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It was,
11 April 1979, GR No L-45911 therefore, prayed that the amended by-laws be declared null and void
and the certificate of filing thereof be cancelled, and that Soriano, et. al.
FACTS be made to pay damages, in specified amounts, to Gokongwei.
[SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as On October 1976, in connection with the same case, Gokongwei filed
stockholder of San Miguel Corporation, filed with the Securities and with the Securities and Exchange Commission an "Urgent Motion for
Exchange Commission (SEC) a petition for "declaration of nullity of Production and Inspection of Documents", alleging that the Secretary of
amended by-laws, cancellation of certificate of filing of amended by- the corporation refused to allow him to inspect its records despite
laws, injunction and damages with prayer for a preliminary injunction" request made by Gokongwei for production of certain documents
against the majority of the members of the Board of Directors and San enumerated in the request, and that the corporation had been
Miguel Corporation as an unwilling petitioner. (SH v. BOD) attempting to suppress information from its stockholders despite a
negative reply by the SEC to its query regarding their authority to do so.
As a first cause of action, Gokongwei alleged that on September 1976, The motion was opposed by Soriano, et. al. The Corporation, Soriano,
individual respondents amended the by bylaws of the corporation, et. al. filed their answer, and their opposition to the petition, respectively.
basing their authority to do so on a resolution of the stockholders
adopted on March 1961, when the outstanding capital stock (OCS) of Meanwhile, on December 1976, while the petition was yet to be heard,
the corporation was only P70,139.740.00, divided into 5,513,974 the corporation issued a notice of special stockholders' meeting for the
common shares at P10.00 per share and 150,000 preferred shares at purpose of "ratification and confirmation of the amendment to the By-
P100.00 per share. laws", setting such meeting for 10 February 1977. This prompted
Gokongwei to ask the SEC for a summary judgment insofar as the first
At the time of the amendment, the outstanding and paid up shares cause of action is concerned, for the alleged reason that by calling a
totaled 30,127,043, with a total par value of P301,270,430.00. It was special stockholders' meeting for the aforesaid purpose, Soriano, et. al.
contended that according to Section 22 of the Corporation Law and admitted the invalidity of the amendments of 18 September 1976.
Article VIII of the by-laws of the corporation, the power to amend,
modify, repeal or adopt new by-laws may be delegated to the Board of The motion for summary judgment was opposed by Soriano, et. al.
Directors only by the affirmative vote of stockholders representing not Pending action on the motion, Gokongwei filed an "Urgent Motion for
less than 2/3 of the subscribed and paid up capital stock of the the Issuance of a Temporary Restraining Order", praying that pending
corporation, which 2/3 should have been computed on the basis of the the determination of Gokongwei's application for the issuance of a
capitalization at the time of the amendment. preliminary injunction and or Gokongwei's motion for summary
judgment, a temporary restraining order (TRO) be issued, restraining
Since the amendment was based on the 1961 authorization, Soriano, et. al. from holding the special stockholders' meeting as
Gokongwei contended that the Board acted without authority and in scheduled. This motion was duly opposed by Soriano, et. al.
usurpation of the power of the stockholders.
On 10 February 1977, Cremation issued an order denying the motion
As a second cause of action, it was alleged that the authority granted for issuance of temporary restraining order. After receipt of the order of
in 1961 had already been exercised in 1962 and 1963, after which the denial, Soriano, et. al. conducted the special stockholders' meeting
authority of the Board ceased to exist. wherein the amendments to the by-laws were ratified. On 14 February
1977, Gokongwei filed a consolidated motion for contempt and for
As a third cause of action, Gokongwei averred that the membership of nullification of the special stockholders' meeting. A motion for
the Board of Directors had changed since the authority was given in reconsideration of the order denying Gokongwei's motion for summary
1961, there being 6 new directors. judgment was filed by Gokongwei before the SEC on 10 March 1977.
As a fourth cause of action, it was claimed that prior to the questioned [SEC Case 1423] Gokongwei alleged that, having discovered that the
amendment, Gokongwei had all the qualifications to be a director of the corporation has been investing corporate funds in other corporations
corporation, being a substantial stockholder thereof; that as a and businesses outside of the primary purpose clause of the
stockholder, Gokongwei had acquired rights inherent in stock corporation, in violation of Section 17-1/2 of the Corporation Law, he
ownership, such as the rights to vote and to be voted upon in the filed with SEC, on 20 January 1977, a petition seeking to have Andres
election of directors; and that in amending the by-laws, Soriano, et. al. M. Soriano, Jr. and Jose M. Soriano, as well as the corporation declared
purposely provided for Gokongwei's disqualification and deprived him guilty of such violation, and ordered to account for such investments
of his vested right as afore-mentioned, hence the amended by-laws are and to answer for damages.
null and void.
