Commercial Law Review Cases Batch 2

COMMERCIAL LAW REVIEW: CORPORATION LAW BATCH 2 CASE DIGESTS
AF REALTY & DEVELOPMENT, INC. VS DIESELMAN FREIGHT
ISSUE: Whether or not the sale made through an agent was ratified.
SERVICES, CO.
Commercial Law Corporation Law Power of the Board Ultra
HELD: No. There was no valid agency created. The Board of
Vires Acts of Corporate Officers Agency
Directors of DFS never authorized Cruz, Jr. to sell the land. Hence,
FACTS:
the agreement between Cruz, Jr. and Polintan, as well as the

subsequent agreement between Polintan and Noble, never bound
the corporation. Therefore the sale transacted by Noble purportedly
In 1988, Manuel Cruz, Jr., a board member of Dieselman Freight
on behalf of Polintan and ultimately purportedly on behalf of DFS is
Services, Co. (DFS) authorized Cristeta Polintan to sell a 2,094 sq.
void.
m. parcel of land owned by DFS. Polintan in turn authorized

Felicisima Noble to sell the same lot. Noble then offered AF Realty &
Development, Co., represented by Zenaida Ranullo, the land at the
rate of P2,500.00 per sq. m. AF Realty accepted the offer and issued
a P300,000 check as downpayment.
Being a void sale, it cannot be ratified even if Cruz, Sr. accepted the
check and made a counter-offer. (Cruz, Sr. returned the check
anyway). Under Article 1409 of the Civil Code, void transactions can
never be ratified because they were void from the very beginning.
However, it appeared that DFS did not authorize Cruz, Jr. to sell the
said land. Nevertheless, Manuel Cruz, Sr. (father) and president of
DFS, accepted the check but modified the offer. He increased the
selling price to P4,000.00 per sq. m. AF Realty, in its response, did
SC FULL TEXT RULING:

We agree with the Court of Appeals.
not exactly agree nor disagree with the counter-offer but only said it
Section 23 of the Corporation Code expressly provides that the
is willing to pay the balance (but was not clear at what rate).
corporate powers of all corporations shall be exercised by the board
Eventually, DFS sold the property to someone else.
of directors. Just as a natural person may authorize another to do
Now AF Realty is suing DFS for specific performance. It claims that
certain acts in his behalf, so may the board of directors of a
DFS ratified the contract when it accepted the check and made a
corporation validly delegate some of its functions to individual
counter-offer.
officers or agents appointed by it.
[19]
Thus, contracts or acts of a
corporation must be made either by the board of directors or by a

corporate agent duly authorized by the board.
KASC
[20]
Absent such valid

delegation/authorization, the rule is that the declarations of an
corporation may be performed by agents of its selection; and,
individual director relating to the affairs of the corporation, but not in
except so far as limitations or restrictions may be imposed by special
the course of, or connected with, the performance of authorized
charter,
duties of such director, are held not binding on the corporation.
[21]
In the instant case, it is undisputed that respondent Cruz, Jr. has no

written authority from the board of directors of respondent Dieselman
to sell or to negotiate the sale of the lot, much less to appoint other
persons for the same purpose. Respondent Cruz, Jr.s lack of such
authority precludes him from conferring any authority to Polintan
involving the subject realty. Necessarily, neither could Polintan
authorize Felicisima Noble. Clearly, the collective acts of respondent
Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported
contract of sale.
by-law,
unauthorized agent may be ratified where, as here, there is

acceptance of the benefits involved. In this case the receipt by
respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial
payment of the lot effectively binds respondent Dieselman.
[22]
statutory
provisions, the same
general
principles of law which govern the relation of agency for a

natural person govern the officer or agent of a corporation, of
whatever status or rank, in respect to his power to act for the
corporation; and agents when once appointed, or members
acting in their stead, are subject to the same rules, liabilities,
and incapacities as are agents of individuals and private
persons. (Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
ART. 1874. When a sale of piece of land or any interest therein
is through
Petitioner AF Realty maintains that the sale of land by an
or
an
agent,
the authority of
the
latter shall be
in
writing; otherwise, the sale shall be void. (Emphasis supplied)

Considering that respondent Cruz, Jr., Cristeta Polintan and
Felicisima Ranullo were not authorized by respondent Dieselman to
sell its lot, the supposed contract is void. Being a void contract, it is
not susceptible of ratification by clear mandate of Article 1409 of the
We are not persuaded.
Civil Code, thus:
Involved in this case is a sale of land through an agent. Thus, the
ART. 1409. The following contracts are inexistent and void from
law on agency under the Civil Code takes precedence. This is well
the very beginning:
stressed in Yao Ka Sin Trading vs. Court of Appeals:
[23]
Since a corporation, such as the private respondent, can act only

through its officers and agents, all acts within the powers of said
KASC
xxx
(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up
INTER-ASIA INVESTMENTS INDUSTRIES VS. COURT OF

APPEALS
the defense of illegality be waived. (Emphasis supplied)

Upon the other hand, the validity of the sale of the subject lot to
[GR 125778, 10 JUNE 2003]
respondent Midas is unquestionable. As aptly noted by the Court of

Appeals,
[24]
the sale was authorized by a board resolution of
respondent Dieselman dated May 27, 1988.
Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia),
The Court of Appeals awarded attorney's fees and moral and

exemplary damages in favor of petitioner AF Realty and against
respondent Cruz, Jr.. The award was made by reason of a breach of
contract imputable to respondent Cruz, Jr. for having acted in bad
faith. We are no persuaded. It bears stressing that petitioner Zenaida
Ranullo, board member and vice-president of petitioner AF Realty
who accepted the offer to sell the property, admitted in her
[25]
testimony
that a board resolution from respondent Dieselman
authorizing the sale is necessary to bind the latter in the transaction;

and that respondent Cruz, Jr. has no such written authority. In fact,
despite demand, such written authority was not presented to
her.
[26]
This notwithstanding, petitioner Ranullo tendered a partial
payment for the unauthorized transaction. Clearly, respondent Cruz,

Jr. should not be held liable for damages and attorney's fees.
by a Stock Purchase Agreement (the Agreement), sold to Asia

Industries, Inc. (Asia Industries) for and in consideration of the sum
of P19,500,000.00 all its right, title and interest in and to all the
outstanding shares of stock of FARMACOR, INC. (FARMACOR).
The Agreement was signed by Leonides P. Gonzales and Jesus J.
Vergara, presidents of Inter-Asia and Asia Industries, respectively.
Under paragraph 7 of the Agreement, Inter-Asia as seller made
warranties and representations. The Agreement was later amended
with respect to the "Closing Date," originally set up at 10:00 a.m. of
30 September 1978, which was moved to 31 October 1978, and to
the mode of payment of the purchase price. The Agreement, as
amended,
provided
that
pending
submission
by
SGV
of
FARMACOR's audited financial statements as of 31 October 1978,

Asia Industries may retain the sum of P7,500,000.00 out of the
stipulated purchase price of P19,500,000.00; that from this retained
WHEREFORE, the assailed Decision and Resolution of the Court of
amount of P7,500,000.00, Asia Industries may deduct any shortfall
Appeals are hereby AFFIRMED with MODIFICATION in the sense
on the Minimum Guaranteed Net Worth of P12,000,000.00; and that
that
is
if the amount retained is not sufficient to make up for the deficiency
deleted. Respondent Dieselman is ordered to return to petitioner AF
in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the
the
award
of
damages
and
attorney's
fees
Realty its partial payment of P300,000.00. Costs against petitioners
KASC

difference within 5 days from date of receipt of the audited financial
Industries filed a complaint against Inter-Asia with the Regional Trial
statements.
Court of Makati, one of two causes of action of which was for the
Asia Industries paid Inter-Asia a total amount of P12,000,000.00:

P5,000,000.00
upon
the
signing
of
the
Agreement,
and
P7,000,000.00 on 2 November 1978. From the STATEMENT OF

INCOME AND DEFICIT attached to the financial report dated 28
November 1978 submitted by SGV, it appears that FARMACOR had,
for the 10 months ended 31 October 1978, a deficit of
P11,244,225.00. Since the stockholder's equity amounted to
P10,000,000.00, FARMACOR had a net worth deficiency of
P1,244,225.00. The guaranteed net worth shortfall thus amounted to
P13,244,225.00
P1,244,225.00
after
to
the
adding
the
Minimum
net
worth
Guaranteed
deficiency
Net
Worth
of
of
P12,000,000.00. The adjusted contract price, therefore, amounted to

P6,225,775.00 which is the difference between the contract price of
P19,500,000.00 and the shortfall in the guaranteed net worth of
recovery of above-said amount of P4,853,503.00 17 plus interest.

Denying Asia Industries's claim, Inter-Asia countered that Asia
Industries failed to pay the balance of the purchase price and
accordingly set up a counterclaim. Finding for Asia Industries, the
trial court rendered on 27 November 1991 a Decision, ordering InterAsia to pay Asia Industries the sum of P4,853,503.00 plus interest
thereon at the legal rate from the filing of the complaint until fully
paid, the sum of P30,000.00 as attorney's fees and the costs of suit;
and (b) dismissing the counterclaim. On appeal to the Court of
Appeals, and by Decision of 25 January 1996, the Court of Appeals
affirmed
the
trial
court's
decision.
Inter-Asia's
motion
for
reconsideration of the decision having been denied by the Court of

Appeals by Resolution of 11 July 1996, Inter-Asia filed the petition for
review on certiorari.
P13,224,225.00. Asia Industries having already paid Inter-Asia
Issue: Whether the 24 January 1980 letter signed by Inter-Asias
P12,000,000.00, it was entitled to a refund of P5,744,225.00. Inter-
president is valid and binding.
Asia thereafter proposed, by letter of 24 January 1980, signed by its

president, that Asia Industries's claim for refund be reduced to
P4,093,993.00, it promising to pay the cost of the Northern Cotabato
Industries, Inc. (NOCOSII) superstructures in the amount of
P759,570.00. To the proposal respondent agreed. Inter-Asia,
however, welched on its promise.
Held: The 24 January 1980 letter signed by Inter-Asia's president is

valid and binding. As held in the case of People's Aircargo and
Warehousing Co., Inc. v. Court of Appeals, 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
Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00
members, "having . . . powers, attributes and properties expressly
plus P759,570.00) exclusive of interest. On 5 April 1983, Asia
authorized by law or incident to its existence." Being a juridical entity,
KASC

a corporation may act through its board of directors, which exercises
him; or (2) the acquiescence in his acts of a particular nature, with
almost all corporate powers, lays down all corporate business
actual or constructive knowledge thereof, within or beyond the scope
policies and is responsible for the efficiency of management, as
of his ordinary powers. It requires presentation of evidence of similar
provided in Section 23 of the Corporation Code of the Philippines.
acts executed either in its favor or in favor of other parties. It is not
Under this provision, the power and responsibility to decide whether
the quantity of similar acts which establishes apparent authority, but
the corporation should enter into a contract that will bind the
the vesting of a corporate officer with the power to bind the
corporation is lodged in the board, subject to the articles of
corporation." Hence, an officer of a corporation who is authorized to
incorporation, bylaws, or relevant provisions of law. However, just as
purchase the stock of another corporation has the implied power to
a natural person may authorize another to do certain acts for and on
perform all other obligations arising therefrom, such as payment of
his behalf, the board of directors may validly delegate some of its
the shares of stock. By allowing its president to sign the Agreement
functions and powers to officers, committees or agents. The authority
on its behalf, Inter-Asia clothed him with apparent capacity to
of such individuals to bind the corporation is generally derived from
perform all acts which are expressly, impliedly and inherently stated
law, corporate bylaws or authorization from the board, either
therein.
expressly or impliedly by habit, custom or acquiescence in the

general course of business, viz: "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 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 person dealing with
the officer or agent to believe that it has conferred.... [A]pparent
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
KASC

REPUBLIC PLANTERS BANK VS. AGANA
[GR 51765, 3 MARCH 1997]
question and to have the bank redeem the same under the terms
and conditions of the stock certificates. The bank filed a Motion to
Dismiss 3 private respondents' Complaint on the following grounds:
(1) that the trial court had no jurisdiction over the subject-matter of
the action; (2) that the action was unenforceable under substantive
Facts: On 18 September 1961, the Robes-Francisco Realty &
law; and (3) that the action was barred by the statute of limitations
Development Corporation (RFRDC) secured a loan from the
and/or laches. The bank's Motion to Dismiss was denied by the trial
Republic Planters Bank in the amount of P120,000.00. As part of the
court in an order dated 16 March 1979. The bank then filed its
proceeds of the loan, preferred shares of stocks were issued to
Answer on 2 May 1979. Thereafter, the trial court gave the parties 10
RFRDC through its officers then, Adalia F. Robes and one Carlos F.
days from 30 July 1979 to submit their respective memoranda after
Robes. In other words, instead of giving the legal tender totaling to
the submission of which the case would be deemed submitted for
the full amount of the loan, which is P120,000.00, the Bank lent such
resolution. On 7 September 1979, the trial court rendered the
amount partially in the form of money and partially in the form of
decision in favor of RFRDC and Robes; ordering the bank to pay
stock certificates numbered 3204 and 3205, each for 400 shares with
RFRDC and Robes the face value of the stock certificates as
a par value of P10.00 per share, or for P4,000.00 each, for a total of
redemption price, plus 1% quarterly interest thereon until full
P8,000.00. Said stock certificates were in the name of Adalia F.
payment. The bank filed the petition for certiorari with the Supreme
Robes and Carlos F. Robes, who subsequently, however, endorsed
Court, essentially on pure questions of law.
his shares in favor of Adalia F. Robes.

