9th meeting - d. validity of requirements

7/24/2019 9th Meeting - d. Validity of Requirements

http://slidepdf.com/reader/full/9th-meeting-d-validity-of-requirements 1/22

Validity of Restrictions

LAMBERT V. FOX

FACTS:A frm known as John R. Edgar & Co. engaged

in retail book and stationery business ound itsel in

su!h !ondition that its !reditors in!luding "lainti# $eon

$ambert and deendant T.J. Fo% agreed to take oer

the business' in!or"orate it and a!!e"t sto!k therein

in "ayment o their res"e!tie !redits. (lainti# and

deendant be!ame the two largest sto!kholders in the

new !or"oration !alled John R. Edgar & Co.' )n!. Ater

its in!or"oration' "lainti# and deendant entered into

an agreement that both "arties agreed not to sell'

transer' or otherwise dis"ose o any "art o their

holdings till ater one year rom the date o its

e%e!ution. A ew months ater' deendant sold his

sto!k to another !or". E.C. *!Cullough & Co. o *anila

under "lainti#+s "rotest. ,en!e' the fling o this !ase

to re!oer "enalty or the brea!h o !ontra!t.

)SS-E: /0 the restri!tions in the agreement are

alid.

R-$)01: The SC held that the "arties e%"ressly

sti"ulated that the !ontra!t should last one year. 0o

reason is shown or saying that it shall last only nine

months. hateer the ob2e!t was in s"e!iying the

year' it was their agreement that the !ontra!t should

last a year and it was their 2udgment and !oni!tion

that their "ur"ose would not be subersed in any less

time. hat reason !an gie or reusing to ollow the"lain words o the men who made the !ontra!t3 e

see none.

)t is also urged by the deendant in this !ase

that the sti"ulation in the !ontra!t sus"ending the

"ower to sell the sto!k reerred to therein is an illegal

sti"ulation' is in restraint o trade and' thereore'

o#ends "ubli! "oli!y. e do not so regard it. The

sus"ension o the "ower to sell has a benef!ial

"ur"ose' results in the "rote!tion o the !or"oration as

well as o the indiidual "arties to the !ontra!t' and is

reasonable as to the length o time o the sus"ension.e do not here undertake to dis!uss the limitations to

the "ower to sus"end the right o alienation o sto!k'

limiting ourseles to the statement that the

sus"ension in this "arti!ular !ase is legal and alid.

Fleischer vs. Botica Nolasco

Fa!ts: *anuel 0olas!o was the original owner o the 4

he!tares o sto!k o 5oti!a 0olas!o' )n!. ,e endorsed

and deliered said shares to "lainti#' ,enry Fleis!

in !onsideration o a large sum o money owed

1on6ales to Flesi!her.

7r Eduardo *i!iano' who was the se!.8treasure

said !or"oration' o#ered to buy rom Fleis!her'

behal o the said !or"oration' said shares o sto!k

their "ar alue o (9 a share' or 4 by irtue

the !or"oration+s by8laws; giing said !or"oration

"reerential right to buy rom *anuel 1on6ales s

shares. The "lainti# reused to sell to the deend

and re<uested 7r. *i!iano to register said shares in

name' 7r. *i!iano reused to do so' saying tha

would be in !ontraention o the by8laws o

!or"oration.

issue: =0 Art 9> o the !or"+s by8laws is in !on

with the "roisions o the Cor"oration $aw.

,eld:

The SC ruled that said by8law !annot hae any e#

on Fleis!her sin!e he had no knowledge o the sa

when the shares were assigned to him. ,e obtai

the shares in good aith and or a alua

!onsideration. ,e was not a "riy to the !ont

!reated by said by8law between the shareho

1on6ales and 5oti!a 0olas!o Cor". Said by8law !an

o"erate his rights as a "ur!haser.

Padgett vs. Bacoc!

Fa!ts: A""ellee' (adgett was an em"loyee A""ellant Cor"oration. 7uring his em"loymentbought @4 shares. ,e was also the re!i"ient oshares by way o Christmas bonus.

The word Bnon8transerable a""ears on eand eery one o the !ertif!ates. 5eore resigning"ro"osed to the !or"oration "resident that the !or"oration buy his DD shares or that he be authorto sell them to other "ersons.

The !or"oration admit that the DD shares hbe!ome the "ro"erty o (adgett. They likewise adthat under law' (adgett has the right to hae restri!tion a""earing in the !ertif!ates eliminathererom. ,oweer' they igorously !ontend there is no e%isting law nor authority in su""ort o "ro"osition that they are bound to redeem shares.

)SS-E: =0 the restri!tion indi!ated in the !ertif!aare alid.

*ontaos ,eidi Jean ). (age 9



,E$7: The restri!tion im"osed in the said !ertif!atesare null and oid. )t !onstitute an unreasonablelimitation on the right o ownershi" and is in restrainto trade.

Shares o !or"orate sto!k being regarded as"ro"erty' the owner o su!h shares may' as a generalrule' dis"ose o them as he sees ft' unless the

!or"oration has been dissoled' or unless the right todo so is "ro"erly restri!ted' or the owners "riilege o dis"osing o his shares has been ham"ered by his owna!tion.

Any restri!tion on a sto!kholders right todis"ose o his shares must be !onstrued stri!tly; andany attem"t to restrain a transer o shares isregarded as being in restraint o trade' in the absen!eo a alid lien u"on its shares' and e%!e"t to thee%tent that alid restri!tie regulations andagreements e%ist and are a""li!able. Sub2e!t only tosu!h restri!tions' a sto!kholder !annot be !ontrolled in

or restrained rom e%er!ising his right to transer bythe !or"oration or its o!ers or by other sto!kholders'een though the sale is to a !om"etitor o the!om"any' or to an insolent "erson' or een though a!ontrolling interest is sold to one "ur!haser.

)t is obious' thereore' that the restri!tion !onsistingin the word GnontranserableG' a""earing on the!ertif!ates' is illegal and should be eliminated.

,oweer' there is no e%isting law nor authority insu""ort o the "lainti#s !laim to the e#e!t that thedeendants are obliged to buy his shares o sto!kalue at "ar alue' "lus the interest demandedthereon. )n this res"e!t' we hold that there has beenno su!h !ontra!t' either e%"ress or im"lied' betweenthe "lainti# and the deendants. )n the absen!e o asimilar !ontra!tual obligation and o a legal "roisiona""li!able thereto' it is logi!al to !on!lude that itwould be un2ust and unreasonable to !om"el the saiddeendants to !om"ly with a non8e%istent or imaginaryobligation.

e. Forged Transfers

"ta. Maria vs #ong!ong

Fa!ts:*rs. Josea Sta. *aria bought 9' shares

o sto!k o a mining !or"oration. The !ertif!ateswere made out in the name o a brokerage frm'duly indorsed in 5$A0H and deliered to *rs. Sta.*aria or aluable !onsideration. She deliered itto R.J Cam"os and Co.' another brokerage frm' to!om"ly with the latter+s re<uirement that shede"osit something on a!!ount i she wanted to buyshares o another mining !or"oration. Cam"os

thereater deliered to a bank the said !ertif!ateduly indorsed to said bank "ursuant to a letter ohy"othe!ation I"ledge to a bank as se!uritye%e!uted by Cam"os in aor o said bank. Thesaid !ertif!ates was deliered to the bank in theordinary !ourse o business together with manyother se!urities' and the time it was deliered' thebank had no knowledge that the shares

re"resented by the !ertif!ate belonged to *rsSta. *aria or it was in the orm o a street!ertif!ate transerable by mere deliery.

)ssue:hether or not *rs. Sta. *aria !an re!oer

the said !ertif!ate rom the bank.

,eld: The !ourt held that she !ould not re!oe

the !ertif!ate sin!e she !ould hae asked the!or"oration that issued it to !an!el it and issueanother in lieu thereo in her name. her negligen!e

was the immediate !ause o the damage' sin!e the!ertif!ate was endorsed by her to !onstitute as astreet !ertif!ate Ia sto!k !ertif!ate endorsed inblank.

$e Los "antos vs. Re%&lic

Fa!ts:

A"olinario 7e $os Santos !laimed or one hal o 9'K' shares o sto!k o $e"anto Consolida*ining Cor"oration and the other hal !laimed by!o8"lainti# )sabelo Astran<uillo. The shares o stoare !oered by !ertif!ate o sto!k issued in aoLi!ente *adrigal the agent or trustee or *itsui' wus registered in the book o the !or"oration as owand whose indorsement in blank a""ears on the b(lainti#s !ontend that they bought their shares

Juan Cam"os and Carl ,ess. 5y irtue o (89> titlethe shares are ested in the Alien (ro"erty Custodo -S Ialso reerred as (ro"erty Custodian t"lainti#s fled !laims with the (ro"erty Custod)nitially the !laim was !onsidered but u"on "ersoreiew' the (hili""ine Alien (ro"erty Administrade!reed that the title shall remain to them. ,enthis "etition to establish title to the shares o sto!k

)ssue: hether or not "lainti#s are entitled to shares o sto!k3

Ruling:

(lainti#s are not entitled to the shares o sbe!ause neither *adrigal nor *itsuis had alienashares o sto!k. The alleged sale by Juan Cam"os Carl ,ess has not been established by the "lainhen!e' *itsuis as the "rin!i"al o *adrigal registered owner may !laim his rights whi!h !anno

*ontaos ,eidi Jean ). (age >



e%er!ised by the "lainti#s not only be!ause theiralleged title is not deried either rom *adrigal orrom *itsuis but also be!ause it is in derogation o said right. The !ertif!ates o sto!k are not negotiableinstruments. A transeree under a orged assignmenta!<uires no title whi!h !an be asserted against thetrue owner' unless the true owner+s own negligen!ehas been su!h as to !reate an esto""el against him.

The rule thereore would be that the do!trine that abona fde "ur!haser o shares under a orged orunauthori6ed transer a!<uires no title as against thetrue owner does not a""ly where the !ir!umstan!esare su!h as to esto" the latter rom asserting his title.

The Court held that in (hili""ine 2uris"ruden!e' a

!ertif!ate o sto!k is not a negotiable instrument'

but is regarded as <uasi8negotiable in the sense

that it may be transerred by endorsement'

!ou"led with deliery' but its not negotiable

be!ause the holder thereo takes it without

"re2udi!e to su!h rights or deenses as theregistered owners or transeror+s !reditor may

hae under the law' e%!e"t in so ar as su!h rights

or deenses are sub2e!t to the limitations im"osed

by the "rin!i"les goerning esto""el. The ruling

was based under Se!. @4 o the Cor"oration $aw

Inow Se!. K@' a sale o shares o sto!k' een when

!ou"led with endorsement and deliery o the

!oering sto!k !ertif!ate' shall not be alid' e%!e"t

as between the "arties' until it is entered and

noted u"on the books o the !or"oration and that

su!h sale is absolutely oid and' hen!e' as good as

non8e%istent as ar as third "arties and the!or"oration is !on!erned

f. Non'transferaility of Me(ershi% in a

Non'stoc! )or%oration

Se!. . 0on8transerability o membershi". 8

*embershi" in a non8sto!k !or"oration and all

rights arising thererom are "ersonal and non8

transerable' unless the arti!les o in!or"oration or

the by8laws otherwise "roide.

***. MANA+EMENT "TR,)T,RE

A. )ORPORATE +OVERNAN)E-. Poers of the Board or Tr&stees

Se!. >@. The board o dire!tors or trustees. 8 -nless

otherwise "roided in this Code' the !or"orate

"owers o all !or"orations ormed under this Code

shall be e%er!ised' all business !ondu!ted and all

"ro"erty o su!h !or"orations !ontrolled and held

by the board o dire!tors or trustees to be ele!ted

rom among the holders o sto!ks' or where there

is no sto!k' rom among the members o the

!or"oration' who shall hold o!e or one I9 yea

until their su!!essors are ele!ted and <ualifed.