On 4 February 1977, motions to dismiss were filed by Soriano, et. al.,
As additional causes of action, it was alleged that corporations have to which a consolidated motion to strike and to declare Soriano, et. al.
no inherent power to disqualify a stockholder from being elected as a in default and an opposition ad abundantiorem cautelam were filed by
director and, therefore, the questioned act is ultra vires and void; that Gokongwei. Despite the fact that said motions were filed as early as 4
Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other February 1977, the Commission acted thereon only on 25 April 1977,
corporations, entered into contracts (specifically a management when it denied Soriano, et. al.'s motions to dismiss and gave them two
contract) with the corporation, which was avowed because the (2) days within which to file their answer, and set the case for hearing
questioned amendment gave the Board itself the prerogative of on April 29 and May 3, 1977. Soriano, et. al. issued notices of the annual
determining whether they or other persons are engaged in competitive stockholders' meeting, including in the Agenda thereof, the
or antagonistic business; that the portion of the amended by-laws which "reaffirmation of the authorization to the Board of Directors by the
states that in determining whether or not a person is engaged in stockholders at the meeting on 20 March 1972 to invest corporate funds
competitive business, the Board may consider such factors as business in other companies or businesses or for purposes other than the main
and family relationship, is unreasonable and oppressive and, therefore, purpose for which the Corporation has been organized, and ratification
void; and that the portion of the amended by-laws which requires that of the investments thereafter made pursuant thereto."
"all nominations for election of directors shall be submitted in writing to
the Board of Directors at least five (5) working days before the date of By reason of the foregoing, on 28 April 1977, Gokongwei filed with the
SEC an urgent motion for the issuance of a writ of preliminary injunction
ISSUE
RULING
NO.
Respondents then alleged that Winchester, Inc. bought from its As to respondents' prayer for the inspection of corporate books and
incorporators, excluding petitioner Anthony, their accumulated 8,500 records, the RTC adjudged that they had likewise failed to comply with
shares in the corporation. Subsequently, Winchester, Inc. sold the same the requisites entitling them to the same. Section 2, Rule 7 of the Interim
8,500 shares to other persons, who included respondents Nancy, Rules of Procedure Governing Intra Corporate Controversies requires
Jerald, and Jill; and petitioners Rosita and Jason. Respondents further that the complaint for inspection of corporate books or records must
averred that although respondent Joseph appeared as the Secretary state that:
and Treasurer in the corporate records of Winchester, Inc., petitioners (1) The case is for the enforcement of plaintiff's right of
actually controlled and ran the said corporation as if it were their own inspection of corporate orders or records and/or to be furnished
family business. with financial statements under Sections 74 and 75 of the
Corporation Code of the Philippines;
Petitioner Rosita handled the money market placements of the (2) A demand for inspection and copying of books and records
corporation to the exclusion of respondent Joseph, the designated and/or to be furnished with financial statements made by the
Treasurer of Winchester, Inc. plaintiff upon defendant;
(3) The refusal of defendant to grant the demands of the
Petitioners were also misappropriating the funds and properties of plaintiff and the reasons given for such refusals, if any; and
Winchester, Inc. by understating the sales, charging their personal and (4) The reasons why the refusal of defendant to grant the
family expenses to the said corporation, and withdrawing stocks for their demands of the plaintiff is unjustified and illegal, stating the law
personal use without paying for the same. Respondents attached to the and jurisprudence in support thereof.
Complaint various receipts to prove the personal and family expenses
charged by petitioners to Winchester, Inc. Respondents challenged the foregoing RTC Decision before the
Court of Appeals via a Petition for Review under Rule 43 of the
Respondents, therefore, prayed that respondent Joseph be declared Rules of Court.
the owner of the 200 shares of stock in petitioner Anthony's name.
Respondents also prayed that petitioners be ordered to: CA – affirmed the decision of the RTC (pet); MR – granted (res)
(1) deposit the corporate books and records of Winchester, Inc. with the
Branch Clerk of Court of the RTC for respondents' inspection;
(2) render an accounting of all the funds of Winchester, Inc. which
petitioners misappropriated; ISSUE
(3) reimburse the personal and family expenses which petitioners
charged to Winchester, Inc., as well as the properties of the corporation
which petitioners withheld without payment; and
(4) pay respondents' attorney's fees and litigation expenses.