Issue:
Said certificates of stock bear the following terms and conditions:
"The Preferred Stock shall have the following rights, preferences,
qualifications and limitations, to wit: 1. Of the right to receive a
quarterly dividend of 1%, cumulative and participating. xxx 2. That
such preferred shares may be redeemed, by the system of drawing
lots, at any time after 2 years from the date of issue at the option of
the Corporation." On 31 January 1979, RFRDC and Robes
1. Whether the bank can be compelled to redeem the preferred

shares issued to RFRDC and Robes.
2. Whether RFRDC and Robes are entitled to the payment of
certain rate of interest on the stocks as a matter of right
without necessity of a prior declaration of dividend.
proceeded against the Bank and filed a complaint anchored on their

alleged rights to collect dividends under the preferred shares in
KASC

Held:
2. Both Section 16 of the Corporation Law and Section 43 of the
1. While the stock certificate does allow redemption, the option to do

so was clearly vested in the bank. The redemption therefore is
clearly the type known as "optional". Thus, except as otherwise
provided in the stock certificate, the redemption rests entirely with
the corporation and the stockholder is without right to either compel
or refuse the redemption of its stock. Furthermore, the terms and
conditions set forth therein use the word "may". It is a settled
doctrine in statutory construction that the word "may" denotes
discretion, and cannot be construed as having a mandatory effect.
The redemption of said shares cannot be allowed. The Central Bank
made a finding that the Bank has been suffering from chronic
reserve deficiency, and that such finding resulted in a directive,
issued on 31 January 1973 by then Gov. G. S. Licaros of the Central
Bank, to the President and Acting Chairman of the Board of the bank
present Corporation Code prohibit the issuance of any stock dividend

without the approval of stockholders, representing not less than twothirds (2/3) of the outstanding capital stock at a regular or special
meeting duly called for the purpose. These provisions underscore
the fact that payment of dividends to a stockholder is not a matter of
right but a matter of consensus. Furthermore, "interest bearing
stocks", on which the corporation agrees absolutely to pay interest
before dividends are paid to common stockholders, is legal only
when construed as requiring payment of interest as dividends from
net earnings or surplus only. In compelling the bank to redeem the
shares and to pay the corresponding dividends, the Trial committed
grave abuse of discretion amounting to lack or excess of jurisdiction
in ignoring both the terms and conditions specified in the stock
certificate, as well as the clear mandate of the law.
prohibiting the latter from redeeming any preferred share, on the

ground that said redemption would reduce the assets of the Bank to
the prejudice of its depositors and creditors. Redemption of preferred
shares was prohibited for a just and valid reason. The directive
issued by the Central Bank Governor was obviously meant to
preserve the status quo, and to prevent the financial ruin of a
banking
institution
that
would
have
resulted
in
adverse
repercussions, not only to its depositors and creditors, but also to the
banking industry as a whole. The directive, in limiting the exercise of
a right granted by law to a corporate entity, may thus be considered
as an exercise of police power.
KASC

MONTELIBANO VS BACOLOD-MURCIA MILLING (1962)
Facts:
Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano,
and the Limited co-partnership Gonzaga and Company, had been
void ab initio, being in effect a donation that was ultra vires and
beyond the powers of the corporate directors to adopt.
Issue: WON the board resolution is an ultra vires act and in effect a
donation from the board of directors?
and are sugar planters adhered to the defendant-appellees sugar
Held: No. There can be no doubt that the directors of the appellee
central mill under identical milling contracts. Originally executed
company had authority to modify the proposed terms of the
in 1919, said contracts were stipulated to be in force for 30 years
Amended Milling Contract for the purpose of making its terms more
starting with the 1920-21 crop, and provided that the resulting
acceptable to the other contracting parties. As the resolution in
product should be divided in the ratio of 45% for the mill and 55% for
question was passed in good faith by the board of directors, it is valid
the planters. Sometime in 1936, it was proposed to execute
and binding, and whether or not it will cause losses or decrease the
amended milling contracts, increasing the planters share to 60% of
profits of the central, the court has no authority to review them.
the manufactured sugar and resulting molasses, besides other
Whether the business of a corporation should be operated at a loss
concessions, but extending the operation of the milling contract from
during depression, or close down at a smaller loss, is a purely
the original 30 years to 45 years. The Board of Directors of the
business and economic problem to be determined by the directors of
appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution
the corporation and not by the court. The appellee Bacolod-Murcia
granting further concessions to the planters over and above those
Milling Company is, under the terms of its Resolution of August 20,
contained in the printed Amended Milling Contract. The appellants
1936, duty bound to grant similar increases to plaintiffs-appellants
initiated the present action, contending that three Negros sugar
herein.
centrals with a total annual production exceeding one-third of the

production of all the sugar central mills in the province, had already
granted increased participation (of 62.5%) to their planters, and that
under the resolution the appellee had become obligated to grant
similar concessions to the plaintiffs. The appellee Bacolod-Murcia
SC FULL TEXT RULING: After trial, the court below rendered

judgment upholding the stand of the defendant Milling company, and
dismissed the complaint. Thereupon, plaintiffs duly appealed to this
Court.
Milling Co., inc., resisted the claim, and defended by urging that the
We agree with appellants that the appealed decisions can not stand.
stipulations contained in the resolution were made without
It must be remembered that the controverted resolution was adopted
consideration; that the resolution in question was, therefore, null and
by appellee corporation as a supplement to, or further amendment
KASC

of, the proposed milling contract, and that it was approved on August
All disquisition concerning donations and the lack of power of the
20, 1936, twenty-one days prior to the signing by appellants on
directors of the respondent sugar milling company to make a gift to
September 10, of the Amended Milling Contract itself; so that when
the planters would be relevant if the resolution in question had
the Milling Contract was executed, the concessions granted by the
embodied a separate agreement after the appellants had already
disputed resolution had been already incorporated into its terms. No
bound themselves to the terms of the printed milling contract. But
reason appears of record why, in the face of such concessions, the
this was not the case. When the resolution was adopted and the
appellants should reject them or consider them as separate and
additional concessions were made by the company, the appellants
apart from the main amended milling contract, specially taking into
were not yet obligated by the terms of the printed contract, since they
account that appellant Alfredo Montelibano was, at the time, the
admittedly did not sign it until twenty-one days later, on September
President of the Planters Association (Exhibit 4, p. 11) that had
10, 1936. Before that date, the printed form was no more than a
agitated for the concessions embodied in the resolution of August
proposal that either party could modify at its pleasure, and the
20, 1936. That the resolution formed an integral part of the amended
appellee actually modified it by adopting the resolution in question.
milling contract, signed on September 10, and not a separate
So that by September 10, 1936 defendant corporation already
bargain, is further shown by the fact that a copy of the resolution was
understood that the printed terms were not controlling, save as
simply attached to the printed contract without special negotiations or
modified by its resolution of August 20, 1936; and we are satisfied
agreement between the parties.
that such was also the understanding of appellants herein, and that
It follows from the foregoing that the terms embodied in the

resolution of August 20, 1936 were supported by the same causa or
consideration underlying the main amended milling contract; i.e., the
promises and obligations undertaken thereunder by the planters,
and, particularly, the extension of its operative period for an
additional 15 years over and beyond the 30 years stipulated in the
original contract. Hence, the conclusion of the court below that the
resolution constituted gratuitous concessions not supported by any
consideration is legally untenable.
the minds of the parties met upon that basis. Otherwise there would
have been no consent or "meeting of the minds", and no binding
contract at all. But the conduct of the parties indicates that they
assumed, and they do not now deny, that the signing of the contract
on September 10, 1936, did give rise to a binding agreement. That
agreement had to exist on the basis of the printed terms as modified
by the resolution of August 20, 1936, or not at all. Since there is no
rational explanation for the company's assenting to the further
concessions asked by the planters before the contracts were signed,
except as further inducement for the planters to agree to the
extension of the contract period, to allow the company now to retract
KASC

such concessions would be to sanction a fraud upon the planters
amended contract; numerous provisions of the printed terms are alao
who relied on such additional stipulations.
glossed over. The Directors of the appellee Milling Company had no
The same considerations apply to the "void innovation" theory of

appellees. There can be no novation unless two distinct and
successive binding contracts take place, with the later designed to
replace the preceding convention. Modifications introduced before a
bargain becomes obligatory can in no sense constitute novation in
law.
reason at the time to call attention to the provisions of the resolution

in question, since it contained mostly modifications in detail of the
printed terms, and the only major change was paragraph 9
heretofore quoted; but when the report was made, that paragraph
was not yet in effect, since it was conditioned on other centrals
granting better concessions to their planters, and that did not happen
until after 1950. There was no reason in 1936 to emphasize a
Stress is placed on the fact that the text of the Resolution of August
concession that was not yet, and might never be, in effective
20, 1936 was not attached to the printed contract until April 17, 1937.
operation.
But, except in the case of statutory forms or solemn agreements

(and it is not claimed that this is one), it is the assent and
concurrence (the "meeting of the minds") of the parties, and not the
setting down of its terms, that constitutes a binding contract. And the
fact that the addendum is only signed by the General Manager of the
There can be no doubt that the directors of the appellee company

had authority to modify the proposed terms of the Amended Milling
Contract for the purpose of making its terms more acceptable to the
other contracting parties. The rule is that
milling company emphasizes that the addition was made solely in
It is a question, therefore, in each case of the logical relation of the
order that the memorial of the terms of the agreement should be full
act to the corporate purpose expressed in the charter. If that act is
and complete.
one which is lawful in itself, and not otherwise prohibited, is done for
Much is made of the circumstance that the report submitted by the

Board of Directors of the appellee company in November 19, 1936
(Exhibit 4) only made mention of 90%, the planters having agreed to
the 60-40 sharing of the sugar set forth in the printed "amended
milling contracts", and did not make any reference at all to the terms
of the resolution of August 20, 1936. But a reading of this report
shows that it was not intended to inventory all the details of the
KASC
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)
10

As the resolution in question was passed in good faith by the board
64.2%
for 1952-53;
64.3%
for 1953-54;
64.5%
for 1954-55; and
63.5%
for 1955-56,
of directors, it is valid and binding, and whether or not it will cause

losses or decrease the profits of the central, the court has no
authority to review them.
They hold such office charged with the duty to act for the corporation
according to their best judgment, and in so doing they cannot be
controlled in the reasonable exercise and performance of such duty.
Whether the business of a corporation should be operated at a loss
during depression, or close down at a smaller loss, is a purely
the appellee Bacolod-Murcia Milling Company is, under the terms of
business and economic problem to be determined by the directors of
its Resolution of August 20, 1936, duty bound to grant similar
the corporation and not by the court. It is a well-known rule of law
increases to plaintiffs-appellants herein.
that questions of policy or of management are left solely to the

honest decision of officers and directors of a corporation, and the
court is without authority to substitute its 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. (Fletcher on Corporations, Vol. 2, p. 390).
Carlota, Hawaiian Philippines, San Carlos and Binalbagan (which

produce over one-third of the entire annual sugar production in
Negros)
have
granted
progressively
participations to their adhered planter at an average rate of
and judgment is decreed sentencing the defendant-appellee to pay

plaintiffs-appellants the differential or increase of participation in the
milled sugar in accordance with paragraph 9 of the appellee
Resolution of August 20, 1936, over and in addition to the 60%
expressed in the printed Amended Milling Contract, or the value
And it appearing undisputed in this appeal that sugar centrals of La
Occidental
WHEREFORE, the decision under appeal is reversed and set aside;
increasing
thereof when due, as follows:

0,333% to appellants Montelibano for the 1951-1952 crop year, said
appellants having received an additional 2% corresponding to said
year in October, 1953;
2.333% to appellant Gonzaga & Co., for the 1951-1952 crop year;
62.333% for the 1951-52 crop year;
KASC
and
to
all
appellants
thereafter
4.2%
for
the
1952-1953
crop
year;
4.3%
for
the
1953-1954
crop
year;
11

4.5%
for
the
1954-1955
crop
year;
3.5% for the 1955-1956 crop year;
G.R. No. 128464
June 20, 2006
REV. LUIS AO-AS, REV. JOSE LAKING, EUSQUICIO GALANG,
with interest at the legal rate on the value of such differential during
REV. ISABELO MONONGGIT, REV. EDWINO MERCADO, REV.
the time they were withheld; and the right is reserved to plaintiffs-
DANIEL PONDEVIDA, REV. TEODORICO TARAN and DR.
appellants to sue for such additional increases as they may be
BENJAMIN GALAPIA, Petitioners,

vs.
entitled to for the crop years subsequent to those herein adjudged.

