G.R. No.

L-27694 October 24, 1928

ZAMBOANGA TRANSPORTATION COMPANY, INC., plaintiff-appellee,

vs. THE BACHRACH MOTOR CO., INC., defendant-appellant.

FACTS:

Zamboanga Transportation Co., Inc. (Zamboanga), is managed by a board of directors composed

of five stockholders; Bachrach Motor Co. is a corporation engaged in selling automobiles and their parts.
For 10 years, the two have been dealing with each other. Zamboanga buys trucks, automobiles, repair
and accessory parts for use in the business of transportation in which it is engaged. Payments were
made by installments, and Zamboanga executed several chattel mortgages to secure it. Jose Erquiaga
(Erquiaga) was appointed as general manager in 1924,elected president, and acted as an auditor in
1925. He is also one of the majority stockholders and has been its attorney and legal adviser.

Zamboanga lacked funds and contacted Mons. Jose Clos, Bishop of Zamboanga and a principal
stock holder of the company, for loans of money. Since, he was leaving for Rome in February 1925 and
could not continue to loan money to Zamboanga, additional agreements were entered between Mons.
Clos and the Bachrach Motor Co., Inc. A new chattel mortgage was executed on by Zamboanga
represented by President Erquiaga. In this last mortgage the same goods were pledged that had been
hypothecated by the Zamboanga Transporatation Co., Inc., to the Bachrach Motor Co., by virtue of
instruments to Mons. Jose Clos Bishop of Zamboanga, by the virtue of the deed. President Erquiaga
submitted the mortgage deed to the Board of directors. Upon returning to Zamboanga from Manila, He
discussed the mortgage with two board of directors, who expressed satisfaction. Zamboanga also
partially complied with the mortgage contract. Zamboanga paid Bachrach two times. Bachrach sent a
letter cancelling the 2 former chattel mortgage. Bachrach told Erguiaga to register the cancellation.
Erquiaga replied by stating that the last mortgage was not approved by the Board of Directors. Jose
Erquiaga went to E.M. Bachman, president of Bachrach Motor co., to secure his consent to sell the
trucks that were mortgaged. He said this will be used to pay the unpaid debt. Bachrach denied. Erquiaga
and Zamboaga later on discovered that the last mortgage was registered in the register of deed.
Zamboanga, then filed for annulment of the last mortgage because it was registered without their
consent. Bachrach, filed a complaint for Zamboanga to obtain possession of all the chattels. Bchrach
won and sold the chattel in a public auction where they were held the highest bidder.

ISSUE: W/N the chattel mortgage executed by the president and general manager of the plaintiff
corporation, the Zamboanga Transportation Co., Inc., is valid

RULING: YES.

While it is true that said last chattel mortgage contract was not approved by the board of directors of the
Zamboanga Transportation Co., Inc., whose approval was necessary in order to validate it according to
the by-laws of said corporation, the broad powers vested in Jose Erquiaga as president, general
manager, auditor, attorney or legal adviser, and one of the largest shareholders; the approval of his act
in connection with said chattel mortgage contract in question, with which two other directors expressed
satisfaction, one of which is also one of the largest shareholders, who together with the president
constitute a majority: The payments made under said contract with the knowledge of said three directors
are equivalent to a tacit approval by the board of directors of said chattel mortgage contract and binds
the Zamboanga Transportation Co., Inc. In truth and in fact Jose Erquiaga, in his multiple capacity, was
and is the factotum of the corporation and may be said to be the corporation itself.
"Halley First National Bank vs. G. V. B. Min. Co.": Where the chief officers of a corporation are in reality
its owners, holding nearly all of its stock, and are permitted to manage the business by the directors,
who are only interested nominally or to a small extent, and are controlled entirely by the officers, the acts
of such officers are binding on the corporation, which cannot escape liability as to third persons dealing
with it in good faith on the pretense that such acts were ultra vires.

When the president of a corporation, who is one of the principal stockholders and at the same time its
general manager, auditor, attorney or legal adviser, is empowered by its by-laws to enter into chattel
mortgage contracts, subject to the approval of the board of directors, and enters into such contracts with
the tacit approval of two other members of the board of directors, one of whom is also a principal
shareholder, both of whom, together with the president, form a majority, and said corporation takes
advantage of the benefits afforded by said contract, such acts are equivalent to an implied ratification of
said contract by the board of directors and binds the corporation even if not formally approved by said
board of directors as required by the by-laws of the aforesaid corporation.

