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7/24/2019 9th Meeting - d. Validity of Requirements
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Validity of Restrictions
LAMBERT V. FOX
FACTS:A frm known as John R. Edgar & Co. engaged
in retail book and stationery business ound itsel in
su!h !ondition that its !reditors in!luding "lainti# $eon
$ambert and deendant T.J. Fo% agreed to take oer
the business' in!or"orate it and a!!e"t sto!k therein
in "ayment o their res"e!tie !redits. (lainti# and
deendant be!ame the two largest sto!kholders in the
new !or"oration !alled John R. Edgar & Co.' )n!. Ater
its in!or"oration' "lainti# and deendant entered into
an agreement that both "arties agreed not to sell'
transer' or otherwise dis"ose o any "art o their
holdings till ater one year rom the date o its
e%e!ution. A ew months ater' deendant sold his
sto!k to another !or". E.C. *!Cullough & Co. o *anila
under "lainti#+s "rotest. ,en!e' the fling o this !ase
to re!oer "enalty or the brea!h o !ontra!t.
)SS-E: /0 the restri!tions in the agreement are
alid.
R-$)01: The SC held that the "arties e%"ressly
sti"ulated that the !ontra!t should last one year. 0o
reason is shown or saying that it shall last only nine
months. hateer the ob2e!t was in s"e!iying the
year' it was their agreement that the !ontra!t should
last a year and it was their 2udgment and !oni!tion
that their "ur"ose would not be subersed in any less
time. hat reason !an gie or reusing to ollow the"lain words o the men who made the !ontra!t3 e
see none.
)t is also urged by the deendant in this !ase
that the sti"ulation in the !ontra!t sus"ending the
"ower to sell the sto!k reerred to therein is an illegal
sti"ulation' is in restraint o trade and' thereore'
o#ends "ubli! "oli!y. e do not so regard it. The
sus"ension o the "ower to sell has a benef!ial
"ur"ose' results in the "rote!tion o the !or"oration as
well as o the indiidual "arties to the !ontra!t' and is
reasonable as to the length o time o the sus"ension.e do not here undertake to dis!uss the limitations to
the "ower to sus"end the right o alienation o sto!k'
limiting ourseles to the statement that the
sus"ension in this "arti!ular !ase is legal and alid.
Fleischer vs. Botica Nolasco
Fa!ts: *anuel 0olas!o was the original owner o the 4
he!tares o sto!k o 5oti!a 0olas!o' )n!. ,e endorsed
and deliered said shares to "lainti#' ,enry Fleis!
in !onsideration o a large sum o money owed
1on6ales to Flesi!her.
7r Eduardo *i!iano' who was the se!.8treasure
said !or"oration' o#ered to buy rom Fleis!her'
behal o the said !or"oration' said shares o sto!k
their "ar alue o (9 a share' or 4 by irtue
the !or"oration+s by8laws; giing said !or"oration
"reerential right to buy rom *anuel 1on6ales s
shares. The "lainti# reused to sell to the deend
and re<uested 7r. *i!iano to register said shares in
name' 7r. *i!iano reused to do so' saying tha
would be in !ontraention o the by8laws o
!or"oration.
issue: =0 Art 9> o the !or"+s by8laws is in !on
with the "roisions o the Cor"oration $aw.
,eld:
The SC ruled that said by8law !annot hae any e#
on Fleis!her sin!e he had no knowledge o the sa
when the shares were assigned to him. ,e obtai
the shares in good aith and or a alua
!onsideration. ,e was not a "riy to the !ont
!reated by said by8law between the shareho
1on6ales and 5oti!a 0olas!o Cor". Said by8law !an
o"erate his rights as a "ur!haser.
Padgett vs. Bacoc!
Fa!ts: A""ellee' (adgett was an em"loyee A""ellant Cor"oration. 7uring his em"loymentbought @4 shares. ,e was also the re!i"ient oshares by way o Christmas bonus.
The word Bnon8transerable a""ears on eand eery one o the !ertif!ates. 5eore resigning"ro"osed to the !or"oration "resident that the !or"oration buy his DD shares or that he be authorto sell them to other "ersons.
The !or"oration admit that the DD shares hbe!ome the "ro"erty o (adgett. They likewise adthat under law' (adgett has the right to hae restri!tion a""earing in the !ertif!ates eliminathererom. ,oweer' they igorously !ontend there is no e%isting law nor authority in su""ort o "ro"osition that they are bound to redeem shares.
)SS-E: =0 the restri!tion indi!ated in the !ertif!aare alid.
*ontaos ,eidi Jean ). (age 9
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,E$7: The restri!tion im"osed in the said !ertif!atesare null and oid. )t !onstitute an unreasonablelimitation on the right o ownershi" and is in restrainto trade.
Shares o !or"orate sto!k being regarded as"ro"erty' the owner o su!h shares may' as a generalrule' dis"ose o them as he sees ft' unless the
!or"oration has been dissoled' or unless the right todo so is "ro"erly restri!ted' or the owners "riilege o dis"osing o his shares has been ham"ered by his owna!tion.
Any restri!tion on a sto!kholders right todis"ose o his shares must be !onstrued stri!tly; andany attem"t to restrain a transer o shares isregarded as being in restraint o trade' in the absen!eo a alid lien u"on its shares' and e%!e"t to thee%tent that alid restri!tie regulations andagreements e%ist and are a""li!able. Sub2e!t only tosu!h restri!tions' a sto!kholder !annot be !ontrolled in
or restrained rom e%er!ising his right to transer bythe !or"oration or its o!ers or by other sto!kholders'een though the sale is to a !om"etitor o the!om"any' or to an insolent "erson' or een though a!ontrolling interest is sold to one "ur!haser.
)t is obious' thereore' that the restri!tion !onsistingin the word GnontranserableG' a""earing on the!ertif!ates' is illegal and should be eliminated.
,oweer' there is no e%isting law nor authority insu""ort o the "lainti#s !laim to the e#e!t that thedeendants are obliged to buy his shares o sto!kalue at "ar alue' "lus the interest demandedthereon. )n this res"e!t' we hold that there has beenno su!h !ontra!t' either e%"ress or im"lied' betweenthe "lainti# and the deendants. )n the absen!e o asimilar !ontra!tual obligation and o a legal "roisiona""li!able thereto' it is logi!al to !on!lude that itwould be un2ust and unreasonable to !om"el the saiddeendants to !om"ly with a non8e%istent or imaginaryobligation.
e. Forged Transfers
"ta. Maria vs #ong!ong
Fa!ts:*rs. Josea Sta. *aria bought 9' shares
o sto!k o a mining !or"oration. The !ertif!ateswere made out in the name o a brokerage frm'duly indorsed in 5$A0H and deliered to *rs. Sta.*aria or aluable !onsideration. She deliered itto R.J Cam"os and Co.' another brokerage frm' to!om"ly with the latter+s re<uirement that shede"osit something on a!!ount i she wanted to buyshares o another mining !or"oration. Cam"os
thereater deliered to a bank the said !ertif!ateduly indorsed to said bank "ursuant to a letter ohy"othe!ation I"ledge to a bank as se!uritye%e!uted by Cam"os in aor o said bank. Thesaid !ertif!ates was deliered to the bank in theordinary !ourse o business together with manyother se!urities' and the time it was deliered' thebank had no knowledge that the shares
re"resented by the !ertif!ate belonged to *rsSta. *aria or it was in the orm o a street!ertif!ate transerable by mere deliery.
)ssue:hether or not *rs. Sta. *aria !an re!oer
the said !ertif!ate rom the bank.
,eld: The !ourt held that she !ould not re!oe
the !ertif!ate sin!e she !ould hae asked the!or"oration that issued it to !an!el it and issueanother in lieu thereo in her name. her negligen!e
was the immediate !ause o the damage' sin!e the!ertif!ate was endorsed by her to !onstitute as astreet !ertif!ate Ia sto!k !ertif!ate endorsed inblank.
$e Los "antos vs. Re%&lic
Fa!ts:
A"olinario 7e $os Santos !laimed or one hal o 9'K' shares o sto!k o $e"anto Consolida*ining Cor"oration and the other hal !laimed by!o8"lainti# )sabelo Astran<uillo. The shares o stoare !oered by !ertif!ate o sto!k issued in aoLi!ente *adrigal the agent or trustee or *itsui' wus registered in the book o the !or"oration as owand whose indorsement in blank a""ears on the b(lainti#s !ontend that they bought their shares
Juan Cam"os and Carl ,ess. 5y irtue o (89> titlethe shares are ested in the Alien (ro"erty Custodo -S Ialso reerred as (ro"erty Custodian t"lainti#s fled !laims with the (ro"erty Custod)nitially the !laim was !onsidered but u"on "ersoreiew' the (hili""ine Alien (ro"erty Administrade!reed that the title shall remain to them. ,enthis "etition to establish title to the shares o sto!k
)ssue: hether or not "lainti#s are entitled to shares o sto!k3
Ruling:
(lainti#s are not entitled to the shares o sbe!ause neither *adrigal nor *itsuis had alienashares o sto!k. The alleged sale by Juan Cam"os Carl ,ess has not been established by the "lainhen!e' *itsuis as the "rin!i"al o *adrigal registered owner may !laim his rights whi!h !anno
*ontaos ,eidi Jean ). (age >
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e%er!ised by the "lainti#s not only be!ause theiralleged title is not deried either rom *adrigal orrom *itsuis but also be!ause it is in derogation o said right. The !ertif!ates o sto!k are not negotiableinstruments. A transeree under a orged assignmenta!<uires no title whi!h !an be asserted against thetrue owner' unless the true owner+s own negligen!ehas been su!h as to !reate an esto""el against him.
The rule thereore would be that the do!trine that abona fde "ur!haser o shares under a orged orunauthori6ed transer a!<uires no title as against thetrue owner does not a""ly where the !ir!umstan!esare su!h as to esto" the latter rom asserting his title.
The Court held that in (hili""ine 2uris"ruden!e' a
!ertif!ate o sto!k is not a negotiable instrument'
but is regarded as <uasi8negotiable in the sense
that it may be transerred by endorsement'
!ou"led with deliery' but its not negotiable
be!ause the holder thereo takes it without
"re2udi!e to su!h rights or deenses as theregistered owners or transeror+s !reditor may
hae under the law' e%!e"t in so ar as su!h rights
or deenses are sub2e!t to the limitations im"osed
by the "rin!i"les goerning esto""el. The ruling
was based under Se!. @4 o the Cor"oration $aw
Inow Se!. K@' a sale o shares o sto!k' een when
!ou"led with endorsement and deliery o the
!oering sto!k !ertif!ate' shall not be alid' e%!e"t
as between the "arties' until it is entered and
noted u"on the books o the !or"oration and that
su!h sale is absolutely oid and' hen!e' as good as
non8e%istent as ar as third "arties and the!or"oration is !on!erned
f. Non'transferaility of Me(ershi% in a
Non'stoc! )or%oration
Se!. . 0on8transerability o membershi". 8
*embershi" in a non8sto!k !or"oration and all
rights arising thererom are "ersonal and non8
transerable' unless the arti!les o in!or"oration or
the by8laws otherwise "roide.
***. MANA+EMENT "TR,)T,RE
A. )ORPORATE +OVERNAN)E-. Poers of the Board or Tr&stees
Se!. >@. The board o dire!tors or trustees. 8 -nless
otherwise "roided in this Code' the !or"orate
"owers o all !or"orations ormed under this Code
shall be e%er!ised' all business !ondu!ted and all
"ro"erty o su!h !or"orations !ontrolled and held
by the board o dire!tors or trustees to be ele!ted
rom among the holders o sto!ks' or where there
is no sto!k' rom among the members o the
!or"oration' who shall hold o!e or one I9 yea
until their su!!essors are ele!ted and <ualifed.
