Compilation- Corporation cases

8/12/2019 Compilation- Corporation cases

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BUSINESS ORGANIZATION II- BY LAWS

CASE NO. 19

GOKONGWEI VS. SEC

Facts:

Petitioner, as of May 6, 1978, has exercised, personally or thru twocorporations owned or controlled by him, control over the following

shareholdings in an Miguel !orporation, vis"# $a% &ohn 'o(ongwei, &r" )

6,*+ shares- $b% .niversal /obina !orporation ) 7*8,607 shares- $c% !!

!orporation ) 68,*1* shares, or a total of 1,02*,+8 shares" ince the

outstanding capital stoc( of an Miguel !orporation, as of the present date,

is represented by **,1*9,709 shares with a par value of P12"22, the total

shares owned or controlled by petitioner represents 0"+*003 of the total

outstanding capital stoc( of an Miguel !orporation"

Petitioner is the president and substantial stoc(holder of .niversal /obina

!orporation and !! !orporation, both of which are allegedly controlled by

petitioner and members of his family" 4oth the .niversal /obina !orporation

and the !! !orporation are engaged in businesses directly and substantially

competingwith the alleged businesses of an Miguel !orporation, and of

corporations in which M! has substantial investments"

Petitioner sought to be a director of an Miguel !orporation, but he was

prohibited to do so because the 4oard of 5irectors adopted an amendment of

the corporations bylaw disualifying a competitor from nomination andelection to its 4oard of 5irectors as a measure of protection"

Issue:

hether the amendment prohibiting a competitor from nomination

and election to its 4oard of 5irectors as a measure of protection is valid:

/uling#

;es, AN AMENDMENT TO THE CORPORATION BY-LAW

WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE

DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION

WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE

OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID

%n amendment which renders ineligible, or if elected, sub?ectsto removal, a director if he be also a director in a corporation whose businessis in competition with or is antagonistic to the other corporation isvalid"@24Ahis is based upon the principle that where the director is soemployed in the service of a rival company, he cannot serve both, but mustbetray one or the other" uch an amendment @advances the benefit of thecorporation and is good"@ >n exception exists in Bew &ersey, where theupreme !ourt held that the !orporation Caw in Bew &ersey prescribed theonly ualification, and therefore the corporation was not empowered to addadditional ualifications" 25Ahis is the exact opposite of the situation in thePhilippines because as stated heretofore, section +1 of the !orporation Cawexpressly provides that a corporation may ma(e bylaws for theualifications of directors" Ahus, it has been held that an officer of acorporation cannot engage in a business in direct competition with that of thecorporation where he is a director by utiliDing information he has received assuch officer, under @the established law that a director or officer of a

corporation may not enter into a competing enterprise which cripples orin?ures the business of the corporation of which he is an officer or director"26


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>rticle G common director of two or more competing corporations would haveaccess to confidential sales, pricing and mar(eting information and would bein a position to coordinate policies or to aid one corporation at the expense ofanother, thereby stifling competition" Ahis situation has been aptly explainedby Aravers, thus#

Ahe argument for prohibiting competing corporations fromsharing even one director is that the interlock permit t!ecoor"in#tion o$ policie %et&een nomin#ll' in"epen"ent

$irm to #n e(tent t!#t competition %et&een t!em m#' %ecompletel' elimin#te"" x x xI

!onsonant with the reuirement of due process, there must be due hearing at

which the petitioner must be given the fullest opportunity to show that he isnot covered by the disualification"

JK/KF/K, ?udgment is hereby rendered as follows#

Ahe !ourt voted unanimously to grant the petition insofar as it prays that

petitioner be allowed to examine the boo(s and records of an Miguelbad antos and 5e !astro, voted to sustain the validity perse of the amended bylaws in uestion and to dismiss the petition withoutpre?udice to the uestion of the actual disualification of petitioner &ohn'o(ongwei, &r" to run and if elected to sit as director of respondent anMiguel !orporation being decided, after a new and proper hearing by the4oard of 5irectors of said corporation, whose decision shall be appealable to

the respondent ecurities and Kxchange !ommission deliberating andacting en %#nc and ultimately to this !ourt" .nless disualified in the manner

herein provided, the prohibition in the aforementioned amended bylawsshall not apply to petitioner"

O)*E+ ,OC)+INES

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS

OF DIRECTORS EXPRESSLY CONFERRED BY LAW

ny person @who buys stoc( in a corporation does so with the (nowledge

that its affairs are "omin#te" %' # m#)orit'of the stoc(holders and that !eimplie"l' contr#ct t!#t t!e &ill of the ma?ority shall govern in all matters

within the limits of the act of incorporation and lawfully enacted bylaws andnot forbidden by law"@ 15Ao this extent, therefore, the stoc(holder may be

considered to have @parted with his personal right or privilege to regulate thedisposition of his property which he has invested in the capital stoc( of thecorporation, and surrendered it to the will of the ma?ority of his fellowincorporators" """


