Case Doctrines in Corporation Law (part II)

CASE DOCTRINES IN CORPORATION LAW (part II)

Prepared by  Glenn Rey D. Anino

Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K. saBansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo Jesus, 372 SCRA 171 , December 12, 2001

Corporation Law; Actions; Prescription; The failure of a party to raise prescription before the Securities and Exchange Commission can only be construed as a waiver of that defense.—Likewise, the issue of prescription, which petitioner raised for the first time on appeal to the Court of Appeals, is untenable. Its failure to raise prescription before the SEC can only be construed as a waiver of that defense. At any rate, the SEC has the authority to de-register at all times and under all circumstances corporate names which in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in the use of corporate names not only for the protection of the corporations involved but more so for the protection of the public.

Same; Corporate Names; Parties organizing a corporation must choose a name at their peril.—Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the name.

Same; Same; Words and Phrases; The additional words in a corporation’s name—“Ang Mga Kaanib” and “Sa Bansang Pilipinas, Inc.”—which are merely descriptive of and also referring to the members, or kaanib, of a preexisting corporation who are likewise residing in the Philippines, can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing the former from the latter.—The additional words “Ang Mga Kaanib” and “Sa Bansang Pilipinas, Inc.” in petitioner’s name are, as correctly observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of respondent who are likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from respondent. This is especially so, since both petitioner and respondent corporations are using the same acronym—H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used by petitioner stands for “Haligi at Saligan ng Katotohanan.”

Same; Same; Same; The only difference between the corporate names of petitioner and respondent are the words “Saligan” and “Suhay,” which words are synonymous—both mean ground, foundation or support.—Significantly, the only difference between the corporate names of petitioner and respondent are the words SALIGAN and SUHAY. These words are synonymous—both mean ground, foundation or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even under the test of “reasonable care and observation” confusion may arise.

Same; Same; Freedom of Religion; Ordering a religious society or corporation to change its corporate name is not a violation of its constitutionally guaranteed right to religious freedom.—We need not belabor the fourth issue raised by petitioner. Certainly, ordering petitioner to change its corporate name is not a violation of its constitutionally guaranteed right to religious freedom. In so doing, the SEC merely compelled petitioner to abide by one of the SEC guidelines in the approval of partnership and corporate names, namely its undertaking to manifest its willingness to change its corporate name in the event another person, firm, or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it.

Hyatt Elevators and Escalators Corporation vs. Goldstar Elevators, Phils., Inc., 473 SCRA 705 , October 24, 2005

Corporation Law; Domicile; The residence or domicile of a juridical person is fixed by “the law creating or recognizing” it.—It now becomes apparent that the residence or domicile of a juridical person is fixed by “the law creating or recognizing” it. Under Section 14(3) of the Corporation Code, the place where the principal office of the corporation is to be located is one of the required contents of the articles of incorporation, which shall be filed with the Securities and Exchange Commission (SEC).

Civil Procedure; Actions; Venue; It is a legal truism that the rules on the venue of personal actions are fixed for the convenience of the plaintiffs and their witnesses subject to regulation by the Rules of Court.—Indeed, it is a legal truism that the rules on the venue of personal actions are fixed for the convenience of the plaintiffs and their witnesses. Equally settled, however, is the principle that choosing the venue of an action is not left to a plaintiff’s caprice; the matter is regulated by the Rules of Court. Allowing petitioner’s arguments may lead precisely to what this Court was trying to avoid in Young Auto Supply Company v. CA: the creation of confusion and untold inconveniences to party litigants.

Philips Export B.V. vs. Court of Appeals, 206 SCRA 457 , February 21, 1992

Corporation Law; Trademarks; A corporation’s right to use its corporate and trade name is a property right, a right in rem which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal against trespass or conversion.—As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court declared that a corporation’s right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion. It is regarded, to a certain extent, as a property right and one which cannot be impaired or defeated by subsequent appropriation by another corporation in the same field.

Same; Same; Same; The general rule as to corporations is that each corporation must have a name by which it is to sue and be sued and do all legal acts.—A name is peculiarly important as necessary to the very existence of a corporation (American Steel Foundries vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE 792). Its name is one of its attributes, an element of its existence, and essential to its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that each corporation must have a name by which it is to sue and be sued and do all legal acts. The name of a corporation in this respect designates the corporation in the same manner as the name of an individual designates the person (Cincinnati Cooperage Co. vs. Bate, 96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird, 10 NH 123); and the right to use its corporate name is as much a part of the corporate franchise as any other privilege granted.

Same; Same; Same; A corporation can no more use a corporate name in violation of the rights of others than an individual can use his name legally acquired so as to mislead the public and injure another.—A corporation acquires its name by choice and need not select a name identical with or similar to one already appropriated by a senior corporation while an individual’s name is thrust upon him (See Standard Oil Co. of New Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A corporation can no more use a corporate name in violation of the rights of others than an individual can use his name legally acquired so as to mislead the public and injure another.

Same; Same; Same; The right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption.—The right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption (1 Thompson, p. 80 citing Munn v. Americana Co., 82 N., Eq. 63, 88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274; 134 Pac. 921). In this regard, there is no doubt with respect to Petitioners’ prior adoption of the name “PHILIPS” as part of its corporate name. Petitioners Philips Electrical and Philips Industrial were incorporated on 29 August 1956 and 25 May 1956, respectively, while Respondent Standard Philips was issued a Certificate of Registration on 19 April 1982, twenty-six (26) years later (Rollo, p. 16). Petitioner PEBV has also used the trademark “PHILIPS” on electrical lamps of all types and their accessories since 30 September 1922, as evidenced by Certificate of Registration No. 1651.

Same; Same; Same; In determining the existence of confusing similarity in corporate name, the test is whether the similarity is such as to mislead a person using ordinary care and discrimination.—The second requisite no less exists in this case. In determining the existence of confusing similarity in corporate names, the test is whether the similarity is such as to mislead a person using ordinary care and discrimination. In so doing, the Court must look to the record as well as the names themselves (Ohio Nat. Life Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the corporate names of Petitioners and Private Respondent are not identical, a reading of Petitioner’s corporate names, to wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to conclude that “PHILIPS” is, indeed, the dominant word in that all the companies affiliated or associated with the principal corporation, PEBV, are known in the Philippines and abroad as the PHILIPS Group of Companies.

Same; Same; Same; Same; It is settled that proof of actual confusion need not be shown; It suffices that confusion is probably or likely to occur.—Respondents maintain, however, that Petitioners did not present an iota of proof of actual confusion or deception of the public much less a single purchaser of their product who has been deceived or confused or showed any likelihood of confusion. It is settled, however, that proof of actual confusion need not be shown. It suffices that confusion is probably or likely to occur.

Same; Same; Same; A corporation has an exclusive right to the use of its name which may be protected by injunction upon a principle similar to that upon which persons are protected in the use of trademarks and tradenames.—What is lost sight of, however, is that PHILIPS is a trademark or trade name which was registered as far back as 1922. Petitioners, therefore, have the exclusive right to its use which must be free from any infringement by similarity. A corporation has an exclusive right to the use of its name, which may be protected by injunction upon a principle similar to that upon which persons are protected in the use of trademarks and tradenames (18 C.J.S 574). Such principle proceeds upon the theory that it is a fraud on the corporation which has acquired a right to that name and perhaps carried on its business thereunder, that another should attempt to use the same name, or the same name with a slight variation in such a way as to induce persons to deal with it in the belief that they are dealing with the corporation which has given a reputation to the name.

Sawadjaan vs. Court of Appeals, 459 SCRA 516 , June 08, 2005

Corporation Law; De Facto Corporation; By its failure to submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporations may be a party.—The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here represented by the Office of the Government Corporate Counsel, “the principal law office of government-owned corporations, one of which is respondent bank.” At the very least, by its failure to submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporations may be a party.