Eery dire!tor must own at least one I9 share o

the !a"ital sto!k o the !or"oration o whi!h he is a

dire!tor' whi!h share shall stand in his name on

the books o the !or"oration. Any dire!tor who

!eases to be the owner o at least one I9 share o


dire!tor shall thereby !ease to be a dire!tor

Trustees o non8sto!k !or"orations must be

members thereo. a ma2ority o the dire!tors o

trustees o all !or"orations organi6ed under this

Code must be residents o the (hili""ines.

+AMBOA /defendants0 V" V*)TOR*ANO

/%lainti1s0 2Powers of the board of directors3FACTS:

(lainti#8res"ondents owned 9'@>M shares o sto!k

in )0/CE0TES 7E $A RA*A' )0C. a domesti!

!or"oration with an authori6ed !a"ital sto!k o

@ shares' with a "ar alue o (9. "er

share' >'9NN o whi!h were subs!ribed and issued

thus leaing M>@ shares unissued. (lainti#s

a!<uired the shares o sto!k held by Raae

$edesma and Jose Si!ang!o' Jr.' then (resident and

Li!e8(resident o the !or"oration. 7eendants who

were the remaining members o the board odire!tors o the !or"oration' in order to orestal

the takeoer by the "lainti#s o the !or"oration

surre"titiously met and ele!ted Ri!ardo $. 1amboa

and ,onorio de la Rama as "resident and i!e

"resident o the !or"oration' res"e!tiely' and

thereater "assed a resolution authori6ing the sale

o the M>@ unissued shares o the !or"oration to

the deendants at "ar alue' ater whi!h the

deendants were ele!ted to the board o dire!tors

o the !or"oration.

(lainti#s sued or the nullif!ation o the sale andthe remoal o the new board dire!tors as

usur"ers. Subse<uently' a !om"romise agreement

was entered into by the "arties wherein they

agreed that the deendants waied and transerred

their rights oer the <uestioned number o shares

in aor o the "lainti#s. This was a""roed by the

Court.

*ontaos ,eidi Jean ). (age @



The deendants moed or the dismissal o the

!ase whi!h the Court denied. /n motion or

re!onsideration' they also alleged that the Court

has no 2urisdi!tion oer the !ase sin!e the sale o

the sto!ks !on!erned was "urely management

"rerogatie whi!h the Court !annot look into. This

was also denied.

)ssue:

hether the sale made by the board is a

management !on!ern whi!h the !ourts has no

2urisdi!tion oer.

Ruling:

The !ourt held that the !laim o the "etitioners

<uestioning the trial !ourts 2urisdi!tion on matters

a#e!ting the management o the !or"oration is

without merit. The well8known rule is that !ourts

!annot undertake to !ontrol the dis!retion o the

board o dire!tors about administratie matters as

to whi!h they hae legitimate "ower o a!tion and

!ontra!ts intra vires entered into by the board o

dire!tors are binding u"on the !or"oration and

!ourts will not interere unless su!h !ontra!ts are

so un!ons!ionable and o""ressie as to amount to

a wanton destru!tion o the rights o the minority.

)n the instant !ase' the "lainti#s aer that the

deendants hae !on!luded a transa!tion among

themseles as will result to serious in2ury to the

interests o the "lainti#s' so that the trial !ourt has2urisdi!tion oer the !ase.

+o!ongei 4r.5 vs. "E) (Powers of the Board of

Trustees)

M SCRA @@K A"ril 99' 9N Antonio' J.

FA)T"6

The instant "etition or !ertiorari' mandamus and

in2un!tion' with "rayer or issuan!e o writ o

"reliminary in2un!tion arose out o two !ases fled

by "etitioner with the Se!urities and E%!hange

Commission as ollows:

SEC CASE 0/. 9@N4

/n /!tober >>' 9NK' "etitioner John 1okongwei

Jr.' as sto!kholder o res"ondent San *iguel

Cor"oration fled with the SEC a "etition or the

Bde!laration o nullity o amended by8 laws'

!an!ellation o !ertif!ate o fling o amended by8

laws' in2un!tion and damages with "rayer or a

"reliminary in2un!tion Bagainst the ma2ority o

S*C+s 5oard o 7ire!tors and S*C itsel as an

unwilling "etitioner.

As a frst !ause o a!tion' "etitioner alleged that on

Se"tember 9M' 9NK' indiidual res"ondents

amended the by8laws basing their authority on a

resolution o the sto!kholders ado"ted on *ar!h

9@' 9K9' when the outstanding !a"ital sto!k o

S*C was only (N'9@'ND. At the time o the

amendment' the outstanding and "aid u" shares

were already (@9'>N'D@..

)t was !ontended that a!!ording to Se!tion >> o

the Cor"oration $aw and Arti!le L))) o the by8laws

o the Cor"oration' the "ower to amend' modiy

re"eal or ado"t new by8laws may be delegated to

the 5oard o 7ire!tors only by the armatie ote

o sto!kholders re"resenting not less than >=@ othe subs!ribed and "aid u" !a"ital sto!k o the

!or"oration' whi!h >=@ should hae been !om"uted

on the basis o the !a"itali6ation at the time o the

amendment.

Sin!e the amendment was based on the 9K9

authori6ation' "etitioner !ontended that the 5oard

a!ted without authority and in usur"ation o the

"ower o the sto!kholders.

As a se!ond !ause o a!tion' it was alleged that the

authority granted in 9K9 had already beene%er!ised in 9K> and 9K@' ater whi!h the

authority o the 5oard !eased to e%ist.

As a third !ause o a!tion' "etitioner aerred that

the membershi" o the 5oard o 7ire!tors had

!hanged sin!e the authority was gien in 9K9

there being K new dire!tors.

As a ourth !ourse o a!tion' it was !laimed that

"rior to the <uestioned amendment' "etitioner had

all the <ualif!ations to be a dire!tor o res"ondent

!or"oration' being a substantial sto!kholdethereo; that as a sto!kholder' "etitioner had

a!<uired rights inherent in sto!k ownershi"' su!h

as the right to ote and be oted u"on in the

ele!tion o dire!tors; and that in amending the by8

laws' res"ondent "ur"osely "roided o

"etitioner+s dis<ualif!ation and de"ried him o

ested right as aore8mentioned' hen!e the

amended by8laws are null and oid. As additiona

!auses o a!tion' it was alleged:

*ontaos ,eidi Jean ). (age D



That !or"oration hae no inherent "ower to

dis<ualiy a sto!kholder rom being ele!ted as a

dire!tor and' thereore' the <uestioned a!t is ultra

ires and oid;

That Andres *. Soriano' Jr. and=or Jose *. Soriano'

while re"resenting other !or"orations' entered into

!ontra!t Is"e!if!ally a management !ontra!t with

res"ondent !or"oration' whi!h was allowed

be!ause the <uestioned amendment gae the

5oard itsel the "rerogatie o determining whether

they or other "ersons are engaged in !om"etitie

or antagonisti! business;

That the "ortion o the amended by8laws whi!h

states that in determining whether or not a "erson

is engaged in !om"etitie business' the 5oard may

!onsider su!h a!tors as business and amily

relationshi"' is unreasonable and o""ressie and'

thereore' oid; and

That the "ortion o the amended by8laws whi!h

re<uires that Ball nominations or ele!tion o

dire!tors OOOO shall be submitted in writing to the

5oard o 7ire!tors at least 4 working days beore

the date o the Annual *eeting is likewise

unreasonable and o""ressie.

)t was' thereore' "rayed that the amended by8laws

be de!lared null and oid and the !ertif!ate o

fling thereo be !an!elled' and that indiidual

res"ondents be made to "ay damages' in s"e!ifedamounts' to "etitioner.

*"",E6

hether or not the "roisions o the amended by8

laws o S*C' dis<ualiying a !om"etitor rom

nomination or ele!tion to the 5oard o 7ire!tors

are alid and reasonable.

#EL$6

The alidity or reasonableness o a by8law o a

!or"oration is "urely a <uestion o law. hether

the by8laws is in !on?i!t with the law o the land' or

with the !harter o the !or"oration' or is in a legal

sense unreasonable and thereore unlawul is a

<uestion o law. This rule is sub2e!t' howeer' to

the limitation that where the reasonableness o a

by8law is a mere matter o 2udgment' and one u"on

whi!h reasonable minds must ne!essary di#er' a

!ourt would not be warranted in substituting its

2udgment instead o the 2udgment o those who are

authori6ed to make the by8laws and who hae

e%er!ised their authority.

)t is re!ogni6ed by all authorities that Beery

!om"etition has the inherent "ower to ado"t by8

laws or its internal goernment' and to regulate

the !ondu!t and "res!ribe the rights and duties o

its members towards itsel and among themseles

in reeren!e to the management o its a#airs. At

!ommon law' the rule was Bthat the "ower to make

and ado"t by8laws was inherent in eery

!or"oration as one o its ne!essary and

inse"arable legal in!idents.

Any "erson Bwho buys sto!k in a !or"oration does

so with the knowledge that its a#airs are

dominated by a ma2ority o the sto!kholders and

that he im"liedly !ontra!ts that the will o the

ma2ority shall goern in all matters within thelimits o the arti!les o in!or"oration and lawully

ena!ted by8laws and not orbidden by8law.

)t being settled that the !or"oration has the "ower

to "roide or the <ualif!ations o its dire!tors' the

ne%t <uestion that must be !onsidered is whethe

the dis<ualif!ation o a !om"etitor rom being

ele!ted to the 5oard o 7ire!tors is a reasonable

e%er!ise o !or"orate authority.

Although in the stri!t and te!hni!al sense' dire!tors

o a "riate !or"oration are not regarded astrustees' there !annot be any doubt that thei

!hara!ter is that o a fdu!iary insoar as the

!or"oration and the sto!kholders as a body are

!on!erned. As agents entrusted with the

management o the !or"oration or the !olle!tie

beneft o the sto!kholders' Bthey o!!u"y a

fdu!iary relation' and in this sense the relation is

the one o trust.

This is based u"on the "rin!i"le that where the

dire!tor is so em"loyed in the seri!e o a ria

!om"any' he !annot sere both' but must betrayone or the other. Su!h an amendment Badan!es

the beneft o the !or"oration and is good.

Certainly' where two !or"orations are !om"etitie

in a substantial sense' it would seem im"robable' i

not im"ossible' or the dire!tor' i he were to

dis!harge e#e!tiely his duty' to satisy his loyalty

to both !or"orations and "la!e the "erorman!e o

his !or"orate duties aboe his "ersonal !on!erns.




,EREF/RE' 2udgment is hereby rendered as

ollows:

/n the matter o alidity o the amended by8laws

o the S*C' K 2usti!es oted to sustain the alidity

per se o amended by8laws in <uestion and to

dismiss the "etition without "re2udi!e to the

<uestion o the a!tual dis<ualif!ation o "etitioner

John 1okongwei' Jr. to run and i ele!ted to sit as

dire!tor o S*C being de!ided' ater a new and

"ro"er hearing o the 5oard o 7ire!tors o S*C'

whose de!ision shall be a""ealable to the SEC

deliberating and a!ting en banc' and ultimately to

this Court. -nless dis<ualifed in the manner herein

"roided' the "rohibition in the aorementioned by8

laws shall not a""ly to "eritioner.

a. M&st act as a ody

Se!. >4. Cor"orate o!ers' <uorum. 8 )mmediately

ater their ele!tion' the dire!tors o a !or"oration

must ormally organi6e by the ele!tion o a

"resident' who shall be a dire!tor' a treasurer who

may or may not be a dire!tor' a se!retary who

shall be a resident and !iti6en o the (hili""ines'

and su!h other o!ers as may be "roided or in

the by8laws. Any two I> or more "ositions may be

held !on!urrently by the same "erson' e%!e"t that

no one shall a!t as "resident and se!retary or as

"resident and treasurer at the same time.

