the conduct and define the duties of the members towards the corporation and among
China Banking Corporation vs CA Case Digest
China Banking Corporation vs. Court of Appeals
[GR 117604, 26 March 1997]
Facts: On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf & Country
Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to China Banking Corporation
(CBC). On 16 September 1974, CBC wrote VGCCI requesting that the pledge agreement
be recorded in its books. In a letter dated 27 September 1974, VGCCI replied that the
deed of pledge executed by Calapatia in CBC's favor was duly noted in its corporate
books. On 3 August 1983, Calapatia obtained a loan of P20,000.00 from CBC, payment
of which was secured by the pledge agreement still existing between Calapatia and CBC.
Due to Calapatia's failure to pay his obligation, CBC, on 12 April 1985, filed a petition for
extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the
latter to conduct a public auction sale of the pledged stock. On 14 May 1985, CBC
informed VGCCI of the foreclosure proceedings and requested that the pledged stock be
transferred to its name and the same be recorded in the corporate books. However, on 15
July 1985, VGCCI wrote CBC expressing its inability to accede to CBC's request in view
of Calapatia's unsettled accounts with the club. Despite the foregoing, Notary Public de
Vera held a public auction on 17 September 1985 and CBC emerged as the highest bidder
at P20,000.00 for the pledged stock. Consequently, CBC was issued the corresponding
certificate of sale.
On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his
overdue account in the amount of P18,783.24. Said notice was followed by a demand
letter dated 12 December 1985 for the same amount and another notice dated 22
November 1986 for P23,483.24. On 4 December 1986, VGCCI caused to be published in
the newspaper Daily Express a notice of auction sale of a number of its stock certificates,
to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share
of stock (Stock Certificate 1219). Through a letter dated 15 December 1986, VGCCI
informed Calapatia of the termination of his membership due to the sale of his share of
stock in the 10 December 1986 auction. On 5 May 1989, CBC advised VGCCI that it is
the new owner of Calapatia's Stock Certificate 1219 by virtue of being the highest bidder
in the 17 September 1985 auction and requested that a new certificate of stock be issued
in its name. On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's
stock was sold at the public auction held on 10 December 1986 for P25,000.00. On 9
March 1990, CBC protested the sale by VGCCI of the subject share of stock and thereafter
filed a case with the Regional Trial Court of Makati for the nullification of the 10 December
1986 auction and for the issuance of a new stock certificate in its name. On 18 June 1990,
the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the
subject matter on the theory that it involves an intra-corporate dispute and on 27 August
1990 denied CBC's motion for reconsideration. On 20 September 1990, CBC filed a
complaint with the Securities and Exchange Commission (SEC) for the nullification of the
sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued
pursuant thereto; for the issuance of a new certificate in petitioner's name; and for
damages, attorney's fees and costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of
VGCCI, stating in the main that considering that the said share is delinquent, VGCCI had
valid reason not to transfer the share in the name of CBC in the books of VGCCI until
liquidation of delinquency. Consequently, the case was dismissed. On 14 April 1992,
Hearing Officer Perea denied CBC's motion for reconsideration. CBC appealed to the SEC
en banc and on 4 June 1993, the Commission issued an order reversing the decision of
its hearing officer; holding that CBC has a prior right over the pledged share and because
of pledgor's failure to pay the principal debt upon maturity, CBC can proceed with the
foreclosure of the pledged share; declaring that the auction sale conducted by VGCCI on
10 December 1986 is declared NULL and VOID; and ordering VGCCI to issue another
membership certificate in the name of CBC. VGCCI sought reconsideration of the order.
However, the SEC denied the same in its resolution dated 7 December 1993. The sudden
turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994,
the Court of Appeals rendered its decision nullifying and setting aside the orders of the
SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and,
consequently, dismissed CBC's original complaint. The Court of Appeals declared that the
controversy between CBC and VGCCI is not intra-corporate; nullifying the SEC orders and
dismissing CBC’s complaint. CBC moved for reconsideration but the same was denied by
the Court of Appeals in its resolution dated 5 October 1994. CBC filed the petition for
review on certiorari.
Issue: Whether CBC is bound by VGCCI's by-laws.
Held: In order to be bound, the third party must have acquired knowledge of the pertinent
by-laws at the time the transaction or agreement between said third party and the
shareholder was entered into. Herein, at the time the pledge agreement was executed.
VGCCI could have easily informed CBC of its by-laws when it sent notice formally
recognizing CBC as pledgee of one of its shares registered in Calapatia's name. CBC's
belated notice of said by-laws at the time of foreclosure will not suffice. By-laws signifies
the rules and regulations or private laws enacted by the corporation to regulate, govern
and control its own actions, affairs and concerns and its stockholders or members and
directors and officers with relation thereto and among themselves in their relation to it. In
other words, by-laws are the relatively permanent and continuing rules of action adopted
by the corporation for its own government and that of the individuals composing it and
having the direction, management and control of its affairs, in whole or in part, in the
management and control of its affairs and activities. The purpose of a by-law is to regulate
themselves. They are self-imposed and, although adopted pursuant to statutory authority,
have no status as public law. Therefore, it is the generally accepted rule that third persons
are not bound by by-laws, except when they have knowledge of the provisions either
actually or constructively. For the exception to the general accepted rule that third persons
are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of
the provisions of the VGCCI By-laws must be acquired at the time the pledge agreement
was contracted. Knowledge of said provisions, either actual or constructive, at the time of
foreclosure will not affect pledgee's right over the pledged share. Article 2087 of the Civil
Code provides that it is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists maybe
alienated for the payment to the creditor. Further, VGCCI's contention that CBC is duty-
bound to know its by-laws because of Article 2099 of the Civil Code which stipulates that
the creditor must take care of the thing pledged with the diligence of a good father of a
family, fails to convince. CBC was never informed of Calapatia's unpaid accounts and the
restrictive provisions in VGCCI's by-laws. Furthermore, Section 63 of the Corporation
Code which provides that "no shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the corporation" cannot be utilized by
VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid
subscription, and not to any indebtedness which a subscriber or stockholder may owe the
corporation arising from any other transaction." Herein, the subscription for the share in
question has been fully paid as evidenced by the issuance of Membership Certificate
1219. What Calapatia owed the corporation were merely the monthly dues. Hence,
Section 63 does not apply.
Grace Christian Highschool vs Court of Appeals (1997)
Facts: Petitioner Grace Christian High School is an educational institution offering
preparatory, kindergarten and secondary courses at the Grace Village in Quezon City.
Private respondent Grace Village Association, Inc., is an organization of lot and/or building
owners, lessees and residents at Grace Village, while private respondents Alejandro G.
Beltran and Ernesto L. Go were its president and chairman of the committee on election.
It appears that a committee of the board of directors prepared a draft of an amendment to
the by-laws which says that Grace Christian High school will have a permanent director of
the association. This draft was never presented to the general membership for approval.
