1. Cagayan Fishing Development Company vs. Sandiko
757)
(65 Phil. 223)
Doctrine: " Where a sale of properties before the
corporation was formed is void, it is not a de facto
corporation."
Facts: Manuel Tabora is the registered owner of four
parcel of land situated in Cagayan. On May 31, 1930,
Tabora executed a public document by virtue of which
the four parcel of land was sold to Cagayan Fishing
Development Corp. (CFD). On Oct. 28, 1931, CFD filed
its Articles of Incorporation. A year later, the board of
directors of the said company adopted a resolution
authorizing its president to sell the four parcel of land
to Teodoro Sandiko. Sandiko having failed to pay, CFD
brought this action to the CFI praying that the
judgment be rendered against Sandiko for the sum of
the property, with legal interest and the costs of the
suit.
Issue: WON CFD has the capacity to enter into a
contract.
Held: No. the transfer made by Tabora to CFD was
effected on May 31, 1930 and the actual incorporation
of said company was effected later on October 22,
1930. In other words, the transfer was made almost 5
mo. Before the incorporation of the company.
Unquestionably, a duly organized corporation has the
power to purchase and hold such real property as the
purposes for which such corporation was formed may
permit and for this purpose may enter into such
contracts as may be necessary. But before a
corporation may be said to be lawfully organized,
many things have to be done. Among other things, the
law requires the filing of articles of incorporation.
Although there is a presumption that all the
requirements of law have been complied with, in the
case before us it can not be denied that the plaintiff
was not yet incorporated when it entered into a
contract of sale.The contract itself referred to the
plaintiff as "una sociedad en vias de incorporacion." It
was not even a de facto corporation at the time. Not
being in legal existence then, it did not possess
juridical capacity to enter into the contract.
2. Vda de Salvatierra vs. Garlitos (103 Phil.
Doctrine: ''A person who misreprented himself as
president of an unregistered corporation and
negotiated a long term contract is liable for
damages.''
Facts: Manuela T. Vda. de Salvatierra is the owner of a
parcel of land located at Maghobas, Poblacion,
Burauen, Teyte. On March 7, 1954, Salvatierra entered
into a contract of lease with the Philippine Fibers
Producers Co., Inc., represented in this instance by Mr.
Segundino Q. Refuerzo, the President". It was
provided in said contract, among other things, that the
lifetime of the lease would be for a period of 10 years;
that the land would be planted to kenaf, ramie or
other crops suitable to the soil; that the lessor would
be entitled to 30 per cent of the net income accruing
from the harvest of any, crop without being
responsible for the cost of production thereof; and
that after every harvest, the lessee was bound to
declare at the earliest possible time the income
derived therefrom and to deliver the corresponding
share due the lessor. Apparently, the aforementioned
obligations imposed on the alleged corporation were
not complied with because on April 5, 1955, Alanuela
T. Vda, de Salvatierra filed with the Court of First
Instance of Leyte a complaint against the Philippine
Fibers Producers Co., Inc., and Segundino Q. Refuerzo,
for accounting, rescission and damages. She averred
that sometime in April, 1954, defendants planted
kenaf on 3 hectares of the leased property which crop
was, at the time of the commencement of the action,
already harvested, processed and sold by defendants;
that notwithstanding that fact, defendants refused to
render an accounting of the income derived therefrom
and to deliver the lessor's share; that the estimated
gross income was P4,500, and the deductible expenses
amounted to P1,000; that as defendants' refusal to
undertake such task was in violation of the terms of
the covenant entered into between the plaintiff and
defendant corporation, a rescission was but proper.
The lower Court rendered judgment granting plaintiff's
prayer, and required defendants to render a complete
accounting of the harvest of the land subject of the
proceeding within 15 days from receipt of the decision
and to deliver 30 per cent of the net income realized
from the last harvest to plaintiff, with legal interest
from the date defendants received payment for said
crop. On January 31, 1956, defendant Segundino
Refuerzo filed a motion claiming that the decision
rendered in said Civil Case No. 1912 was null and void
with respect to him, there being no allegation in the
complaint pointing to his personal liability and thus
prayed that an order be issued limiting such liability to
defendant corporation.
1
Issue: WON Rufuerzo can be held liable. 3. Chiang Kai Shek School vs. CA (172 SCRA 389)
Held: Yes. While as a general rule, a person who deals
with an association in such a way to recognize its Doctrine: ''A school which was not incorporated but
existence as a corporate body is estopped from represented itself as having a juridical personality was
denying the same in an action arising out of such sued by a teacher is estoppel from denying its lack of
transaction, yet this doctrine may not be held to be it.''
applicable where fraud takes a part in the said
transaction. In the instant case, on plaintiff's charge Facts: Fausta Oh was employed as a teacher at CKSS.
that she was unaware of the fact that the defendant When she reported for work on July 1986, she was
corporation had no juridical personality, its president told she had no assignment for the next semester. Oh
gave no confirmation or denial of the same and the was shocked since she had been teaching in CKSS for a
circumstance surrounding the execution of the continuous period of almost 33 years. Ms. Oh filed an
contract lead to the inescapable conclusion that action against CKSS for the claim of separation pay and
plaintiff was really made to believe that such other benefits. CKSS moved for the dismissal of the
corporation was duly organized in accordance with case on the ground that it could not be sued since
law. CKSS has not been incorporated.
A corporation when registered has a juridical
personality separate and distinct from its component Issue: WON CKSS may be sued.
members or stockholders and officers, such that a
corporation cannot be held liable for the personal Held: Yes. There should also be no question that
indebtedness of a stockholder even if he should be its having contracted with the private respondent every
president (Walter A. Smith Co. vs. Ford, SC-G. R. No. year for thirty two years and thus represented itself as
42420) and conversely, a stockholder cannot be held possessed of juridical personality to do so, the
personally liable for any financial obligation by the petitioner is now estopped from denying such
corporation in excess of his unpaid subscription. But personality to defeat her claim against it. According to
this rule is understood to refer merely to registered Article 1431 of the Civil Code, "through estoppel an
corporations and cannot be made applicable to the admission or representation is rendered conclusive
liability of members of an unincorporated association. upon the person making it and cannot be denied or
The reason behind this doctrine is obvious—an disproved as against the person relying on it."
unincorporated association has no personality and
would be incompetent to act and appropriate for itself
the power and attributes of a corporation as provided
by law, it cannot create agents or confer authority on
another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so
without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as
an agent without authority or without a principal is
himself regarded as the principal, possessed of all the
right and subject to all the liabilities of a principal, a
person acting or purporting to act on behalf of a
corporation which has no valid existence assumes
such privileges and obligations and becomes
personally liable for contracts entered into or for other
acts performed as such agent.

2
4.Lim Tong Lim vs. Phil. Fishing Gear Industries, Inc.
DOCTRINE:
A group of people who agreed to form a
corporation to engage in fishing, represented that
they were engaged in business, and purchased ships
and fishing nets were all liable under the, Principle of
Corporation by Estoppel. Although the name of one of
them did not appear in the contracts, he benefited
from the use of the equipment purchased.
FACTS:
Antonio Chua (Chua) and Peter Yao (Yao), on
behalf of “Ocean Quest Fishing Corporation”, entered
into a contract with Philippine Fishing Gear Industries
(PFGI) for the purchase of fishing nets and floats. Chua
and Yao claimed that they were engaged in a business
venture with Lim Tong Lim, who was not a signatory to
the agreement. When Chua and Yao were unable to
pay for the fishing nets and floats, PFGI filed a
collection suit against the three of them in their
capacities as general partners, on the allegation that
Ocean Quest Fishing Corporation was a nonexistent
corporation.
Later, it was discovered that the three agreed
to engage in a fishing business, which they started by
buying boats. The boats were financed through a loan
secured by Jesus Lim, the brother of Lim Tong Lim, and
that they agreed to pay the loan using the proceeds of
their business.
It is clear that Chua, Yao and Lim had decided
to engage in a fishing business, which they started by
buying boats financed by a loan secured from Jesus
Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These
boats, the purchase and the repair of which were
financed with borrowed money, fell under the term
common fund under Article 1767. The contribution to
such fund need not be cash or fixed assets; it could be
an intangible, like credit or industry. That the parties
agreed that any loss or profit from the sale and
operation of the boats would be divided equally
among them also shows that they had indeed formed
a corporation.
And in the case of Lim Tong Lim although he did not
act on behalf of the corporation, the fact that he has
benefited from the use of the nets as well as the boat
which has been proven to an asset of the corporation
makes him part of the said association and is liable
under the Principle of Corporation by Estoppel.
Clearly, under the law on estoppel, those acting on
behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held
liable as general partners and are covered by the
Principle of Corporation by Estoppel.

Chua admitted to his liability and requested

time in order to pay. Yao filed an answer, but was
deemed to waive his right to cross-examine witnesses
and present evidence. However, Lim Tong Lim
asserted that he was not liable to pay for anything.

The RTC ruled that a partnership existed

among the three and that, while the Compromise
Agreement was silent as to the nature of their
obligations, a joint liability could nonetheless be
presumed from the equal distribution of profit and
loss. This was affirmed by the CA and held also Lim
Tong Lim liable for the fishing nets and floats
purchased by and for the use of the partnership.

ISSUE:
Whether or not, Lim Tong Lim can be held
liable under the Principle of Corporation by Estoppel.

HELD:

YES.