Same; Same; A corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as such.—A corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of Corporations, details the procedures and remedies that may be availed of before an order of revocation can be issued. There is no showing that such a procedure has been initiated in this case. [Sawadjaan vs. Court of Appeals, 459 SCRA 516(2005)]

Pioneer Insurance & Surety Corporation vs. Court of Appeals, 175 SCRA 668 , July 28, 1989

Insurance; Real party in interest; The real party in interest with regard to the portion of the indemnity paid is the insurer and not insured; Petitioner was not the real party in interest in the complaint and therefore has no cause of action against the respondents.—Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (10 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]): “Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured.” (Italics supplied) It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer. Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner’s complaint as against the respondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore, has no cause of action against the respondents.

Corporation Law; Partnership; Persons who attempt but fail to form a corporation and who carry on business under the corporate name occupy the position of partners inter se.—“While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by the company will be recognized.”

Same; Same; Same; Such a relation does not necessarily exist however for ordinarily persons cannot be made to assume the relation of partners as between themselves when their purpose is that no partnership shall exist.—However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U. S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter.

Same; Same; Same; Same; Petitioner never had the intention to form a corporation with the respondents despite his representations to them.—It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives credence to the cross-claims of the respondents to the effect that they were induced and lured by the petitioner to make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement.

Same; Same; Same; Same; Same; No de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation.—Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. [Pioneer Insurance & Surety Corporation vs. Court of Appeals, 175 SCRA 668(1989)]

Merrill Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA 824 , July 24, 1992

Same; Corporations; Merrill Lynch Futures, Inc. a foreign corporation is engaged in business in the Philippines.—The Court is satisfied that the facts on record adequately establish that ML FUTURES, operating in the United States, had indeed done business with the Lara Spouses in the Philippines over several years, had done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and had executed all these transactions without ML FUTURES being licensed to so transact business here, and without MLPI being authorized to operate as a commodity futures trading advisor. These are the factual findings of both the Trial Court and the Court of Appeals. These, too, are the conclusions of the Securities & Exchange Commission which denied MLPI’s application to operate as a commodity futures trading advisor, a denial subsequently affirmed by the Court of Appeals. Prescinding from the proposition that factual findings of the Court of Appeals are generally conclusive this Court has been cited to no circumstance of substance to warrant reversal of said Appellate Court’s findings or conclusions in this case.

Same; Same; Estoppel; A foreign corporation doing business in the Philippines may sue in Philippine courts although not authorized to do business here against a Philippine citizen who had contracted with and been benefited by said corporation.—There would seem to be no question that the Laras received benefits generated by their business relations with ML FUTURES. Those business relations, according to the Laras themselves, spanned a period of seven (7) years; and they evidently found those relations to be of such profitability as warranted their maintaining them for that no insignificant period of time; otherwise, it is reasonably certain that they would have terminated their dealings with ML FUTURES much, much earlier. In fact, even as regards their last transaction, in which the Laras allegedly suffered a loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML FUTURES credited them with the amount of US$75,913.42 then due to them, thus reducing their debt to US$84,836.27. Given these facts, and assuming that the Lara Spouses were aware from the outset that ML FUTURES had no license to do business in this country and MLPI, no authority to act as broker for it, it would appear quite inequitable for the Laras to evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea that it should not have done business in this country in the first place, or that its agent in this country, MLPI, had no license either to operate as a “commodity and/ or financial futures broker.”

International Express Travel & Tour Services, Inc. vs. Court of Appeals, 343 SCRA 674 , October 19, 2000

Corporation Law; National Sports Associations; Statutes; R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations.—As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be gleaned from the powers and functions granted to these associations.

Same; Same; The powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality.—The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws.

Same; Same; Philippine Football Association; It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act; The Court cannot agree with the view of the Court of Appeals that the Philippine Football Association came into existence upon the passage of RA. 3135 or P.D. 604.—It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality.

Same; Same; Same; The statutory provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604.—Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have a corporate existence of its own.

Same; It is a settled principle in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for such other acts performed as such agent.—This being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principle in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence.

Same; Doctrine of Corporation by Estoppel; The doctrine of corporation by estoppel applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation.—The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. [International Express Travel & Tour Services, Inc. vs. Court of Appeals, 343 SCRA 674(2000)]

Lozano vs. De los Santos, 274 SCRA 452 , June 19, 1997

Securities and Exchange Commission; Jurisdiction; The jurisdiction of the Securities and Exchange Commission is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.—The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. This jurisdiction is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.

Same; Same; The principal function of the Securities and Exchange Commission is the supervision and control of corporations, partnerships and associations with the end in view that investments in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development.—The first element requires that the controversy must arise out of intracorporate or partnership relations between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation, partnership or association or deal with the internal affairs of the corporation, partnership or association. After all, the principal function of the SEC is the supervision and control of corporations, partnerships and associations with the end in view that investments in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development.

Same; Same; There is no intracorporate nor partnership relation between two jeepney drivers’ and operators’ associations whose plan to consolidate into a single common association is still a proposal—consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation by the SEC.—There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them arose out of their plan to consolidate their respective jeepney drivers’ and operators’ associations into a single common association. This unified association was, however, still a proposal. It had not been approved by the SEC, neither had its officers and members submitted their articles of consolidation in accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation by the SEC. When the SEC, upon processing and examining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization official. The new consolidated corporation comes into existence and the constituent corporations dissolve and cease to exist.

Same; Same; The SEC has no jurisdiction over a dispute between members of separate and distinct associations.—The KAMAJ-DA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations are two separate entities. The dispute between petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is between members of separate and distinct associations. Petitioner and private respondent have no intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has no jurisdiction over the complaint.

Same; Same; Corporation Law; Doctrine of Corporation by Estoppel; The doctrine of corporation by estoppel cannot override jurisdictional requirements—jurisdiction is fixed by law and cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties, and neither can it be conferred by the acquiescence of the court.—The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it be conferred by the acquiescence of the court.

Same; Same; Same; Same; Equity; Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness, and where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who know that it has not been registered, there is no corporation by estoppel.—Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel.

Seventh Day Adventist Conference Church of Southern Philippines, Inc. vs. Northeastern Mindanao Mission of Seventh Day Adventist, Inc., 496 SCRA 215 , July 21, 2006

Donations; Ownership; Donation is undeniably one of the modes of acquiring ownership of real property.—Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of a property may be transferred by tradition as a consequence of a sale.

Same; The donation could not have been made in favor of an entity yet inexistent at the time it was made.—Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no one to accept it. The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift.

Same; Ownership; The execution of a public instrument x x x transfers the ownership from the vendor to the vendee who may thereafter exercise the rights of an owner over the same.—According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. On this, the noted author Arturo Tolentino had this to say: The execution of [a] public instrument x x x transfers the ownership from the vendor to the vendee who may thereafter exercise the rights of an owner over the same. Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive delivery of the property on February 28, 1980 when the sale was made through a public instrument. TCT No. 4468 was thereafter issued and it remains in the name of SDA-NEMM. [Seventh Day Adventist Conference Church of Southern Philippines, Inc. vs. Northeastern Mindanao Mission of Seventh Day Adventist, Inc., 496 SCRA 215(2006)]

Filipinas Port Services, Inc. vs. Go, 518 SCRA 453 , March 16, 2007

Corporation Law; Section 23 of the Corporation Code explicitly provides that unless otherwise provided therein, the corporate powers of all corporations formed under the Code shall be exercised, all business conducted and all property of the corporation shall be con trolled and held by a board of directors.—The governing body of a corporation is its board of directors. Section 23 of the Corporation Code explicitly provides that unless otherwise provided therein, the corporate powers of all corporations formed under the Code shall be exercised, all business conducted and all property of the corporation shall be controlled and held by a board of directors. Thus, with the exception only of some powers expressly granted by law to stockholders (or members, in case of non-stock corporations), the board of directors (or trustees, in case of non-stock corporations) has the sole authority to determine policies, enter into contracts, and conduct the ordinary business of the corporation within the scope of its charter, i.e., its articles of incorporation, by-laws and relevant provisions of law. Verily, the authority of the board of directors is restricted to the management of the regular business affairs of the corporation, unless more extensive power is expressly conferred.