Nevertheless, the petitioner was given a permanent seat in the board of directors of the
association. The association committee on election informed that the petitoner’s
permanent seat in board is invalid because it was never approved by the majority of its
members. Hence they will have an election. The petitioner school requested the
cancellation of the election, the association denied. So the petitioner school instituted an
action to the Home Insurance Guaranty Corporation but their action was denied. The
board adopted a resolution declaring the 1975 provision null and void for lack of approval
by members of the association and the 1968 by-laws to be effective. The petitioner school
appealed to the CA but CA ruled that the amended by laws in 1975 is null and void.
Issue: WON Grace Christian High school can have permanent seat in board as director?
Held: No. The former and present corporation law leave no room for doubt as to their
meaning: the board of directors of corporations must be elected from among the
stockholders or members. There may be corporations in which there are unelected
members in the board but it is clear that in the examples cited by petitioner the unelected
members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular
office. Nor can petitioner claim a vested right to sit in the board on the basis of “practice.”
Practice, no matter how long continued, cannot give rise to any vested right if it is contrary
to law. Even less tenable is petitioner’s claim that its right is “coterminus with the existence
of the association.”
FIRST DIVISION
[G.R. No. 116631. October 28, 1998]
MARSH THOMSON, petitioner, vs. COURT OF APPEALS and THE AMERICAN
CHAMBER OF COMMERCE OF THE PHILIPPINES, INC., respondents.
DECISION
QUISUMBING, J.:
This is a petition for review on certiorari seeking the reversal of the Decision[1] of
the Court of Appeals on May 19, 1994, disposing as follows:
WHEREFORE, THE DECISION APPEALED FROM IS HEREBY SET ASIDE. ANOTHER
JUDGMENT IS ENTERED ORDERING DEFENDANT-APPELLEE MARSH THOMSON
TO TRANSFER THE SAID MPC [Manila Polo Club] SHARE TO THE NOMINEE OF THE
APPELLANT.
The facts of the case are:
Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later
on, the Management Consultant of private respondent, the American Chamber of
Commerce of the Philippines, Inc. (AmCham) for over ten years, 1979-1989.
While petitioner was still working with private respondent, his superior, A. Lewis
Burridge, retired as AmChams President. Before Burridge decided to return to his home
country, he wanted to transfer his proprietary share in the Manila Polo Club (MPC) to
petitioner. However, through the intercession of Burridge, private respondent paid for the
share but had it listed in petitioners name. This was made clear in an employment advice
dated January 13, 1986, wherein petitioner was informed by private respondent as follows:
xxxxxxxxx
11. If you so desire, the Chamber is willing to acquire for your use a
membership in the Manila Polo Club. The timing of such acquisition shall
 be subject to the discretion of the Board based on the Chambers financial Not satisfied with the trial courts decision, private respondent appealed to the Court
position. All dues and other charges relating to such membership shall be of Appeals.
for your personal account. If the membership is acquired in your name, On May 19, 1994, the Court of Appeals (Former Special Sixth Division)
you would execute such documents as necessary to acknowledge promulgated its decision[16] in said CA-G.R. CV No. 38417, reversing the trial courts
beneficial ownership thereof by the Chamber.[2] judgment and ordered herein petitioner to transfer the MPC share to the nominee of private
xxxxxxxxx respondent, reasoning thus:
On April 25, 1986, Burridge transferred said proprietary share to petitioner, as x x x x x x x x x
confirmed in a letter[3] of notification to the Manila Polo Club. The significant fact in the instant case is that the appellant [herein private respondent]
Upon his admission as a new member of the MPC, petitioner paid the transfer fee purchased the MPC share for the use of the appellee [herein petitioner] and the latter
of P40,000.00 from his own funds; but private respondent subsequently reimbursed this expressly conformed thereto as shown in Exhibits A-1, B, B-1, C, C-1, D, D-1. By such
amount. On November 19, 1986, MPC issued Proprietary Membership Certificate Number express conformity of the appellee, the former was bound to recognize the appellant as
3398 in favor of petitioner. But petitioner, however, failed to execute a document the owner of the said share for a contract has the force of law between the parties. (Alim
recognizing private respondents beneficial ownership over said share. vs. CA, 200 SCRA 450; Sasuhura Company, Inc., Ltd. vs. IAC, 205 SCRA 632) Aside from
Following AmChams policy and practice, there was a yearly renewal of the foregoing, the appellee conceded the true ownership of the said share to the appellant
employment contract between the petitioner and private respondent. Separate letters of when (1) he offered to buy the MPC share from the appellant (Exhs. E and E-1) upon the
employment advice dated October 1, 1986,[4] as well March 4, 1988[5] and January 7, termination of his employment; (2) he obliged himself to return the MPC share after his six
1989,[6] mentioned the MPC share. But petitioner never acknowledged that private month consultancy contract had elapsed, unless its return was earlier requested in writing
respondent is the beneficial owner of the share as requested in follow-up requests, (Exh. I); and (3) on cross-examination, he admitted that the proprietary share listed as one
particularly one dated March 4, 1988 as follows: of the assets of the appellant corporation in its 1988 Corporate Income Tax Return, which
Dear Marsh: he signed as the latters Executive Vice President (prior to its filing), refers to the Manila
xxxxxxxxx Polo Club share (tsn., pp. 19-20, August 30, 1991). x x x[17]
All other provisions of your compensation/benefit package will remain the same and are
summarized as follows: On 16 June 1994, petitioner filed a motion for reconsideration[18] of said
xxxxxxxxx decision. By resolution[19] promulgated on August 4, 1994, the Court of Appeals denied the
9) The Manila Polo Club membership provided by the Chamber for you and motion for reconsideration.
your family will continue on the same basis, to wit: all dues and other
charges relating to such membership shall be for your personal In this petition for review, petitioner alleges the following errors of public
account and, if you have not already done so, you will execute such respondent as grounds for our review:
documents as are necessary to acknowledge that the Chamber is the I. The respondent Court of Appeals erred in setting aside the Decision
beneficial owner of your membership in the Club.[7] dated 28 February 1992 of the Regional Trial Court, NCJR, Branch
When petitioners contract of employment was up for renewal in 1989, he notified 65, Makati, Metro Manila, in its Civil Case No. 90-1286, and in not
private respondent that he would no longer be available as Executive Vice President after confirming petitioners ownership over the MPC membership share.
September 30, 1989. Still, the private respondent asked the petitioner to stay on for II. The respondent Court of Appeals erred in ruling that the Quitclaim
another six (6) months. Petitioner indicated his acceptance of the consultancy executed by AmCham in favor of petitioner on September 29, 1989
arrangement with a counter-proposal in his letter dated October 8, 1989, among others as was superseded by the contractual agreement entered into by the
follows: parties on October 13, 1989 wherein again the appellee
11.) Retention of the Polo Club share, subject to my reimbursing the acknowledged that the appellant owned the MPC share, there being
purchase price to the Chamber, or one hundred ten thousand absolutely no evidence to support such a conclusion and/or such
pesos (P110,000.00). [8] inference is manifestly mistaken.
