorne$%General that the (aintenance o! reserve !unds is unnecessar$ in the case o! buildin# and loan associations, and at an$ rate the 'eepin# o! reserves is inconsistent "ith section 188 o! the Corporation @a". Hpon care!ul consideration o! the &uestions involved "e !ind no reason to doubt the ri#ht o! the respondent to (aintain these reserves. t is true that the corporation la" does not e*pressl$ #rant this po"er, but "e thin' it is to be i(plied. t is a !act o! co((on observation that all co((ercial enterprises encounter periods "hen earnin#s !all belo" the avera#e, and the prudent (ana#er (a'es provision !or such contin#encies. To re#ard all surplus as pro!it is to ne#lect one o! the pri(ar$ canons o! #ood business practice. .uildin# and loan associations, thou#h a(on# the (ost solid o! !inancial institutions, are nevertheless sub;ect to vicissitudes. Fluctuations in the dividend rate are hi#hl$ detri(ental to an$ !iscal institutions, "hile uni!or(it$ in the pa$(ents o! dividends, continued over lon# periods, supplies the surest !oundations o! public con!idence.

<oreover, it is said that the practice o! the association in declarin# re#ularl$ a 14 per cent dividend is in e!!ect a #uarant$ b$ the association o! a !i*ed dividend "hich is contrar$ to the intention o! the statute. The #overn(ent insists upon an interpretation o! section 188 o! the Corporation @a" that is alto#ether too strict and literal. Fro( the !act that the statute provides that pro!its and losses shall be annuall$ apportioned a(on# the shareholders it is ar#ued that all earnin#s should be distributed "ithout carr$in# an$thin# to the reserve. .ut it "ill be noted that it is provided in the sa(e section that the pro!its and losses shall be deter(ined b$ the board o! directors0 and this (eans that the$ shall e*ercise the usual discretion o! #ood business(en in allocatin# a portion o! the annual pro!its to purposes need!ul to the "el!are o! the association. The la" conte(plates the distribution o! earnin#s and losses a!ter other le#iti(ate obli#ations have been (et. =ur conclusion is that the respondent has the po"er to (aintain the reserves critici9ed in the eleventh and t"el!th counts o! the co(plaint, and at an$ rate, i! it be supposed that the reserves re!erred to have beco(e e*cessive, the re(ed$ is in the hands o! the @e#islature. t is no proper !unction o! the court to arro#ate to itsel! the control o! ad(inistrative (atters "hich have been con!ided to the discretion o! the board o! directors. The causes o! action under discussion (ust be pronounced to be "ithout (erit. 0 )1n el 8o#ar ille#all$ departed !ro( its charter because it has (ade loans "hich "ere intended to be used b$ the borro"ers !or other purposes than the buildin# o! ho(es. There is no statute here e*pressl$ declarin# that loans (a$ be (ade b$ these associations solely !or the purpose o! buildin# ho(es. =n the contrar$, the buildin# o! ho(es is (entioned in section 1C1 o! the Corporation @a" as onl$ one a(on# several ends "hich buildin# and loan associations are desi#ned to pro(ote. Further(ore, section 181 o! the Corporation @a" e*pressl$ authorities the .oard o! directors o! the association !ro( ti(e to ti(e to !i* the pre(iu( to be char#ed. n the brie! o! the plainti!! a nu(ber o! e*cerpts !ro( te*tboo's and decisions have been collated in "hich the idea is developed that the pri(ar$ desi#n o! buildin# and loan associations should be to help poor people to procure ho(es o! their o"n. This bene!icent end is undoubtedl$ served b$ these associations, and it is not to be denied that the$ have been #enerall$ !ostered "ith this end in vie". .ut in this ;urisdiction at least the la"(a'er has ta'en care not to li(it the activities o! buildin# and loan associations in an e*clusive (anner, and the e*ercise o! the broader po"ers (ust in the end approve itsel! to the business co((unit$. 0 )1n the el 8o#ar charter (a$ be revo'ed because various loans no" outstandin# have been (ade b$ the respondent to corporations and partnerships, and that these entities have in so(e instances subscribed to shares in the respondent !or the sole purpose o! obtainin# such loans, and that so(e o! these ;uridical entities beca(e shareholders (erel$ !or the purpose o! &uali!$in# the(selves to ta'e loans !ro( the association. 80 the Corporation @a" declares that "an$ person" (a$ beco(e a stoc'holder in buildin# and loan associations. The "ord "person" appears to be here used in its #eneral sense, and there is nothin# in the conte*t to indicate that the e*pression is used in the restricted sense o! both natural and arti!icial persons, as indicated in section - o! the Ad(inistrative Code. )e "ould not sa$ that the "ord "person" or persons," is to be ta'en in this broad sense in ever$ part o! the Corporation @a". For instance, it "ould see( reasonable to sa$ that the incorporators o! a corporation ou#ht to be natural persons, althou#h in section 5 it is said that !ive or (ore "persons", althou#h in section 5 it is said that !ive or (ore "persons," not e*ceedin# !i!teen, (a$ !or( a private corporation. .ut the conte*t there, as "ell as the co((on sense o! the situation, su##ests that natural persons are (eant. )hen it is said, ho"ever, in section 1C7, that "an$ person" (a$ beco(e a stoc'holder in a buildin# and loan association, no reason is seen "h$ the phrase (a$ not be ta'en in its proper broad sense o! either a natural or arti!icial person. At an$ rate the &uestion "hether these loans and the attendant subscriptions "ere properl$ (ade involves a consideration o! the po"er o! the subscribin# corporations and partnerships to o"n the stoc' and ta'e the loans, and it is not alle#ed in the co(plaint that the$ "ere "ithout po"er in the pre(ises. =! course the (ere (otive "ith "hich subscriptions are (ade, "hether to &uali!$ the stoc'holders to ta'e a loan or !or so(e other reason, is o! no (o(ent in deter(inin# "hether the subscribers "ere co(petent to (a'e the contracts. The result is that "e !ind nothin# in the alle#ations o! the si*teenth cause o! action, or in the !acts developed in connection there"ith, that "ould ;usti!$ us in #rantin# the relie!. 0 )1n el 8o#ar, in disposin# o! real estate purchased in the collection o! de!aulted loans, on credit at !irst and then sold and (ort#a#ed to el 8o#ar to secure pa$(ent o! the purchase price, had incurred several outstandin# loans, and that that the persons and entities to "hich said properties are sold under the condition char#ed are not (e(bers or shareholders nor are the$ (ade (e(bers or shareholders o! the de!endant. 80 This part o! the co(plaint is based upon a (ere technicalit$ o! boo''eepin#. The central idea involved in the discussion is the provision o! the Corporation @a" re&uirin# loans to be stoc'holders onl$ and on the securit$ o! real estate and shares in the corporation, or o! shares

alone. t see(s to be supposed that, "hen the respondent sells propert$ ac&uired at its o"n !oreclosure sales and ta'es a (ort#a#e to secure the de!erred pa$(ents, the obli#ation o! the purchaser is a true loan, and hence prohibited. .ut in re&uirin# the respondent to sell real estate "hich it ac&uires in connection "ith the collection o! its loans "ithin !ive $ears a!ter receivin# title to the sa(e, the la" does not prescribe that the propert$ (ust be sold !or cash or that the purchaser shall be a shareholder in the corporation. Such sales can o! course be (ade upon ter(s and conditions approved b$ the parties, and "hen the association ta'es a (ort#a#e to secure the de!erred pa$(ents, the obli#ation o! the purchaser cannot be !airl$ described as arisin# out o! a loan. 2or does the !act that it is carried as a loan on the boo's o! the respondent (a'e it a loan on the boo's o! the respondent (a'e it a loan in la". The contention o! the Govern(ent under this head is untenable.

0i,ovano v )ela Ra+a. Hnder the leadership and (ana#e(ent o! ?nrico 3irovano, president o! Ael /a(a Stea(ship, the co(pan$ #re" and pro#ressed until it beca(e a (ulti%(illion corporation, the assets o! "hich #re" and increased !ro( 3-64I to around 31+<. 8e "as insured b$ the co(pan$ !or 31<. ?steban dela /a(a, (a;orit$ stoc'holder, distributed his shares a(on# his + dau#hters, includin# the 2AC, to "hich Aela /a(a had an outstandin# bonded indebtedness iao 3C.+<, throu#h a debt%e&uit$ s"ap arran#e(ent "hich also #ave the 2AC representation in the .oard. 3irovano "as 'illed b$ the Japanese durin# the "ar, and a .oardres "as adopted #rantin# to the 3irovano children the proceeds o! the insurance policies ta'en on the li!e o! the late president. 8o"ever, the polic$ had lapse because the co(pan$ "as not able to pa$ the pre(iu(s re#ularl$. The .oard/es authori9es the allocation o! 3644I convertible into 6444 shares o! stoc' i!o o! the 3irovano children, as "ell as a "aiver o! the pree(ptive ri#hts o! the !or(er o"ners, the Aela /a(a siblin#s. This "as sub(itted to the stoc'holders "hich dul$ approved the sa(e. t appears, ho"ever, that Aon ?steban did not reali9e that the dole out "ould actuall$ be #ivin# to the 3irovano children (ore than "hat the$ intended to #ive. This "as because the value then o! the shares "as 7.5 ti(es the par value thereo!, thus the donation iao 3644I "ould a(ount to a total o! 31.66<. Thus the votin# stren#th o! the 3irovano children "ould be t"ice as (uch as that o! the dela /a(a sisters. The old /esolution havin# been nulli!ied, the .oard adopted a ne" ./ chan#in# the !or( o! the donation !ro( 6444 shares into a renunciation o! the Co(pan$>s ri#ht and title to the li!e insurance policies o! 3irovano. t also provides that the proceeds o! the polic$ be retained b$ the Co(pan$ as a loan dra"in# interest pa$able to the 3irovano children "henever the co(pan$ is in a position to (eet this !inancial obli#ation and a!ter the Co(pan$ settles its bonded indebtedness i!o 2AC. This "as rati!ied b$ the Aela /a(a stoc'holders. <rs 3irovano accepted the donation, and bu$s propert$ in the HS. Hpon in&uir$ "ith the Sec, it "as !ound that the donation "as ille#al and thus void on the #rounds that the corporation acted ultra vires and that it could not dispose o! its assets throu#h donation. The stoc'holders then voted to revo'e the donation. <rs 3irovano sued to de(and the credit o"ed to the( b$ the Co(pan$. 0 "1n the donation b$ the corporation o! the proceeds o! the insurance is an ultra vires act 80 Hnder the A= o! Aela /a(a Stea(ship it is provided under (#) that the co(pan$ (a$ invest and deal "ith (one$s o! the co(pan$ not i((ediatel$ re&uired, in such a (anner as !ro( ti(e to ti(e (a$ be deter(ined, and under (i)L to lend (one$ or to aid in an$ other (anner an$ person association, or corporation o! "hich an$ obli#ation or in "hich an$ interest is held b$ the corporation or in the a!!airs o! prosperit$ o! "hich the corporation has a la"!ul interest. The corporation "as thus #iven broad and al(ost unli(ited po"ers to carr$ out the purposes !or "hich it "as or#ani9ed. The "ord EdealE is broad enou#h to include an$ (anner o! disposition, and thus the donation co(es "ithin the scope o! this broad po"er. The co(pan$ "as in !act ver$ (uch solvent as it "as able to declare and issue dividends to its stoc'holders, and sho"s that the e*cess !unds "hich "ere not needed b$ the co(pan$ "hich "as donated to the children "as ;usti!ied under the A= . Hnder the second broad po"er, the corporation 'ne" "ell its scope such that noone li!ted a !in#er to dispute its validit$. The co(pan$ #ave the donation not onl$ because it "as indebted to hi( but also because it "as !it and proper to (a'e provisions !or the children and out o! a sense o! #ratitude. ?ven assu(in# that the donation "as ultra vires, still it cannot be invalidated or declared le#all$ ine!!ective !or that reason alone, it appearin# that the donation represents not onl$ the act o! the .oard but also that o! the stoc'holders the(selves since the$ e*pressl$ rati!ied the resolution. .$ this rati!ication, the in!ir(it$ o! the corporate act, i! an$, has been obliterated thereb$ (a'in# the act per!ectl$ valid and en!orceable, especiall$ so i! the donation is not (erel$ e*ecutor$ but consu((ated. The de!ense o! ultra vires cannot be set up a#ainst co(pleted or consu((ated transactions.

An ultra vires act (a$ either be an act per!or(ed (erel$ outside the scope o! the po"ers #ranted to the corporation b$ its A= or one "hich is contrar$ to la" or violative o! an$ principle "hich "ould void an$ contract. A distinction has to be (ade "ith respect to corporate acts "hich are ille#al and those (erel$ ultra vires. The !or(er are contrar$ to la", (orals, public order or polic$, "hile the latter are not void ab initio, but (erel$ #o be$ond the scope o! the po"ers in the A= , and "hich renders the act (erel$ voidable and thus rati!iable b$ the stoc'holders.

0i,ovano v )e la Ra+a &tea+s1ip (19%5) Stoc's are o"ned b$ Aon de la /a(a, his - dau#hters, and their ??s "ith no(inal shares. =ne o! the dau#hters "as (arried to the co(pan$ president, ?nrico 3irovano. )hile the business #re", the !ather distributed his stoc's a(on# his + dau#hters and his "i!e. 2AC "as also represented in the .oA because the corp had a debt to it. To secure the debt, all assets "ere (ort#a#ed to 2AC. Aebt "as later converted to stoc', such that 2AC no" held 6 o! 9 seats in .oA. Such conversion released the (ort#a#ed assets. ?nrico 3irovano died, so the .=A passed a resolution convertin# insurance proceeds on his li!e to stoc's !or each o! his (inor children. Approved b$ S8s. 8o"ever, the other S8s reali9ed that the$ "ould actuall$ be donatin# 1.66 <. instead o! the 644I the$ intended (since the value o! the stoc's increased), and that <rs. 3irovano "ould no" have -* votin# po"er as her sisters. .=A later chan#ed donation into cash, but "ould be retained b$ the co(pan$ as a loan, and the interest pa$able to the children, both a(ounts to be paid to the children a!ter debt to 2AC paid, and later, "hen co(pan$ is in position to (eet obli#ations. <rs. 3irovano !or(all$ accepted the donation. .=A later approved release o! so(e !unds held in trust !or <rs. 3irovano to bu$ house in 2F. S8s !or(all$ rati!ied the donation. S?C later #ave opinion that donation "as void bec it "as be$ond the scope o! the corp>s po"ers. S8s later voted to revo'e the donation to the 3irovano children. 8eld0 1) Aonation "as re(unerative% !or services rendered b$ ?nrico 3irovano. -) Aonation "as alread$ per!ected. /ati!ied b$ S8s, and a#reed to b$ 2AC, the onl$ creditor. 7) Aonation is "ithin scope o! the A= . t is provided that corp can invest and deal "ith (one$s not i((ediatel$ re&uired, in such (anner as !ro( ti(e to ti(e (a$ be deter(ined, and that corp can aid in an$ other (anner an$ person o! "hich an$ obli#ation or in "hich an$ interest is held b$ this corp, or in the a!!airs o! prosperit$ o! "hich this corp has a la"!ul interest. Corp has #iven donations to ??s in the past, and to political ca(pai#ns. Assu(in# donation "as ultra vires, donation "as rati!ied, (a'in# the act valid and en!orceable. Hltra vires act0 outside scope o! po"ers #ranted to it b$ its articles o! incorp. 2ot necessaril$ ille#al, because ultra vires acts can beco(e valid b$ rati!ication and estoppel.
Ra+i,e: v ',ientalist Co > -e,nande: . =rientalist Co, en#a#ed in the theater business, desired to be the e*clusive a#ent o! /a(ire9, "ho is based in 3aris, !or t"o !il( out!itsKSclair Fil(s and <ilano !il(s. Throu#h the active involve(ent and ne#otiations o! /a(on D?l 3residenteE Fernande9, a director o! =rientalist and also its treasurer, "ith /a(ire9, =rientalist "as able to secure an o!!er, the ter(s o! "hich "ere acceptable to the .oard as "ell as to the stoc'holders. t appears that this acceptance o! the ter(s o! the o!!er "as decided durin# an in!or(al (eetin# o! the board, and conve$ed to /a(ire9 in t"o letters si#ned onl$ b$ Fernande9, both in his individual and his capacit$ as treasurer o! =rientalist. t turns out that the co(pan$ "as not !inanciall$ capable to co(pl$ "ith the obli#ations set !orth in the a#enc$ contract, and about this ti(e !il(s had alread$ been delivered to the co(pan$. T"o stoc'holders (eetin#s "ere or#ani9ed, the !irst adopted a resolution approvin# the action o! the board on the o!!er, the second raisin# the contin#enc$ o! the lac' o! !unds and the proviso that the !our o!!icers involved, includin# Fernande9 "ould continue i(portin# the !il(s usin# their o"n !unds. /a(ire9 sues =rientalist and Fernande9 !or "hat is due on the contract. TC ruled =riental as the principal debtor "hile Fernande9 is subsidiaril$ liable.

80 (1) it "as incu(bent upon the corporation i! it desired to &uestion the authorit$ o! Fernande9 to bind it, to den$ the due e*ecution o! the contract (ade b$ hi(. n pleadin# lac' o! authorit$ o! an o!!icer o! a corporation to bind the latter throu#h a contract e*ecuted b$ the !or(er is a special de!ense "hich should be speciall$ pleaded and the ans"er settin# up this de!ense (ust be veri!ied under oath. The denial shall be speci!ic, and a (ere attac' on the instru(ent in #eneral ter(s is insu!!icient, even thou#h under oath. n dealin# "ith corporations the public at lar#e is bound to rel$ to a lar#e e*tent upon out"ard appearances. ! a (an is !ound actin# !or a corporation "ith the e*ternal indicia o! authorit$, an$ person not havin# notice o! "ant o! authorit$, (a$ usuall$ rel$ upon those appearances, and i! it be !ound that the directors had per(itted the a#ent to e*ercise that authorit$ and thereb$ held hi( out as a co(petent person to bind the corporation, or had ac&uiesced in a contract and retained the bene!it supposed to have con!erred b$ it, the corporation "ill be bound, not"ithstandin# the actual authorit$ (a$ never have been #ranted. The public is not supposed nor re&uired to 'no" the transactions "hich happen around the table "here the corporate board o! directors or the stoc'holders are !ro( ti(e to ti(e convo'ed. t is there!ore reasonable, in a case "here an o!!icer o! a corporation has (ade a contract in its na(e, that the corporation should be re&uired, is it denies his authorit$, to state such de!ense in his ans"er. This !ailure o! =rientalist to (a'e an$ issue in its ans"er "ith re#ard to the authorit$ o! /a(on Fernande9 to bind it and its !ailure to den$ speci!icall$ under oath the #enuineness o! the due e*ecution o! the contracts sued upon, have the e!!ect o! eli(inatin# the &uestion o! his authorit$ !ro( the case. (-) Fernande9 had no authorit$ to bind the corporation. Corporate po"ers is e*ercised b$ the board o! directors, and is reco#ni9ed in the b$la"s o! =rientalist. The !act that the po"er to (a'e contracts is thus vested in the borad does not al"a$s si#ni!$ that a !or(al vote o! the board (ust al"a$s be ta'en be!ore contractual liabilit$ can be !i*ed, the board can create liabilit$, li'e an individual, b$ other (eans than b$ !or(al e*pression o! its "ill. t (a$ be established "ithout re!erence to o!!icial records o! the proceedin#s o! the board, b$ proo! o! the usa#e to "hich the co(pan$ had per(itted to #ro" up in the business, and o! the ac&uiescence o! the board char#ed "ith the dut$ o! supervisin# and controllin# the co(pan$>s business. Fernande9 "as the (ost active in the e!!ort to secure the !il(s. The ne#otiations "ere conducted b$ hi( "ith the 'no"led#e and consent o! the other (e(bers o! the board. The board, be!ore the !inancial inabilit$ o! the corporation "as revealed, had alread$ reco#ni9ed the contracts as bein# in e*istence and had proceeded to ta'e the steps necessar$ to utili9e the !il(s, particularl$ the publication o! announce(ents in the papers. n li#ht o! this, the contracts in &uestion "ere thus in!erentiall$ approved b$ the board and that the co(pan$ is bound unless the subse&uent !ailure o! the stoc'holders to approve the sa(e had the e!!ect o! abro#atin# the liabilit$ created. (7) the action o! the stoc'holders, "hatever its character, (ust be i#nored. Stoc'holders or (e(bers resolutions dealin# "ith (atters other than the e*ceptions are not le#all$ e!!ective nor bindin# on the board, and (a$ be treated as (erel$ advisor$ or (a$ even be co(pletel$ disre#arded. The !unctions o! the stoc'holders o! a corporation are, o! a li(ited nature. The theor$ is that the stoc'holders (a$ have all the pro!its but shall turn over the co(plete (ana#e(ent o! the enterprise to their representatives or a#ents, called the directors, (a'in# b$%la"s, and e*ercisin# special po"ers de!ined b$ la". Thus contracts bet"een a corporation and third persons (ust be (ade b$ the directors and not b$ the stoc'holders. The corporation is represented b$ the directors and not the stoc'holders. Third persons can have little or no in!or(ation as to "hat occurs in corporate (eetin#s, and (ust necessaril$ rel$ on e*ternal (ani!estations o! corporate consent. The inte#rit$ o! co((ercial transactions can onl$ be (aintained b$ holdin# the corporation strictl$ to the liabilit$ !i*ed upon in b$ its a#ents in accordance "ith la". ! a corporation 'no"in#l$ per(its one o! its o!!icers or an$ other person to do acts "ithin the scope o! an apparent authorit$, and thus hold hi( out to the public as possessin# the po"er to do these acts, the corporation "ill be estopped !ro( den$in# such authorit$ as a#ainst an$one "ho has dealt "ith the corporation in GF. Lope: v ",icta. Ar Consuelo .lanco "as appointed Aean ad interi( o! the H3 Colle#e o! ?ducation. The .oard o! /e#ents (et on -5 <a$ and H3 3resident @ope9 sub(itted the ad interi( appoint(ent !or reconsideration. The (inutes o! the (eetin# reveal that the .oard voted to de!er action on the (atter in vie" o! the ob;ections cited b$ /e#ent Iala", and to !urther stud$ the sa(e. The (atter "as re!erred to the Co((ittee on 3ersonnel. t "as e*tended and (ade e!!ective 1 <a$ 19C4 until 74 April 19C1 unless sooner ter(inated and sub;ect to the approval o! the .oard o! /e#ents. At the ne*t .oard (eetin#, it appears in the (inutes that the 3ersonnel Co((ittee reco((ended that the H3 president revie" his no(ination and that he "ould discuss "ith the no(inee the possibilit$ o! "ithdra"in# her no(ination and appoint(ent as Aean. The Co((ittee then "ithdre" its reco((endation, but sub;ected the .lanco appoint(ent to a vote. The vote "as +%7%6, and not havin# the necessar$

nu(ber o! votes, the .oard a#reed to e*pun#e the result o! the votin# !ro( the records, on the condition that the .oard suspend action on the (atter, "hich had the e!!ect o! the ter(ination o! the .lanco ad interi( appoint(ent. .lanco &uestions the action o! the .oard and the desi#nation o! an o!!icer%in%char#e o! the C=? and sues in the TC. Jud#e ?ricta rules in!o Ar .lanco. 0 )12 the 6 abstentions had the e!!ect o! a ne#ative vote a#ainst the ad interi( appoint(ent. 80 .ased on a readin# o! the (inutes and the records o! the (eetin#, it cannot be said that the abstentions "ere a!!ir(ative i!o the ad interi( appoint(ent. t is clear that (1) the .lanco appoint(ent "as re!erred !or stud$ b$ the Co((ittee "hich reco((ended its re;ection, (-) that it should be done in a diplo(atic "a$ to avoid e(barrass(ent, (7) the !inal decision "as to as' the H3 3resident to tal' to .lanco !or the appoint(ent to be "ithdra"n, (6) a vote "as ta'en "hich "as +%7%6, and it "as unclear "hat it (eant because the rules do not provide !or the treat(ent o! abstentions, (+) the Co((ittee "ithdre" its reco((endation, (5) the .oard identi!ied the issue o! "1n to con!ir( the ad interi( appoint(ent, (C) and that "hile it "ill de!er action, it considered the appoint(ent to have ter(inated, and thus a reco((endation !or non% con!ir(ation. Thus the votes o! abstention can in no "a$ be construed as votes !or con!ir(ation o! the appoint(ent. There can be no doubt as to the decision o! the 3ersonnel Co((itteeKit "as !or re;ection o! the appoint(ent. Also, the board resolved, "ithout a vote o! dissent to cancel the action ta'en, includin# the results o! the votin#, and to return the case to its ori#inal status. n e!!ect, as announced b$ the Chair(an, the .oard has not acted on the con!ir(ation either adversel$ or !avorabl$, but that the ad interi( appoint(ent has ter(inated. "2pe,t,avel > #ou,s v CA and *o,ean Ai,lines. F0 Iorean Airlines, throu#h Att$. A#uinaldo, !iled a Co(plaint a#ainst ?*pertravel "ith the /TC !or the collection o! the principal a(ount o! 3-54,1+4.44, plus attorne$>s !ees and e*e(plar$ da(a#es. The veri!ication and certi!ication a#ainst !oru( shoppin# "as si#ned b$ Att$. A#uinaldo, "ho indicated therein that he "as the resident a#ent and le#al counsel o! IA@ and had caused the preparation o! the co(plaint. ?*pertravel !iled a (otion to dis(iss the co(plaint on the #round that Att$. A#uinaldo "as not authori9ed to e*ecute the veri!ication and certi!icate o! non%!oru( shoppin# as re&uired b$ the /ules o! Court. IA@ opposed the (otion, contendin# that Att$. A#uinaldo "as its resident a#ent and "as re#istered as such "ith the Securities and ?*chan#e Co((ission (S?C) as re&uired b$ the CorpoCode, and "as !urther alle#ed that Att$. A#uinaldo "as also the corporate secretar$ o! IA@. Att$. A#uinaldo also clai(ed that he had been authori9ed to !ile the co(plaint throu#h a resolution o! the IA@ .oard o! Airectors approved durin# a special (eetin# held on June -+, 1999, "herein the board o! directors conducted a special telecon!erence on June -+, 1999, "hich he and Att$. A#uinaldo attended. t "as also averred that in that sa(e telecon!erence, the board o! directors approved a resolution authori9in# Att$. A#uinaldo to e*ecute the certi!icate o! non%!oru( shoppin# and to !ile the co(plaint. Su' I$oo Ii( also alle#ed, ho"ever, that the corporation had no "ritten cop$ o! the a!oresaid resolution. TC denies <TA, CA a!!ir(s. 80 t is settled that the re&uire(ent to !ile a certi!icate o! non%!oru( shoppin# is (andator$ and that the !ailure to co(pl$ "ith this re&uire(ent cannot be e*cused. The certi!ication is a peculiar and personal responsibilit$ o! the part$, an assurance #iven to the court or other tribunal that there are no other pendin# cases involvin# basicall$ the sa(e parties, issues and causes o! action. 8ence, the certi!ication (ust be acco(plished b$ the part$ hi(sel! because he has actual 'no"led#e o! "hether or not he has initiated si(ilar actions or proceedin#s in di!!erent courts or tribunals. ?ven his counsel (a$ be una"are o! such !acts. 8ence, the re&uisite certi!ication e*ecuted b$ the plainti!!>s counsel "ill not su!!ice. n a case "here the plainti!! is a private corporation, the certi!ication (a$ be si#ned, !or and on behal! o! the said corporation, b$ a speci!icall$ authori9ed person, includin# its retained counsel, "ho has personal 'no"led#e o! the !acts re&uired to be established b$ the docu(ents. The corporation, such as the petitioner, has no po"ers e*cept those e*pressl$ con!erred on it b$ the Corporation Code and those that are i(plied b$ or are incidental to its e*istence. n turn, a corporation e*ercises said po"ers throu#h its board o! directors and1or its dul$%authori9ed o!!icers and a#ents. 3h$sical acts, li'e the si#nin# o! docu(ents, can be per!or(ed onl$ b$ natural persons dul$%authori9ed !or the purpose b$ corporate b$%la"s or b$ speci!ic act o! the board o! directors. The respondent>s alle#ation that its board o! directors conducted a telecon!erence on June -+, 1999 and approved the said resolution ("ith Att$. A#uinaldo in attendance) is incredible, #iven the additional !act that no such alle#ation "as (ade in the co(plaint. ! the resolution had indeed been approved on June -+, 1999, lon# be!ore the co(plaint "as !iled, the respondent should have incorporated it in its co(plaint, or at least appended a cop$ thereo!. The respondent !ailed to do so. t "as onl$ on Januar$ -8, -444 that the respondent clai(ed, !or the !irst ti(e, that there "as such a (eetin# o! the .oard o! Airectors held on June -+, 1999, it

