PHILIPPINE TRUST COMPANY vs.

RIVERA
Cooperativa Naval Filipina was duly incorporated with a capital of P100,000, divided into
100 shares at a par value of P100 each.

Among its incorporators was Marciano Rivera, who subscribed for 450 shares, representing a
value of P45,000.

The company however became insolvent. Philippine Trust became its assignee in bankruptcy.

PhilTrust sought to recover 1/2 of the stock subscription of Rivera, which admittedly, has never
been paid.

Rivera contends that he never paid because the stockholders of Naval issued a
resolution shortly after the companys incorporation, stating that the capital shall be
reduced by 50%. As a result, Rivera contends that the subscribers were released from the
obligation to pay any unpaid balance of their subscription in excess of 50% of their
subscriptions. Rivera further contends that the subscriptions of the subscribers were 50%
cancelled, and certificates of shares of stock were issued for the said remaining 50% of the
subscriptions.
WON such reduction of the capital stock is valid. No. SC held that the said resolution is without effect
for being:
1. An attempted withdrawal of so much capital from the fund which the companys creditors were
entitled ultimately to rely, and
2. For having been effected without compliance with the statutory requirements of 17 of the
Corporation Law regarding reduction of capital stock, and
3. For failure to file a certificate with the Bureau of Commerce and Industry, showing such reduction.
Thus, stockholder is still liable for the unpaid balance of his subscription.
Ratio: Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to
look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realize assets for the payment of its debts. A corporation has
no power to release an original subscriber to its capital stock from the obligation of paying for his
shares, w/o a valuable consideration for such release; and as against creditors a reduction of the
capital stock can take place only in the manner and under the conditions prescribed by the statute or
the charter or the AOI. Moreover, strict compliance with statutory regulations is necessary.
Note: that for reasons 2 and 3, Campos says that 17 has been replaced by 38, and now, even if all
the requirements are complied with, if creditors are prejudiced by such reduction, it is most unlikely
that the SEC will approve it.
Uson v. Diosomito, Barcelon, Jollye and North Electric Company, Inc.
17 June 1935
J. Butte | En Banc
Facts:
1. Unson is the creditor of Diosomito, who is the original owner of 75 shares of North Electric.
Unson filed a civil action for debt against Diosomito. Upon institution of said action an
attachment was duly issued and levied upon the property of the Diosomito, including 75 shares
of North Electric, which stood in his name on the books of the company when the attachment
was levied on January 18, 1932. On June 23, 1932, Uson obtained judgment against the
Diosomito for P2,300 with interest and costs. To satisfy the judgment, the sheriff sold said
shares at a public auction on March 20, 1933. Uson was the highest bidder and said shares
were adjudicated to her.
2. In the present action, H.P.L. Jollye claims to be the owner of said 75 shares of the North Electric
Co., Inc., and presents a certificate of stock issued to him by the company on February 13,
1933.
Diosomito was the original owner of said shares of stock. On February 3, 1931, he sold said
shares to Emeterio Barcelon and delivered to the latter the corresponding certificates. But

Barcelon did not present these certificates to the corporation for registration until the
September 16, 1932 (9 months after the attachment had been levied on the shares) when they
were cancelled and a new certificate was issued in favor of Barcelon, who transferred the same
of the defendant H.P.L. Jollye to whom another new certificate was issued on February 13, 1933.
Issue: W/N a bona fide transfer of shares of a corporation, not registered or noted on the books, is
valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching
creditor had actual notice of the transfer or not
Held: No. The transfer is valid except as between the parties unless it is duly registered in the books of
the corporation. All transfers of shares must be entered on the books of the corporation. All transfers
not so validly entered are invalid as to attaching or execution creditors of the assignors, of the
corporation, and as to all subsequent purchasers in good faith, and even to all parties interested. All
transfers not so entered on the books are absolutely void, not because they are without notice or
fraudulent in law, but because they are made void by the statute. Courts in the Philipines adhere to the
principle that the right of the owner of the shares to transfer to same by delivery of the certificate,
whether it be regarded as statutory or common law right, is limited and restricted by the express
provision that no transfer shall be valid except as between the parties, until the transfer is entered
and noted upon the books of the corporation.
The right of the owner of the shares of stock of a Philippine corporation to transfer the same by
delivery of the certificate, whether it be regarded as statutory on common law right, is limited and
restricted by the express provision that "no transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the corporation." Therefore, the
transfer of the 75 shares in the North Electric Company, Inc., made by the defendant Diosomito to the
defendant Barcelon was not valid as to the plaintiff-appellee, Toribia Uson, on January 18, 1932, the
date on which she obtained her attachment lien on said shares of stock which still stood in the name of
Diosomito on the books of the corporation.
FIL-ESTATE GOLF AND DEVELOPMENT, INC. and FIL-ESTATE LAND, INC., petitioners, vs.
VERTEX SALES AND TRADING, INC., respondent
FACTS:
FEGDI is a stock corporation whose primary business is the development of golf courses. FELI is
also a stock corporation, but is engaged in real estate development.
FEGDI was the developer of the Forest Hills Golf and Country Club (Forest Hills) and, in
consideration for its financing support and construction efforts, was issued several shares of
stock of Forest Hills.

FEGDI sold, on installment, to RS Asuncion Construction Corporation (RSACC) one

Class "C" Common Share of Forest Hills for P1,100,000.00.
Prior to the full payment of the purchase price, RSACC soldt he Class "C" Common
Share to respondent Vertex Sales and Trading, Inc. (Vertex). RSACC advised FEGDI of
the sale to Vertex and FEGDI, in turn, instructed Forest Hills to recognize Vertex as a
shareholder. For this reason, Vertex enjoyed membership privileges in Forest Hills.
Despite Vertex's full payment, the share remained in the name of FEGDI. Seventeen (17)
months after the sale (or on July 28, 2000), Vertex wrote FEDGI a letter demanding the issuance
of a stock certificate in its name. FELI replied, initially requested Vertex to first pay the
necessary fees for the transfer.
Although Vertex complied with the request, no certificate was issued. Vertex made a
final demand on March 17, 2001.
As the demand went unheeded, Vertex filed on January 7, 2002 a Complaint for
Rescission with Damages and Attachment against FEGDI, FELI and Forest Hills. It
averred that the petitioners defaulted in their obligation as sellers when they failed and refused
to issue the stock certificate covering the subject share despite repeated demands.
On the basis of its rights under Article 1191 of the Civil Code, Vertex prayed for the rescission of
the sale anddemanded the reimbursement of the amount it paid (or P1,100,000.00), plus
interest.

During the pendency of the rescission action (or on January 23, 2002), a certificate of stock was
issued in Vertex's name, but Vertex refused to accept it.

