J. F. RAMIREZ, plaintiff-appellee,
 vs.

 THE Petitioners, directors of respondent up to March
ORIENTALIST CO., and RAMON J. FERNANDEZ,
defendants- appellants
 (G.R. No. 11897
September 24, 1918)
Facts:
 Orientalist Company was engaged in the
business of maintaining and conducting a theatre
in the city of Manila for the exhibition of
cinematographic films, engaged in the business
of marketing films for a manufacturer or
manufacturers, there engaged in the production
or distribution of cinematographic material.
 In this enterprise the plaintiff was represented in
the city of Manila by his son, Jose Ramirez. The
directors of the Orientalist Company became
apprised of the fact that the plaintiff in Paris had
control of the agencies for two different marks of
films, namely, the “Eclair Films” and the
“Milano Films;” and negotiations were begun with
said officials of the Orientalist Company by Jose
Ramirez, as agent of the plaintiff.
 The defendant Ramon J. Fernandez, one of the
directors of the Orientalist Company and also its
treasurer, was chiefly active in this matter.
Ramon J. Fernandez had an informal conference
with all the members of the company’s board of
directors except one, and with approval of those
with whom he had communicated, addressed a
letter to Jose Ramirez, in Manila, accepting the
offer contained in the memorandum the exclusive
agency of the Eclair films and Milano films.
 In due time the films began to arrive in Manila, it
appears that the Orientalist Company was
without funds to meet these obligations. Action
was instituted by the plaintiff to Orientalist
Company, and Ramon J. Fernandez for sum of
money.
Issue: WON the Orientalist Co. is liable for the acts
of its treasurer, Fernandez?
Held: Yes. It will be observed that Ramon J.
Fernandez was the particular officer and member of
the board of directors who was most active in the
effort to secure the films for the corporation. The
negotiations were conducted by him with the
knowledge and consent of other members of the
board; and the contract was made with their prior
approval. In the light of all the circumstances of the
case, we are of the opinion that the contracts in
question were thus inferentially approved by the
company’s board of directors and that the company is
bound unless the subsequent failure of the
stockholders to approve said contracts had the effect
of abrogating the liability thus created.
BARRETO VS. LA PREVISORY FILIPINA (57 Phil.
649; Dec. 8, 1932)
1929, sought to recover 1% (to each plaintiff) of the
profits of the company for the year 1929, under and
in accordance with an amendment to the by-laws
which was made at the general meeting of the
stockholders on Feb. 1929, to which the lower court
rendered in their favor.
ISSUE: WON the amendment has a binding effect as
to grant plaintiffs’ claim?
HELD: No. Sec. 20 of the Corporation Law limits the
authority of a corporation to adopt by-laws which are
not consistent with the provisions of the law. The
appellees contend that the articled in question is
merely a provision of the compensation of directors
which is not only consistent with but expressly
authorized by Sec. 21 of the Corporation Law.
We cannot agree with this contention. The authority
conferred upon corporations in that section refers
only to providing compensation for the future services
of directors, officers, and employees thereof after the
adoption of the by-law or other provisions in relation
thereto, and cannot in any sense be held to authorize
the giving, as in this case, of continuous
compensation to particular directors after their
employment has terminated for part services
rendered gratuitously by them to the corporation. To
permit the transaction involved in this case would be
to create an obligation unknown to law, and to
countenance a misapplication of the funds of the
defendant building and loan association to the
prejudice of the substantial rights of its shareholders.
Irrespective of the above, the conclusion is the same.
The article which the appellees rely upon is merely a
by-law provision adopted by the stockholders of the
defendant corporation, without any action having
been takin in relation thereto by its board of directors.
The law is settled that contracts between a
corporation and third person must be made by or
under the authority of its board of directors and not by
its stockholders. Hence, the action of the
stockholders in such matters is only advisory and not
in any wise binding on the corporation. There could
not be a contract without mutual consent, and it
appears that the plaintiffs did not consent to the
provisions of the by-law in question, but, on the
contrary, they objected to and voted against it in the
stockholders‘ meeting in which it was adopted.
RAMON C. LEE and ANTONIO DM. LACDAO,
petitioners,
 vs.
 THE HON. COURT OF
APPEALS, SACOBA MANUFACTURING CORP.,
PABLO GONZALES, JR. and THOMAS
GONZALES, respondents.
 (GR No. 93695; 205
SCRA 752; Feb. 4, 1992)
FACTS: A complaint for a sum of money was filed by
International Corporate Bank, Inc. against the private
respondents who, in turn, filed a third-party complaint
against Alfa Integrated Textile Mills, Inc.
The trial court ordered the issuance of alias
summons upon Alfa through DBP, who is said to be
the transferee of Alfa’s management by virtue of a
voting trust agreement.
DBP declined to receive the summons saying it is not
authorized, Alfa having a personality separate and
distinct. The trial court, in turn ordered private
respondents to take the appropriate steps to serve
the summons to Alfa which they made through the
officers and later on, was later on declared to be
proper service of summons.
After the second motion for reconsideration, the trial
court reversed itself, saying that the service of
summons upon the petitioners were not proper, them
not being officers of the corporation anymore. On
appeal, the CA reversed the trial court.
ISSUE: WON the petitioners can still be authorized to
receive the summons despite the voting trust
agreement with DBP?
HELD: No. Sec. 59 of the Code expressly recognizes
VTAs and gives a more definitive meaning. By its
very nature, a VTA results in the separation of the
voting right of a stockholder from his other rights such
as the right to receive dividends, the right to inspect
the books of the corporation, the right to sell certain
interests in the assets of the corporation and other
rights to which a stockholder may be entitled until the
liquidation of the corporation. However,
in order to distinguish a VTA from proxies and other
voting pool and agreements, it must pass three
criteria or tests, namely: (1) the voting rights of the
stock are separated from other attributes or
ownership; (2) that the voting right granted are
intended to be irrevocable for a definite period of