even represented to the Court that a cop$ o! its resolution "as "ith its (ain o!!ice in Iorea, onl$ to alle#e later that no "ritten cop$ e*isted. t "as onl$ on <arch 5, -444 that the respondent alle#ed, !or the !irst ti(e, that the (eetin# o! the .oard o! Airectors "here the resolution "as approved "as held via telecon!erence. )orse still, it appears that as early as January 10, 1999 , Att$. A#uinaldo had si#ned a Secretar$>s1/esident A#ent>s Certi!icate alle#in# that the board o! directors held a teleconference on June !, 1999 . 2o such certi!icate "as appended to the co(plaint, "hich "as !iled on Septe(ber 5, 1999. <ore i(portantl$, the respondent did not e*plain "h$ the said certi!icate "as si#ned b$ Att$. A#uinaldo as earl$ as Januar$ 9, 1999, and $et "as notari9ed one $ear later (on Januar$ 14, -444), it also did not e*plain its !ailure to append the said certi!icate to the co(plaint, as "ell as to its Co(pliance dated <arch 5, -444. t "as onl$ on Januar$ -5, -441 "hen the respondent !iled its co((ent in the CA that it sub(itted the Secretar$>s1/esident A#ent>s Certi!icateQ74R dated Januar$ 14, -444. The Court is, thus, (ore inclined to believe that the alle#ed telecon!erence on June -+, 1999 never too' place, and that the resolution alle#edl$ approved b$ the respondent>s .oard o! Airectors durin# the said telecon!erence "as a (ere concoction purpose!ull$ !oisted on the /TC, the CA and this Court, to avert the dis(issal o! its co(plaint a#ainst the petitioner. 0,i+e @1ite Ce+ent v (AC . 3ri(e )hite Ce(ent entered into a dealership a#ree(ent "ith one o! its directors, Ale;andro Te, !or the latter to be the e*clusive distributor o! -4,444 ba#s o! 3ri(e )hite ce(ent per (onth T 39.C4 per ba# !or the entire <indanao area !or + $ears, and that a letter o! credit be opened to secure pa$(ent. Te advertised his dealership and "as able to obtain possible clients, and entered into a#ree(ents "ith several hard"are stores !or the purchase o! the ce(ent. Te then in!or(ed 3ri(e )hite o! the orders, but the latter i(posed additional conditions, "hich e!!ectivel$ dela$ed the deliver$ o! the ce(ent, lo"ered the nu(ber o! ba#s to be delivered, and increased the price per ba#. t also (ade the prices sub;ect to chan#e unilaterall$ and additional conditions on the (anner o! pa$(ent. Te re!used to co(pl$ and 3ri(e )hite cancelled the dealership a#ree(ent. Te sued !or speci!ic per!or(ance and da(a#es. TC ruled i!o Te. 0 )12 the dealership a#ree(ent is a valid and en!orceable contract bindin# on the Corporation. 80 2o. it is not valid and en!orceable. All corporate po"ers are e*ercised b$ the .oard. t (a$ also dele#ate speci!ic po"ers to its 3resident or other o!!icers. n the absence o! e*press dele#ation, a contract entered into b$ the 3resident in behal! o! the corporation, (a$ still bind the latter i! the board should rati!$ e*pressl$ or i(pliedl$. n the absence o! e*press or i(plied rati!ication, the 3resident (a$ as a #eneral rule bind the corporation throu#h a contract in the ordinar$ course o! business, provided the sa(e is reasonable under the circu(stances. These rules are applicable "here the 3resident or other o!!icer actin# !or the corporation is dealin# "ith a third person. The situation is di!!erent "here a director or o!!icer is dealin# "ith his o"n corporation. Te "as not an ordinar$ stoc'holder, he "as a (e(ber o! the .oard and Auditor o! the corporation. 8e is "hat is o!ten called a Dsel!%dealin#E director. As a director, he holds a position o! trust and o"es a dut$ o! lo$alt$ to his corporation. n case his interests con!lict "ith those o! the corporation, he cannot sacri!ice the latter to his o"n advanta#e and bene!it. The trust relationship sprin#s !ro( the control and #uidance o! the corporate a!!airs and propert$ interests o! the stoc'holders. A director>s contract "ith his corporation is not in all instances void or voidable. ! the contract is !air and reasonable under the circu(stances, it (a$ be rati!ied b$ the stoc'holders provided a !ull disclosure o! his adverse interest is (ade . The contract in this case is neither !air nor reasonable. At the ti(e o! the contract, the corporation had not $et even started producin# the ce(ent. 3rices o! ce(ent, ;ust li'e an$ other co((odit$, are not stable and e*pected to rise. )ithin a period o! si* $ears !ro( the date o! dealership a#ree(ent the prices "ere certain to rise, and $et the contract pe##ed the rate to 39.C4 per ba#. This accordin# to the Court "as not !air and reasonable at all, and undul$ pre;udiced the corporation. The contracts he entered into a!ter the dealership a#ree(ent "ere such as to co(pletel$ shield hi( !ro( an$ increase in the price o! ce(ent. The contracts "ere onl$ !or t"o $ears at a ti(e, even i! the dealership "as #ood !or +. 8e "as atte(ptin# to enrich hi(sel! at the e*pense o! the corporation. There is no sho"in# that the stoc'holders rati!ied the dealership a#ree(ent. Thus the sa(e "as not valid and he cannot be allo"ed to reap the !ruits o! his dislo$alt$. Au C1uc8 v *ong Li 0o. Ion# @i 3o is a corporation en#a#ed in the publication o! a Chinese ne"spaper. ts A= provide !or a president "ho shall si#n all contracts and other instru(ents o! "ritin#, but does not provide !or a business or #eneral (ana#er. CC Chen or TC Chen "as appointed #eneral business (ana#er o! the paper. 8e then entered into an a#ree(ent "ith Fu Chuc' !or the printin# o! the ne"spaper !or 3+84 per (onth. Fu Chuc' "or'ed !or a $ear until

the$ "ere dischar#ed b$ the ne" (ana#er Tan Tian 8on# because CC Chen had le!t !or China. Fu Chuc' sues the paper, clai(in# the the contract "as !or a period o! 7 $ears, and that dischar#e "ithout ;ust cause be!ore the e*piration o! this ter( entitles the( to receive !ull pa$ !or the re(ainder o! the ter(. Ion# @i 3o counters that CC Chen "as not authori9ed to enter into the contract "ith Fu Chuc'. TC ruled i!o o! Fu Chuc', concludin# that the contract had been i(pliedl$ rati!ied b$ Ion# @i 3o and that althou#h he had no e*press authorit$ to enter into the contract, since he "as #eneral business (ana#er in char#e o! the printin# o! the paper and thus had i(plied authorit$ to e(plo$ the petitioners 0 )12 CC Chen had the po"er to bind the corporation throu#h the contract (entioned. 80 G/0 The po"er to bind a corporation b$ contract lies "ith its board o! directors or trustees, but this po"er (a$ either be e*pressl$ or i(pliedl$ dele#ated to other o!!icers or a#ents o! the corporation. ?UC?3T =20 An o!!icer or a#ent "ho has #eneral control and (ana#e(ent o! the corporation>s business or a speci!ic part thereo!, (a$ bind the corporation b$ the e(plo$(ent o! such a#ents and e(plo$ees as are usual and necessar$ in the conduct o! such business. ?*ception to e*ception0 )here the authorit$ is vested e*pressl$ in the .=A. As to the ter( o! e(plo$(ent, a (ana#er has authorit$ to hire an e(plo$ee !or such a period as is custo(ar$ or proper under the circu(stances, but unless he is e*pressl$ authori9ed or held out to have such authorit$, he cannot (a'e a contract o! e(plo$(ent !or a lon# !uture period, such as !or 7 $ears. There can be no doubt that CC Chen as #eneral (ana#er o! the Ion# @i 3o, had i(plied authorit$ to bind the de!endant corporation b$ a reasonable and usual contract o! e(plo$(ent "ith the plainti!!s. .ut the ter( o! e(plo$(ent is unusuall$ lon#, and the conditions are other"ise so onerous to the de!endant corporation that the possibilit$ o! the corporation bein# thro"n into insolvenc$ thereb$ is e*pressl$ conte(plated in the sa(e contract. The corporation also did not i(pliedl$ rati!$ the contract, ;ust because the president o! Ion# @i 3o sa" the plainti!!s "or' as printers in the o!!ice one da$. .e!ore a contract can be rati!ied, 'no"led#e o! its e*istence (ust, o! course, be brou#ht ho(e to the parties "ho have authorit$ to rati!$ it or circu(stances (ust be sho"n !ro( "hich such 'no"led#e (a$ be presu(ed. 2o such 'no"led#e or circu(stances indicatin# 'no"led#e is sho"n or proven in the case. <oreover, a rati!ication b$ hi( "ould have been to no avail, in order to validate a contract, a rati!ication b$ the .=A "as necessar$. The !act that the president "as authori9ed b$ the b$% la"s to si#n docu(ents evidencin# contracts doesn>t (ean that he had po"er to (a'e the contracts. Boa,d of LiBuidato,s v *ala;. <a*i(o Iala" is chair(an o! the board and #eneral (ana#er o! the 2ational Coconut Corporation (2AC=C=), a non%pro!it G=CC e(po"ered b$ its charter to bu$ sell barter e*port andL deal in coconut, copra, and dessicated coconut. .ocar, Garcia and <oll "ere directors. t entered into contracts !or the tradin# and deliver$ o! copra. 2ature intervenedK6 t$phoons devastated a#riculture and copra production. 2AC=C= "as on the ver#e o! sustainin# losses and could not be able to (a'e #ood on the contracts. Sensin# this, Iala" sub(itted the contracts to the board !or approval and (ade a !ull disclosure o! the situation. 2o action "as ta'en, and no vote "as ta'en on the (atter. =n -4 Jan 196C the board (et a#ain "ith Iala", .ocar, Garcia, and <oll in attendance, and approved the contracts. 2AC=C= ho"ever onl$ partiall$ per!or(ed the contracts. =ne o! the contracts concerns the @ouis Ara$!us P Co., "hich sued 2AC=C=. 2AC=C= settled out%o!%court and paid Ara$!us 3+5C,4-6.+representin# C4J o! total clai(s. The total settle(ents su( up to 31.7<. 2AC=C= sues Iala", and his directors .ocar, <oll and Garcia to recover this su(, alle#in# ne#li#ence and .F and breach o! trust in approvin# the contracts, b$ not havin# the( approved b$ the board. TC dis(isses co(plaint. 2AC=C= clai(s that the b$%la"s provide that prior .oard approval is re&uired be!ore the G< can per!or( or e*ecute in behal! o! 2AC=C= all contracts necessar$ to acco(plish its purpose. 0 )12 the Iala" contracts are valid despite its lac' o! prior board approval as re&uired b$ the 2AC=C= b$%la"s 80 The contracts in &uestion are D!or"ard salesE contractsKa sales a#ree(ent entered into, even thou#h the #oods are not $et in the hands o! the seller. Given the peculiar nature o! copra tradin#, ie copra (ust be disposed o! asap else it "ould lose "ei#ht and "ould decrease its value, it necessitates a &uic' turnover and e*ecution o! the contract on short notice ("1in -6 hours). t "ould be di!!icult i! not i(practical to call a !or(al (eetin# o! the board each ti(e a contract is to be e*ecuted. 2AC=C= board (et the di!!iculties attendant to !or"ard sales b$ leavin# the adoption o! the (eans to the sound discretion o! Iala". @on# be!ore the contracts ca(e into bein#, Iala" alread$ contract b$ hi(sel! alone so(e 54 such contracts, and 2AC=C= reaped a #ross pro!it.

These contracts "ere contracted "ithout prior authorit$ !ro( the .oard and "ere 'no"n to all the (e(bers, but nothin# "as said b$ the(. Also contracts entered into b$ Iala" had been sub(itted to the board a!ter e*ecution, not be!ore as re&uired b$ the b$%la"s. The .oard has 'no"led#e o! this and did not ob;ect to the sa(e. Thus the practice o! the corporation has been to allo" its G< to ne#otiate and e*ecute contracts in behal! o! 2AC=C= "ithout prior .oard approval, and b$ its acts and throu#h ac&uiescence practicall$ laid aside the re&uire(ent in the b$%la". The contracts are there!ore valid. /ati!ication b$ a corporation o! an unauthori9ed act or contract b$ its o!!icers relates bac' to the ti(e o! the act or contract rati!ied and is e&uivalent to ori#inal authorit$. The theor$ o! corporate rat!ication is predicated upon the ri#ht o! a corporation to contract, and an$ rati!ication or adoption is e&uivalent to a #rant o! prior authorit$. /ati!ication Dcleanses the contract !ro( all its de!ects !ro( the (o(ent it "as constituted. .$ corporate con!ir(ation o! the contracts in dispute on -4 Jan, the Iala" contracts are thus pur#ed o! "hatever vice or de!ects the$ (a$ have. Thus even in the !ace o! an e*press b$%la" re&uire(ent o! prior approval, the la" on corporations is not to be held so ri#id and in!le*ible as to !ail to reco#ni9e e&uitable considerations. There "as no .F or breach o! trust on the part o! Iala". The board 'ne", and Iala" had so in!or(ed it, that the contracts "ould cause heav$ losses. The Court !ound no trace o! an$ dishonest purpose or (oral obli&uit$ or ill "ill that parta'es o! the nature o! !raud "hich "ould consitute .F on the part o! Iala". The .oard did not eventhin' o! raisin# their voice in protest a#ainst past contracts "hich brou#ht enor(ous pro!its to 2AC=C=. The rati!ication "as an act o! si(ple ;ustice and !airness to the G< and to the best interest o! the corporation "hose presti#e "ould have been seriousl$ i(paired b$ a re;ection o! the board o! those contracts "hich proved disadvanta#eous. ?a+boanga #,anspo,tation v Bac1,ac1 Moto, . The Oa(boan#a Transpo Corp, a corporation (ana#ed b$ a .=A co(posed o! + stoc'holders, purchased truc's, auto(obiles and parts !ro( .achrach <otors nc. t incurred a balance o! 366I due on several )hite truc's, secured b$ C<s. As it "as in dire !inancial straits, Oa(boan#a throu#h its G<, 3resident and Auditor Jose ?r&uia#a, entered into loan and additional a#ree(ents "ith Jose Clos, .ishop o! Oa(boan#a, "ho "as also the (a;orit$ stoc'holder. As securit$ !or the !inancial acco((odation, a ne" C< a#ree(ent "as e*ecuted, "herein #oods pled#ed to .achrach "as also pled#ed to the .ishop. ?r&uia#a sub(itted the (ort#a#e deed to the board !or approval. T"o directors o! Oa(boan#a e*pressed their satis!action "ith the arran#e(ent. Oa(boan#a partiall$ co(plied "ith the (ort#a#e deed. .achrach sou#ht the cancellation o! the - C<s and to have it recorded in the re#istr$ o! deeds. ?r&uia#a replied that the cancellations cannot be recorded pendin# the approval b$ the board o! the (ort#a#e deed. The .oA o! Oa(boan#a then convened and re;ected the (ort#a#e deed, because o! the discover$ that the (ort#a#e had been re#istered b$ .achrach "ithout the 'no"led#e or consent o! Oa(boan#a and "ithout havin# !irst recorded the cancellations o! the t"o previous (ort#a#es. This also pro(pted the .oard to adopt another resolution authori9in# le#al action to annul the (ort#a#es. .achrach also sued Oa(boan#a, and "as able to obtain possession o! all the chattels and sold the sa(e at public auction. Oa(boan#a clai(s that an oral a#ree(ent e*isted such that the (ort#a#e "ould not be valid "ithout approval b$ resolution o! the board and that it "ould not be recorded until approval thru resolution "as obtained, a(on# other conditions. 0 )12 the C<s e*ecuted b$ ?r&uia#a is valid and bindin# upon the Oa(boan#a Transportation Corp a!ter pa$(ents have been (ade to .achrach and not"ithstandin# the !act that the C<s "ere disapproved b$ the .oard o! Airectors o! Oa(boan#a. 80 n his (ani!old capacit$ as 3resident, G<, le#al counsel, auditor, and (a;orit$ stoc'holder, ?r&uia#a entered into the C< contract "ith .achrach b$ virtue o! "hich Oa(boan#a obtained #reater advanta#es. )hile it is true that the last C< contract "as not approved b$ the board, "hose approval "as needed in order to validate it accordin# to the b$%la"s, the broad po"ers vested in ?r&uia#a, the approval o! his acts "ith the other C<s, the approval o! the other directors, and the pa$(ents (ade to .achrach are e&uivalent to a tacit approval b$ the .oA o! the C< contract and binds Oa(boan#a Transport. n truth and in !act ?r&uia#a "as and is the !actotu( o! the corporation and (a$ be said to be the corporation itsel!. )hile the chie! o!!icers o! the corporation are in realit$ its o"ners and are per(itted to (ana#e the business b$ the directors, the acts o! such o!!icers are bindin# on the corporation, "hich cannot escape liabilit$ as to third persons dealin# "ith it in GF. Thus "hen the president o! a corporation, "ho is one o! the principal stoc'holders and at the sa(e ti(e its #eneral (ana#er, auditor, le#al counsel, is e(po"ered b$ the b$%la"s to enter into C< contracts, sub;ect to the approval o! the board, one o! "ho( is also a principal shareholder, and both o! "ho(, to#ether "ith the president, !or( a (a;orit$ and said corporation ta'es advanta#e o! the bene!its a!!orded b$ said contract, such acts are e&uivalent to an i(plied rati!ication o! said contract b$ the board and binds the corporation even i! not !or(all$ approved b$ the board.

0once et al v "nca,nacion. At a stoc'holders (eetin# o! the Aa#uho$ ?nterprises nc, the voluntar$ dissolution o! the corporation and the appoint(ent o! 3otenciano Gapol, the (a;orit$ stoc'holder, as receiver "as a#reed upon, "ith a petition !or voluntar$ dissolution dra!ted and si#ned b$ 3once. nstead o! !ilin# the petition, Gapol chan#ed his (ind and !iled a co(plaint in court to co(pel 3once et al to render an accountin# o! the !unds o! the corp, rei(burse it !or e*penses and purchases, and other a(ounts "hich "ere alle#edl$ (isspent and (isappropriate !or 3once>s o"n use. Gapol also sou#ht the re(oval o! 3once et al as (e(bers o! the board, and pra$ed !or an order directin# hi( to call a (eetin# o! the stoc'holders and to preside thereat. - da$s later, "ithout notice to the 3once #roup and to the other board (e(bers, the TC issued the order pra$ed !or. 3once onl$ #ot to 'no" about the order "hen the ban' re!used to honor the chec's because o! its re!usal to reco#ni9e the ne" board (e(bers. 80 The b$%la"s o! the corporation provide in part that its board shall be elected b$ the stoc'holders ever$ even $ear durin# the (onth o! Januar$. The re&uire(ent in the Corp Code that Don the sho"in# o! #ood cause there!orE does not (ean that the petition (ust be set !or hearin# "ith notice served upon the board. The TC "as satis!ied that there "as #ood cause considerin# that the chair(an had !ailed, ne#lected, or re!used to per!or( his dut$ to call a (eetin# o! the stoc'holders to elect ne" sets o! directors, in accordance "ith the b$%la"s. The$ had no ri#ht to continue as directors unless reelected b$ the stoc'holders in a (eetin# called !or that purpose ever$ even $ear. The$ had no ri#ht to hold%over brou#ht about b$ the !ailure to per!or( the dut$ incu(bent upon an$ o! the(. The alle#ed ille#alit$ o! the election o! one (e(bers o! the board at the (eetin# called b$ Gapol "as authori9ed b$ the court bein# subse&uent to the order co(plained o! and cannot a!!ect the validit$ and le#alit$ o! that order. ! it be true that the director elected at the (eetin# authori9ed b$ the court "as not &uali!ied in accordance "ith the b$%la"s the re(ed$ !or the a##rieved part$ "ould be a &uo "arranto. )etective > 0,otective Bu,eau v Clo,ibel . Fausto Alberto "as (ana#in# director o! the Aetective and 3rotective .ureau nc. "ho ille#all$ sei9ed and too' control o! the assets and boo's o! the corporation, concealed the( ille#all$ and re!used to allo" an$ (e(ber o! the corporation to e*a(ine. The stoc'holders in a (eetin# re(oved Alberto as (ana#in# director and elected Jose de la /osa, "ho did not o"n a share o! stoc' o! the corporation. Alberto re!used to vacate and surrender his o!!ice and continued to per!or( unauthori9ed acts and to use corporate !unds. The corporation clai(ed that Alberto arro#ated unto hi(sel! the po"ers o! the board because o! his re!usal to surrender his o!!ice despite re(oval b$ the stoc'holders. 80 Since de la /osa did not o"n a share o! stoc' o! the corporation, he cannot beco(e a director in accordance "ith the Corpo Code. ! he could not be director, then it !ollo"s that he cannot be (ana#in# director. Since he is not &uali!ied, then Alberto cannot be co(pelled to vacate his o!!ice because the b$%la"s itsel! provide that directors shall serve until the election and &uali!ication o! dul$ &uali!ied successor. o8ong;ei v &"C. This involves t"o actions in the S?C !iled b$ John Go'on#"ei, a San <i#uel Corporation stoc'holder b$ hi(sel! and throu#h the H/C and CFC, "ho sued the (a;orit$ o! the S<C .oA (Soriano, Oobel, /o*as, =rti#as, 3rieto et al) and S<C itsel! to declare null and void the a(ended b$%la"s and a cancellation o! the certi!icate o! !ilin# the a(ended b$%la"s. 8e alle#es the !ollo"in#0 S<C.=A acted "ithout authorit$ in a(endin# the b$%la"s "ithout the prescribed -17 vote o! stoc'holders holdin# subscribed and paid%up capital stoc' So(e (e(bers o! the S<C.=A a(ended the b$%la"s "hich state that in deter(inin# "hether or not a person is en#a#ed in co(petitive business, the .oard (a$ loo' into !actors such as co(petitive business and !a(il$ relationship, thus purposel$ providin# !or Go'on#"ei>s dis&uali!ication as director, and e!!ectivel$ dis&uali!ied hi( !ro( bein# elected as director Go'on#"ei also !iles an action in the S?C to co(pel S<C to allo" hi( to inspect the records o! the corporation, includin# the (inutes o! the last stoc'holders (eetin#, cop$ o! the (ana#e(ent contract "ith A2SC=/, latest !inancial state(ents a(on# others, includin# the authorit$ o! the stoc'holders to invest corporate !unds in San <i#uel nternational nc. The Sorianos counter b$ alle#in# that Go'on#"ei as president and (a;orit$ stoc'holder o! H/C and CFC, conducted bad publicit$ a#ainst the S<C to #enerate support !ro( the stoc'holders in his e!!ort to secure a seat in the board. The$ add the !act Go'on#"ei "as re;ected b$ the stoc'holders because he "as en#a#ed in co(petitive business and securin# a seat "ould have sub;ected S<C to #rave disadvanta#es. S?C #rants Go'on#"ei (otion but denies the (otion to inspect the !inancial state(ents and records o! San <i#uel nternational as he is not a stoc'holder thereo!. S?C also allo"ed hi( to run as director but cannot sit as lon# as the

validit$ o! the b$%la"s has been settled. <ean"hile the S<C.=A sub(itted the a(ended b$% la"s to the stoc'holders, "ho rati!ied the sa(e. 0 were the a"ended #y$laws valid and reasona#le 80 n the case at bar, there are !acts "hich cannot be denied, vi9.0 that the a(ended b$%la"s "ere adopted b$ the .oard o! Airectors o! the San <i#uel Corporation in the e*ercise o! the po"er dele#ated b$ the stoc'holders ostensibl$ pursuant to section -- o! the Corporation @a", that in a special (eetin# on Februar$ 14, 19CC held speciall$ !or that purpose, the a(ended b$% la"s "ere rati!ied b$ (ore than 84J o! the stoc'holders o! record, that the !orei#n invest(ent in the 8on#'on# .re"er$ and Aisteller$, a beer (anu!acturin# co(pan$ in 8on#'on#, "as (ade b$ the San <i#uel Corporation in 1968, and that in the stoc'holders: annual (eetin# held in 19C- and 19CC, all !orei#n invest(ents and operations o! San <i#uel Corporation "ere rati!ied b$ the stoc'holders. 0 %hether or not the a"ended #y$laws of S&' of disqualifying a co"petitor fro" no"ination or election to the (oard of )irectors of S&' are valid and reasona#le 80 Go'on#"ei clai(s that the a(ended b$%la"s are invalid and unreasonable because the$ "ere tailored to suppress the (inorit$ and prevent the( !ro( havin# representation in the .oard, at the sa(e ti(e deprivin# petitioner o! his "vested ri#ht" to be voted !or and to vote !or a person o! his choice as director. Hpon the other hand, respondents Andres <. Soriano, Jr., Jose <. Soriano and San <i#uel Corporation content that the e*clusion o! a co(petitor !ro( the .oard is le#iti(ate corporate purpose, considerin# that bein# a co(petitor, petitioner cannot devote an unsel!ish and undivided @o$alt$ to the corporation, that it is essentiall$ a preventive (easure to assure stoc'holders o! San <i#uel Corporation o! reasonable protective !ro( the unrestrained sel!%interest o! those char#ed "ith the pro(otion o! the corporate enterprise. Hnder HS corporate la", corporations have the po"er to (a'e b$%la"s declarin# a person e(plo$ed in the service o! a rival co(pan$ to be ineli#ible !or the corporation:s .oard o! Airectors. ... QARn a(end(ent "hich renders ineli#ible, or i! elected, sub;ects to re(oval, a director i! he be also a director in a corporation "hose business is in co(petition "ith or is anta#onistic to the other corporation is valid." This is based upon the principle that "here the director is so e(plo$ed in the service o! a rival co(pan$, he cannot serve both, but (ust betra$ one or the other. Such an a(end(ent "advances the bene!it o! the corporation and is #ood." n the 3hilippines, section -1 o! the Corporation @a" e*pressl$ provides that a corporation (a$ (a'e b$%la"s !or the &uali!ications o! directors. Thus, it has been held that an o!!icer o! a corporation cannot en#a#e in a business in direct co(petition "ith that o! the corporation "here he is a director b$ utili9in# in!or(ation he has received as such o!!icer, under "the established la" that a director or o!!icer o! a corporation (a$ not enter into a co(petin# enterprise "hich cripples or in;ures the business o! the corporation o! "hich he is an o!!icer or director.E t is also "ell established that corporate o!!icers "are not per(itted to use their position o! trust and con!idence to !urther their private interests." n a case "here directors o! a corporation cancelled a contract o! the corporation !or e*clusive sale o! a !orei#n !ir(:s products, and a!ter establishin# a rival business, the directors entered into a ne" contract the(selves "ith the !orei#n !ir( !or e*clusive sale o! its products, the court held that e&uit$ "ould re#ard the ne" contract as an o!!shoot o! the old contract and, there!ore, !or the bene!it o! the corporation, as a "!aultless !iduciar$ (a$ not reap the !ruits o! his (isconduct to the e*clusion o! his principal.E 0 %*+ ,o-ongwei, as SH of S&', has a vested right to #e voted as director in the corporation . 80 t is !urther ar#ued b$ S<C that there is no vested right of any stoc-holder under .hilippine /aw to #e voted as director of a corporation . 3ursuant to section 18 o! the Corporation @a", any corporation "ay a"end its articles of incorporation #y a vote or written assent of the stoc-holders representing at least two$thirds of the su#scri#ed capital stoc- of the corporation 0f the a"end"ent changes, di"inishes or restricts the rights of the e1isting shareholders then the dissenting "inority has only one right, vi2.3 "to ob;ect thereto in "ritin# and de(and pa$(ent !or his share." Hnder section -- o! the sa(e la", the o"ners o! the (a;orit$ o! the subscribed capital stoc' (a$ a(end or repeal an$ b$%la" or adopt ne" b$%la"s. t cannot be said, there!ore, that petitioner has a vested ri#ht to be elected director, in the !ace o! the !act that the la" at the ti(e such ri#ht as stoc'holder "as ac&uired contained the prescription that the corporate charter and the b$%la" shall be sub;ect to a(end(ent, alteration and (odi!ication. Althou#h in the strict and technical sense, directors o! a private corporation are not re#arded as trustees, there cannot be an$ doubt that their character is that o! a !iduciar$ inso!ar as the