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corpor#tion I$ t!e #men"ment c!#nge/ "imini!e or retrict t!e rig!t o$t!e e(iting !#re!ol"er t!en t!e "ienting minorit' !# onl' one rig!t/0i123@to ob?ect thereto in writing and demand payment for his share"@ .ndersection ++ of the same law, the owners of the ma?ority of the subscribedcapital stoc( may amend or repeal any bylaw or adopt new bylaws" s agents entrusted with the management of the corporation

for the collective benefit of the stoc(holders, @they occupy a fiduciary

relation, and in this sense the relation is one of trust"@ 18@Ahe ordinary trust

relationship of directors of a corporation and stoc(holders@, according

toA!#m#n 02 Miller/19 @is not a matter of statutory or technical law"


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!hristian Jigh chool representative as a permanent director of theassociationN should be reexamined"@ Botices were sent to the members ofthe association that the provision on election of directors of the 1968 bylawsof the association would be observed"

Petitioner reuested the chairman of the election committee to change thenotice, claiming that it ran @counter to the practice in previous years@ andwas @in violation of the bylaws $of 197%@ and @unlawfully depriveOdOpetitioner of its vested right Oto a permanent seat in the board"@

>s the association denied its reuest, the school brought suit form#n"#m+in the Jome ppeals which also affirmed the decision

of the J


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vested right if it is contrary to law" Kven less tenable is petitioner=s claim thatits right is @coterminus with the existence of the association"@

,"ct$%!e# > bylaw provision granting to a stoc(holder a permanent

representation in the board of directors is contrary to the !orporation !ode

reuiring that the board of directors be elected from among the stoc(holders

or members" ince the provision in uestion is contrary to law, the fact that

for fifteen years it has not been uestioned or challenged but, on the contrary,appears to have been implemented by the members of the association cannot

forestall a later challenge to its validity" Beither can it attain validity through

acuiescence because, if it is contrary to law, it is beyond the power of the

members of the association to waive its invalidity"

CASE NO. 21

)#"&s"! s. CA 298 SC+A 280 Oct"e$ 28 1998

Facts:

Petitioner Marsh Ahomson was the Kxecutive HicePresident and

later on, the Management !onsultant of private respondent, the >merican

!hamber of !ommerce of the Philippines, m!hams retired president, wanted to transfer his

proprietary share in the Manila Polo !lub $MP!% to petitioner" Ahrough the

intercession of 4urridge, private respondent paid for the share but had it

listed in petitioners name and this was made clear in an employment advicewherein petitioner was informed by private respondent"

4urridge transferred said proprietary share to petitioner and upon

petitioners admission as a new member of the MP!, he paid the transfer fee

of P02,222"22 from his own funds but private respondent subseuently

reimbursed this amount" Cater on, MP! issued Proprietary Membership

!ertificate Bumber **98 in favor of petitioner but petitioner failed to execute

a document recogniDing private respondents beneficial ownership over said

share"

ollowing >m!hams policy practice, there was a yearly renewal of

employment contract between petitioner and private respondent" eparate

letters of employment advice mentioned the MP! share but petitioner never

ac(nowledged that private respondent is the beneficial owner of the share as

reuested in followup reuests"

hen petitioners contract of employment was up for renewal, he

notified private respondent that he would no longer be available as KxecutiveHice President but still private respondent as(ed the petitioner to stay on for

another six months" Petitioner indicated his acceptance of the consultancy

agreement with counter proposal for the E/etention of the Polo !lub share,

sub?ect to my reimbursing the purchase price to the !hamber, or one hundred

ten thousand pesos $P112,222"22% but private respondent re?ected petitioners

counterproposal"

Pending the negotiation for the consultancy arrangement, private

respondent executed a /elease and Luitclaim discharging Ahomson from any

and all existing claims that >m!ham, its directors, officers and assigns,employees andor representatives may have against Ahomson" Ahe uitclaim

did not mention the MP! share"

Private respondent, through counsel sent letter to the petitioner

demanding the return and delivery of the MP! share which >m!ham owns

and placed in Ahomsons name" ailing to get favourable response, private

respondent filed a complaint against petitioner praying that the Ma(ati /A!

render ?udgment ordering Ahomson to return the MP! share to the plaintiff

and transfer said share to the nominee of plaintiff"

Ahe trial court awarded the MP! share to defendant Ahomson on the

ground that the >rticles of


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1" hether or not private respondent is the beneficial owner of the disputed

share"

+" hether or not the petitioner should be ordered to transfer said share to

private respondents nominees"

*e(:

1" ;es" Ahe upreme !ourt find no reversible error in the respondent !ourts

holding that private respondent, >m!ham, is the beneficial owner of the

share in dispute" Ao resolve the first issue, debt should be distinguished from

a trust" R Ahe beneficiary of a trust has beneficial interest in the trust

property, while a creditor has merely a personal claim against the debtor" m!ham" >m!ham released

the funds to acuire a share in the !lub for the use of petitioner but obliged

him to Eexecute such document as necessary to ac(nowledge beneficial

ownership thereof by the !hamber"I > trust relationship is, therefore,

manifestly indicated" Moreover, petitioner failed to present evidence tosupport his allegation of being merely a debtor when the private respondent

paid the purchase price of the MP! share" >pplicable here is the rule that

trust arises in favor of one who pays the purchase money of property in the

name of another, because of the presumption that he who pays for a thing

intends a beneficial interest therein for himself"