3
5. Nacpil vs. Intercontinental Broadcasting
Corporation
G.R. No. 144767
March 21, 2002
Doctrines
There are two elements to be considered in
determining whether the SEC has jurisdiction over the
controversy, to wit: (1) the status or relationship of
the parties; and (2) the nature of the question that is
the subject of their controversy.
The board of directors may also be empowered under
the by-laws to create additional officers as may be
necessary.
Facts
Dily Dany Nacpil was Assistant General Manager for
Finance/Administration and Comptroller of
Intercontinental Broadcasting Corporation (IBC) from
1996 until April 1997. According to Nacpil, when
Emiliano Templo was sometime in March 1997, the
former told the Board of Directors that as soon as he
assumes the IBC presidency, he would terminate the
services of Nacpil. Apparently, Templo blamed Nacpil,
along with two others, for the prior mismanagement
of IBC. Upon his assumption of the IBC presidency,
Templo allegedly harassed, insulted, humiliated and
pressured petitioner into resigning until the latter was
forced to retire. However, Templo refused to pay him
his retirement benefits. Furthermore, Templo
allegedly refused to recognize Nacpil’s employment,
claiming that Nacpil was not the Assistant General
Manager/Comptroller of IBC but merely usurped the
powers of the Comptroller. Hence, in 1997, petitioner
filed with the Labor Arbiter a complaint for illegal
dismissal and non-payment of benefits.
Instead of filing its position paper, IBC filed a motion
to dismiss alleging that the Labor Arbiter had no
jurisdiction over the case. IBC contended that Nacpil
was a corporate officer who was duly elected by the
Board of Directors of IBC; hence, the case qualifies as
an intra- corporate dispute falling within the
jurisdiction of the
SEC. The motion was denied.
LA ruled in favor of Nacpil. NLRC dismissed the appeal
of IBC. CA reversed the decision of the LA and the
NLRC.
In the petition before the SC, petitioner argues that he
is not a corporate officer of the IBC but an employee
thereof since he had not been elected nor appointed
as Comptroller and Assistant Manager by the IBC’s
Board of Directors. He points out that he had actually
been appointed by the IBC’s General Manager. In
support of his argument, petitioner underscores the
fact that the IBC’s By-Laws does not even include the
position of comptroller in its roster of corporate
officers. He therefore contends that his dismissal is a
controversy falling within the jurisdiction of the labor
courts.
Issue
WON the Labor Arbiter has jurisdiction in this case –
NO
Held
There are two elements to be considered in
determining whether the SEC has jurisdiction over the
controversy, to wit: (1) the status or relationship of
the parties; and (2) the nature of the question that is
the subject of their controversy.
Nacpil’s argument is untenable. Even assuming that he
was in fact appointed by the General Manager, such
appointment was subsequently approved by the Board
of Directors of the IBC. That the position of
Comptroller is not expressly mentioned among the
officers of the IBC in the By-Laws is of no moment,
because the IBC’s Board of Directors is empowered
under Section 25 of the Corporation Code and under
the corporation’s By-Laws to appoint such other
officers as it may deem necessary. The By-Laws of the
IBC categorically provides:
“XII. OFFICERS
The officers of the corporation shall consist of a
President, a Vice-President, a Secretary-Treasurer, a
General Manager, and such other officers as the Board
of Directors may from time to time does fit to provide
for. Said officers shall be elected by majority vote of
the Board of Directors and shall have such powers and
duties as shall hereinafter provided.”
The “by-laws may and usually do provide for such
other officers,” and that where a corporate office is
not specifically indicated in the roster of corporate
offices in the by-laws of a corporation, the board of
directors may also be empowered under the by-laws
to create additional officers as may be necessary.
An “office” has been defined as a creation of the
charter of a corporation, while an officer as a person
4
elected by the directors or stockholders. On the other
hand, an “employee” occupies no office and is
generally employed not by action of the directors and
stockholders but by the managing officer of the
corporation who also determines the compensation to
be paid to such employee.
As Nacpil’s appointment as comptroller required the
approval and formal action of the IBC’s Board of
Directors to become valid, it is clear therefore holds
that Nacpil is a corporate officer whose dismissal may
be the subject of a controversy cognizable by the SEC
under Section 5(c) of P.D. 902-A which includes
controversies involving both election and appointment
of corporate directors, trustees, officers, and
managers.
Had petitioner been an ordinary
employee, such board action would not have been
required. The rules that dismissal or non-appointment
of a corporate officer is clearly an intra-corporate
matter and jurisdiction over the case properly belongs
to the SEC, not to the NLRC.
As to Nacpil’s argument that the nature of his
functions is recommendatory thereby making him a
mere managerial officer, the Court has previously held
that the relationship of a person to a corporation,
whether as officer or agent or employee is not
determined by the nature of the services performed,
but instead by the incidents of the relationship as they
actually exist.
It must be noted that under Section 5.2 of the
Securities Regulation Code (RA 8799) which was
signed into law on July 19, 2000, the SEC’s jurisdiction
over all cases enumerated in Section 5 of P.D. 902-A
has been transferred to the Regional Trial Courts.
Decision
WHEREFORE, the petition is hereby DISMISSED and
the Decision of the Court of Appeals in CA-G.R. SP No.
52755 is AFFIRMED.
6. Fleischer vs. Botica Nolasco Inc. (GR No. 23241,
March 14, 1925)
DOCTRINE/S:
CORPORATE STOCK; RlGHT OF CORPORATIONS TO
IMPOSE A LIMITATION ON TRANSFERS OF STOCK.
A stock corporation in adopting by-laws governing the
transfer of shares of stock should take into
consideration the specific provisions of the
Corporation Law. The by-laws of corporations should
be made to harmonize with the provisions of the
Corporation Law. By-laws must not be inconsistent
with the provisions of the Corporation Law.
By-laws of a corporation are valid if they are
reasonable and calculated to carry into effect the
objects of the corporation provided they are not
contradictory to the general policy of the laws of the
land. Under a statute authorizing by-laws for the
transfer of stock of a corporation, it can do no more
than prescribe a general mode of transfer on the
corporate books and cannot justify an unreasonable
restriction upon the right to sell. The shares of stock of
a corporation are personal property and the holder
thereof may transfer the same without unreasonable
restrictions.
TRANSFER OF SHARES OF STOCK
The power to enact by-laws restraining the sale and
transfer of stock must be found in the governing
statute or charter. Restrictions upon the traffic in
stock must have their source in legislative enactments,
as the corporation itself cannot create such
impediments. The corporation, in the absence of such
a power, cannot ordinarily inquire into or pass upon
the legality of the transaction by which its stock passes
from one person to another, nor can it question the
consideration upon which a sale is based. A by-law of a
corporation cannot take away or abridge the
substantial rights of stockholders. Restrictions cannot
be imposed upon a stockholder by a by-law without
statutory or charter authority. The owner of corporate
stock has the same uncontrollable right to sell or
alienate, which attaches to the ownership of any other
species of property.
FACTS:
Manuel Gonzalez was the original owner of the five
shares of stock in question; of the Botica Nolasco, Inc.;
that in 1923, he assigned and delivered said five
shares to the plaintiff, Henry Fleischer, by
accomplishing the form of endorsement provided on
the back thereof, in consideration of a large 'sum of
money owed by Gonzalez to Fleischer. The secretary-
5
treasurer of the corporation offered to buy from
Henry Fleischer, on behalf of the corporation, said
shares of stock, at their par value, by virtue of art. 12
of the corporation’s bylaws granting it a preferential
right to buy from Manuel Gonzalez said shares.
Fleisher refused to sell them to the defendant;
subsequently, the corporation did not allow him to
register said shares in his name, saying that it would
be in contravention of the by-laws of the corporation.
Plaintiff Fleischer commenced an action against the
Board of Directors of Botica Nolasco Inc. (defendant)
before the CFI praying that Botica Nolasco, Inc. be
ordered to register in his name in the books of the
corporation the five shares of stock recorded in said
books in the name of Manuel Gonzalez, and to
indemnify him in the sum of P500 as damages, and to
pay the costs.
Defendant’s position was that pursuant to article 12 of
its bylaws, had preferential right to buy from the
plaintiff said shares, and that said offer was refused by
the plaintiff. Article 12 of its by-laws constitutes a by-
law or regulation adopted by the Botica Nolasco, Inc.,
governing the transfer of shares of stock of said
corporation. Said provision creates in favor of the
Botica Nolasco, Inc., a preferential right to buy, under
the same conditions, the share or shares of stock of a
retiring shareholder. The defendant prayed for a
judgment absolving it from all liability under the
complaint and directing the plaintiff to deliver to the
defendant the five shares of stock in question.
CFI: The judge noted that article 12 of the bylaws of
the corporation which gives it preferential right to buy
its shares from retiring stockholders, is in conflict with
Act No. 1459 (Corporation Law), especially with
section 35 thereof ; it rendered a decision ordering
Borica Nolasco to register in the books of said
corporation the said five shares of stock in the name
of the plaintiff, Henry Fleischer, as the shareholder or
owner thereof, instead of the original owner, Manuel
Gonzalez.
ISSUE: Whether or not article 12 of the by-laws of the
corporation is in conflict with the provisions of the
Corporation Law (Act No. 1459).
RULING:
Yes.
Section 13 of the Corporation Code (Act 1459)
empowers a corporation to make by-laws, not
inconsistent with any existing law, for the transferring
of its stock. It follows from said provision that a by-law
adopted by a corporation relating to transfer of stock
should be in harmony with the law on the subject of
transfer of stock. The law on this subject is found in
section 35 (of Act No. 1459), which provides that the
shares of stock "are personal property and may be
transferred by delivery of the certificate indorsed by
the owner”. There is no restriction as to whom they
may be transferred or sold; nor does it suggest that
any discrimination may be created by the corporation
in favor or against a certain purchaser. The holder of
shares, as owner of personal property, is at liberty to
dispose of them in favor of whomsoever he pleases,
without any other limitation in this respect, than the
general provisions of law. A stock corporation in
adopting by-laws governing the transfer of shares of
stock should take into consideration the specific
provisions of the Corporation Law. The by-laws of
corporations should be made to harmonize with the
provisions of the Corporation Law. By-laws must not
be inconsistent with the provisions of the Corporation
Law.
The Court said that in adopting the by-law now in
question, the corporation has transcended the limits
fixed by law in the same section, and has not taken
into consideration the provisions of section 35 of Act
No. 1459. The power of a corporation to enact by-
laws restraining the sale and transfer of shares, should
not only be in harmony with the law or charter of the
corporation, but such power should be expressly
granted in said law or charter. The corporation, in the
absence of such a power, cannot ordinarily inquire
into or pass upon the legality of the transaction by
which its stock passes from one person to another, nor
can it question the consideration upon which a sale is
based. A by-law of a corporation cannot take away or
abridge the substantial rights of stockholders.
Restrictions cannot be imposed upon a stockholder by
a by-law without statutory or charter authority. Thus,
the owner of corporate stock has the same
uncontrollable right to sell or alienate, which attaches
to the ownership of any other species of property.
DISPOSITIVE PORTION:
n view of all the foregoing, we are of the opinion, and
so hold, that the decision of the lower court is in
accordance with law and should be and is hereby
affirmed, with costs. So ordered.
6
7. Loyola Grand Villa Homeowners (SOUTH)
Association vs. CA (276 SCRA 681)
Doctrine:
Non-filing of the by-laws will not result in
automatic dissolution of the corporation. Under
Section 6(I) of PD 902-A, the SEC is empowered to
suspend or revoke, after proper notice and hearing,
the franchise or certificate of registration of a
corporation on the ground inter alia of failure to file
by-laws within the required period. It is clear from this
provision that there must first of all be a hearing to
determine the existence of the ground, and secondly,
assuming such finding, the penalty is not necessarily
revocation but may be only suspension of the
charter. In fact, under the rules and regulations of the
SEC, failure to file the by-laws on time may be
penalized merely with the imposition of an
administrative fine without affecting the corporate
existence of the erring firm.
Facts:
LGVHAI was organized on February 8, 1983 as
the association of homeowners and residents of the
Loyola Grand Villas. It was registered with the Home
Financing Corporation, the predecessor of herein
respondent HIGC, as the sole homeowners
organization in the said subdivision. It was organized
by the developer of the subdivision and its first
president was Victorio V. Soliven, himself the owner of
the developer. For unknown reasons, however,
LGVHAI did not file its corporate by-laws.
In 1988 the officers tried and failed to register
its by-laws. They discovered that there were two other
organizations within the subdivision, the North
Association and the South Association, which was
headed by a non-resident and Soliven himself.
These associations had five (5) registered
homeowners each who were also the incorporators,
directors and officers thereof. None of the members
of the LGVHAI was listed as member of the North
Association while three (3) members of LGVHAI were
listed as members of the South Association.
Soliven inquired about the status of LGVHAI
and was informed that it was automatically dissolved
because it did not submit its by-laws within the period
required by the Corporation Code and that there was
non-user of corporate charter because HIGC had not
received any report on the associations activities.
The officers of LGVHAI lodged a complaint
with HIGC and questioned the revocation of the
certificate of registration without due notice and
hearing. They also prayed for the cancellation of the
certificates of registration of the North and South
Associations.
LGVHAI was recognized as the duly registered
homeowners association for LGV homeowners. The
South Association appealed to the Appeals Board of
the HIGC but it was dismissed so it then appealed to
the CA.
CA: Under the Corporation Code, a private corporation
commences to have corporate existence and juridical
personality from the date the Securities and Exchange
Commission (SEC) issues a certificate of incorporation
under its official seal. The requirement for the filing of
by-laws under Section 46 of the Corporation Code
within one month from official notice of the issuance
of the certificate of incorporation presupposes that it
is already incorporated, although it may file its by-laws
with its articles of incorporation. As there was no
showing that the registration of LGVHAI had been
validly revoked, it continued to be the duly registered
homeowners association in the Loyola Grand Villas.
ISSUE:
WON failure of a corporation to file its by-
laws within one month from the date of its
incorporation, as mandated by Section 46 of the
Corporation Code, result in its automatic dissolution
RULING:
There can be no automatic corporate
dissolution simply because the incorporators failed to
abide by the required filing of by-laws embodied in
Section 46 of the Corporation Code. There is no
outright demise of corporate existence. Proper notice
and hearing are cardinal components of due process in
any democratic institution, agency or society. In other
words, the incorporators must be given the chance to
explain their neglect or omission and remedy the
same.
As 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, by-laws are indispensable to
corporations in this jurisdiction. These may not be
essential to corporate birth but certainly, these are
required by law for an orderly governance and
management of corporations. Nonetheless, failure to
file them within the period required by law by no
means tolls the automatic dissolution of a
corporation.
Petition is hereby DENIED. Decision of the CA
is AFFIRMED.
7
8. CHUNG KA BIO vs. INTERMEDIATE APPELLATE
COURT
G.R. No. 71837 July 26, 1988
DOCTRINE: The penalty for the failure to file the by-
laws may be only suspension of the charter or
imposition of an administrative fine without affecting
the corporate existence of the erring firm.
This petition challenged the decision of the IAC, in the
three consolidated cases, which affirmed the order
issued by the SEC except the requirement for the
accounting of the assets of the old PBM, which was set
aside.
FACTS:
Upon the expiration of the 25-year term of the (old)
Philippine Blooming Mills Company, Inc., the members
of its board of directors executed a deed of
assignment of all of the accounts receivables,
properties, obligations and liabilities of the old PBM in
favor of Chung Siong Pek as the treasurer of the new
PBM, then in the process of reincorporation. The new
PMB was subsequently issued a certificate of
incorporation by the SEC.
[FIRST CASE]
Chung Ka Bio and the other stockholders of the old
PBM filed with the SEC a petition for liquidation (but
not for dissolution) of both the old PBM and the new
PBM. The allegation was that the old PBM had
become legally non-existent for failure to extend its
corporate life and that the new PBM had likewise
been ipso facto dissolved for non-use of the charter
and continuous failure to operate within 2 years from
incorporation.
The action was first dismissed but was reinstated on
appeal to the SEC en banc and was remanded to a new
panel of hearing officers for the proper accounting of
the assets and liabilities of the old PBM. This order
was appealed to the IAC.
[SECOND CASE]
Alfredo Ching, one of the members of the board of
directors of the old PBM who executed the deed of
assignment, filed with the IAC a separate petition
questioning the same order and the decision of the
SEC. He alleged that the SEC had gravely erred in not
dismissing the petition for liquidation.
[THIRD CASE]
The new PBM and Alfredo Ching had filed with the SEC
a petition for suspension of payment, which was
opposed by Chung Ka Bio, et al., on the ground that
the SEC had no jurisdiction over a petition for
suspension of payments initiated by a mere individual.
The three cases were then consolidated in the IAC
which issued the decision now challenged by the
petitioners. The decision affirmed the orders issued by
the SEC in the said cases except the requirement for
the accounting of the assets of the old PBM, which was
set aside.
ISSUES:
(1) WON board of directors of an already
dissolved corporation has the inherent power
to convey all its assets to a new corporation
(/)
(2) WON the new corporation has complied with
the two-year requirement of Sec. 22 on the
use of corporate charter and operation
considering that the stockholders never
adopted a set of by-laws (/)
(3) WON the SEC has jurisdiction over a petition
for suspension of payments filed by an
individual only (X)
HELD:
(1) The record does not show, nor have the
petitioners alleged or proven, that they filed a
written objection to the creation of the new
corporation and indicated their disagreement
to transfer their respective stocks in the old
PBM to the new PBM; and demanded
payment of their shares during the
reglementary forty-day period. This bolster
the private respondents' claim that the
authorization was unanimous.
While we agree that the board of directors is
not normally permitted to undertake any
activity outside of the usual liquidation of
the business of the dissolved corporation,
there is nothing to prevent the stockholders
from conveying their respective
shareholdings toward the creation of a new
corporation to continue the business of the
old. Winding up is the sole activity of a
dissolved corporation that does not intend to
incorporate anew. If it does, however, it is
not unlawful for the old board of directors to
negotiate and transfer the assets of the
dissolved corporation to the new corporation
intended to be created as long as the
stockholders have given their consent. This
8
 was expressly allowed by Section 28-1/2
(Corporation Law).
It was only in after four years that it occurred
to the petitioners to question the validity of
the deed of assignment. During this period,
the new PBM was in full operation, openly
and quite visibly conducting the same
business undertaken earlier by the old
dissolved PBM. These circumstances must
operate to bar the petitioners now from
questioning the deed of assignment after this
long period of inaction in the protection of
the rights they are now belatedly asserting.
Laches has operated against them.
(2) It is undeniable that the new PBM has in fact
been operating all these years. Moreover, the
penalty for the failure to file the by-laws is
not necessarily revocation but may be only
suspension of the charter or imposition of an
administrative fine without affecting the
corporate existence of the erring firm.
(3) “Every corporation formed under this Act,
must within one month after the filing of the
articles of incorporation with the SEC, adopt a
code of by-laws." The failure to file by-laws
within the required period is only a ground
for suspension or revocation of the certificate
of registration of corporations.
personality. Organization, commencement of
transaction of corporate business, and the
adoption and filing of by-laws are but
conditions subsequent and not prerequisites
for acquisition of corporate personality.
In any case, the deficiency claimed by the
petitioners was corrected when the new PBM
subsequently adopted and filed its by-laws
rendering the issue moot and academic.
(4) Section 5(d), PD 902-A, as amended by PD
1758 does not allow a mere individual to file
the petition which is limited to "corporations,
partnerships or associations." Administrative
agencies like the SEC are tribunals of limited
jurisdiction and, as such, can exercise only
those powers which are specifically granted
to them by their enabling
statutes. Consequently, where no authority
is granted to hear petitions of individuals for
suspension of payments, such petitions are
beyond the competence of the SEC. No
permission is found in PD 902-A.
WHEREFORE, the appealed decision is
AFFIRMED.