Eery dire!tor must own at least one I9 share o
the !a"ital sto!k o the !or"oration o whi!h he is a
dire!tor' whi!h share shall stand in his name on
the books o the !or"oration. Any dire!tor who
!eases to be the owner o at least one I9 share o
the !a"ital sto!k o the !or"oration o whi!h he is a
dire!tor shall thereby !ease to be a dire!tor
Trustees o non8sto!k !or"orations must be
members thereo. a ma2ority o the dire!tors o
trustees o all !or"orations organi6ed under this
Code must be residents o the (hili""ines.
+AMBOA /defendants0 V" V*)TOR*ANO
/%lainti1s0 2Powers of the board of directors3FACTS:
(lainti#8res"ondents owned 9'@>M shares o sto!k
in )0/CE0TES 7E $A RA*A' )0C. a domesti!
!or"oration with an authori6ed !a"ital sto!k o
@ shares' with a "ar alue o (9. "er
share' >'9NN o whi!h were subs!ribed and issued
thus leaing M>@ shares unissued. (lainti#s
a!<uired the shares o sto!k held by Raae
$edesma and Jose Si!ang!o' Jr.' then (resident and
Li!e8(resident o the !or"oration. 7eendants who
were the remaining members o the board odire!tors o the !or"oration' in order to orestal
the takeoer by the "lainti#s o the !or"oration
surre"titiously met and ele!ted Ri!ardo $. 1amboa
and ,onorio de la Rama as "resident and i!e
"resident o the !or"oration' res"e!tiely' and
thereater "assed a resolution authori6ing the sale
o the M>@ unissued shares o the !or"oration to
the deendants at "ar alue' ater whi!h the
deendants were ele!ted to the board o dire!tors
o the !or"oration.
(lainti#s sued or the nullif!ation o the sale andthe remoal o the new board dire!tors as
usur"ers. Subse<uently' a !om"romise agreement
was entered into by the "arties wherein they
agreed that the deendants waied and transerred
their rights oer the <uestioned number o shares
in aor o the "lainti#s. This was a""roed by the
Court.
*ontaos ,eidi Jean ). (age @
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The deendants moed or the dismissal o the
!ase whi!h the Court denied. /n motion or
re!onsideration' they also alleged that the Court
has no 2urisdi!tion oer the !ase sin!e the sale o
the sto!ks !on!erned was "urely management
"rerogatie whi!h the Court !annot look into. This
was also denied.
)ssue:
hether the sale made by the board is a
management !on!ern whi!h the !ourts has no
2urisdi!tion oer.
Ruling:
The !ourt held that the !laim o the "etitioners
<uestioning the trial !ourts 2urisdi!tion on matters
a#e!ting the management o the !or"oration is
without merit. The well8known rule is that !ourts
!annot undertake to !ontrol the dis!retion o the
board o dire!tors about administratie matters as
to whi!h they hae legitimate "ower o a!tion and
!ontra!ts intra vires entered into by the board o
dire!tors are binding u"on the !or"oration and
!ourts will not interere unless su!h !ontra!ts are
so un!ons!ionable and o""ressie as to amount to
a wanton destru!tion o the rights o the minority.
)n the instant !ase' the "lainti#s aer that the
deendants hae !on!luded a transa!tion among
themseles as will result to serious in2ury to the
interests o the "lainti#s' so that the trial !ourt has2urisdi!tion oer the !ase.
+o!ongei 4r.5 vs. "E) (Powers of the Board of
Trustees)
M SCRA @@K A"ril 99' 9N Antonio' J.
FA)T"6
The instant "etition or !ertiorari' mandamus and
in2un!tion' with "rayer or issuan!e o writ o
"reliminary in2un!tion arose out o two !ases fled
by "etitioner with the Se!urities and E%!hange
Commission as ollows:
SEC CASE 0/. 9@N4
/n /!tober >>' 9NK' "etitioner John 1okongwei
Jr.' as sto!kholder o res"ondent San *iguel
Cor"oration fled with the SEC a "etition or the
Bde!laration o nullity o amended by8 laws'
!an!ellation o !ertif!ate o fling o amended by8
laws' in2un!tion and damages with "rayer or a
"reliminary in2un!tion Bagainst the ma2ority o
S*C+s 5oard o 7ire!tors and S*C itsel as an
unwilling "etitioner.
As a frst !ause o a!tion' "etitioner alleged that on
Se"tember 9M' 9NK' indiidual res"ondents
amended the by8laws basing their authority on a
resolution o the sto!kholders ado"ted on *ar!h
9@' 9K9' when the outstanding !a"ital sto!k o
S*C was only (N'9@'ND. At the time o the
amendment' the outstanding and "aid u" shares
were already (@9'>N'D@..
)t was !ontended that a!!ording to Se!tion >> o
the Cor"oration $aw and Arti!le L))) o the by8laws
o the Cor"oration' the "ower to amend' modiy
re"eal or ado"t new by8laws may be delegated to
the 5oard o 7ire!tors only by the armatie ote
o sto!kholders re"resenting not less than >=@ othe subs!ribed and "aid u" !a"ital sto!k o the
!or"oration' whi!h >=@ should hae been !om"uted
on the basis o the !a"itali6ation at the time o the
amendment.
Sin!e the amendment was based on the 9K9
authori6ation' "etitioner !ontended that the 5oard
a!ted without authority and in usur"ation o the
"ower o the sto!kholders.
As a se!ond !ause o a!tion' it was alleged that the
authority granted in 9K9 had already beene%er!ised in 9K> and 9K@' ater whi!h the
authority o the 5oard !eased to e%ist.
As a third !ause o a!tion' "etitioner aerred that
the membershi" o the 5oard o 7ire!tors had
!hanged sin!e the authority was gien in 9K9
there being K new dire!tors.
As a ourth !ourse o a!tion' it was !laimed that
"rior to the <uestioned amendment' "etitioner had
all the <ualif!ations to be a dire!tor o res"ondent
!or"oration' being a substantial sto!kholdethereo; that as a sto!kholder' "etitioner had
a!<uired rights inherent in sto!k ownershi"' su!h
as the right to ote and be oted u"on in the
ele!tion o dire!tors; and that in amending the by8
laws' res"ondent "ur"osely "roided o
"etitioner+s dis<ualif!ation and de"ried him o
ested right as aore8mentioned' hen!e the
amended by8laws are null and oid. As additiona
!auses o a!tion' it was alleged:
*ontaos ,eidi Jean ). (age D
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That !or"oration hae no inherent "ower to
dis<ualiy a sto!kholder rom being ele!ted as a
dire!tor and' thereore' the <uestioned a!t is ultra
ires and oid;
That Andres *. Soriano' Jr. and=or Jose *. Soriano'
while re"resenting other !or"orations' entered into
!ontra!t Is"e!if!ally a management !ontra!t with
res"ondent !or"oration' whi!h was allowed
be!ause the <uestioned amendment gae the
5oard itsel the "rerogatie o determining whether
they or other "ersons are engaged in !om"etitie
or antagonisti! business;
That the "ortion o the amended by8laws whi!h
states that in determining whether or not a "erson
is engaged in !om"etitie business' the 5oard may
!onsider su!h a!tors as business and amily
relationshi"' is unreasonable and o""ressie and'
thereore' oid; and
That the "ortion o the amended by8laws whi!h
re<uires that Ball nominations or ele!tion o
dire!tors OOOO shall be submitted in writing to the
5oard o 7ire!tors at least 4 working days beore
the date o the Annual *eeting is likewise
unreasonable and o""ressie.
)t was' thereore' "rayed that the amended by8laws
be de!lared null and oid and the !ertif!ate o
fling thereo be !an!elled' and that indiidual
res"ondents be made to "ay damages' in s"e!ifedamounts' to "etitioner.
*"",E6
hether or not the "roisions o the amended by8
laws o S*C' dis<ualiying a !om"etitor rom
nomination or ele!tion to the 5oard o 7ire!tors
are alid and reasonable.
#EL$6
The alidity or reasonableness o a by8law o a
!or"oration is "urely a <uestion o law. hether
the by8laws is in !on?i!t with the law o the land' or
with the !harter o the !or"oration' or is in a legal
sense unreasonable and thereore unlawul is a
<uestion o law. This rule is sub2e!t' howeer' to
the limitation that where the reasonableness o a
by8law is a mere matter o 2udgment' and one u"on
whi!h reasonable minds must ne!essary di#er' a
!ourt would not be warranted in substituting its
2udgment instead o the 2udgment o those who are
authori6ed to make the by8laws and who hae
e%er!ised their authority.
)t is re!ogni6ed by all authorities that Beery
!om"etition has the inherent "ower to ado"t by8
laws or its internal goernment' and to regulate
the !ondu!t and "res!ribe the rights and duties o
its members towards itsel and among themseles
in reeren!e to the management o its a#airs. At
!ommon law' the rule was Bthat the "ower to make
and ado"t by8laws was inherent in eery
!or"oration as one o its ne!essary and
inse"arable legal in!idents.
Any "erson Bwho buys sto!k in a !or"oration does
so with the knowledge that its a#airs are
dominated by a ma2ority o the sto!kholders and
that he im"liedly !ontra!ts that the will o the
ma2ority shall goern in all matters within thelimits o the arti!les o in!or"oration and lawully
ena!ted by8laws and not orbidden by8law.
)t being settled that the !or"oration has the "ower
to "roide or the <ualif!ations o its dire!tors' the
ne%t <uestion that must be !onsidered is whethe
the dis<ualif!ation o a !om"etitor rom being
ele!ted to the 5oard o 7ire!tors is a reasonable
e%er!ise o !or"orate authority.
Although in the stri!t and te!hni!al sense' dire!tors
o a "riate !or"oration are not regarded astrustees' there !annot be any doubt that thei
!hara!ter is that o a fdu!iary insoar as the
!or"oration and the sto!kholders as a body are
!on!erned. As agents entrusted with the
management o the !or"oration or the !olle!tie
beneft o the sto!kholders' Bthey o!!u"y a
fdu!iary relation' and in this sense the relation is
the one o trust.
This is based u"on the "rin!i"le that where the
dire!tor is so em"loyed in the seri!e o a ria
!om"any' he !annot sere both' but must betrayone or the other. Su!h an amendment Badan!es
the beneft o the !or"oration and is good.
Certainly' where two !or"orations are !om"etitie
in a substantial sense' it would seem im"robable' i
not im"ossible' or the dire!tor' i he were to
dis!harge e#e!tiely his duty' to satisy his loyalty
to both !or"orations and "la!e the "erorman!e o
his !or"orate duties aboe his "ersonal !on!erns.
*ontaos ,eidi Jean ). (age 4
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,EREF/RE' 2udgment is hereby rendered as
ollows:
/n the matter o alidity o the amended by8laws
o the S*C' K 2usti!es oted to sustain the alidity
per se o amended by8laws in <uestion and to
dismiss the "etition without "re2udi!e to the
<uestion o the a!tual dis<ualif!ation o "etitioner
John 1okongwei' Jr. to run and i ele!ted to sit as
dire!tor o S*C being de!ided' ater a new and
"ro"er hearing o the 5oard o 7ire!tors o S*C'
whose de!ision shall be a""ealable to the SEC
deliberating and a!ting en banc' and ultimately to
this Court. -nless dis<ualifed in the manner herein
"roided' the "rohibition in the aorementioned by8
laws shall not a""ly to "eritioner.
a. M&st act as a ody
Se!. >4. Cor"orate o!ers' <uorum. 8 )mmediately
ater their ele!tion' the dire!tors o a !or"oration
must ormally organi6e by the ele!tion o a
"resident' who shall be a dire!tor' a treasurer who
may or may not be a dire!tor' a se!retary who
shall be a resident and !iti6en o the (hili""ines'
and su!h other o!ers as may be "roided or in
the by8laws. Any two I> or more "ositions may be
held !on!urrently by the same "erson' e%!e"t that
no one shall a!t as "resident and se!retary or as
"resident and treasurer at the same time.