corporation and the stoc'holders as a bod$ are concerned. As a#ents entrusted "ith the (ana#e(ent o! the corporation !or the collective bene!it o! the stoc'holders, "the$ occup$ a !iduciar$ relation, and in this sense the relation is one o! trust." DThe ordinar$ trust relationship o! directors o! a corporation and stoc'holders", accordin# to 4sha"an v. &iller," is not a (atter o! statutor$ or technical la". t sprin#s !ro( the !act that directors have the control and #uidance o! corporate a!!airs and propert$ and hence o! the propert$ interests o! the stoc'holders. ?&uit$ reco#ni9es that stoc'holders are the proprietors o! the corporate interests and are ulti(atel$ the onl$ bene!iciaries thereo!. 0 %hether or not respondent San &iguel 'orporation could, as a "easure of self$ protection, disqualify a co"petitor fro" no"ination and election to its (oard of )irectors. 80 t is alle#ed that petitioner, as o! <a$ 5, 19C8, has e*ercised, personall$ or thru t"o corporations o"ned or controlled b$ hi(, control over the !ollo"in# shareholdin#s in San <i#uel Corporation. Accordin# to respondent S<C, in 19C5, the areas o! co(petition a!!ectin# S<C involved product sales o! over 3644 (illion or (ore than -4J o! the 3- billion total product sales o! S<C. The CFC%/obina #roup "as in direct co(petition on product lines "hich, !or S<C, represented sales a(ountin# to (ore than 36C8 (illion. n this ;urisdiction, under section -1 o! the Corporation @a", a corporation (a$ prescribe in its b$%la"s "the &uali!ications, duties and co(pensation o! directors, o!!icers and e(plo$ees ... " This (ust necessaril$ re!er to a &uali!ication in addition to that speci!ied b$ section 74 o! the Corporation @a", "hich provides that "ever$ director (ust o"n in his ri#ht at least one share o! the capital stoc' o! the stoc' corporation o! "hich he is a director ... " An$ person ""ho bu$s stoc' in a corporation does so "ith the 'no"led#e that its a!!airs are do"inated #y a "a5ority o! the stoc'holders and that he i"pliedly contracts that the will o! the (a;orit$ shall #overn in all (atters "ithin the li(its o! the act o! incorporation and la"!ull$ enacted b$%la"s and not !orbidden b$ la"." To this e*tent, there!ore, the stoc'holder (a$ be considered to have "parted "ith his personal ri#ht or privile#e to re#ulate the disposition o! his propert$ "hich he has invested in the capital stoc' o! the corporation, and surrendered it to the "ill o! the (a;orit$ o! his !ello" incorporators. ... t cannot there!ore be ;ustl$ said that the contract, e*press or i(plied, bet"een the corporation and the stoc'holders is in!rin#ed ... b$ an$ act o! the !or(er "hich is authori9ed b$ a (a;orit$..." t is not denied that a (e(ber o! the .oard o! Airectors o! the San <i#uel Corporation has access to sensitive and hi#hl$ con!idential in!or(ation, such as0 (a) (ar'etin# strate#ies and pricin# structure, (b) bud#et !or e*pansion and diversi!ication, (c) research and develop(ent, and (d) sources o! !undin#, availabilit$ o! personnel, proposals o! (er#ers or tie%ups "ith other !ir(s. t is obviousl$ to prevent the creation o! an opportunit$ !or an o!!icer or director o! San <i#uel Corporation, "ho is also the o!!icer or o"ner o! a co(petin# corporation, !ro( ta'in# advanta#e o! the in!or(ation "hich he ac&uires as director to pro(ote his individual or corporate interests to the pre;udice o! San <i#uel Corporation and its stoc'holders, that the &uestioned a(end(ent o! the b$%la"s "as (ade. Certainl$, "here t"o corporations are co(petitive in a substantial sense, it "ould see( i(probable, i! not i(possible, !or the director, i! he "ere to dischar#e e!!ectivel$ his dut$, to satis!$ his lo$alt$ to both corporations and place the per!or(ance o! his corporation duties above his personal concerns. Sound principles o! corporate (ana#e(ent counsel a#ainst sharin# sensitive in!or(ation "ith a director "hose !iduciar$ dut$ o! lo$alt$ (a$ "ell re&uire that he disclose this in!or(ation to a co(petitive arrival. These dan#ers are enhanced considerabl$ "here the co((on director such as the petitioner is a controllin# stoc'holder o! t"o o! the co(petin# corporations. t "ould see( (ani!est that in such situations, the director has an econo(ic incentive to appropriate !or the bene!it o! his o"n corporation the corporate plans and policies o! the corporation "here he sits as director. ndeed, access b$ a co(petitor to con!idential in!or(ation re#ardin# (ar'etin# strate#ies and pricin# policies o! San <i#uel Corporation "ould sub;ect the latter to a co(petitive disadvanta#e and un;ustl$ enrich the co(petitor, !or advance 'no"led#e b$ the co(petitor o! the strate#ies !or the develop(ent o! e*istin# or ne" (ar'ets o! e*istin# or ne" products could enable said co(petitor to utili9e such 'no"led#e to his advanta#e.

Ro2as v )ela Rosa (19.6)

.inalba#an ?state nc is en#a#ed in the (!# o! ra" su#ar !ro( canes. 3ossessors o! (a;orit$ o! shares !or(ed a votin# trust co(posed o! 7 trustees. Trustees no" controlled 7,444 out o! +,+44 shares. Botin# trust "as able to vote .=A, "ithout opposition !ro( (inorit$. Trustees soon "anted to re(ove the directors the$ had elected, even i! their ter(s had not $et e*pired. Botin# trust caused S?C to issue notice !or a special #en (t# to elect a ne" .=A. 8eld0 Hnder the la", directors can onl$ be re(oved b$ vote o! S8s representin# at least -17 o! the subscribed capital stoc' entitled to vote. )hen the purpose is to re(ove directors, it (ust be stated in call !or (eetin#. .ut vacancies in .=A can be !illed b$ (ere (a;orit$ vote. Trust does not have clear -17 (a;orit$. Botin# trust should have stated in notice that purpose "as to re(ove present .=A. <eetin# called b$ trustees en;oined. n this case, re(oval "as sou#ht to be done b$ replacin# directors .HT can>t re(ove thru election o! ne" o!!icers bec directors have !i*ed ter( o! o!!ice

Angeles v &antos. An#eles et al "ere (inorit$ S8s, "hile Santos et al "ere the (a;orit$ S8s o! 3arana&ue /ice <ills nc. At an e*traordinar$ S8 (eetin# the S8 appointed an investi#ation co((ittee to investi#ate and deter(ine the properties, assets, and losses o! the corporation. Santos denied access to the properties and the records and boo's o! the corporation. Santos too' the records and boo's and appropriated !or his o"n bene!it the properties and !unds o! the corporation. 8e also re!used to issue a certi!icate o! stoc' !or An#eles, and re!used to call a S8 (eetin# and a board (eetin#, as "ell as disposed o! the properties o! the corporation "ithout authorit$. Santos also called no (eetin# o! the board or o! the S8 thus enablin# hi( to continue holdin# "ithout an$ election, the position o! president and G<. An#eles et al sou#ht a court order to appoint a receiver, to order Santos to render an accountin#, to issue to certi!icate o! stoc' i!o An#eles, and to re(ove the present board and hold a special S8 (eetin# to elect a ne" board. 80 There is a(ple evidence to sho" that Santos et al have been #uilt$ o! breach o! trust as directors o! the corporation. The .oard is a creation o! the S8 b$ dele#ation o! the S8. .ut the board, or the (a;orit$ thereo!, occupies a position o! trusteeship in relation to the (inorit$ o! stoc' in the sense that the board should e*ercise GF, care, and dili#ence in the ad(inistration o! the a!!airs o! the corporation. And should protect not onl$ the interests o! the (a;orit$ but also those o! the (inorit$ o! the stoc'. )here the (a;orit$ o! the board per!or(s ultra vires acts or co((its !raud or "ron#!ul har( to the corporation, the court, in its e*ercise o! e&uit$ ;urisdiction, and upon sho"in# that an intracorporate re(ed$ is unavailin#, "ill entertain a suit !or and in behal! o! the corporation to redress the in;uries o! the (inorit$ S8s a#ainst "ron# b$ the (a;orit$. )here corporate directors are #uilt$ o! a breach o! trustKnot o! (ere error o! ;ud#(ent or abuse o! discretionKand intracorporate re(ed$ is !utile or useless, a S8 (a$ institute a suit in behal! o! hi(sel! and other S8 and !or the bene!it o! the corporation. G/0 S8 cannot ordinaril$ sue in e&uit$ to redress "ron#s done to the corporation, but the action (ust be brou#ht b$ the board ?*ception0 ! the corporation is under the co(plete control o! the "ron#!ul (e(bers o! the board, or "here a de(and or suit "ould be useless and !utile The appoint(ent o! a receiver upon application o! the (inorit$ S8 is a po"er to be e*ercised "ith #reat caution. This does not (ean that the ri#hts o! the (inorit$ S8 (a$ be entirel$ disre#arded, and that "here necessit$ has arisen, the appoint(ent o! a receiver !or a corporation is a (atter restin# lar#el$ in the sound discretion o! the court. As to the contention that it "as "ron# !or the TC to order the re(oval o! the directors and (e(bers o! the board upon application b$ the (inorit$ S8s, the la" does no con!er e*pressl$ upon the courts the po"er to re(ove a director. .ut i! the court has ac&uired ;urisdiction to appoint a receiver because o! the (is(ana#e(ent and resultin# in;ur$ caused b$ the (e(bers o! the board, these (a$ therea!ter be re(oved and others appointed in their place b$ the sa(e court in the e*ercise o! its e&uit$ ;urisdiction. n the present case, the properties and assets o!

the corporation are a(pl$ protected b$ the appoint(ent o! a receiver and thus the re(oval o! the directors is unnecessar$ and un"arranted. )ela Ra+a et al v MaCao &uga, . Aerivative suit b$ 6 (inorit$ S8s a#ainst the <a%ao Su#ar Central, its president and 7 other directors. The (inorit$ S8s contend that the president subscribed !or 37< "orth o! capital stoc' o! the 3hil Fiber Co nc, a co(pan$ (a'in# su#ar ba#s, (a'in# - pa$(ents "ithout an$ board resolution authori9in# the invest(ent at the ti(e, but onl$ a!ter the invest(ent "as alread$ (ade. The$ clai( that the transaction is still "antin# in le#alit$, since no resolution "as approved b$ a!!ir(ative vote o! -17 o! S8s. 80 a private corporation, in order to acco(plish its purpose as state in its A= , and sub;ect to the li(itations o! the Code, has to po"er to ac&uire, hold, (ort#a#eL shares, bonds, and other debt instru(ents o! an$ do(estic corporation. Such an act, i! done in pursuance o! the corporate purpose, does not need the approval o! the Shs, but "hen the purchase o! shares o! another corporation is done solel$ !or invest(ent and not to acco(plish its purpose, the vote o! approval o! the S8 is necessar$. )hen the invest(ent is necessar$ to acco(plish its purpose in the A= , the approval o! S8s is not necessar$. o8ong;ei v &"C. 0 )12 the S8 o! a corporation (a$ rati!$ the invest(ent o! corporate !unds in a !orei#n corporation. 80 ! the invest(ent is (ade in pursuance o! the corporate purpose, it does not need approval o! the S8. t is onl$ "hen the purchase o! shares in another corporation is done shole$ !or invest(ent and not to acco(plish the purpose o! the corporation that the vote o! approval o! -17 o! S8 is necessar$. n this case, the purchase o! beer (anu!acturin# !acilities b$ S<C "as an invest(ent in the sa(e business as stated in its A= , "hich is to (anu!acture or (ar'et beer. ?ven assu(in# that the board o! S<C had no authorit$ to (a'e the invest(ent, there is no &uestion that a corporation, li'e an individual, (a$ rati!$ and render bindin# upon it the ori#inall$ unauthori9ed acts o! its o!!icers or other a#ents. t is a corporate transaction or contract "hich is "ithin the corporate po"ers, but "hich is de!ective !ro( a purported !ailure to observe the re&uire(ent o! la" the a vote o! -17 o! S8 holdin# votin# stoc'. This re&uire(ent is !or the bene!it o! the S8s. Thus onl$ the$ (a$ rati!$ the invest(ent, and such rati!ication obliterates an$ de!ect "hich it (a$ have had at the ti(e o! invest(ent. "ve,ett v Asia Ban8ing . Teal P Co(pan$ is indebted to 8) 3eabod$ P Co. !or 3744I !or tractors, plo"s, and parts delivered, o! "hich it has paid 31+4I. Asia .an'in# Corp held dra!ts accepted b$ Teal under the 8) 3eabod$>s #uarantee. Tractors "ere returned to 8) 3eabod$ due to its bein# unsellable due to !inancial and a#ricultural depression in the /3. Teal ordered another lot o! tractors !ro( S(ith Iir'patric', but ship(ent "as dela$ed until the rescission o! the credit o! Teal "ith Asia .an'. Fet S(ith still delivered the order, and Teal at the re&uest and advice o! the .an' accepted the dra!ts and stored the sa(e. Asia ban' persuaded Teal, 3eabod$, and S(ith Iir'patric' to enter into a Dcreditors a#ree(entE "herein it "as (utuall$ a#reed that neither o! the parties should ta'e action to collect its debts !ro( Teal !or - $ears. Teal soon beca(e indebted to Asia .an' !or 3C+4,444, secured b$ (ort#a#e. The .an' then su##ested that, !or the (utual protection o! Teal and itsel!, it "as advisable that the .an' should te(poraril$ obtain control o! the (ana#e(ent and a!!airs o! the co(pan$. To this end, it "as necessar$ !or the S8s to place their shares in a votin# trust to be held b$ the .an', then the .an' "ould !inance Teal under its o"n supervision. The Teal S8s "ere thus induced to enter into the Botin# Trust A#ree(ent, "ith the purpose that the a#ree(ent "ill be intended !or the protection o! all parties !ro( outside creditors. Shortl$ a!ter the e*ecution and deliver$ o! the votin# trust and the <=A, <ullen as G< o! the .an', caused the displace(ent and re(oval S8 representatives in the .oard and the substitution in their place o! the .an'>s e(plo$ees or representatives. The ne" .oard, "ho have not purchased an$ share o! stoc' o! Teal, proceeded to re(ove the Corp Secretar$, dischar#e all the old (ana#ers and displace the( "ith creatures o! their o"n choosin# "hose interest consisted "holl$ in pleasin# the(selves and the .an', and "ho "ere "holl$ !orei#n to the stoc'holders. Montelibano et al v. BacolodCMu,cia Milling Co (nc. <ontelibano et al are su#ar planters adhered to the <illin# Co(pan$>s su#ar central (ill under identical contracts. The contracts "ould be in !orce !or 74 $ears and provide that the resultin# product should be divided in the ratio o! 6+J !or the (ill and ++J !or the planters. t "as proposed to e*ecute the (illin# contracts, increasin# the planter>s shares to 54J o! the (anu!actured su#ar and (olasses and e*tendin# the period !ro( 74 to 6+ $ears. The .oard o! the <illin# co(pan$ then adopted a resolution #rantin# !urther concessions to the planters over

and above the a(ended contract. 1C $ears later, <ontelibano sues the <illin# co(pan$, contendin# that the 7 su#ar centrals "ith a total annual production e*ceedin# 117 o! the production o! all su#ar (illis in 2e#ros, had alread$ #ranted 5-.+J participation to their planters, and in accordance "ith 3ara 9 o! the resolution, it had beco(e obli#ated to #rant si(ilar concessions to the(. 80 )hen a resolution is passed in GF b$ the board, it is valid and bindin#, and "hether or not it "ill cause losses or decrease the pro!its o! the central, the court has no authorit$ to revie" the(. Vuestions o! polic$ or (ana#e(ent are le!t solel$ to the honest decision o! o!!icers and directors o! a corporation, and the court is "ithout authorit$ to substitute its ;ud#(ent !or that o! the board, the board is the business (ana#er o! the corporation and so lon# as it acts in GF its orders are not revie"able b$ the courts &teinbe,g v 3elasco. F0 The board o! the corporation authori9ed the purchase o! 774 shares o! capital stoc' o! the corporation and the declaration o! dividends at a ti(e "hen the corporation "as indebted and in such a bad !inancial condition. The directors relied on the !ace value on the boo's o! its A1/, "hich had little or no value. Further(ore it appears that t"o o! the directors "ere per(itted to resi#n so that the$ could sell their stoc' to the corporation. The corporation beca(e insolvent, and the receiver Steinber# sues the directors. 80 The corporation did not have a bona !ide surplus "ith "hich dividends could be declared and paid out. The directors did not act in GF and "ere #rossl$ i#norant o! their duties. Airectors "ere held personall$ liable !or causin# the corporation to purchase their o"n shares and declarin# dividends, "hich because o! such !ailure to ta'e into consideration o! "orthless receivables, "or'ed to the detri(ent o! the creditors. The directors did not act "ith dili#ence in ta'in# the "ord o! their chair(an and not (a'in# an in!or(ed decision based on the !acts then available to the( and on not rel$in# on other docu(ents available to the(. Creditors have the ri#ht to assu(e that so lon# as there are outstandin# debts and liabilities, the board "ill not use the corporate assets to purchase its o"n stoc', and that it "ill not declare dividends to S8s "hen the corporation is insolvent

&teinbe,g vs. 3elasco Steinber# is the receiver o! Sibu#a$ Tradin#. Belasco (3res) and other directors, approved and authori9ed unla"!ul purchases o! co(pan$>s stoc' !ro( Gan9on et al. Accd# to Steinber#, this diverted !unds supposed to be paid to creditors. Gan9on et al resi#ned as directors be!ore the .oA approved the purchase o! stoc's !ro( the(, "orth 7,744. At that ti(e, corp o"ed 17I. The corp also declared dividends in !avor o! S8s, to be paid in install(ents so as Dnot to a!!ect !inancial condition o! the corp.E A1/>s "hich appeared on boo's "ere "orthless, because receiver could not collect the(. 8?@A0 ! directors dispose o! corp prop or pa$ a"a$ its (one$ "ithout authorit$, the$ "ill be re&uired to (a'e #ood the loss out o! their private estates. Airectors are not liable !or loss to corp !ro( "ant o! 'no"led#e, or !or (ista'es o! ;ud#(ent, provided the$ "ere honest and !airl$ "ithin the scope o! the po"ers and discretion con!ided to (#t. .ut acceptance o! o!!ice o! director i(plies a co(petent 'no"led#e o! the duties assu(ed, and directors cannot e*cuse i(prudence bec o! their i#norance or ine*perience. ! the$ co((it error o! ;ud#(ent throu#h (ere rec'lessness or "ant o! ordinar$ prudence or s'ill, the$ (a$ be held liable !or conse&uences. Creditors o! corp have ri#ht to assu(e that so lon# as there are outstandin# debts and liabilities, .oA "ill not use assets o! corp to purchase its o"n stoc', and that it "ill not declare dividends to S8s "hen corp is insolvent. Airectors held liable. Stoc' purchases and dividends "ere !unded out o! re(ainin# assets. .ut assets W liabilities. Gan9on et al "ere !avored bec the$ "ere able to #et (one$ ahead o! creditors /ecipients o! dividends can be held liable b$ receiver. /atio0 S8s are accessories. /e(e(ber, the$ "ere the ones "ho chose directors.

Mead v "C McCulloug1. 80 )hile a corporation re(ains solvent, there is no reason "h$ a director or o!!icer, b$ authorit$ o! a (a;orit$ o! the S8s or board (a$ not deal "ith the corporation, loan it (one$ or bu$ propert$ !ro( it. So lon# as a purel$ private corporation re(ains solvent, its director are a#ents or trustees !or the S8s. The$ o"e no duties or obli#ations to others. .ut the (o(ent such a corporation beco(es insolvent, its directors are trustees o! all the creditors, "hether the$ are (e(bers o! the corporation or not, and (ust (ana#e its propert$ and assets "ith strict re#ard to their interest. A director or o!!icer (a$ in GF and !or an ade&uate consideration purchase !ro( a (a;orit$ o! the directors or S8s the propert$ even o! an insolvent corporation, and a sale thus (ade to hi( is valid and bindin# upon the (inorit$. )here a director in a corporation accepts a position in "hich his duties are inco(patible "ith those as such director it is presu(ed that he has abandoned his o!!ice as director o! the corporation Ba,,etto v La 0,eviso,a -ilipina. F0 Suit b$ the resi#ned directors o! a buildin# and loan association to recover 1J o! the pro!its to each co(plainant in accordance "ith an a(end(ent to the b$%la"s, "hich stipulate that the$ are entitled to a li!eti(e annuit$ !ro( the pro!its o! the corporation. 80 The a(ended b$%la"s does create an$ obli#ation to pa$ to the persons na(e therein such a li!e #ratuit$ or pension out o! the pro!its. A b$%la" o! this nature (ust be clearl$ re#arded as be$ond the la"!ul po"ers o! a (utual buildin# and loan association and is thus ultra vires. As it "ere, the b$%la" cannot be held to establish a contractual relation bet"een the parties. The authorit$ con!erred upon corporations in the code re!ers to providin# co(pensation !or !uture services o! directors, o!!icers, and e(plo$ees a!ter the adoption o! the b$%la" and cannot in an$ sense be held to authori9e the #ivin# o! continuous co(pensation to particular directors a!ter their e(plo$(ent has ter(inated !or past services rendered #ratuitousl$ b$ the the( to the corporation. To per(it the transaction "ould be to create an obli#ation un'no"n to the la", and to countenance a (isapplication o! !unds o! the buildin# and loan association to the pre;udice o! S8s. Contracts bet"een a corporation and third persons (ust be (ade b$ or under authorit$ o! its board and not b$ the S8s. The action o! the S8s is onl$ advisor$ and is not bindin# on the corporation.

Ba,,eto v La 0,eviso,a -ilipina (199.) .arreto, et al. are directors o! @a 3revisora Filipina, a (utual buildin# and loan assoc. .$% la"s provide co(pensation o! 1J o! pro!its to each director. Co(pensation to appl$ retroactivel$. 8eld0 .$%la"s do not create a le#al obl to pa$ li!e #ratuit$ or pension out o! its net pro!its XY be$ond po"ers o! (utual bld# and loan assoc. Corp @a" authori9es co(pensation onl$ !or !uture services, and cannot authori9e continuous co(pensation to particular directors a!ter their e(plo$(ent has ter(inated !or past services rendered #ratuitousl$ b$ the( to the corp. .uildin# and loan associations are !ounded on strict (utualit$ and e&ualit$ o! bene!its and obli#ations. An$ contract or b$%la" in contravention o! a statute is ultra vires and void. There is an i(plied contract "ith (e(bers that it shall not divert !unds or po"ers to purposes other than !or "hich it "as created. All (e(bers (ust participate e&uall$ in pro!its and bear losses. An$ diversion o! !unds to unauthori9ed purposes violates principle o! (utualit$ bet"een (e(bers. Also, there "as no valid consideration bec the past services "ere rendered #ratuitousl$
0a,do v 7e,cules Lu+be,. F0 Corporate secretar$ o! 8ercules @u(ber re!used to per(it 3ardo, a S8, or his a#ent to inspect the records and business transactions o! the co(pan$ at the ti(es desired b$ 3ardo. .asis o! the re!usal "as the provision in the co(pan$>s b$%la"s "hich stipulated that ever$ S8 (a$ e*a(ine the boo's o! the co(pan$ and other docu(ents upon the da$s "hich the board annuall$ !i*es.

80 The resolution o! the board li(itin# the ri#hts o! S8s to inspect its records to a period o! 14 da$s prior to the annual S8 (eetin# is an unreasonable restriction in accordance "ith the Corpo Code, "hich provides that the ri#ht to inspect can be e*ercised at reasonable hours. The ri#ht o! inspection "as interpreted to (ean that the ri#ht (a$ be e*ercised at reasonable hours on business da$s throu#hout the $ear, and not (erel$ durin# an arbitrar$ period o! a !e" da$s chosen b$ the directors.

on:ales v 0NB. 80 The Code has prescribed li(itations to the ri#ht o! inspection, re&uirin# as a condition !or e*a(ination that the person re&uestin# (ust not have been #uilt$ o! usin# i(properl$ an$ in!or(ation secured throu#h a prior e*a(ination, and that the person as'in# !or such (ust be actin# in GF and !or a le#iti(ate purpose. t is the S8 see'in# to e*ercise the ri#ht o! inspection to set !orth the reasons and purposes !or "hich he desires such inspection. SC held that the purpose o! Gon9ales, "hich "as to ar( hi(sel! "ith evidence "hich he can use a#ainst the ban' !or acts done b$ the latter "hen he "as still a total stran#er (i.e. not a S8), "ere not dee(ed proper (otives and his re&uest "as denied.

on:ales v. 0NB (19!9) Section C6 o! the Corporation Code has been interpreted b$ the Supre(e Court as no lon#er allo"in# the un&uali!ied ri#ht o! inspection o! stoc'holder o! corporate records and that the person (a'in# the de(and has to sho" that he is actin# in #ood !aith and !or a le#iti(ate purpose.

3e,agut1 v (sabela &uga, Co. F0 Airectors have the un&uali!ied ri#ht to inspect the boo's and records o! a corporation at all reasonable ti(es. 3rete*ts (a$ not be put !or"ard b$ the o!!icers to 'eep a director or S8 !ro( inspectin# the boo's and (inutes o! the corporation, and the ri#ht to inspect cannot be denied on the #rounds that the director or S8s are on un!riendl$ ter(s "ith the o!!icers. A director or S8 has no absolute ri#ht to secure certi!ied copies o! the (inutes until these (inutes have been "ritten up and approved b$ the directors.

o8ong;ei v. &"C. F0 Go'on#"ei, a (a;or S8 o! San <i#uel Corporation, sou#ht to e*ercise his ri#ht to inspect the boo's and records o! S<C nt>l, a !orei#n subsidiar$ "holl$%o"ned and controlled b$ S<C. Since he "as not a S8 o! the subsidiar$, S<C denied his re&uest to inspect its boo's. 80 )here the ri#ht to inspect is #ranted b$ statute to the S8, it is #iven to hi( as such and (ust be e*ercised b$ hi( "ith respect to his interest as a S8 and !or so(e purpose #er(ane thereto or in the interest o! the corporation. The inspection has to be #er(ane to the petitioner>s interest as a S8 and has to be proper and la"!ul in character and not ini(ical to the interest o! the corporation. The S8>s ri#ht to inspect is based on his o"nership o! the assets and propert$ o! the corporation. t is there!ore an incident o! o"nership o! the corporate propert$, "hether this o"nership or interest be ter(ed an e&uitable o"nership, bene!icial o"nership, or &uasi% o"nership, and is predicated upon the necessit$ o! sel!%protection. =n application !or (anda(us to en!orce the ri#ht, it is proper !or the court to in&uire into and consider the S8>s GF and his purpose and (otives in see'in# inspection. .ut the i(propriet$ o! purpose such as "ill de!eat en!orce(ent (ust be set up b$ the corporation de!ensivel$ i! the Court is to ta'e co#ni9ance o! it as a &uali!ication. n other "ords, the speci!ic provisions ta'e !ro( the S8 the burden o! sho"in# the propriet$ o! purpose and place upon the corporation the burden o! sho"in# i(propriet$ o! purpose or (otive. The !orei#n subsidiar$ is "holl$%o"ned b$ S<C and there!ore under its control, and "ould be (ore in accord "ith e&uit$, GF, and !air dealin# to construe the statutor$ ri#ht o! Go'on#"ei as S8 to inspect the boo's o! the parent as e*tendin# to the boo's o! the subsidiar$ in its control. "vangelista et al v &antos. F0 3lainti!!s are (inorit$ S8s "ho brou#ht a derivative suit a#ainst the principal o!!icer !or da(a#es resultin# !ro( the (is(ana#e(ent o! corporate a!!airs and (isuse o! corporate assets. The co(plaint pra$ed !or ;ud#(ent re&uirin# de!endant, a(on# others, to pa$ plainti!!s

the value o! their respective participation in said assets on the basis o! the value o! the shares held b$ the(. 80 Suit "ould not prosper. S8s brou#ht the action not !or the bene!it o! the corporation but !or their o"n bene!it since the$ as'ed that the de!endant (a'e #ood the losses occasioned b$ his (is(ana#e(ent and pa$ the( the value o! their respective participation in the corporate assets on the basis o! their respective holdin#s. The relie! sou#ht could not be done until all the corporate debts, i! there are an$, are paid and the e*istence o! the corporation ter(inated b$ the li(itation o! its charter or b$ la"!ul dissolution. Since it is the corporation "hich is the real part$%in%interest, then the relie!s pra$ed !or (ust be !or the bene!it or interest o! the corporation. )hen the relie!s pra$ed !or do not pertain to the corporation, then it is an i(proper derivative suit.