Costs against appellee, Bacolod-Murcia Milling Co.
HON. COURT OF APPEALS, THOMAS P. BATONG, JUANITO

BASALONG, AUGUSTO CATANGI, PAUL GARCIA, QUIDO
RIVERA, VICTORIO Y. SAQUILAYAN and DANILO
ZAMORA, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Certiorari under Rule 45 of the Rules of Court to
1
seek the reversal of the Court of Appeals Decision dated 10

October 1996 in favor of respondents [hereinafter referred to as the
2
Batong group] and Resolution dated 3 March 1997 denying the

Motion for Reconsideration of the herein petitioners [hereinafter
referred to as the Ao-As group].
The Court of Appeals found the facts to be as follows:
The Lutheran Church in the Philippines (hereinafter referred to as the
LCP) is a religious organization duly registered with the Securities
and Exchange Commission on May 8, 1967. Its members are
comprised of the Lutheran clergymen and the local Lutheran
KASC
12

congregations in the Philippines which, at the time of its
Since the addition of two or more districts, an eleven (11) member
incorporation, was divided into three districts, namely: the North
board of directors representing the five (5) districts managed the
Luzon District (hereinafter referred to as the NLD); the South Luzon
LCP without any challenge from the membership until several years
District (hereinafter referred to as the SLD); [and] the Mindanao
later when certain controversies arose involving the resolutions of
district (hereinafter referred to as the MDD).
the Board terminating the services of the LCP business manager and
The governing body of the LCP is its national board of directors
corporate treasurer since 1979, Mr. Eclesio Hipe.
(hereinafter referred to as the LCP Board) which was originally
The termination of Mr. Hipe sparked a series of intracorporate
composed of seven (7) members serving a term of two years. Six
complaints lodged before the Securities and Exchange Commission
members of the LCP Board are elected separately in district
(SEC). For the first time, the legality of the eleven (11) member
conferences held in each district, with two members representing
Board was put in issue as being in excess of the number of directors
each district the elected district president becomes the clergy
provided in the Articles of Incorporation since no amendments were
representative to the LCP Board and the other is a lay representative
made thereto to reflect the increase.
to the LCP Board. The seventh member of the Board is the National
President of the LCP who is elected at large in a national convention
held in October of every even-numbered year.
Aside from the present case, SEC-SICD Case no. 3556 entitled
"Excelsio Hipe, et. al. vs. Thomas Batong, et. al." and SEC-SICD
Case No. 3524, "Domingo Shambu, et. al. vs. Thomas Batong, et.
During the 1976 LCP national convention, a resolution was passed
al." respectively, sought to declare null and void Board Resolution
dividing the North Luzon district (NLD) into two districts: the NLD
Nos. LCP-BD-6-89 and LCP-BD-7-89; and SEC-SICD Case No.
Highland District (NLHD) and the NLD Lowland District (NLLD) --
3550 entitled "The Lutheran Church in the Philippines vs. Exclesio
thereby increasing the number of directors from seven (7) to nine (9).
Hipe" which sought to recover the corporate records still in the
Again in the 1984 LCP national convention, a resolution was passed
possession of Mr. Hipe.
creating another district, namely, the Visayan Islands District (VID)

thereby increasing further the number of directors to eleven (11).
Both resolutions were passed pursuant to Section 2 of Article 7 of
the LCP By-Laws which provides that: "LCP in convention may form
additional districts as it sees fit".
KASC
[The members of the Batong group] are the duly elected board of
directors of the LCP at the time of the filing of SEC-SICD Case No.
3857. On the other hand, [the Ao-As group] have served in various
capacities as directors or officers of the LCP.
13

On August 17, 1990, [the Ao-As group] filed SEC-SICD Case No.
SEC-SICD denied [the Batong groups] motion to suspend
3857 for accounting and damages with prayer for preliminary
proceedings.
injunction and appointment of a management committee asserting

the following causes of action:
"First, the alleged non-liquidation and/or non-accounting of a part of
the proceeds of the La Trinidad land transaction in the amount
of P64,000.00 by petitioner Thomas Batong;
Second, the alleged non-liquidation and/or unaccounting of cash
advances in the aggregate amount of P323,750.00 by petitioner
Thomas Batong;
On January 23, 1992, petitioners filed a Motion to Dismiss alleging

again the FORMULA OF CONCORD. Again, the SEC-SICD denied
[the Batong groups] motion.
Subsequently, on September 3, 1992, the SEC-SICD Hearing Officer
after the presentation of the parties respective evidence, issued an
Order creating a management committee. Said Order reads, in part:
" x x x All board resolutions and/or management actions or decisions
passed and approved by them are deemed null and void ab initio for
Third, the alleged dissipation and/or unaccounting of the LCP
they were passed, and approved by an illegally constituted Board of
general fund in the amount of 4.8 million;
Directors. . . And worse, several resolutions or Boards actions are
Fourth, the non-registration of the Leyte land purchased with LCP

funds by petitioner Victorio Saquilayan;
not only (deemed) null and void but have caused irreparable damage
to the corporation such as the termination of all LCP staff and
employee (LCP-BD-29-90); dissolution of LCP Business Office (LCP-
Fifth, severance of church-partnership relationship with Lutheran
BD-37-90); termination of the partner-church relationship between
Church-Missouri Synod (LCMS); and
the LCP and the Lutheran Church Missouri Synod which is the major
benefactor and source of funds of LCP (LCP-BD-28-90); forcible
Sixth, the transfer of LCP corporate books from the Sta. Mesa office
taking of almost all official records and equipment of LCP by
to the Caloocan office."
respondent Thomas B. Batong and transferring the (same) from the
During the hearings on the application for creation of a management

committee, [the Batong group] filed an Urgent Motion to Suspend the
Proceedings of the Case in view of an amicable settlement agreed
upon by the parties entitled "A FORMULA FOR CONCORD".
LCP business office; acquisition of some lands using the corporate

funds were in the name of some person other than the LCP; and
various cash advances of corporate funds by the respondents are
not liquidated up to the present.
However, notwithstanding the FORMULA FOR CONCORD, the
KASC
14

WHEREFORE,
premises
considered,
MANAGEMENT
COMMITTEE is hereby created to undertake the management of the

Lutheran Church in the Philippines until such time that new members
of the LCP Board of Directors shall have been elected and qualified
in the election to be called and conducted by the Management
Committee in accordance with the LCPs Articles of Incorporation
and By-Laws preferably in October 1992."
On September 14, 1992, [the Batong group] filed their Motion for
Reconsideration which was subsequently denied in an Order dated
September 23, 1992.
members of the Board as provided in the LCP Constitution and ByLaws.

On October 16, 1992, the SEC-SIDC ordered the issuance of a writ
of preliminary injunction prohibiting [the Batong group] from "acting
as a board of directors or officers of Lutheran Church in the
Philippines, Inc. (LCP) and from holding any convention or general or
special membership meeting as well as election of the members of
the LCP board of directors, until further orders".
The [the Batong group] allege that the SEC-SIDC management
committee used the Order dated October 16, 1992 to carry out ultra
On September 23, 1992, [the Batong group] filed with the SEC En
vires acts, more specifically: (i) to take control of and closing down
Banc a Petition for Certiorari with prayer for a temporary restraining
church buildings; (ii) to evict LCP clergymen from their church
order alleging that the SEC-SIDC acted with grave abuse of
parsonages; (iii) to ordain and appoint new clergymen to replace
discretion in creating the management committee.
incumbent members of the church hierarchy. In at least one case
Shortly thereafter, on September 29, 1992, the following were
which has reached this Court, CA-G.R. No. 34504, it was found that:
appointed to the management committee: Atty. Puno as Chairman;
"On August 13, 1993, [members of the Ao-As group] Oscar Almazan,
and private respondents Jose Laking, Eduardo Ladlad, Romeo Celiz
James Cerdenola, Edgar Balunsat and Edwino Mercado, together
as members. However, Atty. Puno later resigned and was replaced
with armed security guards, acting in behalf of LCP, forcibly took
by Atty. Oscar Almazan who was appointed as Chairman. After the
possession of the houses occupied by [the Batong group]. In view of
death of Romeo Celiz, he was replaced by private respondent Luis
the latters refusal to leave the premises, they permanently
Ao-As.
padlocked the main gate of the compound confining [the Batong
On October 6, 1992, [the Ao-As group] filed a motion for issuance of

a writ of preliminary injunction seeking to enjoin [the Batong group]
not only from continuing to act as LCP board of directors but also
group] and their families therein and prevented the ingress and
egress thereto. Later the [Batong group] left their houses due to the
alleged intimidation and threats employed by the [Ao-As group].
from calling a national convention to elect new set of officers and
KASC
15

Thereafter, the latter entered the dwelling and took possession of the
same."
Secretary -- Rev. Charlito Mercado

Treasurer -- Rev. Benjamin Lasegan
However, even before the creation of the management committee,

the LCP national convention had already been called in a Board
meeting held on September 26, 1991 at the Lutheran Hospice,
Quezon City. Hence, by the time the writ of preliminary injunction
was issued, all notices had already been received by all local
congregations and convention delegates had likewise already been
chosen to attend the national convention.
Thus, the 17th LCP National Convention was held on October 26 to
30, 1992 as earlier scheduled at the Immanuel Lutheran Church and
School, Tugatong, Malabon, Metro-Manila. The list of official
Similarly, prior to the issuance of the writ of preliminary injunction

and the appointment of the management committee, the SLD (South
Luzon District) of LCP already held its district conference on august
26 to 28, 1992 which elected, among other of its officers, the SLD
Lay Representative pursuant to the LCP Constitution and By Laws.
The following were elected:
SLD
President
and
Clergy Representative : Rev. Elmer Banes

SLD Lay Representative: Roman Moscoso
delegates to the Convention is shown in pages 32 to 33 of the

The district conference for NLD was likewise held before the
Convention Records.
issuance of the writ of preliminary injunction on October 7 to 9, 1992.