Same; The raison d’être behind the conferment of corporate powers on the board of directors is not lost on the Court—indeed, the concentration in the board of the powers of control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large organization.—The raison d’être behind the conferment of corporate powers on the board of directors is not lost on the Court. Indeed, the concentration in the board of the powers of control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large organization. Stockholders are too numerous, scattered and unfamiliar with the business of a corporation to conduct its business directly. And so the plan of corporate organization is for the stockholders to choose the directors who shall control and supervise the conduct of corporate business.

Same; Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the creation of the executive committee by the board of directors is illegal or unlawful.—Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the creation of the executive committee by the board of directors is illegal or unlawful. One reason is the absence of a showing as to the true nature and functions of said executive committee considering that the “executive committee,” referred to in Section 35 of the Corporation Code which is as powerful as the board of directors and in effect acting for the board itself, should be distinguished from other committees which are within the competency of the board to create at anytime and whose actions require ratification and confirmation by the board. Another reason is that, ratiocinated by both the two (2) courts below, the Board of Directors has the power to create positions not provided for in Filport’s bylaws since the board is the cor-poration’s governing body, clearly upholding the power of its board to exercise its prerogatives in managing the business affairs of the corporation.

Same; If the cause of the losses is merely error in judgment, not amounting to bad faith or negligence, directors and/or officers are not liable.—If the cause of the losses is merely error in business judgment, not amounting to bad faith or negligence, directors and/or officers are not liable. For them to be held accountable, the mismanagement and the resulting losses on account thereof are not the only matters to be proven; it is likewise necessary to show that the direc-tors and/or officers acted in bad faith and with malice in doing the assailed acts. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill-will partaking of the nature of fraud. We have searched the records and nowhere do we find a “dishonest purpose” or “some moral obliquity,” or “conscious doing of a wrong” on the part of the respondents that “partakes of the nature of fraud.”

Same; Management Prerogatives; The determination of the necessity for additional offices and/or positions in a corporation is a management prerogative which courts are not wont to review in the absence of any proof that such prerogative was exercised in bad faith or with malice.—The determination of the necessity for additional offices and/or positions in a corporation is a management prerogative which courts are not wont to review in the absence of any proof that such prerogative was exercised in bad faith or with malice.

Same; Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees.—Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. But an individual stockholder may be permitted to institute a derivative suit in behalf of the corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue, or when a demand upon them to file the necessary action would be futile because they are the ones to be sued, or because they hold control of the corporation. In such actions, the corporation is the real party-in-interest while the suing stockholder, in behalf of the corporation, is only a nominal party.

Same; Derivative Suits; Since the ones to be sued are the directors/officers of the corporation itself, a stockholder, like petitioner Cruz, may validly institute a “derivative suit” to vindicate the alleged corporate injury, in which case Cruz is only a nominal party while Filport is the real party-in-interest.—The action below is principally for damages resulting from alleged mismanagement of the affairs of Filport by its directors/officers, it being alleged that the acts of mismanagement are detrimental to the interests of Filport. Thus, the injury complained of primarily pertains to the corporation so that the suit for relief should be by the corporation. However, since the ones to be sued are the directors/officers of the corporation itself, a stockholder, like petitioner Cruz, may validly institute a “derivative suit” to vindicate the alleged corporate injury, in which case Cruz is only a nominal party while Filport is the real party-in-interest. For sure, in the prayer portion of petitioners’ petition before the SEC, the reliefs prayed were asked to be made in favor of Filport.

San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, 296 SCRA 631 , September 29, 1998

Corporation Law; Sales; The property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation’s board of directors.—A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation’s board of directors.

Same; Same; Agency; The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law.—Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. Thus, this Court has held that “ ‘a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred.’ ”

Same; Same; Same; Corporate Treasurers; Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.—The Court has also recognized the rule that “persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19).” Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.

Same; Same; Same; Same; Selling is obviously foreign to a corporate treasurer’s function, which generally has been described as “to receive and keep the funds of the corporation, and to disburse them in accordance with the authority given him by the board or the properly authorized officers.”—That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation. Selling is obviously foreign to a corporate treasurer’s function, which generally has been described as “to receive and keep the funds of the corporation, and to disburse them in accordance with the authority given him by the board or the properly authorized officers.”

Same; Same; Same; When the corporate officers exceed their authority, their actions “cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them.”—As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed their authority, their actions “cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them.”

Same; Same; Same; Contracts; Requisites of a Valid and Perfected Contract.—Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: “(1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established.” As found by the trial court and affirmed by the Court of Appeals, there is no evidence that Gruenberg was authorized to enter into the contract of sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is binding on this Court. As the consent of the seller was not obtained, no contract to bind the obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and Motorich.

Same; Same; Same; Same; Where a corporation never gave a written authorization to its treasurer to sell a parcel of land it owns, any agreement to sell entered into by the latter with a third party is void.—Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot be ratified.

Same; Appeals; Pleadings and Practice; It is well-settled that points of law, theories and arguments not brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal—allowing a party to change horses in midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process.—Petitioner itself concedes having raised the issue belatedly, not having done so during the trial, but only when it filed its surrejoinder before the Court of Appeals. Thus, this Court cannot entertain said issue at this late stage of the proceedings. It is well-settled that points of law, theories and arguments not brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal. Allowing petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process.

Same; Piercing the Veil of Corporate Fiction Doctrine; On equitable considerations, the corporate veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation.—True, one of the advantages of a corporate form of business organization is the limitation of an investor’s liability to the amount of the investment. This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. On equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation.

Same; Same; Evidence; The question of piercing the veil of corporate fiction is essentially a matter of proof.—We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons like petitioner.

Same; Same; Close Corporations; Words and Phrases; “Close Corporation,” Defined.—Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation Code defines a close corporation as follows: “SEC. 96. Definition and Applicability of Title.—A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All of the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. x x x.”

Same; Same; Same; A corporation does not become a close corporation just because a man and his wife owns 99.866% of its subscribed capital stock; So, too, a narrow distribution of ownership does not, by itself, make a close corporation.—The articles of incorporation of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation. Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The “[m]ere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personalities.” So, too, a narrow distribution of ownership does not, by itself, make a close corporation.

Same; Same; Same; In exceptional cases, “an action by a director, who singly is the controlling stockholder, may be considered as a binding corporate act and a board action as nothing more than a mere formality.”—The Court is not unaware that there are exceptional cases where “an action by a director, who singly is the controlling stockholder, may be considered as a binding corporate act and a board action as nothing more than a mere formality.” The present case, however, is not one of them. As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own “almost 99.866%” of Respondent Motorich. Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned exception does not apply.

Same; Same; Same; Marriage; Husband and Wife; Conjugal Partnership; Co-Ownership; There is no co-ownership between the spouses in the properties of the conjugal partnership of gains.—Granting arguendo that the corporate veil of Motorich is to be disregarded, the subject parcel of land would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their marriage. There being no indication that said spouses, who appear to have been married before the effectivity of the Family Code, have agreed to a different property regime, their property relations would be governed by conjugal partnership of gains. As a consequence, Nenita Gruenberg could not have effected a sale of the subject lot because “[t]here is no co-ownership between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor of another his or her interest in the partnership or in any property belonging to it; neither spouse can ask for a partition of the properties before the partnership has been legally dissolved.”

Same; Same; Same; Same; Same; Absolute Community of Property; Under the regime of absolute community of property, “alienation of community property must have the written consent of the other spouse or the authority of the court without which the disposition or encumbrance is void.”—Assuming further, for the sake of argument, that the spouses’ property regime is the absolute community of property, the sale would still be invalid. Under this regime, “alienation of community property must have the written consent of the other spouse or the authority of the court without which the disposition or encumbrance is void.” Both requirements are manifestly absent in the instant case.