time; and (3) that the principal purpose of the grant of
voting rights is to acquire voting control of the
corporation.
The execution of VTA, therefore, may create a
dichotomy between the equitable and beneficial
ownership of the corporate shares of stockholder, on
the one hand and the legal title thereto, on the other
hand.
By virtue of the VTA, the petitioners are no longer
directors. Under the old and new Corporation Code,
the most immediate effect of a VTA on the status of a
stockholder who is a party to its execution is that he
becomes only an equitable or beneficial owner, from
being the legal titleholder or owner of the shares
subject of the VTA.
Under the old code, the eligibility of a director, strictly
speaking, cannot be adversely affected by a VTA
inasmuch as he remains the owner (although
beneficial or equitable only) of the shares subject of
the VTA pursuant to which a transfer of the
stockholder’s shares in favor of the trustee is
required. No disqualification arises by virtue of the
phrase ―in his own right‖ provided under the Old
Code, which has been omitted.
Hence, this omission requires that in order to be
eligible as director, what is material is the legal title
to, not beneficial ownership, of the stock as
appearing on the books of the corporation.
The petitioners ceased to be the owners of at least
one share standing in their names on the books of
Alfa as required under Sec. 23 of the new Code.
They also ceased to have anything to do with the
management of the enterprise. The petitioners
ceased to be directors.
Considering the VTA, DBP as trustee, became the
stockholder of record with respect to the said shares
of stocks.
DETECTIVE AND PROTECTIVE BUREAU VS.
CLORIBEL (26 SCRA 256; Nov. 29, 1968)
A complaint was filed by herein petitioner-plaintiff
Detective and Protective Bureau against defendant-
respondent Fausto Alberto, alleging that defendant
illegally seized and took control of all the assets as
well as the books, records, vouchers and receipt of
the corporation from the accountant- cashier,
concealed them illegally and refused to allow any
member of the corporation to see and examine the
same. That on a meeting, the stockholders removed
defendant as managing director and elected Jose
dela Rosa.
Alberto, on the other hand, stated that Jose dela
Rosa could not be elected managing director
because he did not own any stock in the corporation.
ISSUE: WON dela Rosa may be elected managing
director?
HELD: No. There is no record showing that Jose dela
Rosa owned a share of stock in the corporation. If he
did not own any share of stock, certainly he could not
be a director pursuant to Sec. 30 of the Corporation
Law and consequently he cannot be a managing
director by virtue of the by-laws of the corporation
that the manager shall be elected by the BOD among
its members.
Accordingly, Faustino Alberto could not be compelled
to vacate his office and cede the same to dela Rosa
because the by-laws provide that the Directors shall
serve until the election and qualification of their duly
qualified successor.
YAO KA SIN TRADING VS. CA (209 SCRA 763;
June 15, 1992)
Constacio B. Malagna, President and Chairman of
the Board of private respondent Prime White Cement
Corporation (PWCC), sent a letter-offer (Exhibit A) to
Mr. Yao for the delivery of cement, which was
accepted by the latter by delivering a check for
P243,000.
ISSUE: WON the letter-offer sent by Malagna binds
the corporation?
HELD: No. A corporation can act only through its
officers and agents, all acts within the powers of said
corporation may be performed by agents of his
selection and except in so far as limitations or
restrictions may be imposed by special charter, by-
law or statutory provisions, the same general
provision of law which govern the relation of agency
for natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to
his power to act for the corporation; and the agents
once appointed, or members acting in their stead, are
subject to the same rules, liabilities and incapacities
as are agents of individuals and private persons.
Moreover, a corporate officer or agent may represent
and bind the corporation in transactiosn with third
person to the extent that authority has been
conferred upon him, and this includes powers which
have been (1) intentionally conferred, and (2) also
such powers as, in the usual course of business, are
incidental thereto, or may be implied therefrom, (3)
powers added by custom and usage, as usually
pertaining to the particular officer or agent, and (4)
such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe
that it has conferred.
While Mr. Maglana was an officer, the by-laws do not
in any way confer upon the president the authority to
enter into contracts for the corporation independently
of the BOD. That power is expressly lodged in the
latter.
Nevertheless, to expedite or facilitate the execution of
the contract, only the President shall sign the contact
for the corporation. No greater power can be implied
from such express, but limited delegated authority.
Neither can it be logically claimed that any power
greater than that expressly conferred is inherent in
Mr. Maglana’s position as president and chairman of
the corporation.
Although there is authority "that if the president is
given general control and supervision over the affairs
of the corporation, it will be presumed that he has
authority to make contract and do acts within the
course of its ordinary business," We find such
inapplicable in this case. We note that the private
corporation has a general manager who, under its
By-Laws has, inter alia, the following powers: "(a) to
have the active and direct management of the
business and operation of the corporation,
conducting the same accordingly to the order,
directives or resolutions of the Board of Directors or
of the president." It goes without saying then that Mr.
Maglana did not have a direct and active and in the
management of the business and operations of the
corporation.
Petitioner's last refuge then is his alternative
proposition, namely, that private respondent had
clothed Mr. Maglana with the apparent power to act
for it and had caused persons dealing with it to
believe that he was conferred with such power. The
rule is of course settled that "[a]lthough an officer or
agent acts without, or in excess of, his actual
authority if he acts within the scope of an apparent
authority with which the corporation has clothed him
by holding him out or permitting him to appear as
having such authority, the corporation is bound
thereby in favor of a person who deals with him in
good faith in reliance on such apparent authority, as
where an officer is allowed to exercise a particular
authority with respect to the business, or a particular
branch of it, continuously and publicly, for a
