Corp Digest 2

8/20/2019 Corp Digest 2

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Corporation Law Finals Case Digests (Atty. Quimson)

Erandio, Athena Louise2A | Batch 2014 | 1

Bayla v. Silang Traffic Doctrine: Whether a particular contract is a subscription or a sale of stock isa matter of construction and depends upon its terms and the intention of the

parties.

A subscription, properly speaking, is the mutual agreement of the subscribersto take and pay for the stock of a corporation, while a purchase is anindependent agreement between the individual and the corporation to buyshares of stock from it at a stipulated price.

Facts:! Petitioners herein entered into an agreement with Silang Traffic Co

entitled “Agreement for installment sale of shares in the Silang TrafficCo” wherein the petitioners (denominated in the contract as“subscribers”) promised to pay the company P1,500 for thepurchase of 15 shares of capital stock (5% down payment; and theremainder was to be paid by installments). In said agreement, thesubscriber agreed that if he fails to pay any of the installment when due, the shares are to revert to the seller and the

payments already made are to be forfeited in favor if theseller.

Petitioners failed to pay hence, the shares automatically reverted to theCorporation.However, the Board of Directors of Silang issueda resolution, dated August 1, 1937 which released the“subscriber” of its capital stock from the obligation to payfor shares.

!

In a case filed for the recovery of sum of money initiated bypetitioners, it is contended by the seller corporation that the August 1,1937 resolution was not applicable to the petitioners since according

to jurisprudence, “a corporation has no legal capacity torelease an original subscriber to its capital stock from theobligation to pay for shares and any agreement to this effect isinvalid”. Furthermore, it is contended that the shares automaticallyreverted to the corporation, hence, the installments paid by them hadalready been forfeited.

The trial court and court of appeals interpreted, in their decisions, thatthe said agreement was a contract of subscription.

Issue:!

Whether the contract is one of subscription or a sale of stock. ! Whether or not the failure to pay one of the installments due gave rise

to the forfeiture of the amounts already paid and the reversion of theshares to the corporation.

Ratio:!

It seems clear from the terms of the contract in question thatthey are contracts of sale and NOT of subscription. Thecontract was entitled “an agreement for installment sale of shares” and

while the purchaser was designated as a “subscriber”, the corporation was described as “seller”. Moreover, the agreement was entered intolong after the incorporation and organization of thecorporation (1927), and the price of the stock was payable inquarterly installments spread over a period of five years.

A subscription to stock in an existing corporation is, as betweenthe subscriber and the corporation, simply a contract of purchaseand sale. In some particulars, the rules governing subscriptions andsales of shares are different. For instance, the provisions of the

corporation law regarding calls for unpaid subscription andassessment of stock do not apply to a purchase of stock. Likewise,the rule that a corporation has no legal capacity to release anoriginal subscriber to its capital stock from the obligation topay for his shares, is inapplicable to a contract of purchaseof shares.

!

The contention that the shares were automatically revertedto the corporation is untenable. The contract did not expresslyprovide that the failure of the purchaser to pay any installment wouldgive rise to the forfeiture and cancellation without necessity of anydemand from the seller. The Civil Code, furthermore, provides that the

persons obliged to deliver something or do something are not indefault until the moment the creditor demands them, unless theobligation or law expressly provides that demand shall not benecessary in order that default may arise.


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Velasco v. Poizat Doctrine: A stock subscription is a contract between the corporation on oneside, and the subscriber on the other, and courts will enforce it for or againsteither. It does not require an express promise to pay the amount subscribed,as the law implies a promise to pay on the part of the subscriber.

A corporation has no legal capacity to release an original subscriber to itscapital stock from the obligation of paying for his shares, in whole or in part.

Facts:!

Poizat, defendant, was a stock holder in the Philippine ChemicalProduct (PCP) from inception of the enterprise. While serving in hiscapacity as treasurer and manager, he called in and collected allsubscriptions to the capital stock of the company, except the 15 sharessubscribed by himself and another 15 shares owned by one Infante.

The company, being at the brink of insolvency, held a Board ofDirectors meeting and raised 2 propositions, 1) that Poizat should be required to pay the amount of his subscription for which

he was still indebted to the company; and 2) Infante bereleased from his obligation . When Poizat was notified of this, heaverred that he had been given to understand, by some members of the

board of directors, that he was to be relieved from hissubscription upon the terms conceded to Infante. He furtherstated that he preferred to lose the whole of the 25% of whathe already paid than to continue investing more money inthe company.

The company soon went into voluntary insolvency and Velasco wasnamed as the company’s assignee. As assignee, Velasco filed a caseseeking to recover from Poizat the sum of P1,500 for the subscription

made by him to the corporate stock of the company.

Issue:!

Whether or not Poizat is liable upon this subscription. ! Whether or not Infante and Poizat could be validly relieved from the

obligations of paying their subscriptions

Ratio:! Poizat is liable upon his subscription. A stock subscription is a

subsisting liability from the time the subscription is made, since itrequires the subscriber to pay interest quarterly from that date unlesshe is relieved from such liability by the by-laws of the corporation.

In cases of unpaid subscriptions, there are two remedies for theenforcement given to the corporation. One is the most specialremedy given by the statute consisting in permitting the corporation toput up the unpaid stock for sale and dispose of it for the account of thedelinquent subscriber. The other remedy is by action in court. Theassignee of the insolvent corporation succeeds to all the corporaterights of action vested in the corporation prior to its insolvency.Therefore, the assignee has the same freedom to sue upon the stocksubscription as the directors themselves would have had under thelaw.

When insolvency supervenes, all unpaid subscriptions become payableon demand, and are at once recoverable in an action instituted by theassignee or receiver appointed by court. The receiver or assignee couldhimself proceed to collect the subscription without the necessity of anyprior call whatever.

!

In releasing Infante, the board transcended its powers and

he no doubt STILL REMAINED LIABLE on such of his sharesare were not taken up and paid for by other persons. Thegeneral doctrine is that the corporation has no legal capacity to releasean original subscriber to its capital stock from the obligation of payingfor his shares, in whole or in part. Consequently, the contention ofPoizat to the effect that he understood that he was relieved upon thesame terms as Infante is of no merit even if agreement to that effecthad been duly proved.

Trillana v. Quezon College Doctrine: If the fulfillment of the condition should depend upon the exclusivewill of the debtor, the conditional obligation shall be void. If it should depend

upon chance, or upon the will of a third person, the obligation shall produceall its effects in accordance with the provisions of this code

Facts:! Damasa Crisostomo sent a letter to the Board of Trustees of Quezon

College which contained the following terms:

“ Please enter my subscription to 200 shares of your capital stock. Enclosed herein you will find (babayaran kong lahat pagkatapos naako ay makapang-huli ng isda) pesos as my initial payment and thebalance in accordance with the rules and regulations of the QuezonCollege…”


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When she died, and there being no payments maid, Quezon Collegepresented a claim before the CFI of Bulacan in her testate proceedingfor the collection of the sum of P20,000. The administrator opposedsaid claim on the ground that the subscription was neither registerednor authorized by the SEC.

Issue:! Whether or not Damasa Crisostomo is liable for the stock subscription.

Ratio:! No. It appears that the application sent was written on a general form

indicating that the applicant will enclose an amount as initialpayment and will pay the balance. However, the applicant did notenclose any initial payment. She further indicated that she will pay“pagkatapos na ako ay makapanghuli ng isda”. There is nothing onrecord that will show that the College accepted the term of paymentsuggested by Damasa. The application was obviously in variance withthe terms evidenced in the form letter. There is an absolute

necessity on the part of the College to express its agreementto the offer. In the absence of the acceptance, the counter offer ofDamasa had not ripened into an enforceable contract.

The need for express acceptance is further strengthened by the factthat Damasa proposed to pay after she has harvested fish, acondition obviously dependent upon her sole will andtherefore, facultative in nature, rendering the obligation void under the Civil Code.

National Exchange v. Dexter Doctrine: A corporation has the power to accept subscriptions upon any

special terms not prohibited by positive law or contrary to public policy, provided they are not such as to require the performance of acts which arebeyond the powers conferred upon the corporation by its character and

provided they do not constitute fraud upon other subscribers or stockholders,or upon persons who are or may become creditors of the corporation.