During
the
17th
LCP
National
Convention,
the
delegates
In said convention, the local congregations and clergymen executed
representing the majority of the members which comprised the three
a manifesto expressing their own opposition to the appointment of a
districts (North Luzon, South Luzon and Mindanao) issued a
management committee.
"Manifesto" to initiate by themselves the election for a new set of

church leaders because the incumbent directors were enjoined to act
[The Batong group] then filed with the SEC En Banc a Supplemental
as a board. In the election, the following were elected as LCP
Petition dated November 13, 1992 alleging the supervening events in
officers, namely:
the case which took place after the filing of the original petition on
September 23, 1992.
President -- Rev. Victorino Saquilayan

Subsequent to the 17th LCP national convention of October 1992, a
Vice-President -- Rev. Juanito Basalong
special convention was called by the SEC Management Committee

on January 25 to 29, 1993 at Cagayan de Oro City to elect a different
KASC
16

set of officers for LCP. [The Batong group] allege that the required
Exchange Commission En Banc. In said Petition, the Batong group
notices were not sent to several local congregations and even fewer
alleged that the Ao-As group persisted in carrying out ultra vires and
LCP members were permitted by [the Ao-As group] to attend the
illegal acts, to wit:
special convention as evidenced by the list of official delegates

contained in the minutes of the special convention.
(a) Private respondent Luis L. Ao-As, purportedly on the strength of a

board action held at Baguio on February 22-24, 1994 and of the
On July 21, 1993, [the Batong Group] filed a Second Supplement to
assailed Order dated October 16, 1992, closed the premises of the
its petition for certiorari in the SEC En Banc alleging the supervening
Gloria Dei School after school year 1993-1994 in an attempt to take-
events and seeking the review of an Order of the Hearing Officer
over the management and operations of the said school. The closure
dated June 9, 1993 which enlisted the aid of the Secretary of the
of the Gloria Dei School is the subject of SEC Case No. 05-93-4463.
Department of Interior and Local Government and the PNP Director

General to enforce the writ of preliminary injunction.
(b) On February 1, 1994, Rev. Eduardo Ladlad, acting as President

of the LCP, executed a Contract to Sell with Solid Gold Realty
Pending the resolution of the above-mentioned petitions, the
Corporation whereby he agreed to sell a portion of LCPs property in
management committee took control of several church properties,
Cavite with an area of 7,218 square meters at a price of P1,000 per
replaced clergymen from their parsonages and froze all bank
square meter or a total of P7,218,000 with a down payment
accounts in the name of LCP.
of P1,000,000.
[The Batong group] then filed a Petition for Mandamus and Damages
(c) Upon application of the [Ao-As group], the SEC-SIDC issued an
with Prayer for Preliminary Mandatory Injunction on August 19, 1993
Order dated June 1, 1994 ex parte and on June 14, 1994 at around 7
seeking to unfreeze the bank accounts and recover the seized
p.m., a certain Rev. Laking, using the Order of the SEC-SIDC dated
buildings.
June 1, 1994 and October 16, 1992 writ of preliminary injunction,
All of the aforementioned petitioners (sic) were denied by the SEC

En Banc. A motion for reconsideration was filed but the same was
likewise denied.
The Batong group then filed a Petition for Review with the Court of
entered the premises of the Abatan Hospital located in Baguias,

Benguet Province, took over the management and control of the
Abatan Hospital and forced the pastor previously assigned therein
Pastor Laapniten to leave his post simply because Pastor Lapniten
is identified with the Saquilayan Group.
Appeals seeking to annul the Decision of the Securities and
KASC
17

On 30 June 1994, the Batong group filed with the Court of Appeals a
ASIDE. The SEC is hereby directed to conduct a new election of the
motion for the issuance of a Temporary Restraining Order and/or
directors of the LCP consistent with the provisions of the Corporation
Preliminary Injunction. On 12 July 1994, the Court of Appeals issued
Code.
a Temporary Restraining Order to enjoin the Ao-As group "from

implementing the contract to sell between the Lutheran church in the
Philippines (LCP) and Solid Gold Realty Corporation and from
selling, transferring, assigning and/or disposing of any other property
Hence, this petition, where the Ao-As group brings forth the following
issues to be resolved by this Court:
I.
of the LCP; to enjoin the Ao-As group and/or those officers elected in
their convention from enforcing or implementing the Order dated
Whether or not the Court of Appeals gravely erred in utterly ignoring
October 16, 1992 and the writ of preliminary injunction issued in SEC
and disregarding all the evidence adduced by [the Ao-As group], and
Case 3857."
in making findings of facts contradicted by the evidence on record

and not supported by any evidence whatsoever.
On 22 September 1994, the Batong group filed a Motion/

Manifestation to cite Eduardo Ladlad, Harry Roa, James Cerdenola
and Luis Ao-As in contempt of court, alleging that the latter, on 15
September 1994, entered the Olongapo Lutheran Church with six
II.
Whether or not the Court of Appeals reversibly erred in ruling that
SEC-SICD Case No. 3857 is a case of forum shopping.
armed men and there and then padlocked the main gate of the
church. Consequently, Rev. Elmer Baes, the assigned overseer at
said church, was barred from entering the premises on 17
September 1994.
III.
Whether or not the Court of Appeals committed reversible error in
declaring as invalid the manner of elections of the Board of Directors
On 10 October 1996, the Court of Appeals ruled in favor of the
of the Lutheran Church in the Philippines as provided for in its By-
Batong group, disposing the petition as follows:
Laws.
WHEREFORE, the petition is hereby granted. The Decision dated
IV.
August 25, 1993 of the SEC En Banc is hereby RECONSIDERED

and SET-ASIDE and the Orders of the SEC-SIDC dated September
3, 1992 and October 16, 1992 are hereby ANNULLED and SET
KASC
Whether or not the Court of Appeals committed reversible error in

ruling that the SEC-SICD had no jurisdiction to call for a special
18

election of the Board of Directors of the Lutheran Church in the
Philippines.
The Ao-As group claims that the Court of Appeals reversibly erred in
ruling that SEC-SICD Case No. 3857 is a case of forum shopping.
In addition to the prayer to reverse the 10 October 1996 Decision
The Court of Appeals had ruled:
and 3 March 1997 Resolution of the Court of Appeals, and the
Finally, SEC-SICD Case No. 3857 is a clear case of forum shopping.
revival of Resolution of the SEC En Banc in SEC-EB Case No. 330
The acts of [the Batong group], as embodied in several board
and the Order of the SEC-SIDC in Case No. 3857, the Ao-As group
resolutions, have already been raised and passed upon in other
prays for the following:
cases pending at the time the [Ao-As group] instituted the present
controversy.
1. x x x x
2. Declaring the Board of Directors elected at the National
Convention called by the Management Committee on January 25-27,
1993 in Cagayan de Oro as the legitimate members of the Board of
LCP;
37-90 authorizing the dissolution of the LCP business office and

termination of the employees connected therewith was the subject
of NLRC CASE NOS. 03-01935-90 and 04-01979-90 pending before
the National Labor Relations Commission.
3. Declaring all acts and resolutions passed by the Batong group

invalid and of no legal effect; and
The board resolution denominated as LCP-BD-28-90 authorizing the

transfer of the LCP corporate records from the Sta. Mesa Office to
4. Ordering the Batong group to return all the properties seized from
the LCP and to refrain from the representing the LCP.
The board resolutions denominated as LCP-BD-29-90 and LCP-BD-
the Caloocan Office was the subject of Civil Case No. 133394-CV
and 131879-CV pending before the Metropolitan Trial Court of
Manila, Branches 20 and 21 and subsequently dismissed in view of
The Ao-As group did not commit willful and deliberate forum
the FORMULA OF CONCORD entered into between the parties.
shopping in the filing of SEC-SIDC Case No. 3857.

On the other hand, the legality of the composition of the elevenSince a ruling upholding the Court of Appeals on the issue of forum
member LCP Board was already the subject matter of SICD Case
shopping would render all the other issues in this petition moot, we
No. 3524 which was appealed to the SEC En Banc and docketed as
resolve to pass upon the same at the onset.
SEC Case No. 352.
KASC
19

SEC Case No. 3857 is not the first case where the [Ao-As group], or
1. NLRC Cases No. 03-01935-90 and 04-01979-90 pending before
those with similar interests, have asked for the appointment of a
the National Labor Relations Commission, is a case for illegal
management committee. In SEC Case 3556 entitled "Exclesio Hipe
termination, which allegedly "obviously involves a different cause of
and Lutheran Church of the Philippines v. Thomas Batong, et al.", in
action";
a motion dated June 18, 1991, private respondent Exclesio Hipe

prayed for the appointment of a management committee for LCP. In
an Order dated August 15, 1991, the SEC-SICD ruled that the
Motion for the Appointment of a Management Committee and
Accounting filed by the petitioners cannot be given due course
2. The cases pending before Branches 20 and 21 of the Municipal

Trial Court of Manila, docketed as Civil Cases No. 133394-CV and
131879-CV, respectively, are actions for forcible entry and unlawful
detainer; and
considering that the same is one of the incidents in SEC Case No.
3. SEC-SICD Case No. 3556 puts in issue the validity of LCP Board
3857 entitled Rev. Luis Ao-As, et al. vs. Thomas Batong now
resolutions LCP-BD-6-89 and LCP-BD-7-89, where what are
pending in the sala of Hon. Elpidio Salgado". Petitioners knew that
involved are the incidents resulting from the issuance of the
similar petitions have been previously commenced because Atty.
resolutions the unjust termination of Mr. Exclesio Hipe as LCP
Oscar Almazan who is also a co-counsel in the case was the counsel
Business Manager and treasurer and the illegal appointment of one
of record in SEC Case No. 3556 and the other cases.
Hildelberto Espejo in his place. SEC-SIDC Case No. 3524 puts in
Clearly, the act of the [Ao-as group] in filing multiple petitions

involving the same issues constitutes forum shopping and should be
sanctioned with dismissal. x x x
SEC-SICD Case No. 3857 is a petition for accounting with prayer for
the appointment of a management committee and the issuance of a
writ of injunction. The Ao-As group claims that the issue involved in
the case is whether the Ao-As group is entitled to an accounting and
issue the legality of the composition of the eleven-member LCP

Board. These are allegedly different issues from that of SEC-SIDC
Case No. 3857 where the acts of respondents are claimed to the
basis of a prayer for accounting and appointment of a management
committee.
As elucidated above, the causes of action under SEC-SIDC Case
No. 3857 are the following:
to the creation of a management committee due to the Batong
First, the alleged non-liquidation and/or non-accounting of a part of
groups alleged dissipation and waste of the assets of the LCP, and
the proceeds of the La Trinidad land transaction in the amount
the subject matter is the act of dissipation and waste committed by
of P64,000.00 by petitioner Thomas Batong;
the Batong group. On the other hand:
KASC
20

Second, the alleged non-liquidation and/or unaccounting of cash
res judicata and thus would cause the dismissal of the rest. Absolute
advances in the aggregate amount of P323,750.00 by petitioner
identity of the parties is not required. It is enough that there is
Thomas Batong;
substantial identity of the parties. It is enough that the party against
Third, the alleged dissipation and/or unaccounting of the LCP

general fund in the amount of 4.8 million;
whom the estoppel is set up is actually a party to the former case.

There is identity of causes of action if the same evidence will sustain
the second action. The principle applies even if the relief sought in
Fourth, the non-registration of the Leyte land purchased with LCP
the two cases may be different. Forum shopping consists of filing
funds by petitioner Victorio Saquilayan;
multiple suits involving the same parties for the same cause of
action, either simultaneously or successively, for the purpose of
Fifth, severance of church-partnership relationship with Lutheran
obtaining a favorable judgment.
10
Church-Missouri Synod (LCMS); and