Board of SMB Workers (BOD) v. Tan (SH) (1959)

[GTA: originally SHs v. BOD and EC]

1) 11 and 12 January (for 1957)- election of

a) BOD members of SMB Workers Savings and Loan Association, Inc.
b) 3 members of the Election Committee

2) 17 Jan 57- John de Castillo et al. (who are they? Stockholders?), commenced a suit
(CFI Manila) to declare null and void:
a) election of the BOD members of the SMB Workers Savings and Loan
Association, Inc. and
b) members of the Election Committee

3) CFI: a) 11 and 12 January election null and void

b) Defendants to call for and hold another election in accordance with the
constitution and by-laws of the association and Corporation Law

3) 26 March- in compliance with the CFI judgment, (original) Election Committee set
the meeting of association members for 28 March (5:30pm) to elect the new
members of the board of directors

4) 27 March- Plaintiffs filed Ex-Parte Motion alleging (4 contentions):

a) Election Committee that called meeting of the association members is

composed of the same members that had conducted and supervised the
election of the BOD members declared null and void by the Court

b) election to be conducted and supervised by the said Committee violates the

association Constitution and B-Ls providing for 5 days notice to members
before the election since the notice was posted and sent out only on 26 March,
and the election would be held on 28 March, or 2 days after notice
 c) the notice that beginning 26 March any member could secure his ballot and
proxy from the office of the association is in violation of section 5, article III of
the Constitution and B-Ls, w/c prohibits voting by proxy in the election of BOD
members.

d) Defendants did not show that arrangement is being made "to guarantee that
the election will be held in accordance with the constitution and by-laws and by
the law."

Prayer: Court appoint its representative or representatives to EC to supervise and

conduct the election ordered by it

5) Court Order (27 March):

a) cancelled the election scheduled for 28 March

b) constituted and appointed a committee of 3 (Mr. Viernes as

Chairman and rep of Court and 1 rep each from Plaintiffs and
Defendants) to call, conduct and supervise the election of the BOD
members for 1957

c) committee is vested with the sole and exclusive power and authority to
call conduct and supervise the election of BOD members for 1957

6) Defendants filed before SC a Petition for Certiorari to annul and set aside the order
assailed, and a Writ of PI to restrain the respondent court from enforcing its order of 27
March 1957

HELD 1: (Based on the Association C and B-L) Notice of a special meeting of members
should be given at least 5 days before the date of the meeting. It appears that the notice
was posted on 26 March and the election was set for 28 March. Therefore, the 5 days
previous notice required would not be complied with.

HELD 2: As regards the creation of a committee of three vested with the authority to
call, conduct and supervise the election, and the appointment thereto of Mr. Viernes as
chairman and representative of the court and one representative each from the parties, the
Court in the exercise of its equity jurisdiction may appoint such committee, it having been
shown that the Election Committee (provided for in section 7 of B-Ls) that
conducted the election annulled by the respondent court if allowed to act as such may
jeopardize the rights of the respondents.

Ponce et al. (BOD) v. Encarnacion and Gapol (largest SH) (1953) [GTA:
originally largest SH v. BOD]

1) (1949) At a meeting duly called, the ff were agreed:

a) voluntary dissolution of DAGUHOY ENTERPRISES, INC.
b) appointment of Respondent Potenciano Gapol (largest SH) as receiver
2) To this end, a Petition for Voluntary Dissolution was drafted and sent to and signed
by Petitioner Ponce (BOD Chairman?).

3) Instead of filing the Petition, Respondent SH Gapol changed his mind and filed a
Complaint in CFI Manila to compel Petitioners Ponce et al. to (inter alia) render an
accounting of the corporate funds and assets.

4) 3 Jan 52- Respondent Gapol filed a Petition praying for an Order directing him to
call a SHs Meeting and to preside in it (in accordance w/ then Sec. 26 of CL).

5) 5 Jan- Court (2 days after Petition filed): granted Order as prayed for (w/o
notice to Petitioners Ponce et al. and other BOD members)

6) 27 Feb- Petitioners Ponce et al. only knew of the Court Order when a Bank
refused to recognize the new BODs elected and returned the check drawn upon it by new
BODs

ISSUE: WON the court may issue the said Order?

HELD 1: YES, the Court can issue the Order!

Respondent Court was satisfied that there was a showing of good cause for
authorizing Respondent Gapol to call a SHs Meeting to elect the BODs as required and
provided for in the B-L because the BOD Chairman called upon to do so had failed,
neglected or refused to perform his duty.