ISSUE/S: W/N the delay in the issuance of a stock certificate can be considered a substantial breach as
to warrant rescission of the contract of sale. YES.
RATIO:

The factual backdrop of this case is similar to that of Raquel-Santos v. Court of Appeals where
the Court held that in a sale of shares of stock, physical delivery of a stock certificate is one of
the essential requisites for the transfer of ownership of the stocks purchased.
In that case, Trans-Phil Marine Ent., Inc. (Trans-Phil) and Roland Garcia bought Piltel shares from
Finvest Securities Co., Inc. (Finvest Securities) in February 1997. Since Finvest Securities failed
to deliver the stock certificates, Trans-Phil and Garcia filed an action first for specific
performance, which was later on amended to an action for rescission. The Court ruled that
Finvest Securities failure to deliver the shares of stock constituted substantial breach of their
contract which gave rise to a right on the part of Trans-Phil and Garcia to rescind the sale
IN THIS CASE:
Vertex fully paid the purchase price by February 11, 1999 but the stock certificate was only
delivered on January 23, 2002 after Vertex filed an action for rescission against FEGDI.nder
these facts, considered in relation to the governing law, FEGDI clearly failed to deliver the stock
certificates, representing the shares of stock purchased by Vertex, within a reasonable time
from the point the shares should have been delivered.
This was a substantial breach of their contract that entitles Vertex the right to
rescind the sale under Article 1191 of the Civil Code.
It is not entirely correct to say that a sale had already been consummated as Vertex already
enjoyed the rights a shareholder can exercise. The enjoyment of these rights cannot suffice
where the law, by its express terms, requires a specific form to transfer ownership.
"Mutual restitution is required in cases involving rescission under Article 1191" of the Civil
Code; such restitution is necessary to bring back the parties to their original situation prior to
the inception of the contract.
NAUTICA CANNING VS. YUMUL
FACTS: Nautica Canning Corporation (Nautica) was organized and incorporated on May 11, 1994 and
respondent Roberto C. Yumul was appointed Chief Operating Officer/General Manager of
Nautica. On the same date, First Dominion Prime Holdings, Inc., Nauticas parent company, through its
Chairman Dee, granted Yumul an Option to Purchase up to 15% of the total stocks it
subscribed from Nautica.
1995,a Deed of Trust and Assignment[6] was executed between First Dominion Prime Holdings,
Inc. and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the
latter. The deed stated that the 14,999 shares were acquired and paid for in the name of the
ASSIGNOR only for convenience, but actually executed in behalf of and in trust for the
ASSIGNEE.

After Yumuls resignation from Nautica on 1996, he wrote a letter to Dee requesting the latter to
formalize his offer to buy Yumuls 15% share in Nautica on or before August 20, 1996; and
demanding the issuance of the corresponding certificate of shares in his name should Dee
refuse to buy the same. Dee, through Atty. Fernando R. Arguelles, Jr., Nauticas corporate
secretary, denied the request claiming that Yumul was not a stockholder of Nautica.

Yumul requested that the Deed of Trust and Assignment be recorded in the Stock and Transfer
Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and records.

Yumuls requests were denied allegedly because he neither exercised the option to purchase
the shares nor paid for the acquisition price of the 14,999 shares. Atty. Arguelles maintained
that the cash dividend received by Yumul is held by him only in trust for First Dominion Prime
Holdings, Inc.a

Dee denied the request claiming that Yumul was not a stockholder of Nautica; that he was just a
nominal owner of one share as the beneficial ownership belonged to Dee who paid for said

share when Nautica was incorporated, which means that respondent held said stock in trust for
Dee.
Thus, Yumul filed on October 3, 1996, before the SEC a petition for mandamus with damages,
with prayer that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book
of Nautica and that the certificate of stocks corresponding thereto be issued in his name

ISSUE: Whether or not Yumul is a stockholder. Yes.

HELD: Indeed, it is possible for a business to be wholly owned by one individual. The validity of its
incorporation is not affected when such individual gives nominal ownership of only one share of stock
to each of the other four incorporators. This is not necessarily illegal. But, this is valid only between
or among the incorporators privy to the agreement. It does bind the corporation which, at
the time the agreement is made, was non-existent. Thus, incorporators continue to be
stockholders of a corporation unless, subsequent to the incorporation, they have validly transferred
their subscriptions to the real parties in interest. As between the corporation on the one hand, and its
shareholders and third persons on the other, the corporation looks only to its books for the purpose of
determining who its shareholders are.

In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a stockholder
of Nautica, of one share of stock recorded in Yumuls name, although allegedly held in trust for
Dee. Nauticas Articles of Incorporation and By-laws, as well as the General Information Sheet
filed with the SEC indicated that Yumul was an incorporator and subscriber of one share.[16]
Even granting that there was an agreement between Yumul and Dee whereby the
former is holding the share in trust for Dee, the same is binding only as between
them. From the corporations vantage point, Yumul is its stockholder with one
share, considering that there is no showing that Yumul transferred his subscription
to Dee, the alleged real owner of the share, after Nauticas incorporation.

The defendants also failed to show that the subscription was transferred to Dee after Nauticas
incorporation. The conduct of the parties also constitute sufficient proof of Yumuls
status as a stockholder. On April 4, 1995, Yumul was elected during the regular
annual stockholders meeting as a Director of Nauticas Board of Directors.[21]
Thereafter, he was elected as president of Nautica.[22] Thus, Nautica and its
stockholders knowingly held respondent out to the public as an officer and a
stockholder of the corporation.
RE RIGHT TO INSPECT BOOKS: Section 23 of The Corporation Code of the Philippines requires that
every director must own at least one share of the capital stock of the corporation of which he is a
director. Before one may be elected president of the corporation, he must be a director.[23] Since
Yumul was elected as Nauticas Director and as President thereof, it follows that he must have owned
at least one share of the corporations capital stock.
Thus, from the point of view of the corporation, Yumul was the owner of one share of stock. As such,
the SEC correctly ruled that he has the right to inspect the books and records of Nautica,[24] pursuant
to Section 74 of BP Blg. 68 which states that the records of all business transactions of the corporation
and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or
member of the corporation at reasonable hours on business days and he may demand, in writing, for a
copy of excerpts from said records or minutes, at his expense.
As to whether or not Yumul is the beneficial owner of the 14,999 shares of stocks of Nautica, petitioners
allege that Yumul was given the option to purchase shares of stocks in Nautica under the Option to
Purchase dated December 19, 1994. However, he failed to exercise the option, thus there was no
cause or consideration for the Deed of Trust and Assignment, which makes it void for being simulated
or fictitious.

held: SEC did not make a categorical finding on whether Yumul exercised his option and also on
the validity of the Deed of Trust and Assignment; moreover, other than defining and
enumerating the requisites of a simulated contract or deed, the Court of Appeals did not make
a determination whether the SEC has the jurisdiction to resolve the issue and whether the
questioned deed was fictitious or simulated.

Thus, when the controversy involves matters purely civil in character, it is beyond the ambit of
the limited jurisdiction of the SEC.

Considering that the issue of the validity of the Deed of Trust and Assignment is civil in nature,
thus, under the competence of the regular courts, and the failure of the SEC and the Court of
Appeals to make a determinative finding as to its validity, we are constrained to refrain from
ruling on whether or not Yumul can compel the corporate secretary to register said deed. It is
only after an appropriate case is filed and decision rendered thereon by the proper forum can
the issue be resolved.