The dire!tors or trustees and o!ers to be ele!tedshall "erorm the duties en2oined on them by law
and the by8laws o the !or"oration. -nless the
arti!les o in!or"oration or the by8laws "roide or
a greater ma2ority' a ma2ority o the number o
dire!tors or trustees as f%ed in the arti!les o
in!or"oration shall !onstitute a <uorum or the
transa!tion o !or"orate business' and eery
de!ision o at least a ma2ority o the dire!tors or
trustees "resent at a meeting at whi!h there is a
<uorum shall be alid as a !or"orate a!t' e%!e"t
or the ele!tion o o!ers whi!h shall re<uire the
ote o a ma2ority o all the members o the board.
7ire!tors or trustees !annot attend or ote by
"ro%y at board meetings.
*"LAM*) $*RE)TORATE OF T#E P#*L*PP*NE"5
MAN,EL F. PEREA and "E),R*T*E" 7 EX)#AN+E
)OMM*""*ON5 %etitioners5
s.
)O,RT OF APPEAL" and *+LE"*A N* )R*"
res"ondents.
FACTS:
The sub2e!t o this "etition or reiew is the 7e!i
o the "ubli! res"ondent Court o A""eals' - da/!tober >M' 9D' setting aside the "ortion o
7e!ision o the Se!urities and E%!hange Commis
ISEC' or short in SEC Case 0o. D9> whi!h de!la
null and oid the sale o two I> "ar!els o land
Pue6on City !oered by the 7eed o Absolute S
entered into by and between "riate res"ond
)glesia 0i Cristo I)0C' or short and the )sla
7ire!torate o the (hili""ines' )n!.' Car"i6o 1ro
I)7(' or short.
)SS-E: =0 the said sale is alid absen!e
registration authority rom the 5oard.
R-$)01S:
The Car"i6o 1rou"8)0C sale is urther deem
null and oid ab initio be!ause o the Car"i6o 1ro
ailure to !om"ly with Se!tion D o the Cor"ora
Code "ertaining to the dis"osition o all
substantially all assets o the !or"oration:
Se!. D. Sale or other disposition of assets. Q Sub
to the "roisions o e%isting laws on ille
!ombinations and mono"olies' a corporation may,a majority vote of its board of directors or truste
sell' lease' e%!hange' mortgage' "ledge or otherw
dispose of all or substantially all of its property
assets' in!luding its goodwill' u"on terms
!onditions and or su!h !onsideration' whi!h may
money' sto!ks' bonds or other instruments or
"ayment o money or other "ro"erty or !onsiderat
as its board o dire!tors or trustees may de
e%"edient' when authorized by the vote of
stockholders representin at least two!thirds ("#$
the outstandin capital stock ; or in case of non!stcorporation, by the vote of at least two!thirds ("#$
the members, in a stockholders% or members% mee
duly called for the purpose. ritten noti!e o
"ro"osed a!tion and o the time and "la!e o
meeting shall be addressed to ea!h sto!kholde
member at his "la!e o residen!e as shown on
books o the !or"oration and de"osited to
addressee in the "ost o!e with "ostage "re"aid
sered "ersonally: Provided' That any dissen
*ontaos ,eidi Jean ). (age K
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sto!kholder may e%er!ise his a""raisal right under the
!onditions "roided in this Code.
A sale or other dis"osition shall be deemed to !oer
substantially all the !or"orate "ro"erty and assets i
thereby the !or"oration would be rendered in!a"able
o !ontinuing the business or a!!om"lishing the
"ur"ose or whi!h it was in!or"orated.
%%% %%% %%%
The Tandang Sora "ro"erty' it a""ears rom the
re!ords' !onstitutes the only "ro"erty o the )7(.
,en!e' its sale to a third8"arty is a sale or dis"osition
o all the !or"orate "ro"erty and assets o )7( alling
s<uarely within the !ontem"lation o the oregoing
se!tion. For the sale to be alid' the ma2ority ote o
the legitimate 5oard o Trustees' !on!urred in by the
ote o at least >=@ o the bona &de members o the
!or"oration should hae been obtained. These twin
re<uirements were not met as the Car"i6o 1rou"
whi!h oted to sell the Tandang Sora "ro"erty was a
ake 5oard o Trustees' and those whose names and
signatures were a%ed by the Car"i6o 1rou" together
with the sham 5oard Resolution authori6ing the
negotiation or the sale were' rom all indi!ations' not
bona &de members o the )7( as they were made to
a""ear to be. A""arently' there are only fteen I94
o!ial members o the "etitioner !or"oration
in!luding the eight IM members o the 5oard o
Trustees. 89
All told' the dis"uted 7eed o Absolute Sale e%e!uted
by the ake Car"i6o 5oard and "riate res"ondent )0C
was intrinsi!ally oid ab initio.
(riate res"ondent )0C neertheless <uestions the
authority o the SEC to nulliy the sale or being made
outside o its 2urisdi!tion' the same not being an intra8
!or"orate dis"ute.
The resolution o the <uestion as to whether or not the
SEC had 2urisdi!tion to de!lare the sub2e!t sale null
and oid is rendered moot and a!ademi! by theinherent nullity o the highly dubious sale due to la!k
o !onsent o the )7(' owner o the sub2e!t "ro"erty.
0o end o substantial 2usti!e will be sered i we
reerse the SECs !on!lusion on the matter' and
remand the !ase to the regular !ourts or urther
litigation oer an issue whi!h is already determinable
based on what we hae in the re!ords.
Ra(ire: v. Orientalist
Fa!ts: JF Ramire6 is engaged in the business
marketing flms or manua!turers. )n an agreem
with /rientalist Co. Ia !om"any engaged in
business o maintaining and !ondu!ting a theate
the !ity o manila or e%hibition o !inematogra"
flms they o#ered e%!lusie agen!y o E!lair
*ilano flms. JF Ramire6 was re"resented in
agreement by his son Jose Ramire6 while RamoFernande6 Ia dire!tor and a!!e"ted the o#er
re"resented the frm treasurer through an inor
!oneren!e with all the members o the !om"a
board o dire!tors e%!e"t one' and with a""roa
those with whom he had !ommuni!ated.
)ssue: hether or not the !om"any is liable in
!ontra!t entered u"on by Ramon J. Fernande63
hether or not Ramon J. Fernande6 is lia
based u"on his "ersonal signature to the sa
do!uments3
,eld: The Court armed the de!ision o the lo
!ourt whi!h held that /rientalist is liable as
"rin!i"al debtor and Ramon J. Fernande6 as guara
o JF Ramire6.
) an a!tion is brought against a !or"oration u"o
!ontra!t alleged to be its !ontra!t' i it desires to
u" the deense that the !ontra!t was e%e!uted by
not authori6ed as its agent' it must "lead non
a!tum. A !or"oration !an not aail itsel o
deense that it had no "ower to enter into obligation to enor!e whi!h the suit is brought' un
it "leads that deense.
0o sworn answer denying the genuineness and
e%e!ution o the !ontra!ts in <uestion or <uestion
the authority o Ramon J. Fernande6 to bind
/rientalist Com"any was fled in this !ase;
eiden!e was admitted without ob2e!tion rom
"lainti#' tending to show that Ramon J. Fernande6
no su!h authority. This eiden!e !onsisted o e%tra
rom the minutes o the "ro!eedings o the !om"a
board o dire!tors and also o e%tra!ts rom minutes o the "ro!eedings o the !om"a
sto!kholders' showing that the making o this !ont
had been under !onsideration in both bodies and t
the authority to make the same had been withheld
the sto!kholders. B,T The ailure o the deend
!or"oration to make any issue in its answer w
regard to the authority o Ramon J. Fernande6 to b
it' and "arti!ularly its ailure to deny s"e!if!ally un
*ontaos ,eidi Jean ). (age N
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oath the genuineness and due e%e!ution o the
!ontra!ts sued u"on' hae the e#e!t o elimination
the <uestion o his authority rom the !ase' !onsidered
as a matter o mere "leading.
As to the liability o the !or"oration
Ramon J. Fernande6' as treasurer' had no
inde"endent authority to bind the !om"any by signing
its name to the letters in <uestion. )t is de!lared by
signing its name to the letters in <uestion. )t is
de!lared in se!tion >M o the Cor"oration $aw that
!or"orate "ower shall be e%er!ised' and all !or"orate
business !ondu!ted by the board o dire!tors; and this
"rin!i"le is re!ogni6ed in the by8laws o the
!or"oration in <uestion whi!h !ontain a "roision
de!laring that the "ower to make !ontra!ts shall be
ested in the board o dire!tors. )t is true that it is also
de!lared in the same by8laws that the "resident shall
hae the "ower' and it shall be his duty' to sign!ontra!t; but this has reeren!e rather to the ormality
o redu!ing to "ro"er orm the !ontra!t whi!h are
authori6ed by the board and is not intended to !oner
an inde"endent "ower to make !ontra!t binding on
the !or"oration.
e beliee it is a air ineren!e rom the
re!itals o the minutes o the sto!kholders meeting o
Se"tember 9M' that this body was then !ogni6ant that
the o!er had already been a!!e"ted in the name o
the /rientalist Com"any and that the flms whi!h were
then e%"e!ted to arrie were being im"orted by irtueo su!h a!!e"tan!e. Certainly our members o the
board o dire!tors there "resent were aware o this
a!t' as the letter a!!e"ting the o#er had been sent
with their knowledge and !onsent.
the board o dire!tors' beore the fnan!ial
inability o the !or"oration to "ro!eed with the "ro2e!t
was reealed' had already re!ogni6ed the !ontra!t as
being in e%isten!e and had "ro!eeded to take the
ste"s ne!essary to utili6e the flms.
Signature o Ramon J. Fernande6
As a""ears u"on the a!e o the !ontra!ts' the
signature o Fernande6' in his indiidual !a"a!ity' is
not in line with the signature o the /rientalist
Com"any' but is set o# to the let o the !om"anys
signature and somewhat below. From the testimony o
both Ramire6 and Ramon J. Fernande6' that the
res"onsibility o the latter was intended to be that o
guarantor.
) the name o a "erson not interested in
"erorman!e o these !ontra!ts had a""eared writ
in the "la!e where the name o Ramon J. Fernande
signed' and the eiden!e had shown that su!h na
was there written merely to attest the signature o
!or"oration' or o Ramon J. Fernande6 as treasurer
!ourt would hae had any hesitation in holding tha
liability had been in!urred though words were wanto show how the name was signed. 5ut wehre a na
is signed ambiguously' "arol eiden!e is admissibl
show the !hara!ter in the signature a%ed.
+.R. No. L'-;;<= A&g&st ->5 -9?@
T#E BOAR$ OF L*,*$ATOR"- re%resenting T
+OVERNMENT OF T#E REP,BL*) OF T
P#*L*PP*NE"5 Plainti'!ppellant ' s. #E*R"
MAX*MO M. ALAC5D 4,AN BO)AR5 E"TATE
T#E $E)EA"E$ )A"*M*RO +AR)*A58 and LEON
MOLL5 efendants!ppellees .