Non-filing of the by-laws will not result in

automatic dissolution of the corporation.
Under Section 6(i) of PD 902-A, the SEC is
empowered to "suspend or revoke, after
proper notice and hearing, the franchise or
certificate of registration of a corporation" on
the ground inter alia of "failure to file by-laws
within the required period." There must first
of all be a hearing to determine the existence
of the ground, and secondly, assuming such
finding, the penalty is not necessarily
revocation but may be only suspension of
the charter. In fact, under the rules and
regulations of the SEC, failure to file the by-
laws on time may be penalized merely with
the imposition of an administrative fine
without affecting the corporate existence of
the erring firm.

Substantial compliance with conditions

subsequent will suffice to perfect corporate

9
9. Teresa Electric & Power Company Inc. vs. Public business of manufacturing portland cement or arising
Service Commission (21 SCRA 128) therefrom or incidental thereto.

FACTS: It cannot be denied that the operation of an electric

light, heat and power plant is necessarily connected
Teresa Electric Light and Power Co., Inc. (Teresa with the business of manufacturing cement. If in the
Electric) is a domestic corporation operating an modern world where we live today electricity is
electric power plant in Teresa, Rizal under a subsisting virtually a necessity for our daily needs, it is more so in
certificate of public convenience and necessity. the case of industries like the manufacture of cement.
Filipinas Cement Corporation (Filipinas Cement) is
likewise a domestic corporation engaged in the Therefore, they are authorized, under their articles of
manufacture and sale of cement. incorporation, to operate and maintain an electric
power plant.
Filipinas Cement filed an application with the Public
Service Commission for a certificate f public
convenience to install, maintain and operate an
electric plant in sitio Kaysapon of barrio Pamanaan,
municipality of Teresa, Rizal, for the purpose of
supplying electric power and light to its cement
factory and its employees living within its compound.

Teresa Electric opposed, alleging that it is the duly-

authorized operator of an electric light, heat and
power service in Teresa, Rizal. Further, it alleged that
Filipinas Cement is not authorized by its articles of
incorporation to operate an electric plant, and that its
principal business does not come within the
jurisdiction of the Public Service Commission.

To answer Teresa Electric’s contention on its articles

of incorporation, Filipinas Cement stated that it is
authorized to operate the proposed power plant
under paragraph 7 of its articles of incorporation.

ISSUE:

Whether, under its articles of incorporation, Filipinas

Cement is authorized to operate and maintain an
electric power plant

HELD:

YES.

The Articles of Incorporation of Filipinas Cement, in

paragraph 7 thereof, provide for authority to secure
from any governmental, state, municipality, or
provincial, city or other authority, and to utilize and
dispose of in any lawful manner, rights, powers,
privileges, franchises and concessions — obviously
necessary or at least related to the operation of its
cement factory. Moreover, said Articles of
Incorporation also provide that the corporation may
generally perform any and all acts connected with the

10
10. NPC vs. Vera (170 SCRA 721)
NPC vs Judge Vera and SEA LION INTERNATIONAL
PORT TERMINAL SERVICES, INC.
Doctrine:
A power plant which uses coal to produce electric
power can itself bring the coal to its plant without the
need of stevedoring services.
Facts:
The instant petition arose from a complaint
for prohibition and mandamus with damages filed by
private respondent against NPC and Philippine Ports
Authority (PPA), wherein private respondent alleged
that NPC had acted in bad faith and with grave abuse
of discretion in not renewing its Contract for
Stevedoring Services for Coal-Handling Operations at
NPC's plant, and in taking over its stevedoring services.
Respondent judge issued a restraining order
against NPC enjoining the latter from undertaking
stevedoring services at its pier. Consequently, NPC
filed an "Urgent Motion" to dissolve the restraining
order contended that by virtue of Presidential Decree
No. 1818, respondent judge had no jurisdiction to
issue the order.
In the instant case, it is an undisputed fact
that the pier located at Calaca, Batangas, which is
owned by NPC, receives the various shipments of coal
which is used exclusively to fuel the Batangas Coal-
Fired Thermal Power Plant of the NPC for the
generation of electric power. The stevedoring services
which involve the unloading of the coal shipments into
the NPC pier for its eventual conveyance to the power
plant are incidental and indispensable to the operation
of the plant.
Thus, the Court holds that NPC is empowered
under its Charter to undertake such services, it being
reasonably necessary to the operation and
maintenance of the power plant.
WHEREFORE, in view of the foregoing, the
Court having considered the Petition, private
respondents Comment, and the Reply thereto,
Resolved to GRANT the petition. The respondent
Judge's Order dated June 8, 1988 is SET ASIDE and the
temporary restraining order issued by the Court on
June 15, 1988 is made PERMANENT.

Respondent judge dismiss said motion. He

then issued a TRO.

Issue: WON respondent judge acted without

jurisdiction when he issued the writ of preliminary
injunction against NPC.

Held:

Yes. Presidential Decree No. 1818 SECTION 1.

No court in the Philippines shall have jurisdiction to
issue any restraining order, preliminary injunction, or
preliminary mandatory injunction in any case, dispute,
or controversy involving an infrastructure project, or a
mining, fishery, forest or other natural resource
development project of the government, or any public
utility operated by the government, including among
others public utilities for the transport of the goods or
commodities, stevedoring and arrastre contracts, to
prohibit any person or persons, entity or government
official from proceeding with, or continuing the
execution or implementation of any such project, or
the operation of such public utility, or pursuing any
lawful activity necessary for such execution,
implementation or operation.