RAZON VS IAC:
E. Razon, Inc. was organized in 1962 by petitioner Enrique Razon for the purpose of participating in the
bidding for the arrastre services in South Harbor, Manila.

The incorporators were Enrique Razon, Enrique Valles, Luisa M. de Razon, Jose Tuazon, Jr., Victor
L. Lim, Jose F. Castro and Salvador Perez de Tagle.

The business, however, did not start operations until 1966.

According to the petitioner, some of the incorporators withdrew from the said corporation. The
petitioner then distributed the stocks previously placed in the names of the
withdrawing nominal incorporators to some friends, among them the late Juan T.
Chuidian to whom he gave 1,500 shares of stock.

The shares of stock were registered in the name of Chuidian only as nominal stockholder and
with the agreement that the said shares of stock were owned and held by the petitioner but
Chuidian was given the option to buy the same.

In view of this arrangement, Chuidian in 1966 delivered to the petitioner the stock certificate
covering the 1,500 shares of stock of E. Razon, Inc.

Since then, the Petitioner had in his possession the certificate of stock until the time, he
delivered it for deposit with the Philippine Bank of Commerce under the parties' joint custody
pursuant to their agreement as embodied in the trial court's order.
Issue is the ownership of 1,500 shares of stock in E. Razon, Inc. covered by Stock Certificate No. 003
and registered under the name of Juan T. Chuidian in the books of the corporation.
CFI, declared that Enrique Razon, the petitioner is the owner of the said shares of stock.
IAC reversed the trial court's decision and ruled that Juan T. Chuidian, the deceased father of petitioner
Vicente B. Chuidian is the owner of the shares of stock.
HELD: CHIUDIAN IS THE OWNER. Since the certificate of stock covering the questioned 1,500 shares of
stock registered in the name of the late Juan Chuidian was never indorsed to the petitioner, the
inevitable conclusion is that the questioned shares of stock belong to Chuidian. FURTHERMORE, the
stocks
were
paid
in
consideration
of
Juan's
legal
services.
RULE - EMBASSY FARMS VS CA: . For an effective, transfer of shares of stock the mode and manner of
transfer as prescribed by law must be followed. As provided under Section 3 of Batas Pambansa Bilang,
68 shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed.
Title may be vested in the transferee by the delivery of the duly indorsed certificate of stock. However,
no transfer shall be valid, except as between the parties until the transfer is properly recorded in the
books of the corporation (Sec. 63, Corporation Code of the Philippines; Section 35 of the Corporation
Law)
In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are
in the name of the late Juan Chuidian in the books of the corporation. Moreover, the records
show that during his lifetime Chuidian was ellected member of the Board of Directors of the
corporation which clearly shows that he was a stockholder of the corporation. (See Section 30,
Corporation Code)

From the point of view of the corporation, therefore, Chuidian was the owner of the
1,500 shares of stock.

In such a case, the petitioner who claims ownership over the questioned shares of
stock must show that the same were transferred to him by proving that all the
requirements for the effective transfer of shares of stock in accordance with the corporation's

by laws, if any, were followed (See Nava v. Peers Marketing Corporation, 74 SCRA 65 [1976]) or
in accordance with the provisions of law.
The petitioner failed in both instances. The petitioner did not present any by-laws
which could show that the 1,500 shares of stock were effectively transferred to
him. In the absence of the corporation's by-laws or rules governing effective transfer of
shares of stock, the provisions of the Corporation Law are made applicable to the instant
case.
The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be
properly indorsed and that title to such certificate of stock is vested in the transferee by the delivery of
the
duly
indorsed
certificate
of
stock.
(Section
35,
Corporation
Code)
The petitioner's asseveration that he did not require an indorsement of the certificate of stock in view
of his intimate friendship with the late Juan Chuidian can not overcome the failure to follow
the procedure required by law or the proper conduct of business even among friends. To
reiterate, indorsement of the certificate of stock is a mandatory requirement of law for an
effective transfer of a certificate of stock.
CA'S factual findings that the shares of stock were given to Juan T. Chuidian for value. Juan T. Chuidian
was the legal counsel who handled the legal affairs of the corporation. We give credence to the
testimony of the private respondent that the shares of stock were given to Juan T. Chuidian in payment
of his legal services to the corporation. Petitioner Razon failed to overcome this testimony.

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO TRIAS
vs. COURT OF APPEALS*, SECMELANIA A. GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES,
FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO , SR.,

1.

2.

3.

4.
5.
6.

7.

Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of
Attorney in favor of his wife, private respondent Melania Guerrero, granting full power and
authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank
registered in his name
Melania Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out
of the 473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina
Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares); later, Melania Guerrero executed
a Deed of Assignment for the remaining one (1) share of stock in favor of private
respondent Francisco Guerrero, Sr.
Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2) Deeds of
Assignment for registration with a request for the transfer in the Bank's stock and transfer
book of the 473 shares of stock so assigned. However, petitioner Bank denied the request
of respondent Melania Guerrero.
Melania Guerrero filed with the Securities and Exchange Commission" (SEC) an
action for mandamus against petitioners Rural Bank of Salinas, its President and Corporate
Secretary.
The Banks Answer with counterclaim: Upon the death of Clemente G. Guerrero, the stock
became the property of his estate, and his property and that of his widow should first be settled
and liquidated in accordance with law before any distribution can be effected
Motion for intervention was filed by Maripol Guerrero, a legally adopted daughter of the
late Clemente G. Guerrero and private respondent Melania Guerrero. She claimed that a
Petition for administration of the estate had been filed; the deeds of assignment are
fictitious and antedated; the transfer would deprive her of her share in the
inheritance.
The motion for intervention was denied by the SEC hearing officer, and the SEC en banc