+" ;es" >s properly ruled by the !ourt of >ppeals, the matter prayed for does

not involve the transfer of said share to the appellant, an artificial person" Ahe

transfer sought is to the appellants nominee" Kven if the MP! 4ylaws and

>rticles prohibit corporate membership, there would be no violation of said

prohibition for the appellants nominee to whom the said share is sought to

be transferred would certainly be a natural person"


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administrative officer for a period of six months" rom this date until5ecember *1, 198*, petitioner was reappointed to his position three moretimes" 1>s administrative officer, petitioner was generally responsible for themanagement of the village=s day to day activities"2>fter petitioner=s term ofemployment expired on 5ecember *1, 198*, he still continued to wor( in thesame capacity, albeit, without the benefit of a renewed contract"

ometime in 1987, private respondent decided to amend its bylaws"mendmentof the respondents= 4yCaws ma(ing the position of an>dministrative Ffficer coterminus with the term of the4oard of 5irectors was made in 1987" Kvidently, the said>mendment would not be applicable to the case ofcomplainant who had become a regular employee long timebefore the >mendment too( place" Moreover, the>mendment should be applied prospectively and notretroactively"

Fn appeal by the private respondent, the BC/! reversed the decision of theCabor >rbiter and rendered a new one7reducing petitioner=s monetary award

to only onehalf $1+% month pay for every year of service representing hisretirement pay" s to the first assigned error by the petitioner, we need not dwell on this atlength" e agree with the olicitor 'eneral=s observation that an employeremployee relationship exists between the petitioner and the privaterespondent" 9

xxx xxx xxx


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Ahe first element is present in this case" Petitioner was hiredas >dministrative Ffficer by respondents" s to the third element, it can be seen from the /ecords thatrespondents had the power of dismissal over petitioner" ccordingly, petitioner en?oys the right to security oftenure 11and his services may be terminated only for causes provided by law"12

Hiewed in this light, while private respondent has the right to terminate theservices of petitioner, this is sub?ect to both substantive and proceduralgrounds" 13Ahe substantive causes for dismissal are those provided in>rticles +8+ and +8* of the, Cabor !ode, 14while the procedural groundsrefer to the observance of the reuirement of due process"15t the ris( of being redundant, it must be stressedthat these reuirements are mandatory and noncompliance therewith rendersany ?udgment reached by the management void and inexistent"17

hile private respondent imputes @gross negligence,@ and @seriousmisconduct@ as the causes of petitioner=s dismissal,18not a shred of evidencewas offered in support thereof, other than bare and uncorroboratedallegations" Ahe facts and circumstances regarding such alleged infractionswere never explained, hile it is true that private respondent, through itspresident 4onifacio 5aDo, executed an affidavit narrating the allegedviolations of the petitioner, 19these were never corroborated by concrete orcompetent evidence" ssociation Ffficers, being his peers and friends had aproblem however in terminating his services" Je had beenfound to have committed infractions as previouslyenumerated" PHJ> could have proceeded with a fullblowninvestigation to hear these charges, but the ordeal mightbrea( the old man=s heart as this will surely affect hisstanding in the community" o they decided to ma(e theirmove as discreetly $but legally% as possible to save thepetitioner=s reputation" Aerminating him in accordance with

the provision of the bylaws of the >ssociation withoutpointing out his numerous faults and malfeasance in office


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and with onehalf month pay for every year of service inaccordance with the /etirement Caw was the best and onlyalternative"

e are not impressed" Ahe reasoning advanced by the private respondent isas puerile as it is preposterous"

Ahe essence of due process is to afford the party an opportunity to be heard

and defend himself, to cleanse his name and reputation from any taint" dmittedly, the right to amend the bylaws lies solely in the discretion of theemployer, this being in the exercise of management prerogative or business

?udgment" Jowever this right, extensive as it may be, cannot impair theobligation of existing contracts or rights"

Prescinding from these premises, private respondent=s insistence that it canlegally dismiss petitioner on the ground that his tenure has expired isuntenable" Ao reiterate, petitioner, being a regular employee, is entitled tosecurity of tenure, hence, his services may only be terminated for causesprovided by law" 27> contrary interpretation would not find ?ustification inthe laws or the !onstitution" t this

?uncture, we ta(e this opportunity to state that under the 1997 /ules of !ivilProcedure, a petition forcertior#ri must now be instituted within sixty days

of receipt of the assailed ?udgment, order or resolution"33Jowever, since thiscase arose in 199 and the aforementioned rule only too( effect on &uly 1,

1997 then the old rule is applicable" ince prior to the effectivity of the newrule, a special civil action ofcertior#ri should be instituted within a period ofthree months, 34the instant petition which was filed on eptember +2, 199

or two months and twentytwo days thereafter, was still within thereglementary period"