Private respondent rejected petitioners counter-proposal. III. The respondent Court of Appeals erred in rendering judgment ordering
Pending the negotiation for the consultancy arrangement, private respondent petitioner to transfer the contested MPC share to a nominee of
executed on September 29, 1989 a Release and Quitclaim,[9] stating that AMCHAM, its respondent AmCham notwithstanding that: (a) AmCham has no
directors, officers and assigns, employees and/or representatives do hereby release, standing in the Manila Polo Club (MPC), and being an artificial person,
waive, abandon and discharge J. MARSH THOMSON from any and all existing claims it is precluded under MPCs Articles of Incorporation and governing
that the AMCHAM, its directors, officers and assigns, employees and/or representatives rules and regulations from owning a proprietary share or from
may have against J. MARSH THOMSON. The quitclaim, expressed in general terms,
[10] becoming a member thereof; and (b) even under AmChams Articles
did not mention specifically the MPC share. of Incorporation, and the purposes for which it is dedicated, becoming
On April 5, 1990, private respondent, through counsel sent a letter to the petitioner a stockholder or shareholder in other corporations is not one of the
demanding the return and delivery of the MPC share which it (AmCham) owns and placed express or implied powers fixed in AmChams said corporate
in your (Thomsons) name.[11] franchise.[20]
Failing to get a favorable response, private respondent filed on May 15, 1990, a As posited above, these assigned errors show the disputed matters herein are
complaint against petitioner praying, inter alia, that the Makati Regional Trial Court render mainly factual. As such they are best left to the trial and appellate courts disposition. And
judgment ordering Thomson to return the Manila Polo Club share to the plaintiff and this Court could have dismissed the petition outright, were it not for the opposite results
transfer said share to the nominee of plaintiff.[12] reached by the courts below. Moreover, for the enhanced appreciation of the jural
On February 28, 1992, the trial court promulgated its decision,[13] thus: relationship between the parties involving trust, this Court has given due course to the
The foregoing considered judgment is rendered as follows: petition, which we now decide.
1.) The ownership of the contested Manila Polo Club share is adjudicated
in favor of defendant Marsh Thomson; and; After carefully considering the pleadings on record, we find there are two main
2.) Defendant shall pay plaintiff the sum of P300,000.00 issues to be resolved: (1) Did respondent court err in holding that private respondent is
Because both parties thru their respective faults have somehow contributed to the birth of the beneficial owner of the disputed share? (2) Did the respondent court err in ordering
this case, each shall bear the incidental expenses incurred.[14] petitioner to transfer said share to private respondents nominee?
In said decision, the trial court awarded the MPC share to defendant (petitioner
now) on the ground that the Articles of Incorporation and By-laws of Manila Polo Club Petitioner claims ownership of the MPC share, asserting that he merely incurred a
prohibit artificial persons, such as corporations, to be club members, ratiocinating in this debt to respondent when the latter advanced the funds for the purchase of the share. On
manner: the other hand, private respondent asserts beneficial ownership whereby petitioner only
An assessment of the evidence adduced by both parties at the trial will show clearly that holds the share in his name, but the beneficial title belongs to private respondent. To
it was the intention of the parties that a membership to Manila Polo Club was to be secured resolve the first issue, we must clearly distinguish a debt from a trust.
by plaintiff [herein private respondent] for defendants [herein petitioner] use. The latter
was to execute the necessary documents to acknowledge ownership of the Polo The beneficiary of a trust has beneficial interest in the trust property, while a
membership in favor of plaintiff. (Exh. C par 9) However, when the parties parted ways in creditor has merely a personal claim against the debtor. In trust, there is a fiduciary relation
disagreement and with some degree of bitterness, the defendant had second thoughts between a trustee and a beneficiary, but there is no such relation between a debtor and
and decided to keep the membership for himself. This is evident from the exhibits (E & G) creditor. While a debt implies merely an obligation to pay a certain sum of money, a trust
where defendant asked that he retained the Polo Club membership upon reimbursement refers to a duty to deal with a specific property for the benefit of another. If a creditor-
of its purchase price; and where he showed his profound disappointment, both at the debtor relationship exists, but not a fiduciary relationship between the parties, there is no
previous Boards unfair action, and at what I consider to be harsh terms, after my long express trust. However, it is understood that when the purported trustee of funds is entitled
years of dedication to the Chambers interest. to use them as his or her own (and commingle them with his or her own money), a debtor-
xxxxxxxxx creditor relationship exists, not a trust.[21]
Notwithstanding all these evidence in favor of plaintiff, however, defendant may not be
In the present case, as the Executive Vice-President of AmCham, petitioner
declared the owner of the contested membership nor be compelled to execute documents
occupied a fiduciary position in the business of Amcham. AmCham released the funds to
transferring the Polo Membership to plaintiff or the latters nominee for the reason that this
acquire a share in the Club for the use of petitioner but obliged him to execute such
is prohibited by Polo Clubs Articles & By-Laws. x x x
document as necessary to acknowledge beneficial ownership thereof by the
It is for the foregoing reasons that the Court rules that the ownership of the questioned
Chamber.[22] A trust relationship is, therefore, manifestly indicated.
Polo Club membership be retained by defendant. x x x. [15]
 Moreover, petitioner failed to present evidence to support his allegation of being executed on September 29, 1989, the ownership of the MPC share was not controversial
merely a debtor when the private respondent paid the purchase price of the MPC share. nor contested. Settled is the rule that a waiver to be valid and effective must, in the first
Applicable here is the rule that a trust arises in favor of one who pays the purchase money place, be couched in clear and unequivocal terms which leave no doubt as to the intention
of property in the name of another, because of the presumption that he who pays for a of a party to give up a right or benefit which legally pertains to him.[29] A waiver may not be
thing intends a beneficial interest therein for himself.[23] attributed to a person when the terms thereof do not explicitly and clearly evidence an
intent to abandon a right vested in such person.[30] If we apply the standard rule that waiver
Although petitioner initiated the acquisition of the share, evidence on record shows must be cast in clear and unequivocal terms, then clearly the general terms of the cited
that private respondent acquired said share with its funds. Petitioner did not pay for said release and quitclaim indicates merely a clearance from general accountability, not
share, although he later wanted to, but according to his own terms, particularly the price specifically a waiver of AmChams beneficial ownership of the disputed shares.
thereof.