Republic Ban8 v Cuade,no. F0 A derivative suit "as brou#ht a#ainst the o!!icers and the board. Co(plaint alle#ed that the directors approved a resolution #rantin# e*cessive co(pensation to the corporate o!!icers. Suit "as !iled in order to prevent dissipation o! the corporate !unds !or the pa$(ent o! salaries o! the said o!!icers. .oard clai(s the action cannot prosper !or !ailure to co(pel the board to !ile the suit !or and in behal! o! the corporation. 80 Such a suit need not be authori9ed b$ the corporation "here its ob;ective is to nulli!$ the action ta'en b$ its (ana#er and the board, in "hich case an$ de(and !or intra%corporate re(ed$ "ould be !utile, and thus necessitatin# the court to intervene b$ #rantin# the petition !or a derivative suit. A S8 in a ban'in# corporation has a ri#ht to (aintain a suit !or an in behal! o! the corporation, but the e*tent o! such ri#ht depends upon "hen and !or "hat purpose he ac&uired the shares o! stoc' o! "hich he is the o"ner. =n the issue that the relators controverted the ri#ht to &uestion the appoint(ent and selection o! Cuaderno and Ai9on, "hich the$ contend to be the resilt o! corporate acts "ith "hich the plainti!! as S8, cannot intervere, the SC held that an individual S8 is per(itted to institute a derivative suit in behal! o! the corporation "herein he holds stoc' in order to protect or vindicate corporate ri#hts, "henever the o!!icial o! the corporation re!uses to sue, or are to ones to be sued.

&an Miguel Co,po,ation v *a1n. 80 /e&uisites !or a proper derivative suit0 (a) part$ brin#in# suit should be a S8 as o! the ti(e o! the act or transaction co(plained o! and at the ti(e o! !ilin# o! the suit. 2u(ber o! shareholdin#s i((aterial. A bona !ide o"nership b$ a S8 in his o"n ri#ht su!!ices to invest hi( "ith standin# to brin# a derivative action in behal! o! the corporation (b) part$ has tried to e*hausted intra%corporate re(edies ((ade de(and on the board to sue in behal! o! the corporation, but the latter !ailed or re!used) (c) cause o! action actuall$ devolves on the corporation, the "ron#doin# or har( havin# been or bein# caused to the corporation itsel! and not to the suin# S8 Bayla et al v &ilang #,affic Co (nc. -D .a$la et al are S8s "ho !ile an action to recover certain su(s o! (one$ "hich the$ had paid to the corporation on account o! shares o! stoc' the$ individuall$ a#reed to ta'e and pa$ !or under certain speci!ied conditions. The action is based on a resolution b$ the board o! Silan# Tra!!ic nc. The resolution revo'es the rescission o! the a#ree(ent. Silan# ar#ues that the resolution does not appl$ to .a$la because on the date thereo! the subscribed shares had alread$ auto(aticall$ reverted to the corporation, and the install(ents paid had alread$ been !or!eited, "ithout need !or de(and, and that the resolution itsel! had been revo'ed. TC ruled i!o Silan# Tra!!ic, invo'in# the rulin# in Belasco v 3oi9at that a corporation has no le#al capacit$ to release an ori#inal subscriber to its capital stoc' !ro( the obli#ation to pa$ !or its shares, and an$ a#ree(ent to this e!!ect is invalid. CA a!!ir(s. The parties, TC and CA treated the a#ree(ent as a contract o! subscription to the capital stoc' o! Silan# Tra!!ic. t should be noted that the a#ree(ent is entitled, DA#ree(ent !or nstall(ent Sale o! Shares in the Silan# Tra!!ic Co. nc, and that "hile the purchaser is desi#nated as a DsubscriberE, the corporation is described as Dseller.E The a#ree(ent too' e!!ect lon# a!ter incorporation o! the co(pan$.

(D )=2 the contract in &uestion is a subscription or a contract o! sale. 7D )hether a particular contract is a subscription or a sale o! stoc' is a (atter o! construction and depends upon its ter(s and intention o! the parties. A subscription to a stoc' in an e*istin# corporation is, as bet"een the subscriber and the corporation, si(pl$ a contract o! purchase and sale. Thus the ter(s o! the contract indicate that the$ are contracts o! sale and not o! subscription. A subscription is the (utual a#ree(ent o! the subscribers to ta'e and pa$ !or the stoc' o! a corporation, "hile a purchase is an independent a#ree(ent bet"een the individual and the corporation to bu$ shares at a stipulated price. @i'e"ise, the rule that the corporation has no le#al capacit$ to release an ori#inal subscriber to its capital stoc' !ro( the obli#ation to pa$ !or his shares, is inapplicable to a contract o! purchase o! shares. The contract bein# one o! purchase and not subscription there is no le#al i(pedi(ent to its rescission b$ a#ree(ent o! the parties. The rescission "as (ade !or the #ood o! the corporation and in order to ter(inate the pendin# civil case. Since the civil case "as eventuall$ dis(issed, and that the purchasers o! stoc' "ould be able to bene!it b$ the resolution. t "ould be an un;ust discri(ination to den$ the sa(e bene!it to .a$la. There is also no inti(ation that the corporation is insolvent, or that the ri#ht o! an$ creditor "as pre;udiced b$ the rescission. (D )=2 under the contract, the !ailure o! the purchaser to pa$ an$ o! the install(ents auto(aticall$ #ave rise to the !or!eiture o! the paid install(ents. 7D the contract did not e*pressl$ provide !or auto(atic !or!eiture and cancellation "ithout necessit$ o! de(and. Hnder the CC persons obli#ed to deliver or do so(ethin# are not in de!ault until the a(ount the creditor ;udiciall$ de(ands the sa(e, unless the obli#ation or the la" e*pressl$ provides that de(and shall not be necessar$ or that b$ reason o! the nature and circu(stances o! the obli#ation it shall appear that the desi#nation o! the ti(e "hen the thin# is to be delivered or service rendered "as the principal induce(ent to the creation o! the obli#ation. The nature o! a contract coverin# unissued shares a!ter incorporation "as either a subscription contract or a purchase o! shares o! stoc', dependin# on the ter(s o! the a#ree(ent and intent o! the parties Subscription a#ree(ents are (utual a#ree(ents a(on# subscribers to ta'e and pa$ !or the stoc' o! a corporation, and it is not possible !or S8s to "ithdra" !ro( such an a#ree(ent "ithout the consent o! the other subscribers 3urchase a#ree(ents are independent a#ree(ents bet"een the individual and the corporation to bu$ shares at a stipulated price

Benito v. &"C. -D .enito subscribed to 654 shares o! the Ja(iatul 3hilippine%Al sla(is nc. The corporation increase its capital stoc', "ith an additional issuance o! "orth 3114,984.44. .enito !iles a co(plaint "ith the S?C alle#in# that the issuance "as (ade in violation o! his pre%e(ptive ri#ht to the additional issue and that the S8s o! record "ere not noti!ied o! the (eetin#. S?C ruled that the issuance "as valid, and that his pree(ptive ri#hts are inapplicable. 7D ssuance is not invalid even "ithout notice to the S8s. The po"er to issue shares o! stoc's is lod#ed in the board and no S8 (eetin# is necessar$ to consider it because additional issuance o! shares does not need S8 approval. G/0 pree(ptive ri#ht is reco#ni9ed onl$ "ith respect to ne" issue o! shares, and not "ith respect to additional issues o! ori#inall$ authori9ed shares. The theor$ is that "hen a corporation at its inception o!!ers it !irst shares, it is presu(ed to have o!!ered all o! those "hich it is authori9ed to issue. The ori#inal subscriber is dee(ed to have ta'en his shares 'no"in# that the$ !or( a de!inite proportionate part o! the "hole nu(ber o! authori9ed shares. )hen the shares le!t unsubscribed are later reo!!ered, he cannot there!ore clai( a dilution o! interest. 3elasco v 0oi:at -D Belasco is the assi#nee in the insolvenc$ o! 3hilippine Che(ical 3roduct Co(pan$ and is see'in# to recover !ro( Jean 3oi9at the unpaid subscription (ade b$ hi( to the stoc' o! the corporation. 3oi9at, one o! the incorporators and once the treasurer and (ana#er o! the corporation, subscribed !or -4 shares and paid in the par value o! + shares (3+44). )hile in this capacit$ he called in and collected all subscriptions e*cept 1+ shares subscribed b$ hi( and another 1+ b$ Jose n!ante.

- resolutions "ere adopted b$ the board0 (1) proposal that the directors or S8s (a'e #ood b$ ne" subscription the 1+ shares "1h had been surrendered b$ n!ante, and that the latter "ould be released !ro( his obli#ation to the corporation, (-) as to 3oi9at, "ho "as absent, he should be re&uired to pa$ the a(ount o! his subscription upon the 1+ shares he o"es to the corporation. 3oi9at, in a letter states that he "as also to be relieved !ro( his subscription, and that he pre!ers Dto lose the "hole o! the -+J rather than continue investin# (ore (one$ in aL ruinous proposition.E Soon the co(pan$ beca(e insolvent, and Belasco as assi#nee sues 3oi9at !or his unpaid subscription. 7D 3oi9at is still liable on his subscription. A stoc' subscription is a contract bet"een the corporation on one side, and the subscriber on the other. t is a rule that a subscription !or shares o! stoc' does not re&uire an e*press pro(ise to pa$ the a(ount subscribed, as the la" i(plies a pro(ise to pa$ on the part o! the subscriber. A stoc' subscription is a subsistin# liabilit$ !ro( the ti(e the subscription is (ade, since it re&uires the subscriber to pa$ interest &uarterl$ !ro( that date unless he is relieved !ro( such liabilit$ b$ the b$%la"s. There are t"o (-) re(edies !or the en!orce(ent o! stoc' subscriptions0 (1) the !irst is a special re(ed$ "hich consists in per(ittin# the corporation to put up the unpaid stoc' !or sale, and is (erel$ a re(ed$ in addition to that "hich proceeds b$ action in court, (-) the other is an action in court, "hich e*ists even thou#h no (ention thereo! is (ade in statute. Hnder the nsolvenc$ @a", the assi#nee o! the insolvent corporation succeeds to all the corporate ri#hts o! action vested in the corporation prior to its insolvenc$, and the assi#nee there!ore has the sa(e !reedo( "ith respect to suin# upon a stoc' subscription as directors the(selves "ould have had under Sec 69 above cited. Another reason0 )hen insolvenc$ supervenes upon a corporation and the court assu(es ;urisdiction to "ind it up, all unpaid stoc' subscriptions beco(e pa$able on de(and, and are at once recoverable in an action instituted b$ the assi#nee in court. t evidentl$ cannot be per(itted that a subscriber should escape !ro( his la"!ul obli#ation b$ reason o! the !ailure o! o!!icers to per!or( their dut$ in (a'in# the call, and "hen the ori#inal (ode o! (a'in# the call beco(es i(practicable, the obli#ation (ust be treated as due upon de(and. As to the n!ante release, it is not pre;udicial to the ri#ht o! the corporation or its assi#nee to recover !ro( 3oi9at, althou#h in releasin# n!ante, the board overstepped its bounds and should still be liable on shares that "ere not ta'en up and paid !or b$ the corporation. 3oi9at continued to be liable on his subscription )hen insolvenc$ supervenes and court assu(es ;urisdction to "ind up, unpaid stoc' subscriptions beco(e pa$able on de(and and are at once recoverable in an action b$ the assi#nee in insolvenc$

Lingayen ulf "lect,ic v Balta:a, -D .alta9ar subscribed !or 544 shares (3144 par value) o! @in#a$en Gul! and paid 31+444, plus another pa$(ent leavin# a balance o! 318+44 unpaid. n a S8 (eetin# it "as a#reed to call the balance o! all unpaid subscribed capital stoc', the !irst +4J pa$able "ithin 54 da$s, re(ainin# +4J pa$able "ithin 54 da$s hence. All unpaid subscription a!ter due dates o! both calls "ould be sub;ect to 1-J interest. All re(ainin# unpaid shares "ould revert to the corporation. .alta9ar o!!ered to "ithdra" co(pletel$ !ro( the corporation b$ sellin# out all his shares o! stoc'. Another resolution (2o. 1C) "as adopted rescindin# the previous resolution because the corporation "as not in a !inancial position to absorb the unpaid balance o! the subscribed capital stoc'. Fet another resolution (2o. 6) "as adopted to revalue the stoc' and assets o! the corporation to attract outside investors. Althou#h .alta9ar "as in!or(ed o! the de(and !or pa$(ent the call ho"ever "as not published in a ne"spaper o! #eneral circulation. Another de(and "as (ade upon .alta9ar, "ho i#nores the sa(e upon the #rounds that 1. action is pre(ature because there "as no valid call, and -. #rantin# there "as a valid call, he "as released !ro( liabilit$ thru S8 /es. 2os. 1C and 6. . The corporation sues. TC rules i!o .alta9ar, holdin# that the resolution "as null and void !or lac' o! publication.

7D TC "as correct that the la" re&uires that notice o! an$ call !or the pa$(ent o! unpaid subscription should be (ade not onl$ personall$ but also b$ publication. The publication re&uire(ent is (andator$, and the reason is because it is not onl$ to assure notice to all subscribers, but also to assure e&ualit$ and uni!or(it$ in the assess(ent on S8s. 2ot onl$ (ust personal notice be #iven in one o! these (atters, but the notice (ust also be published once a "ee', !or 6 consecutive "ee's in so(e ne"spapers. The court reiterated the rulin# in Belasco v 3oi9at, "here the corporation involved "as insolvent, in "hich case all unpaid stoc' subscriptions beco(e pa$able on de(and and are i((ediatel$ recoverable in an action instituted b$ the assi#nee. But ;1en t1e co,po,ation is a solvent conce,n, the rule is that the suit de(andin# !or pa$(ent o! unpaid subscriptions (ust be preceded b$ a call or assess(ent a#ainst the subscribers, and onl$ then "ill there be a ri#ht o! action. As to clai( o! .alta9ar that /esolution 1C released hi( !ro( obli#ation to pa$, in order to e!!ect the release, there (ust be unani(ous consent o! the S8s (here, C S8s "ere absent "hen said /es "as (ade) . The G/ is that a valid and bindin# subscription cannot be cancelled so as to release the subscriber !ro( liabilit$ thereon "ithout the consent o! all the S8s. Further(ore, a subscription cannot be cancelled b$ the co(pan$, even under a secret or collateral a#ree(ent !or cancellation (ade "ith the subscriber at the ti(e o! the subscription, as a#ainst persons "ho subse&uentl$ suebscribed or purchased "ithout notice o! such a#ree(ent. ?*ceptions0 pursuant to a bona !ide co(pro(ise, or to set o!! a debt due !ro( the corporation, a release, supported b$ consideration, "ill be e!!ectual as a#ainst dissentin# S8s and subse&uent and e*istin# creditors. A release "hich (i#ht ori#inall$ have been held invalid (a$ be sustained a!ter a considerable lapse o! ti(e. n the present case, the release clai(ed b$ the .alta9ar does not !all under the e*ceptions re!erred to, because it "as not #iven pursuant to a bona !ide co(pro(ise or to set o!! a debt due !ro( the corporation and there "as no consideration !or it. (7D not indivisible) /eason !or (andator$ provision that call should be strictl$ co(plied "it 7D to assure notice to all subscribers, and to assure e&ualit$ and uni!or(it$ in the assess(ent on S8s A contract o! subscription is at least in the sense that it creates an estoppel, a contract a(on# the several subscribers, and thus none o! the subscribers can "ithdra" !ro( the contract "ithout the consent o! the rest and thereb$ di(inish the co((on !und "hich all have an interest in 2otice !or call o! pa$(ent !or unpaid subscriptions (ust be published, e*cept "hen the corporation is insolventKpa$(ent is i((ediatel$ de(andable G/0 A valid and bindin# subscription !or stoc' o! a corporation cannot be cancelled so as to release the subscriber !ro( liabilit$ thereon, "ithout the consent o! all the S8s ?*ceptions in @in#a$en reall$ do not constitute a #ratuitous release since a valuable consideration is actuall$ received b$ the corporation such as the cancellation o! corporate debt

)a &ilva v Aboiti: > Co (nc. -D Aa Silva subscribes !or 5+4 shares (par value o! 3+44) o! Aboiti9. 8e pa$s onl$ !or -44 shares, as there are re(ainin# 6+4 shares unpaid (3--+,444). Thru a /es., the board declared and in!or(ed all subscribers and S8s that all shares unpaid b$ 71 <a$ shall be declared delin&uent and to be sold at a delin&uenc$ sale on the !ollo"in# June 15. Ad "as published as announced in the notice. Aa Silva sued Aboiti9 Co., contendin# that in prescribin# another (ethod !or pa$(ent o! subscription di!!erent !ro( that in the b$%la"s, the corporation had e*ceeded its authorit$. 8e clai(s that in Art 65 o! the b$%la"s, all shares subscribed shall be paid out o! the C4J o! the pro!it obtained, to be distributed a(on# the subscribers and said /es., violates the said b$%la". (D )=2 under the b$%la"s the corporation (a$ declare the unpaid shares delin&uent or collect their value throu#h another (ethod. 7D F?S. The b$%la" also authori9es and e(po"ers the board to collect the value o! the shares subscribed and unpaid b$ deductin# !ro( the C4J, distributable in e&ual parts a(on# the S8s, to be applied on the pa$(ent o! the shares. t also authori9es the creation o! a special e(er#enc$ !und, appl$in# the C4J o! the pro!it on the pa$(ent o! shares not !ull$ paid. Thus it is discretionar$ on the corporation to do "hatever is provided in the said article relative to the

application o! a part o! the C4J o! the pro!it distributable. t also sho"s that it is the board and not he delin&uent subscriber that (a$ and (ust ;ud#e and decide "hether or not such value (ust be paid out o! the C4J o! the pro!it. t lies there!ore, "ithin the discretion o! the board to (a'e use o! such authorit$. ! the board opts not the (a'e use o! such authorit$, it has t"o other re(edies to acco(plish the sa(e purpose, as declared b$ the Court in Belasco v 3oi9at0 (1) put up the unpaid stoc' !or sale, or (-) direct action in court. n this case the board elected to avail o! the !irst re(ed$, and co(pl$in# strictl$ "ith the re&uire(ents o! la", the directors (ade use o! the discretionar$ po"er #ranted b$ the la" and declared that the pa$(ent o! the subscription to 6+4 unpaid shares "as due and de(andable, and that said shares "ere delin&uent. The .oard has absolute discretion to choose "hich re(ed$ it dee(s proper in order to collect the unpaid subscriptions T"o other re(edies0 delin&uenc$ sale and action in court

National "2c1ange v )e2te, -D . Ae*ter subscribed to 744 shares o! CS Sal(on P Co., "hich shall be Dpa$able !ro( the !irst dividends declared on an$ and all shares o! said co(pan$ o"ned b$ (e at the ti(e dividends are declared, until !ull a(ount o! subscription has been paid.E The subscription "as initiall$ paid 31+,444, !ro( a dividend declared b$ the co(pan$, supple(ented b$ Ae*ter>s o"n (one$. Ae*ter incurs a balance o! 31+444 (par value o! 1+4 shares) still unpaid on his subscription. The assi#nee o! Sal(on, 2ational ?*chan#e Co, sues Ae*ter to recover the balance. TC ruled i!o 2ational ?*chan#e. (D )=2 the subscription is pa$able !ro( the !irst dividends declared has the e!!ect o! relievin# the subscriber !ro( personal liabilit$ in an action to recover the balance 7D =! course not. A corporation has the po"er to accept subscriptions upon an$ special ter(s not prohibited or contrar$ to la" or public polic$, provided it does not re&uire the per!or(ance o! corporate acts be$ond the po"ers con!erred, and do not constitute a !raud upon other subscribers, S8s, or creditors. ! it is unla"!ul to issue stoc' other"ise than as stated it is sel!% evident that a stipulation in a stoc' subscription that obli#ates the subscriber to pa$ nothin# !or the shares e*cept as dividends (a$ accrue upon the stoc' is ille#al. This is discri(inator$ i!o the subscriber, to the detri(ent o! the others. 2or has a corporation the po"er to receive a subscription such ter(s as "ill operate as a !raud upon the other subscribers or S8s b$ sub;ectin# the( to li#hter burdens, or b$ #ivin# #reater ri#hts and privile#es, or as a !raud upon creditors. As a #eneral rule, an a#ree(ent bet"een a corporation and a subscriber, b$ "hich the subscription is not he be pa$able, or is to be pa$able in part onl$L is ille#al and void as in !raud o! creditors or other S8s. Ca(pos0 6(esides assuring equality a"ong SH, the law see-s to protect corporate creditors. &a-ing pay"ent of su#scription dependent on the e1istience of profits or dividends would #e contrary to the policy #ehind the law. -ua Cun v &u++e,s -D Chua Soco subscribed !or +44 shares (3144 par) o! China .an'in# Corporation, pa$in# Z and leavin# a balance o! 3-+,444. 8e issued a 32 i!o Fua Cun !or the balance, securin# the note "ith a C< on the shares o! stoc', and endorsin# the receipt o! the stoc' purchase). Chua Soco "as also indebted to China .an' (37C,C71.58), and upon de!ault his interest in the +44 shareas "as attached and the receipt sei9ed b$ the sheri!!. The attach(ent "as levied a!ter the ban' 'ne" o! the !act that the receipt had been endorsed to Fua Cun. Fua Cun then sued, contendin# that b$ virtue o! pa$(ent o! Z the subscription price o! the shares, Chua Soco in e!!ect beca(e the o"ner o! -+4 shares and sou#ht to have his lien on the shares be declared to hold priorit$ over the clai( o! the ban'. China .an' ar#ued that the interest o! Chua Soco "as (erel$ an e&uit$ "hich cannot be (ade the sub;ect o! a C<. TC ruled i!o Fua Cun. 7D TC erred in holdin# that Chua Soco beca(e o"ner o! -+4 shares. Fua Cun>s ri#hts consist in an e&uit$ o! +44 shares and upon pa$(ent o! the unpaid portion, he beco(es entitled to the issuance o! the certi!icate !or +44 shares in his !avor.

As to the C<, the C< "ould not prevail over liens o! third persons "ithout notice, an e&uit$ in shares is o! such an intan#ible character that is so(e"hat di!!icult to see ho" it can be treated as chattel and (ort#a#ed in the sa(e (anner that the recordin# o! the sa(e "ill !urnish constructive notice to third parties. There can be no doubt that an e&uit$ in shares o! stoc' (a$ be assi#ned and that the assi#n(ent is valid as bet"een the parties and as to person to "ho( notice is brou#ht ho(e. Such an assi#n(ent e*ists here, thou#h it "as (ade !or the purpose o! securin# a debt. As a#ainst the ri#hts o! !ua cun, the ban' had no lien unless b$ virtue o! the attach(ent, but the attach(ent "as levied a!ter the ban' had received notice o! the assi#n(ent o! Chua Soco>s interest to !ua Cun and "as there!ore sub;ect to the ri#hts o! the latter.

Balta:a, v Lingayen ulf "lect,ic -D .alta9ar and /ose "ere incorporators o! the @in#a$en Gul! ?lectric 3o"er Co. and subscribed to0 .alta9ar X 544 shares (paid +7+ shares [ a!ter trans!ers, o"ned 761 shares "1 cert. plus 5+ shares "1o certi!icate) /ose X 644 shares (paid 7C+ shares "1 certs) leavin# unpaid a certain portion thereo!. t is the co(pan$ practice to issue certi!icates o! stoc' to its individual subscribers !or unpaid shares o! stoc'. Ae!endants Hn#son et al are s(all S8s ( W144 shares) o! the corporation, and are the (a;orit$ o! the board. Co%de!endant Acena is the lar#est sin#le S8 "ith 544 shares and "as responsible !or election to the board o! t"o o! the 6 (a;orit$ board (e(bers (Hn#son Group). .alta9ar "as responsible !or the election o! the other - (.alta9ar Group). Hn#son Group "hich controlled the corporation passed 7 resolutions "hich threatened to e*pel the plainti!!s and prevent the( !ro( e*ercisin# their votin# ri#hts0 (1) declarin# "atered stoc's issued to Acena, .alta9ar, /ose and Jubenville o! no value and cancelled the sa(e, (-) all unpaid subscriptions to bear interest, and all pa$(ents to be credited to interest !irst, capital debt second, and , (7) all stoc' declared delin&uent on the accrued interest are incapacitated to avail o! votin# po"er. .alta9ar and /ose sou#ht to allo" the( to vote their !ull$ paid%up shares and to declare the resolutions invalid. A co(pro(ise deal "as e*ecuted, but en!orce(ent b$ the TC "as en;oined b$ the Hn#on Group and as'ed !or a(end(ent. TC a(ended but "as opposed b$ .alta9ar. The Court then reversed the a(endin# decision, rulin# that all shares o! the capital stoc' o! the corporation covered b$ !ull$ paid shares are entitled to vote in all (eetin#s. .alta9ar clai(s that once a S8 has subscribed to a certain nu(ber o! shares, althou#h he has (ade partial pa$(ents, but is issued a certi!icate !or the paid%up shares, he is entitled to vote the "hole nu(ber o! shares subscribed, "hether paid or not. The corporation counters that under the doctrine in the Fua Cun case, a partial pa$(ent o! a subscription does not entitle the S8 to a certi!icate !or the total nu(ber o! shares subscribed b$ hi(, and his ri#ht consists onl$ in e&uit$ to a certi!icate o! the total nu(ber o! shares subscribed !or, upon pa$(ent o! the re(ainin# portion o! the subscription price. (D )=2 a S8 "ith a balance o! unpaid shares subscribed is entitled to vote the latter 7D F?SY The present case does not co(e under the principle in Fua Cun because it "as the practice o! the co(pan$ since its inception, to issue certi!icates o! stoc' even !or unpaid shares and #ave votin# po"er to stoc's !ull$ paid. The present la" re&uires as a condition be!ore a S8 can vote that his !ull subscription be paid in the case o! no par value shares, and "ith respect to par value shares, the S8 can vote the shares !ull paid, irrespective o! the unpaid delin&uent shares. A corporation (a$ no", in the absence o! provisions in their b$%la"s to the contrar$, appl$ pa$(ents (ade b$ subscribers either as !ull pa$(ent !or the correspondin# nu(ber o! stoc' or as pa$(ent pro%rata to each and all the entire nu(ber o! shares subscribed. n this case, corporation chose to appl$ pa$(ents b$ the S8s to de!inite shares o! stoc' and had !ull paid%up shares certi!icates !or the pa$(ents. ts call !or pa$(ents o! unpaid subscription and its declaration o! delin&uenc$ onl$ a!!ectin# the re(ainin# nu(ber o! shares. 8ere the corporation applied the pa$(ents (ade to the !ull par value o! shares subscribed, instead o! the accrued interest. This bein# the case, the application o! pa$(ents (ust be dee(ed to have been a#reed upon b$ the corporation and the S8s and cannot no" be chan#ed "ithout the consent o! the S8s concerned. t "ould there!ore result that a corporation (a$, upon the re&uest o! an interested S8, appl$ pa$(ents b$ the( to the !ull par value o! subscribed capital stoc'. Since it "as the practice o! the corporation to issue stoc' certi!icates to not !ull$ paid subscribers, it (a$ not ta'e a"a$ the ri#ht to vote #ranted b$ the certi!icate Stoc' certi!icates (a$ be issued !or less than the nu(ber o! shares subscribed !or

o o

3rovided the par value o! each represented b$ the certi!icate has been paid And it is not prohibited b$ the b$%la"s

Nava v 0ee,s Ma,8eting Co,p -D %%3o "as an incorporator o! 3eers <ar'etin# and subscribed to 84 shares (3144 p.v.) pa$in# -+J o! the a(ount o! subscription. 2o certi!icate o! stoc' "as issued. %%3o sold to 2ava -4 o! the shares. n the deed o! sale 3o represented that he "as the absolute and re#istered o"ner o! the -4 shares sold. %% 2ava re&uested the corporation to re#ister the sale, but "as denied because 3o had not !ull$ paid the a(ount o! subscription. ("as in!or(ed that 3o "as delin&uent in pa$(ent o! his subscription and that corp had the clai( to his entire subscription o! 84 shares). 2ava !iled a (anda(us action to co(pel the corporation to re#ister the shares in the boo's. TC dis(issed petition. %%2ava contends the rulin# in Fua Cun is not applicable in a!!ir(in# corporation>s re!usal to re#ister in the boo's the sale to hi( o! -4 shares. 2ava relies on the rulin# in .alta9ar v @in#a$en Gul! ?lectric, "hich held that the corpo la" re&uires as a condition be!ore a S8 can vote his shares that his !ull subscription be paid in the case o! no par stoc', but in par value stoc's, the S8 can vote his shares !ull$ paid b$ hi(, onl$, irrespective o! the unpaid delin&uent shares. (D )=2 the corporation can be co(pelled to enter in its boo's the sale (ade b$ 3o to 2ava o! -4 shares 7D 2=Y The 2ava trans!er is not the alienation sale or trans!er o! stoc' conte(plated in the old @a". As a rule, shares "hich (a$ be alienated are those "hich are covered b$ certi!icates o! stoc'. As prescribed in the corpo la", shares o! stoc' (a$ be trans!erred b$ deliver$ to the trans!eree o! the certi!icate properl$ indorsed. 8o"ever, that cannot be !ollo"ed in the instant case because the -4 shares are not covered b$ an$ stoc' certi!icate in 3o>s na(e. <oreover, a corporation has a clai( on the said shares !or the unpaid balance o! the subscription. A stoc' subscription is a subsistin# liabilit$ !ro( the ti(e the subscription is (ade. The subscriber is as (uch bound to pa$ his subscription as he "ould be to pa$ an$ other debt. The ri#ht o! the corporation to de(and pa$(ent is no less contestable. A corporation cannot release an ori#inal subscriber !ro( pa$in# !or his shares "ithout valuable consideration, "ithout the unani(ous consent o! the S8s. There is no clear dut$ here on the part o! the o!!icers o! 3eers to re#ister the -4 shares in 2ava>s na(e. The court also ruled that there is no parallelis( bet"een 2ava and the .alta9ar case. n the latter, the S8%incorporator "as the holder o! a stoc' certi!icate, and the issue "as "hether the said shares had votin# ri#hts althou#h the incorporator had not !ull$ paid the subscription, "hich is not the issue in this case. There is no stoc' certi!icate issued to 3o, and "ithout itK"hich is the evidence o! o"nership o! the stoc'Kthe assi#n(ent o! corporate shares is e!!ective onl$ bet"een the parties to the transaction. The deliver$ o! the stoc' certi!icate is essential !or the protection o! both the corporation and its S8s. Nielson > Co v Lepanto Consolidated Mining Co. -D </ !iled b$ @epanto Corp "hich involves an a#ree(ent subse&uentl$ e*tended, as to the co(pensation o! 2ielson (a pro(oterM) "hich provides that he is entitled to receive 14J o! an$ dividends declared and paid b$ @epanto. 2ielson is not a S8 o! the corporation. Aurin# the e*tension period the corporation declared dividends "orth 37<. SC ruled that 2ielson "as entitled to the 14J o! the dividends paid and declared and @epanto "as ordered to issue and deliver to 2ielson shares o! stoc's as "ell as !ruits or dividends accruin# to the sa(e. @epanto contends that pa$(ent to 2ielson o! stoc' dividends as co(pensation violates the Corporation @a". (D )=2 the corporation can be co(pelled to issue and deliver to 2ielson shares o! stoc' and the !ruits thereo! 7D Hnder the Code stoc' dividends cannot be issued to a person "ho is not a S8 in pa$(ent o! services rendered. 2ielson cannot be paid in shares o! stoc' "hich !or( part o! the stoc' dividends o! @epanto. The understandin# bet"een @epanto and 2ielson "as si(pl$ to (a'e the cash value o! the stoc' dividends as the basis !or deter(inin# the a(ount o! co(pensation that should be paid to 2ielson. /0 Consideration !or shares o! stoc'0 (1) cash, (-) propert$, (7) undistributed pro!its.

