Grace Christian High School vs.

Court of Appeals [GR 108905, 23 fact that for 15 years it has not been questioned cannot forestall a
October 1997] later challenge to its validity.

Facts: Grace Christian High School is an educational institution. Grace

Village Association, Inc., on the other hand, is an organization of lot
and/or building owners, lessees and residents at Grace Village. On
December 1975, a committee of the board of directors prepared a
draft of an amendment to the by-laws, providing that GRACE
CHRISTIAN HIGH SCHOOL representative is a permanent Director of
the ASSOCIATION." This draft was never presented to the general
membership for approval. For 15 years, Grace Christian High School
was given a permanent seat in the board of directors of the
association. After some time, the association's committee on election
informed James Tan, principal of the school, that "it was the sentiment
that all directors should be elected by members of the association." China Banking Corporation vs. Court of Appeals [GR 117604, 26
For this reason, Tan was told that "the proposal to make the Grace March 1997]
Christian High School representative as a permanent director of the
association, although previously tolerated in the past elections should Facts: Calapatia is a stockholder of Valley Golf & Country Club, Inc.
be re-examined." (VGCCI) who pledged his Stock Certificate 1219 to China Banking
Corporation (CBC) which was duly recorded in its book. Calapatia
Issue: Whether or not provision in the by- laws allowing a director to obtained a loan of P20,000.00 from CBC. For failure to pay such loan,
hold the position perpetually is valid. the pledged stock was foreclosed. VGCCI informed Calapatia of the
termination of his membership due to the sale of his share of stock in
Held: NO. The BOD of Corporations must be elected from among the the 10 December 1986 auction. CBC advised VGCCI that it is the new
stockholders or members. Since the provision is contrary to law, the owner of Calapatia's Stock Certificate 1219 by virtue of being the
highest bidder in the 17 September 1985 auction and requested that
a new certificate of stock be issued in its name. VGCCI replied that
"for reason of delinquency" Calapatia's stock was sold at the public PMI COLLEGES vs. NLRC
auction. G.R. No. 121466 August 15, 1997

Issue: Whether CBC is bound by VGCCI's by-laws. Facts: Petitioner, an educational institution, hired private respondent
as contractual instructor. After three periods of the contract, private
Held: As a general rule, third persons are not bound by by-laws, respondent stopped receiving payment for the succeeding rendition
except when they have knowledge of the provisions either actually or of services for unknown reasons. Petitioner alleged that classes in the
constructively. CBC was never informed of Calapatia's unpaid accounts courses offered which complainant claimed to have remained unpaid
and the restrictive provisions in VGCCI's by-laws. Furthermore, Section were not held or conducted in the school premises of PMI Colleges.
63 of the Corporation Code which provides that "no shares of stock Private respondent belied petitioner's allegations. Petitioner
against which the corporation holds any unpaid claim shall be contended that the contract between the private respondent violated
transferable in the books of the corporation" cannot be utilized by the by-laws of PMI Colleges.
VGCCI. Herein, the subscription for the share in question has been
fully paid as evidenced by the issuance of Membership Certificate ISSUE:
1219. What Calapatia owed the corporation were merely the monthly Whether the contract is invalidated by the by-laws?
dues. Hence, Section 63 does not apply.
HELD:

NO. The court ruled that such contract would not be invalid just
because the signatory thereon was not the Chairman of the Board
which allegedly violated petitioner's by-laws. Since by-laws operate
merely as internal rules among the stockholders, they cannot affect or
prejudice third persons who deal with the corporation, unless they
have knowledge of the same.
 Go Fay & Company filed its answer contending that SEC had no
jurisdiction to entertain the complaint on the ground that since Lim
Tay was not a stockholder of the company, no intra corporate
controversy took place; and furthermore, that the default of payment
of Sy Guiok and Sy Lim did not automatically vest in Lim Tay the
ownership of the pledged shares. SEC dismissed the complaint. CA
affirmed SEC’s decision. Hence, this petition for certiorari with the SC.

Issue: Whether Lim Tay is the owner of the shares previously

subjected to pledge, for him to cause the registration of said shares in
his own name?

Held: No. In the contract of pledge, the stipulation shows that Lim
Tay was merely authorized to foreclose the pledge upon maturity of
the loans, not to own them. Such foreclosure was not automatic, for
Lim Tay vs. Court of Appeals [GR 126891, 5 August 1998] it must be done in a public or private sale. Nowhere was it
mentioned that he exercised his right of foreclosure. Hence, his status
Facts: Sy Guiok and Sy Lim secured a loan from Lim Tay in the was still a mere pledgee, and under civil law, this does not entitle him
amount of P40,000. This was secured by a contract of pledge to ownership of the shares of stock in question.
whereby the former pledged their 300 shares of stock each in Go Fay
& Company to the latter. However, they failed to pay their respective
loans. Hence, Lim Tay filed a petition for mandamus against Go Fay
& Company with the SEC praying that an order be issued directing
the corporate secretary of the said corporation to register the stock
transfers and issue new certificates in favor of Lim Tay.

LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. vs. CA
FACTS: Petitioner, now the Jardine-CMG Life Insurance Company, Inc.,
is a domestic corporation engaged in the life insurance business. It
issued 50,000 shares of stock as stock dividends, with a par value of
P100 or a total of P5 million. Petitioner paid documentary stamp taxes
on each certificate on the basis of its par value. The CIR contended
that the book value of the shares should be used as basis for
determining the amount of the documentary stamp tax. CIR issued a
deficiency documentary stamp tax assessment in excess of the par
value of the stock dividends. Petitioner appealed to the CTA which
held that the amount of the documentary stamp tax should be based
on the par value stated on each certificate of stock. In turn, CIR
appealed to the CA which reversed the CTA’s decision and held that,
in assessing the tax in question, the basis should be the actual value
represented by the subject shares. Hence, this petition.
ISSUE:
Whether in determining the amount to be paid as documentary
stamp tax, it is the par value of the certificates of stock or the book
value of the shares which should be considered?
HELD:
YES. In the case of stock certificates with par value, the documentary
stamp tax is based on the par value of the stock; for stock certificates
without par value, the same tax is computed from the actual
consideration received by the corporation, association or company;
but for stock dividends, documentary stamp tax is to be paid “on the
actual value represented by each share.”
There is no reason for determining the actual value of stock dividends
for purposes of the documentary stamp tax if the certificates
representing them indicate a par value.
Bitong vs. CA [292 SCRA 503 (July 13 1998)]
Ownership of Corporate Shares/ Stock Certificates: Valid Issuance
Facts: Bitong was the treasurer and member of the BoD of Mr. &
Mrs. Publishing Co., Inc. She filed a complaint with the SEC to hold
spouses Apostol liable for fraud, misrepresentation, disloyalty, bad
faith, conflict of interest and mismanagement in directing the affairs
of the corporation to the prejudice of the stockholders. She alleges
that certain transactions entered into by the corporation were not
supported by any stockholder’s resolution. The complaint sought to
enjoin Apostol from further acting as president-director of the
corporation and from disbursing any money or funds. Apostol
contends that Bitong was merely a holder-in-trust of the JAKA shares
of the corporation, hence, not entitled to the relief she prays for.
Issue: Whether or not Bitong was the real party in interest.
Held: Bitong was not a bona fide stockholder of the corporation.
The true party in interest was JAKA. Although her buying of the shares
were recorded in the Stock and Transfer Book of the corporation, and
as provided by Sec. 63 of the Corp Code that no transfer shall be
valid except as between the parties until the transfer is recorded in
the books of the corporation, and upon its recording the corporation
is bound by it and is estopped to deny the fact of transfer of said
shares, this provision is not conclusive even against the corporation
but are prima facie evidence only.
It is a basic principle that stock issued without authority and in
violation of the law is void and confers no rights on the person to
whom it is issued and subjects him to no liabilities. Where there is an
inherent lack of power in the corporation to issue the stock, neither
the corporation nor the person to whom the stock is issued is
estopped to question its validity since an estoppel cannot operate to
create stock which under the law cannot have existence.
THE RURAL BANK OF LIPA CITY, INC. vs. CA
[G.R. No. 124535. September 28, 2001]
Facts: Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa
City, assigned his 10,467 shares in favor of the stockholders of the
Bank. Villanueva and his wife have indebtedness to the Bank but for
failure to settle their obligation to the Bank upon demand, their
shares of stock were converted into Treasury Stocks. The stockholders
of the Bank met to elect the new directors and set of officers for the
year 1994. The Villanuevas were not notified of said meeting.
Villanueva spouses questioned the legality of the said stockholders'
meeting and the validity of all the proceedings therein. The new set of
officers of the Bank alleged that the Villanuevas were no longer
entitled to notice of the said meeting since they had relinquished
their rights as stockholders in favor of the Bank.
Issue: Whether there was valid transfer of the shares to the Bank.
Held: NO. For a valid transfer of stocks, there must be strict
compliance with the mode of transfer prescribed by law. The
requirements are: (a) There must be delivery of the stock certificate:
(b) The certificate must be endorsed by the owner or his attorney-in-
fact or other persons legally authorized to make the transfer; and (c)
To be valid against third parties, the transfer must be recorded in the
books of the corporation. Compliance with any of these requisites has
not been clearly and sufficiently shown. Still, while the assignment
may be valid and binding on the bank, et al. and the Villanuevas, it
does not necessarily make the transfer effective. The bank et al., as
mere assignees, cannot enjoy the status of a stockholder, cannot vote
nor be voted for, and will not be entitled to dividends, insofar as the
assigned shares are concerned. Villanuevas cannot, as yet, be deprived
of their rights as stockholders, until and unless the issue of ownership
and transfer of the shares in question is resolved with finality.
UNION OF SUPERVISORS (R.B.) — NATU, vs. THE SECRETARY OF
LABOR and REPUBLIC BANK
Facts: Norberto Luna, president of NATU and ex-oficio member of the
fund's Board of Trustees, became the administrator and secretary of
the Republic Bank Provident Fund. Restituto de Vera replaced Jose
Lugod as member of the Board of Trustees. At the meeting, de Vera
proposed a reorganization of the fund in order to carry out the
instruction of the Board of Directors, which wants to have control of
the fund so as to tie it up with the Investment Money Market
Operations of the bank. Luna vehemently objected, saying that the
Provident Fund does not belong to the bank but to the officers and
employees. The reorganization move was carried by a 3 to 2 vote,
with all management-appointed trustees voting for it. Luna was then
prevented from attending the regular meeting of the PF Board of
Trustees. The Board of Directors dismissed Luna for cause.
ISSUE: Whether or not the corporate actions against Mr. Luna
constitutes unfair labor practice?
HELD: YES. The respondent then Secretary (now Minister) of Labor
have acted with grave abuse of discretion when he affirmed the grant
of clearance to terminate Luna's services with respondent bank on the
ground of loss of confidence, despite the fact that the charges against
him were not substantiated. Corporate actions through the Board of
Directors, such as filing of charges, suspension and termination, were
taken against Luna just as soon as, and on the very same dates the
reports are made. Were it not for the filing of this complaint with the
NLRC, Luna could have been booted out of office without due
process.
 be effective only upon the issuance by the SEC of a certificate of
merger.