(FURTHER EXPLANATION OF THE RULING OF SC PP. 12-19) Later on, Cruz terminated the offer and demanded the return of the title
of the lot earlier delivered. AF Realty, claiming that the contract was
already perfected, filed a complaint for specific performance against
Dieselman and Cruz.
After trial, the lower court held that the acts of Cruz bound Dieselman
in the sale of the lot to AF Realty. Consequently, the perfected contract
of sale between Dieselman and AF Realty barred Midas's intervention.
Dissatisfied, all parties appealed to the Court of Appeals.
The Court of Appeals reversed the decision of the trial court. It held
that since Cruz was not authorized in writing to sell the subject property
to AF Realty, the sale was not perfected. It also held that the Deed of
Absolute Sale between Dieselman and Midas is valid. Hence, petitioner
filed the instant petition.
ISSUES
RULING
FACTS That the resolution formed an integral part of the amended milling
contract, signed on September 10, and not a separate bargain, is
Alfredo Montelibano, et al had been and are sugar planters adhered to further shown by the fact that a copy of the resolution was simply
the defendant-appellee's sugar central mill under identical attached to the printed contract without special negotiations or
milling contracts. Originally executed in 1919, said contracts were agreement between the parties.
stipulated to be in force for 30 years starting with the 1920-21 crop, and
provided that the resulting product should be divided in the ratio of 45% It follows from the foregoing that the terms embodied in the resolution
for the mill and 55% for the planters. (45-55; 30) of August 20, 1936 were supported by the same causa or consideration
underlying the main amended milling contract; i.e., the promises and
Sometime in 1936, it was proposed to execute amended milling obligations undertaken thereunder by the planters, and, particularly, the
contracts, increasing the planters' share to 60% of the manufactured extension of its operative period for an additional 15 years over and
sugar and resulting molasses, besides other concessions, but beyond the 30 years stipulated in the original contract. Hence, the
extending the operation of the milling contract from the original 30 years conclusion of the court below that the resolution constituted gratuitous
to 45 years. To this effect, a printed Amended Milling Contract form was concessions not supported by any consideration is legally untenable.
drawn up. (40-60;45)
All disquisition concerning donations and the lack of power of the
On August 20, 1936, the Board of Directors of the appellee Bacolod directors of the respondent sugar milling company to make a gift to the
Murcia Milling Co., Inc., adopted a resolution (Acta No. 11, Acuerdo No. planters would be relevant if the resolution in question had embodied a
1) granting further concessions to the planters over and above those separate agreement after the appellants had already bound themselves
contained in the printed Amended Milling Contract. to the terms of the printed milling contract. But this was not the case.
In 1953, the appellants initiated the present action, contending that When the resolution was adopted and the additional concessions were
three Negros Sugar centrals (La Carlota, Binalbagan-Isabela and San made by the company, the appellants were not yet obligated by the
Carlos), with a total annual production exceeding one-third of the terms of the printed contract, since they admittedly did not sign it until
production of all the sugar central mills in the province, had already twenty-one days later, on September 10, 1936. Before that date, the
granted increased participation (of 62.5%) to their planters, and that printed form was no more than a proposal that either party could modify
under paragraph 9 of the resolution of August 20, 1936, heretofore at its pleasure, and the appellee actually modified it by adopting the
quoted, the appellee had become obligated to grant similar concessions resolution in question. So that by September 10, 1936, defendant
to the plaintiffs (appellants herein). corporation already understood that the printed terms were not
controlling, save as modified by its resolution of August 20, 1936; and
The appellee Bacolod Murcia Milling Co., Inc., resisted the claim, and we are satisfied that such was also the understanding of appellants
defended by urging that the stipulations contained in the resolution were herein, and that the minds of the parties met upon that basis. Otherwise
made without consideration; that the resolution in question was, there would have been no consent or " meeting of the minds", and no
therefore, null and void ab initio, being in effect a donation that was ultra binding contract at all. But the conduct of the parties indicates that they
vires and beyond the powers of the corporate directors to adopt. assumed, and they do not now deny, that the signing of the contract on
September 10, 1962 did give rise to a binding agreement. That
RTC - uphold the stand of the defendant milling company, and agreement had to exist on the basis of the printed terms as modified by
dismissed the complaint. 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
Thereupon, plaintiffs duly appealed to this Court. 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 such concessions
ISSUE would be to sanction a fraud upon the planters who relied on such
additional stipulations.
Whether the act in question is in direct and immediate furtherance of
the corporation's business, fairly incident to the express powers and There can be no doubt that the directors of the appellee company had
reasonably necessary to their exercise. 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.