The dire!tors or trustees and o!ers to be ele!tedshall "erorm the duties en2oined on them by law

and the by8laws o the !or"oration. -nless the

arti!les o in!or"oration or the by8laws "roide or

a greater ma2ority' a ma2ority o the number o

dire!tors or trustees as f%ed in the arti!les o

in!or"oration shall !onstitute a <uorum or the

transa!tion o !or"orate business' and eery

de!ision o at least a ma2ority o the dire!tors or

trustees "resent at a meeting at whi!h there is a

<uorum shall be alid as a !or"orate a!t' e%!e"t

or the ele!tion o o!ers whi!h shall re<uire the

ote o a ma2ority o all the members o the board.

7ire!tors or trustees !annot attend or ote by

"ro%y at board meetings.

*"LAM*) $*RE)TORATE OF T#E P#*L*PP*NE"5

MAN,EL F. PEREA and "E),R*T*E" 7 EX)#AN+E

)OMM*""*ON5 %etitioners5

s.

)O,RT OF APPEAL" and *+LE"*A N* )R*"

res"ondents.

FACTS:

The sub2e!t o this "etition or reiew is the 7e!i

o the "ubli! res"ondent Court o A""eals' - da/!tober >M' 9D' setting aside the "ortion o

7e!ision o the Se!urities and E%!hange Commis

ISEC' or short in SEC Case 0o. D9> whi!h de!la

null and oid the sale o two I> "ar!els o land

Pue6on City !oered by the 7eed o Absolute S

entered into by and between "riate res"ond

)glesia 0i Cristo I)0C' or short and the )sla

7ire!torate o the (hili""ines' )n!.' Car"i6o 1ro

I)7(' or short.

)SS-E: =0 the said sale is alid absen!e

registration authority rom the 5oard.

R-$)01S:

The Car"i6o 1rou"8)0C sale is urther deem

null and oid ab initio be!ause o the Car"i6o 1ro

ailure to !om"ly with Se!tion D o the Cor"ora

Code "ertaining to the dis"osition o all

substantially all assets o the !or"oration:

Se!. D. Sale or other disposition of assets. Q Sub

to the "roisions o e%isting laws on ille

!ombinations and mono"olies' a corporation may,a majority vote of its board of directors or truste

sell' lease' e%!hange' mortgage' "ledge or otherw

dispose of all or substantially all of its property

assets' in!luding its goodwill' u"on terms

!onditions and or su!h !onsideration' whi!h may

money' sto!ks' bonds or other instruments or

"ayment o money or other "ro"erty or !onsiderat

as its board o dire!tors or trustees may de

e%"edient' when authorized by the vote of

stockholders representin at least two!thirds ("#$

the outstandin capital stock ; or in case of non!stcorporation, by the vote of at least two!thirds ("#$

the members, in a stockholders% or members% mee

duly called for the purpose. ritten noti!e o

"ro"osed a!tion and o the time and "la!e o

meeting shall be addressed to ea!h sto!kholde

member at his "la!e o residen!e as shown on

books o the !or"oration and de"osited to

addressee in the "ost o!e with "ostage "re"aid

sered "ersonally: Provided' That any dissen

*ontaos ,eidi Jean ). (age K



sto!kholder may e%er!ise his a""raisal right under the

!onditions "roided in this Code.

A sale or other dis"osition shall be deemed to !oer

substantially all the !or"orate "ro"erty and assets i

thereby the !or"oration would be rendered in!a"able

o !ontinuing the business or a!!om"lishing the

"ur"ose or whi!h it was in!or"orated.

%%% %%% %%%

The Tandang Sora "ro"erty' it a""ears rom the

re!ords' !onstitutes the only "ro"erty o the )7(.

,en!e' its sale to a third8"arty is a sale or dis"osition

o all the !or"orate "ro"erty and assets o )7( alling

s<uarely within the !ontem"lation o the oregoing

se!tion. For the sale to be alid' the ma2ority ote o

the legitimate 5oard o Trustees' !on!urred in by the

ote o at least >=@ o the bona &de members o the

!or"oration should hae been obtained. These twin

re<uirements were not met as the Car"i6o 1rou"

whi!h oted to sell the Tandang Sora "ro"erty was a

ake 5oard o Trustees' and those whose names and

signatures were a%ed by the Car"i6o 1rou" together

with the sham 5oard Resolution authori6ing the

negotiation or the sale were' rom all indi!ations' not

bona &de members o the )7( as they were made to

a""ear to be. A""arently' there are only fteen I94

o!ial members o the "etitioner !or"oration

in!luding the eight IM members o the 5oard o

Trustees. 89

All told' the dis"uted 7eed o Absolute Sale e%e!uted

by the ake Car"i6o 5oard and "riate res"ondent )0C

was intrinsi!ally oid ab initio.

(riate res"ondent )0C neertheless <uestions the

authority o the SEC to nulliy the sale or being made

outside o its 2urisdi!tion' the same not being an intra8

!or"orate dis"ute.

The resolution o the <uestion as to whether or not the

SEC had 2urisdi!tion to de!lare the sub2e!t sale null

and oid is rendered moot and a!ademi! by theinherent nullity o the highly dubious sale due to la!k

o !onsent o the )7(' owner o the sub2e!t "ro"erty.

0o end o substantial 2usti!e will be sered i we

reerse the SECs !on!lusion on the matter' and

remand the !ase to the regular !ourts or urther

litigation oer an issue whi!h is already determinable

based on what we hae in the re!ords.

Ra(ire: v. Orientalist

Fa!ts: JF Ramire6 is engaged in the business

marketing flms or manua!turers. )n an agreem

with /rientalist Co. Ia !om"any engaged in

business o maintaining and !ondu!ting a theate

the !ity o manila or e%hibition o !inematogra"

flms they o#ered e%!lusie agen!y o E!lair

*ilano flms. JF Ramire6 was re"resented in

agreement by his son Jose Ramire6 while RamoFernande6 Ia dire!tor and a!!e"ted the o#er

re"resented the frm treasurer through an inor

!oneren!e with all the members o the !om"a

board o dire!tors e%!e"t one' and with a""roa

those with whom he had !ommuni!ated.

)ssue: hether or not the !om"any is liable in

!ontra!t entered u"on by Ramon J. Fernande63

hether or not Ramon J. Fernande6 is lia

based u"on his "ersonal signature to the sa

do!uments3

,eld: The Court armed the de!ision o the lo

!ourt whi!h held that /rientalist is liable as

"rin!i"al debtor and Ramon J. Fernande6 as guara

o JF Ramire6.

) an a!tion is brought against a !or"oration u"o

!ontra!t alleged to be its !ontra!t' i it desires to

u" the deense that the !ontra!t was e%e!uted by

not authori6ed as its agent' it must "lead non

a!tum. A !or"oration !an not aail itsel o

deense that it had no "ower to enter into obligation to enor!e whi!h the suit is brought' un

it "leads that deense.

0o sworn answer denying the genuineness and

e%e!ution o the !ontra!ts in <uestion or <uestion

the authority o Ramon J. Fernande6 to bind

/rientalist Com"any was fled in this !ase;

eiden!e was admitted without ob2e!tion rom

"lainti#' tending to show that Ramon J. Fernande6

no su!h authority. This eiden!e !onsisted o e%tra

rom the minutes o the "ro!eedings o the !om"a

board o dire!tors and also o e%tra!ts rom minutes o the "ro!eedings o the !om"a

sto!kholders' showing that the making o this !ont

had been under !onsideration in both bodies and t

the authority to make the same had been withheld

the sto!kholders. B,T The ailure o the deend

!or"oration to make any issue in its answer w

regard to the authority o Ramon J. Fernande6 to b

it' and "arti!ularly its ailure to deny s"e!if!ally un

*ontaos ,eidi Jean ). (age N



oath the genuineness and due e%e!ution o the

!ontra!ts sued u"on' hae the e#e!t o elimination

the <uestion o his authority rom the !ase' !onsidered

as a matter o mere "leading.

As to the liability o the !or"oration

Ramon J. Fernande6' as treasurer' had no

inde"endent authority to bind the !om"any by signing

its name to the letters in <uestion. )t is de!lared by

signing its name to the letters in <uestion. )t is

de!lared in se!tion >M o the Cor"oration $aw that

!or"orate "ower shall be e%er!ised' and all !or"orate

business !ondu!ted by the board o dire!tors; and this

"rin!i"le is re!ogni6ed in the by8laws o the

!or"oration in <uestion whi!h !ontain a "roision

de!laring that the "ower to make !ontra!ts shall be

ested in the board o dire!tors. )t is true that it is also

de!lared in the same by8laws that the "resident shall

hae the "ower' and it shall be his duty' to sign!ontra!t; but this has reeren!e rather to the ormality

o redu!ing to "ro"er orm the !ontra!t whi!h are

authori6ed by the board and is not intended to !oner

an inde"endent "ower to make !ontra!t binding on

the !or"oration.

e beliee it is a air ineren!e rom the

re!itals o the minutes o the sto!kholders meeting o

Se"tember 9M' that this body was then !ogni6ant that

the o!er had already been a!!e"ted in the name o

the /rientalist Com"any and that the flms whi!h were

then e%"e!ted to arrie were being im"orted by irtueo su!h a!!e"tan!e. Certainly our members o the

board o dire!tors there "resent were aware o this

a!t' as the letter a!!e"ting the o#er had been sent

with their knowledge and !onsent.

the board o dire!tors' beore the fnan!ial

inability o the !or"oration to "ro!eed with the "ro2e!t

was reealed' had already re!ogni6ed the !ontra!t as

being in e%isten!e and had "ro!eeded to take the

ste"s ne!essary to utili6e the flms.

Signature o Ramon J. Fernande6

As a""ears u"on the a!e o the !ontra!ts' the

signature o Fernande6' in his indiidual !a"a!ity' is

not in line with the signature o the /rientalist

Com"any' but is set o# to the let o the !om"anys

signature and somewhat below. From the testimony o

both Ramire6 and Ramon J. Fernande6' that the

res"onsibility o the latter was intended to be that o

guarantor.

) the name o a "erson not interested in

"erorman!e o these !ontra!ts had a""eared writ

in the "la!e where the name o Ramon J. Fernande

signed' and the eiden!e had shown that su!h na

was there written merely to attest the signature o

!or"oration' or o Ramon J. Fernande6 as treasurer

!ourt would hae had any hesitation in holding tha

liability had been in!urred though words were wanto show how the name was signed. 5ut wehre a na

is signed ambiguously' "arol eiden!e is admissibl

show the !hara!ter in the signature a%ed.

+.R. No. L'-;;<= A&g&st ->5 -9?@

T#E BOAR$ OF L*,*$ATOR"- re%resenting T

+OVERNMENT OF T#E REP,BL*) OF T

P#*L*PP*NE"5 Plainti'!ppellant ' s. #E*R"

MAX*MO M. ALAC5D 4,AN BO)AR5 E"TATE

T#E $E)EA"E$ )A"*M*RO +AR)*A58 and LEON

MOLL5 efendants!ppellees .