ASSOCIATED BANK vs. CA
FACTS:
Associated Banking Corporation and Citizens Bank and Trust Company
merged as Associated Citizens Bank. The Associated Citizens Bank
changed its corporate name to Associated Bank by virtue of the
Amended Articles of Incorporation. The defendant executed in favor
of Associated Bank a promissory note but despite repeated demands,
the defendant failed to pay the amount due.
The fact that the promissory note was executed after the effectivity
date of the merger does not militate against petitioner. The
agreement itself clearly provides that all contracts — irrespective of
the date of execution — entered into in the name of CBTC shall be
understood as pertaining to the surviving bank. The Court holds that
petitioner has a valid cause of action against private respondent.
Clearly, the failure of private respondent to honor his obligation under
the promissory note constitutes a violation of petitioner's right to
collect the proceeds of the loan it extended to the former.

ISSUE:
Whether Associated Bank, the surviving corporation, may enforce the
promissory note made by private respondent in favor of CBTC, the
absorbed company, after the merger agreement had been signed?

HELD: BABST vs. CA

YES. Section 79 of the Code requires the approval by the SEC of the
articles of merger which, in turn, must have been duly approved by a Facts: ELISCON defaulted in paying its loan to CBTC. The letters of
majority of the respective stockholders of the constituent credit, were opened for ELISCON by CBTC using the credit facilities of
corporations. The same provision further states that the merger shall MULTI with the said bank. Chua and Babst executed a Continuing
Suretyship, whereby they bound themselves jointly and severally liable
to pay any existing indebtedness of MULTI to CBTC. CBTC opened for
ELISCON in favor of NSC 3 domestic letters of credit, which ELISCON
used to purchase tin black plates from NSC. ELISCON defaulted in its
obligation to pay. BPI and CBTC entered into a merger, wherein BPI,
as the surviving corporation, acquired all the assets and assumed all
the liabilities of CBTC. ELISCON encountered financial difficulties and
became heavily indebted to the DBP. ELISCON and DBP executed a
Deed of Cession of Property in Payment of Debt. DBP formally took
over the assets of ELISCON, including its indebtedness to BPI. BPI, as
successor-in-interest of CBTC, instituted a complaint for sum of
money against ELISCON, MULTI and Babst. The trial court ruled in
favor of BPI.

Issue: Whether BPI, the surviving corporation in a merger with CBTC,

consented to the assumption by DBP of the obligations of ELISCON?

Held: YES. BPI could have registered its objection to the substitution,
especially after it had already learned that DBP had taken over the
assets and assumed the liabilities of ELISCON. Its failure to do so can
only mean an acquiescence in the assumption by DBP of ELISCON's
obligations. BPI's objection was to the proposed payment formula, not
to the substitution itself. BPI insisted in going after the sureties.
Hence, there was a valid novation which resulted in the release of
ELISCON from its obligation to BPI, whose cause of action should be
directed against DBP as the new debtor.