"AN)#E5 J.: !hanrobles irtual law library
Facts:
The 0ational Co!onut Cor"oration I0AC/C/
!hartered as a non8"roft goernmental organi6a
by Commonwealth A!t 49M aowedly or
"rote!tion' "reseration and deelo"ment o
!o!onut industry in the (hili""ines. 0AC/C/s !ha
was amended by Re"ubli! A!t 0o. 4 to grant
!or"oration the e%"ress "ower Gto buy' sell' bae%"ort' and in any other manner deal in' !o!o
!o"ra' and dessi!ated !o!onut' as well as their
"rodu!ts' and to a!t as agent' broker or !ommiss
mer!hant o the "rodu!ers' dealers or mer!ha
thereo. The !harter amendment was ena!ted
stabili6e !o"ra "ri!es' to sere !o!onut "rodu!ers
se!uring adantageous "ri!es or them' to !ut dow
a minimum' i not altogether eliminate' the margi
middlemen' mostly aliens.> !hanrobles irtual
library
1eneral manager and board !hairman was *a%imoHalaw. The rest o the deendants were member
the 5oard. nroblesirtuallawlibrary !hanrobles ir
law library
Four deastating ty"hoons isited the (hili""i
Co!onut trees throughout the !ountry su#e
e%tensie damage. Co"ra "rodu!tion de!rea
(ri!es s"iralled. arehouses were destroyed. C
re<uirements doubled. 7e"riation o e%"ort a!il
*ontaos ,eidi Jean ). (age M
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in!reased the time ne!essary to a!!umulate shi"loads
o !o"ra. Pui!k turnoers be!ame im"ossible'
fnan!ing a "roblem.!hanroblesirtuallawlibrary
!hanrobles irtual law library
hen it be!ame !lear that the !ontra!ts would be
un"roftable' Halaw submitted them to the board or
a""roal. Halaw made a ull dis!losure o the situation'
a""rised the board o the im"ending heay losses. 0o
a!tion was taken on the !ontra!ts.
(resident Ro%as made a statement that the 0AC/C/
head did his best to aert the losses' em"hasi6ed that
goernment !on!erns a!ed the same risks that
!onronted "riate !om"anies' that 0AC/C/ was
re!ou"ing its losses' and that Halaw was to remain in
his "ost. 0ot long thereater' the board met again
where they unanimously a""roed 4 !ontra!ts to
delier !o"ra; howeer' there was only "artially
"erorman!e o the !ontra!ts by 0AC/C/.
/ther buyers fled damage suits; Some o the !laims
were settledibrary !irtual law library
0AC/C/ seeks to re!oer the sum settlement
"ayments rom general manager and board !hairman
*a%imo *. Halaw' and rom its @ dire!tors. )t !harges
Halaw with negligen!e under Arti!le 9> o the old
Ciil Code Inow Arti!le >9NK' new Ciil Code; and
deendant board members' in!luding Halaw' with bad
aith and=or brea!h o trust or haing a""roed the
!ontra!ts without "rior a""roal o the board o dire!tors' to the damage and "re2udi!e o "lainti#.
brary
*ss&e: hether or not the Halaw is negligent or
haing entered into the <uestioned !ontra!ts without
"rior a""roal o the board o dire!tors irtual law
library
R&ling: 0o
(lainti# leelled a ma2or atta!k on the lower !ourts
holding that Halaw 2ustifedly entered into the!ontroerted !ontra!ts without the "rior a""roal o
the !or"orations dire!torate. (lainti# leans heaily on
0AC/C/s !or"orate by8laws. Arti!le )L Ib' Cha"ter )))
thereo' re!ites' as amongst the duties o the general
manager' the obligation: GIb To "erorm or e%e!ute on
behal o the Cor"oration u"on "rior a""roal o the
5oard' all !ontra!ts ne!essary and essential to the
"ro"er a!!om"lishment or whi!h the Cor"oration was
organi6ed.G !hanrobles irtual law library
As a rule' a !or"orate o!er is Gintrusted with
general management and !ontrol o its business'
im"lied authority to make any !ontra!t or do
other a!t whi!h is ne!essary or a""ro"riate to
!ondu!t o the ordinary business o the !or"orat
As su!h o!er' Ghe may' without any s"e!ial autho
rom the 5oard o 7ire!tors "erorm all a!ts o
ordinary nature' whi!h by usage or ne!essity in!ident to his o!e' and may bind the !or"oration
!ontra!ts in matters arising in the usual !ourse
business. !hanrobles irtual law library
The "roblem' thereore' is whether the !ase at ba
to be taken out o the general !on!e"t o the "ow
o a general manager' gien the !ited "roision o
0AC/C/ by8laws re<uiring "rior dire!torate a""ro
o 0AC/C/ !ontra!ts.!hanroblesirtuallawlib
!hanrobles irtual law library
The "e!uliar nature o !o"ra trading re<uires sales agreements be entered into' een though
goods are not yet in the hands o the seller. Hnow
business "arlan!e as forward sales' it is !on!ede
the "ra!ti!e o the trade. A !ertain amount
s"e!ulation is inherent in the undertaking.
0AC/C/' orward sales were a ne!essity. Co"ra !o
not stay long in its hands; it would lose weight
alue de!rease. Aboe all' 0AC/C/s limited u
ne!essitated a <ui!k turnoer. Co"ra !ontra!ts t
had to be e%e!uted on short noti!e 8 at times wit
twenty8our hours. To be a""re!iated then is
di!ulty o !alling a ormal meeting o
board.!hanroblesirtuallawlibrary !hanrobles ir
law libra
$ong beore the dis"uted !ontra!ts !ame into be
Halaw !ontra!ted 8 by himsel alone as gen
manager 8 or orward sales o !o"ra. For the &s
year endin *une $+, -./' Halaw signed some
su!h !ontra!ts or the sale o !o"ra to diers "art
7uring that "eriod' rom those !o"ra sales' 0AC/
rea"ed a gross "roft o (@'K@9'9M9.DM. So "lea
was 0AC/C/s board o dire!tors that' on 7e!em4' 9DK' in Halaws absen!e' it oted to grant him
special bonus Gin re!ognition o the sig
a!hieement rendered by him in "utting
Cor"orations business on a sel8su!ient basis wi
a ew months ater assuming o!e' des"ite numer
handi!a"s and di!ulties.G !hanrobles irtual
library
*ontaos ,eidi Jean ). (age
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These "reious !ontra!t it should be stressed' were
signed by Halaw without prior authority rom the
board. Said !ontra!ts were known all along to the
board members. 0othing was said by them. The
aoresaid !ontra!ts stand to "roe one thing:
/biously' 0AC/C/ board met the di!ulties
attendant to orward sales by leaing the ado"tion o
means to end' to the sound dis!retion o 0AC/C/sgeneral manager *a%imo *. Halaw. irtual
lSettled 2uris"ruden!e has it that where similar a!ts
hae been a""roed by the dire!tors as a matter o
general "ra!ti!e' !ustom' and "oli!y' the general
manager may bind the !om"any without ormal
authori6ation o the board o dire!tors. )n arying
language' e%isten!e o su!h authority is established'
by "roo o the course of business' the usae and
practices o the !om"any and by the knowlede whi!h
the board o dire!tors has' or must be presumed to
hae' o a!ts and doings o its subordinates in andabout the a#airs o the !or"oration. So also'
% % % authority to a!t or and bind a !or"oration may
be "resumed rom a!ts o re!ognition in other
instan!es where the "ower was in a!t e%er!ised. D;
!hanrobles irtual law library
% % % Thus' when' in the usual !ourse o business o a
!or"oration' an o!er has been allowed in his o!ial
!a"a!ity to manage its a#airs' his authority to
re"resent the !or"oration may be im"lied rom the
manner in whi!h he has been "ermitted by thedire!tors to manage its business.
)n the !ase at bar' the "ra!ti!e o the !or"oration has
been to allow its general manager to negotiate and
e%e!ute !ontra!ts in its !o"ra trading a!tiities or and
in 0AC/C/s behal without "rior board a""roal. )
the by8laws were to be literally ollowed' the board
should gie its stam" o "rior a""roal on all !or"orate
!ontra!ts. 5ut that board itsel' by its a!ts and through
a!<uies!en!e' "ra!ti!ally laid aside the by8law
re<uirement o "rior
a""roal.!hanroblesirtuallawlibrary !hanrobles
irtual law library
-nder the gien !ir!umstan!es' the Halaw !ontra!ts
are alid !or"orate a!ts. They Ithe dire!tors hold su!h
o!e !harged with the duty to a!t or the !or"oration
a!!ording to their best 2udgment' and in so doing they
!annot be !ontrolled in the reasonable e%er!ise and
"erorman!e o su!h duty. hether the business o a
!or"oration should be o"erated at a loss durin
business de"ression' or !losed down at a smaller l
is a "urely business and e!onomi! "roblem to
determined by the dire!tors o the !or"oration'
not by the !ourt. )t is a well known rule o law t
<uestions o "oli!y o management are let solely
the honest de!ision o o!ers and dire!tors o
!or"oration' and the !ourt is without authoritysubstitute its 2udgment or the 2udgment o the bo
o dire!tors; the board is the business manager o
!or"oration' and so lon as it acts in ood faith
orders are not reviewable by the courts.G
Halaws good aith' and that o the other dire!t
!lin!h the !ase or deendants.
E(iliano Ac&na vs Batac Prod&cers )oo%erat
Mar!eting Association5 *nc.
Fa!ts:
Emiliano A!una entered into agreement w
the manager o 5ata! (R/C/*A )n!. wherein he
adan!e a !ertain amount o money to 5ata! as
additional und or its Lirginia Toba!!o buy
o"erations and in return A!una will be
re"resentatie o the 5Ata! (ro!oma in *anila' w
the salary o(.4 "er kilo o toba!!o.
BAgreement was entered into by the 5ata! (ro!o
manager with the knowledge and !onsent o the ot
o!ial o 5ata! (ro!oma. Ithese o!ers !onstitu
the board o bata!. hen 5ata! (ro!oma got money rom A!una' they started buying out toba!
Then A!una was sur"rise that the BAgreement
not re!ogni6ed by 5ata! (ro!oma' a!!ording to th
the BAgreement was not a""roed by the board. I
ha""ened when 5ata! already got the money
used it' and reuse to a!t on their "art o
agreement
)ssue:
hether or not the BA1REE*E0T
im"liedly a""roe and ratifed by the boarddire!tors o 5ata!3
,eld:
A "erusal o the !om"laint reeals tha
!ontains su!ient allegations indi!ating su!h a""r
or at least subse<uent ratif!ation. /n the frst "
we note the ollowing aerments: that on *ay th
"lainti# met with ea!h and all o the indiid
*ontaos ,eidi Jean ). (age 9
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deendants Iwho !onstituted the entire 5oard o
7ire!tors and dis!ussed with them e%tensiely the
tentatie agreement and he was made to understand
that it was a!!e"table to them' e%!e"t as to "lainti#s
remuneration; that it was fnally agreed between
"lainti# and all said 7ire!tors that his remuneration
would be (.@ "er kilo Io toba!!o; and that ater
the agreement was ormally e%e!uted he was assuredby said 7ire!tors that there would be no need o
ormal a""roal by the 5oard. )t should be noted in
this !onne!tion that although the !ontra!t re<uired
su!h a""roal it did not s"e!iy 2ust in what manner
the same should be gien.
/n the <uestion o ratif!ation the !om"laint alleges
that "lainti# deliered to the deendant !or"oration
the sum o (>'. as !alled or in the !ontra!t;
that he rendered the seri!es he was re<uired to do;
that he urnished said deendant @' sa!ks at a !ost
o (K'. and adan!ed to it the urther sum o (4'.; and that he did all o these things with the
ull knowledge' a!<uies!en!e and !onsent o ea!h and
all o the indiidual deendants who !onstitute the
5oard o 7ire!tors o the deendant !or"oration. There
is abundant authority in su""ort o the "ro"osition
that ratif!ation may be e%"ress or im"lied' and that
im"lied ratif!ation may take dierse orms' su!h as by
silen!e or a!<uies!en!e; by a!ts showing a""roal or
ado"tion o the !ontra!t; or by a!!e"tan!e and
retention o benefts ?owing thererom.