Montelibano vs. Bacolod-Murcia Milling Co., Inc., 5 SCRA 36 , May 18, 1962

Corporations; Exercise of charter powers; Test to be applied.—"It is a question, therefore, in each case, of the logical relation of the act to the corporate purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful, sense, it may fairly be considered within charter powers. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not." (Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)

Same; Same; Question on probable losses or decrease in profits not reviewable by courts.—Whether or not a valid and binding resolution passed by the board of directors, will cause losses or decrease the profits of the corporation, may not be reviewed by the courts. [Montelibano vs. Bacolod-Murcia Milling Co., Inc., 5 SCRA 36(1962)]

Philippine Stock Exchange, Inc. vs. Court of Appeals, 281 SCRA 232 , October 27, 1997

Corporation Law; Securities and Exchange Commission; Stock Exchanges; The SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock exchange.—We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock exchange. This is in line with the SEC’s mission to ensure proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and disposition of securities in the country. As the appellate court explains: “Paramount policy also supports the authority of the public respondent to review petitioner’s denial of the listing. Being a stock exchange, the petitioner performs a function that is vital to the national economy, as the business is affected with public interest. As a matter of fact, it has often been said that the economy moves on the basis of the rise and fall of stocks being traded. By its economic power, the petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange, if allowed to interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry to the market of securities. To repeat, the monopoly, unless accompanied by control, becomes subject to abuse; hence, considering public interest, then it should be subject to government regulation.”

Same; Same; Same; Philippine Stock Exchange; The PSE’s management prerogatives are not under the absolute control of the SEC, for the PSE is, after all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business.—This is not to say, however, that the PSE’s management prerogatives are under the absolute control of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the PSE’s main concerns, as such, is still the generation of profit for its stock holders. Moreover, the PSE has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to perform all other legal acts within its allocated express or implied powers.

Same; Same; Same; Same; Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for that of the board of directors—the board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts.—A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such a body. As to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts.

Same; Same; Same; Same; Notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE’s decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE’s judgment is attended by bad faith.—Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE’s decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE’s judgment is attended by bad faith. In Board of Liquidators vs. Kalaw, it was held that bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest of ill will, partaking of the nature of fraud.

Same; Same; Same; Same; As the primary market for securities, the PSE had established its name and goodwill, and it has the right to protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities; The concept of government absolutism is a thing of the past, and should remain so.—Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the right to protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities. It was reasonable for the PSE, therefore, to exercise its judgment in the manner it deems appropriate for its business identity, as long as no rights are trampled upon, and public welfare is safeguarded. In this connection, it is proper to observe that the concept of government absolutism is a thing of the past, and should remain so.

Same; Same; Same; Same; The SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing of Puerto Azul Land, Inc., since this is a matter addressed to the sound discretion of the PSE, a corporate entity, whose business judgments are respected in the absence of bad faith.—In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true ownership of the properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of the properties’ ownership and alienability exists, and this puts to question the qualification of PALI’s public offering. In sum, the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a corporate entity, whose business judgments are respected in the absence of bad faith.

Same; Same; Same; The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the PSE is not for the Supreme Court to determine, but is left to the sound discretion of the Securities and Exchange Commission.—The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the PSE is not for the Court to determine, but is left to the sound discretion of the Securities and Exchange Commission. In mandating the SEC to administer the Revised Securities Act, and in performing its other functions under pertinent laws, the Revised Securities Act, under Section 3 thereof, gives the SEC the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the said laws. The second paragraph of Section 4 of the said law, on the other hand, provides that no security, unless exempt by law, shall be issued, endorsed, sold, transferred or in any other manner conveyed to the public, unless registered in accordance with the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission. Presidential Decree No. 902-A, on the other hand, provides that the SEC, as regulatory agency, has supervision and control over all corporations and over the securities market as a whole, and as such, is given ample authority in determining appropriate policies.

Same; Same; Same; The absolute reliance on the full disclosure method in the registration of securities is untenable.—A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities dependent, to a certain extent, on the merits of the securities themselves, and of the issuer, to be determined by the Securities and Exchange Commission. This measure was meant to protect the interests of the investing public against fraudulent and worthless securities, and the SEC is mandated by law to safeguard these interests, following the policies and rules therefore provided. The absolute reliance on the full disclosure method in the registration of securities is, therefore, untenable. As it is, the Court finds that the private respondent PALI, on at least two points (Nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount the effectivity of whatever method the SEC, in the exercise of its vested authority, chooses in setting the standard for public offerings of corporations wishing to do so. However, the SEC must recognize and implement the mandate of the law, particularly the Revised Securities Act, the provisions of which cannot be amended or supplanted by mere administrative issuance. [Philippine Stock Exchange, Inc. vs. Court of Appeals, 281 SCRA 232(1997)]

Western Institute of Technology, Inc. vs. Salas, 278 SCRA 216 , August 21, 1997

Corporation Law; Two ways by which members of the board can be granted compensation apart from reasonable per diems.—There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation. Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders’ meeting agree to give it to them.

Same; Members of the board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other than as directors/trustees.—This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: “x x x [T]he directors shall not receive any compensation, as such directors, x x x.” The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other than as directors/trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology.

Same; Remedial Law; Action; Meaning of Derivative Suit; For a derivative suit to prosper, it is required that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join.—A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject matter and nature of the action. This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in part, merely states that “this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097 and 37098” since the trial court’s judgment of acquittal failed to impose any civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit. [Western Institute of Technology, Inc. vs. Salas, 278 SCRA 216(1997)]

Board of Liquidators vs, Kalaw, 20 SCRA 987 , August 14, 1967

Corporations; Three methods of winding up corporate affairs.—Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of Court (which superseded Section 66 of the Corporation Law), whereby, upon voluntary dissolution of a corporation, the court may direct "such disposi tion of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation"; (2) under Section 77 of the Corporation Law, whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established"; and (3) under Section 78 of the Corporation Law, by virtue of which the corporation, within the three-year period just mentioned, "is authorized and empowered to convey all of its property to trustees for the benefit of members, stockholders, creditors, and others interested,"

Board of Liquidators; Trustee for government.—By Executive Order No. 372, the government, the sole stockholder, abolished the National Coconut Corporation (NACOCO) and placed its assets in the hands of the Board of Liquidators. The Board thus became the trustee on behalf of the government. It was an express trust. The legal interest became vested in the trustee, the Board of Liquidators. The beneficial interest remained with the sole stockholder, the government. The Board took the place of the dissolved government corporations after the expiration of the statutory three-year period for the liquidation of their affairs.

Same; No term for life of Board.—No time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of various government corporations. Its term of life is not fixed.

Same; Right of Board of Liquidators to proceed as partyplaintiff; Case at bar.—At no time had the government withdrawn the property. or the authority to continue the present suit, from the Board of Liquidators. Hence, the Board can prosecute this case to its final conclusion. The provisions of Section 78 of the Corporation Law, the third method of winding up corporate affairs, find application. The Board has personality to proceed as party-plaintiff in this case.

Settlement of decedent's estate; Actions; Actions that survive; Executors and administrators.—The actions that survive against a decedent's executors or administrators are: (1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or property. A suit to recover damages, based on the alleged tortious acts of the manager of a government corporation, survives. It is not a mere money claim that is extinguished upon the death of a party. [Board of Liquidators vs, Kalaw, 20 SCRA 987(1967)]

Corporations; Implied authority of corporate officer to enter into contracts.—A corporate officer, entrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. As such officer, he may, without any special authority from the Board of Directors, perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and may bind the corporation by contracts in matters arising in the usual course of business.

Same; Where similar acts of manager were approved by directors.—Where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established by proof of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. Where the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in Nacoco's behalf without prior board approval, and the board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval, the contracts of the general manager, under the given circumstances, are valid corporate acts.