A corporation (a$ le#all$ issue shares o! stoc' in consideration o! services rendered b$ a person not a S8, or in pa$(ent o! indebtedness, "hich is e&uivalent to issuin# a stoc' in e*chan#e !or cash. .ut a share o! stoc' thus issued should be part o! the ori#inal capital stoc' o! the corporation, or part o! the stoc's issued "hen the increase in capitali9ation "as properl$ authori9ed. n other "ords, it is the shares that are ori#inall$ issued b$ the corporation and !or(in# the part o! capital that can be e*chan#ed !or cash or services rendered, or propert$Ki! the corporation has ori#inal shares o! stoc' unsold or unsubscribed, either co(in# !ro( the ori#inal capitali9ation or !ro( the increased capitali9ationKthese (a$ be issued to a person alread$ a S8. .ut a share o! stoc' co(in# !ro( stoc' dividends cannot be issued to one "ho is not a S8 o! a corporation. A stoc' dividend is an$ dividend pa$able in shares o! stoc' o! the corporation declarin# or authori9in# itKa distribution o! shares a(on# S8s, as dividends. t is actuall$ - thin#s0 (1) a dividend, (-) the en!orced use o! dividend (one$ to purchase additional shares at par. )hen a corporation issues stoc' dividends, it sho"s that the corporation>s accu(ulated pro!its have been capitali9ed instead o! distributed to the S8S or retained as surplus. Far !ro( bein# a reali9ation o! pro!its, it tends rather to postpone said reali9ation, in that the !und represented b$ the ne" stoc' has been trans!erred !ro( the surplus to the assets and are thus no lon#er available !or actual distribution. t reall$ adds nothin# to the interest o! each S8, the proportional interest re(ains the sa(e. t is the civil !ruits o! the ori#inal invest(ent, and to the o"ners o! the shares #o the !ruits. Althou#h @epanto sa$s that the value o! the dividends declared should be the basis !or deter(inin# the a(ount o! co(pensation due to 2ielson, it does not (ean that the co(pensation should be ta'en !ro( the a(ount actuall$ declared as cash dividends to be distributed to the S8s. =ther"ise there "ould be a dilution o! the dividend that corresponds to each share o! stoc' held b$ the S8s. Aecision (odi!iedL.2ielson to #et 3744,444 in cash, as e&uivalent to 14J o! the" value o! the 7< stoc' dividend. 01ilippine #,ust Co. v. Rive,a. -D 3hilTrust is the assi#nee in the insolvenc$ case o! @a Cooperativa 2aval Filipina. t sues <arciano /ivera, an incorporator "ho subscribed !or 6+4 shares o! the insolvent, to recover the balance o! 3--,+44, alle#ed to have been due on his subscription to the stoc' o! the insolvent. (=ri# capitali9ation o! 2aval X 3144,444, at 3144 par or 1,444 shares. /ivera subscribed to 6+4 shares ((36+I) %%/ivera clai(s that durin# a S8s (t#, it "as a#reed that the capital o! the co(pan$ be reduced b$ +4J and the subscribers released !ro( the obli#ation to pa$ an$ unpaid balance o! their subscription in e*cess o! +4J o! the total subscribed shares. %%There "as no co(pliance "ith the !or(alities o! the statute relative to the reduction o! capital stoc'. TC ruled that the resolution "as "ithout e!!ect and that /ivera "as still liable !or his unpaid subscription. 7D /esolution invalid. subscriptions to the capital o! a corporation constitute a !und to "hich creditors have a ri#ht to loo' !or satis!action o! their clai(s and that the assi#nee in insolvenc$ can (aintain an action upon an$ unpaid stoc' subscription in order to reali9e assets !or the pa$(ent o! debts. A corporation has no po"er to release an ori#inal subscriber to its capital stoc' !ro( the obli#ation o! pa$in# !or his unpaid shares "ithout a valuable consideration !or such a release. Strict co(pliance "ith the re&uire(ents o! la" is necessar$. The resolution releasin# the S8s !ro( their obli#ation to pa$ +4J o! their respective subscriptions "as an atte(pted "ithdra"al o! so (uch capital !ro( the !und "hich the co(pan$>s creditors are entitled to rel$ and, havin# been e!!ected "ithout statutor$ co(pliance, "as "holl$ ine!!ective. Ra:on v (AC -D ?nri&ue /a9on or#ani9ed the ?. /a9on, nc. !or the purpose o! biddin# !or the arrastre services in South 8arbor. Bicente Chuidian is the ad(inistrator o! the intestate estate o! Juan Teles!oro Chuidian. A stoc' certi!icate !or 1,+44 shares o! stoc' o! ? /a9on nc "as issued in the na(e o! Juan T. Chuidian. =n the basis o! the 1,+44 shares o! stoc', the late Juan T. Chuidian and a!ter hi(, Bicente Chuidian, "ere elected as directors o! ?. /a9on, nc. ?nri&ue /a9on had not &uestioned the o"nership b$ Juan T. Chuidian o! the shares o! stoc' in &uestion and had not brou#ht an$ action to have the certi!icate o! stoc' over the said shares cancelled. The certi!icate

o! stoc' "as in the possession o! de!endant /a9on "ho re!used to deliver said shares to the plainti!!, until the sa(e "as surrendered b$ de!endant /a9on and deposited in a sa!et$ bo* in 3hilippine .an' o! Co((erce. 1,+44 shares o! stoo' under Stoc' Certi!icate 2o. 447 "ere delivered b$ the late Chuidian to ?nri&ue because it "as the latter "ho paid !or all the subscription on the shares o! stoc' in the de!endant corporation and the understandin# "as that he (de!endant /a9on) "as the o"ner o! the said shares o! stoc' and "as to have possession thereo! until such ti(e as he "as paid there!or b$ the other no(inal incorporators1 stoc'holders. Since then, ?nri&ue /a9on "as in possession o! said stoc' certi!icate even durin# the li!eti(e o! the late Chuidian, !ro( the ti(e the late Chuidian delivered the said stoc' certi!icate to /a9on. .$ a#ree(ent o! the parties delivered it !or deposit "ith the ban' under the ;oint custod$ o! the parties. TC ruled /a9on o"ns the shares, AC reverses. /a9on clai(s that the shares o! stoc' "ere re#istered in the na(e o! Chuidian onl$ as no(inal stoc'holder and "ith the a#ree(ent that the said shares o! stoc' "ere o"ned and held b$ the petitioner but Chuidian "as #iven the option to bu$ the sa(e. Bicente .. Chuidian insists that the appellate court:s decision declarin# his deceased !ather Juan T. Chuidian as o"ner o! the 1,+44 shares o! stoc' o! ?. /a9on, nc. should have included all cash and stoc' dividends and all the pre%e(ptive ri#hts accruin# to the said 1,+44 shares o! stoc'. (D )ho o"ns the sharesM Aoes o"nership o! the said shares include all cash and dividendsM 7D (1) Chuidian o"ns the shares. For an e!!ective, trans!er o! shares o! stoc' the (ode and (anner o! trans!er as prescribed b$ la" (ust be !ollo"ed. As provided under the Corporation Code o! the 3hilippines, shares o! stoc' (a$ be trans!erred b$ deliver$ to the trans!eree o! the certi!icate properl$ indorsed. Title (a$ be vested in the trans!eree b$ the deliver$ o! the dul$ indorsed certi!icate o! stoc'. 8o"ever, no trans!er shall be valid, e*cept as bet"een the parties until the trans!er is properl$ recorded in the boo's o! the corporation. n the instant case, there is no dispute that the &uestioned 1,+44 shares o! stoc' o! ?. /a9on, nc. are in the na(e o! the late Juan Chuidian in the boo's o! the corporation. <oreover, the records sho" that durin# his li!eti(e Chuidian "as elected (e(ber o! the .oard o! Airectors o! the corporation "hich clearl$ sho"s that he "as a stoc'holder o! the corporation. Fro( the point o! vie" o! the corporation, there!ore, Chuidian "as the o"ner o! the 1,+44 shares o! stoc'. n such a case, the petitioner "ho clai(s o"nership over the &uestioned shares o! stoc' (ust sho" that the sa(e "ere trans!erred to hi( b$ provin# that all the re&uire(ents !or the e!!ective trans!er o! shares o! stoc' in accordance "ith the corporation:s b$ la"s, i! an$, "ere !ollo"ed or in accordance "ith the provisions o! la". /a9on ho"ever did not present an$ b$%la"s "hich could sho" that the 1,+44 shares o! stoc' "ere e!!ectivel$ trans!erred to hi(. n the absence o! the corporation:s b$%la"s or rules #overnin# e!!ective trans!er o! shares o! stoc', the provisions o! the Corporation @a" are (ade applicable to the instant case. The la" is clear that in order !or a trans!er o! stoc' certi!icate to be e!!ective, the certi!icate (ust be properl$ indorsed and that title to such certi!icate o! stoc' is vested in the trans!eree b$ the deliver$ o! the duly indorsed certi!icate o! stoc'. (Section 7+, Corporation Code) Since the certi!icate o! stoc' coverin# the &uestioned 1,+44 shares o! stoc' re#istered in the na(e o! the late Juan Chuidian "as never indorsed to the petitioner, the inevitable conclusion is that the &uestioned shares o! stoc' belon# to Chuidian. The petitioner:s asseveration that he did not re&uire an indorse(ent o! the certi!icate o! stoc' in vie" o! his inti(ate !riendship "ith the late Juan Chuidian can not overco(e the !ailure to !ollo" the procedure re&uired b$ la" or the proper conduct o! business even a(on# !riends. To reiterate, indorse(ent o! the certi!icate o! stoc' is a (andator$ re&uire(ent o! la" !or an e!!ective trans!er o! a certi!icate o! stoc'. The preponderance o! evidence also supports the !indin#s that the shares o! stoc' "ere #iven to Juan T. Chuidian !or value. Juan T. Chuidian "as the le#al counsel "ho handled the le#al a!!airs o! the corporation. )e #ive credence to the testi(on$ o! the private respondent that the shares o! stoc' "ere #iven to Juan T. Chuidian in pa$(ent o! his le#al services to the corporation. /a9on !ailed to overco(e this testi(on$. (-) The cash and stoc' dividends and all the pre%e(ptive ri#hts are all incidents o! stoc' o"nership. The ri#hts o! stoc'holders are #enerall$ enu(erated as !ollo"s0 QFRirst, to have a certi!icate or other evidence o! his status as stoc'holder issued to hi(, second, to vote at (eetin#s o! the corporation, third, to receive his proportionate share o! the pro!its o! the corporation, and lastl$, to participate proportionatel$ in the distribution o! the corporate assets upon the dissolution or "indin# up. =ral testi(on$ to sho" that one is the principal or bene!icial o"ner o! shares !or "hich he has allo"ed a certi!icate o! stoc' to be issued in the na(e o! his alle#ed no(inee "ill not be su!!icient basis to clai( ri#ht!ul o"nership over the shares o! stoc'.

The la" is clear that in order !or a trans!er o! stoc' certi!icate to be e!!ective, the certi!icate (ust be properl$ indorsed and that title to such certi!icate o! stoc' is vested in the trans!eree b$ deliver$ o! the dul$ indorsed stoc' certi!icate.

Ra:on v (AC

Chudian "as issued 1,+44 shares at ? /a9on nc "ith the correspondin# stoc' certi!icate no 7. Said stoc' certi!icates "ere delivered to ?nri&ue /a9on alle#edl$ because it "as the latter "ho paid !or all the subscription on the shares o! stoc' in de!endant corporation "ith the understandin# that has "as the o"ner o! said shares o! stoc' and "as to have possession until such ti(e as he "as paid b$ other no(inal incorporators1stoc'holders. @ater on, parties delivered it !or deposit "ith ban' under the ;oint custod$ o! the parties. Ad(inistrator o! the estate o! Chudian !iled a co(plaint a#ainst ?nri&ue /a9on et al pra$in# that the said stoc' certi!icates be delivered to estate o! Chudian alon# "ith all cash and stoc' dividends and pre%e(ptive ri#hts accruin# thereto. 8?@A0 Chudian is still o"ner a) Shares o! stoc' is trans!erred b$ deliver$ and endorse(ent o! the stoc' certi!icate b) Such (ode o! trans!er is not co(plied "ith in this case c) n the boo's o! the corporation, Chudian is still the o"ner o! the stoc's. 8e "as even elected (e(ber o! the board "hich proves that he is a stoc'holder d) =ne "ho clai(s o"nership should sho" that the sa(e "as trans!erred to hi( in accord "ith the valid (ode o! trans!er. This petitioner !ailed to sho" ?ndorse(ent is a (andator$ re&uire(ent o! la" !or an e!!ective trans!er

Ru,al Ban8 of &alinas v. CA -D Cle(ente G. Guerrero, 3resident o! the /ural .an' o! Salinas, nc., e*ecuted a Special .ower of 4ttorney in !avor o! his "i!e, private respondent <elania Guerrero, #ivin# and #rantin# the latter !ull po"er and authorit$ to sell or other"ise dispose o! and1or (ort#a#e 6C7 shares o! stoc' o! the .an' re#istered in his na(e. 3ursuant to said Special 3o"er o! Attorne$, private respondent <elania Guerrero, as Attorne$%in%Fact, e*ecuted a )eed of 4ssign"ent !or 6Cshares out o! the 6C7 shares, in !avor o! private respondents, and e*ecuted a )eed of 4ssign"ent !or the re(ainin# one (1) share o! stoc' in !avor o! private respondent Francisco Guerrero, Sr. <elania Guerrero presented to petitioner /ural .an' o! Salinas the t"o (-) Aeeds o! Assi#n(ent !or re#istration "ith a re&uest !or the trans!er in the .an':s stoc' and trans!er boo' o! the 6C7 shares o! stoc' so assi#ned, the cancellation o! stoc' certi!icates in the na(e o! Cle(ente G. Guerrero, and the issuance o! ne" stoc' certi!icates coverin# the trans!erred shares o! stoc's in the na(e o! the ne" o"ners thereo!. 8o"ever, petitioner .an' denied the re&uest o! respondent <elania Guerrero. (D )=2 the courts can co(pel b$ &anda"us the /ural .an' o! Salinas to re#ister in its stoc' and trans!er boo' the trans!er o! 6C7 shares o! stoc' to private respondents. 7D Section + (b) o! 3.A. 2o. 94-%A #rants to the S?C the ori#inal and e*clusive ;urisdiction to hear and decide cases involvin# intracorporate controversies. An intracorporate controvers$ has been de!ined as one "hich arises bet"een a stoc'holder and the corporation. There is no distinction, &uali!ication, nor an$ e*ception "hatsoever. The case at bar involves shares o! stoc', their re#istration, cancellation and issuances thereo! b$ petitioner /ural .an' o! Salinas. t is there!ore "ithin the po"er o! respondent S?C to ad;udicate. Said Section (Sec. 7+ o! Act 16+9 Qno" Sec. 57 o! the Corporation CodeR) conte(plates no restriction as to "ho( the stoc's (a$ be trans!erred. t does not su##est that an$ discri(ination (a$ be created b$ the corporation in !avor o!, or a#ainst a certain purchaser. The o"ner o! shares, as o"ner o! personal propert$, is at libert$, under said section to dispose the( in !avor o! "ho(ever he pleases, "ithout li(itation in this respect, than the #eneral provisions o! la", the onl$ li(itation i(posed b$ Section 57 o! the Corporation Code bein# an$ unpaid clai( held b$ the corporation a#ainst the shares intended to be trans!erred, "hich is absent in this case. The ri#ht o! a trans!eree1assi#nee to have stoc's trans!erred to his na(e is an inherent ri#ht !lo"in# !ro( his o"nership o! the stoc's. )henever a corporation re!uses to trans!er and re#ister stoc' in cases li'e the present, "anda"us "ill lie to co(pel the o!!icers o! the corporation to trans!er said stoc' in the boo's o! the corporation" (Fleisher vs. .otica 2olasco). The corporation:s obli#ation to re#ister is (inisterial. n trans!errin# stoc', the secretar$ o! a corporation acts in purel$

(inisterial capacit$, and does not tr$ to decide the &uestion o! o"nership. The dut$ o! the corporation to trans!er is a (inisterial one and i! it re!uses to (a'e such transaction "ithout #ood cause, it (a$ be co(pelled to do so b$ "anda"us. For the petitioner /ural .an' o! Salinas to re!use re#istration o! the trans!erred shares in its stoc' and trans!er boo', "hich dut$ is (inisterial on its part, is to render nu#ator$ and ine!!ectual the spirit and intent o! Section 57 o! the Corporation Code.

Ru,al Ban8 of &alinas v CA

Cle(ente, 3resident o! /ural .an' o! Salinas and o"ner o! shares in said corporation e*ecuted a Special 3o"er o! Attorne$ to his "i!e <elania #ivin# her !ull po"er to sell or other"ise dispose o! shares o! stoc' o! the .an'. .e!ore death o! Cle(ente, <elania, pursuant to said S3A, e*ecuted deed o! Assi#n(ent o! !or(er>s shares. A!ter death o! Cle(ente, <elania presented to ban' deed o! assi#n(ent !or re#istration "hich the ban' re!used. <anda(us !iled b$ <elania to co(pel ban' to re#ister the trans!er. 8?@A0 Trans!er be!ore death valid, stoc' not $et part o! estate. Shares o! stoc' are personal propert$ and (a$ be trans!erred b$ deliver$. /e#istration in corporate boo's is not necessar$. The trans!er e!!ected in this case is valid. The corporation (a$ not i(pose an$ restriction on such trans!er. The ri#ht o! trans!eree1assi#nee to have stoc's trans!erred to his na(e is inherent ri#ht, dut$ o! the corporation to re#ister the trans!er is (inisterial.

-inancing Co,po,ation v #eodo,o -D @i9ares et al, (inorit$ S8s o! the Financin# Corp o! the 3hils, sued the corporation and J A(ado Araneta, its president and G<, alle#in# #ross (is(ana#e(ent and !raudulent conduct o! the corporate a!!airs b$ Araneta and as'in# that the corporation be dissolved and Araneta be declared personall$ accountable !or the unauthori9ed and !raudulent disburse(ents o! the corporate assets. Jud#e Teodoro #ranted petition !or appoint(ent o! a receiver (Fulo). The corporation contends that the appoint(ent is (erel$ an au*iliar$ re(ed$, that the principal re(ed$ "as the dissolution o! the corporation, and that the (inorit$ S8s have nor ri#ht and personalit$ to (aintain an action !or dissolution, that ri#ht belon#in# onl$ to the State. 7D G/0 (inorit$ S8s o! a corporation cannot sue and de(and dissolution. ?*ception0 i! the$ are unable to obtain redress and protection o! their ri#hts "ithin the corporation (8all v 3iccio). ?ven the e*istence o! a de ;ure corporation (a$ be ter(inated in a private suit !or its dissolution b$ S8s "ithout the intervention o! the State. The &uestion o! the ri#ht o! (inorit$ S8s to as' !or dissolution in 8all "as held not to a!!ect the court>s ;urisdiction over the case, and that the re(ed$ b$ the part$ dissatis!ied "as to appeal. G/0 (inorit$ S8s cannot as' !or dissolution in a private suit, and that action should be brou#ht b$ the #overn(ent throu#h its le#al o!!icer. ?*ception0 cases "herein the intervention o! the State cannot be obtained because the co(plaint is a (atter strictl$ bet"een the S8 and the corporation and does not involve issues "hich involve acts1o(issions "arrantin# a &uo "arranto. )hen such action is brou#ht, the TC has ;urisdiction and has discretion to #rant the pra$er or not. 8avin# such ;urisdiction, the appoint(ent o! e receiver pendent elite is le!t to the sound discretion o! the TC. n An#eles v Santos, it "as held that it is "ithin the po"er o! the court upon proper sho"in# to appoint a receiver pendente lite once the action is properl$ brou#ht and court ac&uires ;urisdiction. The appoint(ent o! a receiver upon petition b$ the (inorit$ S8 is a po"er that (ust be e*ercised "ith #reat caution, and should be e*ercised "hen necessar$ to protect their ri#hts, especiall$ "hen the$ cannot obtain redress throu#h or "ithin the corporation. SC ruled that the TC had ;urisdiction and properl$ entertained the ori#inal case and had ;urisdiction to appoint a receiver pendente lite. Republic v Bisaya Land #,ans Co -D Govern(ent !iles petition !or &uo "arranto a#ainst the .isa$a @and Tranpo Co and its board, and as's !or the appoint(ent o! a receiver pendente lite, alle#in# that the corporation, throu#h the board, violated the provisions o! the Corporation @a" as outlined in 9 causes o! action. <i#uel Cuenco, a (e(ber o! the .oard, sets up a cross%clai( a#ainst the other (e(bers to

recover 36< arisin# !or ille#al acts o! the corporation o! "hich da(a#e "as caused hi(, and as's !or the appoint(ent o! a receiver. The other directors ar#ue that the petition should be dis(issed as to Cuenco because his clai(s did not arise out o! the transactions the sub;ect (atter o! the &uo "arranto, "hich did not assert an$ clai( a#ainst an$ o! the directors. TC denies <TA the &uo "arranto. Corporation then !iled a (otion !or ;ud#(ent on consent, (ani!estin# its consent to the orderin# o! the dissolution o! the corporation, and ordered the board to proceed "ith the li&uidation o! its assets. t contended that the pendenc$ o! the &uo "arranto petition had pre;udiced the corporation and its business, and that i((ediate relied be #iven the corporation. t also alle#ed that the (a;orit$ o! the board and -17 S8s acceded to the re&uest to dissolve as the (ost !easible re(ed$ to its proble(s. /epublic (oves that the (atter o! i(ple(entation o! the dissolution be sub(itted to the TC !or ;ud#(ent. Cuenco concurs but ur#es the appoint(ent o! a receiver. Airectors not Cuenco !iled a (otion to "ithdra" its previous (otion !or ;ud#(ent on consent on the #round that the conditions to "hich (otion "as sub;ect had not been accepted. Cuenco opposes "ithdra"al and pressed !or appoint(ent o! receiver. TC denied (otion to "ithdra". Corporation appeals. SolGen .arredo (oved to dis(iss &uo "arranto proceedin#s, to "hich Cuenco opposed. TC #rants /epublic>s (otion but denies Cuenco>s crossclai(. (D )=2 the TC should have ordered dissolution upon its (otion and not the /epublic>s, as it a(ounted to a con!ession o! ;ud#(ent. 7D A (otion !or ;ud#(ent on consent is not to be e&uated "ith ;ud#(ent b$ con!ession. There (ust be an un&uali!ied a#ree(ent a(on# the parties to the action entered in the record "ith leave o! court. A ;ud#(ent b$ con!ession is not a plea but an a!!ir(ative and voluntar$ act o! the de!endant hi(sel!. n this case, there "as no (eetin# o! the (inds a(on# the parties "ith respect to the (otion !or ;ud#(ent on consent. Corporation "anted its li&uidation to be e!!ected b$ its .oard. Cuenco "anted the appoint(ent o! a receiver in a#reein# to dissolution, and a!ter his cross%clai(s "ere considered. .e!ore the parties could co(e to an un&uali!ied a#ree(ent, the corporation (oves to "ithdra" its (otion !or ;ud#(ent on consent. t is clear that the parties could not a#ree as to the ter(s o! dissolution, and the TC correctl$ rendered ;ud#(ent dissolvin# the corporation. (D )=2 TC "as "ron# in not #rantin# &uo "arranto because the evidence presented !ails to constitute #rounds !or &uo "arranto 7D TC !ound that the alle#ed (isuse o! !unds "ere co((itted (ore particularl$ b$ Ar <anuel Cuenco "ith the cooperation o! Bele9, !or "hich the$ are personall$ liable. The alle#ed ille#al corporate acts had not resulted in substantial in;ur$ to the public, nor "ere the$ "ill!ul and clearl$ obdurate. t !ound that the controvers$ bet"een the parties "as (ore personal than an$thin# else and did not at all a!!ect public interest. Such private controversies can be ventilated in appropriate S8s suit "hich do not have to occup$ the ti(e and attention o! #overn(ent o!!icials. The SolGen hi(sel! ad(its that his reason !or the <TA is to ta'e the State out o! an unnecessar$ court liti#ation. /elie! b$ dissolution "ould onl$ be a"arded "here no ade&uate relie! is available, and is not available "here the ri#hts o! S8s can be or are protected in so(e other "a$. (D )=2 the SolGen, as the la"$er !or the /epublic, "as vested "ith !ull po"er to (ana#e and control the State>s liti#ation. 7D G/0 the SolGen (a$ do so "ith the approval o! the court, sub;ect to "ell%de!ined e*ceptions. ! it is discovered that the action co((enced "as brou#ht !or the purpose o! en!orcin# a ri#ht, the advisabilit$ or necessit$ o! "hich he later discovers no lon#er e*ists, then he should be per(itted to "ithdra" his action. Courts should not re&uire parties to liti#ate "he$ the$ no lon#er desire to do so. Thus the SolGen "as "ithin his po"er to (ove to dis(iss the petition !or &uo "arranto, and the TC "as correct in dis(issin# Cuenco>s cross%clai(, and receivership is ordered ter(inated. Aissolution is a serious re(ed$ #ranted to the courts a#ainst o!!endin# corporations. Courts, as a #eneral rule, should not resort to dissolution "hen the pre;udice is not a#ainst the public or not an outri#ht abuse or violation o! the corporate charter. ?ven i! the pre;udice is public in nature, the re(ed$ is to en;oin or recti!$ the (ista'e. =nl$ "hen it cannot be re(edied an$(ore then that dissolution can co(e in. 0epsiCCola 0,oducts 01ils. v CA -D 3epsi%Cola 3roducts 3hilippines, nc. ?(plo$ees and )or'ers Hnion (3C?)H), a dul$% re#istered labor union o! the e(plo$ees o! the 3epsi%Cola Aistributors o! the 3hilippines (3CA3) !iled a Co(plaint a#ainst 3CA3 !or pa$(ent o! overti(e services rendered b$ !i!t$%three (+7) o!

its (e(bers, !or "or' done durin# 8 <usli( 8olida$s. @A held that "or'ers in /e#ion 1- "ere entitled, but "or'ers in /e#ion 9 "ere not. 3epsi Aistributors appeals to 2@/C, "hich a!!ir(s. 3endin# resolution o! its </, o"nership o! various 3epsi%Cola bottlin# plants "as trans!erred to petitioner 3epsi%Cola 3roducts 3hilippines, nc. (3C33 ). The 3CA3 alle#ed that it had ceased to e*ist as a corporation on Jul$ -6, 1989 and that it has "inded up its corporate a!!airs in accordance "ith la". t also averred that it "as no" o"ned b$ 3C33 . 2@/C dis(isses co(plaint, holdin# that "ith the cessation and dissolution o! the corporate e*istence o! the 3CA3, renderin# an$ ;ud#(ent a#ainst it is incapable o! e*ecution and satis!action. The CA reverses, and declared that the 3CA3 "as still in e*istence "hen the co(plaint "as !iled, and that the supervenin# dissolution o! the corporation did not "arrant the dis(issal o! the co(plaint a#ainst it. A!ter all, the appellate court ratiocinated, ever$ corporation is #iven three (7) $ears to "ind up its a!!airs. 8ence, in case an$ liti#ation is !iled b$ or a#ainst the corporation "ithin the three (7)%$ear period "hich could not be ter(inated "ithin the e*piration o! the sa(e, such period (ust necessaril$ be prolon#ed until the !inal deter(ination o! the case. 7D Hnder Section 1-- o! the Corporation Code, a corporation "hose corporate e*istence is ter(inated in an$ (anner continues to be a bod$ corporate !or three (7) $ears a!ter its dissolution !or purposes o! prosecutin# and de!endin# suits b$ and a#ainst it and to enable it to settle and close its a!!airs, cul(inatin# in the disposition and distribution o! its re(ainin# assets. t (a$, durin# the three%$ear ter(, appoint a trustee or a receiver "ho (a$ act be$ond that period. At an$ ti(e durin# the said three (7) $ears, the corporation is authori9ed and e(po"ered to conve$ all o! its properties to trustees !or the bene!it o! stoc'holders, (e(bers, creditors, and other persons in interest. Fro( and a!ter an$ such conve$ance b$ the corporation o! its properties in trust !or the bene!it o! its stoc'holders, (e(bers, creditors and others in interest, all interest "hich the corporation had in the properties ter(inates the le#al interest vests in the trustees, and the bene!icial interest in the stoc'holders, (e(bers, creditors or other persons in interest. Hpon the "indin# up o! the corporate a!!airs, an$ asset distributable to an$ creditor or stoc'holder or (e(ber, "ho is un'no"n or cannot be !ound, shall be escheated to the cit$ or (unicipalit$ "here such assets are located. ?*cept b$ decrease o! capital stoc' and as other"ise allo"ed b$ this Code, no corporation shall distribute an$ o! its assets or propert$ e*cept upon la"!ul dissolution and a!ter pa$(ent o! all its debts and liabilities. The ter(ination o! the li!e o! a corporate entit$ does not b$ itsel! cause the e*tinction or di(inution o! the ri#hts and liabilities o! such entit$. ! the three%$ear e*tended li!e has e*pired "ithout a trustee or receiver havin# been e*pressl$ desi#nated b$ the corporation, "ithin that period, the board o! directors (or trustees) itsel!, (a$ be per(itted to so continue as "trustees" b$ le#al i(plication to co(plete the corporate li&uidation.