11
11. PNB VS CFI PASIG
Facts: Private respondents are the registered owners
of three parcels of land in Pasig. On March 1, 1954,
private respondents entered into a contract of lease
with PBM whereby the latter shall lease the parcels of
land as factory site. PBM was duly organized and
incorporated on January 19, 1952 with a corporate
term of twenty-five (25) years. This leasehold right of
PBM covering the parcels of land was duly annotated.
The contract of lease provides that the term of the
lease is for twenty years beginning from the date of
the contract and “is extendable for another term of
twenty years at the option of the LESSEE should its
term of existence be extended in accordance with
law.”. The contract also states that the lessee agrees
to “use the property as factory site and for that
purpose to construct whatever buildings or
improvements may be necessary or convenient and/or
. . . for any purpose it may deem fit; and before the
termination of the lease to remove all such buildings
and improvements. In accordance with the contract,
PBM introduced on the land, buildings, machineries
and other useful improvements. PBM executed in
favor of Philippine National Bank (PNB), petitioner
herein, a deed of assignment, conveying and
transferring all its rights and interests under the
contract of lease which it executed with private
respondents. The assignment was for and in
consideration of the loans granted by PNB to PBM. On
November 6, 1963 and December 23, 1963
respectively, PBM executed in favor of PNB a real
estate mortgage for a loan of P100,000.00 and an
addendum to real estate mortgage for another loan of
P1,590,000.00, covering all the improvements
constructed by PBM on the leased premises. On
October 7, 1981, private respondents filed a motion in
the same proceedings which was given a different case
number to wit, LRC Case No. R-2744, because of the
payment of filing fees for the motion. The motion
sought to cancel the annotations on respondents’
certificates of title pertaining to the assignment by
PBM to PNB of the former’s leasehold rights, inclusion
of improvements and the real estate mortgages made
by PBM in favor of PNB, on the ground that the
contract of lease entered into between PBM and
respondents-movants had already expired by the
failure of PBM and/or its assignee to exercise the
option to renew the second 20-year lease
commencing on March 1, 1974 and also by the failure
of PBM to extend its corporate existence in
accordance with law. The motion also states that since
PBM failed to remove its improvements on the leased
premises before the expiration of the contract of
lease, such improvements shall accrue to respondents
as owners of the land.
Issue: Whether or not the corporate life of PBM was
extended by the continuance of the lease and
subsequent registration of the title to the
improvements under its name.
Held: No. The contract of lease expressly provides that
the term of the lease shall be twenty years from the
execution of the contract but can be extended for
another period of twenty years at the option of the
lessee should the corporate term be extended in
accordance with law. Clearly, the option of the lessee
to extend the lease for another period of twenty years
can be exercised only if the lessee as corporation
renews or extends its corporate term of existence in
accordance with the Corporation Code which is the
applicable law. Contracts are to be interpreted
according to their literal meaning and should not be
interpreted beyond their obvious intendment. Thus, in
the instant case, the initial term of the contract of
lease which commenced on March 1, 1954 ended on
March 1, 1974. PBM as lessee continued to occupy the
leased premises beyond that date with the
acquiescence and consent of the respondents as
lessor. Records show however, that PBM as a
corporation had a corporate life of only twenty-five
(25) years which ended an January 19, 1977. It should
be noted however that PBM allowed its corporate
term to expire without complying with the
requirements provided by law for the extension of its
corporate term of existence.
Section 11 of Corporation Code provides that a
corporation shall exist for a period not exceeding fifty
(50) years from the date of incorporation unless
sooner dissolved or unless said period is extended.
Upon the expiration of the period fixed in the articles
of incorporation in the absence of compliance with the
legal requisites for the extension of the period, the
corporation ceases to exist and is dissolved ipso facto.
When the period of corporate life expires, the
corporation ceases to be a body corporate for the
purpose of continuing the business for which it was
organized. But it shall nevertheless be continued as a
body corporate for three years after the time when it
would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and
enabling it gradually to settle and close its affairs, to
dispose of and convey its property and to divide its
assets. There is no need for the institution of a
proceeding for quo warranto to determine the time or
date of the dissolution of a corporation because the
12
period of corporate existence is provided in the
articles of incorporation. When such period expires
and without any extension having been made
pursuant to law, the corporation is dissolved
automatically insofar as the continuation of its
business is concerned. The quo warranto proceeding
under Rule 66 of the Rules of Court, as amended, may
be instituted by the Solicitor General only for the
involuntary dissolution of a corporation on the
following grounds: a) when the corporation has
offended against a provision of an Act for its creation
or renewal; b) when it has forfeited its privileges and
franchises by non-user; c) when it has committed or
omitted an act which amounts to a surrender of its
corporate rights, privileges or franchises; d) when it
has mis-used a right, privilege or franchise conferred
upon it by law, or when it has exercised a right,
privilege or franchise in contravention of law. Hence,
there is no need for the SEC to make an involuntary
dissolution of a corporation whose corporate term had
ended because its articles of incorporation had in
effect expired by its own limitation.
Considering the foregoing in relation to the contract of
lease between the parties herein, when PBM’s
corporate life ended on January 19, 1977 and its 3-
year period for winding up and liquidation expired on
January 19, 1980, the option of extending the lease
was likewise terminated on January 19, 1977 because
PBM failed to renew or extend its corporate life in
accordance with law. From then on, the respondents
can exercise their right to terminate the lease
pursuant to the stipulations in the contract.
12. Edward Nell Company v. Pacific Farms
inc.
Facts:
Appellant Edward Nell Co. obtained a
favorable judgment for P1,853.80 — representing the
unpaid balance of the price of a pump sold by
appellant to Insular Farms, Inc. A writ of execution,
issued after the judgment had become final was
returned unsatisfied, stating that Insular Farms had no
leviable property. Appellant filed with said court the p
resent action against appellee Pacific Farms, Inc. for th
e collection of the award, upon the theory that
appellee is the alter ego of Insular Farms. Appellee had
purchased all or substantially all of the shares of stock,
as well as the real and personal properties of Insular
Farms, including the pumping equipment sold by
appellant to Insular Farms.
Appellee purchased 1,000 shares of stock of I
nsular Farms at an auction. Appellee then sold said sha
res of stock to certain individuals, who forthwith
reorganized said corporation; and that the board of
directors thereof, as reorganized, then caused its
assets to be sold to herein appellee. Trial court
dismissed appellant's complaint. CFI and CA affirmed.
Hence this appeal by certiorari.
Issue:
Whether Pacific Farms, Inc. should
be held liable for the judgment
rendered against Insular Farms, Inc.
Held:
No.
These facts do not prove that the appellee is
an alter ego of Insular Farms, or is liable for its debts.
The rule is set forth in Fletcher Cyclopedia
Corporations, Vol. 15, Sec. 7122, pp. 160-161, as
follows:
Generally where one corporation sells or
otherwise transfers all of its assets to another
corporation, the latter is not liable for the debts and
liabilities of the transferor, except: (1) where the
purchaser expressly or impliedly agrees to assume
such debts; (2) where the transaction amounts to a
consolidation or merger of the corporations; (3) where
the purchasing corporation is merely a continuation of
the selling corporation; and (4) where the transaction
is entered into fraudulently in order to escape liability
for such debts.
13

In this case, there is neither proof nor
allegation that appellee had expressly or impliedly
agreed to assume the debt of Insular Farms in favor of
appellant herein, or that the appellee is a continuation
of Insular Farms, or that the sale of either the shares
of stock or the assets of Insular Farms to the
appellee has been entered into fraudulently, in order
to escape liability for the debt of the Insular Farms in
favor of appellant herein. In fact, these sales took
place (March, 1958) not only over six (6) months
before the rendition of the judgment (October 9,
1958) sought to be collected in the present action,
but, also, over a month before the filing of the case
(May 29, 1958) in which said judgment was rendered.
Moreover, appellee purchased the shares of
stock of Insular Farms as the highest bidder at an
auction sale held at the instance of a bank to which
said shares had been pledged as security for an
obligation of Insular Farms in favor of said bank. It has,
also, been established that the appellee had paid
P285,126.99 for said shares of stock, apart from the
sum of P10,000, it likewise paid for the other assets.
Neither is it claimed that these transactions
have resulted in the consolidation or merger of the
Insular Farms and appellee herein. On the contrary,
appellant's theory to the effect that appellee is an
alter ego of the Insular Farms negates such
consolidation or merger, for a corporation cannot be
its own alter ego.
The sale was submitted to and approved by the SEC. It
must be presumed, therefore, that the price paid was
fair and reasonable. Moreover, the only issue raised in
the court of origin was whether or not appellee is an
alter ego of Insular Farms. The question of whether
the aforementioned sale of assets for P10,000.00 was
fraudulent or not, had not been put in issue in said
court. Hence, it may, not be raised on appeal.
13. NTC vs CA
Doctrine: The term capital and other terms used to
describe the capital structure of a corporation are of
universal acceptance, and their usages have long been
established in jurisprudence. Briefly, capital refers to
the value of the property or assets of a
corporation. The capital subscribed is the total amount
of the capital that persons (subscribers or
shareholders) have agreed to take and pay for, which
need not necessarily be, and can be more than, the
par value of the shares.
FACTS:
Sometime in 1988, the National Telecommunications
Commission (NTC) served on the Philippine Long
Distance Telephone Company (PLDT) the following
assessment notices and demands for payment:
1. the amount of P7,495,161.00 as supervision and
regulation fee under Section 40 (e) of the PSA for the
said year, 1988, computed at P0.50 per P100.00 of the
Protestants (PLDT) outstanding capital stock as at
December 31, 1987 which then consisted of Serial
Preferred Stock amounting to P1,277,934,390.00
(Billion) and Common Stock of P221,097,785 (Million)
or a total of P1,499,032,175.00 (Billion).
2. the amount of P9.0 Million as permit fee under
Section 40 (f) of the PSA for the approval of the
protestants increase of its authorized capital stock
from P2.7 Billion to P4.5 Billion; and
3. the amounts of P12,261,600.00 and P33,472,030.00
as permit fees under Section 40 (g) of the PSA in
connection with the Commissions decisions in NTC
Cases Nos. 86-13 and 87-008 respectively, approving
the Protestants equity participation in the Fiber Optic
Interpacific Cable systems and X-5 Service
Improvement and Expansion Program.[4]
In its two letter-protests[5] dated February 23, 1988
and July 14, 1988, and position papers[6] dated
November 8, 1990 and March 12, 1991, respectively,
the PLDT challenged the aforesaid assessments,
theorizing inter alia that:
(a) The assessments were being made to raise
revenues and not as mere reimbursements for ctual
regulatory expenses in violation of the doctrine in
PLDT vs. PSC, 66 SCRA 341 [1975];
(b) The assessment under Section 40 (e) should only
have been on the basis of the par values of private
respondents outstanding capital stock;
(c) Petitioner has no authority to compel private
respondents payment of the assessed fees under
Section 40 (f) for the increase of its authorized capital
stock since petitioner did not render any supervisory
14
or regulatory activity and incurred no expenses in the debts of the corporation, to which the creditors
relation thereto. may look for satisfaction. Until the liquidation of the
corporation, no part of the subscribed capital may be
Issue: returned or released to the stockholder (except in the
WHETHER THE COURT OF APPEALS ERRED IN HOLDING redemption of redeemable shares) without violating
THAT THE COMPUTATION OF SUPERVISION AND this principle. Thus, dividends must never impair the
REGULATION FEES UNDER SECTION 40 (F) OF THE subscribed capital; subscription commitments cannot
PUBLIC SERVICE ACT SHOULD BE BASED ON THE PAR be condoned or remitted; nor can the corporation buy
VALUE OF THE SUBSCRIBED CAPITAL STOCK? its own shares using the subscribed capital as the
consideration therefor.[1
Ruling:
Succinct and clear is the ruling of this Court in the case
of Philippine Long Distance Telephone Company vs.
Public Service Commission, 66 SCRA 341, that the basis
for computation of the fee to be charged by NTC on
PLDT, is the capital stock subscribed or paid and not,
alternatively, the property and equipment.
The law in point is clear and categorical. There is no
room for construction. It simply calls for
application. To repeat, the fee in question is based on
the capital stock subscribed or paid, nothing less
nothing more.
It bears stressing that it is not the NTC that imposed
such a fee. It is the legislature itself. Since Congress
has the power to exercise the State inherent powers
of Police Power, Eminent Domain and Taxation, the
distinction between police power and the power to
tax, which could be significant if the exercising
authority were mere political subdivisions (since
delegation by it to such political subdivisions of one
power does not necessarily include the other), would
not be of any moment when, as in the case under
consideration, Congress itself exercises the power. All
that is to be done would be to apply and enforce the
law when sufficiently definitive and not constitutional
infirm.
The term capital and other terms used to describe the
capital structure of a corporation are of universal
acceptance, and their usages have long been
established in jurisprudence. Briefly, capital refers to
the value of the property or assets of a
corporation. The capital subscribed is the total amount
of the capital that persons (subscribers or
shareholders) have agreed to take and pay for, which
need not necessarily be, and can be more than, the
par value of the shares. In fine, it is the amount that
the corporation receives, inclusive of the premiums if
any, in consideration of the original issuance of the
shares. In the case of stock dividends, it is the amount
that the corporation transfers from its surplus profit
account to its capital account. It is the same amount
that can loosely be termed as the trust fund of the
corporation. The Trust Fund doctrine considers this
subscribed capital as a trust fund for the payment of

15
14. Philippine Trust Company vs. Mariano Rivera
G.R. No. L-19761 January 29, 1923
Doctrine: It is established doctrine that subscription to
the capital of a corporation constitute a find 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.
Facts:
It appears in evidence that in 1918 the
Cooperativa Naval Filipina was duly incorporated
under the laws of the Philippine Islands, with a capital
of P100,000, divided into one thousand shares of a par
value of P100 each. Among the incorporators of this
company was numbered the defendant Mariano
Rivera, who subscribed for 450 shares representing a
value of P45,000, the remainder of the stock being
taken by other persons. In the course of time the
company became insolvent and went into the hands
of the Philippine Trust Company, as assignee in
bankruptcy; and an action was instituted to recover
one-half of the stock subscription of the defendant,
which admittedly has never been paid.
particular it does not appear that any certificate was
at any time filed in the Bureau of Commerce and
Industry, showing such reduction.
It is established doctrine that subscription to
the capital of a corporation constitute a find 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, without a valuable consideration
for such release; and as against creditors a reduction
of the capital stock can take place only in the manner
an under the conditions prescribed by the statute or
the charter or the articles of incorporation. Moreover,
strict compliance with the statutory regulations is
necessary.

Defendant reasoned that not long after the

Cooperativa Naval Filipina had been incorporated, a
meeting of its stockholders occurred, at which a
resolution was adopted to the effect that the capital
should be reduced by 50 per centum and the
subscribers released from the obligation to pay any
unpaid balance of their subscription in excess of 50
per centum of the same. As a result of this resolution
it seems to have been supposed that the subscription
of the various shareholders had been cancelled to the
extent stated; and fully paid certificate were issued to
each shareholders for one-half of his subscription.