No corporation shall issue stock or bonds except in exchange for actual cash paid to the corporation or for property actually received by it at a fairvaluation equal to the par value of the stock or bonds so issued.

Facts:!

Defendant Dexter signed a written subscription to the corporate stockof CS Salmon Co. which stated that the subscription of 300 shares ofits capital stock shall be payable from the first dividendsdeclared on any and all shares of said company owned byDexter at the time the dividends are declared until the fullamount has been paid.

Pursuant to this, P15,000 was paid from dividends declared. However, beyond this, nothing has been paid and no further dividends weredeclared. Thus, the company initiated a case for the purpose ofrecovering the balance of the shares with interests and costs.

Issue:!

Whether the stipulation contained in the subscript ion to the effect thatthe subscription is payable from the first dividends declared on theshares has the effect of relieving the subscriber from the personalliability in an action to recover the value of the shares.

Ratio:!

No. In the Organic Act of July 1902, it has already been declared thatall franchises, privileges or concessions granted under the act shallforbid the issue of stock or bonds except in exchange for actual cash orfor property at a fair valuation equal to the par value of the stock or

bonds so issued. Pursuant to such, the Commission inserted in theCorporation Law that no corporation shall issue stock or bondsexcept in exchange for actual cash to the corporation or forproperty actually received by it at a fair valuation equal tothe par value of the stock or bonds so issued.

If it is unlawful to issue otherwise than as stated, it is self evident that

a stipulation such as that now under consideration, in a stocksubscription, is illegal, for this stipulation obligates the subscriber topay nothing for the shares except as dividends may accrueupon the stock. In the contingency that dividends are notpaid, there is no liability at all. This is a discrimination in favor ofthe particular subscriber, hence unlawful. Conditions attached tosubscriptions which, if valid, lessen the capital of thecompany, are a fraud upon the grantor of the franchise, andupon those who may become creditors of the corporation,and upon unconditional stockholders.


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All like are bound to pay full value in cash or its equivalent, and anyattempt to discriminate in favor of one subscriber by relieving him ofthis liability wholly or in part is forbidden.

Escano v. Filipinas Mining Doctrine: The requirement of registration of transfers of shares of stock uponthe books of the corporation as a condition precedent to their validity againstthe corporation and third parties, is also applicable to unissued shares heldby the corporation in escrow.

Facts:! Antonio Escano, plaintiff appellee, obtained a judgment in his favor

against one Silverio Salvosa whereby the latter was ordered totransfer and deliver to Escano 116 active shares and anundetermined number of shares in escrow of the FilipinasMining Corporation with the proviso that the escrow shares shall

be t ransferred and delivered to the plaintiff only after they shall have been released by the company.

A writ of garnishment was served by the sheriff to said corporation andon July 29, 1937, the corporation advised the sheriff that according toits books, the judgment debtor, Silverio Salvosa, was the registeredowner of 1000 active shares and about 22,139 unissued shares held inescrow by the said corporation.

! However, it appears that after the complaint in the original case wasfled , but before judgment Salvosa already sold to one Bengzon allhis rights to said shares of stocks held in escrow.Subsequently, Bengzon sold and transferred said sharesheld in escrow to Standard Investment of the Philippines.Such sale was not noted or recorded in the books of the

corporation.

! It is the position of the defendants herein that there should be a linedrawn between the issued shares evidenced by certificates of stock andunissued shares held in escrow in that while the transfer of the formeris subject to the condition that it be registered, that of the latter is not.

Issue:! Whether or not the issuance of the said shares of stocks held in escrow

to the Standard Investment of the Philippines by virtue of the salemade by Escano then Bengzon was valid as against the attaching

judgment creditor.

! Whether or not the attaching creditor is guilty of laches.

Ratio:!

The issuance is invalid. There is o valid reason for treatingunissued shares held in escrow differently from issuedshares insofar as their sale and transfer is concerned. In bothcases, there is a possibility of fictitious or fraudulent transfers. Therequirement of registration is for the purpose of:

1.

Enabling the corporation to know at all times who its actualstockholders are

2. Affording to the corporation an opportunity to object r refuseits consent to the transfer in case it has any claim against thestock sought to be transferred, or for any other valid reason

3.

To avoid fictitious or fraudulent transfers.

Moreover, it seems illogical and unreasonable to old that inactive orunissued shares still held by the corporation in escrow pending receiptof authorization from the government to issue them, may be

negotiated or transferred unrestrictedly and more freely than active orissued shares evidenced by certificates of stock.

! Appellees are not guilty of laches. The plaintiff as executioncreditor had the right to wait for the release or issuance of said shares

before having the same sold at a public auction, so long as the periodof 5 years within which to execute his judgment had not yet lapsed.Moreover, the judgment itself provided that the escrow shares shall betransferred only after they have been released by the company.

Razon v. IAC Doctrine: For an effective transfer of shares of stock, the mode and manner of

transfer as prescribed by law must be followed. It may be transferred bydelivery to the transferee of the certificate properly indorsed. Title may bevested in the transferee by the delivery of the duly indorsed certificate ofstock. No transfer shall be valid except as between the parties until thetransfer is properly recorded in the books of the corporation.

Facts:! E. Razon was organized in 1962 by petitioner herein Enrique Razon for

the purpose of participating in the bidding for the arrastre services inSouth Harbor, Manila. According to the petitioner, some incorporators

withdrew from the corporation. Thus, he distributed the stockspreviously placed in the names of the withdrawing


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incorporators to some friends, among them was the lateJuan Chuidian to whom he gave 1,500 shares of stock.

The shares were registered under the name of Chuidian as a nominalstockholder and with the agreement that the shares of thestock were owned and held by the petitioner (Razon) butChuidian was given the option to buy the same. Because of thisarrangement, Chuidian delivered the certificate of stock to Razon(without indorsement) and since then, Razon has been in possession ofthe certificate.

! Upon death of Chiudian, his administrator initiated a complaint whichprayed that Razon be ordered to deliver the certificate of stocks backand to restrain Razon from disposing of the said shares of stock.

Issue:! Whether or not Chiudian is considered as the owner of the 1,500

shares of stock in the company.

Ratio:!

Chiudian is the owner of said shares. There is no dispute in thiscase that the certificate is in the name of the late Chiudian. Moreover,the records show that during his lifetime, he was elected as themember of the Board of Directors. Such clearly shows that he was astockholder of the corporation. In view of this, the petitioner mustshow that the same were transferred to him by proving thatall the requirements of the effective transfer of shares ofstock in accordance with the corporation’s b laws, if any, were followed.

The law is clear that in order for a transfer to be effective, the

certificate must be properly indorsed and that title to suchcertificate of stock is vested in the transferee by delivery of the dulyindorsed certificate of stock. The asservation that he did notrequire the indorsement because of their intimate friendship cannotovercome the failure to follow the procedure required by law or theproper conduct of business even among friends. Indorsement of thecertificate is a mandatory requirement of law for an effectivetransfer of a certificate of stock.

Rural Bank of Salinas v. CA Doctrine: In transferring stock, the secretary of a corporation acts in purelyministerial capacity and does not try to decide the question of ownership. Theduty of the corporation to transfer is ministerial and if it refuses to make suchtransaction without good cause, it may be compelled to do so by mandamus.

The right of a transferee/assignee to have stocks transferred to his name is aninherent right flowing from his ownership of the stocks.

Facts:!

Celemente Guerrero, president of Rural Bank of Salinas,executed a special power of attorney in favor of his wife granting the latter the power to sell or dispose or mortgage 473 sharesof stocks of the bank registered in his name. Pursuant to said power ofattorney, Melania Guerrero executed deeds of assignment coveringsaid shares of stocks.

Subsequently, she presented to the Rural Bank of Salinas thedeeds of assignment for registration with a request for the

transfer in the bank’s stock and transfer book of the 473 shares ofstock so assigned, the cancellation of the stock certificates in the nameof Celemente and the issuance of new stock certificates covering thetransferred shares of stocks in the name of the new owners thereof.The Bank denied the request of the respondent.

! Melania filed an action for mandamus against the rural bank with theSEC. The bank, in its answer with counterclaim, alleged that upon thedeath of Clemente, the properties should first be settled and liquidated

before any distribution can be effected. The SEC Hearing Officer,the SEC en banc and the CA all ruled in favor of Melaniagranting the writ of mandamus and directing the

cancellation of the certificates and the issuance of new onesin favor of the new owners.