As the present jurisprudence now stands, forum shopping can be
Sixth, the transfer of LCP corporate books from the Sta. Mesa office
committed in three ways: (1) filing multiple cases based on the same
to the Caloocan office.
cause of action and with the same prayer, the previous case not
The elements of forum shopping are: (a) identity of parties, or at

least such parties as represent the same interests in both actions; (b)
identity of rights asserted and the relief prayed for, the relief being
founded on the same facts; and (c) the identity of the two preceding
particulars, such that any judgment rendered in the other action will,
regardless of which party is successful, amount to res judicata in the
action under consideration.
having been resolved yet (litis pendentia); (2) filing multiple cases
based on the same cause of action and the same prayer, the
previous case having been finally resolved (res judicata); and (3)
filing multiple cases based on the same cause of action but with
different prayers (splitting of causes of action, where the ground for
dismissal is also either litis pendentia or res judicata
11
). If the forum
shopping is not considered willful and deliberate, the subsequent

cases shall be dismissed without prejudice on one of the two
Otherwise stated, there is forum shopping where a litigant sues the
grounds mentioned above. However, if the forum shopping is willful
same party against whom another action or actions for the alleged
and deliberate, both (or all, if there are more than two) actions shall
violation of the same right and the enforcement of the same relief
be dismissed with prejudice. lavvphi1.net
12
is/are still pending. The defense of litis pendentia in one case is a bar
to the other/others; and, a final judgment is one that would constitute
The six grounds originally relied upon by the Ao-As group in SECSICD Case No. 3857 are entirely different from the causes of action
KASC
21

in NLRC Cases No. 03-01935-90 and 04-01979-90, Civil Cases No.
cases constitute willful and deliberate forum shopping on the part of
133394-CV and 131879-CV, and SEC-SICD Cases No. 3556 and
Ao-As group.
3524. It is true that the causes of action in the latter cases were
included as additional grounds in SEC-SICD Case No. 3857 for the
appointment of the management committee and for accounting "of all
funds, properties and assets of LCP which may have come into their
possession during their incumbency as officers and/or directors of
13
LCP." However, the creation of a management committee and the

prayer for accounting could not have been asked for in the labor
(NLRC Cases No. 03-01935-90 and 04-01979-90) and forcible entry
(Civil Cases No. 133394-CV and 131879-CV) cases.
As regards the other SEC Cases, though, the Ao-As group could
have indeed prayed for the creation of the management committee
We hold that this is not a case of willful and deliberate forum

shopping and, hence, the SEC-SICD Case No. 3857, which contains
the earlier prayer to create a management committee, should not be
dismissed. The reason for this is the strict evidentiary requirement
needed to grant a prayer to create a management committee. The
power of the SEC
14
to create a management committee is found in
Section 6(d) of Presidential Decree No. 902-A, as amended, which

provides:
Sec. 6. In order to effectively exercise such jurisdiction, the
Commission shall possess the following powers:
and the accounting of the funds of the LCP. In fact, as stated by the
d) To create and appoint a management committee, board or body
Court of Appeals, the petitioner in SEC-SICD Case No. 3556 had
upon petition or motu propio to undertake the management of
prayed for the appointment of a management committee in a motion
corporations, partnerships or other associations not supervised or
dated 18 June 1991. This motion, however, was subsequent to the
regulated by other government agencies in appropriate cases when
filing of SEC-SICD Case No. 3857 on 17 August 1990, for which
there is imminent danger of dissipation, loss, wastage or destruction
reason the SEC-SICD ruled that such motion cannot be given due
of assets or other properties or paralization of business operations of
course considering that it was one of the incidents of SEC-SIDC
such corporations or entities which may be prejudicial to the interest
Case No. 3857. In effect, the SEC-SIDC had denied the subsequent
of the minority stockholders, parties-litigants or the general public.
motion on the ground of litis pendentia. But should SEC-SICD Case

No. 3857, which contains the earlier prayer to create a management
Evidently, it should be difficult to deduce the "imminent danger of
committee, be likewise dismissed? Following the rules set forth in the
dissipation, loss, wastage or destruction of assets or other
preceding paragraphs, it would depend on whether the different SEC
properties" from an allegation of a single act of previous

misappropriation or dissipation on the part of the Batong group. It is
often only when the previous misappropriations and dissipations
KASC
22

have become extensive and out of control that it can be candidly said
2. Unliquidated cash advances and unaccounted funds. Petitioners
that there is an imminent danger of further dissipation. The Ao-As
presented evidence to prove the failure of respondent Batong to
group cannot be faulted therefore for not praying for the creation of a
liquidate cash advances and account for P4,000,000 of LCP funds.
management committee in the first couple of cases it filed with the

SEC, and neither can they be faulted for using the causes of action
in previously filed cases to prove their allegation of imminent
dissipation. We cannot rule out the possibility that the danger of
imminent dissipation of the corporate assets became apparent only
in the acts of the respondents subsequent to the filing of the first two
SEC cases.
3. Purchase of Leyte Land in the name of respondent Saquilayan

with LCP funds. Respondent LCP Vice-President Victorio Y.
Saquilayan allegedly purchased a parcel of land in Albuera, Leyte in
his name, using LCP funds. Respondent Saquilayan subsequently
donated to the LCP, and explained that the purchase in his name
was upon advice of LCPs lawyers to comply with the rulings
in Republic
The creation of a management committee is not warranted by the

facts of the case.
Gonong
17
of
the
Philippines
v.
Hon.
Arsenio
M.
18
and Republic of the Philippines v. Iglesia Ni Cristo.
4. Severance of partner-church relationship between the LCP and
The Ao-As group claims that the Court of Appeals "unceremoniously
the LCMS. Respondents issued LCP Board Resolution No. LCP-BD-
disregarded all the undisputed testimonial and documentary
28-90 severing all relations with the Lutheran Church-Missouri Synod
evidence presented before the SEC,"
15
and strongly pointed to their
(LCMS), allegedly in violation of LCP Board Resolution No. LCP-BD-
evidence which "clearly show the dissipation, wastage and loss of
33-70 which stated that "all actions taken by LCP in convention can
LCP funds and assets."
16
These pieces of evidence supposedly
proved the following:
only be amended, modified and changed by LCP in convention."

5. Taking
of
LCP
Books
of
Account. Respondent
Batong,
1. The alleged anomaly concerning the sale of the land and the
accompanied by members of the LCP Board and about 15 armed
purchase of another land, both located in La Trinidad. The La
security guards allegedly barged into the premises of the LCP in Old
Trinidad Land Transaction, the proceeds whereof were allegedly
Sta. Mesa, Manila, and removed all of the official records and
unliquidated, was testified to by petitioner Ao-As and Mr. Excelsio
documents of the LCP (including the books of account, official
Hipe before the SEC-SICD in a hearing conducted on 11 September
receipts, check and journal vouchers, official papers and titles to
1990.
property) and had the same relocated to his residence in Caloocan

City and to the offices of Immanuel Lutheran Church in Malabon.
KASC
23

The Court of Appeals had ruled:
Nothing in [Ao-As groups] evidence presented in support for their
Missouri Synod; and (ii) the transfer of corporate books from the Sta.
Mesa Office to Caloocan City.
application for a management committee showed an impending or
All of the grounds relied upon by [the Ao-As group] pertain to past
imminent danger of dissipation of funds. In the assailed SEC-SICD
delinquencies for which there are other available remedies such as
Order dated September 3, 1992, the appointment of a management
accounting and reconveyance. The [Ao-As group] did not allege,
committee was justified because of "acquisition of some lands using
much less prove, any present or imminent loss or destruction of LCP
the corporate funds . . . in the name of some person other than the
properties and assets. At best, it expresses merely a general
LCP, and various cash advances of corporate funds by the
apprehension for possible mismanagement by respondent on the
respondents not liquidated up to the present".
basis of the aforementioned past transactions.
The SEC-SICD Order refers to the La Trinidad and Leyte land
It must be stressed that the appointment of a management
transactions and the alleged non-liquidation or unaccountability of
committee inevitably results in the drastic summary removal
cash advances and other funds which constitutes the four causes
of all directors and officers of LCP. Clearly, the appointment of a
of action alleged in the petition.
management committee is not justified due to the failure of only two
[The Ao-As group] admit[s] that the La Trinidad Land transactions

[were] consummated in 1984 while the Leyte transaction was made
(2) of the LCP Board members to liquidate past cash advances and
other transactions involving corporate property and funds.
in 1989. Both occurred prior to the Commencement (sic) of the
Where the corporation is solvent, a receiver will not be appointed
present petition in 1990. Similarly, the alleged unliquidated cash
because of past misconduct and a subsequent mere apprehension
advances referred to accumulated funds long withdrawn in the past
of a future misdoing, where the present situation and the prospects
by Dr. Thomas Batong "(in varying amounts) for personal, travel and
for the future are not such as to warrant a receivership. x x x"
other miscellaneous purposes, all in the aggregate amount of not

less than P 323,750.00". And the alleged unaccounted funds referred
to the "trial balance of LCP as of September 15, 1989".
Significantly, the SEC En Banc even pointed out that: "the question
of whether or not the [Batong group] have to account for all funds,
properties and assets of LCP which may come into their possession
Notably, the remaining two causes of action in the aforementioned
as directors and/or officers of LCP is still to be resolved by the
petition do not involve dissipation of funds, namely: (i) the severance
hearing officer after trial on the merits."
of partner-church relationship between LCP and Lutheran Church-
KASC
24

Under prevailing law, the SEC-SICD should have refused the
given the [the Ao-As group] a chance to prove their allegations
appointment of a management committee.
(concerning acts committed by respondents subsequent to the
"It is the general rule that a receiver (or a management committee)

will not be appointed unless it appears that the appointment is
necessary either to prevent fraud, or to save the property from fraud
or threatened destruction, or at least in case of solvent corporation x
creation of the management committee), then it would have

confirmed the earlier determination made by the SEC-SICD
regarding the necessity for the creation of the management
22
committee."
It further asseverates:
x x. The burden of proof is a heavy one which requires a clear
20. The acts constituting [the Ao-As groups] six causes of action in
showing that an emergency exists.
the petition filed with the SEC-SICD (the La Trinidad land
"x x x Similarly, a receiver (or a management committee) should not

be appointed in an action by a minority stockholder against corporate
officers for an accounting where the corporation is solvent and going
concern and a receiver is not necessary to preserve the corporate
property pending the accounting".
transaction, the unliquidated cash advances, the unaccounted funds

amounting to P4.8 million, the Leyte land transaction, the severance
of the sister-church relationship and forcible removal of the LCP
books of account) could not be characterized merely as "past
delinquencies". The six causes of action and the subsequent acts of
the [Batong group], after the filing of the petition with the SEC-SICD,
Furthermore, a management committee should not be created when
clearly show a continuing and deliberate scheme of the dissipation
there was an adequate remedy available to private respondents for
and wastage of LCP properties and assets, which if unrestricted
the liquidation of unaccounted funds.
would cause further destruction of LCP assets and paralyzation of its
19
operations, as it had already done. The creation of the Management

The Court of Appeals went on to rule that the members of the Ao-As
Committee was, therefore, perfectly legal and justified. And the ruling
group "have not positively shown that the said funds are
of respondent Court of Appeals that these acts do not justify its
unaccounted for,"
20
As
illustrate
group
to
and analyzed the evidence presented by the Aothat
the
unaccounted
funds
only P1,572.43, "which may be attributable to adjustment errors but

certainly not a case of misappropriation or misuse."
appointment is, [the Ao-As group] humbly submit, reversible error.
were
21
21. In addition, the CA Decision also declared that "in any event, the
past anomalies were only done by some of the Batong group." This
is erroneous. Under the By-Laws of the LCP, the Board of Directors
The Ao-As group maintains that the unaccounted funds amount to
is in charge of the disbursement of funds. Sections 1 and 2 of Article
around P4.8 million, and claim that if the Court of Appeals "had only
6 of the LCP By-Laws state:
KASC
25

"Section 1. The President of the LCP shall be given the following
was created precisely because of the extreme urgency that [mere]
executive powers and supervisory duties:
caused by the continued dissipation, loss and wastage of LCP funds
xxx xxx xxx
and assets by the Batong group. If [the Ao-As group] were to avail of
these so-called available remedies then by the time a decision is to
b. The President together with two other members of the LCP Board
be rendered in these "available remedies" the assets and funds of
of Directors, may authorize the release of surplus funds in
the LCP would have indubitably been lost forever since the
emergencies or in cases of sudden need.
dissipation, loss and wastage were then, and still is, an on going
process. Consequently, it is clearly unreasonable for respondent
xxx xxx xxx