Additionally, the intention to waive a right or advantage must be shown clearly and
Private respondents evident purpose in acquiring the share was to provide convincingly, and when the only proof of intention rests in what a party does, his act should
additional incentive and perks to its chosen executive, the petitioner himself. Such be so manifestly consistent with, and indicative of, an intent to voluntarily relinquish the
intention was repeated in the yearly employment advice prepared by AmCham for particular right or advantage that no other reasonable explanation of his conduct is
petitioners concurrence. In the cited employment advice, dated March 4, 1988, private possible.[31] Considering the terms of the quitclaim executed by the President of private
respondent once again, asked the petitioner to execute proof to recognize the trust respondent, the tenor of the document does not lead to the purported conclusion that he
agreement in writing: intended to renounce private respondents beneficial title over its share in the Manila Polo
Club. We, therefore, find no reversible error in the respondent Courts holding that private
The Manila Polo membership provided by the Chamber for you and your family will respondent, AmCham, is the beneficial owner of the share in dispute.
continue on the same basis, to wit: all dues and other charges relating to such membership
Turning now to the second issue, the petitioner contends that the Articles of
shall be for your personal account and, if you have not already done so, you will
Incorporation and By-laws of Manila Polo Club prohibit corporate membership. However,
execute such documents as are necessary to acknowledge that the Chamber is the
private respondent does not insist nor intend to transfer the club membership in its name
beneficial owner of your membership in the Club.[24]
but rather to its designated nominee. For as properly ruled by the Court of Appeals:

Petitioner voluntarily affixed his signature to conform with the employment advice,
The matter prayed for does not involve the transfer of said share to the appellant, an
including his obligation stated therein -- for him to execute the necessary document to
artificial person. The transfer sought is to the appellants nominee. Even if the MPC By-
recognize his employer as the beneficial owner of the MPC share. Now, we cannot hear
Laws and Articles prohibit corporate membership, there would be no violation of said
him claiming otherwise, in derogation of said undertaking, without legal and equitable
prohibition for the appellants nominee to whom the said share is sought to be transferred
justification.
would certainly be a natural person. x x x
For private respondents intention to hold on to its beneficial ownership is not only
presumed; it was expressed in writing at the very outset. Although the share was placed As to whether or not the transfer of said share to the appellants nominee would be
in the name of petitioner, his title is limited to the usufruct, that is, to enjoy the facilities and disapproved by the MPC, is a matter that should be raised at the proper time, which is
privileges of such membership in the club appertaining to the share. Such arrangement only if such transfer is disapproved by the MPC.[32]
reflects a trust relationship governed by law and equity.

While private respondent paid the purchase price for the share, petitioner was
given legal title thereto. Thus, a resulting trust is presumed as a matter of law. The burden
then shifted to the transferee to show otherwise, that it was just a loan. Such resulting trust
could have been rebutted by proof of a contrary intention by a showing that, in fact, no
trust was intended. Petitioner could have negated the trust agreement by contrary,
consistent and convincing evidence on rebuttal. However, on the witness stand, petitioner
failed to do so persuasively.
On cross-examination, the petitioner testified as follows:
ATTY. AQUINO (continuing)
Q. Okay, let me go to the cash advance that you mentioned Mr. Witness, is there any
document proving that you claimed cash advance signed by an officer of the
Chamber?
A. I believe the best evidence is the check.
Q. Is there any document?
COURT
Other than the Check?
MR. THOMSON
Nothing more.
ATTY. AQUINO
Is there any application filed in the Chamber to avail of this cash advance?
A. Verbal only.
Q. Nothing written, and can you tell to this Honorable Court what are the stipulations
or conditions, or terms of this transaction of securing this cash advance or
loan?
xxxxxxxxx
COURT
How are you going to repay the cash advance?
MR THOMSON
The cash advance, we never stipulate when I have to repay it, but I presume that I
would, when able to repay the money.[25]
In deciding whether the property was wrongfully appropriated or retained and what
the intent of the parties was at the time of the conveyance, the court must rely upon its
impression of the credibility of the witnesses.[26] Intent is a question of fact, the
determination of which is not reviewable unless the conclusion drawn by the trier is one
which could not reasonably be drawn.[27] Petitioners denial is not adequate to rebut the
trust. Time and again, we have ruled that denials, if unsubstantiated by clear and
convincing evidence, are deemed negative and self-serving evidence, unworthy of
credence.[28]
The trust between the parties having been established, petitioner advanced an
alternative defense that the private respondent waived the beneficial ownership of MPC
share by issuing the Release and Quitclaim in his favor.
This argument is less than persuasive. The quitclaim executed by private
respondent does not clearly show the intent to include therein the ownership over the MPC
share. Private respondent even asserts that at the time the Release and Quitclaim was
The Manila Polo Club does not necessarily prohibit the transfer of proprietary
shares by its members. The Club only restricts membership to deserving applicants in
accordance with its rules, when the amended Articles of Incorporation states that: No
transfer shall be valid except between the parties, and shall be registered in the
Membership Book unless made in accordance with these Articles and the By-
Laws.[33] Thus, as between parties herein, there is no question that a transfer is
feasible. Moreover, authority granted to a corporation to regulate the transfer of its stock
does not empower it to restrict the right of a stockholder to transfer his shares, but merely
authorizes the adoption of regulations as to the formalities and procedure to be followed
in effecting transfer.[34]
In this case, the petitioner was the nominee of the private respondent to hold the
share and enjoy the privileges of the club. But upon the expiration of petitioners
employment as officer and consultant of AmCham, the incentives that go with the position,
including use of the MPC share, also ceased to exist. It now behooves petitioner to
surrender said share to private respondents next nominee, another natural
person. Obviously this arrangement of trust and confidence cannot be defeated by the
petitioners citation of the MPC rules to shield his untenable position, without doing violence
to basic tenets of justice and fair dealing.
However, we still have to ascertain whether the rights of herein parties to the trust
still subsist. It has been held that so long as there has been no denial or repudiation of the
trust, the possession of the trustee of an express and continuing trust is presumed to be
that of the beneficiary, and the statute of limitations does not run between them.[35] With
regard to a constructive or a resulting trust, the statute of limitations does not begin to run
until the trustee clearly repudiates or disavows the trust and such disavowal is brought
home to the other party, cestui que trust.[36] The statute of limitations runs generally from
the time when the act was done by which the party became chargeable as a trustee by
operation of law or when the beneficiary knew that he had a cause of action, [37] in the
absence of fraud or concealment.