considerable time." Also, "if a private corporation
intentionally or negligently clothes its officers or
agents with apparent power to perform acts for it, the
corporation will be estopped to deny that such
apparent authority in real, as to innocent third
persons dealing in good faith with such officers or
agents." This "apparent authority may result from (1)
the general manner, by which the corporation holds
out an officer or agent as having power to act or, in
other words, the apparent authority with which it
clothes him to act in general or (2) acquiescence in
his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or
without the scope of his ordinary powers.
It was incumbent upon the petitioner to prove that
indeed the private respondent had clothed Mr.
Maglana with the apparent power to execute Exhibit
"A" or any similar contract. This could have been
easily done by evidence of similar acts executed
either in its favor or in favor of other parties.
Petitioner miserably failed to do that. Upon the other
hand, private respondent's evidence overwhelmingly
shows that no contract can be signed by the
president without first being approved by the Board of
Directors; such approval may only be given after the
contract passes through, at least, the comptroller,
who is the NIDC representative, and the legal
counsel.
LOPEZ REALTY, INC. VS. FOTENCHA (147 SCRA
183; Aug. 11, 1995)
Petitioner corporation approved two resolutions
providing for the gratuity pay of its employees. Except
for Asuncion Lopez-Gonzales, who was then abroad,
the remaining member of the board convened a
special meeting and passed a resolution adopting the
above-mentioned resolutions. Private respondents
requested for the full payment of the gratuity pay
which was granted.
At that time, however, petitioner Asuncion was still
abroad, and allegedly sent a cablegram objecting to
certain matters taken up by the board in her absence.
Notwithstanding a corporate squabble between
Asuncion and Arturo Lopez, the first two installments
of the gratuity pay of private respondents were paid.
Also, petitioner corporation had prepared the cash
vouchers and checks for the thir installment. For
some reason, said voucher was cancelled by
petitioner Asuncion.
A complaint was filed before the labor arbiter who
decided in favor of private respondents.
ISSUE: WON the gratuity pay should be paid?
HELD: Yes. The general rules is that a corporation,
through its board of directors, should act in the
manner and within the formalities, if any, prescribed
by its charter or by the general law. Thus, the
directors must act as a body in a meeting called
pursuant to the law or the corporation’s by-laws,
otherwise, any action taken therein may be
questioned by any objecting director or shareholder.
Be that as it may, jurisprudence tells us that an action
of the board of directors during a meeting, which was
illegal for lack of notice, may be ratified either (1)
expressly, by the action of the directors in
subsequent legal meeting, or (2) impliedly, by the
corporations‘ subsequent conduct.
Ratification by directors may be by an express
resolution or vote to that effect, or it may be implied
from adoption of the act, acceptance or
acquiescence. Moreover, the unauthorized acts of an
officer of a corporation may be ratified by the
corporation by conduct implying approval and
adoption of the act in question. Such ratification may
be expressed or may be inferred from silence and
inaction.
In the case at bench, it was established that
petitioner corporation did not issue any resolution
revoking nor nullifying the board resolution granting
gratuity pay to private respondents. Instead, they
paid the gratuity pay, particularly, the first two
installments thereof.
Despite lack of notice to Asuncion, we can glean from
the records that she was aware of the corporation’s
obligations under the said resolution. More
importantly she acquiesced thereto by affixing her
signature on two cash vouchers. The conduct of
petitioners had estopped them from assailing the
validity of the said board resolutions.
PUA CASIM & CO. VS. NEUMARK AND CO. (46
Phil. 242; Oct. 2, 1924)
W. Neumark, president of defendant corporation
borrowed P15000 from plaintiff which was delivered
by means of a check in favor of defendant and
deposited in BPI and the amount of it credited to the
corporation’s current account.
ISSUE: WON the corporation is responsible for the
money borrowed by its president?
HELD: Yes. W. Neumark is the principal stockholder,
president and general business manager of the
defendant corporation. On behalf of the corporation,
he solicited a loan and was given a check, which was
endorsed by him in his capacity as president and
deposited to the corporation’s account. It may be true
that a large part of the amount so deposited was
diverted by Neumark to his own use, but that does
not alter that the money was borrowed for the
corporation and was placed in its possession.
It is conceded that Neumark was not expressly
authorized by the board of directors to borrow the
money in question and the general rule is that a
business manager or other officer of a corporation,
has no implied power to borrow money on its behalf.
But much depends upon the circumstances of each
particular case and the rule state is subject to
important exceptions. Thus, where a general
business manager of a corporation is clothed with
apparent authority to borrow money and the amount
borrowed does not exceed the ordinary requirements
of the business, it has often been held that the
authority is implied and that the corporation is bound.
YU CHUCK VS. KONG LI PO (46 Phil. 608; Dec. 3,
1924)
CC Chen or TC Chen, General Manager of defendant
corporation Kong Li Po, entered into an agreement
with the plaintiffs by which the latter bound
themselves to do the necessary printing for the
newspaper. Later on, the new general manager, Tan
Tian Hong, discharged plaintiffs with no special
reasons. Aggrieved, plaintiffs sought to recover full
payment of the remaining term of the contract, which
was originally for 3 years, as stated therein.
ISSUE: WON Chen had the power to bind the
corporation under a contract of that character?
HELD: No. The general rule is that the power to bind
a corporation by contract lies with its board of
directors or trustees, but this power may either be
expressly or impliedly be delegated to other officers
or agents of the corporation, and it is well settled that
except where the authority of employing servants and
agents is expressly vested in the BOD/T, an officer or
agent who has general control and management of
the corporation‘s business, or a specific part thereof,
may bind the corporation as are usual and necessary
in th conduct of such business. But the contracts of
employment must be reasonable.