Issue:! Whether or not the respondent court erred in sustaining the SEC when

it compelled by mandamus the registration of the stocks.

Ratio:! The court did not err. Whenever a corporation refuses to

transfer and register stock in cases like the present,mandamus will lie to compel the officers of the corporationto transfer said stock in the books of the corporation. A


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corporation, either by its board, its by-laws, or the act of its officerscannot create restrictions in stock transfers. The right of atransferee/assignee to have stocks transferred to his name is aninherent right flowing from his ownership of the stocks.

In transferring stock, the secretary of a corporation acts in purelyministerial capacity and does not try to decide the question ofownership. The duty of the corporation to transfer is ministerial and ifit refuses to make such transaction without good cause, it may becompelled to do so by mandamus.

For petitioner Rural Bank to refuse the registration of the transferredshares in its stock and transfer book, which duty is ministerial on itspart, is to render nugatory and ineffectual the spirit and intent ofSection 63 of the Corporation Code.

China Banking Corporation v. CA Doctrine: The term “unpaid claim” refers to any unpaid claim arising fromunpaid subscription and not to any indebtedness which a subscriber or

stockholder may owe the corporation arising from any other transaction.

Facts:! Calapatia was a stockholder of Valley Golf and Country Club (VGCCI).

He pledged his stock certificate to ChinaBank. Such pledge wasrecorded in VGCCI’s corporate books. Subsequently, Calapatiaobtained a loan from ChinaBank, payment of which was to be secured

by the aforestated pledge agreement still existing between Calapatiaand ChinaBank.

Calapatia failed to pay his obligations, hence ChinaBank filed apetition for extrajudicial foreclosure. When VGCCI was informed of

this, it wrote to ChinaBank and expressed its inability toaccede to the request of transfer of stock since Calaptia hasunsettled accounts with the club. Despite the foregoing, thepublic auction was held and consequently, ChinaBank was issued thecorresponding certificate of sale.

VGCCI sent Calapatia a not ice demanding the payment of his debts tothe club. Unheeded, VGCCI published in the newspaper a noticeof auction sale of Calapatia’s stock certificates. Uponknowledge of this, Chinabank advised VGCCI that it is the new ownerof the stock certificates and requested that a new certificate be issued

in its name. VGCCI, however, replied that for reason ofdelinquency, Calapatia’s stock was sold at a public auction.

Issue:!

Whether or not the said shares of stocks fall under Section 63 of theCorporation Code.

Ratio:! No. Section 63 does not apply. The term unpaid claim refers to

any unpaid claim arising from unpaid subscription and not to anyindebtedness which a subscriber or stockholder may owe thecorporation arising from any other transaction. In the case at

bar, the subscription for the share in question has been fully paid asevidenced by the issuance of the membership certificate. WhatCalapatia owed the corporation were merely monthly dues.

Bitong v. CAFacts:

!

Bitong herein initiated a derivative suit, allegedly, as a stockholder and

for the benefit of Mr&Mrs Publishing (Publishing Co) to holdrespondent Sps. Apostol liable for fraud, misrepresentation, disloyalty,evident bad faith, conflict of interest and mismanagement in directingthe affairs of the Publishing Co.

Bitong alleges that she has been the treasurer and member of theBoard of Directors of the company at the time it was incorporated in1976 to 1989 and was the registered owner of 1000 shares of stocks.

!

On the other hand, Spouses Apostol refute the allegations of Bitongand claims that the latter is merely a holder-in-trust of JAKAshares. However, because of their strained relationship due to

political differences, Biton refused to speak and became openly criticalof the management of Apostol.

!

Bitong claims that by virtue of a deed of sale, she became theregistered and beneficial owner of the shares of stocksherein. Said deed was executed and recorded in July 25, 1983.Petitioner further posits that upon the recording in the books, thecorporation is bound by it and is stopped to deny the fact of transfer ofsaid shares. She alleges that even in the absence of a stock certificate, astockholder, solely on the strength of the recording in the stock andtransfer book, can exercise all the rights as a stockholder, including theright to file a derivative suit in the name of the corporation.


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On the other hand, Spouses Apostol herein refute the statements ofpetitioner and avers that she was not a stockholder at that time sincethe certificate of stock was only signed on March 17, 1989. Moreover,since the stock and transfer book presented as evidence was notregistered with the SEC, the entries therein including the Certificate ofStock in question were fraudulent.

Issue:!

Whether or not Bitong has personality to file this derivat ive suit.

Ratio:!

No. Section 63 of the code envisions a formal certificate ofstock which can be issued only upon compliance of certainrequisites.

1. The certificates must be signed by the president or the vice-president, countersigned by the secretary or assistantsecretary and sealed with the seal of the corporation.

2.

Delivery of the certificate (essential element of its issuance)3.

The par value, as to par value shares, or the full subscription asto no par value shares, must be first fully paid.

4. The original certificate must be surrendered where the personrequesting the issuance of a certificate is a transferee from astockholder.

The certificate of stock itself is at least a prima facie evidence thatit was legally issued in the absence of evidence to thecontrary. Such may be rebutted. They are not conclusive even againstthe corporation. Parole evidence may be admitted to supplyomissions in the records, explain ambiguities or show what

transpired where no records were kept, or in some cases where such records were contradicted.

In this case there is overwhelming evidence that despite what appearson the certificate of stock and transfer book, petitioner was not a bonafide stockholder before March 1989 or at the time the complained acts

were committed to qualify her to institute a stockholder’s derivativesuit against private respondents. There is no truth to the statement inthe certificate of stock that the same was issued and signed on July 25,1983 by its duly authorized officers specifically, the president andthe corporate secretary because the actual date of signingthereof was March 17, 1989. It cannot be considered issued

in contemplation of law unless signed by the president, the vice president and countersigned by the secretary orassistant secretary.

Hence, the certificate has no evidentiary value for the purpose thatBitong was a stockholder since 1983 to 1989. The real party in interestherein is JAKA, not Bitong.

Fua Cun v. Summers Doctrine: In the absence of a special agreement to the contrary, a subscriber for a certain number of shares of stock does not, upon payment of one half ofthe subscription price, become entitled to the issuance of certificates for one-half the number of shares subscribed for.

Facts:!

Chua Soco subscribed for 500 shares of stock of the defendant BankingCorporation at a par value of P100 per share, paying one half of thesubscription price, in cash, for which a receipt was issued underthe following terms:

"Upon receipt of the balance of the said subscription…duly executedcertificates for said 500 shares of stock will be issued to the order ofthe subscriber. It is expressly understood that the total number ofshares specified in this receipt is subject to sale by the China BankingCorporation for the payment of any unpaid subscriptions, should thesubscriber fail to pay the whole or any part of the balance of hissubscription upon 30 days notice issued by the Board of Directors."

Subsequently, Chua executed a promissory note in favor of one FuaCun for the sum of P25,000. Such note was secured with a chattelmortgage on the subject shares of stock subscribed by him

who also endorsed the receipt abovementioned anddelivered it to Fua Cun. Fua Cun brought the receipt to ChinaBankto inform them about the transaction but was told to await action bythe Board of Directors.

Meanwhile, Chua became indebted to ChinaBank in an action brought by the latter for dishonored acceptances of commercial paper. As aresult of this action, the shares of stocks were attached and thereceipt was seized by the sheriff.

! Thus, Fua Cun instituted an action contending that since Chua hasalready paid half of the subscription, Chua became the owner of 250


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shares and prayed that his lien on the shares be declared to holdpriority over the claim of the defendant Banking Corporation.

Issue:!

Whether or not payment of half of the price of the subscription entitlesChua to 250 shares, upon which shares the plaintiff holds a liensuperior to that of ChinaBank.

Ratio:!

To hold that the plaintiff is the owner of 250 shares of stockis incorrect. The plaintiff's rights consist in an equity in 500 sharesand upon payment of the unpaid portion of the subscription price, he

becomes entitled to the issuance of certificate for said 500 shares in hisfavor.In the absence of a special agreement to the contrary, a subscriber for acertain number of shares of stock does not, upon payment of onehalf of the subscription price, become entitled to theissuance of certificates for one-half the number of sharessubscribed for.

!