"AN)#E5 J.: !hanrobles irtual law library

Facts:

The 0ational Co!onut Cor"oration I0AC/C/

!hartered as a non8"roft goernmental organi6a

by Commonwealth A!t 49M aowedly or

"rote!tion' "reseration and deelo"ment o

!o!onut industry in the (hili""ines. 0AC/C/s !ha

was amended by Re"ubli! A!t 0o. 4 to grant

!or"oration the e%"ress "ower Gto buy' sell' bae%"ort' and in any other manner deal in' !o!o

!o"ra' and dessi!ated !o!onut' as well as their

"rodu!ts' and to a!t as agent' broker or !ommiss

mer!hant o the "rodu!ers' dealers or mer!ha

thereo. The !harter amendment was ena!ted

stabili6e !o"ra "ri!es' to sere !o!onut "rodu!ers

se!uring adantageous "ri!es or them' to !ut dow

a minimum' i not altogether eliminate' the margi

middlemen' mostly aliens.> !hanrobles irtual

library

1eneral manager and board !hairman was *a%imoHalaw. The rest o the deendants were member

the 5oard. nroblesirtuallawlibrary !hanrobles ir

law library

Four deastating ty"hoons isited the (hili""i

Co!onut trees throughout the !ountry su#e

e%tensie damage. Co"ra "rodu!tion de!rea

(ri!es s"iralled. arehouses were destroyed. C

re<uirements doubled. 7e"riation o e%"ort a!il

*ontaos ,eidi Jean ). (age M



in!reased the time ne!essary to a!!umulate shi"loads

o !o"ra. Pui!k turnoers be!ame im"ossible'

fnan!ing a "roblem.!hanroblesirtuallawlibrary

!hanrobles irtual law library

hen it be!ame !lear that the !ontra!ts would be

un"roftable' Halaw submitted them to the board or

a""roal. Halaw made a ull dis!losure o the situation'

a""rised the board o the im"ending heay losses. 0o

a!tion was taken on the !ontra!ts.

(resident Ro%as made a statement that the 0AC/C/

head did his best to aert the losses' em"hasi6ed that

goernment !on!erns a!ed the same risks that

!onronted "riate !om"anies' that 0AC/C/ was

re!ou"ing its losses' and that Halaw was to remain in

his "ost. 0ot long thereater' the board met again

where they unanimously a""roed 4 !ontra!ts to

delier !o"ra; howeer' there was only "artially

"erorman!e o the !ontra!ts by 0AC/C/.

/ther buyers fled damage suits; Some o the !laims

were settledibrary !irtual law library

0AC/C/ seeks to re!oer the sum settlement

"ayments rom general manager and board !hairman

*a%imo *. Halaw' and rom its @ dire!tors. )t !harges

Halaw with negligen!e under Arti!le 9> o the old

Ciil Code Inow Arti!le >9NK' new Ciil Code; and

deendant board members' in!luding Halaw' with bad

aith and=or brea!h o trust or haing a""roed the

!ontra!ts without "rior a""roal o the board o dire!tors' to the damage and "re2udi!e o "lainti#.

brary

*ss&e: hether or not the Halaw is negligent or

haing entered into the <uestioned !ontra!ts without

"rior a""roal o the board o dire!tors irtual law

library

R&ling: 0o

(lainti# leelled a ma2or atta!k on the lower !ourts

holding that Halaw 2ustifedly entered into the!ontroerted !ontra!ts without the "rior a""roal o

the !or"orations dire!torate. (lainti# leans heaily on

0AC/C/s !or"orate by8laws. Arti!le )L Ib' Cha"ter )))

thereo' re!ites' as amongst the duties o the general

manager' the obligation: GIb To "erorm or e%e!ute on

behal o the Cor"oration u"on "rior a""roal o the

5oard' all !ontra!ts ne!essary and essential to the

"ro"er a!!om"lishment or whi!h the Cor"oration was

organi6ed.G !hanrobles irtual law library

As a rule' a !or"orate o!er is Gintrusted with

general management and !ontrol o its business'

im"lied authority to make any !ontra!t or do

other a!t whi!h is ne!essary or a""ro"riate to

!ondu!t o the ordinary business o the !or"orat

As su!h o!er' Ghe may' without any s"e!ial autho

rom the 5oard o 7ire!tors "erorm all a!ts o

ordinary nature' whi!h by usage or ne!essity in!ident to his o!e' and may bind the !or"oration

!ontra!ts in matters arising in the usual !ourse

business. !hanrobles irtual law library

The "roblem' thereore' is whether the !ase at ba

to be taken out o the general !on!e"t o the "ow

o a general manager' gien the !ited "roision o

0AC/C/ by8laws re<uiring "rior dire!torate a""ro

o 0AC/C/ !ontra!ts.!hanroblesirtuallawlib


The "e!uliar nature o !o"ra trading re<uires sales agreements be entered into' een though

goods are not yet in the hands o the seller. Hnow

business "arlan!e as forward sales' it is !on!ede

the "ra!ti!e o the trade. A !ertain amount

s"e!ulation is inherent in the undertaking.

0AC/C/' orward sales were a ne!essity. Co"ra !o

not stay long in its hands; it would lose weight

alue de!rease. Aboe all' 0AC/C/s limited u

ne!essitated a <ui!k turnoer. Co"ra !ontra!ts t

had to be e%e!uted on short noti!e 8 at times wit

twenty8our hours. To be a""re!iated then is

di!ulty o !alling a ormal meeting o

board.!hanroblesirtuallawlibrary !hanrobles ir

law libra

$ong beore the dis"uted !ontra!ts !ame into be

Halaw !ontra!ted 8 by himsel alone as gen

manager 8 or orward sales o !o"ra. For the &s

year endin *une $+, -./' Halaw signed some

su!h !ontra!ts or the sale o !o"ra to diers "art

7uring that "eriod' rom those !o"ra sales' 0AC/

rea"ed a gross "roft o (@'K@9'9M9.DM. So "lea

was 0AC/C/s board o dire!tors that' on 7e!em4' 9DK' in Halaws absen!e' it oted to grant him

special bonus Gin re!ognition o the sig

a!hieement rendered by him in "utting

Cor"orations business on a sel8su!ient basis wi

a ew months ater assuming o!e' des"ite numer

handi!a"s and di!ulties.G !hanrobles irtual

library

*ontaos ,eidi Jean ). (age



These "reious !ontra!t it should be stressed' were

signed by Halaw without prior authority rom the

board. Said !ontra!ts were known all along to the

board members. 0othing was said by them. The

aoresaid !ontra!ts stand to "roe one thing:

/biously' 0AC/C/ board met the di!ulties

attendant to orward sales by leaing the ado"tion o

means to end' to the sound dis!retion o 0AC/C/sgeneral manager *a%imo *. Halaw. irtual

lSettled 2uris"ruden!e has it that where similar a!ts

hae been a""roed by the dire!tors as a matter o

general "ra!ti!e' !ustom' and "oli!y' the general

manager may bind the !om"any without ormal

authori6ation o the board o dire!tors. )n arying

language' e%isten!e o su!h authority is established'

by "roo o the course of business' the usae and

practices o the !om"any and by the knowlede whi!h

the board o dire!tors has' or must be presumed to

hae' o a!ts and doings o its subordinates in andabout the a#airs o the !or"oration. So also'

% % % authority to a!t or and bind a !or"oration may

be "resumed rom a!ts o re!ognition in other

instan!es where the "ower was in a!t e%er!ised. D;


% % % Thus' when' in the usual !ourse o business o a

!or"oration' an o!er has been allowed in his o!ial

!a"a!ity to manage its a#airs' his authority to

re"resent the !or"oration may be im"lied rom the

manner in whi!h he has been "ermitted by thedire!tors to manage its business.

)n the !ase at bar' the "ra!ti!e o the !or"oration has

been to allow its general manager to negotiate and

e%e!ute !ontra!ts in its !o"ra trading a!tiities or and

in 0AC/C/s behal without "rior board a""roal. )

the by8laws were to be literally ollowed' the board

should gie its stam" o "rior a""roal on all !or"orate

!ontra!ts. 5ut that board itsel' by its a!ts and through

a!<uies!en!e' "ra!ti!ally laid aside the by8law

re<uirement o "rior

a""roal.!hanroblesirtuallawlibrary !hanrobles

irtual law library

-nder the gien !ir!umstan!es' the Halaw !ontra!ts

are alid !or"orate a!ts. They Ithe dire!tors hold su!h

o!e !harged with the duty to a!t or the !or"oration

a!!ording to their best 2udgment' and in so doing they

!annot be !ontrolled in the reasonable e%er!ise and

"erorman!e o su!h duty. hether the business o a

!or"oration should be o"erated at a loss durin

business de"ression' or !losed down at a smaller l

is a "urely business and e!onomi! "roblem to

determined by the dire!tors o the !or"oration'

not by the !ourt. )t is a well known rule o law t

<uestions o "oli!y o management are let solely

the honest de!ision o o!ers and dire!tors o

!or"oration' and the !ourt is without authoritysubstitute its 2udgment or the 2udgment o the bo

o dire!tors; the board is the business manager o

!or"oration' and so lon as it acts in ood faith

orders are not reviewable by the courts.G

Halaws good aith' and that o the other dire!t

!lin!h the !ase or deendants.

E(iliano Ac&na vs Batac Prod&cers )oo%erat

Mar!eting Association5 *nc.

Fa!ts:

Emiliano A!una entered into agreement w

the manager o 5ata! (R/C/*A )n!. wherein he

adan!e a !ertain amount o money to 5ata! as

additional und or its Lirginia Toba!!o buy

o"erations and in return A!una will be

re"resentatie o the 5Ata! (ro!oma in *anila' w

the salary o(.4 "er kilo o toba!!o.

BAgreement was entered into by the 5ata! (ro!o

manager with the knowledge and !onsent o the ot

o!ial o 5ata! (ro!oma. Ithese o!ers !onstitu

the board o bata!. hen 5ata! (ro!oma got money rom A!una' they started buying out toba!

Then A!una was sur"rise that the BAgreement

not re!ogni6ed by 5ata! (ro!oma' a!!ording to th

the BAgreement was not a""roed by the board. I

ha""ened when 5ata! already got the money

used it' and reuse to a!t on their "art o

agreement

)ssue:

hether or not the BA1REE*E0T

im"liedly a""roe and ratifed by the boarddire!tors o 5ata!3

,eld:

A "erusal o the !om"laint reeals tha

!ontains su!ient allegations indi!ating su!h a""r

or at least subse<uent ratif!ation. /n the frst "

we note the ollowing aerments: that on *ay th

"lainti# met with ea!h and all o the indiid




deendants Iwho !onstituted the entire 5oard o

7ire!tors and dis!ussed with them e%tensiely the

tentatie agreement and he was made to understand

that it was a!!e"table to them' e%!e"t as to "lainti#s

remuneration; that it was fnally agreed between

"lainti# and all said 7ire!tors that his remuneration

would be (.@ "er kilo Io toba!!o; and that ater

the agreement was ormally e%e!uted he was assuredby said 7ire!tors that there would be no need o

ormal a""roal by the 5oard. )t should be noted in

this !onne!tion that although the !ontra!t re<uired

su!h a""roal it did not s"e!iy 2ust in what manner

the same should be gien.

/n the <uestion o ratif!ation the !om"laint alleges

that "lainti# deliered to the deendant !or"oration

the sum o (>'. as !alled or in the !ontra!t;

that he rendered the seri!es he was re<uired to do;

that he urnished said deendant @' sa!ks at a !ost

o (K'. and adan!ed to it the urther sum o (4'.; and that he did all o these things with the

ull knowledge' a!<uies!en!e and !onsent o ea!h and

all o the indiidual deendants who !onstitute the

5oard o 7ire!tors o the deendant !or"oration. There

is abundant authority in su""ort o the "ro"osition

that ratif!ation may be e%"ress or im"lied' and that

im"lied ratif!ation may take dierse orms' su!h as by

silen!e or a!<uies!en!e; by a!ts showing a""roal or

ado"tion o the !ontra!t; or by a!!e"tan!e and

retention o benefts ?owing thererom.