Chen, as general manager of Kong Li Po, had
implied authority to bind the defendant corporation by
a reasonable and usual contract of employment with
the plaintiffs, but we do not think that contract here in
question can be so considered. Not only is the term
of employment usually long, but the conditions are
otherwise so onerous to the defendant that the
possibility of the corporation being thrown into
insolvency thereby is expressly contemplated in the
same contract. This fact, in itself was, in our opinion,
sufficient to put the plaintiffs upon inquiry as to the
extent of the business manager’s authority; they had
not the right to presume that he or any other single
officer or employee of that corporation had implied
authority to enter into a contract of employment which
might bring about its ruin.
TRINIDAD J. FRANCISCO VS. GSIS (7 SCRA 557;
March 30, 1963)
Trinidad Francisco, in consideration of loan extended
by GSIS, mortgaged her property in QC. For being in
arrears in her installments, GSIS extrajudicially
foreclosed the mortgage.
Plaintiff’s father, Atty. Vicente Francisco sent a letter
to Rodolfo Andal, general manager of GSIS, offering
to redeem the property which was replied to by Andal
through a telegram saying ―GSIS BOARD
APPROVED YOUR REQUEST RE REDEMTPION
OF FORECLOSED PROPERTY OF YOUR
DAUGHTER‖
Later, inasmuch as, according to the defendant
GSIS, the remittances made by Atty. Francisco were
allegedly not sufficient to pay off her daughter’s
arrears, the one year redemption period has expired,
said defendant consolidated title to the property in its
name.
ISSUE: WON the telegram sent by the Andal binds
the corporation?
HELD: Yes. The terms of the offer were clear and
over the signature of Andnal, plaintiff was informed
that the proposal has been accepted. There was
nothing in the telegram that hinted at any anomaly, or
gave grounds to suspect its veracity, and the plaintiff,
therefore, cannot be blamed for relying upon it. There
is no denying that the telegram was within Andal’s
apparent authority, but eh defense is that he did not
sign it, but that it was sent by the board secretary in
his name and without his knowledge. Assuming this
to be true, how was appellee to know it? Corporate
transactions would speedily come to a standstill were
every person dealing with a corporation were held
duty-bound to disbelieve every act of its responsible
officers, no matter how regular they should appear on
their face.
Indeed, it is well-settled that If a private corporation
intentionally or negligently clothes its officers or
agents with apparent power to perform acts for it, the
corporation will be estopped to deny that such
apparent authority is real, as to innocent third
persons dealing in good faith with such officers or
agents.
Hence, even if it were the board secretary who sent
the telegram, the corporation could not evade the
binding effect produced by the telegram.
The error in the wording cannot be taken seriously.
All the while GSIS pocketed the various remittances,
and kept silent as to the true facts as it now alleges.
This silence, taken together with the unconditional
acceptance of three other subsequent remittances
from plaintiff constitutes in itself a binding ratification
of the original agreement.
THE BOARD OF LIQUIDATORS VS. KALAW (20
SCRA 987; Aug. 10, 1965)
National Coconut Corporation (NACOCO) embarked
on copra trading activities led by its General Manager
Maximo Kalaw and the other defendants as members
of the board. Due to natural calamities, the business
of copra became unprofitable. Kalaw made a full
disclosure of the situation and apprised the baord of
the impending losses on the contracts already
entered into, but no action was taken. But later on,
the contracts were unanimously approved by the
Board. The buyers threated damage suits, but some
were settled. Louis Dreyfus & Co. Ltd. Actually sued
but was also culminated in an out-of-court settlement.
NACOCO now seeks to recover the sum paid to
Louis from general manager and board chairman
Kalaw and the other members who approved the
contracts. It charges Kalaw with negligence and bad
faith and/or breach of trust for having approved the
contracts, which was dismissed by the trial court.
ISSUE: WON the contracts executed by Kalaw binds
the corporation?
HELD: Yes. A rule that has gained acceptance
through the years is that a corporate officer
―entrusted‖ with the general management and
control of its business, has implied authority to make
any contract or do any other act which is necessary
or appropriate to the conduct of the ordinary business
of the corporation. As such officer, he may, without
any special authority from the BOD perform all acts of
an ordinary nature, which by usage or necessity are
incident to his office, and may bind the corporation by
contracts in matters arising in the usual course of
business.
Long before the disputed contracts came into being,
Kalaw contracted by himself alone as general
manager – for forward sales of corpra (which is a
necessity in the business) which were profitable. So
pleased was NACOCO;s BOD that it voted to grant
Kalaw special bonus in recognition of the signal
achievement rendered by him.
These previous contacts, it should be stressed, were
signed by Kalaw without prior authority from the
board. Said contracts were known all along to the
board members. Nothing was said by them. The
aforesaid contracts stand to prove one thing.
Obviously, NACOCO’s board met difficulties
attendant to forward sales by leaving the adoption of
means to end, to the sound discretion of NACOCO’s
general manager Maximo Kalaw.
Where similar acts have been approved by the
directors as a matter of general practice, custom, and
policy, the general manager may bind the company
without formal authorization of the BOD. In varying
language, existence of such authority is established,
by proof of the course of business, the usages and
practices of the company and by the knowledge
which the BOD has, or must be presumed to have, of
acts and doings of its subordinates in and about the
affairs of the corporation. Although the plaintiff is a stockholder of the
corporation he does not, however, claim a share of
In the case at bar, the practice of the corporation has the profits as such stockholder, but under the
been to allow its general manager to negotiate and agreement between him and the president of the
execute contracts in its copra trading activities for corporation which has been impliedly ratified by the
and in NACOCO’s behalf without prior board BOD.
approval. If the by- laws were to be literally followed,
the board should give its stamp of prior approval on
all corporate contracts. But the Board itself, by its
acts and through acquiescence, practically laid aside
the by-law requirement of prior approval.