Signif!antly the ery resolution o the 5oard o
7ire!tors relied u"on by deendants a""ears to
militate against their !ontention. )t reers to "lainti#s
ailure to !om"ly with !ertain "romises he had made'
as well as to his inter"retation o the !ontra!t with
res"e!t to his remuneration whi!h' a!!ording to the
5oard' was !ontrary to the intention o the "arties.
The resolution then "ro!eeds to Gdisa""roe and=or
res!indG the said !ontra!t. The idea o !on?i!ting
inter"retation' or res!ission on the ground that one o
the "arties has ailed to ulfll his obligation under the
!ontra!t' is !ertainly in!om"atible with deendantstheory here that no !ontra!t had yet been "ere!ted
or la!k o a""roal by the 5oard o 7ire!tors.
#arden vs. Beng&et )onsolidated
. Eec&tive )o((ittee
Se!. @4. E%e!utie !ommittee. 8 The by8laws o a
!or"oration may !reate an e%e!utie !ommittee'
!om"osed o not less than three members o the
board' to be a""ointed by the board. Said
!ommittee may a!t' by ma2ority ote o all its
members' on su!h s"e!if! matters within the
!om"eten!e o the board' as may be delegated to
it in the by8laws or on a ma2ority ote o the board
e%!e"t with res"e!t to: I9 a""roal o any a!tion
or whi!h shareholders a""roal is also re<uiredI> the fling o a!an!ies in the board; I@ the
amendment or re"eal o by8laws or the ado"tion o
new by8laws; ID the amendment or re"eal o any
resolution o the board whi!h by its e%"ress terms
is not so amendable or re"ealable; and I4 a
distribution o !ash diidends to the shareholders.
ROLE OF "#ARE#OL$ER"
Right to Vote and Attend Meetings
"ection ;9. 0iht to vote1 8 The right o the
members o any !lass or !lasses to ote may be
limited' broadened or denied to the e%tent
s"e!ifed in the arti!les o in!or"oration or the by8
laws. -nless so limited' broadened or denied' ea!h
member' regardless o !lass' shall be entitled to
one ote.
-nless otherwise "roided in the arti!les o
in!or"oration or the by8laws' a member may ote
by "ro%y in a!!ordan!e with the "roisions o thisCode. In
Loting by mail or other similar means by members
o non8sto!k !or"orations may be authori6ed by
the by8laws o non8sto!k !or"orations with the
a""roal o' and under su!h !onditions whi!h may
be "res!ribed by' the Se!urities and E%!hange
Commission.
PR*)E AN$ ",L, $EVELOPMENT )O. V"
MART*N
FA)T"6 (lainti#s brought suit in the Court o First
)nstan!e o *anila "raying that a mortgage
e%e!uted by the Sulu 7eelo"ment Com"any on its
"ro"erties in aor o the Agusan Co!onu
Com"any be dissoled and de!lared null and oid
the "rin!i"al !ontentions being that at the
sto!kholders meeting in whi!h the o!ers o the
Sulu 7eelo"ment Com"any were ele!ted and at
*ontaos ,eidi Jean ). (age 99
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whi!h the "ro"osed mortgage was a""roed o' N
shares o sto!k o the Sulu 7eelo"ment Com"any
were oted by the "ro%y o *rs. or!ester' in
whose name the sto!k at that time stood u"on the
books o the !om"any' whereas deendant *artin
!laimed that he was the true owner and that he
should hae oted the sto!k.
*"",E6 hether the mortgage was duly e%e!uted
by the Sulu 7eelo"ment Com"any3
R,L*N+6 (lainti#s !ontend that the transeren!e
on the books o the !om"any o N shares o sto!k
in the name o *rs. or!ester was raudulent and
illegal. The eiden!e o re!ord' howeer' under all
the !ir!umstan!es o the !ase' ails to demonstrate
the allegation o raud' and this !ourt beliees that
she a!ted in good aith and in the honest belie
that she had not only a legal right but a duty to
"arti!i"ate in the sto!kholders meeting.
As to whether the sto!k was rightully the "ro"erty
o *artin' that is a <uestion or the !ourts and or a
sto!kholders meeting. -ntil !hallenged in a "ro"er
"ro!eeding' a sto!kholder a!!ording to the books
o the !om"any has a right to "arti!i"ate in that
meeting' and in the absen!e o raud the a!tion o
the sto!kholders meeting !annot be !ollaterally
atta!ked on a!!ount o su!h "arti!i"ation. GA
"erson who has "ur!hased sto!k' and who desires
to be re!ogni6ed as a sto!kholder' or the "ur"ose
o oting' must se!ure su!h a standing by haingthe transer re!order u"on the books. ) the
transer is not duly made u"on re<uest' he has' as
his remedy' to !om"el it to be made.
The 2udgment a""ealed rom is thereore armed.
Costs against a""ellants. So ordered.
a. Instances:
"ection D>. 2lection of directors or trustees1 8 At
all ele!tions o dire!tors or trustees' there must be
"resent' either in "erson or by re"resentatieauthori6ed to a!t by written "ro%y' the owners o a
ma2ority o the outstanding !a"ital sto!k' or i
there be no !a"ital sto!k' a ma2ority o the
members entitled to ote. The ele!tion must be by
ballot i re<uested by any oting sto!kholder or
member. )n sto!k !or"orations' eery sto!kholder
entitled to ote shall hae the right to ote in
"erson or by "ro%y the number o shares o sto!k
standing' at the time f%ed in the by8laws' in his
own name on the sto!k books o the !or"oration
or where the by8laws are silent' at the time o the
ele!tion; and said sto!kholder may ote su!h
number o shares or as many "ersons as there are
dire!tors to be ele!ted or he may !umulate said
shares and gie one !andidate as many otes as
the number o dire!tors to be ele!ted multi"lied by
the number o his shares shall e<ual' or he maydistribute them on the same "rin!i"le among as
many !andidates as he shall see ft: (roided' That
the total number o otes !ast by him shall not
e%!eed the number o shares owned by him as
shown in the books o the !or"oration multi"lied by
the whole number o dire!tors to be ele!ted
(roided' howeer' That no delin<uent sto!k shal
be oted. -nless otherwise "roided in the arti!les
o in!or"oration or in the by8laws' members o
!or"orations whi!h hae no !a"ital sto!k may !ast
as many otes as there are trustees to be ele!ted
but may not !ast more than one ote or one
!andidate. Candidates re!eiing the highest
number o otes shall be de!lared ele!ted. Any
meeting o the sto!kholders or members !alled o
an ele!tion may ad2ourn rom day to day or rom
time to time but not sine die or indefnitely i' or
any reason' no ele!tion is held' or i there are not
"resent or re"resented by "ro%y' at the meeting
the owners o a ma2ority o the outstanding !a"ita
sto!k' or i there be no !a"ital sto!k' a ma2ority o
the member entitled to ote. I@9a
"ection -?. mendment of rticles of
3ncorporation1 8 -nless otherwise "res!ribed by this
Code or by s"e!ial law' and or legitimate
"ur"oses' any "roision or matter stated in the
arti!les o in!or"oration may be amended by a
ma2ority ote o the board o dire!tors or trustees
and the ote or written assent o the sto!kholders
re"resenting at least two8thirds I>=@ o the
outstanding !a"ital sto!k' without "re2udi!e to the
a""raisal right o dissenting sto!kholders in
a!!ordan!e with the "roisions o this Code' or the
ote or written assent o at least two8thirds I>=@ othe members i it be a non8sto!k !or"oration.
The original and amended arti!les together shal
!ontain all "roisions re<uired by law to be set out
in the arti!les o in!or"oration. Su!h arti!les' as
amended shall be indi!ated by unders!oring the
!hange or !hanges made' and a !o"y thereo duly
!ertifed under oath by the !or"orate se!retary and
*ontaos ,eidi Jean ). (age 9>
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a ma2ority o the dire!tors or trustees stating the
a!t that said amendment or amendments hae
been duly a""roed by the re<uired ote o the
sto!kholders or members' shall be submitted to
the Se!urities and E%!hange Commission.
The amendments shall take e#e!t u"on their
a""roal by the Se!urities and E%!hangeCommission or rom the date o fling with the said
Commission i not a!ted u"on within si% IK months
rom the date o fling or a !ause not attributable
to the !or"oration.
"ection >D. Power to invest corporate funds in
another corporation or business or for any other
purpose1 8 Sub2e!t to the "roisions o this Code' a
"riate !or"oration may inest its unds in any
other !or"oration or business or or any "ur"ose
other than the "rimary "ur"ose or whi!h it was
organi6ed when a""roed by a ma2ority o the
board o dire!tors or trustees and ratifed by the
sto!kholders re"resenting at least two8thirds I>=@
o the outstanding !a"ital sto!k' or by at least two
thirds I>=@ o the members in the !ase o non8
sto!k !or"orations' at a sto!kholders or members
meeting duly !alled or the "ur"ose. ritten noti!e
o the "ro"osed inestment and the time and "la!e
o the meeting shall be addressed to ea!h
sto!kholder or member at his "la!e o residen!e as
shown on the books o the !or"oration and
de"osited to the addressee in the "ost o!e with"ostage "re"aid' or sered "ersonally: (roided'
That any dissenting sto!kholder shall hae
a""raisal right as "roided in this Code: (roided'
howeer' That where the inestment by the
!or"oration is reasonably ne!essary to a!!om"lish
its "rimary "ur"ose as stated in the arti!les o
in!or"oration' the a""roal o the sto!kholders or
members shall not be ne!essary. I9N 9=>a
$ELA RAMA V" MAO ",+AR
Facts6 J. Amado Araneta and three other
deendants re"resenting *a8ao Sugar Central )n!.
made an inestment to (hili""ine Fiber. The
minority sto!kholders o the *a8ao Sugar Central
)n!. Ithe "lainti#8a""ellant <uestions the alidity
o su!h inestment' a!!ording to them the a!tion
o Araneta and three other deendants was without
the authority or a""roal o the sto!kholders
owning >=@ o the !a"ital sto!k as re<uired by law.
*ss&e6 hether or not the inestment made by
*a8ao sugar !entral to (hili""ine Fiber is alid3
#eld6 The a""roal o the sto!kholders owning >=@
o the !a"ital sto!k is not re<uired Bis su!h an a!t'
i done in "ursuan!e o the !or"orate "ur"ose
does not need the a""roal o the sto!kholders
but when the "ur!hase o shares o anothe
!or"oration is done solely or inestment and no
to a!!om"lish the "ur"ose o its in!or"oration' the
ote o a""roal o the sto!kholders is ne!essary
and urther states that Bwhen "ur"ose or "ur"oses
as stated in its arti!le o in!or"oration' the
a""roal o the sto!kholder is not ne!essary
A""lying the rule in the !ase at bar' sin!e
(hili""ine Fiber was engaged in the manua!ture o
sugar 5A1S' it was "ere!tly legitimate or *a8ao
Sugar either to manua!ture sugar bags or inest
in another !or"oration engaged in said
manua!ture. Thereore the ote o thesto!kholders are not ne!essary.
"ection @@. Stockholder%s or member%s approval1
-"on a""roal by ma2ority ote o ea!h o the
board o dire!tors or trustees o the !onstituen
!or"orations o the "lan o merger or !onsolidation
the same shall be submitted or a""roal by the
sto!kholders or members o ea!h o su!h
!or"orations at se"arate !or"orate meetings duly
!alled or the "ur"ose. 0oti!e o su!h meetings
shall be gien to all sto!kholders or members o
the res"e!tie !or"orations' at least two I> weeks
"rior to the date o the meeting' either "ersonally
or by registered mail. Said noti!e shall state the
"ur"ose o the meeting and shall in!lude a !o"y or
a summary o the "lan o merger or !onsolidation
The armatie ote o sto!kholders re"resenting
at least two8thirds I>=@ o the outstanding !a"ita
sto!k o ea!h !or"oration in the !ase o sto!k
!or"orations or at least two8thirds I>=@ o the
members in the !ase o non8sto!k !or"orations
shall be ne!essary or the a""roal o su!h "lan
Any dissenting sto!kholder in sto!k !or"orationsmay e%er!ise his a""raisal right in a!!ordan!e with
the Code: (roided' That i ater the a""roal by
the sto!kholders o su!h "lan' the board o
dire!tors de!ides to abandon the "lan' the
a""raisal right shall be e%tinguished.