Same; Ratification by corporation of unauthorized contract of its officers.—Ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified and is equivalent to original authority. The corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time. The adoption or ratif ication of a contract by a corporation is nothing more nor less than the making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, and any ratification or adoption is equivalent to a grant of prior authority.

Contracts; Bad faith.—Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or ill-will; it partakes of the nature of fraud.

Damages; Damnum absque injuria.—The present case is one of damnum absque injuria. Conjunction of damage and wrong is here absent. There cannot be an actionable wrong if either one or the other is wanting. [Board of Liquidators vs, Kalaw, 20 SCRA 987(1967)]

Benguet Electric Cooperative, Inc. vs. NLRC, 209 SCRA 55 , May 18, 1992

Corporation Law; Damages; The Board Members and Officers of a corporation who purport to act for and in behalf of the corporation, keep within the lawful scope of their authority in so acting and act in good faith, do not become liable whether civilly or otherwise for the consequences of their acts.—The Board members and officers of a corporation who purport to act for and in behalf of the corporation, keep within the lawful scope of their authority in so acting, and act in good faith, do not become liable, whether civilly or otherwise, for the consequences of their acts. Those acts, when they are such a nature and are done under such circumstances, are properly attributed to the corporation alone and no personal liability is incurred by such officers and Board members. [Benguet Electric Cooperative, Inc. vs. NLRC, 209 SCRA 55(1992)

People’s Aircargo and Warehousing Co., Inc. vs. Court of Appeals, 297 SCRA 170 , October 07, 1998

Corporation Law; In the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.—The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, “having x x x powers, attributes and properties expressly authorized by law or incident to its existence.” Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code of the Philippines.

Same; The authority of certain individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business.—Under Sec. 23, Corporation Code, the power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business.

Same; It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation.—Petitioner’s argument is not persuasive. Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation.

Same; Estoppel; It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts, and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority.—Private respondent should not be faulted for believing that Punsalan’s conformity to the contract in dispute was also binding on petitioner. It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority.

Same; Even if a certain contract is outside the usual powers of the president, the corporation’s ratification of the same and acceptance of benefits make it binding.—Private respondent prepared an operations manual and conducted a seminar for the employees of petitioner in accordance with their contract. Petitioner accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the president, petitioner’s ratification of said contract and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified “by the acceptance of benefits under them” under Article 1405.

Same; In the absence of a charter or bylaw provision to the contrary, the president of a corporation is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties.—Inasmuch as a corporate president is often given general supervision and control over corporate operations, the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation. In the absence of a charter or bylaw provision to the contrary, the president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties. [People’s Aircargo and Warehousing Co., Inc. vs. Court of Appeals, 297 SCRA 170(1998)]

Easycall Communications Phils., Inc. vs. King, 478 SCRA 102 , December 15, 2005

Remedial Law; Jurisdictions; Securities and Exchange Commission; National Labor Relations Commission; Under Section 5 of PD 902-A, the law applicable at the time this controversy arose, the Securities and Exchange Commission, not the National Labor Relations Commission had original and exclusive jurisdiction over cases involving the removal of corporate officers; But it had to be first established that the person removed or dismissed was a corporate officer before the removal or dismissal could properly fall within the jurisdiction of the Securities and Exchange Commission and not the National Labor Relations Commission.—Under Section 5 of PD 902A, the law applicable at the time this controversy arose, the SEC, not the NLRC, had original and exclusive jurisdiction over cases involving the removal of corporate officers. Section 5(c) of PD 902-A applied to a corporate officer’s dismissal for his dismissal was a corporate act and/or an intra-corporate controversy. However, it had to be first established that the person removed or dismissed was a corporate officer before the removal or dismissal could properly fall within the jurisdiction of the SEC and not the NLRC. Here, aside from its bare allegation, petitioner failed to show that respondent was in fact a corporate officer.

Same; Same; Same; Same; Under Section 25 of the Corporation Code, the “corporate officers” are the president, secretary, treasurer and such other officers as may be provided for in the by-laws.—“Corporate officers” in the context of PD 902-A are those officers of a corporation who are given that character either by the Corporation Code or by the corporation’s by-laws. Under Section 25 of the Corporation Code, the “corporate officers” are the president, secretary, treasurer and such other officers as may be provided for in the by-laws.

Same; Same; Same; Same; Respondent was an employee not a “corporate officer”; Court of Appeals is correct in ruling that jurisdiction over the case was properly with the National Labor Relations Commission, not the Securities and Exchange Commission.—An “office” is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an employee occupies no office and generally is employed not by the action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. In this case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner’s general manager, not by the board of directors of petitioner. It was also Malonzo who determined the compensation package of respondent. Thus, respondent was an employee, not a “corporate officer.” The CA was therefore correct in ruling that jurisdiction over the case was properly with the NLRC, not the SEC.

Labor Law; Dismissals; Loss of Confidence; While loss of confidence is a valid ground for dismissing an employee, it should not be simulated; To be a valid ground for an employee’s dismissal, loss of trust and confidence must be based on a willful breach and founded on clearly established facts.—While loss of confidence is a valid ground for dismissing an employee, it should not be simulated. It must not be indiscriminately used as a shield by the employer against a claim that the dismissal of an employee was arbitrary. To be a valid ground for an employee’s dismissal, loss of trust and confidence must be based on a willful breach and founded on clearly established facts. A breach is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. Thus, a willful breach cannot be a breach resulting from mere carelessness.

Same; Same; Same; Grounds cited by petitioner were not sufficient to support a claim of loss of confidence as a ground for dismissal.—The grounds cited by petitioner, i.e., respondent’s alleged poor sales performance and the allegedly excessive time he spent in the field, were not sufficient to support a claim of loss of confidence as a ground for dismissal.

Same; Same; Same; The promotion of an employee negates the employer’s claim that it has lost its trust and confidence in the employee.—The promotion of an employee negates the employer’s claim that it has lost its trust and confidence in the employee. Hence, petitioner’s claim of loss of confidence crumbles in the light of respondent’s promotion not only to assistant vice-president but to the even higher position of vice- president. [Easycall Communications Phils., Inc. vs. King, 478 SCRA 102(2005)]

Atrium Management Corporation vs. Court of Appeals, 353 SCRA 23 , February 28, 2001

Corporation Law; Ultra Vires Acts; Checks; The act of issuing checks for the purpose of securing a loan to finance the activities of the corporation is well within the ambit of a valid corporate act, hence, not an ultra vires act.—Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a “kiting operation” to raise funds for E.T. Henry, who admittedly was in need of financial assistance. The Court finds that there was no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. It is, however, our view that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act. 

Same; Same; Words and Phrases; “Ultra Vires Acts,” Explained.—“An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law.” The term “ultra vires” is “distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated.”

Same; Same; Instances when personal liability of corporate directors, trustees or officers may validly attach.—The next question to determine is whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check. “Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: “1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; “2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; “3. He agrees to hold himself personally and solidarily liable with the corporation; or “4. He is made, by a specific provision of law, to personally answer for his corporate action.”

Same; Same; Checks; A treasurer of a corporation whose negligence in signing a confirmation letter for rediscounting of crossed checks, knowing fully well that the checks were strictly endorsed for deposit only to the payee’s account and not to be further negotiated, resulting in damage to the corporation may be personally liable therefor.—In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of HiCement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payee’s account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, “that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry.” Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor.

Negotiable Instrument Law; Checks; Words and Phrases; “Holder in Due Course,” Explained.—The next issue is whether or not petitioner Atrium was a holder of the checks in due course. The Negotiable Instruments Law, Section 52 defines a holder in due course, thus: “A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”

Same; Same; A person to whom a crossed check was endorsed by the payee of said check could not be considered a holder in due course.—In the instant case, the checks were crossed checks and specifically indorsed for deposit to payee’s account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee’s account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.

Same; Same; A holder not in due course may still recover on the instrument.—It does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course can not recover on the instrument.