Noteworthy in the instant case, there was no declared or explicit repudiation of the
trust existing between the parties. Such repudiation could only be inferred as evident when
the petitioner showed his intent to appropriate the MPC share for himself. Specifically, this
happened when he requested to retain the MPC share upon his reimbursing the purchase
price of P110,000, a request denied promptly by private respondent. Eventually, petitioner
refused to surrender the share despite the written demand of private respondent. This act
could then be construed as repudiation of the trust. The statute of limitation could start to
set in at this point in time. But private respondent took immediate positive action. Thus, on
May 15, 1990, private respondent filed an action to recover the MPC share. Between the
time of implicit repudiation of the trust on October 9, 1989, as evidenced by petitioners
letter of said date, and private respondents institution of the action to recover the MPC
share on May 15, 1990, only about seven months had lapsed. Our laws on the matter
provide that actions to recover movables shall prescribe eight years from the time the
possession thereof is lost,[38] unless the possessor has acquired the ownership by
prescription for a less period of four years if in good faith.[39] Since the private respondent
filed the necessary action on time and the defense of good faith is not available to the
petitioner, there is no basis for any purported claim of prescription, after repudiation of the
trust, which will entitle petitioner to ownership of the disputed share. As correctly held by pursuant thereto; for the issuance of a new certificate in petitioner's name; and for
the respondent court, petitioner has the obligation to transfer now said share to the damages, attorney's fees and costs of litigation.
nominee of private respondent.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of
WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of VGCCI, stating in the main that considering that the said share is delinquent, VGCCI had
the Court of Appeals of May 19, 1994, is AFFIRMED. valid reason not to transfer the share in the name of CBC in the books of VGCCI until
liquidation of delinquency. Consequently, the case was dismissed. On 14 April 1992,
COSTS against petitioner. Hearing Officer Perea denied CBC's motion for reconsideration. CBC appealed to the SEC
SO ORDERED. en banc and on 4 June 1993, the Commission issued an order reversing the decision of
its hearing officer; holding that CBC has a prior right over the pledged share and because
Davide, Jr., (Chairman), Vitug, and Panganiban, JJ., concur. of pledgor's failure to pay the principal debt upon maturity, CBC can proceed with the
Bellosillo, J., on official leave. foreclosure of the pledged share; declaring that the auction sale conducted by VGCCI on
10 December 1986 is declared NULL and VOID; and ordering VGCCI to issue another
membership certificate in the name of CBC. VGCCI sought reconsideration of the order.
Enrique Salafranca vs Philamlife (Pamplona) Village Homeowners Association, Inc However, the SEC denied the same in its resolution dated 7 December 1993. The sudden
turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994,
300 SCRA 469 – Business Organization – Corporation Law – By-Laws Must Not the Court of Appeals rendered its decision nullifying and setting aside the orders of the
Impair Existing Rights SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and,
consequently, dismissed CBC's original complaint. The Court of Appeals declared that the
In 1981, Enrique Salafranca was hired as an administrative officer by the Philamlife Village controversy between CBC and VGCCI is not intra-corporate; nullifying the SEC orders and
Homeowners Associaiton, Inc. (PVHAI). Salafranca was tasked to manage the village’s dismissing CBC’s complaint. CBC moved for reconsideration but the same was denied by
the Court of Appeals in its resolution dated 5 October 1994. CBC filed the petition for
day to day activities. His employment was originally for 6 months only but his contract was
review on certiorari.
renewed multiple times until 1983. But even after 1983, he was still allowed to continue
work even without a renewed contract. In 1987, PVHAI amended its by-laws. Among the Issue: Whether CBC is bound by VGCCI's by-laws.
amendment was a provision that the administrative officer (Salafranca) shall have a tenure
which is co-terminus with the Board of Directors which appointed him. In 1992, the tenure Held: In order to be bound, the third party must have acquired knowledge of the pertinent
of said Board of Directors expired and so Salafranca was terminated. by-laws at the time the transaction or agreement between said third party and the
shareholder was entered into. Herein, at the time the pledge agreement was executed.
ISSUE: Whether or not Salafranca was illegally dismissed. VGCCI could have easily informed CBC of its by-laws when it sent notice formally
recognizing CBC as pledgee of one of its shares registered in Calapatia's name. CBC's
HELD: Yes. At that time, Salafranca already enjoys security of tenure because he is belated notice of said by-laws at the time of foreclosure will not suffice. By-laws signifies
already a regular employee. It is true that PVHAI has the right to amend its by-laws but the rules and regulations or private laws enacted by the corporation to regulate, govern
such amendment must not impair existing contracts or rights. In this case, the provision and control its own actions, affairs and concerns and its stockholders or members and
that Salafranca’s position shall be co-terminus with the appointing Board impairs his right directors and officers with relation thereto and among themselves in their relation to it. In
other words, by-laws are the relatively permanent and continuing rules of action adopted
to security of tenure which has already vested even prior to the amendment of the by-laws
by the corporation for its own government and that of the individuals composing it and
in 1987.
having the direction, management and control of its affairs, in whole or in part, in the
management and control of its affairs and activities. The purpose of a by-law is to regulate
the conduct and define the duties of the members towards the corporation and among
China Banking Corporation vs CA Case Digest themselves. They are self-imposed and, although adopted pursuant to statutory authority,
China Banking Corporation vs. Court of Appeals have no status as public law. Therefore, it is the generally accepted rule that third persons
[GR 117604, 26 March 1997] are not bound by by-laws, except when they have knowledge of the provisions either
actually or constructively. For the exception to the general accepted rule that third persons
Facts: On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf & Country are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of
Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to China Banking Corporation the provisions of the VGCCI By-laws must be acquired at the time the pledge agreement
(CBC). On 16 September 1974, CBC wrote VGCCI requesting that the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at the time of
be recorded in its books. In a letter dated 27 September 1974, VGCCI replied that the foreclosure will not affect pledgee's right over the pledged share. Article 2087 of the Civil
deed of pledge executed by Calapatia in CBC's favor was duly noted in its corporate Code provides that it is also of the essence of these contracts that when the principal
books. On 3 August 1983, Calapatia obtained a loan of P20,000.00 from CBC, payment obligation becomes due, the things in which the pledge or mortgage consists maybe
of which was secured by the pledge agreement still existing between Calapatia and CBC. alienated for the payment to the creditor. Further, VGCCI's contention that CBC is duty-
Due to Calapatia's failure to pay his obligation, CBC, on 12 April 1985, filed a petition for bound to know its by-laws because of Article 2099 of the Civil Code which stipulates that
extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the the creditor must take care of the thing pledged with the diligence of a good father of a
latter to conduct a public auction sale of the pledged stock. On 14 May 1985, CBC family, fails to convince. CBC was never informed of Calapatia's unpaid accounts and the
informed VGCCI of the foreclosure proceedings and requested that the pledged stock be restrictive provisions in VGCCI's by-laws. Furthermore, Section 63 of the Corporation
transferred to its name and the same be recorded in the corporate books. However, on 15 Code which provides that "no shares of stock against which the corporation holds any
July 1985, VGCCI wrote CBC expressing its inability to accede to CBC's request in view unpaid claim shall be transferable in the books of the corporation" cannot be utilized by
of Calapatia's unsettled accounts with the club. Despite the foregoing, Notary Public de VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid
Vera held a public auction on 17 September 1985 and CBC emerged as the highest bidder subscription, and not to any indebtedness which a subscriber or stockholder may owe the
at P20,000.00 for the pledged stock. Consequently, CBC was issued the corresponding corporation arising from any other transaction." Herein, the subscription for the share in
certificate of sale. question has been fully paid as evidenced by the issuance of Membership Certificate
1219. What Calapatia owed the corporation were merely the monthly dues. Hence,
On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his Section 63 does not apply.