RULING
The rule is that —
YES. "It is a question, therefore, in each case, of the logical relation of
the act to the corporate purpose expressed in the charter. If that
The Court agrees with appellants that the appealed decisions cannot act is one which is lawful in itself, and not otherwise prohibited,
stand. It must be remembered that the controverted resolution was is done for the purpose of serving corporate ends, and is
adopted by appellee corporation as a supplement to, or further reasonably tributary to the promotion of those ends, in a
amendment of, the proposed milling contract, and that it was approved substantial, and not in a remote and fanciful, sense, it may fairly
on August 20, 1936, twenty-one days prior to the signing by appellants be considered within charter powers. The test to be applied is
on September 10, of the Amended Milling Contract itself; so that when whether the act in question is in direct and immediate
the amended milling contract was executed, the concessions granted furtherance of the corporation's business, fairly incident to the
by the disputed resolution had been already incorporated into its terms. express powers and reasonably necessary to their exercise. If
so, the corporation has the power to do it; otherwise, not."
No reason appears of record why, in the face of such concessions, the
appellants should reject them or consider them as separate and apart
ISSUE
RULING
It is undisputed that petitioner incurred a net loss of P68,844,222.49 in Lopez Realty, Inc., is a corporation engaged in real estate business,
1990, and its authorized capital stock as of that time stood at while petitioner Asuncion Lopez Gonzales is one of its majority
P128,000,000.00. On August 15, 1990, a Board resolution increasing shareholders. Her interest in the company vis-a-vis the other
the capital stock of the corporation was affirmed by shareholders is as follows:
the requisite number of stockholders. Although no petition to that effect 1. Asuncion Lopez Gonzales - 7,831 shares
was ever submitted to the SEC for its approval, petitioner already 2. Teresita Lopez Marquez - 7,830 shares
started receiving subscriptions and payments on the proposed 3. Arturo F. Lopez - 7,830 shares
increase, which it allegedly held conditionally, that is, pending approval 4. Rosendo de Leon - 4 shares
of the same by the SEC. In its Memorandum, however, petitioner 5. Benjamin Bernardino - 1 share
admitted, without giving any reason therefor, that it indeed "received 6. Leo Rivera - 1 share
'subscriptions' and 'payments' to the said proposed increase in capital Except for Arturo F. Lopez, the rest of the shareholders also sit as
stock, even in the absence of SEC approval of the increase as required members of the Board of Directors.
by the Corporation Code." Thus, by the end of 1990, the corporation
had a subscribed capital stock of P482,748,900.00 and, after deducting Sometime in 1978, Arturo Lopez submitted a proposal relative to the
P176,981,000.00 in subscriptions receivables, a total paid-up capital of distribution of certain assets of petitioner corporation among its three
P305,767,900.00. 3 P177,767,900.00 of this sum constituted the main shareholders. The proposal had three aspects, viz:
unauthorized increase in its subscribed capital stock, which are actually (1) the sale of assets of the company to pay for its obligations;
payments on future issues of shares. (2) the transfer of certain assets of the company to its three (3)
main shareholders, while some other assets shall remain with the
These payments cannot as yet be deemed part of petitioner's paid-up company;
capital, technically speaking, because its capital stock has not yet been (3) the reduction of employees with provision for their gratuity
legally increased. Thus, its authorized capital stock in the year when pay. The proposal was deliberated upon and approved in a
exemption from WO No. NCR-02 was sought stood at special meeting of the board of directors
P128,000,000.00, which was impaired by losses of nearly 50%. Such
payments constitute deposits on future subscriptions, money which the It appears that petitioner corporation approved two (2) resolutions
corporation will hold in trust for the subscribers until it files a petition to providing for the gratuity pay of its employees:
increase its capitalization and a certificate of filing of increase of capital 1.) to set aside, twice a year, a certain sum of money for the gratuity
stock is approved and issued by the SEC. As a trust fund, this money pay of its retiring employees and to create a Gratuity Fund for the said
is still withdrawable by any of the subscribers at any time before the contingency;
issuance of the corresponding shares of stock, unless there is a 2.) setting aside the amount of P157,750.00 as Gratuity Fund covering
presubscription agreement to the contrary, which apparently is not the period from 1950 up to 1980
present in the instant case. Consequently, if a certificate of increase has
not yet been issued by the SEC, the subscribers to the unauthorized Due to various circumstances, three members of the board convened a
issuance are not to be deemed as stockholders possessed of such legal special meeting and passed a resolution which reads:
rights as the rights to vote and dividends. (a) Those who will be laid off be given the full amount of gratuity;
(b) Those who will be retained will receive 25% of their gratuity (pay)
The Court observes that the subject wage order exempts from its due on September 1, 1981, and another 25% on January 1, 1982, and
coverage employers whose capital has been impaired by at least 25% 50% to be retained by the office in the meantime.