Same; Same; The disadvantage of a holder not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable, such as absence or failure of consideration.—The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. One such defense is absence or failure of consideration. [Atrium Management Corporation vs. Court of Appeals, 353 SCRA 23(2001)]

Gokongwei, Jr. vs. Securities and Exchange Commission, 89 SCRA 336 , April 11, 1979

Supreme Court; Judgments; Securities and Exchange Commission; Corporation Law; Supreme Court always strives to settle a legal controversy in a single proceeding.—xxx In the case at bar, there are facts which cannot be denied, viz.: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distillery, a beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders’ annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders.

Corporation Law; While reasonableness of a by-law is a legal question, where reasonableness of a by-law provision is one in which reasonable minds may differ a court will not be justified in subsisting its judgment for those authorized to make the by-laws.—The validity or reasonableness of a by-law of a corporation is purely a question of law. Whether the by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is a question of law. This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority.

Same; Under the Corporation Law a corporation is authorized to prescribe the qualification of its directors.—In this jurisdiction, under Section 21 of the Corporation Law, a corporation may prescribed in its by-laws “the qualifications, duties and compensation of directors, officers and employees ***.” This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that “every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director * * *.”

Same; Stockholder has no vested right to be elected as stockholder.—Any person “who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he implied contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law.” To this extent, therefore, the stockholder may be considered to have “parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation and surrendered it to the will of the majority or his fellow incorporators. **** It can not therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed *** by any act of the former which is authorized by a majority, ***.”

Same; A director stands in a fiduciary relation to the competition and its stockholders. The disqualification of a competition from being elected to the board of directors is a reasonable exercise of corporate authority. Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation for the collective benefit of the stockholders, “they occupy a fiduciary relation, and in these sense the relation is one of trust.”

Same; Same.—It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporate duties above his personal concerns.

Same; Same.—Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty to loyalty may well require that he disclose this information to a competitive rival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director.

Same; Another reason for upholding a by-law provision that forbids a competitor to be elected as corporate director are the laws prohibiting cartels.—There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, Section 2 of Article XIV of the Constitution provides: “That State shall regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

Same; Same.—Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by improving the consumers’ effectiveness as the final arbiter in free markets. These laws are designed to preserve free and unfettered competition as the rule of trade. “It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices and the highest quality ***.” They operate to forestall concentration of economic power. The law against monopolies and combinations in restraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of the contemplated acts, prejudice the public interest by unduly restraining competition or unduly obstructing the course of trade.

Same; Election of petitioner as San Miguel Corporation Director may run counter to the prohibition contained in Section 13(5) of Corporation Law on investments in corporations engaged in agriculture.—Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in Section 13(5) of the Corporation Law. Said section provides in part that “any stockholder of more than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose of bringing about or attempting to bring about a combination to exercise control of such corporations. ***.”

Same; The by-law amendment of SMC applies equally to all and does not discriminate against petitioner only.—However, the by-law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-laws operate equally upon all persons of a class. Besides, before petitioner can be declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles of public policy and management, therefore, support the view that a by-law which disqualifies a competitor from election to the Board of Directors of another corporation is valid and reasonable.

Same; Petitioner is not ipso facto disqualified to run on SMC director. He must be given full opportunity by the SEC to show that he is not covered by the disqualification.—While We here sustain the validity of the amended by-laws, it does not follow as a necessary consequence that petitioner is ipso facto disqualified. Consonant with the requirement of due process, there must be due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the stockholders, it is the responsibility of directors to act with fairness to the stockholders. Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities and Exchange Commission en banc and its decision shall be final unless reversed by this Court on certiorari.

Same; Every stockholder has the right to inspect corporate books and records.—The stockholder’s right of inspection of the corporation’s books and records is based upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated upon the necessity of selfprotection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. In other words, the inspection has to germane to the petitioner’s interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation.

Same; The right of stockholder to inspect corporate books extends to a wholly-owned subsidiary.—In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly owned subsidiary which are in respondent corporation’s possession and control.

Same; Purely ultra vires corporate acts of corporate officers to invest corporate funds in another business or corporation, i.e., acts not contrary to law, morals, public order as public policy, may be ratified by the stockholders holding 2/3 of the voting power.—Assuming arguendo that the Board of Directors of San Miguel Corporation had no authority to make the assailed investment, there is no question that a corporation, like an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. This is true because the questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is defective from a purported failure to observe in its execution the requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding twothirds of the voting power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. “Mere ultra vires acts”, said this Court in Pirovano, “or those which are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders.”

Corporation Law; Judgment; The doctrine of the law of the case.—We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no applicability for the following reasons: a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final and conclusive determination of an issue in the first case later invoked as the law of the case.

Same; Same; When doctrine of the law of the case not applicable.—The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the question of the validity or invalidity of the amended by-laws is concerned. The Court’s judgment of April 11, 1979 clearly shows that the voting on this question inconclusive with six against four Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his vote thereon. No final aad conclusive determination could be reached on the issue and pursuant to the provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the action was simply dismissed with the result that no law of the case was laid down insofar as the issue of the validity or invalidity of the questioned by-laws is con cerned, and the relief sought herein by petitioner that this Court bypass the SEC which has yet to hear and determine the same issue pending before it below and that this Court itself directly resolve the said issue stands denied.

Same; Same; Constitutional Law; Due Process; When procedural due process was not observed.—The entire Court, therefore, recognized that petitioner had not been given procedural due process by the SMC board on the matter of his disqualification and that he was entitled to a “new and proper hearing”. It stands to reason that in such hearing, petitioner could raise not only questions of fact but questions of law, particularly questions of law affecting the investing public and their right to representation on the board as provided by law—not to mention that as borne out by the fact that no restriction whatsoever appears in the Court’s decision, it was never contemplated that petitioner was to be limited questions of fact and could not raise the fundamental question of law bearing on the invalidity of the questioned amended by-laws at such hearing before the SMC board. Furthermore, it was expressly provided unanimously in the Court’s decision that the SMC board’s decision on the disqualification of petitioner (“assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him” as qualified in Mr. Justice Barredo’s own separate opinion, at page 2) shall be appealable to respondent Securities and Exchange Commission “deliberating and acting en banc” and “ultimately to this Court.”

Same; Same; Reservation of the vote of the Chief Justice.—As expressly stated in the Chief Justice’s reservation of his vote, the matter of the question of the applicability of the said section 13(5) to petitioner would be heard by this Court at the appropriate time after the proceedings below (and necessarily the question of the validity of the amended by-laws would be taken up anew and the Court would at that time be able to reach a final and conclusive vote).

Same; Same; Validity of the amended by-laws.—The six votes cast by Justices Makasiar, Antonio, Santos, Abad Santos, De Castro and this writer in favor of validity of the amended by-laws in question, with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes thereon and Justice Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the petition “insofar as it assails the validity of the amended by-laws . . . . for lack of necessary votes”, has no other legal consequence than that it is the law of the case far as the parties herein are concerned, albeit the majority opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This means that petitioner Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the foregoing result, namely, that the Court en banc has not found merit in the claim that the amended by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal and entirely another thing to maintain that such dismissal leaves the issue unsettled.

Same; Same; Where petitioner can no longer revive the issue validity of the amended by-laws.—I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged bylaws is already settled. From which it follows that the same are already enforceable insofar as they are concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of validity whether in the Securities Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the case thereto cannot alter the situation.

Same; Same; Where Court has not found merit in the claim that the amended by-laws in question are valid.—I concur in Justice Barredo’s statement that the dismissal (for lack of necessary votes) of the petition to the extent that “it assails the validity of the amended by-laws,” is the law of the case at bar, which means in effect that as far and only in so far as the parties and the Securities and Exchange Commission are concerned, the Court has not found merit in the claim that the amended by-laws in question are valid.

Same; Same; Term and meaning of “farming.”—This is my view, even as I am for a restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit the scope of the provision to corporations engaged in agriculture, but only as the word “agriculture” refers to its more limited meaning as distinguish ed from its general and broad connotation. The term would then mean “farming” or raising the natural products of the soil, such as by cultivation, in the acquisition of agricultural land such as by homestead, before the patent may be issued.