The court further held that the banking corporation does not have alien over the shares of stocks herein attached for if bankingcorporations were given such lien on their own shares for theindebtedness of stockholders, the prohibition against granting loans ordiscounts upon the security of stock would become largely ineffective.

Lao v. Lao Doctrine: A certificate of stock is the evidence of a holder's interest and statusin a corporation. It is a written instrument signed by the proper officer of acorporation stating or acknowledging that the person named in the documentis the owner of a designated number of shares of its stock. It is a prima facie

evidence that the holder is a shareholder of a corporation.

Facts:!

David and Jose Lao claims that they are stockholders (becausethey prayed that they be issued certificates and to be allowed toexamine the corporation books) of PFSC (Pacific Foundry ShopCorporation) based on the General Information Sheet filed withthe SEC in which they are named as such. David claims that heacquired 446 shares from his father which shares were previouslypurchased from Hipolito Law. On the other hand, Jose Lao claims thathe acquired 33 shares from one Dionisio Lao.

However, respondent denies David and Jose's claim for the reason thattheir names were allegedly included in the General Information sheetinadvertently. Respondent also posits that they did not acquire anyshares in the corporation by any of the modes recognized by law,namely subscription, purchase or transfer.

Issue:!

Whether or not David and Jose can be considered as stockholders based merely on the General Information Sheet filed with the SEC.

Ratio:! Petitioners David and Jose failed to prove that they are

shareholders of PFSC. Records disclose that petitioners have nocertificates of shares in their name neither is there any written document that there was a sale of the shares asclaimed by the petitioners. A certificate of stock is the evidence ofa holder's interest and status in a corporation. It is a writteninstrument signed by the proper officer of a corporation stating oracknowledging that the person named in the document is the owner of

a designated number of shares of its stock. It is a prima facie evidencethat the holder is a shareholder of a corporation.

Absent any written document, petitioners must prove, at the very least,possession of the certificates of shares in the name of their allegedseller. They fail to prove possession. They failed to prove due deliveryof the certificates of stocks of the sellers to them as provided for inSection 63 of the Corporation Code (which states that shares of stocksissued may be transferred by delivery of the certificates indorsed bythe owner).

In contrast, respondent was able to prove that he had in his possession

the certificates of stocks of Hipolito Lao, properly endorsed to him.

! The mere inclusion as a shareholder of the petitioners in theGeneral Information Sheet is insufficient proof that they areshareholders of the company. This document alone does notprove that they are shareholders of the PFSC. As between the GeneralInformation Sheet and the corporate books, it is the latter that iscontrolling.

The burden of proof is on the petitioners herein to show that they arethe shareholders of the corporation. This is so because they do nothave any certificates of shares in their name. Moreover, they do not


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appear in the corporate books as registered shareholders. There is no written document evidencing their claimed purchase of shares.

Nava v. Peers Marketing Corporation Doctrine: Without the stock certificate, which is the evidence of ownership ofthe stock, the assignment of corporate shares is effective only between the

parties o the transaction. The delivery of the stock certificate, whichrepresents the shares to be alienated, is essential for the protection of both thecorporation and its stockholders.

Facts:! Teofilo Po, as an incorporator, subscribed to 80 shares of Peers

Marketing Corporation (PMC). He paid 25% of the total amountof his subscription and no certificate of stock was issued tohim or, for that matter, to any incorporator, subscriber orstockholder.

Some time later, Po sold to Nava 20 of his shares of stocks in a deed ofsale which represented that Po was the absolute owner and registered

owner of said 20 shares. Nava tried to register this said shares in thecorporation but he was denied registration since Po has not yetfully paid his subscription.

!

Thus, Nava filed a mandamus action to compel corporation to registerthe shares under his name. In their answer, the respondentcorporation pleaded the defense that no shares of stock against which a corporation holds unpaid claim are transferable inthe books of the corporation.

Issue:! Whether or not the shares of stocks were validly transferred to Nava

despite the fact that the corporation has an unpaid claim on Po'ssubscription and that the 20 share are not covered by any stockcertificate.

Ratio:! There is no clear legal duty on the part of the officers of the

corporation to register the shares in the name of Nava sincethere was no valid transfer of the share. The usual practice is forthe stockholder to sign the form on the back of the stock certificate.Thereafter, it may be transferred from one person to another. Then hedelivers the certificate to the secretary of the corporation so that it my

be entered in the corporation's books. The certificate is thensurrendered and a new one is issued to the transferee.

The procedure cannot and was not followed in this case since the 20shares in dispute are not covered by certificates of stocks. Moreover,the corporation has a claim on the said shares for the unpaid balanceof Po's subscription. A stock subscription is a subsisting liability fromthe time the subscription is made. The subscriber is as much bound tpay his subscription as he would pay any other debt. Without thestock certificate, which is the evidence of ownership of thestock, the assignment of corporate shares is effective only between the parties o the transaction. The delivery of thestock certificate, which represents the shares to bealienated, is essential for the protection of both thecorporation and its stockholders.

Apodaca v. NLRCFacts:

!

Petitioner herein was employed in respondent corporation.

He was persuaded to subscribe to 1500 shares of therespondent corporation and he made an initial payment of37,500. Thereafter, he was appointed as President and GeneralManager. He later resigned.

Some time later, petitioner instituted with the NLRC a complaintagainst the respondents for the payment of his unpaid wages, costof living allowance, balance of his gasoline, representationexpenses, and bonuses. In their answer, the respondents admitthat there are unpaid wages but these were applied to the unpaid

balance of petitioners subscription. Petitioner now questions the setoff alleging that there was no call or notice for the payment of

the unpaid subscription and that accordingly, the allegedobligation is not enforceable.

Issue:! Whether or not the unpaid wages can be applied to the unpaid

subscription of petitioner.

Ratio:! The unpaid subscription are not due and payable until a call

is made by the corporation for payment. Private respondentsherein have not presented a resolution of the board of directors of therespondent corporation calling for the payment of the unpaid


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subscription. It does not even appear that a notice of such call has beensent to the petitioner by the respondent corporation.

The set-off was without lawful basis, if not premature. As there was nonotice or call for the payment of unpaid subscription, the same is not

yet due and payable.

!

Furthermore, NLRC cannot validly set it off against the wages since setoff is allowable only in cases allowable by Art. 113 of the Labor Code.

PNB v. Bitulok Sawmill, Inc. Doctrine: Subscriptions to the capital of a corporation constitute a fund towhich creditors have a right to look for satisfaction of their claims and thatthe assignee in insolvency can maintain an action upon any unpaid stocksubscription in order to realize assets for the payment of its debts.

A corporation has no power to release an original subscriber to its capitalstock from the obligation of paying for his shares, without a valuableconsideration for such release; and as against creditors a reduction of the

capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter of the articles of incorporation.

Facts:!

Philippine Lumber Distributing Agency was organized upon theinsistence and initiative of President Manuel Roxas who, for thepurpose, called several conferences between him and the subscribersand organizers of the said corporation. He convinced the lumberproducers to form a lumber cooperative and to pool theirresources together in order to wrest the retail trade from aliens

who were acting as middlemen in the distribution of lumber. He madeit clear that such a cooperative agency would not be successful without

a substantial working capital which the lumber producers could notentirely shoulder and as inducement he promised and agreed tofinance the agency by making the Government invest P9.00per peso that the members would invest therein.

However, the Philippine Government did not invest the said P9.00 forevery peso. The loan extended to the Philippine Lumber Distributing

Agency by the PNB was not paid. Thus, the stockholders herein areasked to shoulder the loan as debtors.

Issue:!

Whether or not the plaintiffs herein can be made to pay the balance oftheir subscriptions to shoulder the loan extended to PNB despite thefact that the government failed to fulfill its commitment to invest insaid agency.

Ratio:!

Yes. Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims andthat the assignee in insolvency can maintain an action upon anyunpaid stock subscription in order to realize assets for the payment ofits debts.

A corporation has no power to release an original subscriber to itscapital stock from the obligation of paying for his shares, without a

valuable consideration for such release; and as against creditors areduction of the capital stock can take place only in the manner andunder the conditions prescribed by the statute or the charter of thearticles of incorporation.

It would be unwarranted to ascribe to the late president the view that the payment of the stock subscriptions, as required by law, could be condoned in the event that the counterpartfund to be invested by the government would not beavailable. It is a well-settled that with all the vast powers lodged inthe executive, he is still devoid of the prerogative of suspending theoperation of any statute or any of its terms.