Section 2. The Board of Directors of the LCP
xxx xxx xxx
Court of Appeals to declare that the [Ao-As group] should have first
availed of these so-called remedies.
23
Even without delving into the analysis of the prosecution evidence

concerning the six causes of action and the alleged acts subsequent
c. The Board of Directors shall prepare the annual budget of the
to these six causes of action, it is already appropriate for us to rule
LCP.
that the facts as they appear to us now do not warrant the creation of
d. The Board of Directors shall be responsible for the annual auditing
a management committee.
of all the LCP Properties and may initiate special auditing at any
Refusal to allow stockholders (or members of a non-stock
time."
corporation) to examine books of the company is not a ground for
22. From the foregoing, it is clear that respondent Batong did not act
alone, but in concert with the other members of the LCP Board. The
creation of the management committee was therefore justified.
appointing a receiver (or creating a management committee) since

there
are
mandamus.
other
24
adequate
remedies,
such
as
writ
of
Misconduct of corporate directors or other officers is
not a ground for the appointment of a receiver where there are one
23. The CA Decision also noted that since there were other remedies
or more adequate legal action against the officers, where they are
available to the petitioners to correct these anomalies, the creation of
solvent, or other remedies.
the management committee was unjustified. [The Ao-As group]

again humbly submit again (sic) that respondent Court of Appeals
erred when it made this statement. The LCP management committee
KASC
25
The appointment of a receiver for a going corporation is a last resort

remedy, and should not be employed when another remedy is
26

available. Relief by receivership is an extraordinary remedy and is
Board of Directors of the Lutheran Church in the Philippines as
never exercised if there is an adequate remedy at law or if the harm
provided in its By-Laws. The Court of Appeals ruled:
can be prevented by an injunction or a restraining order. Bad

judgment by directors, or even unauthorized use and misapplication
of the companys funds, will not justify the appointment of a receiver
for the corporation if appropriate relief can otherwise be had.
26
The fact that the President of the LCP needs the concurrence of only
The Court notes that the LCP By-Laws provide for a special
procedure for the election of its directors. This was the procedure
followed by both the [Batong group] and the [Ao-As group].
"Section 2. Composition of the Board of Directors of LCP.
two other directors to authorize the release of surplus funds plainly
a. The Board of Directors shall be composed of the President of LCP
contradicts the conclusion of conspiracy among the presently 11-
and the President and lay representative of each District.
man board. Neither does the fact that the Board of Directors of the
LCP prepares the annual budget and the annual auditing of
b. Newly elected members of the LCP Board of Directors shall
properties of the LCP justify the conclusion that the alleged acts of
assume their positions immediately after LCP conventions or the
respondent Batong was done in concert with the other directors.
October LCP Board of Directors meeting in the year in which they
There should have been evidence that such dissipation took place
are elected."
with the knowledge and express or implied consent of most or the

entire board. Good faith is always presumed.
27
As it is the obligation
of one who alleges bad faith to prove it, so should he prove that such
bad faith was shared by all persons to whom he attributes the same.
However, Section 24 of the Corporation Code provides that "[a]t all

elections of directors or trustees, there must be present, either in
person or by representative to act by written proxy, x x x if there be
no capital stock, a majority of the members entitled to vote."
The last resort remedy of replacing the entire board, therefore, with a
management committee, is uncalled for.
It is clear from Section 24 that in the election of the trustees of a nonstock corporation, it is necessary that at least "a majority of the
The Court of Appeals erred in declaring as invalid the manner of

elections of the Board of Directors of the LCP as provided in its ByLaws.
members entitled to vote" must be present at the meeting held for

the purpose. It follows that trustees cannot be elected by zones or
regions, each zone or region electing independently and separately a
The Ao-As group stresses that the Court of Appeals committed
member of the board of trustees of the corporation, such method
reversible error in declaring as invalid the manner of elections of the
being violative of Section 24. (SEC Opinions, Jan. 30, 1969, April 1,
KASC
27

1981). The election of the directors by district or regions as provided
determination by the SEC-SICD of the seven members that should
in the LCP By-Laws where a majority of the members are not
comprise the Board, as likewise provided in said Decision.
present is inconsistent with the Corporation [Code] and must be

struck down as invalid. Consequently, the directors elected by district
cannot be considered as bona fide directors. Even the election of
LCP officers in the SEC-SICD sponsored national convention of the
LCP must be considered as invalid.
28
As argued by the Ao-As group, however, the validity of the LCP ByLaws providing for a special procedure in the election of the LCP
Board of Directors was never put in issue, either by the Ao-As group
or the Batong group. The Court of Appeals, therefore, should have
refrained from passing upon such issue, motu propio. According to
Rule 51, Section 8 of the Rules of Court, which pertains to matters
which may be decided on appeal:
Sec. 8. Questions that may be decided. No error which does not
affect the jurisdiction over the subject matter or the validity of the
judgment appealed from or the proceedings therein will be
considered unless stated in the assignment of errors, or closely
related to or dependent on an assigned error and properly argued in
the brief, save as the court may pass upon plain errors and clerical
errors.
29
Even the Batong group agrees with the Ao-As group on the validity
of the by-laws provision concerning the election of the directors by
districts:
[The Batong group] respectfully submit[s] that the matter of how the
directors or other leaders of a church shall be chosen is a matter of
ecclesiastical law or custom which is outside the jurisdiction of civil
courts. Hence, even assuming arguendo, that the mode of election of
the LCP is not strictly in accordance with the Corporation Code, it
was improper for the Securities and Exchange Commission to apply
the provisions of the said Code to the LCP.
30
In any case, the stipulation in the By-Laws is not contrary to the

Corporation Code. Section 89 of the Corporation Code pertaining to
non-stock corporations provides that "(t)he right of the members of
any class or classes (of a non-stock corporation) to vote may be
limited, broadened or denied to the extent specified in the articles of
31
incorporation or the by-laws." This is an exception to Section 6 of

the same code where it is provided that "no share may be deprived
of voting rights except those classified and issued as preferred or
redeemable shares, unless otherwise provided in this Code."
32
The
The ruling of the SEC En Banc setting aside the SEC-SICD
stipulation in the By-Laws providing for the election of the Board of
determination that LCP Board of Directors was illegally constituted
Directors by districts is a form of limitation on the voting rights of the
has therefore become final and executory, subject to the
members of a non-stock corporation as recognized under the

aforesaid Section 89. Section 24, which requires the presence of a
KASC
28

majority of the members entitled to vote in the election of the board
VALLE VERDE COUNTRY CLUB, INC., et al. vs. VICTOR AFRICA
of directors, applies only when the directors are elected by the
G.R. No. 151969, September 4, 2009
members at large, such as is always the case in stock corporations

by virtue of Section 6.
WHEREFORE, the Decision of the Court of Appeals annulling and
FACTS:
setting aside the order to create a management committee is thereby

AFFIRMED, with the MODIFICATION that every subsequent election
During the Annual Stockholders Meeting of petitioner Valle
of the directors of Lutheran Church in the Philippines shall
Verde Country Club, Inc. (VVCC), the following were elected as
henceforth be in accordance with the By-Laws and Articles of
members of the VVCC Board of Directors: Ernesto Villaluna, Jaime
Incorporation of the same. Costs against petitioners.
C. Dinglasan, Eduardo Makalintal, Francisco Ortigas III, Victor Salta,

Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray
Gamboa. In the years 1997, 1998, 1999, 2000, and 2001, however,
the requisite quorum for the holding of the stockholders meeting
could not be obtained. Consequently, the above-named directors
continued to serve in the VVCC Board in a hold-over capacity. Two
of the said members resigned (Makalintal and Dinglasan). After the
resignation of Dinglasan, Eric Roxas was elected. Makalintal was
replaced by Jose Ramirez.
Respondent Africa, a member of VVCC, questioned the
election of Roxas and Ramirez as members of the VVCC Board with
the Securities and Exchange Commission (SEC) and the Regional
Trial Court. Africa alleged that the election of Roxas was contrary to
Section 29, in relation to Section 23, of the Corporation Code of the
Philippines. The respective trial courts ruled in favor of Africa.
*Alternative facts*
KASC
29

February 27, 1996: Ernesto Villaluna, Jaime C. Dinglasan
holders of stocks, or where there is no stock, from
(Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas
among the members of the corporation, who shall hold
III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto
office for 1 year until their successors are elected and
Sunico, and Ray Gamboa were
qualified.
elected as BOD during
the Annual Stockholders Meeting of petitioner Valle Verde
Sec. 29. Vacancies in the office of director or trustee. -
Country Club, Inc. (VVCC)
Any vacancy occurring in the board of directors or
1997 - 2001: Requisite quorum could not be obtained so
trustees other than by removal by the stockholders or
they continued in a hold-over capacity
members or by expiration of term, may be filled by the

vote of at least a majority of the remaining directors or
September 1, 1998: Dinglasan resigned, BOD still constituting a
trustees, if still constituting a quorum; otherwise, said
quorom elected Eric Roxas (Roxas)
vacancies must be filled by the stockholders in a regular

or special meeting called for that purpose. A director or
November 10, 1998: Makalintal resigned
trustee so elected to fill a vacancy shall be elected only

on March 6, 2001: Jose Ramirez (Ramirez) was elected by the
for the unexpired term of his predecessor in office. xxx.
remaining BOD
Makalintal's term should have expired after 1996 there
Respondent Africa (Africa), a member of VVCC, questioned the
being no unexpired term.
election of Roxas and Ramirez as members of the VVCC Board
been filled by the stockholders in a regular or special
with the Securities and Exchange Commission (SEC) and the
meeting called for that purpose
The vacancy should have
Regional Trial Court (RTC) as contrary to:

RTC: Favored Africa - Ramirez as Makalintal's replacement =
Sec. 23. The board of directors or trustees. - Unless
null and void
otherwise provided in this Code, the corporate powers of

all corporations formed under this Code shall be
SEC: Roxas as Vice hold-pver director of Dinglasan = null and
exercised, all business conducted and all property of
void
such corporations controlled and held by the board of

directors or trustees to be elected from among the
KASC
VVCC appealed in SC for certiorari being partially contrary to law

and jurisprudence
30

ISSUE:
With the expiration of Makalintals term of office, a vacancy

Whether or not the elections were valid.
RULING:
resulted which, by the terms of Section 29of the Corporation Code,

must be filled by the stockholders of VVCC in a regular or special
meeting called for the purpose. As correctly pointed out by the RTC,
when remaining members of the VVCC Board elected Ramirez to
YES.
Section 23of the Corporation Code declares that "the board
of directors shall hold office for one (1) year until their successors are
elected and qualified," we construe the provision to mean that the
term of the members of the board of directors shall be only for one
year; their term expires one year after election to the office. The
replace Makalintal, there was no more unexpired term to speak of,

as Makalintals one-year term had already expired. Pursuant to law,
the authority to fill in the vacancy caused by Makalintals leaving lies
with the VVCCs stockholders, not the remaining members of its
board of directors.
ADDITIONAL ISSUE:
holdover period that time from the lapse of one year from a
members election to the Board and until his successors election
and qualification is not part of the directors original term of office,
nor is it a new term; the holdover period, however, constitutes part of
his tenure. Corollary, when an incumbent member of the board of
directors continues to serve in a holdover capacity, it implies that the
office has a fixed term, which has expired, and the incumbent is
holding the succeeding term.
After the lapse of one year from his election as member of
the VVCC Board in 1996, Makalintals term of office is deemed to
have already expired. That he continued to serve in the VVCC Board
in a holdover capacity cannot be considered as extending his term.
This holdover period, however, is not to be considered as part of his
term, which, as declared, had already expired.
KASC
W/N there is an unexpired term - NO

W/N the
remaining
directors
of
corporations
Board,
still
constituting a quorum, can elect another director to fill in a vacancy

caused by the resignation of a hold-over director. - NO
HELD: Petition Denied. RTC Affirmed.
1. NO
term time during which the officer may claim to hold the office as of
rightnot affected by the holdover fixed by statute and it does not
change simply because the office may have become vacant, nor
because the incumbent holds over in office beyond the end of the
term due to the fact that a successor has not been elected and has
failed to qualify. tenure term during which the incumbent actually
31

holds office. Section 23 of the Corporation Code: term of BOD only
MARC II MARKETING, INC. and LUCILA V. JOSON vs. ALFREDO