National Abaca v 0o,e -D 2ational Abaca Corp sued Apolonia 3ore to recover (one$ advanced !or the purchase o! he(p !or the account o! the corporation !or "hich she !ailed to account there!or. 3ore in de!ense, contends that she (ade an accountin# o! the advances received b$ her. TC held her accountable and ordered to her to pa$ the corporation. 3ore (oved to dis(iss on the #round that the corporation had no le#al capacit$ to sue, it havin# been abolished b$ ?= 7C-. Corporation contends that the ?= also stipulates that it shall continue as a bod$ corporate !or 7 $ears !ro( date o! e!!ectivit$ o! the ?=, !or the purpose o! de!endin# and prosecutin# suits and enablin# the .oard o! @i&uidators to settle and close all its a!!airs. TC ordered corporation to a(end the co(plaint b$ includin# the .oard o! @i&uidators as co% part$ plainti!!, other"ise case shall be dis(issed. The corporation !ails to sub(it a(ended co(plaint, and the TC dis(isses case. Corporation in see'in# reconsideration, said that it "as not able to sub(it the a(ended co(plaint on ti(e because o! the ne#li#ence o! the !ilin# cler', <s =ca(po, and that it "as lost despite dili#ent e!!orts to loo' !or it. TC denies (otion. (D )=2 an action, co((enced "ithin 7 $ears a!ter the abolition o! the corporation, (a$ be continued b$ the sa(e a!ter e*piration o! the period. 2= )=2 the TC "as correct in dis(issin# (otion. 2=. should have #ranted the (otionL

7D G/0 pendin# actions b$ or a#ainst a corporation are abated upon the e*piration o! the period allo"ed b$ la" !or li&uidation. The old corpo la" contains no provision authori9in# a corporation a!ter 7 $ears !ro( e*piration o! its li!eti(e, to continue in its corporate na(e actions instituted b$ it "ithin a period o! 7 $ears. t provides that it "ill continue as a bod$ corporate !or 7 $ears a!ter the ti(e "hen it "ould have been dissolved, !or purposes o! prosecutin# and de!endin# suit b$ or a#ainst it. Aurin# the ti(e "hich the corporation, throu#h its o!!icers, (a$ conduct the li&uidation o! assets and sue and be sued as a corporation is li(ited to 7 $ears !ro( the ti(e period o! dissolution co((ences, but that there is no ti(e li(it "ithin "hich trustees (ust co(plete a li&uidation placed in their hands. The conve$ance to the trustees (ust be (ade "ithin the 7 $ear period. t (a$ be !ound i(possible to co(plete the "or' o! li&uidation "ithin the 7 $ear period or to reduce dispute clai(s to ;ud#(ent. Suits b$ or a#ainst a corporate abate "hen it ceased to be an entit$ capable o! suin# or bein# sued, but trustees to "ho( the corporate assets have been conve$ed pursuant to the authorit$ o! the code (a$ sue and be sued as such in all (atters connected "ith the li&uidation. The e!!ect o! conve$ance is to (a'e the trustees le#al o"ners o! the propert$ conve$ed, sub;ect to the bene!icial interest therein o! creditors and S8s. The co(plete loss o! Abaca>s corporate e*istence a!ter the e*piration o! 7 $ear period is "hat i(pelled the creation o! the .oard o! @i&uidators, to continue the (ana#e(ent o! pendin# (atters. G/0 in the absence o! statutor$ rules to the contrar$, pendin# actions b$ or a#ainst a corporation are abated upon the e*piration o! the 7%$ear period allo"ed b$ la" !or li&uidation Republic v Ma,s+an )evt Co. -D <ars(an is a lu(ber co(pan$. An investi#ation "as conducted and certain ta*es due !ro( lo#s produced !ro( its ti(ber concession #ranted b$ the #overn(ent. C / de(anded pa$(ent representin# three assess(ents (ade on !orest char#es, de!icienc$ sales ta* and other surchar#es and penalties. Counsel !or the corporation re&uested !or reinvesti#ation, but "as denied unless the le#al re&uire(ents !or such a re&uest "ere co(plied "ith and pa$(ent o! Z o! total assess(ents "ere (ade, and to !urnish a bond to #uarantee pa$(ent o! the balance. The corporation repeated !ailed to co(pl$ "ith the conditions set b$ the C /, "hich "as constrained to (a'e e*tra;udicial de(and !or the ta* liabilities. <ars(an "as then e*tra;udiciall$ dissolved. . / !iles a co(plaint !or its de(ands a!ter (ore than 7 $ears !ollo"in# the corporation>s dissolution, and the TC sentenced the corporation to pa$ the a(ount de(anded b$ C /. 7D TC did not err in holdin# that the period to &uestion the ta* assess(ents had alread$ e*pired. .$ its o"n o(ission, the corporation (ade it possible !or the . / to act on its o"n </. <ere !ilin# o! a (otion does not suspend the runnin# o! the period !or collection o! the ta*, "hich i(plies that an$ assess(ent (ade b$ the . / is supposed to be !inal and e*ecutor$ as to the ta*pa$er concerned. (D )=2 present action is barred b$ prescription, in li#ht o! the !act that the corporation la" allo"s corporations to continue onl$ !or 7 $ears a!ter its dissolution, !or the purpose o! presentin# or de!endin# suits b$ or a#ainst it, and to settle its a!!airs. no 7D Stress #iven b$ <ars(an on the e*tinction o! corporate personalit$ b$ virtue o! its e*tra4;udicial dissolution is (isplaced. The assess(ents a#ainst the corporation "ere (ade be!ore its dissolution and not later than 5 (onths a!ter dissolution. Thus the #overn(ent beca(e the creditor o! the corporation be!ore the co(pletion o! its dissolution. .ur#ess the li&uidator beca(e in la" the trustee o! all its assets !or the bene!it o! all person interested, includin# the #overn(ent. t is i((aterial that the present action "as !iled a!ter e*piration o! the 7 $ear period, because the assess(ent de!initel$ established the #overn(ent as a creditor o! the corporation !or "ho( the li&uidator is supposed to hold corporate assets. Code provides !or a 7%$ear period !or continuation o! the corporate e*istence !or purposes o! li&uidation .ut there is nothin# in the provision "hich bars an action !or recover$ o! debts o! the corporation a#ainst the li&uidator hi(sel!, a!ter the lapse o! the 7%$ear period Reyes v. Blouse et al. -D <inorit$ S8s o! the @a#una Ta$abas .us Co !ile an action to en;oin .louse et al !ro( e*ecutin# its resolution approved b$ 99 ZJ o! S8s to consolidate the properties and !ranchises o! @a#una Ta$abas "ith .atan#as Transport. .louse believes it is (erel$ an e*chan#e o! properties and not a consolidation. (D )=2 the real purpose o! the resolution is (er#er or consolidation, and i! so, "hether it can be carried out under the old Corpo @a".

7D The &uestioned resolution char#es the board o! @a#una to consolidate properties and !ranchises thereo! "ith that o! .atan#as Transport. .oth corporations have passed si(ilar resolutions to ta'e steps to e!!ect the consolidation. t is apparent that the purpose o! the resolution is not to dissolve but to (erel$ trans!er its assets to a ne" corporation in e*chan#e !or its shares. This co(es "ithin the purvie" o! the old corporation la", "hich provides that a corporation (a$ sell, e*chan#e, lease or other"ise dispose o! all its propert$ and assets "hen authori9ed b$ a!!ir(ative vote o! -17 o! S8s. The phrase Dother"ise dispose o!E covers (er#ers and consolidations. The transaction in this case cannot be considered, strictl$ spea'in#, as a (er#er or consolidation because a (er#er i(plies the ter(ination or cessation o! the (er#ed corporations and not (erel$ a (er#er o! assets and properties. The t"o co(panies "ill not lose their corporate e*istence but "ill continue to e*ist a!ter consolidation. )hat is intended to be (ana#ed and operated b$ a ne" corporation, and not a (er#er. The court added that the (er#er1consolidation (i! an$) "ould still be carried out under the 3ublic Service @a". t does not i(pose an$ &uali!ication other that it shall be done "ith the approval o! the 3SC.

"d;a,d Nell Co+pany v 0acific -a,+s (nc. -D The ?d"ard 2ell Co secured a ;ud#(ent representin# the unpaid balance o! the price o! a pu(p sold to nsular Far(s. 3aci!ic Far(s then purchased all or substantiall$ all o! shares o! stoc' as "ell as real and personal propert$ o! nsular, sellin# the shares to certain individuals "ho reor#ani9ed nsular. The board o! the reor#ani9ed nsular then sold its assets to be sold to 3aci!ic !or 314444. The "rit o! e*ecution "as returned, statin# that nsular had no leviable propert$. 2ell Co sued 3aci!ic Far(s, on the #round as a result o! the purchase o! all or substantiall$ all assets o! nsular, 3aci!ic beca(e the alter e#o o! nsular Far(s. 7D G/0 "here the corporation sells or other"ise trans!ers all o! its assets to another corporation, the latter is not liable !or the debts and liabilities o! the !or(er. ?*ception0 (1) purchaser e*pressl$ or i(pliedl$ assu(es such debts, (-) transaction a(ounts to a consolidation or (er#er, (7) purchasin# corporation is (erel$ a continuation o! the sellin# corp, (6) there is !raud to escape liabilit$ !or the debts n the present case, no proo! "as sub(itted that 3aci!ic e*pressl$ a#reed to assu(e the debts o! nsular or that it is a continuation o! nsular, or that the transaction "as tainted in !raud o! creditors, or that the t"o parties (er#ed or consolidated. n !act, the sales too' place, not onl$ over 5 (onths be!ore ;ud#(ent, but also over a (onth be!ore the !ilin# o! the case. 3aci!ic also purchased the shares as the hi#hest bidder at an auction sale held at the instance o! a ban' to "hich shares have been pled#ed as securit$ b$ nsular. 2ell Co>s theor$ that 3aci!ic is the alter e#o o! nsular ne#ates the !act o! consolidation1(er#er, because a corporation cannot be its o"n alter e#o. As to the alle#ation that the sellin# price o! the assets o! 314I "as #rossl$ inade&uate and thus tainted "ith !raud, the SC held that the sale "as approved b$ the S?C and that it should be presu(ed that the price "as !air and reasonable, and should be a (atter liti#ated in another venue. SC0 since there is neither proo! nor alle#ation that the trans!eree%corporation e*pressl$ or i(pliedl$ a#reed to assu(e the debt o! the corporation, or that the sale o! either the shares or the assets to the appellee has been entered into !raudulentl$, in order to escape liabilit$ !or the debt o! the sub;ect corporation, there "as no basis to hold the trans!eree liable !or the debts and liabilities o! the sub;ect corporation /ules on en!orceabilit$ o! liabilities o! the trans!eror a#ainst the trans!eree a!ter the trans!er 1. pure assets%onl$ trans!er0 trans!eree not liable -. trans!er o! business enterprise0 trans!eree liable 7. trans!er o! e&uit$0 not liable e*cept "here trans!eree e*pressl$ or i(pliedl$ a#rees to assu(e the sa(e

Colu+bia 0ictu,es v CA -D Colu(bia 3ictures et al lod#ed a !or(al co(plaint "ith the 2. !or violation o! 3A 2o. 69, as a(ended, and sou#ht its assistance in their anti%!il( pirac$ drive. A#ents o! the 2. and private researchers (ade discreet surveillance on various video establish(ents in <etro <anila includin# Sunshine 8o(e Bideo nc. 2. Senior A#ent @auro C. /e$es applied !or a search

"arrant "ith the court a quo a#ainst Sunshine see'in# the sei9ure, a(on# others, o! pirated video tapes o! cop$ri#hted !il(s all o! "hich "ere enu(erated in a list attached to the application, and, television sets, video cassettes and1or laser disc recordin#s e&uip(ent and other (achines and paraphernalia used or intended to be used in the unla"!ul e*hibition, sho"in#, reproduction, sale, lease or disposition o! video#ra(s tapes in the pre(ises above described. TC #ranted and issued the S). The search "arrant "as served to Sunshine and1or their representatives. n the course o! the search o! the pre(ises indicated in the search "arrant, the 2. A#ents !ound and sei9ed various video tapes o! dul$ cop$ri#hted (otion pictures1!il(s o"ned or e*clusivel$ distributed b$ private co(plainants, and (achines, e&uip(ent, television sets, paraphernalia, (aterials, accessories all o! "hich "ere included in the receipt !or properties acco(plished b$ the raidin# tea(. Sunshine !iled a (otion to li!t "arrant but "as denied b$ the TC. Sunshine contended that bein# !orei#n corporations, Colu(bia 3ictures et al should have such license to be able to (aintain an action in 3hilippine courts. n so challen#in# petitioners> personalit$ to sue, Sunshine pointed to the !act that petitioners are the cop$ri#ht o"ners or o"ners o! e*clusive ri#hts o! distribution in the 3hilippines o! cop$ri#hted (otion pictures or !il(s, and also to the appoint(ent o! Att$. /ico B. Ao(in#o as their attorne$%in%!act, as bein# constitutive o! Ddoin# business in the 3hilippinesE under .= /ules. As !orei#n corporations doin# business in the 3hilippines, Section 177 o! the Corporation Code denies the( the ri#ht to (aintain a suit in 3hilippine courts in the absence o! a license to do business, and thus have no ri#ht to as' !or the issuance o! a search "arrant. Hpon </, the TC #ranted the sa(e, holdin# that the (aster tapes o! the cop$ri#hted !il(s !ro( "hich the pirated !il(s "ere alle#edl$ copies, "ere never presented in the proceedin#s !or the issuance o! the search "arrants in &uestion. The orders o! the Court #rantin# the search "arrants and den$in# the ur#ent (otion to li!t order o! search "arrants "ere, there!ore, issued in error and "as set aside. 3etitioners appealed. 7D The obtain(ent o! a license prescribed b$ Section 1-+ o! the Corporation Code is not a condition precedent to the (aintenance o! an$ 'ind o! action in 3hilippine courts b$ a !orei#n corporation. 8o"ever, under the a!ore&uoted provision, no !orei#n corporation shall be per(itted to transact business in the 3hilippines, as this phrase is understood under the Corporation Code, unless it shall have the license re&uired b$ la", and until it co(plies "ith the la" in transactin# business here, it shall not be per(itted to (aintain an$ suit in local courts. As thus interpreted, an$ !orei#n corporation not doin# business in the 3hilippines (a$ (aintain an action in our courts upon an$ cause o! action, provided that the sub;ect (atter and the de!endant are "ithin the ;urisdiction o! the court. t is not the absence o! the prescribed license but Ddoin# businessE in the 3hilippines "ithout such license "hich debars the !orei#n corporation !ro( access to our courts. n other "ords, althou#h a !orei#n corporation is "ithout license to transact business in the 3hilippines, it does not !ollo" that it has no capacit$ to brin# an action. Such license is not necessar$ i! it is not en#a#ed in business in the 3hilippines. it is reco#ni9ed that a !orei#n corporation is Ddoin#,E Dtransactin#,E Den#a#in# in,E or Dcarr$in# onE business in the State "hen, and ordinaril$ onl$ "hen, it has entered the State b$ its a#ents and is there en#a#ed in carr$in# on and transactin# throu#h the( so(e substantial part o! its ordinar$ or custo(ar$ business, usuall$ continuous in the sense that it (a$ be distin#uished !ro( (erel$ casual, sporadic, or occasional transactions and isolated acts. Jurisprudence has, ho"ever, held that the ter( i(plies a continuit$ o! co((ercial dealin#s and arran#e(ents, and conte(plates, to that e*tent, the per!or(ance o! acts or "or's or the e*ercise o! so(e o! the !unctions nor(all$ incident to or in pro#ressive prosecution o! the purpose and sub;ect o! its or#ani9ation. .ased on Article 177 o! the Corporation Code and #au#ed b$ such statutor$ standards, petitioners are not barred !ro( (aintainin# the present action. There is no sho"in# that, under our statutor$ or case la", petitioners are doin#, transactin#, en#a#in# in or carr$in# on business in the 3hilippines as "ould re&uire obtention o! a license be!ore the$ can see' redress !ro( our courts. 2o evidence has been o!!ered to sho" that petitioners have per!or(ed an$ o! the enu(erated acts or an$ other speci!ic act indicative o! an intention to conduct or transact business in the 3hilippines. Accordin#l$, the certi!ication issued b$ the S?C statin# that its records do not sho" the re#istration o! petitioner !il( co(panies either as corporations or partnerships or that the$ have been licensed to transact business in the 3hilippines, "hile undeniabl$ true, is o! no conse&uence to petitioners> ri#ht to brin# action in the 3hilippines. Beril$, no record o! such re#istration b$ petitioners can be e*pected to be !ound !or, as a!orestated, said !orei#n !il( corporations do not transact or do business in the 3hilippines and, there!ore, do not need to be licensed in order to ta'e recourse to our courts. As a #eneral rule, a !orei#n corporation "ill not be re#arded as doin# business in the State si(pl$ because it enters into contracts "ith residents o! the State, "here such contracts are consu((ated outside the State. n !act, a vie" is ta'en that a !orei#n corporation is not doin# business in the state (erel$ because sales o! its product

are (ade there or other business !urtherin# its interests is transacted there b$ an alle#ed a#ent, "hether a corporation or a natural person, "here such activities are not under the direction and control o! the !orei#n corporation but are en#a#ed in b$ the alle#ed a#ent as an independent business. n accordance "ith the rule that Ddoin# businessE i(ports onl$ acts in !urtherance o! the purposes !or "hich a !orei#n corporation "as or#ani9ed, it is held that the (ere institution and prosecution or de!ense o! a suit, particularl$ i! the transaction "hich is the basis o! the suit too' place out o! the State, do not a(ount to the doin# o! business in the State. The institution o! a suit or the re(oval thereo! is neither the (a'in# o! a contract nor the doin# o! business "ithin a constitutional provision placin# !orei#n corporations licensed to do business in the State under the sa(e re#ulations, li(itations and liabilities "ith respect to such acts as do(estic corporations. <erel$ en#a#in# in liti#ation has been considered as not a su!!icient (ini(u( contact to "arrant the e*ercise o! ;urisdiction over a !orei#n corporation. As to Sunshine>s contention that petitioners have no le#al personalit$ to sue, a(on# the #rounds !or a (otion to dis(iss under the /ules o! Court are lac' o! le#al capacit$ to sue and that the co(plaint states no cause o! action. @ac' o! le#al capacit$ to sue (eans that the plainti!! is not in the e*ercise o! his civil ri#hts, or does not have the necessar$ &uali!ication to appear in the case, or does not have the character or representation he clai(s. =n the other hand, a case is dis(issible !or lac' o! personalit$ to sue upon proo! that the plainti!! is not the real part$%in%interest, hence #rounded on !ailure to state a cause o! action. The ter( Dlac' o! capacit$ to sueE should not be con!used "ith the ter( Dlac' o! personalit$ to sue.E )hile the !or(er re!ers to a plainti!!>s #eneral disabilit$ to sue, such as on account o! (inorit$, insanit$, inco(petence, lac' o! ;uridical personalit$ or an$ other #eneral dis&uali!ications o! a part$, the latter re!ers to the !act that the plainti!! is not the real part$% in%interest. Correspondin#l$, the !irst can be a #round !or a (otion to dis(iss based on the #round o! lac' o! le#al capacit$ to sue, "hereas the second can be used as a #round !or a (otion to dis(iss based on the !act that the co(plaint, on the !ace thereo!, evidentl$ states no cause o! action. Appl$in# the above discussion to the instant petition, the #round available !or barrin# recourse to our courts b$ an unlicensed !orei#n corporation doin# or transactin# business in the 3hilippines should properl$ be Dlac' o! capacit$ to sue,E not Dlac' o! personalit$ to sue.E Certainl$, a corporation "hose le#al ri#hts have been violated is undeniabl$ such, i! not the onl$, real part$%in%interest to brin# suit thereon althou#h, !or !ailure to co(pl$ "ith the licensin# re&uire(ent, it is not capacitated to (aintain an$ suit be!ore our courts. Colu(bia0 o"nership o! cop$ri#ht or distribution ri#hts and en!orce(ent o! 3/ \ doin# business ?nterin# into contracts "ith residents in the /3 \ doin# business

ene,al a,+ents Co,p v )i,ecto, of 0atents. -D General Gar(ents Corp is the o"ner o! the trade(ar' D3uritanE !or assorted (en>s "ear and under"ear. The 3uritan Sports"ear Corporation o! 3enns$lvania, !iled a petition !or cancellation o! the trade(ar' re#istered in the na(e o! General Gar(ents Corporation, alle#in# o"nership and prior use o! the na(e. General Gar(ents contends that 3uritan bein# a !orei#n corporation "hich is not licensed to do and is not doin# business in the /3, is not considered a person under /3 la"s and conse&uentl$ not co(prehended "ithin the ter( Dan$ personE under the Trade(ar' @a" then in !orce. <TA "as denied b$ the Airector o! 3atents. (D )=2 3uritan Sports"ear Corp, not licensed to do business and not doin# business in the /3, has le#al capacit$ to (aintain a suit in the 3hil. 3atent =!!ice. 7D The !act that it (a$ not transact business in the 3hils unless it obtains a license or (aintains a suit does not (a'e the respondent an$ less a ;uridical person. An e*ception to the license re&uire(ent is "here a !orei#n corporation sues on an isolated transaction. t cites the <arshall )ells case (supra) t should be pointed out that 3uritan is not suin# in the courts to recover a debt clai( or de(andK"hich "ould re&uire a licenseKbut !iled a petition to cancel the trade(ar' re#istered b$ General Gar(ents. A !orei#n corporation "hich has never done business in the 3hils and "hich is unlicensed and unre#istered to do so, but is "idel$ and !avorable 'no"n in the 3hils throu#h the use therein o! its products bearin# its corporate na(e has a le#al ri#ht to (aintain an action. The purpose o! such a suit is to protect its reputation, corporate na(e, and #ood"ill, "hich has been established throu#h the natural develop(ent o! its trade, in the doin# o! "hich

it does not see' to en!orce an$ le#al or contract ri#hts arisin# !ro(, or #ro"in# out o! an$ business transacted in the 3hils. The la"!ul entr$ into the 3hils o! #oods bearin# the trade(ar' since 1969 should entitle the o"ner to the ri#ht to use the sa(e to the e*clusion o! others. The la" is not onl$ !or the protection o! the o"ner o! the trade(ar' but also !or the protection o! purchasers !ro( con!usion or deception. General Gar(ents invo'es the <entholatu( rulin# in support o! his case, but the SC held that Con#ress, in see'in# to purposel$ counteract the e!!ects o! the case, enacted /3 578 and inserted Sec -1%A in the Trade(ar' @a", to allo" !orei#n corporations to brin# an action in /3 courts !or in!rin#e(ent o! a (ar' or trade na(e, or un!air co(petition, or !alse desi#nation o! ori#in and !alse description, "hether or not it has been licensed to do business in the /3.