Velasco v. Poizat Doctrine: It evidently cannot be permitted that a subscriber should escape hislawful obligation by reason of the failure of the officers of the corporation to

perform their duty in making a call and when the original mode of makingthe call becomes impracticable, the obligation must be treated as due upondemand. When insolvency supervenes all unpaid subscriptions become at onedue and enforceable.

The corporation has no legal capacity to release an original subscriber to itscapital stock from the obligation for paying his shares in whole or in part.

Facts:!

Velasco, as assignee in insolvency of the Philippine Chemical Product(PCP) is seeking to recover from the defendant, Poizat, the sum of thesubscription made by him to the corporate stock of the said company.


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The defendant subscribed for 20 shares of the stock of the company.The action was brought to recover the amount subscribed upon theremaining shares.

Before the company became insolvent the board held a meeting whichresolved to release one Infante from his obligations to his unpaidsubscriptions. On the other hand, in the same board meeting, Poizat

was required to pay the amount of his subscription and in case heshould refuse to make such payment, the management of thecorporation should be authorized to undertake judicial proceedingsagainst him.

Issue:!

Whether or not the call made by said board of directors for Poizat topay his unpaid subscriptions is in accordance with the requirements inthe Corporation Code.

Ratio:!

Poizat is liable upon his subscription. It s a contract between the

corporation and the subscriber and the courts will enforce it againsteither. It is a subsisting liability from the time the subscription is madesince it required the subscriber to pay interests quarterly from thatdate unless he is relieved from such liability by the by-laws of thecorporation. He is bound to pay the amount of the share subscribed byhim as he would be to pay any other debt, and the right of the companyto demand payment is no less incontestable.

All unpaid stock subscriptions become payable on demandand are at once recoverable in an action instituted by theassignee or receiver appointed by the court. This rule had itsorigin in a recognition of the principle that a court of equity, having

jurisdiction of the insolvency proceedings, could, if necessary, madethe call itself, in its capacity as successor to the powers exercised by the

board of directors of the defunct company.

A court of equity may enforce payment of the stocksubscriptions, although there have been no calls for them bythe company. When the corporation becomes insolvent withproceedings instituted by the creditors to wind up and distribute itsassets, no call or assessment is necessary before theinstitution of suits to collect unpaid balances onsubscription.

! The resolution to release Infante from his obligation to pay is not validsince the corporation has no legal capacity to release an originalsubscriber to its capital stock from the obligation for paying his sharesin whole or in part. Consequentially, Poizat's claim that he, too, isrelieved in the same way as Infante is, cannot be sustained.

De Silva v. Aboitiz & Co.

Doctrine: There are 2 remedies for accomplishing the purpose of having thesubscriber pay for unpaid subscriptions. The first and foremost remedy givenby the statute consists in permitting the corporation to put up the unpaidstock for sale and dispose of it for the account of the delinquent subscriber.The other remedy is by action in court.

Facts:!

Plaintiff subscribed for 650 shares of stock of the defendantcorporation of which he paid only the total value of 200 shares. On

April 22, he was notified by the secretary of the corporation of aresolution adopted by the board declaring the unpaid subscriptionsto the capital stock of the corporation to have become due

and payable on May 31st. If the shares shall have not beenpaid by then, such shares will be declared delinquent,advertised for sale at a public auction and sold on June 16thfor the purpose of paying the amount of the subscription andaccrued interest.

Plaintiff filed a complaint with the court alleging that in the by-laws, ifthe shares are not paid for, it shall be paid out of the 70% of the profitobtained distributable among the stockholders in equal parts. Hence,in ordering that the unpaid subscription is due and payable and to besubsequently sold in a public auction, the corporation exceeded itsauthority (it, in effect, violated the operative method of paying

contained in the by-laws).

Issue:!

Whether or not the corporation exceeded its authority in declaring thesubscription due and payable and to be subsequently sold a publicauction if not paid.

Ratio:! No. There are 2 remedies for accomplishing the purpose of having the

subscriber pay for unpaid subscriptions. The first and foremostremedy given by the statute consists in permitting the corporation to


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put up the unpaid stock for sale and dispose of it for the account of thedelinquent subscriber. The other remedy is by action in court.

In the instant case, the board elected to avail itself of the firstof the said 2 remedies. It made use of its discretionary powergranted to it by the law and declared that the plaintiff's subscription of450 shares which have not been paid by him delinquent. It cannot be

maintained that the by-laws has prescribed an operative method forthe payment of the said subscriptions. It is not the sole andexclusive method for that purpose.

The plaintiff has no right to prevent the board of directors fromfollowing any other method than that mentioned in the said article forthe very reason that the same does not give the stockholders any rightin connection with the determination of question of whether or notthere should be deducted from the 70% of the profit distributableamong the stockholders such amount as may be deemed fit for thepayment of subscriptions due and unpaid.

Pardo v. Hercules Lumber Co. and FerrerFacts:

! Antonio Pardo is a stockholder in Hercules Lumber Company seeking

to obtain a writ of mandamus to compel the respondents to permithim and his duly authorized agent and representative to examine therecords and business transactions of the company.

Pardo is being refused access to said records for the reason that the board of said company passed a resolution which provided that "the books of the company are at their disposition from the 15thto the 25th of March for examination in appropriate hours"and it is being contended that since Pardo has not availed himself of

his right to inspect during mentioned dates, his right to inspection andexamination is lost, at least for this year.

Issue:! Whether or not the corporation can validly passed aforementioned

resolution.

Ratio:! No. It is admitted that officials in charge of a corporation may deny

inspection when sought at unusual hours or under other improperconditions, but neither executive officers nor the board ofdirectors have the power to deprive a stockholder of his

right altogether. The statutory right of inspection is not affected bythe adoption by the board of directors of a resolution providing for theclosing of transfer books 30 days before an election.

The phrase in the law which says that the "right of inspection can beexercised at reasonable hours" only means reasonable hours on business days throughout the year and NOT merely during

some arbitrary period of a few days chosen by the directors.

Veraguth v. Isabel Sugar Co. Doctrine: Pretexts may not be put forwards by the officers of a corporation tokeep a director or shareholder from inspecting the books and minutes of thecorporation and the right of inspection is not to be denied on the ground thatthe director or shareholder is on unfriendly terms with the officers of thecorporation whose records are sought to be inspected.

A director or stockholder can make copies, abstracts and memoranda ofdocuments, books and papers as an incident to the right of inspection, butCANNOT, without an order of a court, be permitted to take the books from the

office of the corporation.

A director or stockholder has no absolute right to secure certified copies of theminutes of a corporation until these minutes have been written up andapproved by the directors.

Facts:!

Eugenio Veraguth was a director and stockholder of Isabela SugarCompany praying that the court require the respondent corporationand its officers to show cause why they refuse to notify the petitionerand to place at his disposal at reasonable hours, the minutes,documents and books of the corporation for his inspection as director

and stockholder and to issue, upon payment of the fees certifiedcopies of any documentation in connection with the said minutes.

Prior to the filing of this case, Veraguth telegraphed the secretary ofthe corporation asking the latter to forwards in the shortest possibletime a certified copy of the resolution of the board of directorsconcerning the payment of attorney's fees in a case which thecorporation was involved with. The secretary made an answer by letterstating that since the minutes of the meeting has not yet beensigned by the directors present, a copy could not befurnished and that as to other proceedings of the stock-holders, a request should be made to the president of the


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Isabela Sugar Co. Furthermore, the board adopted aresolution which requires that the authority of the presidentof the corporation be previously obtained in case aninspection of the books and taking of copies are requested.

Issue:!

Whether or not the resolution which requires the authority of the

president before inspection and taking is required.! Whether or not the certified copy of the minute should be furnished to

petitioner.

Ratio:!

No. Pretexts may not be put forward by officers of corporations tokeep a director or shareholder from inspecting the books and minutesof the corporation and the right of inspection is not to be denied onthe ground that the director or shareholder is unfriendly with theofficers of the corporation whose records are sought to be inspected.

!

There is no absolute right to secure certified copies of the

minutes of the corporation until the same has been written up andapproved by the directors.

Philpotts v. Philippine Manufacturing Co. and Berry Doctrine: The right of examination into corporate affairs which is concededto the stockholder may be exercised by the stockholder in person or by anyduly authorized representative.