BUENASEDA VS. BOWEN & CO., INC. (110 Phil.

464; Dec. 29, 1969)

As a consequence of P200,000 worth of ECA

allocated to the Bowen & Co., Inc., it required a letter
of credit in the amount of P100,000 with the PNB. As
the corporation did not have at the time the
necessary funds to put up the required cash marginal
deposit of P60,000, its president Geoffrey Bowen,
obligating the corporation and himself in his personal
capacity, offered to pay Fracisco Buenaseda 37 1⁄2%
of the profits to be realized from the sale of the ECA
procurement materials, should he be able to obtain
and produce the amount necessary to cover the cash
marginal deposit – which Buenaseda was able to do.

The corporation refused to pay, Buenaseda filed an

action in the CFI to recover the same.

ISSUE: WON the agreement was binding?

HELD: Yes. It is not here pretended that the BOD of

the defendant corporation had no knowledge of the
agreement between Bowen and plaintiff. Indeed, at
the time the said Agreement was made, the BOD of
the corporation was composed of Bowen himself, his
wife, Buenaseda and two others, with Bowen and his
wife controlling the majority of the stocks of the
corporation. The Board did not repudiate the
agreement but on the contrary, acquiesced in and
took advantage of the benefits afforded by said
agreement. Such acts are equivalent to an implied
ratification of the agreement by the BOD and bound
the corporation even without formal resolution passed
and recorded.