overdue account in the amount of P18,783.24. Said notice was followed by a demand
letter dated 12 December 1985 for the same amount and another notice dated 22 PMI Colleges vs National Labor Relations Commission
November 1986 for P23,483.24. On 4 December 1986, VGCCI caused to be published in
the newspaper Daily Express a notice of auction sale of a number of its stock certificates,
277 SCRA 462 – Business Organization – Corporation Law – By-laws and Innocent Third
to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share
of stock (Stock Certificate 1219). Through a letter dated 15 December 1986, VGCCI Persons
informed Calapatia of the termination of his membership due to the sale of his share of
stock in the 10 December 1986 auction. On 5 May 1989, CBC advised VGCCI that it is In 1991, PMI Colleges hired the services of Alejandro Galvan for the latter to teach in said
the new owner of Calapatia's Stock Certificate 1219 by virtue of being the highest bidder institution. However, for unknown reasons, PMI defaulted from paying the remunerations
in the 17 September 1985 auction and requested that a new certificate of stock be issued due to Galvan. Galvan made demands but were ignored by PMI. Eventually, Galvan filed
in its name. On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's a labor case against PMI. Galvan got a favorable judgment from the Labor Arbiter; this
stock was sold at the public auction held on 10 December 1986 for P25,000.00. On 9 was affirmed by the National Labor Relations Commission. On appeal, PMI reiterated,
March 1990, CBC protested the sale by VGCCI of the subject share of stock and thereafter among others, that the employment of Galvan is void because it did not comply with its
filed a case with the Regional Trial Court of Makati for the nullification of the 10 December by-laws. Apparently, the by-laws require that an employment contract must be signed by
1986 auction and for the issuance of a new stock certificate in its name. On 18 June 1990, the Chairman of the Board of PMI. PMI asserts that Galvan’s employment contract was
the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the not signed by the Chairman of the Board.
subject matter on the theory that it involves an intra-corporate dispute and on 27 August
1990 denied CBC's motion for reconsideration. On 20 September 1990, CBC filed a
complaint with the Securities and Exchange Commission (SEC) for the nullification of the ISSUE: Whether or not Galvan’s employment contract is void.
sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued
HELD: No. PMI Colleges never even presented a copy of the by-laws to prove the
existence of such provision. But even if it did, the employment contract cannot be rendered
invalid just because it does not bear the signature of the Chairman of the Board of PMI.
By-Laws operate merely as internal rules among the stockholders, they cannot affect or
prejudice third persons who deal with the corporation, unless they have knowledge of the
same. In this case, PMI was not able to prove that Galvan knew of said provision in the
by-laws when he was employed by PMI.
ISSUE: Whether or not the sale made through an agent was ratified.
HELD: No. There was no valid agency created. The Board of Directors of DFS never
authorized Cruz, Jr. to sell the land. Hence, the agreement between Cruz, Jr. and Polintan,
as well as the subsequent agreement between Polintan and Noble, never bound the
corporation. Therefore the sale transacted by Noble purportedly on behalf of Polintan and
ultimately purportedly on behalf of DFS is void.

Atrium Management Corporation v. Court of Appeals, G.R. No. 109491, February 28, Being a void sale, it cannot be ratified even if Cruz, Sr. accepted the check and made a
2001. counter-offer. (Cruz, Sr. returned the check anyway). Under Article 1409 of the Civil Code,
void transactions can never be ratified because they were void from the very beginning.
Facts:
Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de Leon, FILIPINAS PORT SERVICES INC v. GO, ET AL.
treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry FACTS:
and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to The case involves a petition for review on certiorari.
Atrium for valuable consideration. Enrique Tan of E.T. Henry approached Atrium for
financial assistance, offering to discount four RCBC checks in the total amount of P2 We have here Eliodoro C. Cruz suing on behalf of the stockholders of Filipinas
million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the checks, Port Services alleging that there has been numerous cases of mismanagement by the
provided it be allowed to confirm with Hi-Cement the fact that the checks represented board of directors:
payment for petroleum products which E.T. Henry delivered to Hi-Cement. Upon creation of an executive committee not provided for in the by-laws of the corporation
presentment for payment, the drawee bank dishonored all four checks for the common disproportionate increase in the salary of officials
reason “payment stopped”. As a result thereof, Atrium filed an action for collection of the re-creation of already existing positions
proceeds of 4 PDC in the total amount of 2M with RTC Manila. Judgment was rendered in creation of additional positions with holders not doing any work to deserve any monthly
favor of Atrium ordering Lourdes and Rafael de Leon, E.T. Henry and Co., and Hi-Cement remuneration.
to pay Atrium the said amount plus interest and attorneys fees. CA absolved Hi-cement He prayed for the return of the salary received by all the unnecessarily appointed
Corporation from liability. It also ruled that since Lourdes was not authorized to issue the members.
subjects checks in favor of E.T. Henry Inc., the said act was ultra vires. The Trial Court sided with the respondent and ruled that the creation of the executive
committee and the additional position was legitimate given that it was provided by the
Issue: Whether the issuance of the questioned checks was an ultra vires act; corporation’s by-law. However, the prayer for the return of salaries received was granted,
even if the positions and the committee were valid, for the court ruled that Filipinas Port
Ruling: Yes. Services is not a big corporation requiring multiple executive positions.
The respondents appealed the decision and they received a favourable decision as the
An ultra vires act is one committed outside the object for which a corporation is created as Court of Appeals granted the respondents’ appeal, reversed and set aside the appealed
defined by the law of its organization and therefore beyond the power conferred upon it by decision of the trial court and accordingly dismissed the so-called derivative suit filed by
law. The term “ultra vires” is “distinguished from an illegal act for the former is merely Cruz, et al.,
voidable which may be enforced by performance, ratification, or estoppel, while the latter Cruz did not take the decision sitting down, hence the petition.
is void and cannot be validated. To counter the appeal filed by Cruz, respondents also claim that what Cruz filed is not a
derivative suit.
Personal liability of a corporate director, trustee or officer along (although not necessarily) The petition was denied and the challenged decision of the CA was affirmed. Only, the
with the corporation may so validly attach, as a rule, only when: Supreme Court clarified the issue involving the legitimacy of the derivative suit.