Facts:!

Philpotts is a stockholder in the Philippine Manufacturing Companyseeking to obtain a writ of mandamus to compel the respondents topermit him in person or by some authorized agent or attorney to

inspect and examine the records of the business transacted by saidcompany since 1918.

Issue:! Whether or not the right can be exercised by a proper agent or at torney

of the stockholder as well as by the stockholder in person.

Ratio:! The right of inspection can be exercised either by himself or

by any proper representative or attorney-in-fact, and either with or without the attendance of the stockholder. What aman may do in person he may do through another. The provisions of

the law pertaining to the right of inspection are to be liberallyconstrued and that said right may be exercised through any otherproperly authorized person. The right may be regarded as personal inthe sense that only a stockholder may enjoy it but the inspectionand examination may be made by another.

But the rule above is not too sweeping in a sense that there are some

things which a corporation may undoubtedly keep secretnotwithstanding the right of inspection given by law to the stockholder(e.g. secret formulas or processes). There is however nothing in theinstant case which would indicate that the petitioner is seeking todiscover anything which the corporation is entitled to keep secret.

Gonzales v. Philippine National Bank Doctrine: The right of inspection granted to a stockholder are the following:1) records must be kept at the principal office of the corporation; 2) inspectionmust be made on business days; 3) he may demand a copy of the excerpts ofthe records or minutes; 4) refusal to allow such inspection shall subject theerring officer to civil and criminal liabilities. However, it is now expressly

required as a condition that one requesting must not have been guilty of usingimproperly any information secured and that the person asking for suchexamination must be acting in good faith and for a legitimate purpose inmaking his demand.

The Philippine National bank is not an ordinary corporation. Having acharter of its own, it is not governed by the Corporation Code of the

Philippines. Corporations shall be governed primarily by the provisions of thespecial law or charter creating them or applicable to them, supplemented bythe Corporation Code insofar as they are applicable.

Facts:

!

Ramon Gonzales requested the Philippine National Bank to allow himto look into the books and records of the respondent bank in order tosatisfy himself as to the truth of published reports that the respondent

bank has guaranteed the obligation of Southern Negros DevelopmentCorporation, that the bank is a financer of the construction of theCebu-Mactan bridge, and the construction of a certain Sugar Mill inIloilo. He stated that his request is for the reason that he wants to inquire into the validity of the transactions, as astockholder of the said bank.

Having been denied this request, he filed a petition for mandamus incourt, which was also denied for the reason that he has an improper


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motive in asking for an examination of the books andrecords which disqualifies him to such right.

Issue:!

Whether or not he has the right, solely as a stockholder, to anexamination of the books and records of the bank.

Ratio:! Under the old law, BP 68, the right of inspection is granted to a

stockholder. However, this has been modified under the presentCorporation Code. The right of inspection granted to a stockholder arethe following: 1) records must be kept at the principal office of thecorporation; 2) inspection must be made on business days; 3) he maydemand a copy of the excerpts of the records or minutes; 4) refusal toallow such inspection shall subject the erring officer to civil andcriminal liabilities. However, it is now expressly required as acondition that one requesting must not have been guilty ofusing improperly any information secured and that theperson asking for such examination must be acting in good

faith and for a legitimate purpose in making his demand.

Being so, he is disqualified from inspecting the books and records. Admittedly, he sought to be a stockholder in order to pry into thetransactions entered into by the bank. His obvious purpose was to arm himself with materials which he can use againstthe bank for acts done by the latter when he was a totalstranger to the same.

!

Also, the Philippine National Bank is not governed by theCorporation Code since it has its own charter. According to itscharter, it is not allowed to disclose information relative to the fund in

its custody to any person except the President of the Philippines or theSecretary of Finance and the Board of Directors. They are onlycompelled to disclose when there is an order issued by a court ofcompetent jurisdiction.

The Philippine National bank is not an ordinary corporation.Having a charter of its own, it is not governed by theCorporation Code of the Philippines. Corporations shall begoverned primarily by the provisions of the special law orcharter creating them or applicable to them, supplemented by the Corporation Code insofar as they are applicable.

Lanuza v. Court of Appeals Doctrine: The articles of incorporation has been described as one that definesthe charter of the corporation and the contractual relationships between the

State and the corporation, the stockholders and the State, and between thecorporation and its stockholders.

A stock and transfer book is not in any sense a public record and thus is not

exclusive evidence of the matters and things which ordinarily are or should bewritten therein. It may be impeached or even contradicted by othercompetent evidence.

Facts:!

PMMSi was incorporated with 770 founder's shares and 76common shares as its initial capital stock subscriptionreflected in the articles of incorporation (total of 776 shares).However, private respondents herein (Nolasco et. al) registered thecompany's stock and transfer book for the first timerecording only 33 common shares as the only issued andoutstanding shared of PMMSI (contrary to the articles of

incorporation).

Based on the record in the transfer book, a special stockholdersmeeting was held where a quorum of 27 common shares were present

which represented more than 2/3 of the common shares issued andoutstanding, based on the record in the transfer book, not the articlesof incorporation.

Petitioners Lanuza thereafter filed a petition with the SECquestioning the validity of the said meeting alleging that thequorum should not be based on the transfer book records, but on theinitial subscribed capital stock of 776 shares as reflected in the Articles

of Incorporation.

Issue:!

Whether or not the basis of the quorum should be the articles ofincorporation and not the transfer book.

Ratio:!

The stock and transfer book of PMMSI cannot be used as thesole basis for determining the quorum as it does not reflectthe totality of shares which have been subscribed, more so when the articles of incorporation show a significantlylarger amount of shares and outstanding as compared tothat listed in the stock and transfer book. A quorum is based on


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the totality of shares which have been subscribed to and issued whether it be founder's or common shares.

The articles of incorporation has been described as one that defines thecharter of the corporation and the contractual relationships betweenthe State and the corporation, the stockholders and the State, and

between the corporation and its stockholders. PMMSI's articles being

in compliance with the requirements of law, the contents of thearticles are binding not only on the corporation, but also onthe shareholders. At the t ime of incorporation, the corporat ion had77 issued and outstanding shares. To base the shares on the transfer

book, completely disregarding the articles would work injustice to theowners and successors in interest of the said shares.

One who is a stockholder cannot be denied his right to vote by the corporation merely because the corporate officersfailed to keep its records accurately.

Associated Bank v. Court of Appeals

Doctrine: Ordinarily in the merger of two or more existing corporations, oneof the combining corporations survives and continues the combined business,while the rest are dissolved and all their rights, properties and liabilities areacquired by the surviving corporation. Although there is a dissolution of theabsorbed corporation, there is no winding up of their affairs or liquidation oftheir assets because the surviving corporation automatically acquires alltheir rights, privileges, powers and liabilities.

The merger, however, does not become effective upon the mere agreement ofthe constituent corporations. It is required that the approval of the SEC of thearticles of merger be acquired which, in turn, must have been duly approvedby a 2/3 majority of the respective stockholders of the constituent

corporation. It is effective only upon the issuance of the certificate of merger.The effectivity date of the merger is crucial for determining when the mergedor absorbed corporation ceases to exist and when the rights, privileges,

powers and liabilities pass on to the surviving corporation.

Facts:!

On September 16, 1975, Associated Banking Corporation and CitizensBank merged to form just one banking corporation known as the

Associated Citizens Bank. Later, it changed back its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. 2 years later, the defendant in this case executed a promissory

note whereby the former undertook to pay the latter a sumof money. Said promissory note remained unpaid.

Upon filing of a complaint in court, the corporation raised the specialdefense that the defendant's complaint states no valid cause of actionsince the corporation is not the proper party in interest because thepromissory note was executed in favor of Citizens Bank.

Issue:!

Whether or not the promissory note executed in favor of Citizens Bank2 years after the merger may be enforced against the mergedcorporation (Associated Bank)

.Ratio:

!

Yes. The fact that the promissory note was executed after theeffectivity date of the merger does not militate against thepetitioner since the merger agreement clearly provides thatall contracts irrespective of the date of the execution enteredinto in the name of Citizens Bank shall be understood as

pertaining to the surviving bank. The clause was deliberatelyincluded in the agreement in order to protect the interests of thecombining banks, specifically to avoid giving the merger agreement afarcical interpretation aimed at evading fulfillment of a due obligation.The reference to Citizens Bank in the note shall be construed as areference to the Associated Bank (surviving bank) for all intents andpurposes.