Signif!antly the ery resolution o the 5oard o

7ire!tors relied u"on by deendants a""ears to

militate against their !ontention. )t reers to "lainti#s

ailure to !om"ly with !ertain "romises he had made'

as well as to his inter"retation o the !ontra!t with

res"e!t to his remuneration whi!h' a!!ording to the

5oard' was !ontrary to the intention o the "arties.

The resolution then "ro!eeds to Gdisa""roe and=or

res!indG the said !ontra!t. The idea o !on?i!ting

inter"retation' or res!ission on the ground that one o

the "arties has ailed to ulfll his obligation under the

!ontra!t' is !ertainly in!om"atible with deendantstheory here that no !ontra!t had yet been "ere!ted

or la!k o a""roal by the 5oard o 7ire!tors.

#arden vs. Beng&et )onsolidated

. Eec&tive )o((ittee

Se!. @4. E%e!utie !ommittee. 8 The by8laws o a

!or"oration may !reate an e%e!utie !ommittee'

!om"osed o not less than three members o the

board' to be a""ointed by the board. Said

!ommittee may a!t' by ma2ority ote o all its

members' on su!h s"e!if! matters within the

!om"eten!e o the board' as may be delegated to

it in the by8laws or on a ma2ority ote o the board

e%!e"t with res"e!t to: I9 a""roal o any a!tion

or whi!h shareholders a""roal is also re<uiredI> the fling o a!an!ies in the board; I@ the

amendment or re"eal o by8laws or the ado"tion o

new by8laws; ID the amendment or re"eal o any

resolution o the board whi!h by its e%"ress terms

is not so amendable or re"ealable; and I4 a

distribution o !ash diidends to the shareholders.

ROLE OF "#ARE#OL$ER"

Right to Vote and Attend Meetings

"ection ;9. 0iht to vote1 8 The right o the

members o any !lass or !lasses to ote may be

limited' broadened or denied to the e%tent

s"e!ifed in the arti!les o in!or"oration or the by8

laws. -nless so limited' broadened or denied' ea!h

member' regardless o !lass' shall be entitled to

one ote.

-nless otherwise "roided in the arti!les o

in!or"oration or the by8laws' a member may ote

by "ro%y in a!!ordan!e with the "roisions o thisCode. In

Loting by mail or other similar means by members

o non8sto!k !or"orations may be authori6ed by

the by8laws o non8sto!k !or"orations with the

a""roal o' and under su!h !onditions whi!h may

be "res!ribed by' the Se!urities and E%!hange

Commission.

PR*)E AN$ ",L, $EVELOPMENT )O. V"

MART*N

FA)T"6 (lainti#s brought suit in the Court o First

)nstan!e o *anila "raying that a mortgage

e%e!uted by the Sulu 7eelo"ment Com"any on its

"ro"erties in aor o the Agusan Co!onu

Com"any be dissoled and de!lared null and oid

the "rin!i"al !ontentions being that at the

sto!kholders meeting in whi!h the o!ers o the

Sulu 7eelo"ment Com"any were ele!ted and at




whi!h the "ro"osed mortgage was a""roed o' N

shares o sto!k o the Sulu 7eelo"ment Com"any

were oted by the "ro%y o *rs. or!ester' in

whose name the sto!k at that time stood u"on the

books o the !om"any' whereas deendant *artin

!laimed that he was the true owner and that he

should hae oted the sto!k.

*"",E6 hether the mortgage was duly e%e!uted

by the Sulu 7eelo"ment Com"any3

R,L*N+6 (lainti#s !ontend that the transeren!e

on the books o the !om"any o N shares o sto!k

in the name o *rs. or!ester was raudulent and

illegal. The eiden!e o re!ord' howeer' under all

the !ir!umstan!es o the !ase' ails to demonstrate

the allegation o raud' and this !ourt beliees that

she a!ted in good aith and in the honest belie

that she had not only a legal right but a duty to

"arti!i"ate in the sto!kholders meeting.

As to whether the sto!k was rightully the "ro"erty

o *artin' that is a <uestion or the !ourts and or a

sto!kholders meeting. -ntil !hallenged in a "ro"er

"ro!eeding' a sto!kholder a!!ording to the books

o the !om"any has a right to "arti!i"ate in that

meeting' and in the absen!e o raud the a!tion o

the sto!kholders meeting !annot be !ollaterally

atta!ked on a!!ount o su!h "arti!i"ation. GA

"erson who has "ur!hased sto!k' and who desires

to be re!ogni6ed as a sto!kholder' or the "ur"ose

o oting' must se!ure su!h a standing by haingthe transer re!order u"on the books. ) the

transer is not duly made u"on re<uest' he has' as

his remedy' to !om"el it to be made.

The 2udgment a""ealed rom is thereore armed.

Costs against a""ellants. So ordered.

a. Instances:

"ection D>. 2lection of directors or trustees1 8 At

all ele!tions o dire!tors or trustees' there must be

"resent' either in "erson or by re"resentatieauthori6ed to a!t by written "ro%y' the owners o a

ma2ority o the outstanding !a"ital sto!k' or i

there be no !a"ital sto!k' a ma2ority o the

members entitled to ote. The ele!tion must be by

ballot i re<uested by any oting sto!kholder or

member. )n sto!k !or"orations' eery sto!kholder

entitled to ote shall hae the right to ote in

"erson or by "ro%y the number o shares o sto!k

standing' at the time f%ed in the by8laws' in his

own name on the sto!k books o the !or"oration

or where the by8laws are silent' at the time o the

ele!tion; and said sto!kholder may ote su!h

number o shares or as many "ersons as there are

dire!tors to be ele!ted or he may !umulate said

shares and gie one !andidate as many otes as

the number o dire!tors to be ele!ted multi"lied by

the number o his shares shall e<ual' or he maydistribute them on the same "rin!i"le among as

many !andidates as he shall see ft: (roided' That

the total number o otes !ast by him shall not

e%!eed the number o shares owned by him as

shown in the books o the !or"oration multi"lied by

the whole number o dire!tors to be ele!ted

(roided' howeer' That no delin<uent sto!k shal

be oted. -nless otherwise "roided in the arti!les

o in!or"oration or in the by8laws' members o

!or"orations whi!h hae no !a"ital sto!k may !ast

as many otes as there are trustees to be ele!ted

but may not !ast more than one ote or one

!andidate. Candidates re!eiing the highest

number o otes shall be de!lared ele!ted. Any

meeting o the sto!kholders or members !alled o

an ele!tion may ad2ourn rom day to day or rom

time to time but not sine die or indefnitely i' or

any reason' no ele!tion is held' or i there are not

"resent or re"resented by "ro%y' at the meeting

the owners o a ma2ority o the outstanding !a"ita

sto!k' or i there be no !a"ital sto!k' a ma2ority o

the member entitled to ote. I@9a

"ection -?. mendment of rticles of

3ncorporation1 8 -nless otherwise "res!ribed by this

Code or by s"e!ial law' and or legitimate

"ur"oses' any "roision or matter stated in the

arti!les o in!or"oration may be amended by a

ma2ority ote o the board o dire!tors or trustees

and the ote or written assent o the sto!kholders

re"resenting at least two8thirds I>=@ o the

outstanding !a"ital sto!k' without "re2udi!e to the

a""raisal right o dissenting sto!kholders in

a!!ordan!e with the "roisions o this Code' or the

ote or written assent o at least two8thirds I>=@ othe members i it be a non8sto!k !or"oration.

The original and amended arti!les together shal

!ontain all "roisions re<uired by law to be set out

in the arti!les o in!or"oration. Su!h arti!les' as

amended shall be indi!ated by unders!oring the

!hange or !hanges made' and a !o"y thereo duly

!ertifed under oath by the !or"orate se!retary and

*ontaos ,eidi Jean ). (age 9>



a ma2ority o the dire!tors or trustees stating the

a!t that said amendment or amendments hae

been duly a""roed by the re<uired ote o the

sto!kholders or members' shall be submitted to

the Se!urities and E%!hange Commission.

The amendments shall take e#e!t u"on their

a""roal by the Se!urities and E%!hangeCommission or rom the date o fling with the said

Commission i not a!ted u"on within si% IK months

rom the date o fling or a !ause not attributable

to the !or"oration.

"ection >D. Power to invest corporate funds in

another corporation or business or for any other

purpose1 8 Sub2e!t to the "roisions o this Code' a

"riate !or"oration may inest its unds in any

other !or"oration or business or or any "ur"ose

other than the "rimary "ur"ose or whi!h it was

organi6ed when a""roed by a ma2ority o the

board o dire!tors or trustees and ratifed by the

sto!kholders re"resenting at least two8thirds I>=@

o the outstanding !a"ital sto!k' or by at least two

thirds I>=@ o the members in the !ase o non8

sto!k !or"orations' at a sto!kholders or members

meeting duly !alled or the "ur"ose. ritten noti!e

o the "ro"osed inestment and the time and "la!e

o the meeting shall be addressed to ea!h

sto!kholder or member at his "la!e o residen!e as

shown on the books o the !or"oration and

de"osited to the addressee in the "ost o!e with"ostage "re"aid' or sered "ersonally: (roided'

That any dissenting sto!kholder shall hae

a""raisal right as "roided in this Code: (roided'

howeer' That where the inestment by the

!or"oration is reasonably ne!essary to a!!om"lish

its "rimary "ur"ose as stated in the arti!les o

in!or"oration' the a""roal o the sto!kholders or

members shall not be ne!essary. I9N 9=>a

$ELA RAMA V" MAO ",+AR

Facts6 J. Amado Araneta and three other

deendants re"resenting *a8ao Sugar Central )n!.

made an inestment to (hili""ine Fiber. The

minority sto!kholders o the *a8ao Sugar Central

)n!. Ithe "lainti#8a""ellant <uestions the alidity

o su!h inestment' a!!ording to them the a!tion

o Araneta and three other deendants was without

the authority or a""roal o the sto!kholders

owning >=@ o the !a"ital sto!k as re<uired by law.

*ss&e6 hether or not the inestment made by

*a8ao sugar !entral to (hili""ine Fiber is alid3

#eld6 The a""roal o the sto!kholders owning >=@

o the !a"ital sto!k is not re<uired Bis su!h an a!t'

i done in "ursuan!e o the !or"orate "ur"ose

does not need the a""roal o the sto!kholders

but when the "ur!hase o shares o anothe

!or"oration is done solely or inestment and no

to a!!om"lish the "ur"ose o its in!or"oration' the

ote o a""roal o the sto!kholders is ne!essary

and urther states that Bwhen "ur"ose or "ur"oses

as stated in its arti!le o in!or"oration' the

a""roal o the sto!kholder is not ne!essary

A""lying the rule in the !ase at bar' sin!e

(hili""ine Fiber was engaged in the manua!ture o

sugar 5A1S' it was "ere!tly legitimate or *a8ao

Sugar either to manua!ture sugar bags or inest

in another !or"oration engaged in said

manua!ture. Thereore the ote o thesto!kholders are not ne!essary.

"ection @@. Stockholder%s or member%s approval1

-"on a""roal by ma2ority ote o ea!h o the

board o dire!tors or trustees o the !onstituen

!or"orations o the "lan o merger or !onsolidation

the same shall be submitted or a""roal by the

sto!kholders or members o ea!h o su!h

!or"orations at se"arate !or"orate meetings duly

!alled or the "ur"ose. 0oti!e o su!h meetings

shall be gien to all sto!kholders or members o

the res"e!tie !or"orations' at least two I> weeks

"rior to the date o the meeting' either "ersonally

or by registered mail. Said noti!e shall state the

"ur"ose o the meeting and shall in!lude a !o"y or

a summary o the "lan o merger or !onsolidation

The armatie ote o sto!kholders re"resenting

at least two8thirds I>=@ o the outstanding !a"ita

sto!k o ea!h !or"oration in the !ase o sto!k

!or"orations or at least two8thirds I>=@ o the

members in the !ase o non8sto!k !or"orations

shall be ne!essary or the a""roal o su!h "lan

Any dissenting sto!kholder in sto!k !or"orationsmay e%er!ise his a""raisal right in a!!ordan!e with

the Code: (roided' That i ater the a""roal by

the sto!kholders o su!h "lan' the board o

dire!tors de!ides to abandon the "lan' the

a""raisal right shall be e%tinguished.