The trial court ruled that the resolution relied

upon the defendant was without effect and that the
defendant was still liable for the unpaid balance of his
subscription.

Issue:
Whether defendant should pay his unpaid
subscription in Cooperative Naval Filipina to cover for
the said corporation’s debt to PTC

Held:
Yes. It does not appear that the formalities
prescribed in section 17 of the then Corporation Law
(Act No. 1459), as amended, relative to the reduction
of capital stock in corporations were observed, and in

16
15. Boman Environmental Development Corporation
vs Court of Appeals
FACTS:
Nilcar Fajilan was a stockholder and the
president of Boman Environmental Development
Corporation (Boman). In 1984, he wrote a letter to the
Board tendering his resignation and his offer to sell his
shareholdings for P300k. The Board accepted the
resignation as well as his offer to sell. The Board
advised Fajilan that Boman will be paying the shares in
installment. Fajilan is to transfer the shares upon
completion of payment. Boman paid the first two P50k
installments but defaulted in paying the remaining
P200k. Fajilan then sued Boman in the RTC of Makati.
Fajilan’s suit against the corporation to
enforce the latter’s promissory note or compel the
corporation to pay for his shareholdings is cognizable
by the SEC alone which shall determine whether such
payment will not constitute a distribution of corporate
assets to a stockholder in preference over creditors of
the corporation. The SEC has exclusive supervision,
control and regulatory jurisdiction to investigate
whether the corporation has unrestricted retained
earnings to cover the payment for the shares, and
whether the purchase is for a legitimate corporate
purpose as provided in Sections 41 and 122 of the
Corporation Code,
NOTE: This is a 1988 case, now the RTC has expanded
jurisdiction. Some RTCs are granted special jurisdiction
to hear and decide intra-corporate disputes.

ISSUE: Whether or not the RTC of Makati has

jurisdiction.

HELD:
No. Section 5(b) of P.D. No. 902-A, as amended, grants
the SEC original and exclusive jurisdiction to hear and
decide cases involving
“b) Controversies arising out of intra-corporate or
partnership relations, between and among
stockholders, members, or associate; between any or
all of them and the corporation, partnership or
association of which they are stockholders, members
or associates, respectively; . . .”
This is an intra-corporate dispute and as such
the Securities and Exchange Commission (SEC) has
jurisdiction. This case involves an intra-corporate
controversy because the parties are a stockholder and
the corporation. Fajilan is still a stockholder. There has
been no actual transfer of his shares to the
corporation. In the books of the corporation he is still
a stockholder. Fajilan’s suit against the corporation to
enforce the latter’s promissory note or compel the
corporation to pay for his shareholdings is cognizable
by the SEC alone which shall determine whether such
payment will not constitute a distribution of corporate
assets to a stockholder in preference over creditors of
the corporation. The SEC has exclusive supervision,
control and regulatory jurisdiction to investigate
whether the corporation has unrestricted retained
earnings to cover the payment for the shares, and
whether the purchase is for a legitimate corporate
purpose.

17
16. Donnina Halley vs. Printwell, Inc.
Doctrine: Although the corporation has a personality
separate and distinct from its SH, such personality is
merely a legal fiction (for the convenience and to
promote the ends of justice) which may be disregarded
by the courts if it is used as a cloak or cover for fraud,
justification of a wrong, or an alter ego for the sole
benefit of the SH.
Facts:
BMPI (Business Media Philippines Inc.) is a corporation
under the control of its stockholders, including
Donnina Halley.
In the course of its business, BMPI commissioned
PRINTWELL to print Philippines, Inc. (a magazine
published and distributed by BMPI)
PRINTWELL extended 30-day credit accommodation in
favor of BMPI and in a period of 9 mos. BMPI placed
several orders amounting to 316,000.
However, only 25,000 was paid hence a balance of
291,000. PRINTWELL sued BMPI for collection of the
unpaid balance and later on impleaded BMPI’s original
stockholders and incorporators to recover on their
unpaid subscriptions.
It appears that BMPI has an authorized capital stock of
3M divided into 300,000shares with P10 par value.
Only 75,000 shares worth P750,000 were originally
subscribed of whichP187,500 were paid up capital.
Halley subscribed to 35,000 shares worth P350,000
but only paid P87,500.
Halley contends that:
1. They all had already paid their subscriptions
in full
2. BMPI had a separate and distinct personality
3. 3.BOD and SH had resolved to dissolve
BMPIRTC and CA
Defendant merely used the corporate fiction as a
cloak/cover to create an injustice (against PRINTWELL)
and rejected allegations of full payment in view of
irregularity in the issuance of ORs (Payment made on a
later date was covered by an OR with a lower
serialnumber than payment made on an earlier date.
Issue:
WON a stockholder who was in active management of
the business of the corporation and still has unpaid
subscriptions should be made liable for the debts of
the corporation by piercing the veil of corporate
fiction.
Held:
YES. Such stockholder should be made liable up to the
extent of her unpaid subscription.
It was found that at the time the obligation was
incurred, BMPI was under the control of its
stockholders who know fully well that the corporation
was not I na position to pay its account (thinly
capitalized). And, that the stockholders personally
benefited from the operations of the corporation even
though they never paid their subscriptions in full. The
stockholders cannot now claim the doctrine of
corporate fiction otherwise (to deny creditors to
collect from SH) it would create an injustice because
creditors would be at a loss (limbo) against whom it
would assert the right to collect.
On piercing the veil:
Although the corporation has a personality separate
and distinct from its SH, such personality is merely a
legal fiction (for the convenience and to promote the
ends of justice) which may be disregarded by the
courts if it is used as a cloak or cover for fraud,
justification of a wrong, or an alter ego for the sole
benefit of the SH.
As to the Trust Fund Doctrine:
The RTC and CA correctly applied the Trust Fund
Doctrine
Under which corporate debtors might look to the
unpaid subscriptions for the satisfaction of unpaid
corporate debts.
Subscriptions to the capital of a corporation
constitutes a trust fund for the payment of the
creditors (by mere analogy) In reality, corporation is a
simple debtor.
Moreover, the corporation has no legal capacity to
release an original subscriber to its capital stock from
the obligation of paying for his shares, in whole or in
part, without valuable consideration, or fraudulently,
to the prejudice of the creditors.
The creditor is allowed to maintain an action upon any
unpaid subscriptions and thereby steps into the shoes
of the corporation for the satisfaction of its debt.
The trust fund doctrine is not limited to reaching the
SH’s unpaid subscriptions. The scope of the doctrine
when the corporation is insolvent encompasses not
only the capital stock but also other property and
assets generally regarded in equity as a trust fund for
the payment of corporate debts
18
17. Nielson & Co. Inc. vs. Lepanto Consolidated
Mining Co.
GR L-21601 December 28, 1968
No corporation organized under this Act shall create
or issue bills, notes or other evidence of debt, for
circulation as money, and no corporation shall issue
stock or bonds except in exchange for actual cash paid
to the corporation or for: (1) property actually
received by it at a fair valuation equal to the par or
issued value of the stock or bonds so issued; and in
case of disagreement as to their value, the same shall
be presumed to be the assessed value or the value
appearing in invoices or other commercial documents,
as the case may be; and the burden or proof that the
real present value of the property is greater than the
assessed value or value appearing in invoices or other
commercial documents, as the case may be, shall be
upon the corporation, or for (2) profits earned by it
but not distributed among its stockholders or
members; Provided, however, That no stock or bond
dividend shall be issued without the approval of
stockholders representing not less than two-thirds of
all stock then outstanding and entitled to vote at a
general meeting of the corporation or at a special
meeting duly called for the purpose.
FACTS: Before World War II, an operating agreement
was executed between Nielson & Co. Inc. and the
Lepanto Consolidated Mining Co. whereby the former
operated and managed the mining properties owned
by the latter for a management fee of P2,500.00 a
month and a 10% participation in the net profits
resulting from the operation of the mining properties,
for a period of 5 years.
Lepanto modified a pertinent provision of the
contract. This time, Nielson will receive (1) 10% of the
dividends declared and paid, when and as paid, during
the period of the contract and at the end of each year,
(2) 10% of any depletion reserve that may be set up,
and (3) 10% of any amount expended during the year
out of surplus earnings for capital account.
Both parties agreed to renew the contract for a period
of 5 years. But the operation of the mining properties
was disrupted on account of the war.
After the mining properties were liberated from the
Japanese forces, the mine operation was under
Lepanto’s exclusive management. Lepanto declared
stock dividends worth one million in 1949 and two
million in 1950. This was during the period covered by
an extension in the management contract. However,
a disagreement arose between the parties.
Nielson claims his share in the stock dividends. 0n its
motion for reconsideration, Lepanto contends that the
payment to Nielson of stock dividends as
compensation for its services under the management
contract is a violation of the Corporation Law, and that
it was not, and it could not be, the intention of the
parties that the services of Nielson should be paid in
shares of stock taken out of stock dividends declared
by Lepanto.
ISSUE: Whether or not Nielson is entitled to his share
in the stock dividends.
HELD: No. Stock dividends cannot be issued to a
person who is not a stockholder in payment of
services rendered.
In the case at bar, Nielson cannot be paid in shares of
stock which form part of the stock dividends of
Lepanto for services it rendered under the
management contract. We sustain the contention of
Lepanto that the understanding between Lepanto and
Nielson was simply to make the cash value of the stock
dividends declared as the basis for determining the
amount of compensation that should be paid to
Nielson, in the proportion of 10 % of the cash value of
the stock dividends declared. In other words, Nielson
must still be paid his 10% fee using as the basis for
computation the cash value of the stock dividends
declared.
Moreover, under Section 16 of the Corporation Law,
the consideration for which shares of stock may be
issued are cash, property; and undistributed profits.
Shares of stock are given the “special name,” “stock
dividends,” only if they are issued in lieu of
undistributed profits. If shares of stocks are issued in
exchange of cash or property then those shares do not
fall under the category of “stock dividends”. A
corporation may legally issue shares of stock in
consideration of services rendered to it by a person
not a stockholder, or in payment of its indebtedness.
But a share of stock issued to pay for services
rendered is equivalent to a stock issued in exchange of
property, because services is equivalent to property.
Likewise a share of stock issued in payment of
indebtedness is equivalent to issuing a stock in
exchange for cash. But a share of stock thus issued
should be part of the original capital stock of the
corporation upon its organization, or part of the stocks
issued when the increase of the capitalization of a
corporation is properly authorized. In other words, it is
19
the shares of stock that are originally issued by the
corporation and forming part of the capital that can be
exchanged for cash or services rendered, or property;
that is, if the corporation has original shares of stock
unsold or unsubscribed, either coming from the
original capitalization or from the increased
capitalization. Those shares of stock may be issued to
a person who is not a stockholder, or to a person
already a stockholder in exchange for services
rendered or for cash or property. But a share of stock
coming from stock dividends declared cannot be
issued to one who is not a stockholder of a
corporation.
A “stock dividend” is any dividend payable in shares of
stock of the corporation declaring or authorizing such
dividend.
So, a stock dividend is actually two things. - a dividend
and the enforced use of the dividend money to
purchase additional shares of stock at par. When a
corporation issues stock dividends, it shows that the
corporation accumulated profits have been capitalized
instead of distributed to the stockholders or retained
as surplus available for distribution, in money or kind,
should opportunity offer. Far from being a realization
of profits for the stockholder, it tends rather to
postpone said realization, in that the fund represented
by the new stock has been transferred from surplus to
assets and no longer available for actual distribution.
Thus, it is apparent that stock dividends are issued
only to stockholders. This is so because only
stockholders are entitled to dividends. They are the
only ones who have a right to a proportional share in
that part of the surplus which is declared as dividends.
% stock dividend really adds nothing to the interest of
the stockholder; the proportional interest of each
stockholder remains the same. If a stockholder is
deprived of his stock dividends - and this happens if
the shares of stock forming part of the stock dividends
are issued to a non-stockholder - then the proportion
of the stockholder’s interest changes radically. Stock
dividends are civil fruits of the original investment,
and to the owners of the shares belong the civil fruits.
18. TITLE: PHILIPPINE NATIONAL BANK vs.
PRODUCERS' WAREHOUSE ASSOCIATION
DOCTRINE:
A managed corporation is bound by the acts of its
managing corporation within the scope of authority
given.
FACTS:
In May 1916, Producers' Warehouse Association
(PWA) entered into a written contract with Philippine
Fiber and Produce Company (PFPC) wherein the latter
will serve as the general manager and it shall exercise
a general and complete supervision over and
management of the business of the former.
PWA duly issued to PFPC its negotiable quedans for
piculs of copra in and by which, subject to the terms
and conditions therein stated, it agreed to deliver that
amount of copra to the Produce Company or its order.
The PFPC arranged for an overdraft with PNB of
P1,000,000. To secure such overdraft, and as collateral
from and after the dates of their issuance, the
quedans in question were endorsed in blank by the
PFPC, and delivered it to PNB, which became and is
now the owner and holder thereof. Without making a
tender of any charges, on March 21, 1919, PNB
requested the delivery of the copra described in the
respective quedans. However, PFPC failed to deliver
said copra. Because of such circumstance, PNB
commenced its action to recover against PWA and
PFPC.
ISSUE:
WON PWA is liable with the acts committed by PFPC.
HELD:
YES. PFPC, as stated in their written contract, has the
duty to exercise a general and complete supervision
over and management of the business of PWA.
In the case, when PFPC issued said quedans, it was
acting within the authority given to it by PWA. As a
matter of fact, the latter's treasurer even confirmed its
execution. Thus, PWA cannot deny its liability as those
were acts within the given scope of authority.
20
19. Republic of the Philppines vs. Acoje Mining
Company (7 SCRA 361)
Facts:
Acoje Mining Company, Inc. wrote the Director of Posts requesting
the opening of a post telegraph and money order offices at its
mining camp to service its employees and their families that were
living there.
The Director of Posts acted on their request, and required that the
company assume direct responsibility for
whatever pecuniary loss may be suffered by the Bureau
of Posts by reason of any act of dishonesty,
carelessness or negligence on the part of
the employee of the company who is assigned to take
charge of the post office.
The Board of Directors of Acoje passed a resolution stating that:
"That the requirement of the Bureau of Posts that the Company
should accept full responsibility for all cash received by the
Postmaster be complied with, and that a copy of this resolution
be forwarded to the Bureau of Posts."
The post office branch was opened on Oct. 13, 1949. On May 11,
1954, the postmaster, an employee of Acoje, went on a 3 day
leave and never returned.
Thereafter, Acoje informed the Manila Post Office and upon
auditing, it was found that P13, 867.24 was missing.
The post office demanded payment and filed a suit with the CFI of
Manila for the amount but Acoje denied liability
Alleging that the Board of Directors’ act in assigning a
postmaster was ultra vires; also, the company alleged that
their liability was merely that of a guarantor.
CFI of Manila ruled in favor of the Post Office but only to the
amount of P9, 515.25 (since they could only present evidence
for such amount)
Issue:
1. Whether or not the board of directors’ acts was ultra vires
Ruling:
1. No. The act covers a subject which concerns the benefit,
Convenience, and welfare of the company’s employees and their
families. There are certain corporate acts that may be performed
outside of the scope of the powers expressly conferred if they
are necessary to promote the interest or welfare
of the corporation.
The establishment of the local post office is a reasonable
and proper adjunct to the conduct of the business. Moreover, an
ultra vires act is merely voidable, in contrast to illegal
acts which are void. It may be enforced by
performance, ratification or estoppel. Here it is fair
that the resolution be upheld at least on the ground of estoppel
since the company at least benefited from the transaction.
20. Corpo Narra Nickel Mining Devt Corp. vs Redmont
Consolidated Mines
DOCTRINE:"Corporate layering" is admittedly allowed
by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners that
the grandfather rule has already been abandoned
must be discredited for lack of basis.
With respect to an investment by one corporation in
another corporation, say, a corporation with 60-40
percent equity invests in another corporation which is
permitted by the Corporation Code, the grandfather
rule will be adopted.
FACTS:
In 2006, Redmont, , a domestic corporation organized
and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of
Palawan, in the area already covered by Mineral
Production Sharing Agreement (MPSA) applications of
petitioners Subsequently, SMMI was issued MPSA-
AMA-IVB-153 covering an area of over 1,782 hectares
in Barangay Sumbiling, Municipality of Bataraza,
Province of Palawan and EPA-IVB-44 which includes an
area of 3,720 hectares in Barangay Malatagao,
Bataraza, Palawan. The MPSA and EP were then
transferred to Madridejos Mining Corporation (MMC)
and, on November 6, 2006, assigned to Narra, Tesoro
and McArthur.
On the other hand, Petitioner McArthur, through its
predecessor-in-interest Sara Marie Mining, Inc.
(SMMI), filed an application for an MPSA and
Exploration Permit (EP) with MGB under the DENR.
petitioner McArthur.
On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate
petitions for the denial of petitioners’ applications for
MPSA designated as AMA-IVB-153, AMA-IVB-154 and
MPSA IV-1-12. In the petitions, Redmont alleged that
at least 60% of the capital stock of McArthur, Tesoro
and Narra are owned and controlled by MBMI
Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force
behind petitioners’ filing of the MPSAs over the areas
covered by applications since it knows that it can only
participate in mining activities through corporations
which are deemed Filipino citizens. Redmont argued
that given that petitioners’ capital stocks were mostly
owned by MBMI, they were likewise disqualified from
21
engaging in mining activities through MPSAs, which MBMI to gain control over them. It is apparent that
are reserved only for Filipino citizens. MBMI has more than 60% or more equity interest in
McArthur, making the latter a foreign corporation.
Petitioners further asserted that the best tool used in
determining the nationality of a corporation is the
"control test," embodied in Sec. 3 of RA 7042 or the
Foreign Investments Act of 1991. They also claimed
that the POA of DENR did not have jurisdiction over
the issues in Redmont’s petition since they are not
enumerated in Sec. 77 of RA 7942. Finally, they
stressed that Redmont has no personality to sue them
because it has no pending claim or application over
the areas applied for by petitioners. Further, they
claimed that the case be dismissed for being moot
since they have already filed an FTAA (Financial or
Technical Assistance Agreement)