He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross ISSUE:
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the Was the case filed by Cruz, on behalf of Filipinas Port Services Inc., a derivative suit?
corporation, its stockholders or other persons;
He consents to the issuance of watered down stocks or who, having knowledge thereof, HELD:
does not forthwith file with the corporate secretary his written objection thereto; YES.
He agrees to hold himself personally and solidarily liable with the corporation; or
He is made, by a specific provision of law, to personally answer for his corporate action. Under the Corporation Code, where a corporation is an injured party, its power to sue is
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman lodged with its board of directors or trustees. But an individual stockholder or an individual
of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent trustee may be permitted to institute a derivative suit in behalf of the corporation in order
when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of to protect or vindicate corporate rights whenever the officials of the corporation refuse to
E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She sue, or when a demand upon them to file the necessary action would be futile because
was aware that the checks were strictly endorsed for deposit only to the payee’s account they are the ones to be sued, or because they hold control of the corporation. In such
and not to be further negotiated. What is more, the confirmation letter contained a clause actions, the corporation is the real party-in-interest while the suing stockholder, in behalf
that was not true, that is, “that the checks issued to E.T. Henry were in payment of Hydro of the corporation, is only a nominal part.
oil bought by Hi-Cement from E.T. Henry”. Her negligence resulted in damage to the Here, the action below is principally for damages resulting from alleged
corporation. Hence, Ms. de Leon may be held personally liable therefor. mismanagement of the affairs of Filport by its directors/officers, it being alleged that the
acts of mismanagement are detrimental to the interests of Filport. Thus, the injury
AF Realty & Development, Inc. vs Dieselman Freight Services, Co. complained of primarily pertains to the corporation so that the suit for relief should be by
Commercial Law – Corporation Law – Power of the Board – Ultra Vires Acts of Corporate the corporation. However, since the ones to be sued are the directors/officers of the
Officers – Agency corporation itself, a stockholder, like petitioner Cruz, may validly institute a “derivative suit”
to vindicate the alleged corporate injury, in which case Cruz is only a nominal party while
In 1988, Manuel Cruz, Jr., a board member of Dieselman Freight Services, Co. (DFS) Filport is the real party-in-interest.
authorized Cristeta Polintan to sell a 2,094 sq. m. parcel of land owned by DFS. Polintan Besides, the requisites before a derivative suit can be filed by a stockholder or individual
in turn authorized Felicisima Noble to sell the same lot. Noble then offered AF Realty & trustee are present in this case, to wit:
Development, Co., represented by Zenaida Ranullo, the land at the rate of P2,500.00 per
sq. m. AF Realty accepted the offer and issued a P300,000 check as downpayment. a) the party bringing suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material;
However, it appeared that DFS did not authorize Cruz, Jr. to sell the said land.
Nevertheless, Manuel Cruz, Sr. (father) and president of DFS, accepted the check but b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the
modified the offer. He increased the selling price to P4,000.00 per sq. m. AF Realty, in its board of directors for the appropriate relief but the latter has failed or refused to heed his
response, did not exactly agree nor disagree with the counter-offer but only said it is willing plea; and
to pay the balance (but was not clear at what rate). Eventually, DFS sold the property to
someone else. c) the cause of action actually devolves on the corporation, the wrongdoing or harm
having been, or being caused to the corporation and not to the particular stockholder
Now AF Realty is suing DFS for specific performance. It claims that DFS ratified the bringing the suit.
contract when it accepted the check and made a counter-offer.
Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success a corporation may act through its board of directors, which exercises almost all corporate
to have its board of directors remedy what he perceived as wrong when he wrote a letter powers, lays down all corporate business policies and is responsible for the efficiency of
requesting the board to do the necessary action in his complaint; and (3) the alleged wrong management, as provided in Section 23 of the Corporation Code of the Philippines. Under
was in truth a wrong against the stockholders of the corporation generally, and not against this provision, the power and responsibility to decide whether the corporation should enter
Cruz or Minterbro, in particular. And while it is true that the complaining stockholder must into a contract that will bind the corporation is lodged in the board, subject to the articles
show to the satisfaction of the court that he has exhausted all the means within his reach of incorporation, bylaws, or relevant provisions of law. However, just as a natural person
to attain within the corporation itself the redress for his grievances, or actions in conformity may authorize another to do certain acts for and on his behalf, the board of directors may
to his wishes, nonetheless, where the corporation is under the complete control of the validly delegate some of its functions and powers to officers, committees or agents. The
principal defendants or other trustees, as here, there is no necessity of making a demand authority of such individuals to bind the corporation is generally derived from law,
upon the directors. The reason is obvious: a demand upon the board to institute an action corporate bylaws or authorization from the board, either expressly or impliedly by habit,
and prosecute the same effectively would have been useless and an exercise in futility. custom or acquiescence in the general course of business, viz: "A corporate officer or
agent may represent and bind the corporation in transactions with third persons to the
Bottom line, when it comes to cases involving two or more trustees, an individual trustee extent that [the] authority to do so has been conferred upon him, and this includes powers
can file a derivative suit duly following the requisites without the need to exhaust internal as, in the usual course of the particular business, are incidental to, or may be implied from,
remedies where the trusteeship is under the complete control of the other trustees for it the powers intentionally conferred, powers added by custom and usage, as usually
will be a waste of time. pertaining to the particular officer or agent, and such apparent powers as the corporation
has caused person dealing with the officer or agent to believe that it has conferred....
Inter-Asia Investments Industries vs. Court of Appeals [A]pparent authority is derived not merely from practice. Its existence may be ascertained
[GR 125778, 10 June 2003] through (1) the general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words the apparent authority to act in general, with
Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual
Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It
consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the requires presentation of evidence of similar acts executed either in its favor or in favor of
outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was other parties. It is not the quantity of similar acts which establishes apparent authority, but
signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of Inter-Asia and Asia the vesting of a corporate officer with the power to bind the corporation." Hence, an officer
Industries, respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller made of a corporation who is authorized to purchase the stock of another corporation has the
warranties and representations. The Agreement was later amended with respect to the implied power to perform all other obligations arising therefrom, such as payment of the
"Closing Date," originally set up at 10:00 a.m. of 30 September 1978, which was moved shares of stock. By allowing its president to sign the Agreement on its behalf, Inter-Asia
to 31 October 1978, and to the mode of payment of the purchase price. The Agreement, clothed him with apparent capacity to perform all acts which are expressly, impliedly and
as amended, provided that pending submission by SGV of FARMACOR's audited financial inherently stated therein.