Chinese YMCA v. Ching Doctrine: The courts cannot strip a member of a non-stock, non-profitcorporation of his membership therein without cause. Otherwise, that wouldbe an unwarranted and undue interference with the well established right of

a corporation to determine its membership.

Facts:!

Victor Ching filed an action for Mandamus against petitioners Chinese YMCA and its officers anchored on the fact that only 175 applicationsfor membership were submitted in the Chinese YMCA's membershipcampaign. On the other hand, petitioners allege that 249 applications

were submitted including 106 which were submitted through Chingduring the campaign period. Furthermore, the Chinese YMCA aversthat there was no counting and/or approval of membershipapplications since under the Constitution and the By-Laws of thecorporation, membership applications had to be screened by its


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membership committee, endorsed favorable to the Board andapproved by the latter by 2/3 majority vote.

Chinese YMCA claims that of the 249 applications, only 174 werefavorably endorsed and were subsequently approved. 75 of theapplications submitted by Ching were not approved for the reason thatChing had given stop-payment orders on the checks submitted by him

and some others to cover payment of the fees corresponding to these75 applications. For this reason, the court annulled the membershipcampaign and declared invalid the approval by YMCA of the 174applications and the 75 membership applications submitted by Ching(allegedly because they were filed out of time).

Issue:!

Whether or not the nullification of the membership applications wasproper.

Ratio:!

No. No evidence could be cited by the court to rebut the well nigh

conclusive documentary evidence other than the respondent'sunsupported suspicion which the trial court adopted in a negativemanner with its statement that "some of the applications were filedafter the deadline". If there were any applications filed after thedeadline, they certainly should have been positively pin-pointed andspecifically annulled.

What is worse is that the 175 applications which were filed within the deadline, were nullified by the questioneddecision without the individuals concerned having beenimpleaded or heard. Thus, the appealed decisioncontravened the established principle that the courts cannot

strip a member of a non-stock non-profit corporation of hismembership without cause. Otherwise, that would be anunwarranted and undue interference with the well established right ofa corporation to determine its membership.

! In order that membership may be acquired in a non-stock corporation,compliance with provisions of the charter, constitution or by-lawsmust be complied with except insofar as they are waived. The action ofthe board of directors approving the 174 membership application ofold and new members constituting its active membership as dulyprocessed and screened by the authorized committee must be deemeda waiver on its part of any technicality or requirement of form, since

otherwise the association would be practically paralyzed and deprivedof the substantial revenues from the membership dues.

Lions Club International v. Amores Doctrine: The courts will not interfere with the internal affairs of anunincorporated association as to settle disputes between the members, orquestions of policy, discipline, or internal government, so long as the

government of the society is fairly and honestly administered in conformitywith its law and the laws of the land, and not property or civil rights areinvaded. Under such circumstances, the decision of the governing body orestablished private tribunal of the association is binding and conclusive andnot subject to review or collateral attack in the courts.

The general rule of non-interference in the internal affairs of association is,however, subject to exceptions but the power of review is extremely limited.The courts will exercise power to interfere in the internal affairs of anassociation where law and justice so require and the proceedings of theassociation are subject to judicial review where there is fraud, oppression orbad faith or where the action complained of is capricious, arbitrary or

unjustly discriminatory. Also, the courts will usually entertain jurisdiction togrant relief in case property or civil rights are invaded, although it has alsobeen held that the involvement of property rights does not necessarilyauthorize judicial intervention, in the absence of arbitrariness, fraud orcollusion. Moreover, the courts will intervene where the proceedings inquestion are violative of the laws of the society, or the law of the land, as bydepriving a person of due process of law.

Facts:!

The principal adversaries in this controversy are respondent Josefa ofthe Manila Traders Lions Club and petitioner So of the ManilaCentrum Lions Club (both duly organized, chartered and affiliated

with Lions Club International). Josefa filed a complaint for quo warranto alleging that both Josefa and So filed their certificate ofcandidacy for the position of district governor for the fiscal year of 1982-1983 and the before the elections an agreement was executed between them whereby the latter withdrew hiscertificate of candidacy in favor of Josefa. However, newsitems were published conveying the idea that So had not withdrawn from the gubernatorial race. But these news items were controverted by the fact that according to the Lions Club, So,indeed, withdrew his candidacy.


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However, some of the members of the Council of Past DistrictGovernors arbitrarily set aside said withdrawal and proclaimed Soas a qualified candidate which was objected to by some of themembers present since there was no proper quorum. The complaintlikewise alleged that all this time, armed men by force andintimidation prevented known leaders and followers of Josefa fromentering the plenary session.

Josefa alleges that So and some members of the Past DistrictGovernors continued to hold and supervise illegal election at the oldsite where voting and non-voting delegates and alternates wereallowed to cast their votes without ballot.

Issue:!

Whether or not the election dispute between So and Josefa for theposition is justiciable.

Ratio:!

The court finds for the petitioners and adopted the general

rule that courts will not interfere with the internal affairs of anunincorporated association as to settle disputes between the members,or questions of policy, discipline, or internal government, so long asthe government of the society is fairly and honestly administered inconformity with its law and the laws of the land, and not property orcivil rights are invaded. Under such circumstances, the decision of thegoverning body or established private tribunal of the association is

binding and conclusive and not subject to review or collateral attack inthe courts.

In accordance with the general rules as to judicial interference, thedecision of an incorporated association on the question of an election

to office is a matter peculiarly and exclusively to be determined by theassociation, and in the absence of fraud, is final and binding on thecourts. The instant case falls squarely within the ambit of the rule of

judicial non-intervention or non-interference. The elections in dispute,the manner by which it was conducted and the results thereof isstrictly the internal affair that concerns only the association. The sameis to be resolved within the organization in accordance with theconstitution and by-laws which are not immoral, unreasonable, andcontrary to public policy or in contravention of the laws of the land.

San Juan Structural and Steel Fabricators Inc. v. Court of Appeals Doctrine: The property of the corporation is not the property of itsstockholders or members and may not be sold by the stockholders ormembers without express authorization from the corporation's board ofdirectors.

Unless duly authorized, the treasurer, whose powers are limited, cannot bind

the corporation in a sale of its assets. It is foreign to the treasurer's function,which generally has been described as to "to receive and keep the funds of thecorporation and to disburse them in accordance with the authority given byhi the board or properly authorized officers." When they exceed theirauthority, their actions cannot bind the corporation unless it has ratified suchacts or is estopped from disclaiming them.

Close corporations are those whose articles of incorporation provide that:1.

All of the corporation's issued stock of all classes, exclusive oftreasury shares shall be held of record by not more than a specifiednumber of persons, not exceeding 20;

2.

All of the issued stock of all classes shall be subject to one or more

specified restrictions or transfer permitted by the title on closecorporations;

3. The corporation shall not list in any stock exchange or make any public offering of any stock of any class.

It shall not be considered as a close corporation when at least 2/3 of thevoting stock or voting rights is owned or controlled by another corporationwhich is not a close corporation.

It does not become a close corporation just because a man and his wife ownssubstantially all of its subscribed capital stock.

Facts:!

It is alleged in this case that San Juan Structural and Steel Fabricators(San Juan Corp) entered into an agreement with Motorich SalesCorporation (Motorich) for the transfer to the former of a parcel ofland. In the said transaction, Motorich acted through its corporatetreasurer, Nenita Gruenberg. Upon payment of the earnest money andthe remaining balance, Motorich refused to execute the Deed of

Absolute Sale in favor of San Juan Corp. Later, it was also discoveredthat Motorich entered into another sale concerning the land in dispute

with another company. San Juan Corp filed a suit.


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In its defense, it is alleged by Motorich that the president of thecorporation did not sign the agreement and that only the corporatetreasurer's signature can be seen. In effect, it was inadequate to bindthe corporation.

San Juan Corp, on the other hand, contends that despite the fact thatthere was no signature of the president of the corporation, the

agreement was still binding on the corporation since it is a closecorporation and almost all of the capital stock was owned bythe treasurer (99.866%). Accordingly, Gruenberg needed noauthorization from the president since the corporation can be bound

by the acts of its principal stockholder.

Issue:!