ISSUE:
Whether or not the petitioner corporations are
Filipino and can validly be issued MPSA and EP.

RULING:
NO. The filing of the Financial or Technical Assistance
Agreement application is a clear admission that the
respondents are not capable of conducting a large
scale mining operation and that they need the
financial and technical assistance of a foreign entity in
their operation that is why they sought the
participation of MBMI Resources, Inc. The
participation of MBMI in the corporation only proves
the fact that it is the Canadian company that will
provide the finances and the resources to operate the
mining areas for the greater benefit and interest of
the same and not the Filipino stockholders who only
have a less substantial financial stake in the
corporation.
The court further held that there is a need to ascertain
the nationality of petitioners since, as the Constitution
so provides, such agreements are only allowed
corporations or associations "at least 60 percent of
such capital is owned by such citizens." And made
applicable the Grandfather Rule, Under the Strict Rule
or Grandfather Rule Proper, the combined totals in the
Investing Corporation and the Investee Corporation
must be traced (i.e., “grandfathered”) to determine
the total percentage of Filipino ownership. Moreover,
the ultimate Filipino ownership of the shares must first
be traced to the level of the Investing Corporation and
added to the shares directly owned in the Investee
Corporation.

As demonstrated in the case, McArthur,

Teroso, Narra (petitioners), when they were
"grandfathered," company layering was utilized by

22
21. TITLE: Rogelio M Florete SR., v Marcelino Florete
DOCTRINE: a derivative suit "is an action filed by
stockholders to enforce a corporate action." A
derivative suit, therefore, concerns "a wrong to the
corporation itself." The real party in interest is the
corporation, not the stockholders filing the suit. The
stockholders are technically nominal parties but are
nonetheless the active persons who pursue the action
for and on behalf of the corporation.
Remedies through derivative suits are not expressly
provided for in our statutes—more specifically, in the
Corporation Code and the Securities Regulation
Code—but they are "impliedly recognized when the
said laws make corporate directors or officers liable
for damages suffered by the corporation and its
stockholders for violation of their fiduciary
duties." They are intended to afford reliefs to
stockholders in instances where those responsible for
running the affairs of a corporation would not
otherwise act
FACTS: The People's Broadcasting Service, Inc. was
incorporated in 1965 with an authorized capital stock
of P250,000 divided into 2,500 shares at PI00 par
value. As of November 23, 1967, the total subscribed
shares of stock was 1,260. The 610 shares issued in the
name of [Newsounds Broadcasting Network, Inc.] was
authorized by the Board of Directors in payment for
the obligation of the Corporation to [Newsounds
Broadcasting Network, Inc.]
On August 5, 1982, the Board of Directors passed
Resolution No. 4 which authorized Atty. Divinagracia
to negotiate the purchase of two stations of
Consolidated Broadcasting System, Inc. (CBS), DYMF
and DXMF in Cebu and Davao, respectively.
In consideration thereof, [People's Broadcasting
Service, Inc.] shall issue 1,250 shares of stock in favor
of [Consolidated Broadcasting System, Inc.]. In
pursuance thereof, on September 1, 1982, the
Corporation issued the remaining 1,240 shares of
unissued capital stock to [Consolidated Broadcasting
System, Inc.]. To complete the consideration of 1,250
shares, it was explained that [Salome] transferred her
10 shares to [Consolidated Broadcasting System, Inc.]
and distributed her remaining 20 shares to her
children, at 5 shares each.
On March 1, 1983, all the 610 shares of [Newsounds
Broadcasting Network, Inc.] were transferred to
[Rogelio, Sr.]. We were not able to determine the
person who endorsed the certificate in [sic] behalf [of]
[Newsounds Broadcasting Network, Inc.] as the
certificate was not found on file. On the same day, the
entire investment of [Consolidated Broadcasting
System, Inc.] were transferred to [Marcelino, Sr.] and
[Rogelio, Sr.] at the proportion of 750 shares and 500
shares, respectively. The cancelled certificates of
[Consolidated Broadcasting System, Inc.] were
endorsed by [Rogelio, Sr.] in [sic] its behalf.
On June 23, 2003, Marcelino, Jr., Ma. Elena, and Raul
Muyco (Marcelino, Jr. Group) filed before the
Regional Trial Court a Complaint25 for Declaration of
Nullity of Issuances, Transfers and Sale of Shares in
People's Broadcasting Service, Inc. and All Posterior
Subscriptions and Increases thereto with
Damages26 against Diamel Corporation, Rogelio, Sr.,
Imelda Florete, Margaret Florete, and Rogelio
Florete, Jr. (Rogelio, Sr. Group).
On August 2, 2005, the Regional Trial Court issued a
Decision (which it called a "Placitum") dismissing the
Marcelino, Jr. Group's Complaint. It ruled that the
Marcelino, Jr. Group did not have a cause of action
against the Rogelio, Sr. Group and that the former is
estopped from questioning the assailed movement of
shares of People's Broadcasting. It also ruled that
indispensible parties were not joined in their
Complaint.
The Marcelino, Jr. Group anchored their Complaint on
violations of and liabilities arising from the
Corporation Code, specifically: Section 23 (on
corporate decision-making being vested in the board
of directors), Section 25 (quorum requirement for the
transaction of corporate business), Sections 39 and
102 (both on stockholders' preemptive rights), Section
62 (stipulating the consideration for which stocks must
be issued), Section 63 (stipulating that no transfer of
shares "shall be valid, except as between the parties,
until the transfer is recorded in the books of the
corporation"), and Section 65 (on liabilities of directors
and officers "to the corporation and its creditors" for
the issuance of watered stocks) in relation to
provisions in People's Broadcasting's Articles of
Incorporation and By-Laws as regards conditions for
issuances of and subscription to shares. The
Marcelino, Jr. Group ultimately prays that People's
Broadcasting's entire capital structure be reconfigured
to reflect a status quo ante.
What the Marcelino, Jr. Group asks is the complete
reversal of a number of corporate acts undertaken by
People' Broadcasting's different boards of directors.
These boards supposedly engaged in outright fraud or,
23
at the very least, acted in such a manner that amounts
to wanton mismanagement of People's Broadcasting's
affairs. The ultimate effect of the remedy they seek is
the reconfiguration of People's Broadcasting's capital
structure.
Procedure for Intra-Corporate Controversies, have
been satisfied. Since the Complaint lacked a cause of
action and failed to comply with the requirements of
the Marcelino, Jr. Group's vehicle for relief, it was only
proper for the Complaint to have been dismissed.

ISSUE: Whether or not Marcelino Jr Group has a cause

of action against the impleaded defendants.