M. JOSON G.R. No. 171993.December 12, 2011
1 year - fixed and has expired (1 yr after 1996)

2. NO
FACTS:
underlying policy of the Corporation Code is that the business and
Marc II Marketing, Inc. and Lucila Joson is assailing the
affairs of a corporation must be governed by a board of directors
decision of the CA for reversing and settling aside the Resolution of
whose members have stood for election, and who have actually
the National Labor Relations Commission. Marc II Marketing, Inc. is
been elected by the stockholders, on an annual basis. Only in that
a corporation duly organized and existing under and by virtue of the
way can the directors' continued accountability to shareholders, and
laws of the Philippines. It is primarily engaged in buying, marketing,
the legitimacy of their decisions that bind the corporation's
selling and distributing in retail or wholesale for export or import
stockholders, be assured. The shareholder vote is critical to the
household appliances and products and other items. Petitioner Lucila
theory that legitimizes the exercise of power by the directors or
is the President and majority stockholder of the corporation. Before
officers over properties that they do not own.theory of delegated
Marc II Marketing, Inc. was officially incorporated, Alfredo has
power of the board of directors
already been engaged by Lucila, in her capacity as President, to
Section 29 contemplates a vacancy occurring within the directors

term of office (unexpired) vacancy caused by Makalintals leaving
lies with the VVCCs stockholders, not the remaining members of its
board of directors
work as General Manager of the corporation and it was formalized

through the execution of a Management Contract dated in 1994
under Marc Marketing, Inc., as Marc II Marketing, Inc. was yet to be
incorporated. For occupying the said position, respondent was
among the corporations corporate officers by the express provision
of Section 1, Article IV of its by-laws.
Alfredo was appointed as one of its officers with the
designation or title of General Manager to function as a managing
director with other duties and responsibilities that the Board may
provide and authorized. However, in 1997, Marc II Marketing Inc.
decided to stop and cease its operation as evidenced by an Affidavit
of Non-Operation due to poor sales collection aggravated by the
KASC
32

inefficient management of its affairs. Alfredo was informed of the
NECTARINA S. RANIEL V JOCHICO, GR NO 153413 MARCH 1,
cessation of its business operations and the termination of his
20017
services as General Manager. He filed action for reinstatement and

money claim against petitioners.
AUSTRIA-MARTINEZ, J.:
Assailed in the present Petition for Review on Certiorari is the
ISSUE:
Decision
Whether or not Marc II Marketing Inc.s Board of Directors
[1]
affirming
of the Court of Appeals (CA) dated April 30, 2002,

with
modification
the
Decision
dated October
27,
could create a position for corporate officers through an enabling
2000 rendered by the Securities and Exchange Commission (SEC)
clause found in its corporate by-laws.
which held as valid the removal of petitioners Ma. Victoria R. Pagong (Pag-ong)
RULING: YES.
director
Accordingly, in determining whether the SEC (now the RTC)

has jurisdiction over the controversy, the status or relationship of the
parties and the nature of the question that is the subject of their
controversy must be taken into consideration. With all the foregoing,
this Court is fully convinced that, indeed, respondent, though
occupying the General Manager position, was not a corporate officer
of Petitioner Corporation rather he was merely its employee
occupying
as
high-ranking
position.
Accordingly,
respondents
dismissal as Petitioner Corporations General Manager did not

amount to an intra-corporate controversy. Jurisdiction therefor
properly belongs with the Labor Arbiter and not with the RTC.
Having established that respondent was not Petitioner
director
and Nectarina S. Raniel (Raniel)
and
corporate
as
officer
of Nephro Systems Dialysis Center (Nephro).

Petitioners first questioned their removal in SEC Case No. 02-985902 for Declaration of Nullity of the Illegal Acts of Respondents,
Damages and Injunction. Petitioners, together with respondents
Paul Jochico (Jochico),
incorporators
and
John Steffens and Surya Viriya,
directors
of
Nephro,
were
with Raniel acting
as
Corporate Secretary and Administrator. The conflict started when

petitioners questioned respondents' plan to enter into a joint venture
with the Butuan Doctors' Hospital and College, Inc. sometime in
December 1997. Because of this, petitioners claim that respondents
tried to compel them to waive and assign their shares with Nephro
but they refused. Thereafter, Raniel sought an indefinite leave of
Corporations corporate officer but merely its employee, and that,
absence
due
to
stress,
but
this
was
denied
by Jochico,
consequently, jurisdiction belongs to the Labor Arbiter.
as Nephro President. Raniel, nevertheless, did not report for work,

causing Jochico to demand an explanation from her why she should
KASC
33

not be removed as Administrator and Corporate Secretary.Raniel
The corporation acting thru its Board of Directors can validly remove
replied, expressing her sentiments over the disapproval of her
its corporate officers, particularly complainant Nectarina S. Raniel as
request for leave and respondents' decision with regard to the
corporate secretary, treasurer and administrator of the Dialysis
Butuan venture.
Clinic.
On January 30, 1998, Jochico issued a Notice of Special Board
Also, the Commission cannot grant the relief prayed for by
Meeting on February 2, 1998. Despite receipt of the notice,
complainants in restraining the respondents from interfering in the
petitioners did not attend the board meeting. In said meeting, the
administration of the Dialysis Clinic owned by the corporation and the
Board passed several resolutions ratifying the disapproval of Raniel's
use of corporate funds.
request for leave, dismissing her as Administrator of Nephro,

declaring
the
position
of
Corporate Secretary
vacant,
appointing Otelio Jochico as the new Corporate Secretary and

authorizing the call of a Special Stockholders' Meeting on February
The administration of the Dialysis Clinic of the corporation and the

use of corporate funds, rightfully belong to the officers of the
corporation, which in this case are the respondents.
16, 1998 for the purpose of the removal of petitioners as directors
The counterclaim of respondents to return or assign back the
of Nephro.
complainants' shares in favor of respondent Paul Jochico or his
Otelio Jochico issued the corresponding notices for the Special
nominee is hereby denied for lack of merit.
Stockholders' Meeting to be held on February 16, 1998 which were
The respondents failed to show any clear and convincing evidence to
received by petitioners on February 2, 1998. Again, they did not
rebut the presumption of the validity and truthfulness of documents
attend the meeting. The stockholders who were present removed the
submitted to the Commission in the grant of corporate license.
petitioners as directors of Nephro. Thus, petitioners filed SEC Case

The claim for attorney's fees and damages of both parties are
No. 02-98-5902.
likewise denied for lack of merit, as neither party should be punished

On October
27,
2000,
the
SEC
rendered
its
Decision,
for vindicating a right, which he/she believes should be protected or
the dispositive portion of which reads:
enforced.
WHEREFORE, the Commission so holds that complainants cannot
SO ORDERED.
[2]
be awarded the reliefs prayed for in reinstating Nectarina S. Raniel

as secretary and administrator.
KASC
34

exhibited her disregard of her responsibilities as an officer of the
Dissatisfied, petitioners filed a petition for review with the CA.

On April 30, 2002, the CA rendered the assailed Decision, with the
following dispositive portion:
held that the Special Board Meeting held on February 2, 1998 was
valid and the resolutions adopted therein are binding on petitioners.
WHEREFORE, in light of the foregoing discussions, the appealed

decision of the Securities and Exchange Commission is hereby
AFFIRMED with the MODIFICATION that the renewal of petitioners
as directors of Nephro is declared valid.
SO ORDERED.
corporation and disrupted the operations of Nephro. The SEC also

[6]
The CA upheld the SEC's conclusions, adding further that the special
stockholders' meeting on February 16, 1998 was likewise validly
held. The CA also ruled that Pag-ong's removal as director of Nephro
was justified as it was due to her undenied delay in the release of
Nephro's medical supplies from the warehouse of the Fly-High
[3]
Brokerage where she was an officer, on top of her and her coRespondents
filed
Manifestation
and
Motion
to
Correct
Typographical Error, stating that the term renewal as provided in the

CA Decision should be removal.
[4]
petitioner Raniel's absence from the aforementioned directors' and

stockholders' meetings of Nephro despite due notice.
[7]
Petitioners, on the other hand,
filed the present petition for review on certiorari.
It is well to stress the settled rule that the findings of fact of

administrative bodies, such as the SEC, will not be interfered with by
On November 20, 2002, the CA issued a Resolution resolving to
the courts in the absence of grave abuse of discretion on the part of
refrain from acting on all pending incidents before it in view of the
said agencies, or unless the aforementioned findings are not
filing of the petition with the Court.
[5]
In the present petition, petitioners raised basically the same

argument they had before the SEC and the CA, i.e., their removal
from Nephro was not valid.
supported by substantial evidence. They carry even more weight

when affirmed by the CA.
[8]
Such findings are accorded not only
great respect but even finality, and are binding upon this Court,
unless
it
is
shown
that
it
had
arbitrarily
disregarded
or
misapprehended evidence before it to such an extent as to compel a

Both the SEC and the CA held that Pag-ong's removal as director
contrary
conclusion
[9]
had
such
evidence
been
properly
and Raniel's removal as director and officer of Nephro were
appreciated.
valid. For its part, the SEC ruled that the Board of Directors had
a trier of facts, as well as in the respect to be accorded the
sufficient ground to remove Raniel as officer due to loss of trust and
determinations made by administrative bodies in general on matters
confidence, as her abrupt and unauthorized leave of absence
falling within their respective fields of specialization or expertise.
KASC
This rule is rooted in the doctrine that this Court is not
[10]
35

A review of the petition failed to demonstrate any reversible error
In this case, petitioner Raniel was removed as a corporate officer
committed by the two tribunals, hence, the petition must be denied. It
through the resolution of Nephro's Board of Directors adopted in a
does not present any argument which convinces the Court that the
special meeting on February 2, 1998. As correctly ruled by the SEC,
SEC and the CA made any misappreciation of the facts and the
petitioners' removal was a valid exercise of the powers of Nephro's
applicable laws such that their decisions should be overturned.
Board of Directors, viz.:
A corporation exercises its powers through its board of directors
In the instant complaint, do respondents have sufficient grounds to
and/or its duly authorized officers and agents, except in instances
cause the removal of Raniel from her positions as Corporate
where the Corporation Code requires stockholders approval for
Secretary, Treasurer and Administrator of the Dialysis Clinic? Based
certain specific acts.
[11]
on the facts proven during the hearing of this case, the answer is in
Based on Section 23 of the Corporation Code which provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by
the board of directors or trustees x x x.
the affirmative.
Raniel's letter of January 26, 1998 speaks for itself. Her request for
an indefinite leave, immediately effective yet without prior notice,
reveals a disregard of the critical responsibilities pertaining to the
sensitive positions she held in the corporation. Prior to her hasty
departure, Raniel did not make a proper turn-over of her duties and
had to be expressly requested to hand over documents and records,
a corporations board of directors is understood to be that body which

(1) exercises all powers provided for under the Corporation Code; (2)
conducts all business of the corporation; and (3) controls and holds
including keys to the office and the cabinets (Exh. 15).

xxxx
all property of the corporation. Its members have been characterized
Since Raniel occupied all three positions in Nephro, it is not difficult
as
fiduciary
to foresee the disruption that her immediate and indefinite absence
Moreover, the directors may appoint officers and
can inflict on the operations of the company. By leaving abruptly,
agents and as incident to this power of appointment, they may
Raniel abandoned the positions she is now trying to reclaim. Raniel's
trustees
character.
[12]
or directors
[13]
discharge those appointed.
clothed
with
actuation has been sufficiently proven to warrant loss of the Board's

confidence.
KASC
[14]
36

The SEC also correctly concluded that petitioner Raniel was
Petitioners Raniel and Pag-ong's removal as members of Nephro's
removed as an officer of Nephro in compliance with established
Board of Directors was likewise valid.
procedure, thus:
Only stockholders or members have the power to remove the
The resolutions of the Board dismissing complainant Raniel from her
directors or trustees elected by them, as laid down in Section 28 of
various positions in Nephro are valid. Notwithstanding the absence
the Corporation Code,
of complainants from the meeting, a quorum was validly constituted.
[16]
which provides in part:
SEC. 28. Removal of directors or trustees. -- Any director or
Based on its articles of incorporation, Nephro has five directors two
trustee of a corporation may be removed from office by a vote
of the positions were occupied by complainants and the remaining
of the stockholders holding or representing at least two-thirds
three are held by respondents. This being the case, the presence of
(2/3) of the outstanding capital stock, or if the corporation be a
all three respondents in the Special Meeting of the Board
non-stock corporation, by a vote of at least two-thirds (2/3) of the
on February 2, 1998 established a quorum for the conduct of
members entitled to vote: Provided, that such removal shall take
business. The unanimous resolutions carried by the Board during
place either at a regular meeting of the corporation or at a special
such meeting are therefore valid and binding against complainants.
meeting called for the purpose, and in either case, after previous
It bears emphasis that Raniel was given sufficient opportunity to be

heard. Jochico's letters of January 26, 1998 and January 27, 1998,
albeit adversarial, recognized her right to explain herself and gave
her the chance to do so. In fact, Raniel did respond to Jochico's letter
on January 28, 1998 and took the occasion to voice her opinions
about Jochico's alleged practice of using others for your own benefit,
without cost. (Exh. 14). Moreover, the Special Meeting of the Board
could have been the appropriate venue for Raniel to air her
side. Had Raniel decided to grace the meeting with her presence,
she could have explained herself before the board and tried to
convince them to allow her to keep her posts.
[15]
notice to stockholders or members of the corporation of the intention

to propose such removal at the meeting. A special meeting of the
stockholders or members of a corporation for the purpose of removal
of directors or trustees or any of them, must be called by the
secretary on order of the president or on the written demand of the
stockholders representing or holding at least a majority of the
outstanding capital stock, or if it be a non-stock corporation, on the
written demand of a majority of the members entitled to vote. x x
x Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by publication or
by written notice as prescribed in this Code. x x x Removal may be
with or without cause: Provided, That removal without cause may
not be used to deprive minority stockholders or members of the right
KASC
37

of representation to which they may be entitled under Section 24 of
ONG YONG, et al., petitioner vs.vTIU, et al., respondent