8. Intervenor Guerrero filed a complaint before the CFI RIZAL against private respondents for the
annulment of the Deeds of Assignment.
9. Petitioners, on the other hand, filed a Motion to Dismiss and/or to Suspend Hearing. The SEC
Hearing Officer denied said motion.
10. SEC Hearing Officer: granted the writ of Mandamus directing petitioners to cancel stock
certificates nos. 26, 49 and 65 of the Bank, all in the name of Clemente G. Guerrero, and to
issue new certificates in the names of private respondents, except Melania Guerrero.
11. SEC En Banc affirmed the decision of the Hearing Officer.
12. CA affirmed the SEC en banc.
Issue: WON the SEC had jurisdiction? Yes
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear
and decide cases involving intracorporate controversies. An intracorporate controversy has
been defined as one which arises between a stockholder and the corporation. The case at bar
involves shares of stock, their registration, cancellation and issuances thereof by petitioner
Rural Bank of Salinas. It is therefore within the power of respondent SEC to adjudicate.
WON the order of mandamus issued by the SEC upon Rural Bank of Salinas was proper? Yes. [Basically,
the Court reiterated the doctrine in Fleisher v Botica Nolasco]
Such ruling finds support under Section 63 of the Corporation Code, to wit:
Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in the books of the
corporation . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:
o Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates
no restriction as to whom the stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of, or against a certain
purchaser. The owner of shares, as owner of personal property, is at liberty, under said
section to dispose them in favor of whomever he pleases, without limitation in this
respect, than the general provisions of law. . . .
The only limitation imposed by Section 63 of the Corporation Code is when the corporation
holds any unpaid claim against the shares intended to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions
in stock transfers, because:
o . . . Restrictions in the traffic of stock must have their source in legislative enactment, as
the corporation itself cannot create such impediment. By-laws are intended merely for
the protection of the corporation, and prescribe regulation, not restriction; they are
always subject to the charter of the corporation. The corporation, in the absence of such
power, cannot ordinarily inquire into or pass upon the legality of the transactions by
which its stock passes from one person to another, nor can it question the consideration
upon which a sale is based. . . . (Tomson on Corporation Sec. 4137, cited in Fleisher vs.
Nolasco, Supra).
The right of a transferee/assignee to have stocks transferred to his name is an inherent right
flowing from his ownership of the stocks. Thus:
o Whenever a corporation refuses to transfer and register stock in cases like the
present, mandamus will lie to compel the officers of the corporation to transfer said
stock in the books of the corporation" (26, Cyc. 347, Hyer vs. Bryan, 19 Phil. 138;
Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).
The corporation's obligation to register is ministerial.
o In transferring stock, the secretary of a corporation acts in purely ministerial capacity,
and does not try to decide the question of ownership. (Fletcher, Sec. 5528, page 434).
o The duty of the corporation to transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by mandamus. (See.
5518, 12 Fletcher 394)
At all events, the registration is without prejudice to the proceedings in court to determine the
validity of the Deeds of Assignment of the shares of stock in question.

JOSEFA SANTAMARIA, plaintiff-appellee v. THE HONGKONG AND SHANGHAI BANKING

CORPORATION and R. W. TAPLIN, defendants-appellant (1951)
Facts:
1. Josefa T. Santamaria (Josefa) bought 10,000 shares of the Batangas Minerals, Inc.
(BMI), through the offices of Woo, Uy-Tioco & Naftaly (WUN), a stock brokerage firm and pay
therefore the sum of P8,041.20.
2. She received Stock Certificate No. 517 issued in the name of WUN and indorsed in blank by this
firm.
3. Josefa placed an order for the purchase of 10,000 shares of the Crown Mines, Inc.
(CMI) with R.J. Campos & Co. (RJI), a brokerage firm, and delivered Certificate No. 517 to
the latter as security with the understanding that said certificate would be returned to her upon
payment of the 10,000 CMI shares. Cosculluela, Manager of RJI upon receipt of the certificate
wrote in lead pencil Josefas name on the upper right hand corner of the certificate.
4. Two days later, Josefa went to RJI to pay and to get back Certificate No. 517, but she was
informed by Cosculluela RJI was no longer allowed to transact business due to a prohibition
order from SEC. She was also inform that her Stock certificate was in the possession of HSBC.
5. Certificate No. 517 came into possession of HSBC because RJI had opened an overdraft account
with this bank and to this effect it had executed a document of hypothecation, pledging to the
said bank "all stocks, shares and securities which I/we may hereafter come into their
possession of my/our account and whether originally deposited for safe custody only or for any
other purpose whatever or which may hereinafter be deposited by me/us in lieu of or in
addition to the Stocks Shares and Securities now deposited or for any other purposes
whatsoever."
6. Certificate No. 517, already indorsed by RJI to HSBC, was sent by HSBC to the office of the BMI
with the request that the same be cancelled and a new certificate be issued in the
name of R.W. Taplin as trustee and nominee of the banking corporation.
7. BMI issued Certificate No. 715 in lieu of Certificate No. 517, in the name of Robert W. Taplin as
trustee and nominee of HSBC.
8. JOSEFA: she made the claim to the bank for her certificate on the following day, she informed
Taplin that the certificate belonged to her, and she demanded that it be returned to her.
9. Taplin then replied that the bank did not know anything about the transaction had between her
and RJI and that he could not do anything until the case of the bank with Campos shall have
been terminated.
10. RJI was then declared insolvent. 10,000 shares of BMI represented by Certificate No. 715, were
sold to the same bank by the Sheriff at a foreclosure sale authorized by a court order.
11. The president of RJI was prosecuted for estafa. Josefa failed to force the civil judgment
rendered in her favor in the criminal case because the accused became insolvent
hence this case.
Issue/Held: WON JOSEFA CAN RECOVER NO. HSBC WAS A BONA FIDE PLEDGEE.
W/N Josefa was chargeable for negligence. (YES) Josefa did not take any precaution to protect
herself against the possible misuse of the shares represented by the certificate of stock.

She delivered said certificate, as it was, to RJI thereby clothing the latter with apparent title to
the shares represented by said certificate including apparent authority to negotiate it by
delivering it to said company while it was indorsed in blank by the person or firm appearing on
its face as the owner thereof.

HSBC had no knowledge of the circumstances under which the certificate of stock was delivered
to RJI and had a perfect right to assume that the latter was lawfully in possession of the
certificate in view of the fact that it was a street certificate, and was in such form as would
entitle any possessor thereof to a transfer of the stock on the books of the corporation
concerned.

She made the negotiation of the certificate of stock to other parties possible and the confidence
she placed in RJI made the wrong done possible. This was the proximate cause.

She is, therefore, estopped from claiming further title to or interest therein as against a bona
fide pledge or transferee thereof, for it is a well-known rule that a bona fide pledgee
or transferee of a stock from the apparent owner is not chargeable with knowledge
of the limitations placed on it by the real owner, or of any secret agreement relating
to the use which might be made of the stock by the holder.