HELD: NO. The remedies that the Marcelino, Jr. Group

seeks are for People's Broadcasting itself to avail.
The Marcelino, Jr. Group points to violations of
specific provisions of the Corporation Code that
supposedly attest to how their rights as stockholders
have been besmirched. However, this is not enough to
sustain a claim that the Marcelino, Jr. Group initiated a
valid individual or class suit. To reiterate, whether
stockholders suffer from a wrong done to or involving
a corporation does not readily vest in them a sweeping
license to sue in their own capacity.
The provisions adverted to by the Marcelino, Jr. Group
signify alleged wrongdoing committed against the
corporation itself and not uniquely to those
stockholders who now comprise the Marcelino, Jr.
Group. A violation of Sections 23 and 25 of the
Corporation Code—on how decision-making is vested
in the board of directors and on the board's quorum
requirement—implies that a decision was wrongly
made for the entire corporation, not just with respect
to a handful of stockholders. Section 65 specifically
mentions that a director's or officer's liability for the
issuance of watered stocks in violation of Section 62 is
solidary "to the corporation and its creditors," not to
any specific stockholder. Transfers of shares made in
violation of the registration requirement in Section 63
are invalid and, thus, enable the corporation to
impugn the transfer. Notably, those in the Marcelino,
Jr. Group have not shown any specific interest in, or
unique entitlement or right to, the shares supposedly
transferred in violation of Section 63.

It was upon People's Broadcasting itself that the

causes of action now claimed by the Marcelino Jr.
Group accrued. While stockholders in the Marcelino,
Jr. Group were permitted to seek relief, they should
have done so not in their unique capacity as
individuals or as a group of stockholders but in place
of the corporation itself through a derivative suit. As
they, instead, sought relief in their individual capacity,
they did so bereft of a cause of action. Likewise, they
did so without even the slightest averment that the
requisites for the filing of a derivative suit, as spelled
out in Rule 8, Section 1 of the Interim Rules of

24
22. Citibank, N.A. vs. Chua (220 SCRA 75)
Doctrine:
Corporate powers may be directly conferred upon
corporate officers or agents by statute, the articles of
incorporation, the by-laws or by resolution or other
act of the board of directors. In addition, an officer
who is not a director may also appoint other agents
when so authorized by the by-laws or by the board of
directors.
Laws Related:
Section 23 of the Corporation Code of the Philippines
in part provides:
"SEC. 23. The board of directors or trustees. Unless
otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be
exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from
among the members of the corporation, who shall
hold office for one (1) year and until their successors
are elected and qualified.
xxx xxx xxx" (Emphasis supplied).
Thus, although as a general rule, all corporate powers
are to be exercised by the board of directors,
exceptions are made where the Code provides
otherwise.
Section 25 of said Code provides that the directors of
the corporation shall elect its corporate officers, and
further provides as follows:
"SEC. 25. Corporate officers; quorum. — . . . The
directors or trustees and officers to be elected shall
perform the duties enjoined on them by law and by
the by-laws of the corporation . . ."
Furthermore, Section 47 of the same Code
enumerates what may be contained in the by-laws,
among which is a provision for the "qualifications,
duties and compensation of directors or trustees,
officers and employees".
Facts:
1. Petitioner Citibank, N.A. is a foreign commercial
banking corporation duly licensed to do business
in the Philippines.
2. Private respondents spouses Cresencio and
Zenaida Velez, were good clients of petitioner
bank’s branch in Cebu until March 14, 1986 when
they filed a complaint for specific performance
and damages against it before the RTC of Cebu.
3. Du ri n g th e d at e of th e p r e -tr ia l
con f er en c e, cou n s el fo r p eti tio n e r b an k
ap p e ar ed , p r e se n tin g a sp ec ia l p o w e r o f
attor n ey ex e cu t ed b y Cit ib an k o f fi c er
Flo r en c ia Tarriela in favor of petitioner bank’s
counsel, J.P. Garcia and Associates, to represent
and b in d p eti tion e r b an k at th e p r e -tr ial
con f er en c e of th e ca s e at b ar .
4. In s p it e of th i s s p e ci al power of attorney,
counsel for private respondents orally moved to
declare petitioner bank as i n d e fau lt on th e
grou n d th a t th e sp ec ia l p o w er o f
attor n ey w a s n ot ex ec u ted b y th e B oar d
of Di re ct or s o f C itib an k.
Issue:
Wh e th er o r n ot a re s olu tion o f th e Boa rd o f
Dir e cto r s o f a c orp orat i on i s al w ay s necessary
for granting authority to an agent to represent the
corporation in court cases
Ruling:
No.
Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors
of a corporation validly delegate some of its functions
to individual officers or agents appointed by it.
Corporate powers may be directly conferred upon
corporate officers or agents by statute, the articles of
incorporation, the by-laws or by resolution or other
act of the board of directors. In addition, an officer
who is not a director may also appoint other agents
when so authorized by the by-laws or by the board of
directors.
25
23. TITLE: RURAL BANK OF MILAOR v. OCFEMIA
(2000)
DOCTRINE: When a bank, by its acts and failure to act,
has clearly clothed its manager with apparent
authority to sell an acquired asset in the normal course
of business, it is legally obliged to confirm the
transaction by issuing a board resolution to enable the
buyers to register the property in their names. It has a
duty to perform necessary and lawful acts to enable
the other parties to enjoy all benefits of the contract
which it had authorized.
FACTS: Several parcels of land were mortgaged by the
respondents during the lifetime of the respondent’s
grandparents to the Rural bank of Milaor (petitioner)
as shown by the Deed of Real Estate Mortgage and the
Promissory Note.
Spouses Felicisimo Ocfemia and Juanita Ocfemia, one
of the respondents, were not able to redeem the
mortgaged properties consisting of seven parcels of
land and so the mortgage was foreclosed and
thereafter ownership was transferred to the petitioner
bank.
Out of the 7 parcels of land that were foreclosed, 5 of
them are in the possession of the respondents
because these 5 parcels of land were sold by the
petitioner bank to the respondents as evidenced by a
Deed of Sale. However, the 5 parcels of land cannot be
transferred in the name of the parents of Merife Nino,
one of the respondents, because there is a need to
have the document of sale registered.
The Register of deeds, however, said that the
document of sale cannot be registered without the
board resolution of the petitioner bank confirming
both the Deed of sale and the authority of the bank
manager, Fe S. Tena, to enter such transaction.
The petitioner bank refused respondent’s request for
a board resolution and made many alibis.
Respondents then initiated the present proceedings in
the RTC with a Petition for Mandamus to compel the
petitioner bank to issue board resolution confirming
the Deed of Sale covering five parcels of unregistered
land, which the bank manager had executed in their
favor. If successful, they could transfer to their names
the subject 5 parcel of lands, mortgage them and use
the loan proceeds for the medical expenses of their
ailing mother.
On the other hand, the petitioner bank questioned the
jurisdiction of the court disputing that the present
action was incapable of pecuniary estimation.
Petitioner argues that the matter in fact involved title
to real property worth less than P20,000. Thus, under
RA 7691, the case should have been filed before a
metropolitan trial court, a municipal trial court or a
municipal circuit trial court.
ISSUES:
1. W/N the RTC has jurisdiction over the case.
2. W/N the representative of a bank can enter into
contracts in its behalf.
HELD:
1. YES. The well-settled rule is that jurisdiction is
determined by the allegations of the complaint.
In this case, the issue was not the title to the
property; it was respondents' right to compel the
bank to issue a board resolution confirming the Deed
of Sale.
The RTC has jurisdiction over such action pursuant to
Section 21 of BP 129, which provides:
Sec. 21. Original jurisdiction in other cases. —
Regional Trial Courts shall exercise original
jurisdiction;
(1) in the issuance of writ of certiorari,
prohibition, mandamus, quo
warranto, habeas corpus and injunction
which may be enforced in any part of their
respective regions; and
(2) In actions affecting ambassadors and
other public ministers and consuls.
2. YES. The bank acknowledges, by its own acts or
failure to act, the authority of Fe S. Tena to enter into
binding contracts. After the execution of the Deed of
Sale, respondents occupied the properties in dispute
and paid the real estate taxes. If the bank
management believed that it had title to the property,
it should have taken measured to prevent the
infringement and invasion of title thereto and
possession thereof. Likewise, Tena had previously
transacted business on behalf of the bank, and the
latter had acknowledged her authority. A bank is liable
to innocent third persons where representation is
made in the course of its normal business by an agent
like Manager Tena even though such agent is abusing
her authority. Clearly, persons dealing with her could
not be blamed for believing that she was authorized to
transact business for and on behalf of the bank.
26
Settled jurisprudence has it that where similar acts
have been approved by the directors as a matter of
general practice, custom, and policy, the general
manager may bind the company without formal
authorization of the board of directors.
The bank is estopped from questioning the authority
of the bank to enter into contract of sale. If a
corporation knowingly permits one of its officers or
any other agent to act within the scope of an apparent
authority, it holds the agent out to the public as
possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good
faith dealt with it through such agent, be estopped
from denying the agent’s authority.
Unquestionably, petitioner has authorized Tena to
enter into the Deed of Sale. Accordingly, it has a clear
legal duty to issue the board resolution sought by
respondent's. Having authorized her to sell the
property, it behooves the bank to confirm the Deed of
Sale so that the buyers may enjoy its full use.
24. Inter-Asia Investments vs CA
Being a juridical entity, a corporation may act through
its board of directors, which exercises almost all
corporate powers, lays down all corporate business
policies and is responsible for the efficiency of
management, as provided in Section 23 of the
Corporation Code of the Philippines. Under this
provision, the power and responsibility to decide
whether the corporation should enter into a contract
that will bind the corporation is lodged in the board,
subject to the articles of incorporation, bylaws, or
relevant provisions of law.
Facts: On 1 September 1978, Inter-Asia Industries, Inc.
(Inter-Asia), by a Stock Purchase Agreement (the
Agreement), sold to Asia Industries, Inc. (Asia
Industries) for and in consideration of the sum of
P19,500,000.00 all its right, title and interest in and to
all the outstanding shares of stock of FARMACOR, INC.
(FARMACOR). The Agreement was signed by Leonides
P. Gonzales and Jesus J. Vergara, presidents of Inter-
Asia and Asia Industries, respectively. Under
paragraph 7 of the Agreement, Inter-Asia as seller
made warranties and representations. The Agreement
was later amended with respect to the "Closing Date,"
originally set up at 10:00 a.m. of 30 September 1978,
which was moved to 31 October 1978, and to the
mode of payment of the purchase price. The
Agreement, as amended, provided that pending
submission by SGV of FARMACOR's audited financial
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 P7,500,000.00, Asia Industries
may deduct any shortfall on the Minimum Guaranteed
Net 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 within 5 days from date of
receipt of the audited financial statements.
Asia Industries paid Inter-Asia a total amount of
P12,000,000.00: P5,000,000.00 upon the signing of the
Agreement, and P7,000,000.00 on 2 November 1978.
From the STATEMENT OF INCOME AND DEFICIT
attached to the financial report dated 28 November
1978 submitted by SGV, it appears that FARMACOR
had, for the 10 months ended 31 October 1978, a
deficit of P11,244,225.00. Since the stockholder's
equity amounted to P10,000,000.00, FARMACOR had
a net worth deficiency of P1,244,225.00. The
guaranteed net worth shortfall thus amounted to
P13,244,225.00 after adding the net worth deficiency
27
of P1,244,225.00 to the Minimum Guaranteed Net
Worth of P12,000,000.00. The adjusted contract price,
therefore, amounted to P6,225,775.00 which is the
difference between the contract price of
P19,500,000.00 and the shortfall in the guaranteed
net worth of P13,224,225.00. Asia Industries having
already paid Inter-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 for refund be
reduced to P4,093,993.00, it promising to pay the cost
of the Northern Cotabato Industries, Inc. (NOCOSII)
superstructures in the amount of P759,570.00. To the
proposal respondent agreed. Inter-Asia, however,
welched on its promise.
Inter-Asia's total liability thus stood at P4,853,503.00
(P4,093,993.00 plus P759,570.00) exclusive of interest.
On 5 April 1983, Asia Industries filed a complaint
against Inter-Asia with the Regional Trial Court of
Makati, one of two causes of action of which was for
the recovery of above-said amount of P4,853,503.00
17 plus interest. Denying Asia Industries's claim, Inter-
Asia countered that Asia Industries failed to pay the
balance of the purchase price and accordingly set up a
counterclaim.
Issue: Whether the 24 January 1980 letter signed by
Inter-Asia’s president is valid and binding.
Held: The 24 January 1980 letter signed by Inter-Asia's
president is valid and binding. As held in the case of
People's Aircargo and Warehousing Co., Inc. v. Court
of Appeals, the general rule is that, in the absence of
authority from the board of directors, no person, not
even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct
from its stockholders and members, "having . . .
powers, attributes and properties expressly authorized
by law or incident to its existence." Being a juridical
entity, a corporation may act through its board of
directors, which exercises almost all corporate
powers, lays down all corporate business policies and
is responsible for the efficiency of management, as
provided in Section 23 of the Corporation Code of the
Philippines. Under this provision, the power and
responsibility to decide whether the corporation
should enter into a contract that will bind the
corporation is lodged in the board, subject to the
articles of incorporation, bylaws, or relevant
provisions of law. However, just as a natural person
may authorize another to do certain acts for and on
his behalf, the board of directors may validly delegate
some of its functions and powers to officers,
committees or agents. The authority of such
individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the
board, either expressly or impliedly by habit, 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 extent that [the] authority to do so has been
conferred upon him, and this includes powers as, in
the usual course of the particular business, are
incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and
usage, as usually 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.... [A]pparent authority is
derived not merely from practice. Its existence may be
ascertained 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 which it clothes him;
or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof,
within or beyond the scope of his ordinary powers. It
requires presentation of evidence of similar acts
executed either in its favor or in favor of other parties.
It is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate
officer with the power to bind the corporation."
Hence, an officer of a corporation who is authorized to
purchase the stock of another corporation has the
implied power to perform all other obligations arising
therefrom, such as payment of the shares of stock. By
allowing its president to sign the Agreement on its
behalf, Inter-Asia clothed him with apparent capacity
to perform all acts which are expressly, impliedly and
inherently stated therein.
28
25. (Seller)Advance Paper Corporation vs. Arma corporation knowingly permits one of its officers or
Traders Corporation (Buyer) any other agent to act within the scope of an apparent
Doctrine: The doctrine of apparent authority provides authority, it holds him out to the public as possessing
that a corporation will be estopped from denying the the power to do those acts; thus, the corporation will,
agent's authority if it knowingly permits one of its as against anyone who has in good faith dealt with it
officers or any other agent to act within the scope of through such agent, be estopped from denying the
an apparent authority, and it holds him out to the agent's authority.
public as possessing the power to do those acts. Issues: Whether Arma Traders is liable to pay the
Facts: Petitioner Advance Paper is a domestic loans applying the doctrine of apparent authority.
corporation engaged in the business of producing, SC: Petition Granted
printing, manufacturing, distributing and selling of Arma Traders is liable to pay the loans on the basis of
various paper products.Petitioner George Haw (Haw) the doctrine of apparent authority. The doctrine of
is the President while his wife, Connie Haw, is the apparent authority provides that a corporation will be
General Manager. Respondent Arma Traders is also a estopped from denying the agent's authority if it
domestic corporation engaged in the wholesale and knowingly permits one of its officers or any other
distribution of school and office supplies, and novelty agent to act within the scope of an apparent authority,
products. Respondent Antonio Tan (Tan) was formerly and it holds him out to the public as possessing the
the President while respondent Uy Seng Kee Willy (Uy) power to do those acts.The doctrine of apparent
is the Treasurer of Arma Traders. They represented authority does not apply if the principal did not
Arma Traders when dealing with its supplier, Advance commit any acts or conduct which a third party knew
Paper, for about 14 years. On various dates from and relied upon in good faith as a result of the exercise
September to December 1994, Arma Traders of reasonable prudence. Moreover, the agent's acts or
purchased on credit notebooks and other paper conduct must have produced a change of position to
products amounting to P7,533,001.49 from Advance the third party's detriment.
Paper. Upon the representation of Tan and Uy, Arma
Traders also obtained three loans from Advance Paper
a total of P7,788,796.76. As payment for the
purchases on credit and the loan transactions, Arma
Traders issued 82 postdated checks payable to cash or
to Advance Paper. Tan and Uy were Arma Traders'
authorized bank signatories who signed and issued
these checks which had the aggregate amount of
P15,130,636.87. Advance Paper presented the checks
to the drawee bank but these were dishonored either
for "insufficiency of funds" or "account closed."
Despite repeated demands, however, Arma Traders
failed to settle its account with Advance Paper. On
December 29, 1994, the petitioners filed a complaint
for collection of sum of money with application for
preliminary attachment against Arma Traders, Tan, Uy,
Ting, Gui, and Ng.
RTC ruled in favor of Petitioners. The CA reversed
hence. This present petition.
Petitioners: Arma Traders led the petitioners to
believe that Tan and Uy had the authority to obtain
loans since the respondents left the active and sole
management of the company to Tan and Uy since
1984. In fact, Ng testified that Arma Traders'
stockholders and board of directors never conducted a
meeting from 1984 to 1995. Therefore, if the
respondents' position will be sustained, they will have
the absurd power to question all the business
transactions of Arma Traders. Citing Lipat v. Pacific
Banking Corporation, the petitioners said that if a