Le C1e+ise Lacoste v -e,nande: -D @a Che(ise @acoste is a French corporation and not doin# business in the /3, and is also the actual o"ner o! the trade(ar's @acoste and Crocodile Aevice. 8e(andas P Co secured a re#istration o! the trade(ar's in its na(e !ro( the 3hil 3atent =!!ice o! the trade(ar's o"ned b$ @e Che(ise. 8e(andas then assi#ned all its ri#hts title and interest in the trade(ar' to Gobindra( 8e(andas. @e Che(ise !iled its o"n application !or re#istration o! the trade(ar's Crocodile Aevice and @acoste, and the 3atent =!!ice approved the !or(er "as but re;ected the latter. @e Che(ise then !iled a letter%co(plaint "ith the 2. alle#in# acts o! un!air co(petition co((itted b$ 8e(andas and re&uestin# their apprehension and prosecution. The 2. secured search "arrants, but 8e(andas !iles a <TV the "arrant alle#in# that his trade(ar's is di!!erent !ro( @e Che(ise. Search "arrants "ere recalled and ite(s sei9ed returned to 8e(andas. @e Che(ise &uestions the &uashal. (D )=2 petitioner has no le#al capacit$ to sue because it is not doin# business in the 3hilippines and is not licensed to do so, and that it !ailed to alle#e certain !acts in its petition relative to its capacit$ to sue. 7D n @eviton case, "hich is relied on b$ 8e(andas, it "as ruled that it is not enou#h !or a !orei#n corporation to (erel$ alle#e that it is a !orei#n corporation. Co(pliance "ith the re&uire(ents under the la" or statute !ro( "hich it see's relie! and upon "hich the #rounds o! the ille#al act are alle#ed, is necessar$. t is there!ore necessar$ !or the !orei#n corporation to co(pl$ "ith these re&uire(ents or aver "h$ it should be e*e(pted !ro( the(. The !orei#n corporation (a$ have the ri#ht to sue be!ore /3 courts, but our rules on pleadin#s re&uire that the &uali!$in# circu(stances necessar$ !or the assertion o! that ri#ht be a!!ir(ativel$ pleaded. Since the present case involves a cri(inal o!!ense, the @eviton case is inapplicable. @e Che(ise (a$ still sue even i! it !ailed to alle#e (aterial !acts. A !orei#n corporation not doin# business needs no license to sue be!ore /3 courts !or in!rin#e(ent o! trade(ar' and un!air co(petition. A !orei#n corporation !avorable 'no"n in the 3hils throu#h the use o! its products bearin# its corporate na(e has a le#al ri#ht to (aintain action in the 3hilippines to restrain the !or(ation in .F o! a corporation bearin# the sa(e na(e as the !orei#n corporation, the sole purpose o! its suit is to protect its reputation, corporate na(e, #ood"ill "henever the sa(e has established the(selves. A corporate and trade na(e are propert$ ri#hts, ri#hts in re(, "hich the o"ner (a$ assert and protect a#ainst the "hole "orld, in an$ courts o! the "orldKeven in ;urisdictions "here it does not transact business. Since it is the trade(ar' and not the (ar' that is to be protected, a trade(ar' ac'no"led#es no territorial boundaries or (unicipalities or states or nations, but e*tends to ever$ (ar'et "here the trader>s #oods have beco(e 'no"n and identi!ied. The letter%co(plaint that preceded the petition "as !iled "ith the 2. . ! prosecution "ould !ollo" a!ter the 3 then the in!or(ation shall be in the na(e o! the 3eople o! the /3 and no lon#er the petitioner "hich is onl$ an a##rieved part$, since a cri(inal act is an act a#ainst the State. @e Che(ise capacit$ to sue, "ould then be o! no si#ni!icance. The <entholatu( case relied upon b$ 8e(andas is also not on all !ours "ith the present case. The !orei#n corporation in <entholatu( is in !act doin# business in the /3 but "ithout the re&uisite license. n the present case, @e Che(ise is a !orei#n corporation not doin# business in the /3. t has an e*clusive distributor, /ustans Co((ercial, "hich is an independent entit$ "hich bu$s and sells the products o! @e Che(ise, and is in other "ords not a (ere a#ent or conduit o! @e Che(ise. .= rules also support a !indin# that @e Che(ise is not doin# business. /ustans is a (iddle(an actin# and transactin# business in its o"n na(e and account.

n upholdin# the ri#hts o! @e Che(ise, SC held that "e are reco#ni9in# our duties and ri#hts o! !orei#n states to "hich the 3hilippines and France are parties. )e are si(pl$ interpretin# and en!orcin# a sole(n international co((it(ent o! the 3hilippines e(bodied in a (ultilateral treat$, the 3aris Convention !or the 3rotection o! ndustrial 3ropert$ to "hich "e are a part$. The convention has e*traterritorial application, and is essentiall$ a co(pact bet"een the (e(ber countries to accord to (e(ber%countries> citi9ens the sa(e ri#hts co(parable to those accorded their o"n citi9ens b$ do(estic la". The underl$in# principle is that !orei#n nationals should be #iven the sa(e treat(ent in each o! the (e(ber%countries as that countr$ (a'es available to its o"n citi9ens. t is not pre(ised upon the idea that the trade(ar' and related la"s shall be #iven e*tra%territorial application, but on e*actl$ the converse that each nation>s la" shall have onl$ territorial application. A treat$ or convention is not a (ere (oral obli#ation to be en!orced but creates a le#all$ bindin# obli#ation on the parties !ounded on the #enerall$ accepted principles o! international la" o! pacta sunt servanda, "hich has been adopted as the la" o! the la". Forei#n corporation not doin# business has personalit$ to co((ence cri(inal proceedin#s !or violation o! /3C <entholatu( does not appl$] @e Che(ise>s e*clusive distributor bu$s and then sells it shirts !or its o"n account and !or its o"n pro!it and is not an a#ent or conduit o! @e Che(ise 2ot ever$ sale to an e*clusive a#ent in /3 constitutes doin# business] The a#ent (ust sell or transact in the !orei#n corporation>s na(e and !or the !orei#n entit$>s o"n account to constitute doin# business Billanueva0 but bu$in# the products to be resold in the /3 !ro( !orei#n entities involve the !orei#n entit$ as direct parties]

)hat constitutes doin# business solated transaction0 set apart !ro( co((on business, no intention to en#a#e in a pro#ressive pursuit o! the business or corporate purpose Ment1olatu+ v Mangali+an -D <entholatu( Co nc, a Iansas corporation "hich (an!actures D<entholatu(E (a (edica(ent and salve adapted !or the treat(ent o! colds, nasal irritations etc) and its distributin# a#ent 3hila( Aru# Co !iled an action a#ainst <an#ali(an et al !or in!rin#e(ent o! trade(ar' and un!air co(petition. The$ alle#e that the <an#ali(an et al prepared a (edica(ent and salve na(ed D<entoli(anE "hich the$ sold in a container o! the sa(e si9e, color, shape as D<entholatu(,E and alle#e da(a#es and di(inutions o! sales and loss o! #ood"ill and reputation. TC ruled i!o <entholatu( Co. CA reverses, holdin# that the activities o! <entholatu( "ere business transactions in the 3hilippines throu#h its a#ent 3hilA( Aru#, and that under the Corpo @a" the$ cannot (aintain their suit. <entholatu( clai(s that the$ have not personall$ sold an$ o! their products in the /3 and that the 3hila( Aru# Co "as (erel$ an i(porter o! the products, their sales not bein# !or the account o! <entholatu( but !or their o"n. <an#ali(an countered that 3hilA( Aru# is the e*clusive distributor o! <entholatu( and that because o! this arran#e(ent, the acts o! the !or(er beca(e acts o! the latter, and thus <entholatu( is en#a#ed in doin# business in the /3 and "ould re&uire a license be!ore it can sue. (D )=2 <entholatu( is doin# business in the /3, )=2 <entholatu( nc could prosecute their action "ithout havin# secured the license, )=2 the 3hilA( Aru# co could b$ itsel! (aintain the suit. 7D There is no #eneral rule re#ardin# "hat constitutes doin# business in the 3hils. The true test is "hether the !orei#n corporation is continuin# the bod$ or substance o! the business or enterprise !or "hich it "as or#ani9ed or "hether it has substantiall$ retired !ro( it and turned it over to another, thus i(pl$in# a continuit$ o! dealin#s and arran#e(ents, and conte(plates the per!or(ance o! acts and e*ercise o! !unctions nor(all$ incident to the purpose and ob;ect o! its or#ani9ation. n this case, as stipulated in their respective pleadin#s, "hatever transactions o! 3hilA( Aru# had e*ecuted in vie" o! the la", the <entholatu( Co. bein# a !orei#n corporation doin# business "ithout the license, (a$ not prosecute the action. 2either (a$ the 3hilA( Aru# (aintain the action !or the reason that the distin#uishin# !eatures o! the a#ent bein# his representative character and derivative authorit$, it cannot, to the advanta#e o! its principal, clai( an independent standin# in court. Sale o! products o! a !orei#n entit$ throu#h a local distributor is e&uivalent to doin# business, isolated transaction is not doin# business <entholatu( tests0 (1) substance test0 continuin# the substance o! the business and purpose !or "hich it "as or#ani9ed

(-) continuit$ test0 continuit$ o! dealin#s and arran#e(ents, or acts nor(all$ incidental to the purpose and ob;ect

Ment1olatu+ Co.$ (nc.$ v. Mangali+an (1951) 2o #eneral rule or #overnin# principle can be laid do"n as to "hat constitutes Ddoin#E or Den#a#in#E in or ^transactin#E business. ndeed, each case (ust be ;ud#ed in the li#ht o! its peculiar environ(ental circu(stances. The true test, ho"ever, see(s to be "hether the !orei#n corporation is continuin# the bod$ or substance o! the business or enterprise !or "hich it "as or#ani9ed, or "hether it has substantiall$ retired !ro( it and turned it over to another. The ter( i(plies a continuit$ o! co((ercial dealin#s and arran#e(ents, and conte(plates to that e*tent the per!or(ance o! acts or "or's or the e*ercise o! the !unctions nor(all$ incident to and in the pro#ressive prosecution o! the purpose and ob;ect o! its or#ani9ation.

Agilent #ec1nologies &ingapo,e v. (nteg,ated &ilicon #ec1nology 01ils. -D 3etitioner A#ilent Technolo#ies Sin#apore (3te.), @td. (DA#ilentE) is a !orei#n corporation, "hich, b$ its o"n ad(ission, is not licensed to do business in the 3hilippines. /espondent nte#rated Silicon Technolo#$ 3hilippines Corporation (D nte#rated SiliconE) is a private do(estic corporation, 144J !orei#n o"ned, "hich is en#a#ed in the business o! (anu!acturin# and asse(blin# electronics co(ponents. A +%$ear Balue Added Asse(bl$ Services A#ree(ent (DBAASAE), "as entered into on April -, 1995 bet"een nte#rated Silicon and the 8e"lett% 3ac'ard Sin#apore (3te.) @td., Sin#apore Co(ponents =peration (D83%Sin#aporeE). Hnder the ter(s o! the BAASA, nte#rated Silicon "as to locall$ (anu!acture and asse(ble !iber optics !or e*port to 83%Sin#apore. 83%Sin#apore, !or its part, "as to consi#n ra" (aterials to nte#rated Silicon, transport (achiner$ to the plant o! nte#rated Silicon, and pa$ nte#rated Silicon the purchase price o! the !inished products. 83%Sin#apore assi#ned all its ri#hts and obli#ations in the BAASA to A#ilent. nte#rated Silicon sues A#ilent and its o!!icers !or speci!ic per!or(ance, alle#in# that A#ilent breached the parties> oral a#ree(ent to e*tend the BAASA. nte#rated Silicon thus pra$ed that de!endant be ordered to e*ecute a "ritten e*tension o! the BAASA !or a period o! !ive $ears as earlier assured and pro(ised. A#ilent then !iled a separate co(plaint !or speci!ic per!or(ance a#ainst nte#rated Silicon, Teoh Ian# Sen#, Teoh Iian# Gon#, Anthon$ Choo, Joanne Iate <. dela Cru9, Jean Ia$ <. dela Cru9 and /olando T. 2acilla, and pra$ed !or the i((ediate return and deliver$ to plainti!! its e&uip(ent, (achineries and the (aterials to be used !or !iber%optic co(ponents "hich "ere le!t in the plant o! nte#rated Silicon. TC denied <TA o! Silicon. CA reverses. nte#rated Silicon et al ar#ue that since A#ilent is an unlicensed !orei#n corporation doin# business in the 3hilippines, it lac's the le#al capacit$ to !ile suit, assailin# various acts o! A#ilent, purportedl$ in the nature o! Ddoin# businessE in the 3hilippines. 7D A !orei#n corporation "ithout a license is not ipso facto incapacitated !ro( brin#in# an action in 3hilippine courts. A license is necessar$ onl$ i! a !orei#n corporation is Dtransactin#E or Ddoin# businessE in the countr$. The Corporation Code provides0 Sec. 177. )oing #usiness without a license . K 2o !orei#n corporation transactin# business in the 3hilippines "ithout a license, or its successors or assi#ns, shall be per(itted to (aintain or intervene in an$ action, suit or proceedin# in an$ court or ad(inistrative a#enc$ o! the 3hilippines, but such corporation (a$ be sued or proceeded a#ainst be!ore 3hilippine courts or ad(inistrative tribunals on an$ valid cause o! action reco#ni9ed under 3hilippine la"s. The a!ore(entioned provision prevents an unlicensed !orei#n corporation Ddoin# businessE in the 3hilippines !ro( accessin# our courts. n a nu(ber o! cases, ho"ever, "e have held that an unlicensed !orei#n corporation doin# business in the 3hilippines (a$ brin# suit in 3hilippine courts a#ainst a 3hilippine citi9en or entit$ "ho had contracted "ith and bene!ited !ro( said corporation. Such a suit is pre(ised on the doctrine o! estoppel. A part$ is estopped !ro( challen#in# the personalit$ o! a corporation a!ter havin# ac'no"led#ed the sa(e b$ enterin# into a contract "ith it. This doctrine o! estoppel to den$ corporate e*istence and capacit$ applies to !orei#n as "ell as do(estic corporations. The application o! this principle prevents a person contractin# "ith a !orei#n corporation !ro( later ta'in# advanta#e o! its nonco(pliance "ith the statutes chie!l$ in cases "here such person has received the bene!its o! the contract. The principles re#ardin# the ri#ht o! a !orei#n corporation to brin# suit in 3hilippine courts (a$ thus be condensed in !our state(ents0 (1) i! a !orei#n corporation does business in the 3hilippines "ithout a license, it cannot sue be!ore the 3hilippine courts,

(-) i! a !orei#n corporation is not doin# business in the 3hilippines, it needs no license to sue be!ore 3hilippine courts on an isolated transaction or on a cause o! action entirel$ independent o! an$ business transaction, (7) i! a !orei#n corporation does business in the 3hilippines "ithout a license, a 3hilippine citi9en or entit$ "hich has contracted "ith said corporation (a$ be estopped !ro( challen#in# the !orei#n corporation>s corporate personalit$ in a suit brou#ht be!ore 3hilippine courts, and (6) i! a !orei#n corporation does business in the 3hilippines "ith the re&uired license, it can sue be!ore 3hilippine courts on an$ transaction. n &entholatu", the Court discoursed on the t"o #eneral tests to deter(ine "hether or not a !orei#n corporation can be considered as Ddoin# businessE in the 3hilippines. The !irst o! these is the substance test, thus0 The true test Q!or doin# businessR, ho"ever, see(s to be "hether the !orei#n corporation is continuin# the bod$ o! the business or enterprise !or "hich it "as or#ani9ed or "hether it has substantiall$ retired !ro( it and turned it over to another. The second test is the continuit$ test, e*pressed thus0 The ter( Qdoin# businessR i(plies a continuit$ o! co((ercial dealin#s and arran#e(ents, and conte(plates, to that e*tent, the per!or(ance o! acts or "or's or the e*ercise o! so(e o! the !unctions nor(all$ incident to, and in the pro#ressive prosecution o!, the purpose and ob;ect o! its or#ani9ation. Althou#h each case (ust be ;ud#ed in li#ht o! its attendant circu(stances, ;urisprudence has evolved several #uidin# principles !or the application o! these tests. For instance, considerin# that it transacted "ith its 3hilippine counterpart !or seven $ears, en#a#in# in !utures contracts, this Court concluded that the !orei#n corporation in &errill /ynch Futures, 0nc. v. 'ourt of 4ppeals and Spouses /ara, "as doin# business in the 3hilippines. n 7op$%eld &anufacturing v. E'E), 0870, et al. both involved the @icense and Technical A#ree(ent and Aistributor A#ree(ent o! !orei#n corporations "ith their respective local counterparts that "ere the pri(ar$ bases !or the Court>s rulin# that the !orei#n corporations "ere doin# business in the 3hilippines. n particular, the Court cited the hi#hl$ restrictive nature o! certain provisions in the a#ree(ents involved, such thatL the 3hilippine entit$ is reduced to a (ere e*tension or instru(ent o! the !orei#n corporation. The case la" de!inition has evolved into a statutor$ de!inition, havin# been adopted "ith so(e &uali!ications in various pieces o! le#islation. The Forei#n nvest(ents Act o! 1991 (the DF AE, /epublic Act 2o. C46-, as a(ended), Sec 7 (d) de!ines Ddoin# businessE as those "hich Dinclude solicitin# orders, service contracts, openin# o!!ices, "hether called DliaisonE o!!ices or branches, appointin# representatives or distributors do(iciled in the 3hilippines or "ho in an$ calendar $ear sta$ in the countr$ !or a period or periods totalin# one hundred ei#ht$ (184) da$s or (ore, participatin# in the (ana#e(ent, supervision or control o! an$ do(estic business, !ir(, entit$, or corporation in the 3hilippines, and an$ other act or acts that i(pl$ a continuit$ o! co((ercial dealin#s or arran#e(ents, and conte(plate to that e*tent the per!or(ance o! acts or "or's, or the e*ercise o! so(e o! the !unctions nor(all$ incident to, and in the pro#ressive prosecution o!, co((ercial #ain or o! the purpose and ob;ect o! the business or#ani9ation.E An anal$sis o! the relevant case la", in con;unction "ith Section 1 o! the (ple(entin# /ules and /e#ulations o! the F A (as a(ended b$ /epublic Act 2o. 81C9), "ould de(onstrate that the acts enu(erated in the BAASA do not constitute Ddoin# businessE in the 3hilippines. The // o! the F A (as a(ended b$ /epublic Act 2o. 81C9) provides that the !ollo"in# shall not be dee(ed Ddoin# businessE0 a. b. c. d. e. !. #. h. <ere invest(ent as a shareholder b$ a !orei#n entit$ in do(estic corporations dul$ re#istered to do business, and1or the e*ercise o! ri#hts as such investor, 8avin# a no(inee director or o!!icer to represent its interest in such corporation, Appointin# a representative or distributor do(iciled in the 3hilippines "hich transacts business in the representative>s or distributor>s o"n na(e and account, The publication o! a #eneral advertise(ent throu#h an$ print or broadcast (edia, <aintainin# a stoc' o! #oods in the 3hilippines solel$ !or the purpose o! havin# the sa(e processed b$ another entit$ in the 3hilippines, Consi#n(ent b$ a !orei#n entit$ o! e&uip(ent "ith a local co(pan$ to be used in the processin# o! products !or e*port, Collectin# in!or(ation in the 3hilippines, and 3er!or(in# services au*iliar$ to an e*istin# isolated contract o! sale "hich are not on a continuin# basis, such as installin# in the 3hilippines (achiner$ it has (anu!actured or e*ported to the 3hilippines, servicin# the sa(e, trainin# do(estic "or'ers to operate it, and si(ilar incidental services.

.$ and lar#e, to constitute Ddoin# businessE, the activit$ to be underta'en in the 3hilippines is one that is !or pro!it%(a'in#. .$ the clear ter(s o! the BAASA, A#ilent>s activities in the

3hilippines "ere con!ined to (1) (aintainin# a stoc' o! #oods in the 3hilippines solel$ !or the purpose o! havin# the sa(e processed b$ nte#rated Silicon, and (-) consi#n(ent o! e&uip(ent "ith nte#rated Silicon to be used in the processin# o! products !or e*port. As such, "e hold that, based on the evidence presented thus !ar, A#ilent cannot be dee(ed to be Ddoin# businessE in the 3hilippines. /espondents> contention that A#ilent lac's the le#al capacit$ to !ile suit is there!ore devoid o! (erit. As a !orei#n corporation not doin# business in the 3hilippines, it needed no license be!ore it can sue be!ore our courts. J&c'0 A#ilent su(s up ever$thin#, it>s the controllin# doctrine no"

Me,,ill Lync1 -utu,es v CA -D <errill @$nch Futures, nc. a non%resident !orei#n corporation not doin# business in the 3hilippines, sued the Spouses 3edro <. @ara and ?lisa G. @ara !or the recover$ o! a debt and interest thereon. <errill @$nch is a "!utures co((ission (erchant" dul$ licensed to act as such in the !utures (ar'ets and e*chan#es in the Hnited States, and essentiall$ !unctionin# as a bro'erL (e*ecutin#) orders to bu$ and sell !utures contracts received !ro( its custo(ers on H.S. !utures e*chan#es. t also de!ined a "!utures contract" as a "contractual co((it(ent to bu$ and sell a standardi9ed &uantit$ o! a particular ite( at a speci!ied !uture settle(ent date and at a price a#reed upon, "ith the purchase or sale bein# e*ecuted on a re#ulated !utures e*chan#e." t entered into a Futures Custo(er A#ree(ent "ith the de!endant spouses, in virtue o! "hich it a#reed to act as the latter:s bro'er !or the purchase and sale o! !utures contracts in the H.S. and that pursuant to the contract, orders to bu$ and sell !utures contracts "ere trans(itted to <@ FHTH/?S b$ the @ara Spouses "throu#h the !acilities o! <errill @$nch 3hilippines, nc., a 3hilippine corporation and a co(pan$ servicin# plainti!!s custo(ers. @ater, the @aras "ould rea!!ir( their lac' o! a"areness that <errill @$nch 3hilippines, nc. 9for"erly registered as &errill /ynch, .ierce, Fenner : S"ith .hilippines, 0nc .; did not have a license, clai(in# that the$ learned o! this onl$ !ro( in&uiries "ith the Securities and ?*chan#e Co((ission "hich elicited the in!or(ation that it had denied said corporation:s application to operate as a co((odit$ !utures tradin# advisor. @ara Spouses activel$ traded in !utures contracts, includin# "stoc' inde* !utures" !or !our $ears or so, i.e., !ro( 1987 to =ctober, 198C. A loss a(ountin# to HS_154,C69.59 "as incurred in respect o! three (7) transactions involvin# "inde* !utures," and a!ter settin# this o!! a#ainst an a(ount o! HS_C+,917.6- then o"in# b$ <@ FHTH/?S to the @ara Spouses, said spouses beca(e indebted to <@ FHTH/?S !or the ensuin# balance o! HS_86,875.-C. @ara Spouses ho"ever re!used to pa$ this balance, "alle#in# that the transactions "ere null and void because <errill @$nch 3hilippines, nc., the 3hilippine co(pan$ servicin# accounts o! plainti!!L had no license to operate as a :co((odit$ and1or !inancial !utures bro'er. @ara !iles a <TA, and TC sustains the (otion. CA a!!ir(s, holdin# that the Trial Court had seen "throu#h the charade in the representation o! <@3 and the plainti!! that <@3 is onl$ a tradin# advisor and in !act it is a conduit in the plainti!!:s business transactions in the 3hilippines,E citin# the rulin# in <entholatu( v <an#ali(an. (D )=2 (a) <@ FHTH/?S is prohibited !ro( suin# in 3hilippine Courts because doin# business in the countr$ "ithout a license, and that (b) it is not a real part$ in interest since the @ara Spouses had not been doin# business "ith it, but "ith another corporation, <errill @$nch, 3ierce, Fenner P S(ith, nc. 7D The round that the plainti!! has no le#al capacit$ to sue K (a$ be understood in t"o senses0 one, that the plainti!! is prohibited or other"ise incapacitated b$ la" to institute suit in 3hilippine Courts, or t"o, althou#h not other"ise incapacitated in the sense ;ust stated, that it is not a real part$ in interest. 2o", the @ara Spouses contend that <@ Futures has no capacit$ to sue the( because the transactions sub;ect o! the co(plaint "ere had b$ the(, not "ith the plainti!! <@ FHTH/?S, but "ith &errill /ynch .ierce Fenner : S"ith, 0nc. The !acts on record ade&uatel$ establish that <@ FHTH/?S, operatin# in the Hnited States, had indeed done business "ith the @ara Spouses in the 3hilippines over several $ears, had done so at all ti(es throu#h <errill @$nch 3hilippines, nc. (<@3 ), a corporation or#ani9ed in this countr$, and had e*ecuted all these transactions "ithout <@ FHTH/?S bein# licensed to so transact business here, and "ithout <@3 bein# authori9ed to operate as a co((odit$ !utures tradin# advisor. The @aras did transact business "ith <@ FHTH/?S throu#h its a#ent corporation or#ani9ed in the 3hilippines, it bein# unnecessar$ to deter(ine "hether this do(estic !ir( "as <@3 (<errill @$nch 3hilippines, nc.) or <errill @$nch 3ierce Fenner P S(ith (<@3 :s alle#ed predecessor). The !act is that <@ FHTH/?S did deal "ith !utures contracts in e*chan#es in the

Hnited States in behal! and !or the account o! the @ara Spouses, and that on several occasions the latter received account docu(ents and (one$ in connection "ith those transactions. (D )=2 <@ FHTH/?S (a$ sue in 3hilippine Courts to establish and en!orce its ri#hts a#ainst said spouses, in li#ht o! the undeniable !act that it had transacted business in this countr$ "ithout bein# licensed to do so. )=2 the @ara Spouses are no" estopped to i(pu#n <@ FHTH/?S: capacit$ to sue the( in the courts o! the !oru(. 7D The rule is that a part$ is estopped to challen#e the personalit$ o! a corporation a!ter havin# ac'no"led#ed the sa(e b$ enterin# into a contract "ith it. And the "doctrine o! estoppelE to den$ corporate e*istence applies to !orei#n as "ell as to do(estic corporations, "one "ho has dealt "ith a corporation o! !orei#n ori#in as a corporate entit$ is estopped to den$ its corporate e*istence and capacit$." The principle ""ill be applied to prevent a person contractin# "ith a !orei#n corporation !ro( later ta'in# advanta#e o! its nonco(pliance "ith the statutes, chie!l$ in cases "here such person has received the bene!its o! the contract "here such person has acted as a#ent !or the corporation and has violated his !iduciar$ obli#ations as such, and "here the statute does not provide that the contract shall be void, but (erel$ !i*es a special penalt$ !or violation o! the statuteL " There "ould see( to be no &uestion that the @aras received bene!its #enerated b$ their business relations "ith <@ FHTH/?S. Those business relations, accordin# to the @aras the(selves, spanned a period o! seven (C) $ears, and the$ evidentl$ !ound those relations to be o! such pro!itabilit$ as "arranted their (aintainin# the( !or that not insi#ni!icant period o! ti(e, other"ise, it is reasonabl$ certain that the$ "ould have ter(inated their dealin#s "ith <@ FHTH/?S (uch, (uch earlier. n !act, even as re#ards their last transaction, in "hich the @aras alle#edl$ su!!ered a loss in the su( o! HS_154,C69.59, the @aras nonetheless still received so(e (onetar$ advanta#e, !or <@ FHTH/?S credited the( "ith the a(ount o! HS_C+,917.6- then due to the(, thus reducin# their debt to HS_86,875.-C. Given these !acts, and assu(in# that the @ara Spouses "ere a"are !ro( the outset that <@ FHTH/?S had no license to do business in this countr$ and <@3 , no authorit$ to act as bro'er !or it, it "ould appear &uite ine&uitable !or the @aras to evade pa$(ent o! an other"ise le#iti(ate indebtedness due and o"in# to <@ FHTH/?S upon the plea that it should not have done business in this countr$ in the !irst place, or that its a#ent in this countr$, <@3 , had no license either to operate as a "co((odit$ and1or !inancial !utures bro'er." ?stoppel doctrine0 i! local parties 'ne" that the !orei#n entit$ does not have a license, $et it is doin# business, and the$ still transacted "ith the(Kestopped !ro( invo'in# lac' o! license] Billanueva0 <errill @$nch lac's an ele(ent o! estoppelKaction1representation b$ the local "hich induces the !orei#n to believe that he "ould be entitled to relie!L the si(ple act o! enterin# into a contract "ith a !orei#n entit$ does not o! itsel! #ive rise to estoppel.