Any amendment to the "lan o merger o

!onsolidation may be made' "roided su!h

amendment is a""roed by ma2ority ote o the

*ontaos ,eidi Jean ). (age 9@



res"e!tie boards o dire!tors or trustees o all the

!onstituent !or"orations and ratifed by the

armatie ote o sto!kholders re"resenting at

least two8thirds I>=@ o the outstanding !a"ital

sto!k or o two8thirds I>=@ o the members o ea!h

o the !onstituent !or"orations. Su!h "lan'

together with any amendment' shall be !onsidered

as the agreement o merger or !onsolidation. In

"ection 8;. Power to increase or decrease capital

stock4 incur, create or increase bonded

indebtedness1 8 0o !or"oration shall in!rease or

de!rease its !a"ital sto!k or in!ur' !reate or

in!rease any bonded indebtedness unless

a""roed by a ma2ority ote o the board o

dire!tors and' at a sto!kholders meeting duly

!alled or the "ur"ose' two8thirds I>=@ o the

outstanding !a"ital sto!k shall aor the in!rease

or diminution o the !a"ital sto!k' or the in!urring'

!reating or in!reasing o any bonded indebtedness.

ritten noti!e o the "ro"osed in!rease or

diminution o the !a"ital sto!k or o the in!urring'

!reating' or in!reasing o any bonded indebtedness

and o the time and "la!e o the sto!kholders

meeting at whi!h the "ro"osed in!rease or

diminution o the !a"ital sto!k or the in!urring or

in!reasing o any bonded indebtedness is to be

!onsidered' must be addressed to ea!h

sto!kholder at his "la!e o residen!e as shown on

the books o the !or"oration and de"osited to the

addressee in the "ost o!e with "ostage "re"aid'or sered "ersonally.

A !ertif!ate in du"li!ate must be signed by a

ma2ority o the dire!tors o the !or"oration and

!ountersigned by the !hairman and the se!retary

o the sto!kholders meeting' setting orth:

I9 That the re<uirements o this se!tion

hae been !om"lied with;

I> The amount o the in!rease ordiminution o the !a"ital sto!k;

I@ ) an in!rease o the !a"ital sto!k' the

amount o !a"ital sto!k or number o shares

o no8"ar sto!k thereo a!tually subs!ribed'

the names' nationalities and residen!es o

the "ersons subs!ribing' the amount o

!a"ital sto!k or number o no8"ar sto!k

subs!ribed by ea!h' and the amount "aid

by ea!h on his subs!ri"tion in !ash o

"ro"erty' or the amount o !a"ital sto!k or

number o shares o no8"ar sto!k allotted to

ea!h sto!k8holder i su!h in!rease is or the

"ur"ose o making e#e!tie sto!k diidend

thereor authori6ed;

ID Any bonded indebtedness to bein!urred' !reated or in!reased;

I4 The a!tual indebtedness o the

!or"oration on the day o the meeting;

IK The amount o sto!k re"resented at the

meeting; and

IN The ote authori6ing the in!rease o

diminution o the !a"ital sto!k' or the

in!urring' !reating or in!reasing o any

bonded indebtedness.

Any in!rease or de!rease in the !a"ital sto!k or the

in!urring' !reating or in!reasing o any bonded

indebtedness shall re<uire "rior a""roal o the

Se!urities and E%!hange Commission.

/ne o the du"li!ate !ertif!ates shall be ke"t on

fle in the o!e o the !or"oration and the other

shall be fled with the Se!urities and E%!hange

Commission and atta!hed to the original arti!les o

in!or"oration. From and ater a""roal by theSe!urities and E%!hange Commission and the

issuan!e by the Commission o its !ertif!ate o

fling' the !a"ital sto!k shall stand in!reased o

de!reased and the in!urring' !reating or in!reasing

o any bonded indebtedness authori6ed' as the

!ertif!ate o fling may de!lare: (roided' That the

Se!urities and E%!hange Commission shall no

a!!e"t or fling any !ertif!ate o in!rease o

!a"ital sto!k unless a!!om"anied by the sworn

statement o the treasurer o the !or"oration

lawully holding o!e at the time o the fling othe !ertif!ate' showing that at least twenty8fe

I>4 "er!ent o su!h in!reased !a"ital sto!k has

been subs!ribed and that at least twenty8fe

I>4 "er!ent o the amount subs!ribed has been

"aid either in a!tual !ash to the !or"oration or that

there has been transerred to the !or"oration

"ro"erty the aluation o whi!h is e<ual to twenty8

fe I>4 "er!ent o the subs!ri"tion: (roided

urther' That no de!rease o the !a"ital sto!k shal

*ontaos ,eidi Jean ). (age 9D



be a""roed by the Commission i its e#e!t shall

"re2udi!e the rights o !or"orate !reditors.

0on8sto!k !or"orations may in!ur or !reate bonded

indebtedness' or in!rease the same' with the

a""roal by a ma2ority ote o the board o

trustees and o at least two8thirds I>=@ o the

members in a meeting duly !alled or the "ur"ose.

5onds issued by a !or"oration shall be registered

with the Se!urities and E%!hange Commission'

whi!h shall hae the authority to determine the

su!ien!y o the terms thereo. I9Na

"ection >;. mendments to by!laws1 8 The board

o dire!tors or trustees' by a ma2ority ote thereo'

and the owners o at least a ma2ority o the

outstanding !a"ital sto!k' or at least a ma2ority o

the members o a non8sto!k !or"oration' at a

regular or s"e!ial meeting duly !alled or the

"ur"ose' may amend or re"eal any by8laws or

ado"t new by8laws. The owners o two8thirds I>=@

o the outstanding !a"ital sto!k or two8thirds I>=@

o the members in a non8sto!k !or"oration may

delegate to the board o dire!tors or trustees the

"ower to amend or re"eal any by8laws or ado"t

new by8laws: (roided' That any "ower delegated

to the board o dire!tors or trustees to amend or

re"eal any by8laws or ado"t new by8laws shall be

!onsidered as reoked wheneer sto!kholders

owning or re"resenting a ma2ority o theoutstanding !a"ital sto!k or a ma2ority o the

members in non8sto!k !or"orations' shall so ote

at a regular or s"e!ial meeting.

heneer any amendment or new by8laws are

ado"ted' su!h amendment or new by8laws shall be

atta!hed to the original by8laws in the o!e o the

!or"oration' and a !o"y thereo' duly !ertifed

under oath by the !or"orate se!retary and a

ma2ority o the dire!tors or trustees' shall be fled

with the Se!urities and E%!hange Commission thesame to be atta!hed to the original arti!les o

in!or"oration and original by8laws.

The amended or new by8laws shall only be

e#e!tie u"on the issuan!e by the Se!urities and

E%!hange Commission o a !ertif!ation that the

same are not in!onsistent with this Code. I>>a and

>@a

"ection >8. Power to declare dividends1 8 The

board o dire!tors o a sto!k !or"oration may

de!lare diidends out o the unrestri!ted retained

earnings whi!h shall be "ayable in !ash' in

"ro"erty' or in sto!k to all sto!kholders on the

basis o outstanding sto!k held by them: (roided

That any !ash diidends due on delin<uent sto!k

shall frst be a""lied to the un"aid balan!e on thesubs!ri"tion "lus !osts and e%"enses' while sto!k

diidends shall be withheld rom the delin<uent

sto!kholder until his un"aid subs!ri"tion is ully

"aid: (roided' urther' That no sto!k diidend

shall be issued without the a""roal o

sto!kholders re"resenting not less than two8thirds

I>=@ o the outstanding !a"ital sto!k at a regular

or s"e!ial meeting duly !alled or the "ur"ose

I9Ka

Sto!k !or"orations are "rohibited rom retaining

sur"lus "rofts in e%!ess o one hundred I9

"er!ent o their "aid8in !a"ital sto!k' e%!e"t: I9

when 2ustifed by defnite !or"orate e%"ansion

"ro2e!ts or "rograms a""roed by the board o

dire!tors; or I> when the !or"oration is "rohibited

under any loan agreement with any fnan!ia

institution or !reditor' whether lo!al or oreign

rom de!laring diidends without its=his !onsent

and su!h !onsent has not yet been se!ured; or I@

when it !an be !learly shown that su!h retention is

ne!essary under s"e!ial !ir!umstan!es obtaining

in the !or"oration' su!h as when there is need ors"e!ial resere or "robable !ontingen!ies. In

"ection >>. Power to enter into manaement

contract1 8 0o !or"oration shall !on!lude a

management !ontra!t with another !or"oration

unless su!h !ontra!t shall hae been a""roed by

the board o dire!tors and by sto!kholders owning

at least the ma2ority o the outstanding !a"ita

sto!k' or by at least a ma2ority o the members in

the !ase o a non8sto!k !or"oration' o both the

managing and the managed !or"oration' at a

meeting duly !alled or the "ur"ose: (roided' That

I9 where a sto!kholder or sto!kholders

re"resenting the same interest o both the

managing and the managed !or"orations own o

!ontrol more than one8third I9=@ o the tota

outstanding !a"ital sto!k entitled to ote o the

managing !or"oration; or I> where a ma2ority o

the members o the board o dire!tors o the

managing !or"oration also !onstitute a ma2ority o




the members o the board o dire!tors o the

managed !or"oration' then the management

!ontra!t must be a""roed by the sto!kholders o

the managed !or"oration owning at least two8

thirds I>=@ o the total outstanding !a"ital sto!k

entitled to ote' or by at least two8thirds I>=@ o

the members in the !ase o a non8sto!k

!or"oration. 0o management !ontra!t shall beentered into or a "eriod longer than fe years or

any one term.

The "roisions o the ne%t "re!eding "aragra"h

shall a""ly to any !ontra!t whereby a !or"oration

undertakes to manage or o"erate all or

substantially all o the business o another

!or"oration' whether su!h !ontra!ts are !alled

seri!e !ontra!ts' o"erating agreements or

otherwise: (roided' howeer' That su!h seri!e

!ontra!ts or o"erating agreements whi!h relate to

the e%"loration' deelo"ment' e%"loitation or

utili6ation o natural resour!es may be entered into

or su!h "eriods as may be "roided by the

"ertinent laws or regulations. In

"ection ?D. 5onsideration for stocks. 8 Sto!ks

shall not be issued or a !onsideration less than

the "ar or issued "ri!e thereo. Consideration or

the issuan!e o sto!k may be any or a !ombination

o any two or more o the ollowing:

9. A!tual !ash "aid to the !or"oration;

>. (ro"erty' tangible or intangible' a!tually

re!eied by the !or"oration and ne!essary or

!onenient or its use and lawul "ur"oses at a

air aluation e<ual to the "ar or issued alue

o the sto!k issued;

@. $abor "erormed or or seri!es a!tually

rendered to the !or"oration;

D. (reiously in!urred indebtedness o the!or"oration;

4. Amounts transerred rom unrestri!ted

retained earnings to stated !a"ital; and

K. /utstanding shares e%!hanged or sto!ks in

the eent o re!lassif!ation or !onersion.

here the !onsideration is other than a!tual !ash

or !onsists o intangible "ro"erty su!h as "atents

o !o"yrights' the aluation thereo shall initially be

determined by the in!or"orators or the board o

dire!tors' sub2e!t to a""roal by the Se!urities and

E%!hange Commission.