It is agreed by the respondents, defendants below,

that the profits of the corporation form part of its
assets and payment of a certain percentage of the
profits requires a declaration of dividends and/or
resolution of the BOD. The agreement is untenable.
CENTRAL COOPERATIVE EXCHANGE (CCE) VS.
TIBE, JR. (33 SCRA 593; June 30, 1970) – This is a
complaint filed by herein petitioner CCE for the
refund of certain amounts received by respondent
when he served as member of the board of directors
of CCE, which were said t be per diems and
transportation expenses, representation expenses
and cummutable discretionary funds.
ISSUE: WON the BOD had the power to appropriate
funds for the expenses claimed by respondent?
HELD: No. The by-laws expressly reserved unto the
stockholders the power to determine the
compensation of the members of the BOD, and the
stockholders did restrict such compensation to (1)
actual transportation expenses plus (2) per diems of
P30 and (3) actual expenses while waiting. Even
without the express prohibition, the directors are not
entitled to compensation for ―The law is well-
settled that directors of corporations
presumptively serve without compensation and
in the absence of an express agreement or a
resolution thereto, no claim can be asserted
therefor. Thus it has been held that there can be
no recovery of compensation, unless expressly
provided for, when director serves as president
or vice-president, as secretary or treasurer or
cashier, as member of an executive committee,
as chairman of a building committee, or similar
offices.
Thus, the directors, in assigning themselves
additional duties, such as the visitation of FACOMAS,
acted within their power, but, by voting for
themselves compensation for such additional duties,
they acted in excess of their authority, as express in
the by-laws.
WESTERN INSTITUTE OF TECHNOLOGY, INC.,
HOMERO L. VILLASIS, DIMAS ENRIQUEZ,
PRESTON F. VILLASIS & REGINALD F. VILLASIS,
petitioner,
 vs.
RICARDO T. SALAS, SALVADOR T. SALAS,
SOLEDAD SALAS- TUBILLEJA, ANTONIO S.
SALAS, RICHARD S. SALAS & HON. JUDGE
PORFIRIO PARIAN, respondents
 (GR No. 113032;
278 SCRA 216; Aug. 21, 1997)
FACTS: In a special board meeting, a resolution was
passed providing for compensation of officers. A few
years later, petitioners Homero Villasis, Prestod
Villasis, Reginald Villasis and Dimas Enriquez filed
an affidavit- complaint for falsification of public
documents (for submission of an income reflecting
the resolution as passed on 1985, when in fact it was
passed in 1986) and estafa (for the disbursement of
funds by effecting payment to the aforesaid salaries)
against herein respondents who were members of
the Board of Trustees who were also officers of the
corporation. The trial court acquitted respondents in
both charges without civil liability. The motion for
reconsideration on the civil aspect being denied,
petitioners filed this petition.
ISSUE: WON the resolution granting compensation
to OFFICERS of the corporation is valid?
HELD: Yes. The proscription under Sec. 30, is
against granting compensation to directors/trustees
of a corporation is not a sweeping rule. Worthy of
note is the clear phraseology of Sec 30 which states
―... [T]he directors shall not receive any
compensation, as such directors, ...‖ The phrase as
such directors is not without significance for it
delimits the scope of the prohibition to
compensation given to them for services
performed purely in their capacity as directors or
trustees. The unambiguous implication is that
members of the board may receive compensation, in
addition to reasonable per diems, when they render
services to the corporation in a capacity other than
as directors/trustees. In the case at bench, the
Resolution granted monthly compensation to private
respondents not in their capacity as members of the
board, but rather as officers of the corporation, more
particularly as Chairman, Vice-Chairman, Treasurer
and Secretary of WIT.
Clearly Sec. 30 is not violated. Consequently, the last
sentence limiting the compensation to 10% of the net
income before income tax does not likewise find
application in this case since the compensation is
being given to private respondents in their capacity
as officers of WIT and not as board members.
GOVERNMENT VS. EL HOGAR FILIPINO (50 Phil.
399; July 14, 1927) – The members of the board of El
Hogar Filipino receives 5% of the net profit as shown
in the balance sheet and is distributed in proportion to
their attendance to meetings of the board. A
complaint was filed against the, and the sixth cause
of action alleged that the directors, instead of serving
without pay, or receiving nominal pay or a fixed
salary - as the complainant supposes would be
proper – have been receiving large compensation in
varying amounts.
ISSUE: WON the courts may declared the by-law
provision null and void?
HELD: No. The Corporation Law does not
undertake to prescribe the rate of compensation
for the directors of corporations. The power to
fixed the compensation they shall receive, if any, is
left to the corporation, to be determined in its by-laws
(Act No. 1459, sec. 21). Pursuant to this authority the
compensation for the directors of El Hogar Filipino
has been fixed in section 92 of its by-laws, as already
stated. The justice and propriety of this provision
was a proper matter for the shareholders when
the by-laws were framed; and the circumstance
that, with the growth of the corporation, the
amount paid as compensation to the directors
has increased beyond what would probably be
necessary to secure adequate service from them
is matter that cannot be corrected in this action;
nor can it properly be made a basis for depriving the
respondent of its franchise, or even for enjoining it
from compliance with the provisions of its own by-
laws. If a mistake has been made, or the rule
adopted in the by-laws has been found to work
harmful results, the remedy is in the hands of the
stockholders who have the power at any lawful