Where one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss
must fall on the one who first trusted the wrong doer and put in his hands the means of inflicting such
loss.
2. W/N it was the obligation of the bank to have inquired into the ownership of the
certificate when it received it from RJI. (NO)
It should be noted that the certificate of stock in question was issued in the name of the brokerage firm
WUN and that it was duly indorsed in blank by said firm, and that said indorsement was guaranteed by
RJI which in turn indorsed it in blank. This certificate is what it is known as street certificate. Upon its
face, the holder was entitled to demand its transfer into his name from the issuing corporation. The
Bank was not obligated to look beyond the certificate to ascertain the ownership of the stock at the
time it received the same from RJI for it was given to the Bank pursuant to their letter of hypothecation.
Even if said certificate had been in the name of the plaintiff but indorsed in blank, the Bank would still
have been justified in believing that RJI had title thereto for the reason that it is a well-known practice
that a certificate of stock, indorsed in blank, is deemed quasi negotiable, and as such the transferee
thereof is justified in believing that it belongs to the holder and transferor.
Even assuming Josefa indeed went to Taplin and informed him that she was the owner, such an
incident would merely show that plaintiff has an adverse claim to the ownership of said certificate of
stock, but that would not necessarily place the Bank in the position to inquire as to the real basis of her
claim, nor would it place the Bank in the obligation to recognize her claim and return to her the
certificate outright. A mere claim and of ownership does not establish the fact of ownership. The right
of the plaintiff in such a case would be against the transferor. In fact, this is the attitude plaintiff has
adopted when she filed a charge for estafa. The fact that on the right margin of the said certificate the
name of the plaintiff appeared written, granting it to be true, said indicium could at best give the
impression that the plaintiff was the original holder of the certificate.
The Court ordered HSBC to deliver Certificate No. 715 to Josefa because of the banks insistence to
compromise.
Delos Santos vs Attorney General
Concepcion, J.
Facts: This action involves the title to 1,600,000 shares of stock of the Lepanto Consolidated Mining
Co., Inc.
800,000 of the shares are claimed by Plaintiff delos Santos and the other 800,000 by co-plaintiff
Astraquillo.
The stocks are covered by certificates issued in favor of Vicente Madrigal, who is registered in
the books of the Lepanto as owner of said stocks; and whose indorsement in blank appears on the back

of said certificates, all of which, except certificates No. 2279 marked Exhibit 2 covering 55,000
shares, are in plaintiffs' possession.
Plaintiffs version: De los Santos bought 55,000 shares from Juan Campos; he bought 300,000 shares
from Carl Hess, several days later; and that, he bought 800,000 shares from Carl Hess, this time for the
account and benefit of Astraquillo.

title to the 1,600,000 shares of stock in dispute was, however, vested in the Alien
Property Custodian of the U. S.as Japanese property.

Hence, plaintiffs filed their respective claims with the Property Custodian; the Vested Property
Claims Committee of the Philippine Alien Property Administration made a "determination,"
allowing said claims but, upon personal review, the Philippine Alien Property Administration
decreed that "title to the shares in question shall remain in the name of the Philippine Alien
Property Administrator." Consequently, plaintiffs instituted the present action to establish title
to the aforementioned shares of stock.
Defendants version: defendant herein is the Attorney General of the U. S., successor to the
"Administrator". He contends, substantially, that, prior to the outbreak of the war in the
Pacific, said shares of stock were bought by Vicente Madrigal, in trust for, and for the benefit
of, the Mitsui Bussan Kaisha (Japanese corp);

that on or before March, 1942, Madrigal delivered the corresponding stock certificates, with his
blank indorsement thereon, to the Mitsuis, which kept said certificates, in the files of its office in
Manila, until the liberation of the latter by the American forces early in 1945;

that the Mitsuis had never sold, or otherwise disposed of, said shares of stock; and that the
stock certificates aforementioned must have been stolen or looted, therefore, during the
emergency resulting from said liberation.

pursuant to the Philippine Property Act, all property vested in the United States, or any of its
officials, under the Trading with the Enemy Act, located in the Philippines at the time of
such vesting, or the proceeds thereof, shall be transferred to the Republic of the
Philippines, the latter sought permission, and was allowed, to intervene in this case and filed
an answer adopting in substance the theory of the defendant.
CFI: in favor of the plaintiffs, they are the absolute owners of the shares of stock of the Lepanto
Company, cin their (plaintiffs') possession. The transfer of said shares of stock in favor of the Alien
Property Custodian of the U. S. of America, now Philippine Alien Property Administration, is hereby
declared null and void and of no effect.
Issue: W/N plaintiffs purchased shares of stock in question.
Held: No. No entry in the name of the plaintiffs were made.
Ratio:
CORPO RELATED (but is obiter)
Unrebutted evidence in the records show Vicente Madrigal bought the shares and the
certificates were endorsed to Mitsui. Mitsui never alienated the stocks.

Section 35 of the Corporation Law reads:

o xxx No transfer, however, shall be valid, except as between the parties, until the
transfer is entered and noted upon the books of the corporation xxx

Pursuant to this provision, a share of stock may be transferred by endorsement of the

corresponding stock certificate, coupled with its delivery. However, the transfer shall "not be
valid, except as between the parties," until it is "entered and noted upon the books of the
corporation."

No such entry in the name of the plaintiffs herein having been made, it follows that the
transfer allegedly effected by Juan Campos and Carl Hess in the plaintiffs favor is
"not valid, except as between" themselves. It does not bind either Madrigal or the Mitsuis,
who are not parties to said alleged transaction.

Not valid means "absolutely void" and, hence, as good as non-existent (Uson vs Diosomito).

INSTANCES OF CERTIFICATES The managers alleged that the certificates were kept in the
office and were never sold to anyone.
The evidence of the plaintiff is more improbable than the defense.

The only evidence on the alleged sale of the shares of stock in question to the plaintiffs is the
uncorroborated testimony of Apolinario de los Santos.

The evidence of the defense shows that Vicente Madrigal did buy the stocks for Mitsui
and the subsequent handling and safekeeping of the certificates were corroborated
by Madrigal and two managers of the corporation.

Furthermore, delos Santos claims that in 1942, the stocks were sold to him and the certificates
delivered as well. According to the court, this cannot be true because during that time,
the certificates were kept in the offices of Mitsui. The SC found the testimony of Mitsuis
managers credible and delos Santoss self-serving.

BARBA VS LICEO
FACTS: Petitioner Dr. Ma. Mercedes L. Barba was the Dean of the College of Physical Therapy of
respondent Liceo de CagayanUniversity, Inc., a private educational institution with school campus
located at Carmen, Cagayan de Oro City.

On June 19, 2002, petitioners appointment as Doctor-In-Charge of the Rehabilitation Clinic was
renewed and she was appointed as Dean of the College of Physical Therapy

In the school year 2003 to 2004, the College of Physical Therapy suffered a dramatic decline in
the number of enrollees from a total of 1,121 students in the school year 1995 to 1996 to only
29 students (FIRST SEM. )This worsened in the next year or in school year 2004 to 2005 where
a total of only 20 students enrolled.

Due to the low number of enrollees, respondent decided to freeze the operation of the College
of Physical Therapy indefinitely. Respondents President wrote petitioner a letter informing her
that her services as dean of the said college will end at the close of the school year. Thereafter,
the College of Physical Therapy ceased operations on March 31, 2005,
Subsequently, respondents Executive Vice President, sent petitioner a letter instructing petitioner to
return to work and report to the Acting Dean of the College of Nursing, to receive her teaching load and
assignment as a full-time faculty member in that department for the school year 2005-2006.

IN REPLY SHE STATED THAT SHE DIDNT COMMIT TO BEING A FACULTY, THUS SHE requested for
the processing of her separation benefits in view of the closure of the College of Physical
Therapy. She received a letter ordering her to report for work as she was still bound by the
Scholarship Contract to serve respondent for two more years. But petitioner did not do so.