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ith respect to the issue of the monetary award to be given to the petitioner,private respondent argues that he deserves only retirement pay and nothingmore" Ahis position would have been tenable had petitioner not been illegallydismissed" Jowever, since we have already ruled petitioner=s dismissal aswithout ?ust cause and lac(ing due process, the award of bac(wages andreinstatement is proper" 35

ctBo" 7601, which reads#

>rt" +87"Retirement" ) >ny employee may be retired uponreaching the retirement age established in the collective

bargaining agreement or other applicable employment

contract"

BAK5"Ahe BC/! decision dated &une 1, 199 is hereby /KHK/K5 and KA>


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percent of the total amount due to petitioner, as attorney=s fees"!onseuently, the respondent BC/! is F/5K/K5 to !FMP.AK the totalmonetary benefits awarded in accordance with this decision and to submit itscompliance thereon within thirty $*2% days from notice of this decision"

F F/5K/K5"

CASE NO. 23

C*INA ANKING CO+/O+A)ION 'et%t%"!e$

s.

CO+) OF A//EA-S a!( VA--E; GO-F a!( CON)+; C-

INC. $es'"!(e!ts.

acts#

'alicano !alapatia, &r" $!alapatia, for brevity% a stoc(holder of private

respondent Halley 'olf S !ountry !lub, s part of the proceeds of the loan, preferred shares

of stoc(s were issued to //5! through its officers then, >dalia " /obes

and one !arlos " /obes"


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stoc( certificates" Ahe ban( filed a Motion to 5ismiss * private respondents=

!omplaint on the following grounds# $1% that the trial court had no

?urisdiction over the sub?ectmatter of the action- $+% that the action was

unenforceable under substantive law- and $*% that the action was barred by

the statute of limitations andor laches" Ahe ban(=s Motion to 5ismiss was

denied by the trial court in an order dated 16 March 1979" Ahe ban( then

filed its >nswer on + May 1979" Ahereafter, the trial court gave the parties 12

days from *2 &uly 1979 to submit their respective memoranda after the

submission of which the case would be deemed submitted for resolution" Fn

7 eptember 1979, the trial court rendered the decision in favor of //5!

and /obes- ordering the ban( to pay //5! and /obes the face value of the

stoc( certificates as redemption price, plus 13 uarterly interest thereon until

full payment" Ahe ban( filed the petition for certiorari with the upreme

!ourt, essentially on pure uestions of law"


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@>@ and !lass @4@ M! common shares registered in the name of the

!oconut


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company assets" Kven under the status uo, P!'' has no controlling sway in

the M! 4oard, let alone a veto power at +03 of the stoc(holdings" ccording to the weight of authority, a share of stoc( or the certificatethereof is not an indebtedness to the owner nor evidence of indebtedness and,

therefore, it is not a credit" toc(holders, as such, are not creditors of thecorporation" merican courts, repeatedlyasserted in the broadest terms, that the capital stoc( of a corporation is a trustfund to be used more particularly for the security of creditors of thecorporation, who presumably deal with it on the credit of its capital stoc("Aherefore, the defendantappellant Cim !hu ing not being a creditor of theMercantile 4an( of !hina, although the latter is a creditor of the former,there is no sufficient ground to ?ustify a compensation"

CASE NO. 27


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G.+. N". 80039 A'$% 18 1989E+NES)O . A/O,ACA petitioner,vs"NA)IONA- -AO+ +E-A)IONS COISSION OSE .I+ASO- a!( IN)+ANS /*I-S. INC. respondents"

CASE ,OC)+INE:Ahe unpaid subscriptions are not due and payable untila call is made by the corporation for payment" Private respondents have not

presented a resolution of the board of directors of respondent corporationcalling for the payment of the unpaid subscriptions" ugust +8, 198,

respondent &ose M" Mirasol persuaded petitioner to subscribe to P1,22shares of respondent corporation it P122"22 per share or a total of

P12,222"22" Je made an initial payment of P*7,22"22" Fn eptember 1,

197, petitioner was appointed President and 'eneral Manager of therespondent corporation" Jowever, on &anuary +, 1986, he resigned"

Fn 5ecember 19, 1986, petitioner instituted with the BC/! a complaintagainst private respondents for the payment of his unpaid wages, his cost ofliving allowance, the balance of his gasoline and representation expenses andhis bonus compensation for 1986" Petitioner and private respondentssubmitted their position papers to the labor arbiter" Private respondentsadmitted that there is due to petitioner the amount of P17,262"27 but this wasapplied to the unpaid balance of his subscription in the amount ofP9,0*9"9*" Petitioner uestioned the setoff alleging that there was no call

or notice for the payment of unpaid subscription and that, accordingly, thealleged obligation is not enforceable"

pril +8, 1987, the labor arbiter sustained the claim ofpetitioner for P17,262"27 on the ground that the employer has no right towithhold payment of wages already earned under >rticle 12* of the Cabor!ode" .pon the appeal of the private respondents to public respondentBC/!, the decision of the labor arbiter was reversed in a decision datedeptember 18, 1987" Ahe BC/! held that a stoc(holder who fails to pay hisunpaid subscription on call becomes a debtor of the corporation and that theset off of said obligation against the wages and others due to petitioner is not

contrary to law, morals and public policy" Jence, this petition which istreated as a special civil action for certiorari"