because if impairment is less than this percentage, the employer can
still absorb the wage increase. In the case Private respondents were the retained employees of petitioner
at hand, petitioner's capital held answerable for the additional wages corporation. In a letter, dated August 31, 1981, private respondents
would include funds it only holds in trust, which to reiterate may not be requested for the full payment of their gratuity pay. Their request was
deemed par of its paid-up capital, the losses of which shall be the basis granted in a special meeting.
of the 25% referred to above. To include such funds in the paid-up
capital would be prejudicial to the corporation as an employer At that time, however, petitioner Asuncion Lopez Gonzales was still
considering that the records clearly show that it is entitled to exemption, abroad. Allegedly, while she was still out of the country, she sent a
even as the anomaly was brought about by an auditing error. cablegram to the corporation, objecting to certain matters taken up by
the board in her absence, such as the sale of some of the assets of the
In order to avoid any similar controversy, petitioner is reminded to corporation. Upon her return, she filed a derivative suit with the
adopt a more systematic and precise accounting procedure keeping in Securities and Exchange Commission (SEC) against majority
mind the various principles and nuances surrounding corporate shareholder Arturo F. Lopez.
practice.
Notwithstanding the "corporate squabble" between petitioner Asuncion
Thus, the petition is hereby GRANTED. The assailed orders of the Lopez Gonzales and Arturo Lopez, the first two (2) installments of the
Regional Tripartite Wages and Productivity Board — National Capital gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo,
Region, dated October 22, 1991 and February 4, 1992, are ANNULLED Marcial Mamaril and Perfecto Bautista were paid by petitioner
and SET ASIDE. Said Board is also hereby mandated to issue another corporation.
order granting the application of petitioner Central Textile Mills, Inc. for
exemption from Wage Order No. NCR-02 for the year ending December Also, petitioner corporation had prepared the cash vouchers and checks
31, 1990. for the third installments of gratuity pay of said private respondents
(Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto
Bautista). For some reason, said vouchers were cancelled by petitioner
Asuncion Lopez Gonzales. Likewise, the first, second and third
The general rule is that a corporation, through its board of directors, SEC. 40 OF CORPO CODE – inapplicable
should act in the manner and within the formalities, if any, prescribed by
its charter or by the general law. Thus, directors must act as a body in The cited provision is not applicable to the case at bench as it refers to
a meeting called pursuant to the law or the corporation's by-laws, the sale, lease, exchange or disposition of all or substantially all of the
otherwise, any action taken therein may be questioned by any objecting corporation's assets, including its goodwill. In such a case, the action
director or shareholder. Be that as it may, jurisprudence tells us that an taken by the board of directors requires the authorization of the
action of the board of directors during a meeting, which was illegal for stockholders on record.
lack of notice, may be ratified either expressly, by the action of the
directors in subsequent legal meeting, or impliedly, by the corporation's It will be observed that, except for Arturo Lopez, the stockholders of
subsequent course of conduct. petitioner corporation also sit as members of the board of directors.
Under the circumstances in field, it will be illogical and superfluous to
Ratification by directors may be by an express resolution or vote to that require the stockholders' approval of the subject resolutions. Thus, even
effect, or it may be implied from adoption of the act, acceptance or without the stockholders' approval of the subject resolutions, petitioners
acquiescence. Ratification may be effected by a resolution or vote of are still liable to pay private respondents' gratuity pay.
the board of directors expressly ratifying previous acts either of
corporate officers or agents; but it is not necessary, ordinarily, to show Thus, the instant petition is DISMISSED for lack of merit. Accordingly,
a meeting and formal action by the board of directors in order to the assailed resolution of NLRC is hereby AFFIRMED.
establish a ratification.
NIELSON & COMPANY, INC vs.
Moreover, the unauthorized acts of an officer of a corporation may be LEPANTO CONSOLIDATED MINING COMPANY
ratified by the corporation by conduct implying approval and adoption of G.R. No. L-21601. December 28, 1968
the act in question. Such ratification may be express or may be inferred
from silence and inaction.
In the case at bar, it was established that petitioner corporation did not
issue any resolution revoking nor nullifying the board resolutions PRIME WHITE CEMENT CORPORATION vs. HONORABLE
granting gratuity pay to private respondents. Instead, they paid the INTERMEDIATE APPELLATE COURT & ALEJANDRO TE
gratuity pay, particularly, the first two (2) installments thereof, of private G.R. No. L-4935. May 28, 1954
respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and
Perfecto Bautista.