Thus she received a notice terminating her services on the ground of abandonment.

petitioner filed a complaint before the Labor Arbiter for illegal dismissal; She alleged that her
transfer to the College of Nursingas a faculty member is a demotion amounting to constructive
dismissal
LA: no constructive dismissal
NLRC: petitioner was demoted when she was assigned as a professor in the College ofNursing because
there are functions and obligations and certain allowances and benefits given to a College Dean but
not to an ordinary professor.
Respondent liceo filed a Supplemental Petition raising for the first time the issue of lack of
jurisdiction of the Labor Arbiter and the NLRC over the case. Respondent claimed that a College
Dean is a corporate officer under its by-laws; Respondent posited that petitioner was corporate officer
since her office was created by the by-laws and her appointment, compensation, duties and functions
were approved by the board of directors. Thus, respondent maintained that thejurisdiction over the
case is with the regular courts

ORIGNAL DECISION: CA: no merit in the Supplemental Petition that the position of petitioner as College
Dean was a corporate office; petitioner was respondents employee.; the position of Dean does
not appear to be the same as that of a College Director.

Aside from the obvious disparity in name, the By-Laws of LDCU provides for only one College
Director. But as shownby LDCU itself, numerous persons have been appointed as Deans. If it is
indeed the intention of LDCU to give its many Deans the rank of College Director, then it
exceeded the authority given to it by its By-Laws because only one CollegeDirector is
authorized to be appointed. It must amend its By-Laws.
CA REVERSED itself: CA held that the position of a College Dean is a corporate office and
therefore the labor tribunals had no

jurisdiction over the complaint for constructive dismissal. The CA noted that petitioners
appointment as Dean of the College of Physical Therapy was approved by the respondents
board of directors thereby concluding that the position of a College Dean is a corporate office.
THUS IT VACATED THE DECISIONS OF THE LA AND NLRC FOR LACK OF JURISDICTION.
issue: WON THE LA AND NLRC HAVE JURISDICTION, YES, BARBA IS NOT A CORPORATE OFFICER.
Corporate officers are elected or appointed by the directors or stockholders, and are those
who are given that character either by the Corporation Code or by the corporations bylaws.
Section 25 of the Corporation Code enumerates corporate officers as the president, the secretary, the
treasurer and such other officers as may be provided for in the by-laws.

In Matling Industrial and Commercial Corporation v. Coros, the phrase "such other officers as
may be provided for in the by laws" have been clarified saying that conformably with section
25, a POSITION MUST BE EXPRESSLY MENTIONED IN THE BY LAWS IN ORDER TO BE
CONSIDERED AS A CORPORATE OFFICE.

Thus the creation of an office pursuant to or under a by law enabling provision is not enough to
make a corporate office.

Guerrea vs Lezama: only officers of a corporation were those given that character either by the
Corporation code or the by laws, the rest of the corporate officers COULD BE CONSIDERED ONLY
AS EMPLOYEES OF SUBORDINATE OFFICIALS.
An office is created by the charter of the corporation and the officer is elected by the
directors or stockholders. On the other hand, an employee occupies no office and generally is
employed not by the action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee.

It is worthy to note that a College Dean is not among the corporate officers mentioned in
respondents by-laws. Petitioner, being an academic dean, also held an administrative post in
the university but not a corporate office as contemplated by law. Petitioner was not directly
elected nor appointed by the board of directors to any corporate office but her appointment
was merely approved by the board together with the other academic deans of respondent
university in accordance with the procedure prescribed in respondents Administrative Manual.
WHO ARE THE CORPORATE OFFICERS? In respondents by-laws, there are four officers specifically
mentioned, namely, a president, a vice president, a secretary and a treasurer. In addition, it is provided
that there shall be other appointive officials, a College Director and heads of departments whose
appointments , compensations, powers and duties shall be determined by the board of directors.

the appointive officials mentioned in Article V of respondents by-laws are not corporate officers
under the contemplation of the law. Though the board of directors may create appointive
positions other than the positions of corporate officers, the persons occupying such positions
cannot be deemed as corporate officers as contemplated by Section 25 of the Corporat

MATILING INDUSTRIAL VS COROS: the Board may create appointive positions other than the
positions of corporate Officers, but the persons occupying such positions are not considered as
corporate officers within the meaning of Section 25 of the Corporation Code and are not
empowered to exercise the functions of the corporate Officers, except those functions lawfully
delegated to them.

even assuming that a College Director may be considered a corporate officer of respondent, a
review of the records fails to persuade that petitioner was the College Director mentioned in

the by-laws of respondent. Nowhere in petitioners appointment letter was it stated that
petitioner was designated as the College Director or that petitioner was to assume the
functions and duties of a College Director. Neither can it be inferred in respondents by-laws
that a dean of a college is the same as a college director.
Also , the CA in its previous decision correctly ruled that: the By-Laws of [Liceo de Cagayan
University] provides for only one College Director. But as shown by [Liceo de Cagayan
University] itself, numerous persons have been appointed as Deans. They could not be the
College Director contemplated by the By-Laws inasmuch as the By-Laws authorize only the
appointment of one not many. If it is indeed the intention of [Liceo de Cagayan University] to
give its many Deans the rank of College Director, then it exceeded the authority given to it by
its By-Laws because only one College Director is authorized to be appointed.

NOW TO THE LABOR ISSUE, IT BEING RESOLVED THAT THE PETITIONER IS NOT A COLLEGE DIRECTOR,
BUT IS A MERE EMPLOYEE:
> it is clear that there exists an employer-employee relationship between petitioner and respondent.
(all 4 fold test applies)
> Thus, petitioner, being an employee of respondent, her complaint for illegal/constructive dismissal
against respondent was properly within the jurisdiction of the Labor Arbiter and the NLRC.
> since respondent actively participated in the proceedings before the Labor Arbiter and the NLRC, it
is already estopped from belatedly raising the issue of lack of jurisdiction.
NO CONSTRUCTIVE DISMISSAL
> On the issue of constructive dismissal, we agree with the Labor Arbiter and the appellate courts
earlier ruling that petitioner was not constructively dismissed. Petitioners letter of appointment
specifically appointed her as Dean of the College of Physical Therapy and Doctor-in-Charge of the
Rehabilitation Clinic for a period of three years effective July 1, 2002 unless sooner revoked for valid
cause or causes. Evidently, petitioners appointment as College Dean was for a fixed term, subject to
reappointment and revocation or termination for a valid cause. When respondent decided to close its
College of Physical Therapy due to drastic decrease in enrollees, petitioners appointment as its College
Dean was validly revoked and her subsequent assignment to teach in the College of Nursing was
justified as it is still related to her scholarship studies in Physical Therapy.
> the assignment of a teaching load in the College of Nursing was undertaken by respondent to
accommodate petitioner following the closure of the College of Physical Therapy.
> Petitioners subsequent transfer to another department or college is not tantamount to demotion as
it was a valid transfer.
> That petitioner ceased to enjoy the compensation, privileges and benefits as College Dean was but a
logical consequence of the valid revocation or termination of such fixed-term position.