ISSES:$1% 5oes the Bational Cabor /elations !ommission $BC/!% have

?urisdiction to resolve a claim for nonpayment of stoc( subscriptionsto a corporation:

$+% >ssuming that it has, can an obligation arising therefrom be offset

against a money claim of an employee against the employer:

*E-,:

$1% irstly, the BC/! has no ?urisdiction to determine such intracorporate dispute between the stoc(holder and the corporation as in

the matter of unpaid subscriptions" Ahis controversy is within theexclusive ?urisdiction of the ecurities and Kxchange !ommission"

$+% econdly, assuming arguendo that the BC/! may exercise

?urisdiction over the said sub?ect matter under the circumstances of

this case, the unpaid subscriptions are not due and payable until acall is made by the corporation for payment" Private respondentshave not presented a resolution of the board of directors of

respondent corporation calling for the payment of the unpaidsubscriptions"


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$a%


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sub?ecting the particular subcriber to lighter burdens, or by giving him

greater rights and privileges, or as a fraud upon creditors of the corporation

by withdrawing or decreasing the capital" lbany, etc" /ailroad !o" as reported in +1

Caw" ed", *61, the rule is that @!onditions attached to subcriptions, which, if

valid, lessen the capital of the company, are a fraud upon the grantor of the

franchise, and upon those who may become creditors of the corporation, and

upon unconditional stoc(holders"@

&urisdiction ma(es no distinction, in respect to the liability of the subcriber,

between shares subscribed before incorporation is effected and shares

subscribed thereafter" >ll li(e are bound to pay full value in cash or its

euivalent, and any attempt to discriminate in favor of one subscriber by

relieving him of this liability wholly or in part is forbidden" 11528 a$c# 15 1918

IGE- VE-ASCO ass%=!ee "@ )#e /#%%''%!e C#e&%ca /$"(uct C".

-t(.plaintiffappellant,

vs"

EAN . /OIA)defendantappellee"

acts#

5efendant was a stoc( holder in the company from the inception of the

enterprise, and for sometime acted as its treasurer and manager" hile

serving in this capacity he called in and collected all subscriptions to the

capital stoc( of the company, except the aforesaid 1 shares subscribed by

himself and another 1 shares owned by &ose /"


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stoc( subscription is a

contract between the corporation on one side, and the subscriber on the other,

and courts will enforce it for or against either" , 4,!%"

a%/esolution Bo" + $Kxh" >%, declared all watered stoc(s issued to>cena, 4altaDar, /ose and &ubenville, @of no value and conseuentlycancelled from the boo(s of the !orporation"@

b%/esolution Bo" * $Kxh" 4% resolved that @" " " all unpaidsubscriptions should bear interest annually from the year of subscription onthe basis of uarterly payments and any or all payments already made on said

unpaid subscriptions should be credited to pay interest first, then the capitaldebt after all interest is fully paid"

>ll shares of stoc( issued to and in favor of any stoc(holder orstoc(holders of the Cingayen 'ulf Klectric Power !o",


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subscription" or this purpose, the accountant of the corporation is directed toma(e and report theproper computation of the interest"@

c%/esolution Bo" 0 $Kxh" !% resolved that @any and all shares ofstoc( of the Cingayen 'uf Klectric Power !o", 9893

Facts: 5e ilva subscribed for 62 shares of stoc( of >boitiD of the value ofP22 each" Je only paid for the value of +22 shares, for which he becameindebted to the corporation in the amount of P+,222, representing theunpaid value of his subscription" Fn >pril ++, 19++, the secretary of thecorporation notified him of the resolution passed by its 4oard, declaring theunpaid subscriptions to have become due and demandable" Ahe resolution

also stated that all such shares which remain unpaid will be declared

delinuent, and would be advertised for sale at public auction and sold on the


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following &une 16thfor the purpose of paying up the amount of thesubscription and accrued interest, with the expenses of the advertisement andsale, unless said payment was made before" Ahe proper advertisement havingbeen published, as announced in the aforesaid notice, the plaintiff filed acomplaint in the !ourt of irst


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themselves of the first remedy granted to it by law, and declared that

payment of 5e ilvas subscription to 02 shares which had not been fully

paid by him was due, and that said shares were delinuent, and performed all

the other acts subseuent to said declaration, as it deemed it disadvantageous

to the corporation to apply a part of the profit realiDed or to be realiDed to the

payment of his subscription" 5e ilva has no right to prevent the 4oard from

following, any other method than that mentioned in the law, for the very

reason that the law does not give stoc(holders any right in connection withthe determination of the uestion whether or not there should be deducted

from the 723 of the profit distributable among the stoc(holders such amount

as may be deemed fit for the payment of subscriptions due and unpaid"