statements as of 31 October 1978, Asia Industries may retain the sum of P7,500,000.00
out of the stipulated purchase price of P19,500,000.00; that from this retained amount of Lapu-Lapu Foundation vs. Court of Appeals
P7,500,000.00, Asia Industries may deduct any shortfall on the Minimum Guaranteed Net [GR 126006, 29 January 2004]
Worth of P12,000,000.00; and that if the amount retained is not sufficient to make up for
the deficiency in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the difference Facts: Sometime in 1977, Elias Q. Tan, then President of Lapulapu Foundation, Inc.,
within 5 days from date of receipt of the audited financial statements. obtained four loans from Allied Banking Corporation covered by four promissory notes in
the amounts of P100,000 each. As of 23 January 1979, the entire obligation amounted to
Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00 upon the P493,566.61 and despite demands made on them by the Bank, Tan and the foundation
signing of the Agreement, and P7,000,000.00 on 2 November 1978. From the failed to pay the same. The Bank was constrained to file with the Regional Trial Court of
STATEMENT OF INCOME AND DEFICIT attached to the financial report dated 28 Cebu City, Branch 15, a complaint seeking payment by Tan and the foundation, jointly and
November 1978 submitted by SGV, it appears that FARMACOR had, for the 10 months solidarily, of the sum of P493,566.61 representing their loan obligation, exclusive of
ended 31 October 1978, a deficit of P11,244,225.00. Since the stockholder's equity interests, penalty charges, attorney’s fees and costs. In its answer to the complaint, the
amounted to P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. Foundation denied incurring indebtedness from the Bank alleging that the loans were
The guaranteed net worth shortfall thus amounted to P13,244,225.00 after adding the net obtained by Tan in his personal capacity, for his own use and benefit and on the strength
worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of of the personal information he furnished the Bank. The Foundation maintained that it never
P12,000,000.00. The adjusted contract price, therefore, amounted to P6,225,775.00 authorized Tan to co-sign in his capacity as its President any promissory note and that the
which is the difference between the contract price of P19,500,000.00 and the shortfall in Bank fully knew that the loans contracted were made in Tan’s personal capacity and for
the guaranteed net worth of P13,224,225.00. Asia Industries having already paid Inter- his own use and that the Foundation never benefited, directly or indirectly, therefrom.
Asia P12,000,000.00, it was entitled to a refund of P5,744,225.00. Inter-Asia thereafter
proposed, by letter of 24 January 1980, signed by its president, that Asia Industries's claim The Foundation then interposed a cross-claim against Tan alleging that he, having
for refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern exceeded his authority, should be solely liable for said loans, and a counterclaim against
Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the Bank for damages and attorney’s fees. For his part, Tan admitted that he contracted
the proposal respondent agreed. Inter-Asia, however, welched on its promise. the loans from the Bank in his personal capacity. The parties, however, agreed that the
loans were to be paid from the proceeds of Tan’s shares of common stocks in the Lapulapu
Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00) Industries Corporation, a real estate firm. The loans were covered by promissory notes
exclusive of interest. On 5 April 1983, Asia Industries filed a complaint against Inter-Asia which were automatically renewable (“rolled-over”) every year at an amount including
with the Regional Trial Court of Makati, one of two causes of action of which was for the unpaid interests, until such time as Tan was able to pay the same from the proceeds of
recovery of above-said amount of P4,853,503.00 17 plus interest. Denying Asia his aforesaid shares. According to Tan, the Bank’s employee required him to affix two
Industries's claim, Inter-Asia countered that Asia Industries failed to pay the balance of the signatures on every promissory note, assuring him that the loan documents would be filled
purchase price and accordingly set up a counterclaim. Finding for Asia Industries, the trial out in accordance with their agreement. However, after he signed and delivered the loan
court rendered on 27 November 1991 a Decision, ordering Inter-Asia to pay Asia documents to the Bank, these were filled out in a manner not in accord with their
Industries the sum of P4,853,503.00 plus interest thereon at the legal rate from the filing agreement, such that the Foundation was included as party thereto. Further, prior to its
of the complaint until fully paid, the sum of P30,000.00 as attorney's fees and the costs of filing of the complaint, the Bank made no demand on him.
suit; and (b) dismissing the counterclaim. On appeal to the Court of Appeals, and by
Decision of 25 January 1996, the Court of Appeals affirmed the trial court's decision. Inter- After due trial, the court rendered judgment (1) requiring Tan and the Foundation to pay
Asia's motion for reconsideration of the decision having been denied by the Court of jointly and solidarily to the Bank the amount of P493,566.61 as principal obligation for the
Appeals by Resolution of 11 July 1996, Inter-Asia filed the petition for review on certiorari. four promissory notes, including all other charges included in the same, with interest at
14% per annum, computed from 24 January 1979, until the same are fully paid, plus 2%
Issue: Whether the 24 January 1980 letter signed by Inter-Asia’s president is valid and service charges and 1% monthly penalty charges; (2) requiring Tan and the Foundation
binding. to pay jointly and solidarily, attorney’s fees in the equivalent amount of 25% of the total
amount due from them on the promissory notes, including all charges; and (3) requiring
Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As Tan and the Foundation to pay jointly and solidarily litigation expenses of P1,000.00 plus
held in the case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the costs of the suit. On appeal, the CA affirmed with modification the judgment of the court a
general rule is that, in the absence of authority from the board of directors, no person, not quo by deleting the award of attorney’s fees in favor of the Bank for being without basis.
even its officers, can validly bind a corporation. A corporation is a juridical person, separate Tan and the foundation filed the petition for review on certiorari.
and distinct from its stockholders and members, "having . . . powers, attributes and Issue:
properties expressly authorized by law or incident to its existence." Being a juridical entity, Whether Tan and the foundation should be held jointly and solidarily liable.
Whether the foundation gave Tan an apparent authority to deal with the Bank.
Held:

1. The appellate court did not err in holding Tan and the foundation jointly and solidarily
liable as it applied the doctrine of piercing the veil of corporate entity. Tan and the
foundation cannot hide behind the corporate veil under the following circumstances: "The
evidence shows that Tan has been representing himself as the President of Lapulapu
Foundation, Inc. He opened a savings account and a current account in the names of the
corporation, and signed the application form as well as the necessary specimen signature
cards twice, for himself and for the foundation. He submitted a notarized Secretary’s
Certificate from the corporation, attesting that he has been authorized, inter alia, to sign
for and in behalf of the Lapulapu Foundation any and all checks, drafts or other orders
with respect to the bank; to transact business with the Bank, negotiate loans, agreements,
obligations, promissory notes and other commercial documents; and to initially obtain a
loan for P100,000.00 from any bank. Under these circumstances, the foundation is liable
for the transactions entered into by Tan on its behalf.

2. Per its Secretary’s Certificate, the Foundation had given its President, Tan, ostensible
and apparent authority to inter alia deal with the Bank. Accordingly, the Foundation is
estopped from questioning Tan’s authority to obtain the subject loans from the respondent
Bank. It is a familiar doctrine that if a corporation knowingly permits one of its officers, or
any other agent, to act within the scope of an apparent authority, it holds him out to the
public as possessing the power to do those acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying
the agent’s authority.