ESGUERRA VS HOLCIM:
Respondent Esguerra filed on December 12, 1989 with the RTC, Malolos, Bulacanan action to annul the
Free Patent in the name of de Guzman. Esguerra claimed that he was the owner of Lot 3308-B,
located at Matiktik, Norzagaray, Bulacan, covered by Transfer Certificate of Title No. T-1685.
Esguerra learned that the said parcel of land was being offered for sale by de
Guzman to Hi-Cement Corporation (now named HOLCIM Philippines, Inc.). The former
possessor of the land, Felisa Maningas, was issued Free Patent No. 575674 which was
subsequently issued in the name of de Guzman over said parcel of land located at Gidgid,
Norzagaray,
Esguerra also demanded that the portion of his property, which has been encroached
upon and included in de Guzmans Free Patent, be excluded. He later amended his
complaint to implead Hi-Cement as a co-defendant since the latter was hauling marble from the
subject land. He also prayed that Hi-Cement be ordered to desist from hauling marble, to
account for the marble already hauled and to pay him.

RTC DISMIISSED COMPLAINT,

CA REVERSED ( Declaring de Guzmans OCT No. P-3876 null and void insofar as the disputed
area of 38,641 square meters, which is part of the Lot p in the name of [Esguerra]; Ordering
[de Guzman] to cause the segregation, at his expense, of the disputed area; Ordering

and

[de Guzman] to immediately vacate and surrender to [Esguerra] possession of the disputed
area of 38,641 square meters;
Ordering defendant-appellee Hi-Cement Corporation to
immediately cease and desist from quarrying or extracting marble from the disputed area;)
SC affirmed and the case was remanded to the RTC for execution.
To reiterate: Insofar as HOLCIM is concerned, the CAs decision ordered HOLCIM
[i] to immediately cease and desist from quarrying or extracting marble from the disputed area;
[ii] to make an accounting of the royalty it paid to de Guzman.

Indeed, the final judgment does not direct HOLCIM nor its predecessor Hi-Cement to pay a certain
amount to Esguerra and his heirs. What was required from HOLCIM to do was merely to account
for the payments it made to de Guzman. Apparently, this was not enforced.
When the petitioners filed the Omnibus Motion dated September 28, 2004, they asked for the
examination of de Guzman and Hi-Cement (HOLCIM) under Sections 36 and 37 of Rule 39 of
the Rules of Court. This motion was subsequently granted by the trial court.
HOLCIM filed a Manifestation and Motion (for Ocular Inspection).31 It asked the court to conduct an
ocular inspection, advancing the argument that HOLCIM did not extract limestone from any portion of
the 47,000-sq m property which Esguerra owned; and that the pictures, which the petitioners
presented to prove that HOLCIM has been extracting limestone from the subject land until year 2005,
were actually photographs of areas outside the contested land.

RTC denied HOLCIMs motion for reconsideration and motion for ocular inspection. It held that
the petitioners proved their entitlement to the royalties totaling to P91,872,576.72.

HOLCIM filed a Petition for Certiorari (with Urgent Applications for Temporary Restraining Order
and/or Writ of Preliminary Injunction)33 with the CA. This was opposed.

CA promulgated the now assailed decision finding merit in HOLCIMs petition.

BEFORE THE SUPREME COURT, IN THIS CASE the petitioners claim that HOLCIMs petition for certiorari
in the CA failed to comply with the rules on Verification and Certification of Non-Forum Shopping
because the latter did not secure and/or attach a certified true copy of a board resolution authorizing
any of its officers to file said petition. Thus, the CA should have dismissed outright HOLCIMs petition
before it.
issue: WON the CA validly granted HOLCIM's petition for certiorari. YES.
The general rule is that a corporation can only exercise its powers and transact its business through its
board of directors and through its officers and agents when authorized by a board resolution or its
bylaws. The power of a corporation to sue and be sued is exercised by the board of
directors. The physical acts of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by corporate bylaws or
by a specific act of the board. Absent the said board resolution, a petition may not be given due
course.52
In BPI VS CA: the Court held that the application of the rules must be the general rule, and the
suspension or even mere relaxation of its application, is the exception. This Court may go beyond the
strict application of the rules only on exceptional cases when there is truly substantial compliance with
the rule.
IN THIS CASE: In HOLCIM attached to its Petition for Certiorari before the CA a Secretarys
Certificate authorizing Mr. Paul M. OCallaghan (OCallaghan), its Chief Operating Officer, to
nominate, designate and appoint the corporations authorized representative in court
hearings and conferences and the signing of court pleadings.
It also attached the Special Power of Attorney dated June 9, 2006, signed by
OCallaghan, appointing Sycip Salazar Hernandez & Gatmaitan and/or any of its
lawyers to represent HOLCIM; and consequently, the Verification and Certification of Non
Forum Shopping signed by the authorized representative.
To be sure, HOLCIM, in its Reply filed in the CA, attached another Secretarys Certificate,
designating and confirming OCallaghans power to authorize Sycip Salazar

Hernandez & Gatmaitan and/or any of its lawyers to file for and on behalf of
HOLCIM, the pertinent civil and/or criminal actions in Civil Case No. 725-M-89 pending before
the RTC, including any petition to be filed with the CA and/or the Supreme Court in connection
with the Orders dated December 1, 2005, December 20, 2005 and June 7, 2006.58
The foregoing convinces the Court that the CA did not err in admitting HOLCIMs petition before it.
HOLCIM attached all the necessary documents for the filing of a petition for certiorari before the CA.
Indeed, there was no complete failure to attach a Certificate of Non-Forum Shopping. In fact, there was
such a certificate.

While the board resolution may not have been attached, HOLCIM complied just the same when
it attached the Secretarys Certificate thus proving that OCallaghan had the authority from the
board of directors to appoint the counsel to represent them in Civil Case No. 725-M-89.

The Court recognizes the compliance made by HOLCIM in good faith since after the
petitioners pointed out the said defect, HOLCIM submitted the Secretarys
Certificate dated July 17, 2006, confirming the earlier Secretarys Certificate dated
June 9, 2006.

For the Court, the ruling in General Milling Corporation v. NLRC is applicable where the Court
rendered a decision in favor of the petitioner despite its failure to attach the Certification of
Non- Forum Shopping. The Court held that there was substantial compliance when it eventually
submitted the required documents. Substantial justice dictates that technical and procedural
rules must give way because a deviation from the rigid enforcement of the rules will better
serve the ends of justice.
PRIME WHITE VS IAC:
Plaintiff and defendant corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as
Chairman of the Board, entered into a dealership agreement whereby said plaintiff was
obligated to act as the exclusive dealer and/or distributor of the corp of its cement products in the
entire Mindanao area for 5 years.

Right after the plaintiff entered into the aforesaid dealership agreement, he placed an
advertisement in a national, circulating newspaper the fact of his being the exclusive dealer of
the defendant corporation's white cement products in Mindanao area, more particularly, in the
Manila Chronicle ; and was even congratulated by his business associates, so much so, he was
asked by some of his businessmen friends and close associates if they can be his sub-dealer in
the Mindanao area.