meeting to change the rule. The remedy, if any,
seems to lie rather in publicity and competition, rather
than in a court proceeding. The sixth cause of action
is in our opinion without merit.
TRAMAT MERCANTILE, INC. VS. CA (238 SCRA
14; Nov. 7, 1994) – Melchor dela Cuesta, doing
business under the name Farmers Machineries, sold
a tractor to Tramat Mercantile, Inc. In payment, David
Ong, Tramat’s president and manager issued a
check for P33,500. Tramat sold the tractor, together
with an attached lawn mower fabricated by it, to
NAWASA. David Ong put a stop payment on the
check when NAWASA refused to pay on the account
that aside from the defects on the lawn mower, the
engine (sold by dela Costa) was a reconditioned unit.
De la Costa filed an action for recovery of money
which was granted by the court.
ISSUE: WON Ong should be held jointly and
severally liable?
HELD: No. It was an error to hold David Ong jointly
and severally liable with TRAMAT to de la Cuesta
under the questioned transaction. Ong had there so
acted, not in his personal capacity, but as an officer
of a corporation, TRAMAT, with a distinct and
separate personality. As such, it should only be the
corporation, not the person acting for and on its
behalf, that properly could be made liable thereon.
Personal liability of a corporate director, trustee
or officer along (although not necessarily) with
the corporation may so validly attach, as a rule,
only when —
1. He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith, or gross negligence
in directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its
stockholders or other persons;
2. He consents to the issuance of watered stocks or
who, having knowledge thereof, does not forthwith
file with the corporate secretary his written objection
thereto;
3. He agrees to hold himself personally and solidarily
liable with the corporation;
4. He is made, by a specific provision of law, to
personally answer for his corporate action.
In the case at bench, there is no indication that
petitioner David Ong could be held personally
accountable under any of the abovementioned cases.
RICARDO A. LLAMADO, petitioner,
 vs.
 COURT
OF APPEALS and PEOPLE OF THE PHILIPPINES,
respondents (GR No. 99032; 270 SCRA 423; March
26, 1997)
FACTS: Private complainant Leon Gaw delivered to
the accused Ricardo Llamado and Jacinto Pascual
the amount of P180,000 which is to be repaid in 6
months with 12% interest. As security, the accused
issued and signed a postdated check which was later
on stopped and dishonored for being drawn against
insufficient funds. Gaw filed a complaint for violation
of BP Blg. 22. Pascual remained at large and the trial
on the merits against Llamado was conducted. The
trial court convicted Llamado.
ISSUE: WON petitioner, treasurer of Pan Asia
Finance Corporation could be held civilly and
criminally liable?
HELD: Yes. Petitioner denies knowledge of the
issuance of the check without sufficient funds and
involvement in the transaction with private
complainant. However, knowledge involves a state of
mind difficult to establish. Thus, the statute itself
creates a prima facie presumption, i.e., that the
drawer had knowledge of the insufficiency of his
funds in or credit with the bank at the time of the
issuance and on the check's presentment for
payment. Petitioner failed to rebut the presumption by
paying the amount of the check within five (5)
banking days from notice of the dishonor. His claim
that he signed the check in blank which allegedly is
common business practice, is hardly a defense. If as
he claims, he signed the check in blank, he made
himself prone to being charged with violation of BP
22. It became incumbent upon him to prove his
defenses. As Treasurer of the corporation who
signed the check in his capacity as an officer of the
corporation, lack of involvement in the negotiation for
the transaction is not a defense.
Petitioner's argument that he should not be held
personally liable for the amount of the check because
it was a check of the Pan Asia Finance Corporation
and he signed the same in his capacity as Treasurer
of the corporation, is also untenable. The third
paragraph of Section 1 of BP Blg. 22 states:
―Where the check is drawn by a corporation,
company or entity, the person or persons who
actually signed the check in behalf of such
drawer shall be liable under this Act‖
ELENA F. UICHICO, SAMUEL FLORO, VICTORIA
F. BASILIO, petitioners,
 vs.
 NATIONAL LABOR
RELATIONS COMMISSION, LUZVIMINDA
SANTOS, SHIRLEY PORRAS, CARMEN
ELIZARDE, ET. AL., respondents
(GR No. 121434; 273 SCRA 35; June 2, 1997)
FACTS: Private respondents were employees of
Crispa, Inc. who were dismissed due to alleged
retrenchment. They filed an illegal dismissal
complaint with the NLRC against Crispa, Inc.,
Valeriano Floro (major stockholder, incorporation and
director of Crispa) and petitioners, who were high
ranking officials and directors of Crispa. The Lbor
Arbiter dismissed the complaint but ordered
petitioners, Floro and Crispa to pay separation pay.
ISSUE: WON petitioners can be held liable?
HELD: Yes. A corporation is a juridical entity with
legal personality separate and distinct from those
acting for and in its behalf and, in general, from the
people comprising it. The general rule is that
obligations incurred by the corporation, acting
through its directors, officers and employees, are its
sole liabilities. There are times, however, when
solidary liabilities may be incurred but only when
exceptional circumstances warrant such as in the
following cases:
―1. When directors and trustees or, in appropriate
cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation; (b)
act in bad faith or with gross negligence in directing
the corporate affairs; (c) are guilty of conflict of
interest to the prejudice of the corporation, its
stockholders or members, and other persons;
2. When a director or officer has consented to the
issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with
the corporate secretary his written objection
thereto; 