Anta+ Consolidated v CA -D Sto'el$ (parent) and Capital Cit$ (subsidiar$) co(panies are !orei#n corporations not en#a#ed and not licensed to do business in the /3. Capital Cit$ and Co(phil actin# throu#h bro'er /othschild entered into a contract "herein Co(phil undertoo' to sell and deliver and Capital Cit$ a#reed to bu$ +44 lon# tons o! crude coconut oil. Co(phil !ailed to deliver the coconut oil so that Capital decided to cover its oil needs in the open (ar'et, resultin# in a loss o! _147,544. The parties entered into a second contractKdesi#nated as a D"ash outE o! the !irst contractK"herein Co(phil undertoo' to bu$ bac' the +44 lon# tons o! coconut oil at a hi#her price, the di!!erence in price o!!settin# the loss sustained in the !irst contract. Co(phil !ailed to pa$. A third contract "as entered into, "herein Co(phil "as to sell the sa(e &uantit$ o! coconut oil at a discounted price !ro( the (ar'et value thereo!, a#ain o!!settin# the loss o! _147,544 sustained b$ Capital Cit$. A#ain Co(phil !ailed to deliver, and despite repeated de(ands Co(phil re!used to settle its obli#ations to Capital Cit$ under the a#ree(ents. The Ta(buntin#s, !or(er directors o! Co(phil, le!t the co(pan$ and "ere replaced b$ + e(plo$ees o! their pa"nshop business, and caused the na(e o! Co(phil to be chan#ed to .anaha" <illin#. The ne" directors also authori9ed Ta(buntin# to sell the oil (ill o! Co(phil1.anaha", "hich is the onl$ substantial asset o! .anaha" and "ould thus leave it "ith no assets to satis!$ clai(s o! creditors. Hnico( also too' over the assets and capital stoc' o! .anaha". Capital Cit$ alle#ed that all petitioners evaded their obli#ation thereto throu#h the devious sche(e o! usin# Ta(buntin# e(plo$ees to replace the Ta(buntin#s in the (ana#e(ent o! .anaha" and disposin# part o! the assets and entire interests in Co(phil1.anaha" to Hnico(. TC ordered the "rit o! attach(ent. 3etitioners Anta( et al !ile <TA on the #round that petitioners are !orei#n corporations no licensed to do business in the /3 and has no personalit$ to (aintain the instant suit. TC denies <TA, and Anta( et al appeals. Anta( clai(s Sto'el$ and Capital cit$ are doin#

business in the /3, because it entered into three transactions1contracts "ith the( either as seller or bu$er, and "hich are in the pursuit o! the purpose and ob;ect !or "hich the$ are or#ani9ed. The$ are thus re&uired to obtain a license !irst be!ore (aintainin# an$ le#al action a#ainst the(. 7D the transactions are not a series o! co((ercial dealin#s "hich si#ni!$ an intent on the part o! Sto'el$ and Capital Cit$ to do business in the /3, but constitute an isolated one "hich does not !all under the cate#or$ o! Ddoin# business.E The records sho" that the onl$ reason "h$ the second and third contracts "ere entered into "as to recover the loss sustained !ro( the !ailure o! Anta( et al to deliver the crude coconut oil under the !irst contract. nstead o! outri#ht de(and, the !orei#n co(pan$ even tried to push throu#h "ith the transaction to recover the a(ount lost. And a#ain petitioners !ailed to (a'e #ood. t can be deduced there!ore, that in realit$ there "as onl$ one a#ree(entKto deliver +44 lon# tons o! coconut oilKand the 7 di!!erent transactions "ere entered into in an e!!ort to !ul!ill the basic a#ree(ent and in no "a$ indicate an intent to en#a#e in a continuit$ o! transactions "ith the petitioners "hich "ould cate#ori9e it as a !orei#n corporation doin# business in the /3. t is a co((on plo$ o! de!aultin# co(panies sued b$ unlicensed !orei#n co(panies not en#a#ed in business in the /3 to invo'e lac' o! capacit$ to sue. The doctrine o! lac' o! capacit$ to sue based on !ailure to ac&uire a local license is based on considerations o! sound public polic$. t "as never intended to !avor do(estic corporations "ho enter into solitar$ obli#ations si(pl$ because the latter are not licensed to do business in the countr$. Anta(0 Dau*iliar$ ruleEKper!or(ance o! services au*iliar$ to an e*istin# contract is not doin# business]

8o" courts ac&uire ;urisdiction over !orei#n corporations @a"s #overnin# licensed !orei#n corporations <er#er o! licensed !orei#n corporation )ithdra"al o! !orei#n corporation /evocation and suspension o! license ?*istin# @icensed Forei#n Corporations

Municipality of Malabang vs. Benito (1969) The (unicipalit$ o! .alaba#an "as created b$ ?= 785 o! 3resident Garcia out o! barrios and sitios o! <alaban#. The petitioners see' to nulli!$ the ?=. The$ rel$ on the .elae2 rulin# that the 3resident>s po"er to create (unicipalities under Sec. 58 o! the Ad(inistrative Code is unconstitutional. /espondents ar#ue that the .elae2 rulin# is inapplicable because .alaba#an is a de !acto corporation. 8?@A0 The <unicipalit$ o! .alaba#an "as not a de !acto corporation. The color o! authorit$ re&uisite to a de !acto (unicipal corporation (a$ be an unconstitutional la", valid on its !ace, "hich has either0 a. .een upheld !or a ti(e b$ the courts, or b. 2ot $et been declared void, provided that a "arrant !or its creation can be !ound in so(e other valid la" or in the reco#nition o! its potential e*istence in the #eneral constitution o! the state. The (ere !act that .alaba#an "as or#ani9ed be!ore the statute "as invalidated cannot (a'e it a de !acto corporation because, independentl$ o! the Ad(inistrative Code, there is no other valid statute to #ive color o! authorit$ to its creation. This doesn>t (ean that the acts done b$ .alaba#an in the e*ercise o! its corporate po"ers are a nullit$. The e*istence o! ?= 785 is an Doperative !act "hich cannot be ;ustl$ i#nored.E o Lee vs. CA (199.)

Su((ons "as served upon @ee and @acdao, president and vice president o! A@FA. The t"o, ho"ever contended that the$ are no lon#er corporate o!!icers o! the corporation

because o! the votin# trust a#ree(ent e*ecuted to A.3, hence, not authori9ed to receive su((ons. Su((ons (ust be served upon A.3 8?@A0 ?*ecution o! a votin# trust creates a dichoto($ bet"een e&uitable or bene!icial o"nership o! the corporate shares o! a stoc'holder and le#al title thereto. The chan#e !ro( the old code to the ne" code "ith respect to &uali!$in# shares o! directors is the o(ission o! the phrase Din his o"n ri#htE pertainin# to bene!icial o"nership o! shares. n the ne" corpo code, persons (a$ be directors i! the$ are stoc'holders althou#h not Din their o"n ri#htE hence includes trustees. There is clear indication that to be a director, "hat is (aterial is le#al title and not bene!icial o"nership. )ith the e*ecution o! the votin# trust a#ree(ent, @ee and @acdao "ere divested o! their le#al title to their shares hence can no lon#er be directors and are no lon#er corporate o!!icers. .ecause o! this, the$ are not authori9ed to receive su((ons o Lee vs. CA (199.)

Su((ons "as served upon @ee and @acdao, president and vice president o! A@FA. The t"o, ho"ever contended that the$ are no lon#er corporate o!!icers o! the corporation because o! the votin# trust a#ree(ent e*ecuted to A.3, hence, not authori9ed to receive su((ons. Su((ons (ust be served upon A.3 8?@A0 ?*ecution o! a votin# trust creates a dichoto($ bet"een e&uitable or bene!icial o"nership o! the corporate shares o! a stoc'holder and le#al title thereto. The chan#e !ro( the old code to the ne" code "ith respect to &uali!$in# shares o! directors is the o(ission o! the phrase Din his o"n ri#htE pertainin# to bene!icial o"nership o! shares. n the ne" corpo code, persons (a$ be directors i! the$ are stoc'holders althou#h not Din their o"n ri#htE hence includes trustees. There is clear indication that to be a director, "hat is (aterial is le#al title and not bene!icial o"nership. )ith the e*ecution o! the votin# trust a#ree(ent, @ee and @acdao "ere divested o! their le#al title to their shares hence can no lon#er be directors and are no lon#er corporate o!!icers. .ecause o! this, the$ are not authori9ed to receive su((ons @este,n (nstitute of #ec1nology v &alas (199/) n a (eetin# o! the .oard o! Trustees o! )estern nstitute o! Technolo#$, a resolution "as passed #rantin# (onthl$ co(pensation to o!!icers respondents "ho are (e(bers o! the .oard. The resolution is valid. The prohibition "ith respect to #rantin# co(pensation to corporate directors1trustees under Section 74 o! the Corporation Code is not violated since the co(pensation is bein# #iven to private respondents in their capacit$ as o!!icers o! ) T and not as board (e(bers. @este,n (nstitute of #ec1nology v. &alas (199/) The position o! bein# chair(an and Bice%Chair(an, li'e that o! treasurer and secretar$, are not considered directorship positions but o!!icership positions that "ould entitle the occupants to co(pensation. @i'e"ise, the li(itation placed under Sect. 74 o! the Corporation Code that directors cannot receive co(pensation e*ceedin# 14J o! the net inco(e o! the corporation "ould not appl$ to the co(pensation #iven to such positions since it is bein# #iven in their capacit$ as o!!icers o! the corporation and not a board (e(bers.

Bitong v CA (199!)

n the absence o! a special authorit$ !ro( the board o! directors to institute a derivative suit !or and in its behal!, the (ana#in# o!!icer is dis&uali!ied b$ la" to sue in her o"n na(e. The po"er to sue and be sued in an$ court b$ a corporation even as a stoc'holder

is lod#ed in the .=A that e*ercises its corporate po"ers and not in the president or o!!icer thereo!. .ut "here corporate directors are #uilt$ o! a breach o! trust, not o! (ere error o! ;ud#(ent or abuse o! discretion, and intra%corporate re(ed$ is !utile or useless, a S8 (a$ institute a derivative suit in behal! o! hi(sel! and other S8s and !or the bene!it o! the corporation, to brin# about a redress o! the "ron# in!licted directl$ upon the corporation and indirectl$ upon the stoc'holders. o Apocada v NLRC

Apocada "as e(plo$ed in ntans 3hil "herein he subscribed to 1+44 shares. 8e subse&uentl$ resi#ned and instituted a co(plaint "ith 2@/C a#ainst corporation !or pa$(ent o! unpaid "a#es, C=@A, balance o! #asoline and representation e*penses, bonus. Corporation applied "hat is due to Apocada the balance o! his unpaid subscription. 8?@A0 Set%o!! is not proper. Hnpaid subscriptions are not $et due and pa$able. The$ beco(e due and pa$able "hen a call is (ade b$ the corporation. There is no such call $et. Set%o!! a#ainst "a#es is not valid under labor code. o #an v &"C (199.)

Al!onso Tan is o"ner o! 644 shares in Bisa$an ?ducational Suppl$ Corp evidenced b$ certi!icate 2o. -. Al!onso trans!erred +4 shares to An#el. Certi!icate 2o. - "as cancelled and Certi!icate 2o. 5 "as issued to An#el and Certi!icate 2o. 8 "as issued to Al!onso. 8o"ever, Al!onso did not (a'e the proper endorse(ent and did not (a'e deliver$ o! certi!icate no. -. @ater on, Al!onso Tan elected to "ithdra" !ro( the corporation. n e*chan#e !or his shares, he received stoc's in trade. Certi!icate 2o. 8 "as later on cancelled due to above. A!ter several $ears, Al!onso Tan !iled a case "ith Cebu S?C &uestionin# the cancellation o! his stoc' certi!icates despite non%endorse(ent and lac' o! deliver$ 8?@A0 Aeliver$ and endorse(ent under Section 57 o! the corporation code is not (andator$ because o! the use o! the "ord (a$. Aeliver$ is not essential "here it appears that the persons sou#ht to be held as stoc'holders are o!!icers o! the corporation and have custod$ o! the stoc' boo' as in this case. To hold that cancellation o! certi!icate o! stoc' o! Al!onso is null and void because o! lac' o! deliver$ and endorse(ent o! (other certi!icate o! stoc' no. - "hich "as deliberatel$ "ithheld is to prescribe restrictions on the trans!er o! stoc' in violation o! corporation la" &unset Condo+iniu+ Ca+pos 3ie; Co,p v

Sunset Bie" Condo(iniu( corporation !iled suit a#ainst A#uilar%.ernares /ealt$ and @i( Siu @en# !or collection o! assess(ents levied on their respective condo(iniu( units "hich the$ bou#ht on install(ents and had not $et !ull$ paid 8?@A0 /espondents not shareholders o! condo(iniu( corporation because the$ are not $et !ull$ paid a) Sec + Condo(iniu( Act [ shareholdin# in a condo(iniu( corporation "ill be conve$ed onl$ in a proper case b) Sec 6 o! Condo(iniu( Act leaves to <aster Aeed the deter(ination o! "hen shareholdin# "ill be trans!erred to purchaser o! a unit c) <aster Aeed provides that onl$ o"ner o! unit is a shareholder and that o"nership o! unit is ac&uired b$ purchaser sub;ect to conditions and ter(s o! the instru(ent conve$in# the unit to such purchaser. d) Aeed o! Conve$ance provide that o"nership is conve$ed onl$ upon !ull pa$(ent o! purchase price Sec 14 Condo(iniu( Act [ <e(bership in Condo(iniu( corporation shall not be trans!erable separatel$ !ro( condo(iniu( unit o! "hich it is an appurtenance elano v. CA (19!1) ?ven i! no trustee is appointed or desi#nated durin# the 7%$ear period o! the li&uidation o! the corporation, a suit pendin# prior to the e*piration o! the period (a$ still be prosecuted

"ith the counsel o! record bein# considered as the DtrusteeE re&uired b$ la". Aebtors o! the corporation (a$ not ta'e advanta#e o! the !ailure o! the corporation to trans!er its assets to a trustee, other"ise, it "ould constitute undue enrich(ent to dis(iss the case as a#ainst the de!endant. CL"M"N#"$ "#. AL. v. CA (199%)D

The ter(ination o! the li!e o! a ;uridical entit$ does not b$ itsel! cause the e*tinction or di(inution o! the ri#hts and liabilities o! such entit$, nor those o! its o"ners and creditors. ! the three%$ear e*tended li!e has e*pired "ithout a trustee or receiver havin# been e*pressl$ desi#nated b$ the corporation "ithin that period, the board o! directors (or trustees) itsel!, (a$ be per(itted to so continue as "trustees" b$ le#al i(plication to co(plete the corporate li&uidation. Still in the absence o! a board o! directors or trustees, those havin# an$ pecuniar$ interest in the assets, includin# not onl$ the shareholders but li'e"ise the creditors o! the corporation, actin# !or and in its behal!, (i#ht (a'e proper representation "ith the Securities and ?*chan#e Co((ission, "hich has pri(ar$ and su!!icientl$ broad ;urisdiction in (atters o! this nature, !or "or'in# out a !inal settle(ent o! the corporate concerns. A&&'C(A#") BAN* v. CA (199!)

=rdinaril$, in the (er#er o! t"o or (ore e*istin# corporations, one o! the co(binin# corporations survives and continues the co(bined business, "hile the rest are dissolved and all their ri#hts, properties and liabilities are ac&uired b$ the survivin# corporation. Althou#h there is dissolution o! the absorbed corporations, there is no "indin# up o! their a!!airs or li&uidation o! their assets, because the survivin# corporation auto(aticall$ ac&uires all their ri#hts, privile#es and po"ers, as "ell as their liabilities. Co++unications Mate,ials vs. CA$ (1996) n deter(inin# "hether a corporation does business in the 3hilippines or not, aside !ro( their activities "ithin the !oru(, re!erence (a$ be (ade to the contractual a#ree(ents entered into b$ it "ith other entities in the countr$. A scrutin$ o! the di!!erent contracts and a#ree(ents entered into "ith various business contacts in the countr$ indicate convincin#l$ a purpose to conve$ to custo(ers and the #eneral public that the$ are dealin# directl$ "ith the !orei#n corporation, and that !orei#n corporation is activel$ en#a#in# in business in the countr$. These a#ree(ents also contain provisions "hich are hi#hl$ restrictive in nature, reducin# the local si#nator$ to be a (ere e*tension or instru(ent o! the !orei#n corporation. 8ence, the !orei#n corporation is dee(ed to be doin# business in the 3hilippines "ithout a license. 2onetheless, petitioner is estopped !ro( raisin# this !act to bar the !orei#n corporation !ro( suin#. =ne "ho has dealt "ith a corporation o! !orei#n ori#in as a corporate entit$ is estopped to den$ its corporate e*istence and capacit$. And the doctrine o! estoppel to den$ corporate e*istence applies to a !orei#n as "ell as to do(estic corporations. The principle "ill be applied to prevent a person contractin# "ith a !orei#n corporation !ro( later ta'in# advanta#e o! its nonco(pliance "ith the statutes chie!l$ in cases "here such person has received the bene!its o! the contract

&an 6uan &t,uctu,al and &teel -ab,icatio,s vs. CA (199!) <otorich entered into a#ree(ent "ith San Juan !or the trans!er o! a parcel o! @and to latter. San Juan alread$ paid do"npa$(ent. )hen San Juan "as read$ to pa$ the balance, <otorich re!used to sell. <otorich contend that 2enita Gruenber#>s, treasurer o! <otorich, si#nature is not su!!icient to bind <otorich, and that the si#nature o! /e$naldo Gruenber#, president o! <otorich is re&uired. 2enita Gruenber# is the spouse o! /e$naldo Gruenber# and both o"ns 99.855J o! the shares o! stoc' o! the corporation. 8?@A0 <otorich is not a close corporation. The (ere o"nership b$ a sin#le stoc'holder or b$ another corporation o! all or nearl$ all o! the capital stoc' o! a corporation is not o! itsel! su!!icient #round !or disre#ardin# their separate personalities. A narro" distribution

o! o"nership does not o! itsel! (a'e a close corporation. There are e*ceptional cases "here an action b$ a director "ho is sin#l$ is the controllin# stoc'holder (a$ be considered as a bindin# corporate act and a board action is a (ere !or(alit$. 8o"ever, 2enita is not the sole controllin# stoc'holder.
Uichico, et al. vs. NLRC !he petitioners, who are officers and directors of "rispa, #nc , assailed the decision of the $%&" holding them solidarily liable with "rispa for the payment of separation pay and backwages to the private respondents #t was the contention of the petitioners that the award of separation pay and backwages is a corporate obligation and must therefore be assumed by "rispa alone H'%(: )hile the general rule is that obligations incurred by a corporation, acting through its directors, officers and employees, are its sole liabilities, there are times when solidary liabilities may be incurred such as in this case where it is undisputed that petitioners had a direct hand in the illegal dismissal of respondent employees !hey were the ones, who as high*ranking officers and directors of "rispa, signed he +oard resolution retrenching the private respondents on the feigned ground of serious business losses that had no basis apart from an unsigned and unaudited profit and loss statement which had no evidentiary value whatsoever !his is indicative of bad faith on the part of petitioners for which they can be held jointly and severally liable with "rispa for all the money claims of the illegally terminated respondent employees

3ature and Conse>uences o5 Piercin# ? E0ali v Court o5 Appeals has held that 1hen the piercin# doctrine is applied in a case@ the conse>uences 1ould be that the 0e0bers or stoc%holders o5 the corporation 1ill be considered as the corporation@ that is@ liability 1ill attach directly to the o55icers and stoc%holders Cru/ v 6alisay held that piercin# o5 the veil o5 corporate 5iction is a 8udicial re0edy not available to a sheri55 In Cru/@ the executin# sheri55 1hen it could not locate properties o5 the corporation to en5orce a 8ud#0ent debt@ chose to pierce the veil o5 corporate 5iction and levied on the properties o5 the president 1ho 1as also the 0a8ority stoc%holder o5 the corporation 7he Court overruled such actuation because the sheri55 had usurped Aa po1er belon#in# to the court A In Co00issioner o5 Internal Revenue v 3orton and !arrison 1here the parent corporation o1ned all the outstandin# stoc%s o5 the subsidiary corporationF 1here parent corporation 5inanced all the operations o5 the subsidiaryF 1here the parent treated the subsidiaryDs e0ployees as its o1nF 1here the o55icers o5 both corporations 1ere located in the sa0e co0poundF 1here the board o5 the subsidiary 1as constituted in such a 1ay to enable the parent to actually direct and 0ana#e subsidiaryDs a55airs by 0a%in# the sa0e o55icers o5 the board 5or both corporationsF and 1here the 5iction o5 corporate entity 1as bein# used as a shield 5or tax evasion by 0a%in# it appear that the ori#inal sale 1as 0ade by the parent corporation to the subsidiary corporation in order to #ain tax advanta#e@ the Court did not hesitate to pierce the veil o5 corporate 5iction and treat as void the sales bet1een the corporations

In Palacio v Fely 7ransportation Co 1here it 1as 5ound that an incorporatorDs 0ain purpose in 5or0in# the corporation 1as to evade his subsidiary civil liability resultin# 5ro0 the conviction o5 his driver@ the corporation 1as 0ade liable 5or such subsidiary liability by denial o5 the plea that it had a separate 8uridical personality and could not be held liable 5or the personal liabilities o5 its stoc%holder 7he Court too% into consideration as part

o5 the atte0pt to do 5raud the 5act that the only property o5 the corporation 1as the 8eep o1ned by the 0ain stoc%holder involved in the accident

7he 5irst Philippine case to apply the piercin# doctrine 1as actually Arnold v <illets and Patterson@ .td @ and it 1as clearly an alter e#o case It expressed the lan#ua#e o5 piercin# doctrine 1hen applied to alter e#o cases@ as 5ollo1sG A<here the stoc% o5 a corporation is o1ned by one person 1hereby the corporation 5unctions only 5or the bene5it o5 such individual o1ner@ the corporation and the individual should be dee0ed the sa0e A In Arnold the creditorsD co00ittee o5 the corporation opposed the pay0ent o5 co0pensation due to the plainti55 Arnold under a contract?letter si#ned by <illits@ the controllin# stoc%holder@ 1ithout board approval 7he si#nin# president 1as the controllin# stoc%holder o5 the corporation 7he Court held the validity o5 contract and ABaClthou#h the plainti55 1as the president o5 the local corporation@ the testi0ony is conclusive that both o5 the0 1ere 1hat is %no1n as a one 0an corporation@ and <illits@ as the o1ner o5 all the stoc%s@ 1as the 5orce and do0inant po1er 1hich controlled the0 A In =utivo Sons !ard1are v Court o5 7ax Appeals =utivo Sons and !ard1are Co i0ported cars and truc%s@ 1hich it sold to Southern Motors Inc Sales taxes 1ere paid by =utivo on this 5irst sale Southern Motors sold the vehicles to the public 7he Collector o5 Internal Revenue sou#ht to i0pose sales tax not on the basis o5 =utivoDs sales to Southern Motors but on Southern MotorDs hi#her sales to the public 7o this the Court a#reed Althou#h it 5ound that Southern Motors 1as not or#ani/ed to perpetuate 5raudF ho1ever@ Southern Motors 1as indeed actually o1ned and controlled by =utivo as to 0a%e it a 0ere subsidiary or branch o5 the latter =utivo@ throu#h co00on o55icers and directors exercised 5ull control over Southern MotorDs cash 5unds@ policies@ expenditures and obli#ations In McConnel v Court o5 Appeals@ a 5orcible entry case@ the corporation 1as ordered to pay da0a#es@ but such corporation 1as later 5ound 1ithout enou#h assets@ so the de5endant 1ent a5ter the properties o5 the stoc%holders 7he Court decided 5or piercin#@ holdin# the stoc%holders liable 5or the de5iciency Althou#h it held that 0ere o1nership o5 all and nearly all o5 the stoc%s does not 0a%e a corporation a business conduit o5 the stoc%holders@ but in that case@ the operation o5 the corporation 1as so 0er#ed 1ith those o5 the stoc%holders as to be practically indistin#uishable Further0ore@ they had the sa0e o55ice@ the 5unds 1ere held by the stoc%holders@ and the corporation had no visible assets !o1ever@ it is in McConnel 1here the Court too% special notice o5 the 5act that ABtChe corporation itsel5 had no visible assets@ as correctly 5ound by the trial court@ except perhaps the toll house@ the 1ire 5ence around the lot and the si#ns thereo5 It 1as 5or this reason that the 8ud#0ent a#ainst it could not be 5ully satis5ied A 6o 1e i0ply 5ro0 McConnel that the incorporation o5 an entity 1ithout reasonable assets to support the underta%in# or venture 5or 1hich it is or#ani/ed constitute a 5raud a#ainst the corporate creditorsH Fro0 the lan#ua#e in McConnel@ it 1ould not see0 so@ since a5ter notin# the lac% o5 visible assets o5 the corporation@ the Court heldG

A7he 5acts thus 5ound can not be varied by us@ and conclusively sho1 that the corporation is a 0ere instru0entality o5 the individual stoc%holders@ hence the latter 0ust individually ans1er 5or the corporate obli#ations <hile the 0ere o1nership o5 all or nearly all o5 the capital stoc% o5 a corporation Bdoes not 0a%e itC a 0ere business conduit o5 the stoc%holder@ that conclusion is a0ply 8usti5ied 1here it is sho1@ as the case be5ore us@ that the operation o5 the corporation 1ere so 0er#ed 1ith those o5 the stoc%holders as to be practically indistin#uishable 5ro0 the0 7o hold the latter liable 5or the corporationDs obli#ation is not to i#nore the corporationDs separate entity@ but 0erely to apply the established principle that such entity can not be invo%ed or used 5or purposes that could not have been intended by the la1 that created that separate personality In E0ilio Cano Enterprises v Court o5 Industrial Relations 1here a suit 5or reinstate0ent 1as 5iled a#ainst the corporate o55icers in such capacities@ but 1hich did not include the corporation@ the 8ud#0ent debt 1as sou#ht to be en5orced a#ainst the corporate assets Althou#h E0ilio Cano Enterprises is essentially an alter e#o case@ the Court had occasion to apply the rationale 5or e>uity cases o5 piercin#@ thusG Ax x x Verily@ the order a#ainst the0 Bthe corporate o55icersC is in e55ect a#ainst the corporation 3o bene5it can be attained i5 this case 1ere to be re0anded to the court a >uo 0erely in response to a technical substitution o5 parties 5or such 1ould only cause an un1arranted delay that 1ould 1or% to !onorataDs pre8udice 7his is contrary to the spirit o5 the la1 1hich en8oins a speedy ad8udication o5 labor cases disre#ardin# as 0uch as possible the technicalities o5 the procedure <e@ there5ore@ 5ind un0eritorious the relie5 herein prayed 5or A
PAMPLONA PLANTATION COMPANY, INC. and/or JOSE LUIS BONDOC, Petitioners, vs. RODEL TINGHIL, MARYGLENN SABIHON, ESTANISLAO BOBON, CARLITO TINGHIL, BONIFACIO TINGHIL, NOLI TINGHIL, EDGAR TINGHIL, ERNESTO ESTOMANTE, SALLY TOROY, BENIGNO TINGHIL JR., ROSE ANN NAPAO, DIOSDADO TINGHIL, ALBERTO TINGHIL, ANALIE TINGHIL, and ANTONIO ESTOMANTE, Respondents. FACTS: Pamplona Plantations Company, Inc. was organized for the purpose of taking over the operations of the coconut and sugar plantation of Hacienda Pamplona located in Pamplona, Negros Oriental. It appears that Hacienda Pamplona was formerly owned y a certain !r. "ower who had in his employ several agricultural workers. #hen the company took over the operation of Hacienda Pamplona in $%%&, it did not a sor all the workers of Hacienda Pamplona. 'ome, however, were hired y the company as seasonal workers. Pamplona Plantation (eisure Corporation was then esta lished for the purpose of engaging in the usiness of operating the golf course constructed on one part of the plantation, and other leisure activities. Pamplona Plantation (a or Independent )nion conducted an organizational meeting wherein several who are either union mem ers or officers participated in said meeting. )pon learning that some of the respondents attended the said meeting, Petitioner *ose (uis "ondoc, manager of the company, did not allow respondents to work anymore in the plantation. +hereafter, on various dates, respondent filed their respective complaints with the N(,C, for illegal dismissal. ,espondent Carlito +inghil amended his complaint to implead Pamplona Plantation (eisure Corporation. (a or -r iter *ose .. .utierrez rendered a decision finding respondents, e/cept ,ufino "acu ac, -ntonio Caolas and 0eli/ +orres who were complainants in another case, to e entitled to separation pay. On appeal to N(,C, the same reversed the ruling of the (- and ruled that petitioners e/cept Carlito +inghil, failed to implead Pamplona Plantation (eisure Corporation, an indispensa le party and that 1there e/ist no employer2employee relation etween the parties. C- reversed the ruling of the N(,C. I'')34 #hether the case should e dismissed for the non25oinder of the Pamplona Plantation (eisure Corporation.

H3(64 No. Piercing the Corporate Veil 0or oth the coconut plantation and the golf course, there is only one management which the la orers deal with regarding their work. +he weekly payrolls issued y petitioner2company ore the name 1Pamplona Plantation Co., Inc. It is also a fact that respondents all received their pay from the same person, Petitioner "ondoc 22 the managing director of the company. 'ince the workers were working for a firm known as Pamplona Plantation Co., Inc., the reason they sued their employer through that name was natural and understanda le. +rue, the Petitioner Pamplona Plantation Co., Inc., and the Pamplona Plantation (eisure Corporation appear to e separate corporate entities. "ut it is settled that this fiction of law cannot e invoked to further an end su versive of 5ustice. +he principle re7uiring the piercing of the corporate veil mandates courts to see through the protective shroud that distinguishes one corporation from a seemingly separate one. +he corporate mask may e removed and the corporate veil pierced when a corporation is the mere alter ego of another. #here adges of fraud e/ist, where pu lic convenience is defeated, where a wrong is sought to e 5ustified there y, or where a separate corporate identity is used to evade financial o ligations to employees or to third parties, the notion of separate legal entity should e set aside and the factual truth upheld. #hen that happens, the corporate character is not necessarily a rogated.89:; It continues for other legitimate o 5ectives. However, it may e pierced in any of the instances cited in order to promote su stantial 5ustice. In the present case, the corporations have asically the same incorporators and directors and are headed y the same official. "oth use only one office and one payroll and are under one management. ,espondents allege that they worked under the supervision and control of Petitioner "ondoc 22 the common managing director of oth the petitioner2company and the leisure corporation