CASE NO. 32

-u&a!a! Cu$a ,ION CO. INC ",$appellant%

'"/" Bo" C*9861 March +1, 19*0

Go""#r"/ =23

Facts: Fn &uly *1, 19++, the plaintiffappellee, subscribed for *22 shares of

stoc( of ,ION CO. INC. $appellant% at a par value of P2 or a total of

P1,222" &ulio HalenDuela, Pedro antos and rancisco Kscoto, creditors of

this corporation, filed suit against it in the !< of Manila, case Bo" *7227,

praying that a receiver be appointed, as it appeared that the corporation at

that time had no assets except credits against those who had subscribed for

shares of stoc(" Ahe court named Aayag as receiver for the purpose of

collecting said subscriptions" >s 4onifacio Cumanlan had only paid P1,22

of the P1,222, par value of the stoc( for which he subscribed, the receiver

on >ugust *2, 19*2, filed a suit against him in the !< of Manila, civil case

Bo" *709+, for the collection of P1,129, P1*,22 of which was the amount

he owed for unpaid stoc( and P1,629 for loans and advances by the

corporation to Cumanlan" ugust *2, 19*2, and costs" Cumanlan appealed from the decision"

Pending the appeal, the creditors, some of the directors and the ma?ority ofthe stoc(holders held several meetings in which it was agreed in substancethat subscribers for the capital stoc( who were in default should pay thecreditors- Cumanlan was designated to pay the debt of the corporation to&ulio HalenDuela, one of the petitioners in case Bo" *7227

Cumanlan agreed to assume this obligation and in turn the corporation agreedthat if Cumanlan would dismiss his appeal in case Bo" *709+ the corporation

would collect only 2 per cent of the amount subscribed by him for stoc(,provided that in case the 2 percent was insufficient to pay HalenDuela heshould pay an additional amount which should not exceed the amount of the

?udgment against him in that case" corporation has a right to collect all unpaid stoc( subscriptionsand any other amounts which may be due it"


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Facts:

Fn +1 >ugust 1970, 'al icano !alapat ia , & r " , a s toc(holder of

Halley 'olf S !ountry !lub, pril 199+, Jearing Ffficer Perea denied !4!=s motion for

reconsideration" !4! appealed to the K! en ba nc an d on 0 &u ne 19 9* ,

the !ommission issued an order revers ing the decis ion of i t s

hearing officer- holding that !4! has a prior right over the pledged share

and because of pledgor=s failure to pay the principal debt upon maturity, !4!

can proceed with the foreclosure of the pledged share- declaring that the

auction sale conducted by H'!!< on 12 5ecember 1986 is

declared B.CC and HF


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!ourt of >ppeals in its resolution dated Fctober 1990" !4! filed the

petition for review on certiorari

Issue: hether !4! is bound by H'!!as a$e t#e $eat%e? 'e$&a!e!t a!(

c"!t%!u%!= $ues "@ act%"! a("'te( ? t#e c"$'"$at%"! @"$ %ts "!

="e$!&e!t a!( t#at "@ t#e %!(%%(uas c"&'"s%!= %t a!( #a%!= t#e

(%$ect%"! &a!a=e&e!t a!( c"!t$" "@ %ts a@@a%$s %! #"e "$ %! 'a$t %!

t#e &a!a=e&e!t a!( c"!t$" "@ %ts a@@a%$s a!( act%%t%es. )#e 'u$'"se "@

a ?>a %s t" $e=uate t#e c"!(uct a!( (e@%!e t#e (ut%es "@ t#e &e&e$s

t"a$(s t#e c"$'"$at% "! a!( a&"!= t#e&see s. ) #e? a$e se@>

%&'"se( a! ( a t# "u=# a( "' t e( ' u $su a! t t " s t at u t"$ ?

aut#"$%t? #ae !" status as 'u%c a. )#e$e@"$e %t %s t#e =e!e$a?

acce'te( $ue t#at t#%$( 'e$s"!s a$e !"t"u!( ? ?>as eHce't #e!

t#e? #ae

"u!( ? ?>as t" e a''%cae a!( %!(%!= u'"! t#e 'e(=ee

!"t a@@ect 'e(=ees $%=#t "e$ t#e 'e(=e( s#a$e.>rticle +287 of the !ivil

!ode provides that it is also of the essence of these contracts that when the

principal obligation becomes due, the things in which the pledge or mortgage

consists maybe alienated for the payment to the creditor" urther, H'!!rtic le +29 9 of the !ivil !ode whic h stipulates that the creditor

must ta(e care of the thing pledged with the diligence of a good father of a

family, fails to convince" !4! was never informed of !alapatia=s unpaidaccounts and the restrictive provisions in H'!!