Whether or not there is a valid contract of sale between San Juan Corpand Motorich.

! Whether or not Motorich is a close corporation.

Ratio:

!

There is no valid and binding contract because it was signed by the corporate treasurer only and was never authorized orratified by the corporation. A corporation may act only through its

board if directors or when authorized by its bylaws or by its boardresolution, through its officers or agents in the normal course of

business. Unless duly authorized, a treasurer, whose powersare limited, cannot bind the corporation in a sale of itsassets. The treasurer is not cloaked with actual or apparentauthority to buy or sell real property, an activity which falls way beyond the scope of her general authority. Petitioner hasthe burden of proving that the treasurer was authorized in thetransaction. Since there is no such proof of the authority, the contract

does not bind the corporation.

Neither was there any proof that there was ratification, express orimplied. The receipt of the payment does not prove the fact ofratification since it is a handwritten one and not a corporate receipt,and bears only the name of the treasurer. The document alone doesnot prove that the acts were authorized or ratified by Motorich.

! Motorich is not a close corporation. It does not contain, in itsarticles or bylaws, any provision stating that:

1. Its stockholders shall not exceed 20;

2. Preemption of shares is restricted in favor of any stockholderof the corporation

3. Listing of its stocks in any stock exchange making a publicoffering of such stocks is prohibited.

It does not become one just because the treasurer and her spouse own99. 866% of the subscribed capital stock. The mere ownership by a

single stockholder or by another corporation of all or nearly all thecapital stock of a corporation is not of itself a sufficient ground fordisregarding the separate corporate personalities.

The Court is not unaware that there are exceptional cases where anaction by a director, who singly is the controlling stockholder, may beconsidered as a binding corporate act and a board action as nothingmore than a mere formality. The case at hand is not one of them.

Manuel R. Dulay Enterprises Inc. v. Court of Appeals Doctrine: In a close corporation, a board resolution authorizing the sale ofmortgage of the subject property is not necessary to bind the corporation for

the action of its president. At any rate, a corporate action taken at a boardmeeting without proper call or notice in a close corporation is deemedratified by the absent director unless the latter promptly files his writtenobjection with the secretary of the corporation after having knowledge of themeeting.

Although a corporation is an entity which has a personality distinct andseparate from its individual stockholders or members, the veil of corporate

fiction may be pierced when it is used to defeat public convenience, justifywrong, protect fraud or defend crime. The privilege of being treated as anentity distinct and separate from its stockholders is therefore confined to itslegitimate use and is subject to certain limitations to prevent the commission

of fraud or other illegal or unfair act.

Facts:!

Manuel Dulay is the president, treasurer and general manager of DulayEnterprises. The corporation owned an apartment unit which it sold,through Manuel Dulay, to Sps. Veloso as evidence by a Deed of

Absolute Sale with Right of Repurchase. Subsequently, withoutknowledge of Dulay, Spouses Veloso mortgaged the property to oneManuel Torres. It was foreclosed and was sold to the latter in a publicauction as the highest bidder. Torres filed a case in court praying forthe issuance of a writ of possession. But, Virgilio Dulay, one of thestockholders of the corporation, appeared in court to


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intervene in the case and alleged that Manuel Dulay wasnever authorized to sell or mortgage the subject property.

!

Virgilio contends that the sale of the subject property has no bindingeffect on the corporation as the board resolution which authorized thesale of the same was resolved without the approval of all the membersof the board of directors and said Board Resolution was prepared by a

person not designated by the corporation to be its secretary.

Issue:!

Whether or not the sale is valid and binding on the corporat ion.

Ratio:!

The sale is valid and binding. Petitioner is classified as a closecorporation and consequently, a board resolution authorizing the saleor mortgage of the subject property is not necessary to bind thecorporation for the action of its president. At any rate, a corporateaction taken at a board meeting without a proper call or notice in aclose corporation is deemed ratified by the absent director unless the

latter promptly files his written objection with the secretary of thecorporation after having knowledge of the meeting which, in this case,petitioner Virgilio Dulay failed to do.

The contention that the board resolution was passed without theknowledge and consent of the other members of the board cannot besustained as Virgilio Dulay was very much privy to thetransactions involved. To begin with, he is an incorporator and oneof the board of directors designated at the time of the organization ofthe corporation. The said entity is loosely referred to as a familycorporation. The corporation was incorporated with 4/5 of itsincorporators being close relatives, namely the 3 children and their

father whose name identifies their corporation. Besides, he signed aaffidavit which attests that he was a witness to the execution of theDeed of Absolute Sale of the property and that he was aware of thetransaction.

The court cannot lose sight of the fact that the corporation isa closed family corporation where the incorporators anddirectors belong to one single family. It cannot be concealedthat Dulay, as president, treasurer and general manageralmost had absolute control over the business and affairs ofthe corporation.

Barlin v. Ramirez Doctrine: The Roman Catholic Church is a juridical person in the Philippine Islands.

Facts:! The defendant in this case, Ramirez took possession of the church after

having been appointed as parish priest. As such, he administered

church under the orders of his superiors. Subsequently, his successor was appointed hence, the church made a demand on Ramirez for thedelivery of the church convent, cemetery and the sacred ornaments,

books, jewels, money and other property of the church. Despiterepeated demands, Ramirez refused to make such delivery to Barlin onthe ground that, allegedly, the town of Lagonoy, in conjunction withthe parish priest thereof, has seen fit to sever connections with thePope at Rome and his representatives in this island and to join theFilipino Church.

For this reason Barlin brought an action against Ramirez alleging thatthe Roman Catholic Church is the rightful owner of the church

building, the convent, the cemetery, (etc.). He prayed to be restore ofthe possession of the properties thereof and for Ramirez to render anaccounting which he had received and retained.

As a defense, Ramirez claimed that the Roman Catholic Church had nolegal personality in the Philippines.

Issue:! Who has the better right to the present possession of the property?

Ratio:! The evidence in this case does not show that the municipality

has, as such, any right whatsoever in the property inquestion. It produced no evidence of ownership. Its claim overthe property is based merely in the theory that the property in question

belonged prior to the Treaty of Paris to the Spanish Government. Bythe treaty, it passed to the US Government and then by act ofCongress, it was transferred to the Philippine Islands, then to themunicipality of Lagonoy. However, there is no evidence tosupport the last proposition (that the government of thePhilippines has transferred the ownership of this church tothe municipality of Lagonoy).


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In 1898, and prior to the Treaty of Paris, the Roman Catholic Churchhad by law the exclusive right to the possession of this church and ithad the legal right to administer the same for purposes for which the

building was consecrated. It was then in the full and peacefulpossession of the church with the rights aforesaid. Neither theGovernment of the US nor the Government of these Islands had everattempted in any way to interfere with the rights of the Roman

Catholic Church in the building when the Spanish sovereignty ceasedin the Philippines.

Prior to the cession of the Philippines to the United States,the King of Spain was not the owner of the consecratedchurches therein and had no right to the possession thereof.The exclusive right to such possession was in the RomanCatholic Church and such right has continued since suchcession and not exists.

IEMELIF v. Juane Doctrine: A corporation sole is one formed by the chief archbishop, bishop,

priest, minister, rabbi, or other presiding elder of a religious denomination,sect, or church, for the purpose of administering or managing, as trustee, theaffairs, properties and temporalities of such religious denomination, sect orchurch. As opposed to a corporation aggregate, a corporation sole consists ofa single member, while a corporation aggregate consists of two or more

persons.

Facts:! IEMELIF is a religious corporation existing and duly organized under

Philippine laws and a registered owner of a parcel of land. Juaneis a former minister or pastor o IEMELIF and he was elected as one ofthe members of the Highest Consistory of Elders. Juane was assigned

and appointed as the Resident Pastor of Cathedral Congregation inTondo, Manila. By virtue of this, he was authorized to stay at andoccupy the Resident Pastor's residence inside the Cathedralcomplex. He also took charge of the Cathedral facilities andother property of the church in the said premises.

After some time, he was removed as resident pastor and was asked to vacate the residence. However, Juane ignored and refused to vacatesubject property and continued its unlawful occupation to theexclusion of IEMELIF. Hence, IEMELIF filed a legal action to enforceits right.

In his defense, Juane filed a motion to dismiss the case based on th

Corp Digest 2

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Transcript of Corp Digest 2