Any amendment to the "lan o merger o
!onsolidation may be made' "roided su!h
amendment is a""roed by ma2ority ote o the
*ontaos ,eidi Jean ). (age 9@
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res"e!tie boards o dire!tors or trustees o all the
!onstituent !or"orations and ratifed by the
armatie ote o sto!kholders re"resenting at
least two8thirds I>=@ o the outstanding !a"ital
sto!k or o two8thirds I>=@ o the members o ea!h
o the !onstituent !or"orations. Su!h "lan'
together with any amendment' shall be !onsidered
as the agreement o merger or !onsolidation. In
"ection 8;. Power to increase or decrease capital
stock4 incur, create or increase bonded
indebtedness1 8 0o !or"oration shall in!rease or
de!rease its !a"ital sto!k or in!ur' !reate or
in!rease any bonded indebtedness unless
a""roed by a ma2ority ote o the board o
dire!tors and' at a sto!kholders meeting duly
!alled or the "ur"ose' two8thirds I>=@ o the
outstanding !a"ital sto!k shall aor the in!rease
or diminution o the !a"ital sto!k' or the in!urring'
!reating or in!reasing o any bonded indebtedness.
ritten noti!e o the "ro"osed in!rease or
diminution o the !a"ital sto!k or o the in!urring'
!reating' or in!reasing o any bonded indebtedness
and o the time and "la!e o the sto!kholders
meeting at whi!h the "ro"osed in!rease or
diminution o the !a"ital sto!k or the in!urring or
in!reasing o any bonded indebtedness is to be
!onsidered' must be addressed to ea!h
sto!kholder at his "la!e o residen!e as shown on
the books o the !or"oration and de"osited to the
addressee in the "ost o!e with "ostage "re"aid'or sered "ersonally.
A !ertif!ate in du"li!ate must be signed by a
ma2ority o the dire!tors o the !or"oration and
!ountersigned by the !hairman and the se!retary
o the sto!kholders meeting' setting orth:
I9 That the re<uirements o this se!tion
hae been !om"lied with;
I> The amount o the in!rease ordiminution o the !a"ital sto!k;
I@ ) an in!rease o the !a"ital sto!k' the
amount o !a"ital sto!k or number o shares
o no8"ar sto!k thereo a!tually subs!ribed'
the names' nationalities and residen!es o
the "ersons subs!ribing' the amount o
!a"ital sto!k or number o no8"ar sto!k
subs!ribed by ea!h' and the amount "aid
by ea!h on his subs!ri"tion in !ash o
"ro"erty' or the amount o !a"ital sto!k or
number o shares o no8"ar sto!k allotted to
ea!h sto!k8holder i su!h in!rease is or the
"ur"ose o making e#e!tie sto!k diidend
thereor authori6ed;
ID Any bonded indebtedness to bein!urred' !reated or in!reased;
I4 The a!tual indebtedness o the
!or"oration on the day o the meeting;
IK The amount o sto!k re"resented at the
meeting; and
IN The ote authori6ing the in!rease o
diminution o the !a"ital sto!k' or the
in!urring' !reating or in!reasing o any
bonded indebtedness.
Any in!rease or de!rease in the !a"ital sto!k or the
in!urring' !reating or in!reasing o any bonded
indebtedness shall re<uire "rior a""roal o the
Se!urities and E%!hange Commission.
/ne o the du"li!ate !ertif!ates shall be ke"t on
fle in the o!e o the !or"oration and the other
shall be fled with the Se!urities and E%!hange
Commission and atta!hed to the original arti!les o
in!or"oration. From and ater a""roal by theSe!urities and E%!hange Commission and the
issuan!e by the Commission o its !ertif!ate o
fling' the !a"ital sto!k shall stand in!reased o
de!reased and the in!urring' !reating or in!reasing
o any bonded indebtedness authori6ed' as the
!ertif!ate o fling may de!lare: (roided' That the
Se!urities and E%!hange Commission shall no
a!!e"t or fling any !ertif!ate o in!rease o
!a"ital sto!k unless a!!om"anied by the sworn
statement o the treasurer o the !or"oration
lawully holding o!e at the time o the fling othe !ertif!ate' showing that at least twenty8fe
I>4 "er!ent o su!h in!reased !a"ital sto!k has
been subs!ribed and that at least twenty8fe
I>4 "er!ent o the amount subs!ribed has been
"aid either in a!tual !ash to the !or"oration or that
there has been transerred to the !or"oration
"ro"erty the aluation o whi!h is e<ual to twenty8
fe I>4 "er!ent o the subs!ri"tion: (roided
urther' That no de!rease o the !a"ital sto!k shal
*ontaos ,eidi Jean ). (age 9D
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be a""roed by the Commission i its e#e!t shall
"re2udi!e the rights o !or"orate !reditors.
0on8sto!k !or"orations may in!ur or !reate bonded
indebtedness' or in!rease the same' with the
a""roal by a ma2ority ote o the board o
trustees and o at least two8thirds I>=@ o the
members in a meeting duly !alled or the "ur"ose.
5onds issued by a !or"oration shall be registered
with the Se!urities and E%!hange Commission'
whi!h shall hae the authority to determine the
su!ien!y o the terms thereo. I9Na
"ection >;. mendments to by!laws1 8 The board
o dire!tors or trustees' by a ma2ority ote thereo'
and the owners o at least a ma2ority o the
outstanding !a"ital sto!k' or at least a ma2ority o
the members o a non8sto!k !or"oration' at a
regular or s"e!ial meeting duly !alled or the
"ur"ose' may amend or re"eal any by8laws or
ado"t new by8laws. The owners o two8thirds I>=@
o the outstanding !a"ital sto!k or two8thirds I>=@
o the members in a non8sto!k !or"oration may
delegate to the board o dire!tors or trustees the
"ower to amend or re"eal any by8laws or ado"t
new by8laws: (roided' That any "ower delegated
to the board o dire!tors or trustees to amend or
re"eal any by8laws or ado"t new by8laws shall be
!onsidered as reoked wheneer sto!kholders
owning or re"resenting a ma2ority o theoutstanding !a"ital sto!k or a ma2ority o the
members in non8sto!k !or"orations' shall so ote
at a regular or s"e!ial meeting.
heneer any amendment or new by8laws are
ado"ted' su!h amendment or new by8laws shall be
atta!hed to the original by8laws in the o!e o the
!or"oration' and a !o"y thereo' duly !ertifed
under oath by the !or"orate se!retary and a
ma2ority o the dire!tors or trustees' shall be fled
with the Se!urities and E%!hange Commission thesame to be atta!hed to the original arti!les o
in!or"oration and original by8laws.
The amended or new by8laws shall only be
e#e!tie u"on the issuan!e by the Se!urities and
E%!hange Commission o a !ertif!ation that the
same are not in!onsistent with this Code. I>>a and
>@a
"ection >8. Power to declare dividends1 8 The
board o dire!tors o a sto!k !or"oration may
de!lare diidends out o the unrestri!ted retained
earnings whi!h shall be "ayable in !ash' in
"ro"erty' or in sto!k to all sto!kholders on the
basis o outstanding sto!k held by them: (roided
That any !ash diidends due on delin<uent sto!k
shall frst be a""lied to the un"aid balan!e on thesubs!ri"tion "lus !osts and e%"enses' while sto!k
diidends shall be withheld rom the delin<uent
sto!kholder until his un"aid subs!ri"tion is ully
"aid: (roided' urther' That no sto!k diidend
shall be issued without the a""roal o
sto!kholders re"resenting not less than two8thirds
I>=@ o the outstanding !a"ital sto!k at a regular
or s"e!ial meeting duly !alled or the "ur"ose
I9Ka
Sto!k !or"orations are "rohibited rom retaining
sur"lus "rofts in e%!ess o one hundred I9
"er!ent o their "aid8in !a"ital sto!k' e%!e"t: I9
when 2ustifed by defnite !or"orate e%"ansion
"ro2e!ts or "rograms a""roed by the board o
dire!tors; or I> when the !or"oration is "rohibited
under any loan agreement with any fnan!ia
institution or !reditor' whether lo!al or oreign
rom de!laring diidends without its=his !onsent
and su!h !onsent has not yet been se!ured; or I@
when it !an be !learly shown that su!h retention is
ne!essary under s"e!ial !ir!umstan!es obtaining
in the !or"oration' su!h as when there is need ors"e!ial resere or "robable !ontingen!ies. In
"ection >>. Power to enter into manaement
contract1 8 0o !or"oration shall !on!lude a
management !ontra!t with another !or"oration
unless su!h !ontra!t shall hae been a""roed by
the board o dire!tors and by sto!kholders owning
at least the ma2ority o the outstanding !a"ita
sto!k' or by at least a ma2ority o the members in
the !ase o a non8sto!k !or"oration' o both the
managing and the managed !or"oration' at a
meeting duly !alled or the "ur"ose: (roided' That
I9 where a sto!kholder or sto!kholders
re"resenting the same interest o both the
managing and the managed !or"orations own o
!ontrol more than one8third I9=@ o the tota
outstanding !a"ital sto!k entitled to ote o the
managing !or"oration; or I> where a ma2ority o
the members o the board o dire!tors o the
managing !or"oration also !onstitute a ma2ority o
*ontaos ,eidi Jean ). (age 94
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the members o the board o dire!tors o the
managed !or"oration' then the management
!ontra!t must be a""roed by the sto!kholders o
the managed !or"oration owning at least two8
thirds I>=@ o the total outstanding !a"ital sto!k
entitled to ote' or by at least two8thirds I>=@ o
the members in the !ase o a non8sto!k
!or"oration. 0o management !ontra!t shall beentered into or a "eriod longer than fe years or
any one term.
The "roisions o the ne%t "re!eding "aragra"h
shall a""ly to any !ontra!t whereby a !or"oration
undertakes to manage or o"erate all or
substantially all o the business o another
!or"oration' whether su!h !ontra!ts are !alled
seri!e !ontra!ts' o"erating agreements or
otherwise: (roided' howeer' That su!h seri!e
!ontra!ts or o"erating agreements whi!h relate to
the e%"loration' deelo"ment' e%"loitation or
utili6ation o natural resour!es may be entered into
or su!h "eriods as may be "roided by the
"ertinent laws or regulations. In
"ection ?D. 5onsideration for stocks. 8 Sto!ks
shall not be issued or a !onsideration less than
the "ar or issued "ri!e thereo. Consideration or
the issuan!e o sto!k may be any or a !ombination
o any two or more o the ollowing:
9. A!tual !ash "aid to the !or"oration;
>. (ro"erty' tangible or intangible' a!tually
re!eied by the !or"oration and ne!essary or
!onenient or its use and lawul "ur"oses at a
air aluation e<ual to the "ar or issued alue
o the sto!k issued;
@. $abor "erormed or or seri!es a!tually
rendered to the !or"oration;
D. (reiously in!urred indebtedness o the!or"oration;
4. Amounts transerred rom unrestri!ted
retained earnings to stated !a"ital; and
K. /utstanding shares e%!hanged or sto!ks in
the eent o re!lassif!ation or !onersion.
here the !onsideration is other than a!tual !ash
or !onsists o intangible "ro"erty su!h as "atents
o !o"yrights' the aluation thereo shall initially be
determined by the in!or"orators or the board o
dire!tors' sub2e!t to a""roal by the Se!urities and
E%!hange Commission.