HELD 2: Petitioners have no right to continue as Directors of the C unless re-elected by

the SHs in a meeting called for that purpose every even year. They had no right to a
hold-over brought about by the failure to perform the duty incumbent upon one
of them.

DETECTIVE & PROTECTIVE BUREAU, (C) INC. v. Cloribel et al. (Managing D) (1968)

1) C (DETECTIVE & PROTECTIVE BUREAU, INC.) filed a Complaint against its

Managing Director (Alberto).

2) Alberto was MD from 52- 14 Jan 64.

3) 14 Jan 63 (what kind of meeting? SHs Meeting)- SHs in the meeting removed
Alberto as MD and elected someone in his stead (De la Rosa)

4) De la Rosa is not a SH.

5) June 63- Alberto illegally seized and took control of all the assets and books of C
from the accountant-cashier, concealed them illegally and refused to allow any member of
the C to see and examine these.
6) Alberto refused to vacate his office and deliver the assets and books to De la Rosa
and also continued to perform unauthorized acts for and in behalf of the C.

7) C filed a Complaint w/ PI against Alberto before CFI.

PI to restrain Alberto from exercising the functions of MD and from disbursing and
disposing C funds.

8) CFI: granted PI

9) Alberto filed a Counter-bond

10) CFI: lifted PI

11) C filed Petition for Certiorari before SC contending that:

Alberto had arrogated to himself the powers of the BOD of the C because he refused
to vacate the office and surrender the same to de la Rosa who had been elected MD by the
BOD (? Or SHs) to succeed him

12) Alberto comment: De la Rosa could not be elected MD because he did not own
any stock in the C.

HELD1: There is in the record no showing that de la Rosa owned a share of stock in the
C. If he did not own any share of stock, certainly he could not be a D pursuant to
the mandatory provision of CL.

HELD2: If he could not be a D, then he could also not be a MD pursuant to the

B-Ls.

The manager shall be elected by the BOD from among its members.

HELD 3: If the MD-elect was not qualified to become MD, respondent Alberto could
not be compelled to vacate his office and cede the same to the MD-elect because the B-
Ls provide that:

Ds shall serve until the election and qualification of their duly qualified successor.

Alejandrino v. De Leon
Quo warranto to annul the election of all or any one of the respondents as directors of Pampanga Sugar
Development Co. or Pasudeco and to declare petitioner as director.
P and R are stockholders of Pasudeco. A meeting was held to elect a new board and 9 Rs were voted, each with
more than 19K votes, with R Jose de Leon getting 19,907 votes, while P got only 14K votes. However, 6k shares
held by P given to him by 18 SHs were not accepted by the chairman and the secretary for registration and election,
reasoning that the 18 SHs previously executed pledges in favor of Pambul Inc., whereby they granted the pledgee
the right to vote the shares.
P alleged that Pambul was an alter ego of Pasudeco and its principal SH de Leon, that Pambul was organized
pursuant to a resolution of Pasudeco SHs as a financing corporation, that the SHs of Pasudeco automatically
became SHs of Pambul, that Pambul offered Pasudeco SHs loans with lenient terms, and that as a result of the
irrevocable proxies in the pledge agreements, only 2 families with only 30% of Pasudeco outstanding capital stock
have monopolized the directorship.
P alleges that irrevocable proxies are contrary to good morals and public policy and thus void or revocable.
SC:
1. P did not adduce evidence to prove that irrevocable proxies were contrary to good morals or public policy. The
right of an SH to vote is inherent in ownership, and if the owner can dispose of the property itself, it is apparent
that he can dispose the right to manage it.
2. No allegation that the proxies were procured thru error, deceit, fraud or intimidation. The circumstances of the
case are not sufficient in law to vitiate or invalidate the proxies. The desire and design of a majority of stockholders
of a private corporation to control management and operation is legitimate per se. The monopoly of corporations is
not actionable per se. Also, the organization of Pambul was accomplished by a vote of the majority of Pasudeco
SHs. Stockholders of Pambul are free to vote their shares.
3. P alleged that terms of loans were way of bribing SHs to vote for management. But to vote at SHs meeting is not
a political franchise and involves no public interest. It can no more be called bribery than the payment by the
purchaser of the price of goods he bought.
4. If proxies were given in consideration of pledge, in good faith without fraudulent intent, it cannot be deemed
immoral just because it offers a temptation to abuse power and to oppress minority SHs.
5. No SH is compelled to borrow money from and pledge his shares to Pambul. The benefits are mutual. So long as
management acts honestly, no one can question their acts, which are purely intra vires.