Shares o sto!k shall not be issued in e%!hange or"romissory notes or uture seri!e.

The same !onsiderations "roided or in this

se!tion' insoar as they may be a""li!able' may be

used or the issuan!e o bonds by the !or"oration.

The issued "ri!e o no8"ar alue shares may be

f%ed in the arti!les o in!or"oration or by the

board o dire!tors "ursuant to authority !onerred

u"on it by the arti!les o in!or"oration or the by8

laws' or in the absen!e thereo' by the

sto!kholders re"resenting at least a ma2ority o the

outstanding !a"ital sto!k at a meeting duly !alled

or the "ur"ose. I4 and 9K

b. Treasury Stocks

"ection =@. 6otin riht for treasury shares1

Treasury shares shall hae no oting right as long

as su!h shares remain in the Treasury. In

c. Conduct of Stockhoders!Sharehoders

Meetings

"ection >9. 7inds of meetins1 8 *eetings o

dire!tors' trustees' sto!kholders' or members may

be regular or s"e!ial. In

"ection =<. 0eular and special meetins of

stockholders or members1 8 Regular meetings o

sto!kholders or members shall be held annually on

a date f%ed in the by8laws' or i not so f%ed' on

any date in A"ril o eery year as determined by

the board o dire!tors or trustees: (roided' That

written noti!e o regular meetings shall be sent to

all sto!kholders or members o re!ord at least two

I> weeks "rior to the meeting' unless a di#erent

"eriod is re<uired by the by8laws.

S"e!ial meetings o sto!kholders or members shal

be held at any time deemed ne!essary or as

"roided in the by8laws: (roided' howeer' That at

least one I9 week written noti!e shall be sent to

*ontaos ,eidi Jean ). (age 9K



all sto!kholders or members' unless otherwise

"roided in the by8laws.

0oti!e o any meeting may be waied' e%"ressly or

im"liedly' by any sto!kholder or member.

heneer' or any !ause' there is no "erson

authori6ed to !all a meeting' the Se!urities andE%!hange Commission' u"on "etition o a

sto!kholder or member on a showing o good

!ause thereor' may issue an order to the

"etitioning sto!kholder or member dire!ting him to

!all a meeting o the !or"oration by giing "ro"er

noti!e re<uired by this Code or by the by8laws. The

"etitioning sto!kholder or member shall "reside

thereat until at least a ma2ority o the sto!kholders

or members "resent hae !hosen one o their

number as "residing o!er. I>D' >K

"ection =-. Place and time of meetins of

stockholders of members1 8 Sto!kholders or

members meetings' whether regular or s"e!ial'

shall be held in the !ity or muni!i"ality where the

"rin!i"al o!e o the !or"oration is lo!ated' and i

"ra!ti!able in the "rin!i"al o!e o the

!or"oration: (roided' That *etro *anila shall' or

"ur"oses o this se!tion' be !onsidered a !ity or

muni!i"ality.

0oti!e o meetings shall be in writing' and the time

and "la!e thereo stated therein.

All "ro!eedings had and any business transa!ted

at any meeting o the sto!kholders or members' i

within the "owers or authority o the !or"oration'

shall be alid een i the meeting be im"ro"erly

held or !alled' "roided all the sto!kholders or

members o the !or"oration are "resent or duly

re"resented at the meeting. I>D and >4

"ection 98. Place of meetins1 8 The by8laws may

"roide that the members o a non8sto!k!or"oration may hold their regular or s"e!ial

meetings at any "la!e een outside the "la!e

where the "rin!i"al o!e o the !or"oration is

lo!ated: (roided' That "ro"er noti!e is sent to all

members indi!ating the date' time and "la!e o the

meeting: and (roided' urther' That the "la!e o

meeting shall be within the (hili""ines. In

"ection =D. 8uorum in meetins1 8 -nless

otherwise "roided or in this Code or in the by8

laws' a <uorum shall !onsist o the sto!kholders

re"resenting a ma2ority o the outstanding !a"ita

sto!k or a ma2ority o the members in the !ase o

non8sto!k !or"orations. In

LAN,A vs. )A

FA)T"6 (hili""ine *er!hant *arine S!hool' )n!

I(**S) was in!or"orated' with NNK !a"ital sto!k

subs!ri"tion re?e!ted in the arti!les o

in!or"oration. ,oweer' "riate res"ondents and

their "rede!essors who were in !ontrol o (**S)

registered the !om"any+s sto!k and transer book

or the frst time' re!ording thirty8three I@@

!ommon shares as the only issued and outstanding

shares o (**S). A s"e!ial sto!kholders+ meeting

was !alled and held on the basis o what was

!onsidered as a <uorum o twenty8seen I>N

!ommon shares' re"resenting more than two8thirds

I>=@ o the !ommon shares issued and

outstanding.

A s"e!ial sto!kholders+ meeting was held to ele!t a

new set o dire!tors. (riate res"ondents

thereater fled a "etition with the SEC <uestioning

the alidity o the sto!kholders+ meeting' allegingthat the <uorum or the said meeting should not be

based on the issued and outstanding shares as "er

the sto!k and transer book' but on the initia

subs!ribed !a"ital sto!k o seen hundred seenty

si% INNK shares' as re?e!ted in the Arti!les o

)n!or"oration.

*"",E6 hat should be the basis o <uorum or a

sto!kholders+ meetingQthe outstanding !a"itasto!k as indi!ated in the arti!les o in!or"oration o

that !ontained in the !om"any+s sto!k and transe

book3

#EL$6 )t should be the outstanding !a"ital sto!k

as indi!ated in the arti!les o in!or"oration.

*ontaos ,eidi Jean ). (age 9N



An arti!le o in!or"oration defnes the !harter o

the !or"oration and the !ontra!tual relationshi"s

between the State and the !or"oration' the

sto!kholders and the State' and between the

!or"oration and its sto!kholders.

To base the !om"utation o <uorum solely on the

obiously def!ient' i not ina!!urate sto!k and

transer book' and !om"letely disregarding the

issued and outstanding shares as indi!ated in the

arti!les o in!or"oration would work in2usti!e to the

owners and=or su!!essors in interest o the said

shares. The sto!k and transer book o (**S)

!annot be used as the sole basis or determining

the <uorum as it does not re?e!t the totality o

shares whi!h hae been subs!ribed' more so when

the arti!les o in!or"oration show a signif!antly

larger amount o shares issued and outstanding as

!om"ared to that listed in the sto!k and transer

book.

d. Contracts " Agree#ents A$ecting

Stockhoders

Pro%y

"ection =;. Pro9ies1 8 Sto!kholders and members

may ote in "erson or by "ro%y in all meetings o

sto!kholders or members. (ro%ies shall in writing'

signed by the sto!kholder or member and fled

beore the s!heduled meeting with the !or"orate

se!retary. -nless otherwise "roided in the "ro%y'

it shall be alid only or the meeting or whi!h it is

intended. 0o "ro%y shall be alid and e#e!tie or

a "eriod longer than fe I4 years at any one time.

VTA &Voting Trusts Agree#ents'

"ection =9. 6otin trusts1 8 /ne or more

sto!kholders o a sto!k !or"oration may !reate a

oting trust or the "ur"ose o !onerring u"on a

trustee or trustees the right to ote and other

rights "ertaining to the shares or a "eriod not

e%!eeding fe I4 years at any time: (roided'

That in the !ase o a oting trust s"e!if!ally

re<uired as a !ondition in a loan agreement' said

oting trust may be or a "eriod e%!eeding fe I4

years but shall automati!ally e%"ire u"on ul

"ayment o the loan. A oting trust agreemen

must be in writing and notari6ed' and shall s"e!iy

the terms and !onditions thereo. A !ertifed !o"y

o su!h agreement shall be fled with the

!or"oration and with the Se!urities and E%!hange

Commission; otherwise' said agreement isine#e!tie and unenor!eable. The !ertif!ate o

!ertif!ates o sto!k !oered by the oting trus

agreement shall be !an!elled and new ones shal

be issued in the name o the trustee or trustees

stating that they are issued "ursuant to said

agreement. )n the books o the !or"oration' it shal

be noted that the transer in the name o the

trustee or trustees is made "ursuant to said oting

trust agreement.

The trustee or trustees shall e%e!ute and delier to

the transerors oting trust !ertif!ates' whi!h shal

be transerable in the same manner and with the

same e#e!t as !ertif!ates o sto!k.

The oting trust agreement fled with the

!or"oration shall be sub2e!t to e%amination by any

sto!kholder o the !or"oration in the same manne

as any other !or"orate book or re!ord: (roided

That both the transeror and the trustee o

trustees may e%er!ise the right o ins"e!tion o al

!or"orate books and re!ords in a!!ordan!e with

the "roisions o this Code.

Any other sto!kholder may transer his shares to

the same trustee or trustees u"on the terms and

!onditions stated in the oting trust agreement

and thereu"on shall be bound by all the "roisions

o said agreement.

0o oting trust agreement shall be entered into o

the "ur"ose o !ir!umenting the law against

mono"olies and illegal !ombinations in restraint o

trade or used or "ur"oses o raud.

-nless e%"ressly renewed' all rights granted in a

oting trust agreement shall automati!ally e%"ire

at the end o the agreed "eriod' and the oting

trust !ertif!ates as well as the !ertif!ates o sto!k

in the name o the trustee or trustees shall thereby

be deemed !an!elled and new !ertif!ates o sto!k

shall be reissued in the name o the transerors.

*ontaos ,eidi Jean ). (age 9M



The oting trustee or trustees may ote by "ro%y

unless the agreement "roides otherwise. I@Ka

RAMON ). LEE and ANTON*O $M. LA)$AO s.

T#E #ON. )O,RT OF APPEAL"5

FA)T"6 A !om"laint or a sum o money was fled

by the )nternational Cor"orate 5ank' )n!. against

the "riate res"ondents who' in turn' fled a third

"arty !om"laint against A$FA and the "etitioners.

The "etitioners fled a motion to dismiss the third

"arty !om"laint whi!h the Regional Trial Court o

*akati denied. The "etitioners fled their answer to

the third "arty !om"laint.

*eanwhile' the trial !ourt issued an order re<uiring

the issuan!e o an alias summons u"on A$FA

through the 75( as a !onse<uen!e o the

"etitioners letter inorming the !ourt that thesummons or A$FA was erroneously sered u"on

them !onsidering that the management o A$FA

had been transerred to the 75(.

The 75( !laimed that it was not authori6ed to

re!eie summons on behal o A$FA sin!e the 75(

had not taken oer the !om"any whi!h has a

se"arate and distin!t !or"orate "ersonality and

e%isten!e.

The trial !ourt issued an order adising the "riate

res"ondents to take the a""ro"riate ste"s to serethe summons to A$FA.

The "riate res"ondents fled a *aniestation and

*otion or the 7e!laration o (ro"er Seri!e o

Summons whi!h the trial !ourt granted

(etitioners fled a motion or re!onsideration

submitting that Rule 9D' se!tion 9@ o the Reised

Rules o Court is not a""li!able sin!e they were no

longer oGcers of ALFA and that the "riate

res"ondents should hae aailed o another mode

o seri!e under Rule 9D' Se!tion 9K o the saidRules' i.e., through "ubli!ation to e#e!t "ro"er

seri!e u"on A$FA.

(riate res"ondents argued that the oting trust

agreement did not diest the "etitioners o their

"ositions as "resident and e%e!utie i!e8"resident

o A$FA so that seri!e o summons u"on A$FA

through the "etitioners as !or"orate o!ers was

"ro"er.

The trial !ourt u"held the alidity o the seri!e o

summons on A$FA through the "etitioners' thus

denying the latters motion or re!onsideration and

re<uiring A$FA to fled its answer through the

"etitioners as its !or"orate o!ers.