Relying heavily on the dealership agreement, plaintiff entered into a written agreement with
several hardware stores in Davao and CDO which would enable him to sell his allocation of 20
000 bags of regular supply, he was assured that these will be diposed of by the buyer. He
informed the corp that he was preparing for the opening of the letter of credit to cover the price
of initial delivery for the month of September.

In reply to the aforesaid letter of the plaintiff, the defendant corporation thru its corporate
secretary, replied that the board of directors of the said defendant decided to impose the
following conditions:
a.
Delivery of white cement shall commence at the end of November, 1970;
b.
Only 8,000 bags of white cement per month for only a period of three (3) months will be
delivered;
c.
The price of white cement was priced at P13.30 per bag;
d.
The price of white cement is subject to readjustment unilaterally on the part of the
defendant;XXX
Several demands to comply with the dealership agreement were made however, defendant refused to
comply; plaintiff by force of circumstances was constrained to cancel his agreement for the supply of
white cement with third parties, which were concluded in anticipation of, and pursuant to the said
dealership agreement.
Furthermore, the corporation entered into an exclusive dealership agreement with a certain Napoleon
Co for the marketing of white cement in Mindanao
TC: corp liable to Te , 3m pesos as actual damages, + other damages.

no dispute that when Zosimo R. Falcon and Justo B. Trazo signed the dealership agreement
Exhibit "A", they were the President and Chairman of the Board, respectively, of the
corporation.
Neither is the genuineness of the said agreement contested; on the face of the contract itself
both officers were duly authorized to enter into the said agreement and signed the same for
and in behalf of the corporation.
When they, therefore, entered into the said transaction they created the impression that they
were duly clothed with the authority to do so.

ISSUE: Whether or not the "dealership agreement" referred by the President and Chairman of the Board
of petitioner corporation is a valid and enforceable contract. No. Te was a self dealing director. In the
instant case respondent Te was not an ordinary stockholder; he was a member of the Board
of Directors and Auditor of the corporation as well. . Also, the contract was not fair and
reasonable.
RULE: Under the corporation law, all corporate powers shall be exercised by the Board of Directors,
except as otherwise provided by law.

Although it cannot completely abdicate its power and responsibility to act for the juridical
entity, the Board may expressly delegate specific powers to its President or any of its officers. In
the absence of such express delegation, a contract entered into by its President, on behalf of
the corporation, may still bind the corporation if the board should ratify the same expressly or
impliedly. Implied ratification may take various forms like silence or acquiescence; by acts
showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom.

Furthermore, even in the absence of express or implied authority by ratification, the President
as such may, as a general rule, bind the corporation by a contract in the ordinary course of
business, provided the same is reasonable under the circumstances. 8 These rules are basic,
but are all general and thus quite flexible. They apply where the President or other officer,
purportedly acting for the corporation, is dealing with a third person, i. e., a person outside the
corporation.
A SELF DEALING DIRECTOR'S CONTRACT DOES NOT AUTOMATICALLY BIND THE CORPORATION: A
director of a corporation holds a position of trust and as such, he owes a duty of loyalty to
his corporation. In case his interests conflict with those of the corporation, he cannot
sacrifice the latter to his own advantage and benefit.

As corporate managers, directors are committed to seek the maximum amount of profits for the
corporation. This trust relationship "is not a matter of statutory or technical law. It springs from
the fact that directors have the control and guidance of corporate affairs and property and
hence of the property interests of the stockholders."

Gokongwei vs SEC: . He cannot by the intervention of a corporate entity violate the ancient
precept against serving two masters. . . . He cannot utilize his inside information and his
strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly
through the corporation what he could not do directly. He cannot use his power for his personal
advantage and to the detriment of the stockholders and creditors no matter how absolute in
terms that power may be and no matter how meticulous he is to satisfy technical requirements.
WHEN NOT VOID/ VOIDABLE: a director's contract with his corporation is not in all instances void or
voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by the
stockholders provided a full disclosure of his adverse interest is made. Section 32 of the Corporation
Code provides, thus:
Sec. 32.
Dealings of directors, trustees or officers with the corporation.
A contract of the corporation with one or more of its directors or trustees or
officers is voidable, at the option of such corporation, unless all the following
conditions are present:
1.
That the presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a quorum
for such meeting;

2.
That the vote of such director or trustee was not necessary for the
approval of the contract;
3.
That the contract is fair and reasonable under the circumstances; and
4.
That in the case of an officer, the contract with the officer has been
previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the preceding paragraph is
absent, in the case of a contract with a director or trustee, such contract may
be ratified by the vote of the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or of two-thirds (2/3) of the members in
a meeting called for the purpose: Provided, That full disclosure of the adverse
interest of the directors or trustees involved is made at such meeting:
Provided, however, That the contract is fair and reasonable under the
circumstances.
THE CONTRACT IN THIS CASE WAS NOT FAIR AND REASONABLE:

the contract was neither fair nor reasonable. The "dealership agreement" entered into in July,
1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five
years starting September, 1970, at the fixed price of P9.70 per bag.
Respondent Te is a businessman himself and must have known, that at that time, prices of
commodities in general, and white cement in particular, were not stable and were
expected to rise. At the time of the contract, petitioner corporation had not even
commenced the manufacture of white cement, the reason why delivery was not to
begin until 14 months later.

He must have known that within that period of six years, there would be a considerable rise in
the price of white cement. In fact, respondent Te's own Memorandum shows that in September,
1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag.

Despite this, no provision was made in the "dealership agreement" to allow for an
increase in price mutually acceptable to the parties. Instead, the price was pegged
at P9.70 per bag for the whole five years of the contract.

Fairness on his part as a director of the corporation from whom he was to buy the cement,
would require such a provision. In fact, this unfairness in the contract is also a basis which
renders a contract entered into by the President, without authority from the Board of Directors,
void or voidable, although it may have been in the ordinary course of business. We believe that
the fixed price of P9.70 per bag for a period of five years was not fair and reasonable.

All of OTHER contracts were entered into soon after his "dealership agreement" with petitioner
corporation, and in each one of them he protected himself from any increase in the market
price of white cement. Yet, except for the contract with Henry Wee, the contracts were for only
two years from October, 1970. Why did he not protect the corporation in the same manner
when he entered into the "dealership agreement"?
In the light of the circumstances of this case, it is to Us quite clear that he was guilty of disloyalty to
the corporation; he was attempting in effect, to enrich himself at the expense of the corporation. There
is no showing that the stockholders ratified the "dealership agreement" or that they were fully aware of
its provisions. The contract was therefore not valid and this Court cannot allow him to reap the fruits of
his disloyalty.
As a result of this action which has been proven to be without legal basis, petitioner corporation's
reputation and goodwill have been prejudiced.
However, there can be no award for moral damages under Article 2217 and succeeding articles on
Section 1 of Chapter 3 of Title XVIII of the Civil Code in favor of a corporation.