Same; Same; Poultry raising or piggery is included in the term “agriculture.”—It is my opinion that under the public land statute, the development of a certain portion of the land applied for a specified in the law as a condition precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or piggery, which may be included in the term “Agriculture” in its broad sense. For under Section 13(5) of the Philippine Corporation Law, construed not in the strict way as I believe it should because the provision is in derogation of property rights, the petitioner in this case would be disqualified from becoming an officer of either the San Miguel Corporation or his own supposedly agricultural corporations. [Gokongwei, Jr. vs. Securities and Exchange Commission, 89 SCRA 336(1979)]

Aurbach vs. Sanitary Wares Manufacturing Corporation, 180 SCRA 130 , December 15, 1989

Expertravel & Tours, Inc. vs. Court of Appeals, 459 SCRA 147 , May 26, 2005

Actions; Pleadings and Practice; Certificate of Non-Forum Shopping; Corporations; The requirement to file a certificate of non-forum shopping is mandatory and the failure to comply with this requirement cannot be excused; Where the plaintiff is a private corporation, the certification may be signed, for and on behalf of the said corporation, by a specifically authorized person, including its retained counsel, who has personal knowledge of the facts required to be established by the documents.—It is settled that the requirement to file a certificate of non-forum shopping is mandatory and that the failure to comply with this requirement cannot be excused. The certification is a peculiar and personal responsibility of the party, an assurance given to the court or other tribunal that there are no other pending cases involving basically the same parties, issues and causes of action. Hence, the certification must be accomplished by the party himself because he has actual knowledge of whether or not he has initiated similar actions or proceedings in different courts or tribunals. Even his counsel may be unaware of such facts. Hence, the requisite certification executed by the plaintiff’s counsel will not suffice. In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf of the said corporation, by a specifically authorized person, including its retained counsel, who has personal knowledge of the facts required to be established by the documents.

Same; Same; Same; Same; Attorneys; The certificate of non-forum shopping may be incorporated in the complaint or appended thereto as an integral part of the complaint; If the authority of a party’s counsel to execute a certificate of non-forum shopping is disputed by the adverse party, the former is required to show proof of such authority or representation.—The certificate of non-forum shopping may be incorporated in the complaint or appended thereto as an integral part of the complaint. The rule is that compliance with the rule after the filing of the complaint, or the dismissal of a complaint based on its non-compliance with the rule, is impermissible. However, in exceptional circumstances, the court may allow subsequent compliance with the rule. If the authority of a party’s counsel to execute a certificate of non-forum shopping is disputed by the adverse party, the former is required to show proof of such authority or representation. In this case, the petitioner, as the defendant in the RTC, assailed the authority of Atty. Aguinaldo to execute the requisite verification and certificate of non-forum shopping as the resident agent and counsel of the respondent. It was, thus, incumbent upon the respondent, as the plaintiff, to allege and establish that Atty. Aguinaldo had such authority to execute the requisite verification and certification for and in its behalf. The respondent, however, failed to do so.

Same; Same; Same; Same; Same; Foreign Corporations; Resident Agents; Being a resident agent of a foreign corporation does not mean that he is authorized to execute the requisite certification against forum shopping—while a resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the Philippines), he may not be aware of actions initiated by its principal, whether in the Philippines against a domestic corporation or private individual, or in the country where such corporation was organized and registered, against a Philippine registered corporation or a Filipino citizen.—While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not mean that he is authorized to execute the requisite certification against forum shopping. Under Section 127, in relation to Section 128 of the Corporation Code, the authority of the resident agent of a foreign corporation with license to do business in the Philippines is to receive, for and in behalf of the foreign corporation, services and other legal processes in all actions and other legal proceedings against such corporation, thus: * * * Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the Philippines), such resident may not be aware of actions initiated by its principal, whether in the Philippines against a domestic corporation or private individual, or in the country where such corporation was organized and registered, against a Philippine registered corporation or a Filipino citizen.

Same; Evidence; Judicial Notice; The principal guide in determining what facts may be assumed to be judicially known is that of notoriety.—Generally speaking, matters of judicial notice have three material requisites: (1) the matter must be one of common and general knowledge; (2) it must be well and authoritatively settled and not doubtful or uncertain; and (3) it must be known to be within the limits of the jurisdiction of the court. The principal guide in determining what facts may be assumed to be judicially known is that of notoriety. Hence, it can be said that judicial notice is limited to facts evidenced by public records and facts of general notoriety. Moreover, a judicially noticed fact must be one not subject to a reasonable dispute in that it is either: (1) generally known within the territorial jurisdiction of the trial court; or (2) capable of accurate and ready determination by resorting to sources whose accuracy cannot reasonably be questionable.

Same; Same; Same; A court cannot take judicial notice of any fact which, in part, is dependent on the existence or non-existence of a fact which the court has no constructive knowledge.—Things of “common knowledge,” of which courts take judicial matters coming to the knowledge of men generally in the course of the ordinary experiences of life, or they may be matters which are generally accepted by mankind as true and are capable of ready and unquestioned demonstration. Thus, facts which are universally known, and which may be found in encyclopedias, dictionaries or other publications, are judicially noticed, provided, they are of such universal notoriety and so generally understood that they may be regarded as forming part of the common knowledge of every person. As the common knowledge of man ranges far and wide, a wide variety of particular facts have been judicially noticed as being matters of common knowledge. But a court cannot take judicial notice of any fact which, in part, is dependent on the existence or non-existence of a fact of which the court has no constructive knowledge.

Same; Same; Same; Telecommunications; Teleconferencing; Types; Words and Phrases; In this age of modern technology, the courts may take judicial notice that business transactions may be made by individuals through teleconferencing; Teleconferencing is interactive group communication (three or more people in two or more locations) through an electronic medium, bringing people together under one roof even though they are separated by hundreds of miles.—In this age of modern technology, the courts may take judicial notice that business transactions may be made by individuals through teleconferencing. Teleconferencing is interactive group communication (three or more people in two or more locations) through an electronic medium. In general terms, teleconferencing can bring people together under one roof even though they are separated by hundreds of miles. This type of group communication may be used in a number of ways, and have three basic types: (1) video conferencing—television-like communication augmented with sound; (2) computer conferencing—printed communication through keyboard terminals, and (3) audio-conferencing—verbal communication via the telephone with optional capacity for telewriting or telecopying. A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first introduced in the 1960’s with American Telephone and Telegraph’s Picturephone. At that time, however, no demand existed for the new technology. Travel costs were reasonable and consumers were unwilling to pay the monthly service charge for using the picturephone, which was regarded as more of a novelty than as an actual means for everyday communication. In time, people found it advantageous to hold teleconferencing in the course of business and corporate governance, because of the money saved, among other advantages.

Same; Same; Same; Same; Same; Corporation Law; In the Philippines, teleconferencing and videoconferencing of members of the board of directors of private corporations is a reality in light of R.A. No. 8792.—In the Philippines, teleconferencing and videoconferencing of members of board of directors of private corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guide lines to be complied with related to such conferences. Thus, the Court agrees with the RTC that persons in the Philippines may have a teleconference with a group of persons in South Korea relating to business transactions or corporate governance. [Expertravel & Tours, Inc. vs. Court of Appeals, 459 SCRA 147(2005)]

Tan vs. Sycip, 499 SCRA 216 , August 17, 2006

Corporation Law; Acts of management pertain to the board of directors, and those of ownership, to the stockholders or members.—Under the Corporation Code, stockholders or members periodically elect the board of directors or trustees, who are charged with the management of the corporation. The board, in turn, periodically elects officers to carry out management functions on a day-to-day basis. As owners, though, the stockholders or members have residual powers over fundamental and major corporate changes. While stockholders and members (in some instances) are entitled to receive profits, the management and direction of the corporation are lodged with their representatives and agents—the board of directors or trustees. In other words, acts of management pertain to the board; and those of ownership, to the stockholders or members. In the latter case, the board cannot act alone, but must seek approval of the stockholders or members.