Se!ond motion or re!onsideration was fled by the

"etitioners reiterating their stand that by irtue o

the oting trust agreement they !eased to be

o!ers and dire!tors o A$FA' hen!e' they !ould no

longer re!eie summons or any !ourt "ro!esses o

or on behal o A$FA. )n su""ort o their se!ond

motion or re!onsideration' the "etitioners

atta!hed thereto a !o"y o the oting trust

agreement between all the sto!kholders o A$FA

Ithe "etitioners in!luded' on the one hand' and

the 75(' on the other hand' whereby themanagement and !ontrol o A$FA be!ame ested

u"on the 75(.

Trial !ourt reersed itsel by setting aside its

"reious /rder and de!lared that seri!e u"on the

"etitioners who were no longer !or"orate o!ers

o A$FA !annot be !onsidered as "ro"er seri!e o

summons on A$FA.

/n *ay 94' 9M' the "riate res"ondents moed

or a re!onsideration o the aboe /rder whi!h was

armed by the !ourt in its /rder dated August 9D9M denying the "riate res"ondents motion o

re!onsideration.

(etition or certiorari was belatedly submitted by

the "riate res"ondent beore the "ubli!

res"ondent whi!h' nonetheless' resoled to gie

due !ourse thereto on Se"tember >9' 9M.

Trial !ourt' not haing been notifed o the "ending

"etition or certiorari with "ubli! res"ondent issued

an /rder de!laring it as fnal.

Ater the "etitioners fled their answer to the

"riate res"ondents "etition or certiorari' the

"ubli! res"ondent CA rendered its de!ision' setting

aside o the lower !ourt and ordered res"ondent

!or"oration to fle its answer within the

reglementary "eriod.

The "etitioners moed or a re!onsideration o the

de!ision o the "ubli! res"ondent whi!h resoled to




deny the same. ,en!e' the "etitioners fled this

certiorari "etition im"uting grae abuse o

dis!retion amounting to la!k o 2urisdi!tion on the

"art o the "ubli! res"ondent in holding that there

was "ro"er seri!e o summons on A$FA through

the "etitioners.

*"",E6 =0 there was "ro"er seri!e o summons

on Ala )ntegrated Te%tile *ills IA$FA' or short

through the "etitioners as "resident and i!e8

"resident' allegedly' o the sub2e!t !or"oration

ater the e%e!ution o a oting trust agreement

between A$FA and the 75(.

#EL$6 (etitioners "osition meritorious. -nder

section =9 of the )or%oration )ode' supra, a

voting tr&st agree(ent may !oner u"on a

trustee not only the sto!kholders oting rights but

also other rights "ertaining to his shares as long as

the oting trust agreement is not entered Gor the"ur"ose o !ir!umenting the law against

mono"olies and illegal !ombinations in restraint o

trade or used or "ur"oses o raud.G Ise!tion 4'

4th "aragra"h o the Cor"oration Code Thus' the

traditional !on!e"t o a oting trust agreement

"rimarily intended to single out a sto!kholders

right to ote rom his other rights as su!h and

made irreo!able or a limited duration may in

"ra!ti!e be!ome a legal dei!e whereby a transer

o the sto!kholders shares is e#e!ted sub2e!t to

the s"e!if! "roision o the oting trust

agreement.

The law sim"ly "roides that a oting trust

agreement is an agreement in writing whereby one

or more sto!kholders o a !or"oration !onsent to

transer his or their shares to a trustee in order to

est in the latter oting or other rights "ertaining

to said shares or a "eriod not e%!eeding fe years

u"on the ulfllment o statutory !onditions and

su!h other terms and !onditions s"e!ifed in the

agreement. The fe year8"eriod may be e%tended

in !ases where the oting trust is e%e!uted"ursuant to a loan agreement whereby the "eriod

is made !ontingent u"on ull "ayment o the loan.

)n the instant !ase' the "oint o !ontroersy arises

rom the e#e!ts o the !reation o the oting trust

agreement. The "etitioners maintain that with the

e%e!ution o the oting trust agreement between

them and the other sto!kholders o A$FA' as one

"arty' and the 75(' as the other "arty' the ormer

assigned and transerred all their shares in A$FA to

75(' as trustee. They argue that by irtue to o the

oting trust agreement the "etitioners !an no

longer be !onsidered dire!tors o A$FA. )n su""ort

o their !ontention' the "etitioners inoke section

D8 of the )or%oration )ode hich %rovides' in

"art' that:

Eery dire!tor must own at least one I9 share o


dire!tor whi!h share shall stand in his name on the

books o the !or"oration. Any dire!tor who !eases

to be the owner o at least one I9 share o the

!a"ital sto!k o the !or"oration o whi!h he is a

dire!tor shall thereby !ease to be dire!tor . .

I0ollo' ". >N

The a!ts o this !ase show that the %etitioners

y virt&e of the voting tr&st agree(ent

eec&ted in -9;- dis%osed of a their sharesthrough assign#ent and dei(ery in fa(or of

the )*P+ as trustee. )onseH&ently5 the

%etitioners ceased to on at least one share

standing in their na(es on the oo!s of ALFA

as reH&ired &nder "ection D8 of the ne

)or%oration )ode. They also !eased to hae

anything to do with the management o the

enter"rise. The "etitioners !eased to be dire!tors

,en!e' the transer o the "etitioners shares to the

75( !reated a!an!ies in their res"e!tie "ositions

as dire!tors o A$FA. The transer o shares rom

the sto!kholder o A$FA to the 75( is the essen!e

o the sub2e!t oting trust agreement' :stipulation

;o1 .1 The T0<ST22 may cause to be transferred

to any person one share of stock for the purpose of

=ualifyin such person as director of >?, and

cause a certi&cate of stock evidencin the share

so transferred to be issued in the name of such

person@

*n the light of the e%ress ter(s of

"ti%&lation No. > of the s&Iect voting tr&st

agree(ent. Both %arties5 ALFA and the $BP5ere aare at the ti(e of the eec&tion of

the agree(ent that y virt&e of the transfer

of shares of ALFA to the $BP5 all the directors

of ALFA ere stri%%ed of their %ositions as

s&ch.

The %etitioners in this case do not fall &nder

any of the en&(erated oGcers. The service of

s&((ons &%on ALFA5 thro&gh the

*ontaos ,eidi Jean ). (age >



%etitioners5 therefore5 is not valid. To rule

otherwise' as !orre!tly argued by the "etitioners'

will !ontraene the general "rin!i"le that a

!or"oration !an only be bound by su!h a!ts whi!h

are within the s!o"e o the o!ers or agents

authority.

N*$) V". A,*NO

Facts6 5ad2ak I 5asi! Agri!ultural Traders Jointly

Administered Hasamahan is a !or"oration

engaged in the manua!ture o !o!onut oil and

!o"ra !ake or e%"ort. hen the !or"oration+s

fnan!ial !ondition deteriorated to the "oint o

bankru"t!y they mortgaged the @ !o!o "ro!essing

mills to di#erent banks. )n need o additional

o"erating !a"ital' 5ad2ak a""lied to (05 or

additional fnan!ial assistan!e' it was a""roed

and they entered into a Finan!ial Agreement whi!h

in!ludes the inestment o (05 to the !or"orationin the orm o "reerred sto!k !onertible within 4

years to !ommon sto!k. Then' a Loting Trust

Agreement was e%e!uted in aor o the 0)7C Ia

wholly8owned subsidiary o (05 by the

sto!kholders re"resenting K o the outstanding

"aid8u" and subs!ribed shares o 5ad2ak.

7ue to the insolen!y o 5ad2ak' (05 instituted

e%tra2udi!ial ore!losure "ro!eedings against the

oil mills' whi!h were sold to the (05 as the highest

bidder and the latter ailed to e%er!ise the right o

redem"tion. Subse<uently' (05 transerred theownershi" o oil mills to 0)7C. Ater @ years' 5ad2ak

asked the 0)7C i they are still interested to the

renewal o the Loting Trust Agreement and

re<uested the latter to a!!ount the assets'

"ro"erties' management and o"eration o 5ad2ak

whi!h the latter reused to !om"ly. Then' 5ad2ak

fled a !iil a!tion or mandamus with "reliminary

in2un!tion whi!h was aored by the res"ondent

2udge who issued a restraining order against the

"etitioner. ,en!e' the !onsolidate "etitions seeking

to annul and set aside the de!ision o theres"ondent 2udge.

*ss&e6 hether or not the order o the res"ondent

2udge in granting the "etition or mandamus o

5ad2ak should be annulled and set aside3

R&ling6 The "etitions are granted and the order o

the res"ondent 2udge was annulled and set aside.

The Court fnds no !lear right in 5ad2ak to be

entitled to the writ "rayed or. )t should be noted

that the "etition or mandamus fled by it "rayed

that 0)7C and (05 be ordered to surrender

relin<uish and turn8oer to them the assets

management and o"eration o 5ad2ak and

"arti!ularly to submit !om"lete a!!ounting o

assets. hat 5ad2ak seeks to re!oer is title to"ossession o the @ oil mills whi!h the re!ords

shows already belong to 0)7C. )t is not dis"uted

that the mortgages on the @ oil mills were

ore!losed by (05 and 0)7C. The Court said that

the writ o mandamus will not issue to gie to the

a""li!ant anything to whi!h he is not entitled by

law. Ater 0)7C a!<uired ownershi" o the @ oi

mills there is no doubt' that 0)C7 not only has

"ossession o' but also tile to the @ oil mills.

The (0580)7C o the "ro"erties in <uestion was no

made or a#e!ted under the !a"a!ity was not madeor e#e!ted under the !a"a!ity o a trustee but as a

ore!losing !reditor or the "ur"ose o re!oering

on a 2ust and alid obligation o 5at2ak.

Pooing Agree#ents

"ection -<<. reements by stockholders1 8

9. Agreements by and among sto!kholders

e%e!uted beore the ormation and organi6ation

o a !lose !or"oration' signed by al

sto!kholders' shall surie the in!or"oration osu!h !or"oration and shall !ontinue to be alid

and binding between and among su!h

sto!kholders' i su!h be their intent' to the

e%tent that su!h agreements are no

in!onsistent with the arti!les o in!or"oration

irres"e!tie o where the "roisions o su!h

agreements are !ontained' e%!e"t those

re<uired by this Title to be embodied in said

arti!les o in!or"oration.

>. An agreement between two or moresto!kholders' i in writing and signed by the

"arties thereto' may "roide that in e%er!ising

any oting rights' the shares held by them shal

be oted as therein "roided' or as they may

agree' or as determined in a!!ordan!e with a

"ro!edure agreed u"on by them.

@. 0o "roision in any written agreemen

signed by the sto!kholders' relating to any

*ontaos ,eidi Jean ). (age >9



"hase o the !or"orate a#airs' shall be

inalidated as between the "arties on the

ground that its e#e!t is to make them "artners

among themseles.

D. A written agreement among some or all o

the sto!kholders in a !lose !or"oration shall not

be inalidated on the ground that it so relatesto the !ondu!t o the business and a#airs o

the !or"oration as to restri!t or interere with

the dis!retion or "owers o the board o

dire!tors: (roided' That su!h agreement shall

im"ose on the sto!kholders who are "arties

thereto the liabilities or managerial a!ts

im"osed by this Code on dire!tors.

4. To the e%tent that the sto!kholders are

a!tiely engaged in the management o

o"eration o the business and a#airs o a !lose

!or"oration' the sto!kholders shall be held to

stri!t fdu!iary duties to ea!h other and among

themseles. Said sto!kholders shall be

"ersonally liable or !or"orate torts unless the

!or"oration has obtained reasonably ade<uateliability insuran!e.

9th meeting - d. validity of requirements

Documents