Shares o sto!k shall not be issued in e%!hange or"romissory notes or uture seri!e.
The same !onsiderations "roided or in this
se!tion' insoar as they may be a""li!able' may be
used or the issuan!e o bonds by the !or"oration.
The issued "ri!e o no8"ar alue shares may be
f%ed in the arti!les o in!or"oration or by the
board o dire!tors "ursuant to authority !onerred
u"on it by the arti!les o in!or"oration or the by8
laws' or in the absen!e thereo' by the
sto!kholders re"resenting at least a ma2ority o the
outstanding !a"ital sto!k at a meeting duly !alled
or the "ur"ose. I4 and 9K
b. Treasury Stocks
"ection =@. 6otin riht for treasury shares1
Treasury shares shall hae no oting right as long
as su!h shares remain in the Treasury. In
c. Conduct of Stockhoders!Sharehoders
Meetings
"ection >9. 7inds of meetins1 8 *eetings o
dire!tors' trustees' sto!kholders' or members may
be regular or s"e!ial. In
"ection =<. 0eular and special meetins of
stockholders or members1 8 Regular meetings o
sto!kholders or members shall be held annually on
a date f%ed in the by8laws' or i not so f%ed' on
any date in A"ril o eery year as determined by
the board o dire!tors or trustees: (roided' That
written noti!e o regular meetings shall be sent to
all sto!kholders or members o re!ord at least two
I> weeks "rior to the meeting' unless a di#erent
"eriod is re<uired by the by8laws.
S"e!ial meetings o sto!kholders or members shal
be held at any time deemed ne!essary or as
"roided in the by8laws: (roided' howeer' That at
least one I9 week written noti!e shall be sent to
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all sto!kholders or members' unless otherwise
"roided in the by8laws.
0oti!e o any meeting may be waied' e%"ressly or
im"liedly' by any sto!kholder or member.
heneer' or any !ause' there is no "erson
authori6ed to !all a meeting' the Se!urities andE%!hange Commission' u"on "etition o a
sto!kholder or member on a showing o good
!ause thereor' may issue an order to the
"etitioning sto!kholder or member dire!ting him to
!all a meeting o the !or"oration by giing "ro"er
noti!e re<uired by this Code or by the by8laws. The
"etitioning sto!kholder or member shall "reside
thereat until at least a ma2ority o the sto!kholders
or members "resent hae !hosen one o their
number as "residing o!er. I>D' >K
"ection =-. Place and time of meetins of
stockholders of members1 8 Sto!kholders or
members meetings' whether regular or s"e!ial'
shall be held in the !ity or muni!i"ality where the
"rin!i"al o!e o the !or"oration is lo!ated' and i
"ra!ti!able in the "rin!i"al o!e o the
!or"oration: (roided' That *etro *anila shall' or
"ur"oses o this se!tion' be !onsidered a !ity or
muni!i"ality.
0oti!e o meetings shall be in writing' and the time
and "la!e thereo stated therein.
All "ro!eedings had and any business transa!ted
at any meeting o the sto!kholders or members' i
within the "owers or authority o the !or"oration'
shall be alid een i the meeting be im"ro"erly
held or !alled' "roided all the sto!kholders or
members o the !or"oration are "resent or duly
re"resented at the meeting. I>D and >4
"ection 98. Place of meetins1 8 The by8laws may
"roide that the members o a non8sto!k!or"oration may hold their regular or s"e!ial
meetings at any "la!e een outside the "la!e
where the "rin!i"al o!e o the !or"oration is
lo!ated: (roided' That "ro"er noti!e is sent to all
members indi!ating the date' time and "la!e o the
meeting: and (roided' urther' That the "la!e o
meeting shall be within the (hili""ines. In
"ection =D. 8uorum in meetins1 8 -nless
otherwise "roided or in this Code or in the by8
laws' a <uorum shall !onsist o the sto!kholders
re"resenting a ma2ority o the outstanding !a"ita
sto!k or a ma2ority o the members in the !ase o
non8sto!k !or"orations. In
LAN,A vs. )A
FA)T"6 (hili""ine *er!hant *arine S!hool' )n!
I(**S) was in!or"orated' with NNK !a"ital sto!k
subs!ri"tion re?e!ted in the arti!les o
in!or"oration. ,oweer' "riate res"ondents and
their "rede!essors who were in !ontrol o (**S)
registered the !om"any+s sto!k and transer book
or the frst time' re!ording thirty8three I@@
!ommon shares as the only issued and outstanding
shares o (**S). A s"e!ial sto!kholders+ meeting
was !alled and held on the basis o what was
!onsidered as a <uorum o twenty8seen I>N
!ommon shares' re"resenting more than two8thirds
I>=@ o the !ommon shares issued and
outstanding.
A s"e!ial sto!kholders+ meeting was held to ele!t a
new set o dire!tors. (riate res"ondents
thereater fled a "etition with the SEC <uestioning
the alidity o the sto!kholders+ meeting' allegingthat the <uorum or the said meeting should not be
based on the issued and outstanding shares as "er
the sto!k and transer book' but on the initia
subs!ribed !a"ital sto!k o seen hundred seenty
si% INNK shares' as re?e!ted in the Arti!les o
)n!or"oration.
*"",E6 hat should be the basis o <uorum or a
sto!kholders+ meetingQthe outstanding !a"itasto!k as indi!ated in the arti!les o in!or"oration o
that !ontained in the !om"any+s sto!k and transe
book3
#EL$6 )t should be the outstanding !a"ital sto!k
as indi!ated in the arti!les o in!or"oration.
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An arti!le o in!or"oration defnes the !harter o
the !or"oration and the !ontra!tual relationshi"s
between the State and the !or"oration' the
sto!kholders and the State' and between the
!or"oration and its sto!kholders.
To base the !om"utation o <uorum solely on the
obiously def!ient' i not ina!!urate sto!k and
transer book' and !om"letely disregarding the
issued and outstanding shares as indi!ated in the
arti!les o in!or"oration would work in2usti!e to the
owners and=or su!!essors in interest o the said
shares. The sto!k and transer book o (**S)
!annot be used as the sole basis or determining
the <uorum as it does not re?e!t the totality o
shares whi!h hae been subs!ribed' more so when
the arti!les o in!or"oration show a signif!antly
larger amount o shares issued and outstanding as
!om"ared to that listed in the sto!k and transer
book.
d. Contracts " Agree#ents A$ecting
Stockhoders
Pro%y
"ection =;. Pro9ies1 8 Sto!kholders and members
may ote in "erson or by "ro%y in all meetings o
sto!kholders or members. (ro%ies shall in writing'
signed by the sto!kholder or member and fled
beore the s!heduled meeting with the !or"orate
se!retary. -nless otherwise "roided in the "ro%y'
it shall be alid only or the meeting or whi!h it is
intended. 0o "ro%y shall be alid and e#e!tie or
a "eriod longer than fe I4 years at any one time.
VTA &Voting Trusts Agree#ents'
"ection =9. 6otin trusts1 8 /ne or more
sto!kholders o a sto!k !or"oration may !reate a
oting trust or the "ur"ose o !onerring u"on a
trustee or trustees the right to ote and other
rights "ertaining to the shares or a "eriod not
e%!eeding fe I4 years at any time: (roided'
That in the !ase o a oting trust s"e!if!ally
re<uired as a !ondition in a loan agreement' said
oting trust may be or a "eriod e%!eeding fe I4
years but shall automati!ally e%"ire u"on ul
"ayment o the loan. A oting trust agreemen
must be in writing and notari6ed' and shall s"e!iy
the terms and !onditions thereo. A !ertifed !o"y
o su!h agreement shall be fled with the
!or"oration and with the Se!urities and E%!hange
Commission; otherwise' said agreement isine#e!tie and unenor!eable. The !ertif!ate o
!ertif!ates o sto!k !oered by the oting trus
agreement shall be !an!elled and new ones shal
be issued in the name o the trustee or trustees
stating that they are issued "ursuant to said
agreement. )n the books o the !or"oration' it shal
be noted that the transer in the name o the
trustee or trustees is made "ursuant to said oting
trust agreement.
The trustee or trustees shall e%e!ute and delier to
the transerors oting trust !ertif!ates' whi!h shal
be transerable in the same manner and with the
same e#e!t as !ertif!ates o sto!k.
The oting trust agreement fled with the
!or"oration shall be sub2e!t to e%amination by any
sto!kholder o the !or"oration in the same manne
as any other !or"orate book or re!ord: (roided
That both the transeror and the trustee o
trustees may e%er!ise the right o ins"e!tion o al
!or"orate books and re!ords in a!!ordan!e with
the "roisions o this Code.
Any other sto!kholder may transer his shares to
the same trustee or trustees u"on the terms and
!onditions stated in the oting trust agreement
and thereu"on shall be bound by all the "roisions
o said agreement.
0o oting trust agreement shall be entered into o
the "ur"ose o !ir!umenting the law against
mono"olies and illegal !ombinations in restraint o
trade or used or "ur"oses o raud.
-nless e%"ressly renewed' all rights granted in a
oting trust agreement shall automati!ally e%"ire
at the end o the agreed "eriod' and the oting
trust !ertif!ates as well as the !ertif!ates o sto!k
in the name o the trustee or trustees shall thereby
be deemed !an!elled and new !ertif!ates o sto!k
shall be reissued in the name o the transerors.
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The oting trustee or trustees may ote by "ro%y
unless the agreement "roides otherwise. I@Ka
RAMON ). LEE and ANTON*O $M. LA)$AO s.
T#E #ON. )O,RT OF APPEAL"5
FA)T"6 A !om"laint or a sum o money was fled
by the )nternational Cor"orate 5ank' )n!. against
the "riate res"ondents who' in turn' fled a third
"arty !om"laint against A$FA and the "etitioners.
The "etitioners fled a motion to dismiss the third
"arty !om"laint whi!h the Regional Trial Court o
*akati denied. The "etitioners fled their answer to
the third "arty !om"laint.
*eanwhile' the trial !ourt issued an order re<uiring
the issuan!e o an alias summons u"on A$FA
through the 75( as a !onse<uen!e o the
"etitioners letter inorming the !ourt that thesummons or A$FA was erroneously sered u"on
them !onsidering that the management o A$FA
had been transerred to the 75(.
The 75( !laimed that it was not authori6ed to
re!eie summons on behal o A$FA sin!e the 75(
had not taken oer the !om"any whi!h has a
se"arate and distin!t !or"orate "ersonality and
e%isten!e.
The trial !ourt issued an order adising the "riate
res"ondents to take the a""ro"riate ste"s to serethe summons to A$FA.
The "riate res"ondents fled a *aniestation and
*otion or the 7e!laration o (ro"er Seri!e o
Summons whi!h the trial !ourt granted
(etitioners fled a motion or re!onsideration
submitting that Rule 9D' se!tion 9@ o the Reised
Rules o Court is not a""li!able sin!e they were no
longer oGcers of ALFA and that the "riate
res"ondents should hae aailed o another mode
o seri!e under Rule 9D' Se!tion 9K o the saidRules' i.e., through "ubli!ation to e#e!t "ro"er
seri!e u"on A$FA.
(riate res"ondents argued that the oting trust
agreement did not diest the "etitioners o their
"ositions as "resident and e%e!utie i!e8"resident
o A$FA so that seri!e o summons u"on A$FA
through the "etitioners as !or"orate o!ers was
"ro"er.
The trial !ourt u"held the alidity o the seri!e o
summons on A$FA through the "etitioners' thus
denying the latters motion or re!onsideration and
re<uiring A$FA to fled its answer through the
"etitioners as its !or"orate o!ers.