Same; One of the most important rights of a qualified shareholder or member is the right to vote—either personally or by proxy—for the directors or trustees who are to manage the corporate affairs.—Conformably with the foregoing principles, one of the most important rights of a qualified shareholder or member is the right to vote—either personally or by proxy—for the directors or trustees who are to manage the corporate affairs. The right to choose the persons who will direct, manage and operate the corporation is significant, because it is the main way in which a stockholder can have a voice in the management of corporate affairs, or in which a member in a nonstock corporation can have a say on how the purposes and goals of the corporation may be achieved. Once the directors or trustees are elected, the stockholders or members relinquish corporate powers to the board in accordance with law.

Same; Quorum; In stock corporations, the presence of a quorum is ascertained and counted on the basis of the outstanding capital stock.—In stock corporations, the presence of a quorum is ascertained and counted on the basis of the outstanding capital stock, as defined by the Code thus: “SEC-TION 137. Outstanding capital stock defined.—The term ‘outstanding capital stock’ as used in this Code, means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.”

Same; Same; Only stock actually issued and outstanding may be voted—neither the stockholders nor the corporation can vote or represent shares that have never passed to the ownership of stockholders, or, having so passed, have again been purchased by the corporation.—The right to vote is inherent in and incidental to the ownership of corporate stocks. It is settled that unis-sued stocks may not be voted or considered in determining whether a quorum is present in a stockholders’ meeting, or whether a requisite proportion of the stock of the corporation is voted to adopt a certain measure or act. Only stock actually issued and outstanding may be voted. Under Section 6 of the Corporation Code, each share of stock is entitled to vote, unless otherwise provided in the articles of incorporation or declared delinquent under Section 67 of the Code. Neither the stockholders nor the corporation can vote or represent shares that have never passed to the ownership of stockholders; or, having so passed, have again been purchased by the corporation. These shares are not to be taken into consideration in determining majorities. When the law speaks of a given proportion of the stock, it must be construed to mean the shares that have passed from the corporation, and that may be voted.

Same; Same; When the principle for determining the quorum for stock corporations is applied by analogy to nonstock corporations, only those who are actual members with voting rights should be counted.—In nonstock corporations, the voting rights attach to membership. Members vote as persons, in accordance with the law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. We hold that when the principle for determining the quorum for stock corporations is applied by analogy to non-stock corporations, only those who are actual members with voting rights should be counted. Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting rights, not the number or numerical constant that may originally be specified in the articles of incorporation, constitutes the quorum.

Same; Same; In stock corporations, shareholders may generally transfer their shares; The determination of whether or not “dead members” are entitled to exercise their voting rights (through their executor or administrator), depends on the articles of incorporation or bylaws.—In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor. On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. In other words, the determination of whether or not “dead mem-bers” are entitled to exercise their voting rights (through their executor or administrator), depends on those articles of incorporation or bylaws.

Same; Same; Dead members who are dropped from the membership ros-ter in the manner and for the cause provided for in the By-Laws of Grace Christian High School, a nonstock corporation, are not to be counted in determining the requisite vote in corporate matters or the requisite quorum.—Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the member. Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member of the corporation, unless otherwise provided in the articles of incorporation or the bylaws. Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members’ meeting. With 11 remaining members, the quorum in the present case should be 6. Therefore, there being a quorum, the annual members’ meeting, conducted with six members present, was valid.

Same; Same; Words and Phrases; The phrase “may be filled” in Section 29 of the Corporation Code shows that the filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive, not mandatory—corporations, therefore, may choose how vacancies in their respective boards may be filled up.—Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a quorum. The phrase “may be filled” in Section 29 shows that the filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive, not mandatory. Corporations, therefore, may choose how vacancies in their respective boards may be filled up—either by the remaining directors constituting a quorum, or by the stockholders or members in a regular or special meeting called for the purpose. The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of directors; that is, by a majority vote of the remaining members of the board.

Same; Same; There is a well-defined distinction between a corporate act to be done by the board and that by the constituent members of the corporation.—While a majority of the remaining corporate members were present, however, the “election” of the four trustees cannot be legally upheld for the obvious reason that it was held in an annual meeting of the members, not of the board of trustees. We are not unmindful of the fact that the members of GCHS themselves also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which specifically prescribes that vacancies in the board must be filled up by the remaining trustees. In other words, these remaining member-trustees must sit as a board in order to validly elect the new ones. Indeed, there is a well-defined distinction between a corporate act to be done by the board and that by the constituent members of the corporation. The board of trustees must act, not individually or separately, but as a body in a lawful meeting. On the other hand, in their annual meeting, the members may be represented by their respective proxies, as in the contested annual members’ meeting of GCHS. [Tan vs. Sycip, 499 SCRA 216(2006)]

Bitong vs. Court of Appeals (Fifth Division), 292 SCRA 503 , July 13, 1998

Corporation Law; Stock Certificates; A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock.—Section 63 of The Corporation Code expressly provides—x x x This provision above quoted envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.

Same; Same; Stock and Transfer Books; Evidence; Books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including one’s status as a stockholder.—The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted. Similarly, books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including one’s status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings.

Same; Same; Same; Same; Parol Evidence; The books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only—parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted.—However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted. The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept.

Same; Same; Same; Stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities.—The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estoppel cannot operate to create stock which under the law cannot have existence.

Same; Same; Same; A formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary.—Based on the foregoing admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary.

Same; Same; Same; When a Certificate of Stock was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, the certificate has no evidentiary value for the purpose of proving that a stockholder was such since 1983 up to 1989.—In this case, contrary to petitioner’s submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation, and not before that date. While a certificate of stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owner’s interest therein. Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989.

Same; Same; Trusts; It is a settled rule that the trustee should endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation.—And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. If it was true that the shares of stock covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could legally endorse the certificate was private respondent Eugenia D. Apostol, she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No. 007. It is a settled rule that the trustee should endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation.

Same; Same; Requirements for a Valid Transfer of Stocks.—Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) To be valid against third parties, the transfer must be recorded in the books of the corporation. At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown.

Same; Same; Considering that the requirements provided under Sec. 63 of the Corporation Code should be mandatorily complied with, the rule on presumption of regularity cannot apply.—Considering that the requirements provided under Sec. 63 of The Corporation Code should be mandatorily complied with, the rule on presumption of regularity cannot apply. The regularity and validity of the transfer must be proved. As it is, even the credibility of the stock and transfer book and the entries thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful.

Same; Same; Dividends; When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit was earned.—That JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of the dividends issued in December 1986. This only means, very obviously, that Mr. & Ms. shares in question still belonged to JAKA and not to petitioner. For, dividends are distributed to stockholders pursuant to their right to share in corporate profits. When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit was earned.

Same; Actions; Derivative Suits; The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that exercises its corporate powers and not in the president or officer thereof.—The admissions of a party against his interest inscribed upon the record books of a corporation are competent and persuasive evidence against him. These admissions render nugatory any argument that petitioner is a bona fide stockholder of Mr. & Ms. at any time before 1988 or at the time the acts complained of were committed. There is no doubt that petitioner was an employee of JAKA as its managing officer, as testified to by Senator Enrile himself. However, in the absence of a special authority from the board of directors of JAKA to institute a derivative suit for and in its behalf, petitioner is disqualified by law to sue in her own name. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that exercises its corporate powers and not in the president or officer thereof.

Same; Same; Same; The stockholder’s right to institute a derivative suit is not based on any express provision of the Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties.—It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust, not of mere error of judgment or abuse of discretion, and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. The stockholder’s right to institute a derivative suit is not based on any express provision of The Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties.

Same; Same; Same; A stockholder’s suit cannot prosper without first complying with the legal requisites for its institution, the most important being the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation.—The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation.