CORPORATIONLAWCASEMATRIX5
Section32
TITLE FACTS
Meadv. - Mead,McCulloughandthreeothersorganizedthe - Whetherornotthe
McCullough PhilippineEngineeringandConstruction
Company.The5ofthemweretheonly
stockholdersandalsothedirectorsofthe
company,withgeneralordinarypowers.
- Meadwaselectedasthegeneralmanagerofthe
company.Underhim,thecompanyfailedintheir
undertakingtoraisesunkenSpanishfleet.It
becamealosingconcernandafinancialfailure.
- After9mos.asgeneralmanager,Meadresigned
toacceptthepositionofengineeroftheCanton
andShanghaiRailwayCompanyandthusleftfor
China.
- Thereafter,realizingthatcontinuingthe
operationsofthecompanywouldmeanmore
losses,theremainingdirectorsunanimously
assignedalltherightsandinterestsofthe
companytoMcCulloughforvalue,whoalso
assignedthesameforvaluetootherpeoplewho
withMcCulloughsubsequentlyformedtheManila
SalvageAssociation.
- Meadisnowallegingthatheisentitledtoreceive
hissalaryasgeneralmanager,profitsmadebefore
theassignmentandthevalueofhispersonal
propertywhichhehaveleftandsoldbythe
defendants.(mainissuebutimpertinenttothe
lesson).
PrimeWhite - PrimeWhite(thruitsPresident&BODChair)
Cementv.IAC andTe(alsoadirectorofPrimeWhite)entered
intoadealershipagreementwhereintheformer
willsupplyTewith20,000bagsofcementper
monthatPhp9.70perbag.
- Tewouldopenanirrevocableletterofcreditina
bankeachtimehereceivedadelivery.
- Tethenstartedtoadvertisethathewasthe
exclusivedealerofthewhitecement,andentered
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ISSUE/S HELD
- Yes.Ithastoberememberedthatthe5directors - Amajorityofthestockholdersor
remainingdirectorshave hereinarealsotheonlystockholders.Whenthe
thepowertosellor fourremainingdirectorsmettoresolveforthe
transfertooneofits assignment,therewasaquorumnotonlyofthe
memberstheassetsofthe directorsbutalsoofthestockholders.
corporation. - McCullough,whilehewasthepresidentofthe
corporation,didnotsitinthesaidmeetingasa
representativeofthecorporation.The
corporationwasrepresentedbythe3directors
whobythemselvesalreadyconstitutedaquorum.
- Hence,McCulloughsvotewasnotnecessaryin
thiscase,norwashispresenceneededtohavea
quorum.
- Thecontactwasalsofairandreasonableasthe
companywasalreadyinbadshape.
- WONthedealership - NO.WhileitistruethattheBoardmaydelegate - Acontractofadirectorwithhis
agreementwasavalidand itspowerstothePresidentoranyofitsofficers corporation,iffairandreasonable,
enforceablecontract andthatcontractsenteredintobysuchofficers
arebindinguponthecorporation,SCheldthat
suchgeneralrulesapplywhenthecorporation
dealswithathirdperson.
- Inthiscase,TewasalsoadirectorofPrime
White.Heholdsapositionoftrustandassuch,
heowesadutyofloyaltytohiscorporation.
DOCTRINE
directorshavethepowertosellor
transfertooneofitsmembersthe
corporateproperty,wherethe
stockholdersordirectorshave
generalordinarypowers,andwhere
thereisnothinginthearticlesof
incorporationwhichprohibitsucha
sale.
- Whetheraprivatecorporation
remainssolventorisinsolvent,
thereisnoreasonwhyadirectoror
officer,byauthorityofthemajority
ofitsstockholdersorboardof
managers,maynotdealwiththe
corporation,loanitmoney,orbuy
propertyfromitinlikemannerasa
stranger.Butinallcases,such
officerordirectormustactingood
faithandpayanadequate
consideration.
mayberatifiedbythestockholders
providedafulldisclosureofhis
adverseinterestismade.
- SeeSection32also

 intoseveralwrittenagreementstosupplythesaid
cementwiththirdparties.
- Tewaslateroninformedbythecorporate
secretaryofPrimeWhitethattheBODdecided
toimposetheff.conditions:
deliveryshallstartattheendNov.1970
only8000bagswouldbedeliveredforaperiod
of3months
pricewillbePhp13.30perbag
pricemaybeunilaterallyadjustedbyPrime
White
deliveryplaceisAustutias(sic)
letterofcredittobeopenedwiththeMakati
branchofPrudentialBank
- Despitedemandstoenforcethedealership
agreement,PrimeWhiterefused,forcingTeto
canceltheagreementswiththirdparties.
- RTCadjudgedPrimeWhiteliablefordamages.
CAaffirmed
Section 36
TITLE FACTS
Montelibanov. - TheMontelibanosandsomeothersaresugar
BacolodMurcia planterswithidenticalmillingcontractswith
MillingCo. Bacolodmilling.
- TheMontelibanoswereoriginallygrantedashare
intheresultingproductataratioof45%-55%.
(the55%pertainingtothefarmers.)thecontract
hasa30-yearperiod.
- Sometimein1936,thefarmersandtheMilling
CompanyenteredintoamodifiedMilling
Contractwhichincreasedtheformersshareto
60%butalsowiththeconditionthattheperiodof
theircontractwillbeextendedforanadditional
15years.,
- Inthesameyeararesolutionwaspassedbythe
Boardofthemillingcompanygrantingthe
farmersfurtherconcessionsoverandabovethe
provisionsoftheProposedAmendedMilling
Contract.
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- SCheldthatthecontractwasneitherfairnor
reasonable.Theverylowpriceofthecementwas
meanttobenefitTe.Hewasabusinessmanand
knewoftherealmarketpricesofcement.(atthat
time,thepricewasatleastPhp14.50andbecame
Php37.50in1975)
ISSUE/S HELD DOCTRINE
- Whetherornotthe - TheSCheldintheaffirmative. - Thetesttobeappliediswhether
requestedincreaseinthe - Theresolutionissupportedbyavalid theactinquestionisinimmediate
annualproductionshould considerationandisthereforenotadonationultra furtheranceofthecorporations
begrantedthefarmers. vires. business,fairlyincidenttothe
- Itistobenotedthatthecontractissignedonly expresspowersandreasonably
aftertheresolution.Thus,suchresolutionshallbe necessarytotheirexercise.
deemedasamodificationtotheproposed - Theactsmusthavealogical
AmendedContract.Therefore,thatresolutionis relationtothecorporatepurpose
consideredintegratedwiththecontract,without expressedinthecharter.
which,thefarmerswouldnothaveassentedto
thesaidAmendedContract.Assuch,the
considerationforthemaincontractisdeemedto
betheconsiderationforthegrantoffurther
concessionsintheresolution(e.g.theextended
periodofthecontract.)
- Thedirectorslackofpowertoamendwouldbe
relevantiftheresolutionwaspassedafterthe
farmershadalreadyboundthemselvestothe
termsoftheprintedmillingcontract.Inthiscase,

 - Itwasonlydaysafterthepassingofthesaid
resolutionthattheproposedmillingcontractwas
signedbybothparties.
- Sometimein1950,3ofthemajorsugarcentrals
grantedanincreaseintheshareoftheirworkers
totheproductyield.
- Montelibanoset.alwantedtoavailofsimilar
increasebasedontheprovisionofthe1936
resolution.
- TheMillingcompanydeniedsuchliabilityby
contendingthattheresolutionwasgranted
withoutconsiderationandisthereforeadonation
ultravires.
- Theresolutionbeingultravires,itiscontendedto
bevoidabinitio.
Section 37
TITLE FACTS
AlhambraCigarv. - ThetermofexistenceofAlhambraCigar& - WhetherornotAlhambra
SEC CigaretteManufacturingCo.,(Alhambra)Inc.for
fifty(50)yearsfromincorporationhadexpiredon
January15,1962.
- Followingtheexpirationofitstermasprovided
initsarticlesofincorporation,thecompany
commenceditsliquidationandanewcorporation,
AlhambraIndustries,Inc.,wasformedtocarryon
thebusinessofAlhambra.
- OnJune20,1963,withinAlhambrasthree-year
statutoryperiodforliquidation,RepublicAct
3531wasenactedintolaw,amendingSection18
oftheCorporationLawtotheeffectthat
domesticprivatecorporationswereempoweredto
extendtheircorporatelifebeyondtheperiod
fixedbythearticlesofincorporationforaterm
nottoexceedfifty(50)yearsinanyoneinstance.
- Thereafter,Alhambrasboardofdirectors
amendedtheirarticlesofincorporationtoextend
itscorporatelifeforanadditionalfiftyyears.
- Alhambrasstockholders,representingmorethan
two-thirdsofthecompanysoutstandingcapital
stock,votedtoapprovetheresolution.
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theresolutionwasadopted21daysbeforethe
farmersassentedtothecontractorwhilethe
latterwerenotyetbound.
- Itcouldnotalsobeseenasanovation,sincethe
resolutionmodifiedonlyaproposal,notyet
bindingbetweentheparties.
- Inthislight,itcannotbegainsaidthattheboard
hasthepowertomodifythetermsofthe
proposal.Thestandardforsuchvalidityis
whethertheactisinimmediatefurtheranceofthe
corporationsbusiness,fairlyincidenttothe
expresspowersandreasonablynecessarytotheir
exercise.Regardlessifitwillcauselosses.
- Thisstandardismetintheadoptionofthe
resolution.
ISSUE/S HELD DOCTRINE
- NO.WhenAlhambramadeitsattempttoextend - Sec.37,CorporationCodeA
couldextendthetermof itscorporateexistence,itsoriginaltermoffifty privatecorporationmayextendor
itscorporateexistence hyearshadalreadyexpired;itwasinthemidstof shortenitstermasstatedinthe
pursuanttoRA3531. thethree-yeargraceperiodforliquidation. articlesofincorporationwhen
- AsprovidedinSection77oftheCorporation approvedbyamajorityvoteofthe
Law,continuanceofadissolvedcorporationas boardofdirectorsortrusteesand
abodycorporateforthreeyearshasforits ratifiedatameetingbythe
purposethefinalclosureofitsaffairs,andno stockholdersrepresentingatleast
other;thecorporationisspecificallyenjoined two-thirds(2/3)oftheoutstanding
fromcontinuingthebusinessforwhichitwas capitalstockorbyatleast
established. two-thirds(2/3)ofthemembersin
- Liquidationofthecorporationsaffairshad caseofnon-stockcorporations.
becomenecessarypreciselybecauseitslifehad - AsprovidedinSection77ofthe
ended,hence,thecorporateexistenceandjuridical CorporationLaw,continuanceofa
personalityofthatcorporationtodobusiness dissolvedcorporationasabody
maynolongerbeextended. corporateforthreeyearshasforits
- Themomentacorporationsrighttoexistasan purposethefinalclosureofits
artificialpersonceases,itscorporatepowersare affairs,andnoother;the
terminatedjustasthepowersofanaturalperson corporationisspecificallyenjoined
totakepartinmundaneaffairsceasetoexist fromcontinuingthebusinessfor
uponhisdeath;thereisnothingleftbutto whichitwasestablished.
conduct,asitwere,thesettlementoftheestateof - Torenewacharteristorevivea
adeceasedjuridicalperson. charterwhichhasexpired,or,in

 - Theamendedarticlesofincorporationwerefile - UnderSection77,nocorporationinastateof otherwords,togiveanew

withtheSecuritiesandExchangeCommission liquidationcanactinanyway,muchlessamend existencetoonewhichhasbeen
(SEC)whichrejectedthesameasitaverredthat itsarticles,forthepurposeofcontinuingthe forfeited,orwhichhaslostits
AlhambracouldnotavailofRA3531asitsterm businessforwhichitwasestablished. vitalitybylapseoftime.
ofexistencehadalreadyexpiredwhenthelaw - NowhereinRA3531couldbefoundtheword - Toextendacharteristoincrease
tookeffect;inshort,saidlawhadnoretroactive renewinreferencetotheauthoritygivento thetimefortheexistenceofone
effect. corporationstoprotracttheirlives;thelawlimits whichwouldotherwisereachits
itselftoextensionofcorporateexistence;assuch limitatanearlierperiod.
extensionmaybemadeonlybeforetheterm
providedinthecorporatecharterexpires.
- AllowingAlhambratoextenditscorporate
existenceinviewofhecircumstanceswouldopen
thegatesforalldefunctcorporationswhose
chartershaveexpiredevenlongbeforeRA3531
cameintobeingtoresuscitatetheircorporate
existence.
- AtthetimeofthepassageofRA3531,
Alhambrascorporatelifehadalreadyexpired.It
hadoversteppedthelimitsofitslimitedexistence;
nolifethereistoprolong.
- WiththecreationofAlhambraIndustries,Inc.,
thewordAlhambra,thenamethatcounts(ithas
goodwill),remains.

Section 38
TITLE FACTS
Phil.Trustv. - CooperativaNavalFilipinawasdulyincorporated
Rivera underthelawsofthePhilippineIslands,witha
capitalofP100,000,dividedintoonethousand
sharesofaparvalueofP100each.Amongthe
incorporatorsofthiscompanywasMariano
Rivera,whosubscribedfor450shares
representingavalueofP45,000,theremainderof
thestockbeingtakenbyotherpersons.
- Thearticlesofincorporationweredulyregistered
intheBureauofCommerceandIndustryon
October30ofthesameyear.
- Inthecourseoftimethecompanybecame
insolventandwentintothehandsofthe
PhilippineTrustCompany,asassigneein
bankruptcy;andbyitthisactionwasinstitutedto
ISSUE/S
- Whether or not the
resolution was ineffectual
HELD
- YES.Theresolutionreleasingtheshareholders
fromtheirobligationtopay50percentumof
theirrespectivesubscriptionswasanattempted
withdrawalofsomuchcapitalfromthefund
uponwhichthecompany'screditorswereentitled
ultimatelytorelyand,havingbeeneffected
withoutcompliancewiththestatutory
requirements,waswhollyineffectual.
DOCTRINE
- Itisestablisheddoctrinethat
subscriptiontothecapitalofa
corporationconstituteafindto
whichcreditorshavearighttolook
forsatisfactionoftheirclaimsand
thattheassigneeininsolvencycan
maintainanactionuponanyunpaid
stocksubscriptioninorderto
realizeassetsforthepaymentofits
debts.
- Acorporationhasnopowerto
releaseanoriginalsubscribertoits
capitalstockfromtheobligationof
payingforhisshares,withouta
valuableconsiderationforsuch

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 recoverone-halfofthestocksubscriptionof
Rivera,whichadmittedlyhasneverbeenpaid.
- ThereasongivenforthefailureoftheRiverato
paytheentiresubscriptionis,thatnotlongafter
theCooperativaNavalFilipinahadbeen
incorporated,ameetingofitsstockholders
occurred,atwhicharesolutionwasadoptedto
theeffectthatthecapitalshouldbereducedby50
percentumandthesubscribersreleasedfromthe
obligationtopayanyunpaidbalanceoftheir
subscriptioninexcessof50percentumofthe
same.Asaresultofthisresolutionitseemsto
havebeensupposedthatthesubscriptionofthe
variousshareholdershadbeencancelledtothe
extentstated;andfullypaidcertificatewereissued
toeachshareholdersforone-halfofhis
subscription.
- Itdoesnotappearthattheformalitiesprescribed
insection17oftheCorporationLaw,as
amended,relativetothereductionofcapitalstock
incorporationswereobserved,andinparticularit
doesnotappearthatanycertificatewasatany
timefiledintheBureauofCommerceand
Industry,showingsuchreduction.
Madrigal&Co.v. - Petitioner was engaged in the mgmt. of Rizal
Zamora Cement Co., Inc. In fact, the 2 are sister
companies because both are owned by the same
or practically the same stockholders.
- Respondent Zamora of the Madrigal Central
Office Employees Union sought for the renewal
of its CBA with petitioner; but the latter
requested for a deferment in the negotiations.
- Then, petitioner on 2 several occasions had its
capitalization reduced from 765,000 to 267,366
to 110,085 shares by effecting distribution of
marketable securities owned by petitioner to its
stockholders in exchange for their shares in an
equivalent amount in the corporation.
- After the failure of the petitioner to sit down
with respondent union, the latter commenced
with the NLRC a complaint for ULP, but
petitioner filed its position paper alleging
release;andasagainstcreditorsa
reductionofthecapitalstockcan
takeplaceonlyinthemanneran
undertheconditionsprescribedby
thestatuteorthecharterorthe
articlesofincorporation.Moreover,
strictcompliancewiththestatutory
regulationsisnecessary.
- WON the NLRC was - No. As a general rule, findings of administrative - Section 38 of the corporation code
incorrect with its agencies are accorded not only respect but even talks about the power of the
findings. finality. In no way can the questioned decisions corporation to increase or decrease
be seen as arbitrary. The decisions themselves capital stock or create or increase
show why. bonded indebtedness. For such to
- There was no substantial compliance with the happen, it needs the vote of the
clearance requirement to terminate. The letter majority of the Board, approved
was unverified, not even a single document by 2/3 of outstanding stock or
submitted in support thereof, the same failed to members and approved by the
specify the individual employees to be affected SEC.
by the intended retrenchment. It was not clear. - In the case at bar, petitioner,
- Thats why it was correctly concluded that the wanting to evade the pains of
letter was insufficient in form and substance to dealing with unions asking for
constitute a valid compliance with the clearance wage and benefits increase,
requirement. decided to reduce its capital stock
- What clearly emerges from the recorded facts is to make it appear that they were
that the petitioner, awash with profits its operating at a loss though in
business operations but confronted with the reality they werent.

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 operational losses; the Rizal had ceased
operating temporarily; that because of the desire
of stockholders to phase out the operations of
Madrigal it has effected reduction in
capitalization, and had turned to retrenching
employees for reorganization. They then asked
that they may be allowed to effect
reorganization gradually.
- The letter however was not verified neither was
it accompanied by the proper supporting
documents thus DOLE took no action.
- Labor Arbiter then rendered a decision granting
a general wage increase plus a monthly living
allowance in favor of the employees.
- Petitioner then applied for clearance to
terminate a number of employees but this was
denied. Also, the other case was affirmed by the
NLRC.
- Hence this appeal
Section 39
TITLE FACTS
Benitov.SEC - JamiatulPhilippineAlIslamiaInc.hadan
authorizedcapitalstockofP200,000.00divided
into20,000sharesatparvalueofP10.00.8,058
shareswerefullypaidfor.Benitosubscribedto
460shares.
- In1975,thecorporationfiledacertificateof
increaseofitscapitalstockfromP200,000.00to
P1,000,000.00.Itwasshowninthecertificate
thatP191,560.00worthofshareswere
represented.
- Thus,P110,980.00worthofshareswere
subsequentlyissuedbythecorporationfromthe
unissuedportionoftheauthorizedcapitalstock
ofP200,000.00.Oftheincreasedcapitalstockof
P1,000,000.00,P160,000.00worthofshareswere
subscribedbyRamos,LucmanandAlonto.
- BenitofiledapetitionwiththeSECprayingthat
theadditionalissueofsharesofpreviously
authorizedcapitalstockaswellastheshares
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ISSUE/S
- Whetherornota - NO.Thepowertoissuesharesofstocksinthe
stockholdersmeetingis
necessaryfortheissuance stockholdersmeetingisnecessarytoconsiderit
oftheunsubscribed
portionofthecapitalstock
- Whetherornota
stockholderenjoys
pre-emptiverighttobuy
unissuedsharesof
originallyauthorized
capitalstock.
demand of the union for wage increases,
decided to evade its responsibility towards the
employees by a devised capital reduction.
- While the reduction in capital stock created an
apparent need for retrenchment, it was, by all
indications just a mask for the purge of union
members, who, by then, had agitated for wage
increases.
- Therefore the petitions are dismissed. Findings
of LA affirmed.
HELD DOCTRINE
-
corporationislodgedintheBODandno
becauseadditionalissuanceofsharesofstock
doesnotneedtheapprovalofthestockholders.
- Theby-lawsofthecorporationitselfstatesthat
theBoardofTrusteesshall,inaccordancewith
law,providefortheissueandtransferofshares
ofstockoftheInstituteandshallprescribethe
formofthecertificateofstockoftheInstitute.
- NO.Thegeneralruleisthatthepre-emptiveright
isrecognizedonlywithrespecttonewissueof
shares,andnotwithrespecttoadditionalissuesof
originallyauthorizedshares.
- Thisisonthetheorythatwhenacorporationat
itsinceptionoffersitsfirstshares,itispresumed
tohaveofferedallofthosewhichitisauthorized
toissue.Anoriginalsubscriberisdeemedtohave
takenhissharesknowingthattheyformadefinite

 issuedfromtheincreaseofcapitalstockbe proportionatepartofthewholenumberof
cancelledonthefollowinggrounds: authorizedshares.
- thestockholderswerenotnotifiedofthe - Whenthesharesleftunsubscribedarelater
meetingwhereintheproposedincreasewas reoffered,hecannotthereforeclaimadilutionof
intheagenda interest.
- theadditionalissueofpreviously
subscribedshareswasmadeinviolationof
hispre-emptiverighttosaidadditional
issue

Section 40
TITLE FACTS
IslamicDirectorate - The Islamic Directorate of the Philippines (IDP)
v.CA is composed of all major tribal groups in the
Phils.
- When martial law was declared, most of the
members of the Board of Trustees went into
hiding to escape political persecution.
- Thereafter, 2 Muslim groups sprung the
Carpizo group and the Tamano group. Both
claim to be the legitimate IDP.
- In a suit between them, however, the SEC
declared that neither of them are IDP board
members and further ordered the election of a
new board members.
- Without having been elected as Board
Members, the Carpizo group sold a parcel of
land owned by the IDP to the Iglesia ni Cristo
(INC).
- The IDP now seeks to have the contract of sale
declared null and void because the Carpizo
group is bereft of any authority to bind IDP in
any kind of transaction.
EdwardNellv. - NellCompanysuedInsularFarmsfortheunpaid
PacificFarms balanceofthepurchasepriceofthepumpthatit
soldtothelatter.Afterthewritofexecutionwas
returnedunsatisfiedbecausetheInsularFarms
hasnoleviableproperty,NellCompanysued
againstPacificFarmstoclaimtheamountupon
thetheorythatthelattercompanyisanalterego
ofInsularFarms.
ISSUE/S HELD DOCTRINE
- W/N the contract of sale - NO.
entered into between the - The Corporation Code provides that for the sale
Carpizo group and INC is to be valid, the majority vote of the legitimate
valid Board of Members/Trustees must be obtained
and concurred in by the vote of at least 2/3 of
the bona fide members of the corporation.
- Since the SC had earlier ruled that the election
of the Carpizo group as board members is null
and void, the latter is bereft of any authority to
bind the IDP in any kind of transaction.
- WhetherornotPacific - SCheldthatitisnotliablebecause: - Generallywhereacorporationsells
FarmsisliabletoNell - ThesalewasnotenteredintotodefraudNell orotherwisetransfersallofits
Company. becausethesalehappened1monthbeforethe assetstoanothercorporation,the
filingofthecase. latterisnotliableforthedebtsand
- Pacificpurchasedthesharesasthehighestbidder liabilitiesofthetransferor,except:
atanauctionsaleheldattheinstanceofbankto 1.Wherethepurchaserexpressly
whichtheshareswerepledged. orimpliedlyagreestoassume
suchdebts,

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 - PacificFarmsbought1,000sharesofInsularand
thensoldthemtoagroupofindividualswho
reorganizedthecorporation,thentheBODsold
thereorganizedcompanyandallofitsassetsto
Nellfor10,000.
Section 41
TITLE FACTS
Steinbergv. - SteinbergisthereceiveroftheSibugueyTrading
Velasco Company.
- Itisallegedthatthedefendants(president,vice
president,secretary-treasureranddirector),ata
meeting,approvedandauthorizedvarious
unlawfulpurchasesalreadymadeofalarge
portionofthecapitalstockofSibugueyfromits
variousstockholders,therebydivertingitsfunds
totheinjury,damage,andinfraudofthe
creditorsofthecorporation.(Sec.41applicable)
- ThatwhenthecapitalstockamountingtoPhp
3,300waspurchased,Sibugueyhadaccounts
payabletoaboutPhp14K.
- Asanothercauseofaction,itisalsoallegedthat
theofficersanddirectorsofthecorporation
approvedaresolutionforthepaymentofPhp3K
dividendstoitsstockholderswhenduringthat
timeSibugueyhadaccountspayableofaboutPhp
9K.(Sec.43applicable)
- Steinbergprayedthatthedefendantsbeliablefor
theamountofthecapitalstockpurchasedandthe
amountofthedividendspaid.
- Thelowercourtdismissedthecomplainedand
renderedjudgmentinfavorofthedefendants.
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- Pacificpaidforthesharesseparatelyfromthe 2.Wherethetransactionamounts
subsequentsaleofassets. toaconsolidationormergerof
- Noconsolidationormergerbecausethe thecorporation,
allegationsofbeinganalteregoclearlynegates 3.Wherethepurchasing
such. corporationismerelya
- TheinadequacyoftheP10,000isuntenable continuationoftheselling
becausethesalewasapprovedbytheSEC,hence, corporation,
pricewasfairandreasonable. 4.Wherethetransactionisentered
intofraudulentlyinorderto
escapeliabilityforsuchdebts.
ISSUE/S HELD DOCTRINE
- WhetherSibugueycould - NO.Inthisissue,theSCheldthatthedirectors - SeeSection41
legallypurchaseitsown didnotactingoodfaithorthattheyweregrossly - Thecreditorsofacorporationhave
stock.(Sec.41) ignorantoftheirduties. therighttoassumethatsolongas
- Itappearedthattheactionoftheboardin therearedebtsandliabilities,the
purchasingthestockandindeclaringdividends boardofdirectorsofthe
wasalldoneatthesamemeetingoftheboardof corporationwillnotuseitsassetsto
directors.Atthattime,GanzonandMendaros purchaseitsownstockortodeclare
wereformallydirectorsandresignedbeforethe dividendstoitsstockholderswhen
boardapprovedthepurchaseanddeclared thecorporationisinsolvent.
dividends. - Ifthedirectorsofacorporationdo
- Inotherwords,theywerepermittedtoresignso actsclearlybeyondtheirpower,by
thattheycouldselltheirstocktothecorporation. reasonofwhichalossensued,or
- NO.Itseemedthattheboardofdirectorsacted disposeofitspropertywithout
- WhethertheBoardof ontheassumptionthat,becauseitappearedfrom authority,theywillberequiredto
DirectorsofSibuguey thebooksthatithadaccountsreceivable, makegoodthelossoutoftheir
couldlegallydeclarea thereforeithadasurplusoverandaboveitsdebts privateestate.
dividend.(Sec.43) andliabilities.
- However,theSCnotedthattherewasno
stipulationastotheactualcashvalueofthose
accounts.Thus,thatinthepurchaseofitsown
stockandindeclaringdividends,therealassetsof
thecorporationwerediminishedbyPhp6,300.
- Inotherwords,thecorporationdidnothavethen
anactualbonafidesurplusfromwhichdividends
couldbepaid,andthatehpaymentoftheminfull
atthattimewouldaffectthefinancialcondition
ofthecorporation.


Section 42
TITLE FACTS
DelaRamav. - Thiscasewasfiledbyfourminoritystockholders
Ma-aoSugar againsttheMa-aoSugarCentralandfourofits
CentralCo.,Inc. directors.
- ItisallegedthatMa-aoSugarCentral,throughits
President(Araneta),subscribedforPhp300K
worthofcapitalstockofthePhilippineFiber
ProcessingCo.
- Atthatatthetimethefirsttwopaymentswere
made,therewasnoboardresolutionauthorizing
suchinvestment.Itwasonlyafewmonthsafter
thatAranetawasauthorizedbytheBoardof
Directors.
- Itwasalsoallegedthat355,000sharesofstockof
PhilippineFiber,ownedbyLuzonIndustrial,were
transferredtoMa-aowithoutpriorboard
resolution.Suchtransferhoweverwas
subsequentlyapproved.
- Thelowercourtheldthattheinvestmentof
corporatefundswasnotaviolationofthe
CorporationLaw.Itconsideredthedefendants
correctincontendingthatsincethecompanywas
engagedinthemanufactureofsugarbagsitwas
legitimateforMa-aotoeithermanufacturesugar
bagsorinvestinanothercorporationengagedin
saidmanufacture.
- However,thelowercourtorderedMa-aoto
refrainfrommakinginvestmentsinanyother
companiedwhosepurposeisnotconnectedwith
sugarcentralbusiness.
Gokongweiv.SEC - GokongweiJr.isastockholderofSanMiguel
Corporation(SMC).Heseekstohavethecourt
nullifytheamendedby-lawswhichdisqualifiesany
personfornominationorelectiontotheBoardof
Directors(BOD)ifheisengagedinanybusiness
whoseinterestsareadversetotheSMC.
- ItwasenactedbythemajorityoftheBOD.
9
alvin,cecille,cj,dianne,irish,julie,lea,mars,nina,ryan/ateneolaw/2C05-06
- TheSCreversedthedecisionofthelowercourt
andheldthedefendantsliable.
ISSUE/S HELD DOCTRINE
- Whethertheinvestmentof - NO.TheSCagreedwiththefindingofthelower - Aninvestmentofcorporatefunds
thecorporatefundsby courtthattheinvestmentinquestiondoesnotfall inanothercorporation,ifdonein
Ma-aoinPhilippineFiber underthepurviewoftheSection17ofthe pursuanceofthecorporate
constitutesaviolationof CorporationLaw. purpose,doesnotneedthe
theCorporationLaw. - TheSCquotedProf.Guevarainexplainingthe approvalofthestockholders.
saidprovision.Suchanact,ifdoneinpursuance - Butwhenthepurchaseofsharesof
ofthecorporatepurpose,doesnotneedthe anothercorporationisdonesolely
approvalofthestockholders.Butwhenthe forinvestmentandnotto
purchaseofsharesofanothercorporationisdone accomplishthepurposeofits
solelyforinvestmentandnottoaccomplishthe incorporation,thevoteofapproval
purposeofitsincorporation,thevoteofapproval ofthestockholdersisnecessary.
ofthestockholdersisnecessary. - Further,whenthepurposeisas
- Also,whentheinvestmentisnecessaryto statedinitsarticlesof
accomplishitspurposeorpurposesasstatedin incorporation,theapprovalofthe
thearticlesofincorporation,theapprovalof stockholdersisnotnecessary.
stockholdersisnotnecessary. - TheCorporationLawallowsa
- YES.TheSCreversedtheorderofthelower corporationtoinvestitsfundsin
- WhetherMa-aomaymake courtrefrainingMa-aofrommakinginvestments anyothercorporationorbusiness,
investmentsinanyother inothercompanywhosepurposenotconnected orforanypurposeotherthanthe
companywhosepurposeis withthesugarcentralbusiness. mainpurposeforwhichitwas
notconnectedwiththe - ItreasonedthattheCorporationLawallowsa organized,providedthatitsboard
sugarcentralbusiness. corporationtoinvestitsfundsinanyother ofdirectorshasbeensoauthorized
corporationorbusiness,orforanypurposeother bytheaffirmativevoteof
thanthemainpurposeforwhichitwasorganized, stockholdersholdingshares
providedthatitsboardofdirectorshasbeenso entitlingthemtoexerciseatlease
authorizedbytheaffirmativevoteofstockholders 2/3ofthevotingpower.
holdingsharesentitlingthemtoexerciseatlease
2/3ofthevotingpower.
- WONthetransactionwas - NO.Thelawallowsacorporationtoinvestits - Iftheinvestmentismadeinthe
invalid fundsinanyothercorporationorbusinessorfor pursuanceofthecorporate
anyotherpurposeotherthanthemainpurpose purpose,itdoesnotneedthe
forwhichitwasorganized. approvalofthestockholders.
- Thepurchaseofthebeermanufacturingfacilities - Butwhenthepurchaseofsharesis
wasinfurtheranceofthecorporatepurposeand donesolelyforinvestmentandnot
toaccomplishthepurposeofits

 - Gokongweiisalsoowner/stockholderof
UniversalRobinaCorp.andCFC.Both
businessesareengagedinagriculture,icecream,
coffeewhicharealsobusinessesengagedinby
SMC.
- Asoneofhiscausesofaction,Gokongwei,
questionstheinvestmentofSMCcorporatefunds
withoutpriorauthorityofthestockholders.
- Thetransactionthathequestionsisthepurchase
ofbeermanufacturingfacilities.
- Thispurchasewaslaterratifiedbythe
stockholders.
Gokongweiv.SEC - Petitionerseekstonullifytheenbancdecisionof - WONthepetitionfor
(MR) theSECupholdingthefindingsoftheSanMiguel
Corporation(SMC)BODthatGokongweiis
engagedinabusinesscompetitivetothatofSMC.
- Thus,heisineligibletorunforelectionas
director,pursuanttotheby-laws.
- Petitionercontendsthatthematterofhis
disqualificationhasnotyetbeenheardsincean
MRispendingbeforetheSC.
- Accordingtothepetitioner,SECfailedto
considerthatSMCcannotdisqualifyGokongwei
becausetheywereinparidelictosincesomeof
theboardmemberswerealsodisqualifiedbeing
similarlysituatedlikethepetitioner.
- Also,petitionerclaimsthattheBODofSMC
overexerteditscorporatepowerforthemto
remaininposition.
Section 43
TITLE FACTS
Nielson&Co.v. - Nielson&Companyenteredintoamanagement
Lepanto contractwithLepanto,whereNielsonwasgiven
Consolidated therightforfiveyears(renewableforthesame
period)todevelopandoperatetheminingclaims
ofLepanto.
- Saidcontractwasmodifiedandoneofthe
contestedprovisionsofwhichisthatwhichgrants
Nielsonascompensationforitsservices10%of
anydividendsdeclaredandpaid.
10
alvin,cecille,cj,dianne,irish,julie,lea,mars,nina,ryan/ateneolaw/2C05-06
assuch,nopriorapprovalofthestockholderswas incorporation,thevoteofapproval
- WONthepurchasewas necessary. ofthestockholdersisneeded.At
ultravires - NO.ThemerefactthatSMCsubmittedthe least2/3oftheoutstandingstockis
investmentforratificationattheannualmeeting needed.
cannotbeconstruedasanadmissionthatSMC
committedanultraviresact.
- NO. -
reviewshouldbegranted - SCalreadyruledonthevalidityoftheby-lawsand
suchcannotbere-litigatedbeingthelawofthe
case.
- Theallegeddisqualificationofsomeoftheboard
memberswasnotanissueduringthehearing;nor
haspetitionersubmittedevidencetoprovethis
contention.
- ThebasisoftheSECsorderwasbasedonseveral
testimonialevidenceaswellasdocumentary
evidencesubmittedshowingthatpetitioneris
engagedinagriculturalandpoultrybusiness
competitivewiththatofSMC.Noevidencewas
offeredbythepetitionertorebutsuchevidence.
ISSUE/S HELD DOCTRINE
- WhetherornotNielson - TheSCoverruleditsearlierdecision, - Nocorporationshallissuestocks
shouldbeentitledto - Itisrecognizedthatstockscanbeissuedin orbondexceptinexchangefor
P300,000worthofstocks exchangeofcash,propertyorasundistributed actualcashpaidtothecorporation
ascompensationforits profits. orforpropertyactuallyreceivedby
services. - TheSupremeCourtthendistinguishedthelegal itorforprofitsearnedbyitbut
implicationsofissuingstocksasdividendsand notdistributedamongits
issuingofstocksinexchangeforcashorproperty. stockholdersormembers.
- Stocksissuedinexchangeforcash
orpropertyareissuedforcapital

 - TheSCruledbeforethattheimportofthis
provisionisthatNielsonwillbegiven10%of
whatisactuallygoingtobedeclaredand
distributedasdividendsbyLepanto.
- Thus,sinceLepantodeclaredatotalofP3Mof
dividendsduringtheperiodofextensionofthe
contract,theSCorderedLepantotogrant
P300,000worthofitsstockstoNielson.
- Lepantoconteststhisjudgmentprimarilybecause
suchprovision,asalleged,iscontrarytothe
CorporationCode.
Steinbergv. - SteinbergisthereceiveroftheSibugueyTrading
Velasco Company.
- Itisallegedthatthedefendants(president,vice
president,secretary-treasureranddirector),ata
11
alvin,cecille,cj,dianne,irish,julie,lea,mars,nina,ryan/ateneolaw/2C05-06
- WhetherSibugueycould - NO.Inthisissue,theSCheldthatthedirectors
legallypurchaseitsown
stock.(Sec.41)
- Ontheonehand,issuingstocksinpaymentof generationandcanbeissuedtoa
servicesisconsideredastobeoneinexchangeof non-stockholder.
propertysinceservicesaredeemedasproperty. - Stockdividendsshouldbe
- AndtheCourtenunciatedthatissuanceofstocks consideredas1.)adividend,and2.)
inexchangeofcashorpropertyisculledfromthe anenforceduseofthedividend
originalcapitalizationofthecompanyorfromthe moneytopurchaseadditional
increasedcapitalization.Theyaredoneinorderto sharesatpar.
generatecapital.Thus,theycanbeissuedto - Adividendisdefinedastheportion
personsnotyetstockholdersofthecompany. oftheprofitsoftheenterprise
- Thisisnothoweverthecasewithstockdividends. whichthecorporationsetsapartfor
Adividendisdefinedastheportionoftheprofits ratabledivisionamongtheholders
oftheenterprisewhichthecorporationsetsapart ofthecapitalstock.
forratabledivisionamongtheholdersofthe - Assuch,stockdividendscanonly
capitalstock. begrantedtoexistingstockholders
- Fromthisdefinition,itcanbeeasilygleanedthat inproportiontotheirshares.
stocksissuedasdividendcanonlybeissuedto
existingstockholders,sincetheyaretheonlyones
entitledtoaproportionalshareinthatpartofthe
surpluswhichisdeclaredasdividends.
- Fromthisconclusion,itisnotrighttogive
Nielsonacorresponding10%ofthestocks
dividenddeclaredsincethisamountstoissuance
ofstockstosomeonenotyetastockholder.
- Furthermore,sincedividendsaredistributed
ratably,issuanceofstockdividendstoLepantoin
paymentofhiscompensationwilldepriveother
stockholderstotheirrightfulshareoftheprofits.
- Finally,TheCourtalsolookedupontheminutes
heldbybothpartiestointerpretthecontested
provisionofthecontract.Itwasseenthatthe
intentionwasonlytotiethecomputationof
Nielsonscompensationwith10%ofthedeclared
dividends,inwhatformtheymightbe.The
dividendisonlythebasisbutnotthesourcefor
suchpayment.
- Assuch,theSCmodifieditsrulingentitling
NielsonwithP300,000incashand6%legal
interestofsuchamount.
- SeeSection43
didnotactingoodfaithorthattheyweregrossly - Thecreditorsofacorporationhave
ignorantoftheirduties. therighttoassumethatsolongas
therearedebtsandliabilities,the

 meeting,approvedandauthorizedvarious
unlawfulpurchasesalreadymadeofalarge
portionofthecapitalstockofSibugueyfromits
variousstockholders,therebydivertingitsfunds
totheinjury,damage,andinfraudofthe
creditorsofthecorporation.(Sec.41applicable)
- ThatwhenthecapitalstockamountingtoPhp
3,300waspurchased,Sibugueyhadaccounts
payabletoaboutPhp14K.
- Asanothercauseofaction,itisalsoallegedthat
theofficersanddirectorsofthecorporation
approvedaresolutionforthepaymentofPhp3K
dividendstoitsstockholderswhenduringthat
timeSibugueyhadaccountspayableofaboutPhp
9K.(Sec.43applicable)
- Steinbergprayedthatthedefendantsbeliablefor
theamountofthecapitalstockpurchasedandthe
amountofthedividendspaid.
- Thelowercourtdismissedthecomplainedand
renderedjudgmentinfavorofthedefendants.
Section 45
TITLE FACTS
Pirovanov.dela - EnricoPirovanowasexecutedbytheJapanese. - Whetherornotthe
Rama - TheBoardofDirectorsofDelaRamaSteamship corporationsdonation
Co.,composedchieflyofmembersoftheDela wasultraviresandtherefore
Ramafamily,adoptedaresolutiondonatingthe
proceedsofthelifeinsurancepoliciesofsaid
EnricoPirovano,husbandofEstefaniadela
Rama,tohisminorchildren.
- Thedonationwasmadeinrecognitionof
Pirovanoscontributiontothegreatsuccessofthe
companywhenhewaspresidentandgeneral
managerthereof.
12
alvin,cecille,cj,dianne,irish,julie,lea,mars,nina,ryan/ateneolaw/2C05-06
- Itappearedthattheactionoftheboardin boardofdirectorsofthe
purchasingthestockandindeclaringdividends corporationwillnotuseitsassetsto
wasalldoneatthesamemeetingoftheboardof purchaseitsownstockortodeclare
directors.Atthattime,GanzonandMendaros dividendstoitsstockholderswhen
wereformallydirectorsandresignedbeforethe thecorporationisinsolvent.
boardapprovedthepurchaseanddeclared - Ifthedirectorsofacorporationdo
dividends. actsclearlybeyondtheirpower,by
- Inotherwords,theywerepermittedtoresignso reasonofwhichalossensued,or
thattheycouldselltheirstocktothecorporation. disposeofitspropertywithout
- WhethertheBoardof - NO.Itseemedthattheboardofdirectorsacted authority,theywillberequiredto
DirectorsofSibuguey ontheassumptionthat,becauseitappearedfrom makegoodthelossoutoftheir
couldlegallydeclarea thebooksthatithadaccountsreceivable, privateestate.
dividend.(Sec.43) thereforeithadasurplusoverandaboveitsdebts
andliabilities.
- However,theSCnotedthattherewasno
stipulationastotheactualcashvalueofthose
accounts.Thus,thatinthepurchaseofitsown
stockandindeclaringdividends,therealassetsof
thecorporationwerediminishedbyPhp6,300.
- Inotherwords,thecorporationdidnothavethen
anactualbonafidesurplusfromwhichdividends
couldbepaid,andthatehpaymentoftheminfull
atthattimewouldaffectthefinancialcondition
ofthecorporation.
- TheSCreversedthedecisionofthelowercourt
andheldthedefendantsliable.
ISSUE/S HELD DOCTRINE
- NO.Areviewofthecorporationsarticlesof - Withrespecttothemeaning,
incorporationmanifestedthatthecorporationhad extent,andscopeofanultravires
broadpowersto:a)dealwiththemoneysofthe act,manyauthoritiesareuniform
invalid. companynotimmediatelyrequired,insuchmannerasfrom andunanimousthatthesamemay
timetotimemaybedetermined;andb)toaidinanyother beeitheranactperformedmerely
manneranyperson,association,orcorporationofwhich outsidethescopeofthepowers
anyobligationofinwhichanyinterestisheldbythis grantedtocorporationbyits
corporationorintheaffairsorprosperityofwhichthis articlesofincorporation,orone
corporationhasalawfulinterest. whichiscontrarytolaworviolative
- Underthefirstpower,theworddealisbroad ofanyprinciplewhichwouldvoid
enoughtoincludeanymannerofdisposition,and anycontractwhetherdone
referstomoneysnotimmediatelyrequiredbythe individuallyorcollectively.

 - ItwasearlierresolvedthatP400,000worthof
shares,or4,000shareswithaparvalueofP100
pershare,willbeissuedinfavorofPirovanos
childrenwhereeachofthefourchildrenwillget
1,000shares.
- However,thiswaslaternullifieduponshowingby
LourdesdelaRama,wifeofSergioOsmea,Jr.,
thatthevalueofthestocksthenwas3.6times
theirparvalue,thusP1.44millionwastheamount
infactdonated.
- Anotherresolutionwasadoptedwherebythe
companyrenounceditsrightstotheproceedsof
thelifeinsurancepoliciesbutwereretainedasa
loandrawinginterestpayableafteritsNational
DevelopmentCo.obligationshallhavebeen
settled.
- ANewYorkpropertyownedbyDemwood
Realty,uponapprovalbytheBoardofDirectors,
waspurchasedbyMrs.Pirovinofromthe
proceedsoftheinsurancepolicies.
- Thelatterresolutionwithsomeclarifying
modifications,includingthepurchaseoftheNew
Yorkproperty,wasratifiedbythestockholders
- SergioOsmea,Jr.asthenewPresidentand
GeneralManagerchallengedthevalidityofthe
donationwiththeSECwhichdecidedthattheact
wasvoidasbeingultraviresbecausethe
corporationcouldnotdisposeofitsassetsbygift.
- Ameasurewasthusconsideredtocircumventthe
prohibitionbywayofdeclaringcashdividends
andaskingtheshareholderstodonatethesameto
theminorchildrenbutdidnotmaterialize.
- Majorityofthestockholdersthereafterrevoked
thedonation.
- Theminorchildrenthusbroughtanaction
demandingpaymentofhecreditduethem.
Republicv.Acoje - AcojeMiningCompany,Inc.wrotetheDirector
Mining ofPostsrequestingtheopeningofapost,
telegraphandmoneyorderofficesatitsmining
13
alvin,cecille,cj,dianne,irish,julie,lea,mars,nina,ryan/ateneolaw/2C05-06
corporation,andsuchdispositionmaybemadein - Illegalcorporateactscontemplate
suchmannerasfromtimetotimemaybe thedoingofanactcontrarytolaw,
determinedbythecorporation. morals,orpublicorder,etc.andare
- Thedonationinquestioniswithinthescopeof void.
saidbroadpowerforitisafactappearinginthe - Mereultraviresactswhicharenot
evidencethattheinsuranceproceedswerenot illegalorvoidabinitiobutarenot
immediatelyrequiredwhentheyweregivenaway. merelywithinthescopeofthe
- Underthesecondbroadpower,therecordofthe articlesofincorporation,aremerely
caseisrepletewithinstanceswhichclearlyshow voidableandmaybecomebinding
thatthecorporationknewwellitsscopeand andenforceablewhenratifiedby
meaningasmanysimilardonationsweremadeto thestockholders.
formeremployeesandevennon-employeesby - (Asdeduced)ultraviresactsarevalid
reasonofcertainmoralorpoliticalconsiderations. whentheyareapprovedbythe
- Anissuecouldberaisedastothesizeofthe Boardandratifiedbythe
donationbutasidefrombeingsimilartothepast stockholders.Theyarenotmerely
donations,gratuitiesorpensions,thegratuityhere executorybutexecutedand
wasgivennotmerelymotivatedbypureliberality consummated,andnocreditorsare
butalsobyadeepsenseofrecognitionofEnrico prejudiced,oriftherearecreditors
Pirovanoscontributionstothecorporation. affected,thelatterhaveexpressly
- ItisalsotobeconsideredthatEnricoPirovanois giventheirconformity.
amemberofthedelaRamafamily,havingbeen
marriedtooneofthedelaRamascions.
- Also,grantinginnuendothatthedonationwas
ultravires,theresolutionwasadoptedbytheBoard
ofDirectorsandwaslateronratifiedbythe
stockholders,thusobliteratinganyinfirmityand
makingtheactperfectlyvalidandenforceable.
Thecorporationisthusnowpreventedor
estoppedfromcontestingthevalidityofthe
donation.
- Itisnotcontendedthatdonationwasillegalor
contrarytoanyoftheexpressprovisionsofthe
articlesofincorporation,norprejudicialtothe
creditorsofthecorporation.
- Toallowthecorporationtorevokethedonation
wouldnotonlybeunfairbutwouldalso
contravenethewell-settleddoctrinethatthe
defenseofultraviresc annotbesetuporavailedof
incompletedtransactions.
- WON the resolution is - NO.Thecontentionthattheresolutionadopted - Theweightofauthorityinthestate
ultra vires bytheboardisultraviresinthesensethatithas courtsistotheeffectthata
noauthoritytoactonamatterwhichmayrender transactionwhichismerelyultra

 campatSta.Cruz,Zambales,toserviceits
employeesandtheirfamiliesthatwerelivingin
saidcamp.
- Actingontherequest,theDirectorofPostswrote
inreplystatingthatifasidefromfreequartersthe
companywouldprovideforallessential
equipmentandassignaresponsibleemployeeto
performthedutiesofapostmasterwithout
compensationfromhisofficeuntilsuchtimeas
fundsthereformaybeavailablehewouldagreeto
putuptheofficesrequested.
- Thecompanyinturnrepliedsignifyingits
willingnesstocomplywithalltherequirements
outlinedintheletteroftheDirectorofPosts
requestingatthesametimethatitbefurnished
withthenecessaryformsfortheearly
establishmentofapostofficebranch.
- TheDirectorofPostsagainwrotealettertothe
companystatingamongotherthingsthat"In
caseswhereapostofficewillbeopenedunder
circumstancessimilartothepresent,itisthe
policyofthisofficetohavethecompanyassume
directresponsibilityforwhateverpecuniaryloss
maybesufferedbytheBureauofPostsbyreason
ofanyactofdishonesty,carelessnessor
negligenceonthepartoftheemployeeofthe
companywhoisassignedtotakechargeofthe
postoffice,"therebysuggestingthataresolution
beadoptedbytheboardofdirectorsofthe
companyexpressingconformitytotheabove
conditionrelativetotheresponsibilitytobe
assumedbuyitintheeventapostofficebranchis
openedasrequested.
- ThecompanyinformedtheDirectorofPostsof
thepassagebyitsboardofdirectorsofa
resolutionofthefollowingtenor:"Thatthe
requirementoftheBureauofPoststhatthe
Companyshouldacceptfullresponsibilityforall
cashreceivedbythePostmasterbecomplied
with,andthatacopyofthisresolutionbe
forwardedtotheBureauofPosts."
14
alvin,cecille,cj,dianne,irish,julie,lea,mars,nina,ryan/ateneolaw/2C05-06
thecompanyliableasaguarantorhasnofactual
orlegalbasis.Inthefirstplace,itshouldbenoted
thattheopeningofapostofficebranchatthe
miningcampthecorporationwasundertaken
becauseofarequestsubmittedbyittopromote
theconvenienceandbenefitofitsemployees.The
ideadidnotcomefromthegovernment,andthe
DirectorofPostswasprevailedupontoagreeto
therequestonlyafterstudyingthenecessityforits
establishmentandafterimposinguponthe
companycertainrequirementsintendedto
safeguardandprotecttheinterestofthe
government.
- Thus,afterthecompanyhadsignifiedits
willingnesstocomplywiththerequirementofthe
governmentthatitfurnishfreequartersandall
theessentialequipmentthatmaybenecessaryfor
theoperationoftheofficeincludingthe
assignmentofanemployeewhowillperformthe
dutiesofapostmaster,theDirectorofPosts
agreedtotheopeningofthepostofficestating
that"Incaseswhereapostofficewillbeopened
undercircumstancessimilartothepresent,itis
thepolicyofthisofficetohavethecompany
assumedirectresponsibilityforwhatever
pecuniarylossmaybesufferedbytheBureauof
Postsbyreasonofanyactofdishonesty,
carelessnessornegligenceonthepartofthe
employeeofthecompanywhoisassignedtotake
chargeofthepostoffice,"andacceptingthis
condition,thecompany,thruitsboardof
directors,adoptedforthwitharesolutionofthe
followingtenor:"Thattherequirementofthe
BureauofPoststhatthecompanyshouldaccept
fullresponsibilityforallcashreceivedbythe
Postmaster,becompliedwith,andthatacopyof
thisresolutionbeforwardedtotheBureauof
Posts."
- Theclaimthattheresolutionadoptedbythe
boardofdirectorsofappellantcompanyisan
ultraviresactcannotalsobeentertainedit
appearingthatthesamecoversasubjectwhich
viresandnotmaluminseor
malumprohibitum,is,ifperformed
byoneparty,notvoidasbetween
thepartiestoallintentsand
purposes,andthatanactionmaybe
broughtdirectlyonthetransaction
andreliefhadaccordingtoits
terms.
- Thisruleisbasedonthe
considerationthatasbetween
privatecorporations,oneparty
cannotreceivethebenefitswhich
areembracedintotalperformance
ofacontractmadewithitby
anotherpartyandthensetupthe
invalidityofthetransactionasa
defense."
- Thedefenseofultraviresrestson
violationoftrustordutytoward
stockholders,andshouldnotbe
entertainedwhereitsallowancewill
dogreaterwrongtoinnocent
partiesdealingwithcorporation.
- Theacceptanceofbenefitsarising
fromtheperformancebytheother
partymaygiverisetoanestoppel
precludingrepudiationofthe
transaction.
- Thecurrentofmodernauthorities
favorstherulethatwheretheultra
virestransactionhasbeenexecuted
bytheotherpartyandthe
corporationhasreceivedthebenefit
ofit,thelawinterposesanestoppel,
andwillnotpermitthevalidityof
thetransactionorcontracttobe
questioned,andthisisespecially
truewherethereisnothinginthe
circumstancestoputtheother
partytothetransactiononnotice
thatthecorporationhasexceeded
itspowersinenteringintoitand

 - Theletterfurtherstatesthatthecompanyfeels
thatthatresolutionfulfillsthelastcondition
imposedbytheDirectorofPostsandthat,
therefore,itwouldrequestthataninspectorbe
senttothecampforthepurposeofacquainting
thepostmasterwiththedetailsoftheoperationof
thebranchoffice.
- Thepostofficebranchwasopenedatthecamp
withSanchezaspostmaster.
- Thepostmasterwentonathree-dayleavebut
neverreturned.Thecompanyimmediately
informedtheofficialsoftheManilaPostOffice
andtheprovincialauditorofZambalesof
Sanchez'disappearancewiththeresultthatthe
accountsofthepostmasterwerecheckedanda
shortagewasfoundintheamountofP13,867.24.
- Theseveraldemandsmadeuponthecompanyfor
thepaymentoftheshortageinlinewiththe
liabilityithasassumedhavingfailed,the
governmentcommencedtheactionseekingto
recovertheamountofPl3,867.24.Thecompany
initsanswerdeniedliabilityforsaidamount
contendingthattheresolutionoftheboardof
directorswhereinitassumedresponsibilityforthe
actofthepostmasterisultravires,andinany
eventitsliabilityundersaidresolutionisonlythat
ofaguarantorwhoanswersonlyafterthe
exhaustionofthepropertiesoftheprincipal,aside
fromthefactthatthelossclaimedbytheplaintiff
isnotsupportedbytheofficerecord.
15
alvin,cecille,cj,dianne,irish,julie,lea,mars,nina,ryan/ateneolaw/2C05-06
concernsthebenefit,convenienceandwelfareof hasinsodoingoversteppedtheline
itsemployeesandtheirfamilies.Whileasarulean ofcorporateprivileges.
ultraviresactisonecommittedoutsidetheobject
forwhichacorporationiscreatedasdefinedby
thelawofitsorganizationandthereforebeyond
thepowersconferreduponitbylaw,thereare
howevercertaincorporateactsthatmaybe
performedoutsideofthescopeofthepowers
expresslyconferrediftheyarenecessaryto
promotetheinterestorwelfareofthe
corporation.Thus,ithasbeenheldthat"although
notexpresslyauthorizedtodosoacorporation
maybecomeasuretywheretheparticular
transactionisreasonablynecessaryorproperto
theconductofitsbusiness,"andhereitis
undisputedthattheestablishmentofthelocal
postofficeisareasonableandproperadjunctto
theconductofthebusinessofappellantcompany.
Indeed,suchpostofficeisavitalimprovementin
thelivingconditionofitsemployeesandlaborers
whocametosettleinitsminingcampwhichisfar
removedfromthepostalfacilitiesormeansof
communicationaccordedtopeoplelivinginacity
ormunicipality.
- Evenassumingthattheresolutioninquestion
constitutesanultraviresact,thesamehoweveris
notvoidforitwasapprovednotincontravention
oflaw,customs,publicorderorpublicpolicy.
Thetermultraviresshouldbedistinguishedfrom
anillegalactfortheformerismerelyvoidable
whichmaybeenforcedbyperformance,
ratification,orestoppel,whilethelatterisvoid
andcannotbevalidated.Itbeingmerelyvoidable,
anultraviresactcanbeenforcedorvalidatedif
thereareequitablegroundsfortakingsuchaction.
Hereitisfairthattheresolutionbeupheldatleast
onthegroundofestoppel.
- Neithercanweentertaintheclaimofappellant
thatitsliabilityisonlythatofaguarantor.Amere
readingoftheresolutionoftheBoardof
Directorswouldshowthattheresponsibilityof
thedefendantcompanyisnotjustthatofa


Carlosv.Mindoro - This is an action to recover the value of 4 bonds
Sugar issued by Mindanao Sugar Company and placed
in trust with the Philippine Trust Company.
- Mindanao is a corporation incorporated here in
the Phils.
- On the other hand, Phil. Trust Company is
another domestic corporation with the principal
purpose is to engage in the trust business.
- On Nov. 17, 1917, the BODs of Phil. Trust
adopted a resolution authorizing its president,
among others, to purchase at par and in the
name and for the use of the trust corporation all
or such part as he may deem expedient, of the
bonds in the value of P3,000,000 that Mindoro
was about to issue, and to resell them, with or
without the guarantee of said trust corporation,
at a price not less than par, and to guarantee to
the PNB the payment of the indebtedness to said
bank by Mindoro up to P2,000,000.
- Pursuant to this, Mindoro executed in favor of
Phil. Trust Co. the deed of trust, transferring all
of its property to it in consideration of the bonds
it had issued to the value of P3,000,000
- Phil. Trust sold 13 bonds to a certain Ramon
Diaz at a net profit of P100 per bond. The four
bonds in dispute are included here.
- Phil. Trust paid appellant upon presentation of
the coupons the stipulated interest until when it
stopped payments when it alleged that it did not
deem itself bound to pay such interest or to
redeem the obligation because the guarantee
given for the bonds was illegal and void.
- Hence this appeal by the appellant.
JapaneseWar - Abcede,PresidentofJWNCAI,anon-stocknon - WhetherornorJWNCAI
Notesv.SEC profitcorporation,wasissuedanordertoshow hadtherighttocontinue
causewhyitshouldnotbeproceededagainstfor:
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alvin,cecille,cj,dianne,irish,julie,lea,mars,nina,ryan/ateneolaw/2C05-06
guarantor.Noticethatthephraseologyandthe
termsemployedaresoclearandsweepingand
thatthedefendantassumed'fullresponsibilityfor
allcashreceivedbythePostmaster.Herethe
responsibilityofthedefendantisnotjustthatofa
guarantor.Itisclearlythatofaprincipal.
- WON, the lower court - Yes. Phil. Trust although secondarily engaged in
erred in saying that the banking, was primarily organized as a trust
Phil. Trust Co. has no corporation with full power to acquire personal
power to guarantee the property such as the bonds in question
obligation of another according to the Corporation Law.
juridical personality, for - Thus, being authorized to acquire the bonds, it
value received. was given implied power to guarantee them in
order to place them upon the market under
better, more advantageous conditions, and
thereby secure the profit derived from their sale.
- A corporation which has power by its charter to
issue its own bonds has power to guarantee the
bonds of another corporation, which has been
taken in payment of its own debt, the guaranty
being given to enable it to dispose of the bond to
better advantage,
- And so, guarantee of payment of bonds taken by
a loan and trust company in the ordinary course
of its business, made in connection with their
sale, are not ultra vires, and are binding.
- Also, although it is not clear that Mindoro
transferred the bonds to Phil. Trust,
nevertheless, the president of Phil. Trust was
expressly authorized to purchase all or some of
the bonds and to guarantee them.
- There are other considerations leading to the
same conclusion that Phil. Trust didnt acquire
the bonds but just guaranteed them.
- In such a case, the guarantee would be valid and
Phil. Trust would be bound to pay the Carlos
their value with the accrued interest.
- NO.
- It is not, however ultra-vires for a
corporation to enter into contracts
of guaranty or suretyship where it
does so in the legitimate
furtherance of its purposes and
business. And it is well settled that
where a corporation acquires
commercial paper or bonds in the
legitimate transaction of its
business it may sell them, and in
furtherance of such a sale it may,
in order to make them the more
readily marketable indorse or
guarantee their payment.
- When a contract is not on its face
necessarily beyond the scope of
the power of the corporation by
which it was made, it will, in the
absence of proof to the contrary,
be presumed valid. Corporations
are presumed to contract within
their powers. The doctrine of ultra
vires, when invoked for or against
a corporation, should not be
allowed to prevail where it would
defeat the ends of justice or work
as a legal wrong.

 - 1)makingmisrepresentationstothepublicabout withtheabovementioned - UnderitsarticlesofIncorporation,JWNCAIisa

theneedforregisteringanddepositingJapanese activities. non-profitcorporation.Thus,itmustnotengage
warnotes,withaviewtotheirpossible inbusinessforprofit.
redemption; - JWNCAIhastheprivilegetoworkforthe
- 2)receivingdepositsofsuchnotesandcharging redemptionofwarnotesofitsmembersalone,
feestherefor; butitcannotofferitsservicestothepublicfora
- 3)acceptingandcollectingfeesforreparation consideration.
claimsforciviliancasualtiesandotherinjuries. - Astothethirdactivity,SCheldthatithasno
- -Abcedeclaimsthattheseactsarenotprohibited relationtotheavowedpurposeofthe
bytheCorporationLaw,andthecorporations corporation.
authoritytoengageinsuchactsisimpliedfromits
ArticlesofIncorporation.
Crisologo-Josev. - ThisisacasefortheviolationofBP22. - W/NBenaresandSantos - Yes. - Ultraviresactsdonebyagentsof
CA - Atty.BenaresandRicardoSantosarethe arepersonallyliableforthe - Thelawprovidesthatanofficeroranagentofa thecorporationcannotbeenforced
signatoriesofthecheckinquestion.Theyarethe checkissuedunderthe corporationshallhavethepowertoexecuteor againstthecorporationevenif
presidentandvice-president,respectively,of accountofMover indorseanegotiablepaperinthenameofthe madeinthenameofthelatter.
MoverEnterprises.Thecheckwasunderthe Enterprises corporationfortheaccommodationofathird
accountofMoverEnterprisesanddrawnagainst persononlyifheisspecificallyauthorizedtodo
TradersRoyalBank. so.Absentsuchauthority,suchactisultravires.
- BenaresandSantosissuedachecktoErnestina Hence,itcannotbeenforcedagainstthe
Crisologo-Joseasconsiderationforherwaiver corporationbutonlyagainstthesignatories
overacertainpropertyw/ctheGSISagreedto thereofwhoshallbepersonallyliablethereofr.
selltotheirclient,spousesOng,w/the -
understandingthatuponapprovaloftheGSISof
thecompromiseagreement,thecheckwillbe
encashedaccordingly.Sincetheagreementwas
notapprovedwithintheexpectedtime,itwas
replaced.Upondeposit,however,saidcheckwas
dishonoredforinsufficiencyoffunds.Thus,this
caseforviolationofBP22fielsbyCrisologo-Jose
againstBenaresandSantos.
- BenaresandSantoscontendsthatthecheckwas
issuedforaccommodationpurposesbyMover
Enterprisesandtheymerelysigneditina
representativecapacity.Hence,theyarenotliable.

17
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