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interest at the rate of 1 per cent per month, securing the note with a chattelmortgage on the shares of stoc( subscribed" t common law a corporation has no lien upon theshares of stoc(holders for any indebtedness to the corporation $&ones onCiens, *d ed", sec" *7% and our attention has not been called to any statutecreating such lien here" Fn the contrary, section 1+2 of the !orporation >ctprovides that @no ban( organiDed under this >ct shall ma(e any loan ordiscount on the security of the shares of its own capital stoc(, nor be the

purchaser or holder of any such shares, unless such security or purchase shall

be necessary to prevent loss upon a debt previously contracted in good faith,and stoc( so purchased or acuired shall, within six months from the time ofits purchase, be sold or disposed of at public or private sale, or, in defaultthereof, a receiver may be appointed to close up the business of the ban( inaccordance with law"@ law library

ection * of the .nited tates Bational 4an(ing >ct of 1860 contains asimilar provision and it has been held in various decisions of the .nited

tates upreme !ourt that a ban( organiDed under that >ct can have no lienon its own stoc( for the indebtedness of the stoc(holders even when the bylaws provide that the shares shall be transferable only on the boo(s of thecorporation and that no such transfer shall be made if the holder of the sharesis indebted to the corporation" $&ones on Ciens, *d ed", sec" *80- irstBational 4an( of outh 4end02Canier and Jandy, 11 all", *69-4ullard 02Bational Kagle 4an(, 18 all", 89- irst Bational 4an( ofGenia 02tewart and McMillan, 127 ."", 676"% Ahe reasons for thisdoctrine are obvious- if ban(ing corporations were given a lien on their ownstoc( for the indebtedness of the stoc(holders, the prohibition againstgranting loans or discounts upon the security of the stoc( would become

largely ineffective"

Aurning now to the rights of the plaintiff in the stoc( in uestion, it is arguedthat the interest held by !hua oco was merely an euity which could not bemade the sub?ect of a chattel mortgage" Ahe chattel mortgage here in uestionwould not prevail over liens of third parties without notice- an euity inshares of stoc( is of such an intangible character that it is somewhat difficultto see how it can be treated as a chattel and mortgaged in such a manner thatthe recording of the mortgage will furnish constructive notice to third parties"

Ahere can be no doubt that an euity in shares of stoc( may be assigned andthat the assignment is valid as between the parties and as to persons to whomnotice is brought home" uch an assignment exists here, though it was madefor the purpose of securing a debt"

>s we have already stated, the court erred in holding the plaintiff as theowner of two hundred and fifty shares of stoc(- @the plaintiff=s rights consistin an euity in five hundred shares and upon payment of the unpaid portionof the subscription price he becomes entitled to the issuance of certificate forsaid five hundred shares in his favor"@ law library


26/31

CASE NO. 35

G.+. N". ->16236 u!e 30 1965

I+INEO S. A-)AA+ plaintiffappellee, vs" -INGA;EN G-F

E-EC)+IC /OWE+ CO. INC. ,OINA,O+ C. NGSON

+IGI,O G. ES)+A,A ANE- -. FE+NAN,E ENE,IC)O C.

;SON a!( E+NA+,O ACENA defendantsappellants"

Ahe Cingayen 'ulf Klectric Power !o",


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shares subscribed for@ $amended decision%" 28120 N"e&e$ 25 1976

+ICA+,O A. NAVA

s.

/EE+S A+KE)ING CO+/O+A)ION +ENA)O +. CSI a!(

A/A+O CSI

FAC)S:

Aeofilo Po as an incorporator subscribed to eighty shares of Peers Mar(eting

!orporation at one hundred pesos a share or a total par value of eight

thousand pesos" Po paid two thousand pesos or twentyfive percent of the

amount of his subscription" Bo certificate of stoc( was issued to him or, for

that matter, to any incorporator, subscriber or stoc(holder"

Fn >pril +, 1966 Po sold to /icardo >" Bava for two thousand pesos twenty

of his eighty shares"


28/31

*E-,#

Bo" e hold that the transfer made by Po to Bava is not the @alienation, sale,

or transfer of stoc(@ that is supposed to be recorded in the stoc( and transfer

boo(, as contemplated in section + of the !orporation Caw"

>s a rule, the shares which may be alienated are those which are covered by

certificates of stoc(, as shown in the following provisions of the !orporation

Caw and as intimated in Jager vs" 4ryan, 19 Phil" 1*8"

K!" *" Ahe capital stoc( of stoc( corporations shall be divided into shares

for which certificates signed by the president or the vicepresident,

countersigned by the secretary or cler( and sealed with the seal of thecorporation, shall be issued in accordance with the bylaws" hares of stoc(

so issued are personal property and may be transferred by delivery of the

certificate indorsed by the owner or his attorney in fact or other person

legally authoriDed to ma(e the transfer" Bo transfer, however, shall be valid,

except as between the, parties, until the transfer is entered and noted upon the

boo(s of the corporation so as to show the names of the parties to the

transaction, the date of the transfer, the number of the certificate, and the

number of shares transferred"

Bo share of stoc( against which the corporation holds any unpaid claim shall

be transferable on the boo(s of the corporation"

K!" *6" $re voting trust agreement% """

Ahe certificates of stoc( so transferred shall be surrendered and cancelled,

and new certificates therefor issued to such person or persons, or corporation,

as such trustee or trustees, in which new certificates it shall appear that they

are issued pursuant to said agreement"

>s prescribed in section *, shares of stoc( may be transferred by delivery to

the transferee of the certificate properly indorsed" @Aitle may be vested in the

transferee by delivery of the certificate with a written assignment or

indorsement thereof@ $18 !"&"" 9+8%" Ahere should be compliance with the

mode of transfer prescribed by law $18 !"&"" 9*2%"