Se!ond motion or re!onsideration was fled by the
"etitioners reiterating their stand that by irtue o
the oting trust agreement they !eased to be
o!ers and dire!tors o A$FA' hen!e' they !ould no
longer re!eie summons or any !ourt "ro!esses o
or on behal o A$FA. )n su""ort o their se!ond
motion or re!onsideration' the "etitioners
atta!hed thereto a !o"y o the oting trust
agreement between all the sto!kholders o A$FA
Ithe "etitioners in!luded' on the one hand' and
the 75(' on the other hand' whereby themanagement and !ontrol o A$FA be!ame ested
u"on the 75(.
Trial !ourt reersed itsel by setting aside its
"reious /rder and de!lared that seri!e u"on the
"etitioners who were no longer !or"orate o!ers
o A$FA !annot be !onsidered as "ro"er seri!e o
summons on A$FA.
/n *ay 94' 9M' the "riate res"ondents moed
or a re!onsideration o the aboe /rder whi!h was
armed by the !ourt in its /rder dated August 9D9M denying the "riate res"ondents motion o
re!onsideration.
(etition or certiorari was belatedly submitted by
the "riate res"ondent beore the "ubli!
res"ondent whi!h' nonetheless' resoled to gie
due !ourse thereto on Se"tember >9' 9M.
Trial !ourt' not haing been notifed o the "ending
"etition or certiorari with "ubli! res"ondent issued
an /rder de!laring it as fnal.
Ater the "etitioners fled their answer to the
"riate res"ondents "etition or certiorari' the
"ubli! res"ondent CA rendered its de!ision' setting
aside o the lower !ourt and ordered res"ondent
!or"oration to fle its answer within the
reglementary "eriod.
The "etitioners moed or a re!onsideration o the
de!ision o the "ubli! res"ondent whi!h resoled to
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deny the same. ,en!e' the "etitioners fled this
certiorari "etition im"uting grae abuse o
dis!retion amounting to la!k o 2urisdi!tion on the
"art o the "ubli! res"ondent in holding that there
was "ro"er seri!e o summons on A$FA through
the "etitioners.
*"",E6 =0 there was "ro"er seri!e o summons
on Ala )ntegrated Te%tile *ills IA$FA' or short
through the "etitioners as "resident and i!e8
"resident' allegedly' o the sub2e!t !or"oration
ater the e%e!ution o a oting trust agreement
between A$FA and the 75(.
#EL$6 (etitioners "osition meritorious. -nder
section =9 of the )or%oration )ode' supra, a
voting tr&st agree(ent may !oner u"on a
trustee not only the sto!kholders oting rights but
also other rights "ertaining to his shares as long as
the oting trust agreement is not entered Gor the"ur"ose o !ir!umenting the law against
mono"olies and illegal !ombinations in restraint o
trade or used or "ur"oses o raud.G Ise!tion 4'
4th "aragra"h o the Cor"oration Code Thus' the
traditional !on!e"t o a oting trust agreement
"rimarily intended to single out a sto!kholders
right to ote rom his other rights as su!h and
made irreo!able or a limited duration may in
"ra!ti!e be!ome a legal dei!e whereby a transer
o the sto!kholders shares is e#e!ted sub2e!t to
the s"e!if! "roision o the oting trust
agreement.
The law sim"ly "roides that a oting trust
agreement is an agreement in writing whereby one
or more sto!kholders o a !or"oration !onsent to
transer his or their shares to a trustee in order to
est in the latter oting or other rights "ertaining
to said shares or a "eriod not e%!eeding fe years
u"on the ulfllment o statutory !onditions and
su!h other terms and !onditions s"e!ifed in the
agreement. The fe year8"eriod may be e%tended
in !ases where the oting trust is e%e!uted"ursuant to a loan agreement whereby the "eriod
is made !ontingent u"on ull "ayment o the loan.
)n the instant !ase' the "oint o !ontroersy arises
rom the e#e!ts o the !reation o the oting trust
agreement. The "etitioners maintain that with the
e%e!ution o the oting trust agreement between
them and the other sto!kholders o A$FA' as one
"arty' and the 75(' as the other "arty' the ormer
assigned and transerred all their shares in A$FA to
75(' as trustee. They argue that by irtue to o the
oting trust agreement the "etitioners !an no
longer be !onsidered dire!tors o A$FA. )n su""ort
o their !ontention' the "etitioners inoke section
D8 of the )or%oration )ode hich %rovides' in
"art' that:
Eery dire!tor must own at least one I9 share o
the !a"ital sto!k o the !or"oration o whi!h he is a
dire!tor whi!h share shall stand in his name on the
books o the !or"oration. Any dire!tor who !eases
to be the owner o at least one I9 share o the
!a"ital sto!k o the !or"oration o whi!h he is a
dire!tor shall thereby !ease to be dire!tor . .
I0ollo' ". >N
The a!ts o this !ase show that the %etitioners
y virt&e of the voting tr&st agree(ent
eec&ted in -9;- dis%osed of a their sharesthrough assign#ent and dei(ery in fa(or of
the )*P+ as trustee. )onseH&ently5 the
%etitioners ceased to on at least one share
standing in their na(es on the oo!s of ALFA
as reH&ired &nder "ection D8 of the ne
)or%oration )ode. They also !eased to hae
anything to do with the management o the
enter"rise. The "etitioners !eased to be dire!tors
,en!e' the transer o the "etitioners shares to the
75( !reated a!an!ies in their res"e!tie "ositions
as dire!tors o A$FA. The transer o shares rom
the sto!kholder o A$FA to the 75( is the essen!e
o the sub2e!t oting trust agreement' :stipulation
;o1 .1 The T0<ST22 may cause to be transferred
to any person one share of stock for the purpose of
=ualifyin such person as director of >?, and
cause a certi&cate of stock evidencin the share
so transferred to be issued in the name of such
person@
*n the light of the e%ress ter(s of
"ti%&lation No. > of the s&Iect voting tr&st
agree(ent. Both %arties5 ALFA and the $BP5ere aare at the ti(e of the eec&tion of
the agree(ent that y virt&e of the transfer
of shares of ALFA to the $BP5 all the directors
of ALFA ere stri%%ed of their %ositions as
s&ch.
The %etitioners in this case do not fall &nder
any of the en&(erated oGcers. The service of
s&((ons &%on ALFA5 thro&gh the
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%etitioners5 therefore5 is not valid. To rule
otherwise' as !orre!tly argued by the "etitioners'
will !ontraene the general "rin!i"le that a
!or"oration !an only be bound by su!h a!ts whi!h
are within the s!o"e o the o!ers or agents
authority.
N*$) V". A,*NO
Facts6 5ad2ak I 5asi! Agri!ultural Traders Jointly
Administered Hasamahan is a !or"oration
engaged in the manua!ture o !o!onut oil and
!o"ra !ake or e%"ort. hen the !or"oration+s
fnan!ial !ondition deteriorated to the "oint o
bankru"t!y they mortgaged the @ !o!o "ro!essing
mills to di#erent banks. )n need o additional
o"erating !a"ital' 5ad2ak a""lied to (05 or
additional fnan!ial assistan!e' it was a""roed
and they entered into a Finan!ial Agreement whi!h
in!ludes the inestment o (05 to the !or"orationin the orm o "reerred sto!k !onertible within 4
years to !ommon sto!k. Then' a Loting Trust
Agreement was e%e!uted in aor o the 0)7C Ia
wholly8owned subsidiary o (05 by the
sto!kholders re"resenting K o the outstanding
"aid8u" and subs!ribed shares o 5ad2ak.
7ue to the insolen!y o 5ad2ak' (05 instituted
e%tra2udi!ial ore!losure "ro!eedings against the
oil mills' whi!h were sold to the (05 as the highest
bidder and the latter ailed to e%er!ise the right o
redem"tion. Subse<uently' (05 transerred theownershi" o oil mills to 0)7C. Ater @ years' 5ad2ak
asked the 0)7C i they are still interested to the
renewal o the Loting Trust Agreement and
re<uested the latter to a!!ount the assets'
"ro"erties' management and o"eration o 5ad2ak
whi!h the latter reused to !om"ly. Then' 5ad2ak
fled a !iil a!tion or mandamus with "reliminary
in2un!tion whi!h was aored by the res"ondent
2udge who issued a restraining order against the
"etitioner. ,en!e' the !onsolidate "etitions seeking
to annul and set aside the de!ision o theres"ondent 2udge.
*ss&e6 hether or not the order o the res"ondent
2udge in granting the "etition or mandamus o
5ad2ak should be annulled and set aside3
R&ling6 The "etitions are granted and the order o
the res"ondent 2udge was annulled and set aside.
The Court fnds no !lear right in 5ad2ak to be
entitled to the writ "rayed or. )t should be noted
that the "etition or mandamus fled by it "rayed
that 0)7C and (05 be ordered to surrender
relin<uish and turn8oer to them the assets
management and o"eration o 5ad2ak and
"arti!ularly to submit !om"lete a!!ounting o
assets. hat 5ad2ak seeks to re!oer is title to"ossession o the @ oil mills whi!h the re!ords
shows already belong to 0)7C. )t is not dis"uted
that the mortgages on the @ oil mills were
ore!losed by (05 and 0)7C. The Court said that
the writ o mandamus will not issue to gie to the
a""li!ant anything to whi!h he is not entitled by
law. Ater 0)7C a!<uired ownershi" o the @ oi
mills there is no doubt' that 0)C7 not only has
"ossession o' but also tile to the @ oil mills.
The (0580)7C o the "ro"erties in <uestion was no
made or a#e!ted under the !a"a!ity was not madeor e#e!ted under the !a"a!ity o a trustee but as a
ore!losing !reditor or the "ur"ose o re!oering
on a 2ust and alid obligation o 5at2ak.
Pooing Agree#ents
"ection -<<. reements by stockholders1 8
9. Agreements by and among sto!kholders
e%e!uted beore the ormation and organi6ation
o a !lose !or"oration' signed by al
sto!kholders' shall surie the in!or"oration osu!h !or"oration and shall !ontinue to be alid
and binding between and among su!h
sto!kholders' i su!h be their intent' to the
e%tent that su!h agreements are no
in!onsistent with the arti!les o in!or"oration
irres"e!tie o where the "roisions o su!h
agreements are !ontained' e%!e"t those
re<uired by this Title to be embodied in said
arti!les o in!or"oration.
>. An agreement between two or moresto!kholders' i in writing and signed by the
"arties thereto' may "roide that in e%er!ising
any oting rights' the shares held by them shal
be oted as therein "roided' or as they may
agree' or as determined in a!!ordan!e with a
"ro!edure agreed u"on by them.
@. 0o "roision in any written agreemen
signed by the sto!kholders' relating to any
*ontaos ,eidi Jean ). (age >9
7/24/2019 9th Meeting - d. Validity of Requirements
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"hase o the !or"orate a#airs' shall be
inalidated as between the "arties on the
ground that its e#e!t is to make them "artners
among themseles.
D. A written agreement among some or all o
the sto!kholders in a !lose !or"oration shall not
be inalidated on the ground that it so relatesto the !ondu!t o the business and a#airs o
the !or"oration as to restri!t or interere with
the dis!retion or "owers o the board o
dire!tors: (roided' That su!h agreement shall
im"ose on the sto!kholders who are "arties
thereto the liabilities or managerial a!ts
im"osed by this Code on dire!tors.
4. To the e%tent that the sto!kholders are
a!tiely engaged in the management o
o"eration o the business and a#airs o a !lose
!or"oration' the sto!kholders shall be held to
stri!t fdu!iary duties to ea!h other and among
themseles. Said sto!kholders shall be
"ersonally liable or !or"orate torts unless the
!or"oration has obtained reasonably ade<uateliability insuran!e.
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