29
26. Filipinas Port Services Inc. vs. Go (518 SCRA 453)
Determination of the necessity for additional offices
and/or positions in a corporation is a management
prerogative which courts are not wont to review in the
absence of any proof that such prerogative was
exercised in bad faith or with malice
FACTS: Eliodoro C. Cruz, Filport’s president from 1968-
1991, wrote a letter to the corporation’s BOD
questioning the creation and election of the following
positions with a monthly remuneration of P13,050.00
each. Cruz requested the board to take necessary
action/actions to recover from those elected to the
aforementioned positions the salaries they have
received.
Cruz, purportedly in representation of Filport and its
stockholders, among which is herein co-petitioner
Mindanao Terminal and Brokerage Services, Inc.
(Minterbro), filed with the SEC a derivative suit against
Filport's BOD for acts of mismanagement detrimental
to the interest of the corporation and its shareholders
at large.
Cruz prayed that the BOD be made to pay Filport,
jointly and severally, the sums of money variedly
representing the damages incurred as a result of the
creation of the offices/positions complained of and
the aggregate amount of the questioned increased
salaries.
RTC: BOD have the power to create positions not in
the by-laws and can increase salaries. But Edgar C.
Trinidad under the third and fourth causes of action to
restore to the corporation the total amount of salaries
he received as assistant vice president for corporate
planning; and likewise ordering Fortunato V. de Castro
and Arsenio Lopez Chua under the fourth cause of
action to restore to the corporation the salaries they
each received as special assistants respectively to the
president and board chairman. In case of insolvency of
any or all of them, the members of the board who
created their positions are subsidiarily liable.
Appealed: creation of the positions merely for
accommodation purposes - GRANTED
ISSUES:
1. W/N there was
mismanagement - NO
2. W/N there is a proper
derivative suit - YES
HELD: CA Affirmed
1. NO
Section 35 of the Corporation Code, the creation of an
executive committee (as powerful as the BOD) must
be provided for in the bylaws of the corporation
Notwithstanding the silence of Filport’s bylaws on the
matter, we cannot rule that the creation of the
executive committee by the board of directors is
illegal or unlawful. One reason is the absence of a
showing as to the true nature and functions of
executive committee
But even assuming there was mismanagement
resulting to corporate damages and/or business
losses, respondents may not be held liable in the
absence of a showing of bad faith in doing the acts
complained of. ("dishonest purpose","some moral
obliquity","conscious doing of a wrong", "partakes of
the nature of fraud")
Determination of the necessity for additional offices
and/or positions in a corporation is a management
prerogative which courts are not wont to review in the
absence of any proof that such prerogative was
exercised in bad faith or with malice
2. YES
Besides, the requisites before a derivative suit can be
filed by a stockholder: - present
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; - a
stockholder of Filport
b) he has tried to exhaust intra-corporate remedies,
i.e., has made a demand on the board of directors for
the appropriate relief but the latter has failed or
refused to heed his plea; and
- he wrote a letter
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 bringing the suit. - wrong
against the stockholders of the corporation generally
30
27. Philippine Stock Exchange, Inc. vs. Court of
Appeals, 281 SCRA 232, G.R. No. 125469 October 27,
1997
Doctrine:
Business Judgment Rule - Courts have no authority to
substitute their judgment for that of the board of
directors regarding questions of policy and
management in the absence of facts. The refusal of
the Philippine Stock Exchange to list the shares of
stock of a certain corporation because of the
uncertainty of their real ownership cannot be
reviewed.
Facts:
The Puerto Azul Land, Inc. (PALI), a domestic real
estate corporation, had sought to offer its shares to
the public in order to raise funds allegedly to develop
its properties and pay its loans with several banking
institutions.
PALI was issued a Permit to sell its shares to the public
by the Securities and Exchange Commission (SEC). To
facilitate the trading of its shares among investors,
PALI sought to course the trading of its shares through
the Philippine Stock Exchange, Inc. (PSE), for which
purpose it filed with the said stock exchange an
application to list its shares, with supporting
documents attached.
The Listing Committee of the PSE, upon a perusal of
PALI’s application, recommended to the PSE’s Board of
Governors the approval of PALI’s listing application.
Before it could act upon PALI’s application, the Board
of Governors of the PSE received a letter from the
heirs of Ferdinand E. Marcos, claiming that the late
President Marcos was the legal and beneficial owner
of certain properties forming part of the Puerto Azul
Beach Hotel and Resort Complex which PALI claims to
be among its assets and that the Ternate Development
Corporation, which is among the stockholders of PALI,
likewise appears to have been held and continue to be
held in trust by one Rebecco Panlilio for then
President Marcos and now, effectively for his estate,
and requested PALI’s application to be deferred.
The Board of Governors of the PSE reached its decision
to reject PALI’s application, citing the existence of
serious claims, issues and circumstances surrounding
PALI’s ownership over its assets that adversely affect
the suitability of listing PALI’s shares in the stock
exchange.
PALI wrote a letter to the SEC, bringing to the SEC’s
attention the action taken by the PSE in the
application of PALI for the listing of its shares with the
PSE, and requesting that the SEC, in the exercise of its
supervisory and regulatory powers over stock
exchanges, review the PSE’s action on PALI’s listing
application and institute such measures as are just and
proper under the circumstances.
The SEC issued an order to PSE to grant listing
application of PALI on the ground that PALI have
certificate of title over its assets and properties and
that PALI have complied with all the requirements to
enlist with PSE.
Issue:
Whether or not the denial of PALI’s application for the
listing of its shares with the PSE is proper.
Held:
Yes. This is in accord with the “Business Judgement
Rule” whereby the SEC and the courts are barred from
intruding into business judgements of corporations,
when the same are made in good faith. The same rule
precludes the reversal of the decision of the PSE, to
which PALI had previously agreed to comply, the PSE
retains the discretion to accept of reject applications
for listing. Thus, even if an issuer has complied with
the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuer’s listing
application if the PSE determines that the listing shall
not serve the interests of the investing public.
It is undeniable that the petitioner PSE is not an
ordinary corporation, in that although it is clothed
with the markings of a corporate entity, it functions as
the primary channel through which the vessels of
capital trade ply. The PSEi’s relevance to the continued
operation and filtration of the securities transaction in
the country gives it a distinct color of importance such
that government intervention in its affairs becomes
justified, if not necessarily. Indeed, as the only
operational stock exchange in the country today, the
PSE enjoys monopoly of securities transactions, and
as such it yields a monopoly of securities transactions,
and as such, it yields an immerse influence upon the
country’s economy.
The SEC’s power to look into the subject ruling of the
PSE, therefore, may be implied from or be considered
as necessary or incidental to the carrying out of the
SEC’s express power to insure fair dealing in securities
traded upon a stock exchange or to ensure the fair
administration of such exchange. It is likewise,
observed that the principal function of the SEC is the
supervision and control over corporations,
partnerships and associations with the end in view
that investment in these entities may be encouraged
and protected and their activities for the promotion of
economic development.
31
A corporation is but an association of individuals,
allowed to transact under an assumed corporate
name, and with a distinct legal personality. In
organizing itself as a collective body, it waives no
constitutional immunities and requisites appropriate
to such a body as to its corporate and management
decisions, therefore, the state will generally not
interfere with the same. Questions of policy and
management are left to the honest decision of the
officers and directors of a corporation, and the courts
are without authority to substitute their judgements
for the judgement of the board of directors. The board
is the business manager of the corporation and so long
as it acts in good faith, its orders are not reviewable by
the courts.

In matters of application for listing in the market the

SEC may exercise such power only if the PSE’s
judgement is attended by bad faith.

The petitioner was in the right when it refused

application of PALI, for a contrary ruling was not to the
best interest of the general public.

32