G.R. No. 144476
this Code. (Emphasis supplied)

Petitioners do not dispute that the stockholders' meeting was held in
accordance with Nephro's By-Laws. The ownership of Nephro's
outstanding capital stock is distributed as follows: Jochico - 200
shares; Steffens - 100 shares; Viriya - 100 shares; Raniel - 75
shares; and Pag-ong - 25 shares,
[17]
or a total of 500 shares. A two-
thirds vote of Nephro's outstanding capital stock would be 333.33

shares, and during the Stockholders' Special Meeting held
on February
16,
1998,
400
shares
voted
for
petitioners'
removal. Said number of votes is more than enough to oust

petitioners from their respective positions as members of the board,
with or without cause.
8 April 2003
FACTS:
In 1994, the construction of the Masagana Citimall in Pasay
City was threatened with stoppage and incompletion when its owner,
the First Landlink Asia Development Corporation (FLADC), which
was owned by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See
Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius),
encountered dire financial difficulties. It was heavily indebted to the
Philippine National Bank (PNB) for P190 million. To stave off
foreclosure of the mortgage on the two lots where the mall was being
built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong,
Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to
Verily therefore, there is no cogent reason to grant the present
invest in FLADC. Under the Pre-Subscription Agreement they
petition.
entered into, the Ongs and the Tius agreed to maintain equal
WHEREFORE, the petition is DENIED for lack of merit.
shareholdings in FLADC: the Ongs were to subscribe to 1,000,000

shares at a par value of P100.00 each while the Tius were to
subscribe to an additional 549,800 shares at P100.00 each in
addition to their already existing subscription of 450,200 shares.
Furthermore, they agreed that the Tius were entitled to nominate the
Vice-President and the Treasurer plus 5 directors while the Ongs
were entitled to nominate the President, the Secretary and 6
directors (including the chairman) to the board of directors of FLADC.
Moreover, the Ongs were given the right to manage and operate the
mall. Accordingly, the Ongs paid P100 million in cash for their
subscription to 1,000,000 shares of stock while the Tius committed to
KASC
38

contribute to FLADC a four-storey building and two parcels of land
respectively valued at P20 million (for 200,000 shares), P30 million
(for 300,000 shares) and P49.8 million (for 49,800 shares) to cover
RULING:
1. YES.
their additional 549,800 stock subscription therein. The Ongs paid in
The rescission of the Pre-Subscription Agreement will effectively
another P70 million 3 to FLADC and P20 million to the Tius over and
result in the unauthorized distribution of the capital assets and
above their P100 million investment, the total sum of which (P190
property of the corporation, thereby violating the Trust Fund Doctrine
million) was used to settle the P190 million mortgage indebtedness
and the Corporation Code, since rescission of a subscription
of FLADC to PNB. The business harmony between the Ongs and the
agreement is not one of the instances when distribution of capital
Tius in FLADC, however, was shortlived because the Tius, on 23
assets and property of the corporation is allowed. Rescission will, in
February 1996, rescinded the Pre-Subscription Agreement. The Tius
the final analysis, result in the premature liquidation of the
accused the Ongs of (1) refusing to credit to them the FLADC shares
corporation without the benefit of prior dissolution in accordance with
covering their real property contributions; (2) preventing David S. Tiu
Sections 117, 118, 119 and 120 of the Corporation Code.
and Cely Y. Tiu from assuming the positions of and performing their
duties as Vice-President and Treasurer, respectively, and (3)
refusing to give them the office spaces agreed upon. The
controversy finally came to a head when the case was commenced
by the Tius on 27 February 1996 at the Securities and Exchange
Commission (SEC), seeking confirmation of their rescission of the
Pre-Subscription Agreement.
ISSUE:
2. YES.
FLADC was originally incorporated with an authorized capital stock
of 500,000 shares with the Tius owning 450,200 shares representing
the paid-up capital. When the Tius invited the Ongs to invest in
FLADC as stockholders, an increase of the authorized capital stock
became necessary to give each group equal (50-50) shareholdings
as agreed upon in the Pre-Subscription Agreement. The authorized
capital stock was thus increased from 500,000 shares to 2,000,000
1. Whether or not the rescission of Pre-Subscription Agreement
shares with a par value of P100 each, with the Ongs subscribing to
would result in unauthorized liquidation.
1,000,000 shares and the Tius to 549,800 more shares in addition to
2. Whether or not the pre-Subscription Agreement executed by the

Ongs is actually a subscription contract.
their 450,200 shares to complete 1,000,000 shares. Thus, the

subject matter of the contract was the 1,000,000 unissued shares of
FLADC stock allocated to the Ongs. Since these were unissued
shares, the parties' Pre-Subscription Agreement was in fact a
KASC
39

subscription contract as defined under Section 60, Title VII of the
RURAL BANK OF SALINAS, INC., MANUEL SALUD,
Corporation Code. A subscription contract necessarily involves the
LUZVIMINDA TRIAS and FRANCISCO TRIAS vs. COURT OF
corporation as one of the contracting parties since the subject matter
APPEALS, SECURITIES AND EXCHANGE COMMISSION,
of the transaction is property owned by the corporation its shares
MELANIA A. GUERRERO, LUZ ANDICO, WILHEMINA G.
of stock. Thus, the subscription contract (denominated by the parties
ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO
as a Pre-Subscription Agreement) whereby the Ongs invested P100
GUERRERO , SR. G.R. No. 96674, June 26, 1992
million for 1,000,000 shares of stock was, from the viewpoint of the
law, one between the Ongs and FLADC, not between the Ongs and
the Tius.
FACTS:
Clemente G. Guerrero, President of the Rural Bank of
Salinas, Inc., executed a Special Power of Attorney in favor of his
wife, private respondent Melania Guerrero, giving and granting the
latter full power and authority to sell or otherwise dispose of and/or
mortgage 473 shares of stock of the Bank registered in his name
(represented by the Bank's stock certificates nos. 26, 49 and 65), to
execute the proper documents therefor, and to receive and sign
receipts for the dispositions. On February 27, 1980, and pursuant to
said Special Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for
472 shares out of the 473 shares, in favor of private respondents Luz
Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco
Guerrero, Jr. (5 shares).Almost four months later, or two (2) days
before the death of Clemente Guerrero on June 24, 1980, private
respondent Melania Guerrero, pursuant to the same Special Power
of Attorney, executed a Deed of Assignmentfor the remaining one (1)
share of stock in favor of private respondent Francisco Guerrero, Sr.
KASC
40

Subsequently,
private
respondent
Melania
Guerrero
A corporation, either by its board, its by-laws, or the act of its
presented to petitioner Rural Bank of Salinas the two (2) Deeds of
officers, cannot create restrictions in stock transfers, because:
Assignment for registration with a request for the transfer in the
Restrictions in the traffic of stock must have their source in legislative
Bank's stock and transfer book of the 473 shares of stock so
enactment, as the corporation itself cannot create such impediment.
assigned, the cancellation of stock certificates in the name of
By-laws are intended merely for the protection of the corporation,
Clemente G. Guerrero, and the issuance of new stock certificates
and prescribe regulation, not restriction; they are always subject to
covering the transferred shares of stocks in the name of the new
the charter of the corporation. The corporation, in the absence of
owners thereof. However, petitioner Bank denied the request of
such power, cannot ordinarily inquire into or pass upon the legality of
respondent Melania Guerrero.
the transactions by which its stock passes from one person to

another, nor can it question the consideration upon which a sale is
ISSUE:
based.
Whether or not a Mandamus lie against the Rural Bank of Salinas to

register in its stock and transfer book the transfer of 473 shares of
stock to private respondents.
RULING:
Whenever a corporation refuses to transfer and register

stock in cases like the present, mandamus will lie to compel the
officers of the corporation to transfer said stock in the books of the
corporation.
YES.
Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide cases involving
intracorporate controversies. An intra-corporate controversy has
been defined as one which arises between a stockholder and the
corporation. There is neither distinction, qualification, nor any
exception whatsoever. The case at bar involves shares of stock, their
registration, cancellation and issuances thereof by petitioner Rural
Bank of Salinas. It is therefore within the power of respondent SEC
to adjudicate.
KASC
41
KASC
42

Commercial Law Review Cases Batch 2

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Commercial Law Review Cases Batch 2

Transféré par

Droits d'auteur :

Formats disponibles

COMMERCIAL LAW REVIEW: CORPORATION LAW BATCH 2 CASE DIGESTS

AF REALTY & DEVELOPMENT, INC. VS DIESELMAN FREIGHT

HELD: No. There was no valid agency created. The Board of

Vires Acts of Corporate Officers Agency

the agreement between Cruz, Jr. and Polintan, as well as the

In 1988, Manuel Cruz, Jr., a board member of Dieselman Freight

on behalf of Polintan and ultimately purportedly on behalf of DFS is

Services, Co. (DFS) authorized Cristeta Polintan to sell a 2,094 sq.

m. parcel of land owned by DFS. Polintan in turn authorized

SC FULL TEXT RULING:

Section 23 of the Corporation Code expressly provides that the

corporate powers of all corporations shall be exercised by the board

Eventually, DFS sold the property to someone else.

of directors. Just as a natural person may authorize another to do

Now AF Realty is suing DFS for specific performance. It claims that

certain acts in his behalf, so may the board of directors of a

corporation validly delegate some of its functions to individual

officers or agents appointed by it.

Thus, contracts or acts of a

corporation must be made either by the board of directors or by a

Absent such valid

COMMERCIAL LAW REVIEW: CORPORATION LAW BATCH 2 CASE DIGESTS

corporation may be performed by agents of its selection; and,

individual director relating to the affairs of the corporation, but not in

except so far as limitations or restrictions may be imposed by special

the course of, or connected with, the performance of authorized

duties of such director, are held not binding on the corporation.

In the instant case, it is undisputed that respondent Cruz, Jr. has no

unauthorized agent may be ratified where, as here, there is

provisions, the same

principles of law which govern the relation of agency for a

Petitioner AF Realty maintains that the sale of land by an

writing; otherwise, the sale shall be void. (Emphasis supplied)

We are not persuaded.

Civil Code, thus:

Involved in this case is a sale of land through an agent. Thus, the

the very beginning:

stressed in Yao Ka Sin Trading vs. Court of Appeals:

Since a corporation, such as the private respondent, can act only

COMMERCIAL LAW REVIEW: CORPORATION LAW BATCH 2 CASE DIGESTS

INTER-ASIA INVESTMENTS INDUSTRIES VS. COURT OF

the defense of illegality be waived. (Emphasis supplied)

[GR 125778, 10 JUNE 2003]

respondent Midas is unquestionable. As aptly noted by the Court of

the sale was authorized by a board resolution of

respondent Dieselman dated May 27, 1988.

Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia),

The Court of Appeals awarded attorney's fees and moral and

that a board resolution from respondent Dieselman

authorizing the sale is necessary to bind the latter in the transaction;

This notwithstanding, petitioner Ranullo tendered a partial

payment for the unauthorized transaction. Clearly, respondent Cruz,

by a Stock Purchase Agreement (the Agreement), sold to Asia

FARMACOR's audited financial statements as of 31 October 1978,

WHEREFORE, the assailed Decision and Resolution of the Court of

amount of P7,500,000.00, Asia Industries may deduct any shortfall

Appeals are hereby AFFIRMED with MODIFICATION in the sense

on the Minimum Guaranteed Net Worth of P12,000,000.00; and that

if the amount retained is not sufficient to make up for the deficiency

deleted. Respondent Dieselman is ordered to return to petitioner AF

in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the

Realty its partial payment of P300,000.00. Costs against petitioners

COMMERCIAL LAW REVIEW: CORPORATION LAW BATCH 2 CASE DIGESTS

Industries filed a complaint against Inter-Asia with the Regional Trial