Ahe usual practice is for the stoc(holder to sign the form on the bac( of the

stoc( certificate" Ahe certificate may thereafter be transferred from one

person to another" corporation cannot release an original subscriber from paying for his

shares without a valuable consideration or without the unanimous consent of

the stoc(holders"


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.nder the facts of this case, there is no clear legal duty on the part of the

officers of the corporation to register the twenty shares in Bava=s name,

Jence, there is no cause of action for mandamus"

CASE NO. 37

)AN SEC

>!A#

Hisayan Kducational upply !orp" $/espondent% was registered on Fctober

1, 1979" >s incorporator, >lfonso " Aan had 022 shares of the capital stoc(

at the par value of P122share, evidenced by !ertificate of toc( Bo" +" Je

was elected as President until 198+ and remained in the 4oard of 5irectors as

director until >pril 19, 198*"

Fn &anuary *1, 1981, ntonia ;" ;oung and Aeresita ;" Fng,

assigned to

the corporation their shares, represented by certificate of stoc( Bo" 0 and ,

they were

paid 023 corporate stoc(intrade

Petitioner=s certificate of stoc( Bo" + was cancelled by the corporate secretary

and

respondent Patricia >guilar by virtue of /esolution Bo" 1981, which waspassed and approved while petitioner was still a member of the 4oard of

5irectors of the respondent corporation"

5ue to the withdrawal of the + incorporators and in order to complete the

membership of the directors of the board, petitioner sold 2 shares out of

his 022 shares of capital stoc( to his brother >ngel " Aan" >nother

incorporator, >lfredo 4" .y, also sold 2 of his 022 shares of capital stoc( to

Aeodora " Aan"

Fn March +7, 1981# >ngel Aan was elected director" >s a result of the sale

by petitioner

of his fifty $2% shares of stoc( to >ngel " Aan on >pril 16, 1981, !ertificate

of toc( Bo"

+ was cancelled and the corresponding !ertificates Bos" 6 and 8 were issued,

signed by

the newly elected fifth member of the 4oard, >ngel " Aan as Hicepresident,

upon

instruction of >lfonso " Aan who was then the president of the !orporation"

tty" /amireD prepared a Memorandum of >greement

with respect to the transaction of the fifty $2% shares of stoc( part of the

toc( !ertificate Bo" + of petitioner, which was submitted to its former

owner, >lfonso Aan, but which the purposely did not return"

Fn &anuary +9, 198*, during the annual meeting of the corporation,

respondent Aan u !hing was elected as President while petitioner was

elected as Hicepresident" Je, however, did not sign the minutes of said

meeting which was submitted to the K! on March *2, 198*"

Petitioner was dislodged from his position as president, he withdrew from the

corporation on ebruary +7, 198*, on condition that he be paid with stoc(s

intrade euivalent to **"*3 in lieu of the stoc( value of his shares in the

amount of P*,222"22" >fter the withdrawal of the stoc(s, the board of the

respondent corporation held a meeting on >pril 19, 198*, effecting the

cancellation of toc( !ertificate Bos" + and 8 in the corporate stoc( and

transfer boo( 1"

Ahe bone of centention raised by the petitioner is that the deprivation of his

shares despite the nonendorsement or surrender of his toc( !ertificate Bos"

+ and 8, was without the process contrary to the provision of ection 6* of

the !orporation !ode which reuires that#

Bo transfer, however, shall be valid, except as between the parties, until the

transfer is recorded to the boo(s of the corporation so as to show the names

of the parties to the transaction, the date of the transfer, the number of the


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certificate or certificates and the number of shares transferred

!ebu K! Kxtension Fffice Jearing Ffficer ruled that

a% Ahe cancellation of the complainant=s shares of stoc( with the Hisayan

Kducational upply !orporation is null and void-

b% Ahe earlier cancellation of stoc( certificate Bo" + and the subseuent

issuance of stoc( certificate Bo" 8 is also hereby declared null and void-

K! en banc# overturned the decision" lfonso " Aan, respectively" hat led to the problem was the

return of the cancelled certificate $Bo" +% to >lfonso " Aan for his

endorsement and his deliberate nonendorsement"

or all intents and purposes, however, since this was already cancelled which

cancellation was also reported to the respondent !ommission, there was no

necessity for the same certificate to be endorsed by the petitioner" >ll the acts

reuired for the transferee to exercise its rights over the acuired stoc(s were

attendant and even the corporation was protected from other parties,

considering that said transfer was earlier recorded or registered in thecorporate stoc( and transfer boo("


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4esides, in Philippine ?urisprudence, a certificate of stoc( is not a negotiable

instrument" @>lthough it is sometime regarded as uasinegotiable, in the

sense that it may be transferred by endorsement, coupled with delivery, it is

wellsettled that it is nonnegotiable, because the holder thereof ta(es it

without pre?udice to such rights or defenses as the registered owners or

transferror=s creditor may have under the law, except insofar as such rights or

defenses are sub?ect to the limitations imposed by the principles governingestoppel"

Compilation- Corporation cases

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