3. When a director, trustee or officer has contractually
agreed or stipulated to hold himself
personally and solidarily liable with the
corporation; or 

4. When a director, trustee or officer is made, by
specific provision of law, personally liable for
his corporate action.‖i 

In labor cases, particularly, corporate directors
and officers are solidarily liable with the
corporation for the termination of employment of
corporate employees done with malice or in bad
faith. In this case, it is undisputed that petitioners
have a direct hand in the illegal dismissal of
respondent employees. They were the ones, who as
high- ranking officers and directors of Crispa, Inc.,
signed the Board Resolution retrenching the private
respondents on the feigned ground of serious
business losses that had no basis apart from an
unsigned and unaudited Profit and Loss Statement
which, to repeat, had no evidentiary value
whatsoever. This is indicative of bad faith on the part
of petitioners for which they can be held jointly and
severally liable with Crispa, Inc. for all the money
claims of the illegally terminated respondent
employees in this case.
ALFREDO MONTELIBANO, ET AL., plaintiffs-
appellants,
 vs.
 BACOLOD-MURCIA MILLING CO.,
INC., defendant-appellee. (GR No. L-15092; 5 SCRA
36; May 18, 1962)
FACTS: Appellants have been sugar planter adhered
to defendat-appellees sugar central mill under
identical milling contracts with a 55% share of the
resulting product. There was a proposal to increase
the planter’s share to 60% which was adopted by
defendant in an Amended Milling Contract and
consequently a Board Resolution.
In 1953, the appellants initiated the present action,
contending that three Negros sugar centrals (La
Carlota, Binalbagan-Isabela and San Carlos), with a
total annual production exceeding one-third of the
production of all the sugar central mills in the
province, had already granted increased participation
(of 62.5%) to their planters, and that under paragraph
9 of the resolution of August 20, 1936, heretofore
quoted, the appellee had become obligated to grant
similar concessions to the plaintiffs (appellants
herein). The appellee Bacolod-Murcia Milling Co.,
inc., resisted the claim, and defended by urging that
the stipulations contained in the resolution were
made without consideration; that the resolution in
question was, therefore, null and void ab initio, being
in effect a donation that was ultra vires and beyond
the powers of the corporate directors to adopt. The
trial court decided in favor of defendant, thus the
present appeal.
ISSUE: WON the resolutions passed by the bard are
valid and binding?
HELD: Yes. There can be no doubt that the directors
of the appellee company had authority to modify the
proposed terms of the Amended Milling Contract for
the purpose of making its terms more acceptable to
the other contracting parties.
As the resolution in question was passed in good
faith by the board of directors, it is valid and
binding, and whether or not it will cause losses or
decrease the profits of the central, the court has
no authority to review them.
―They hold such office charged with the duty to act
for the corporation according to their best judgment,
and in so doing they cannot be controlled in the
reasonable exercise and performance of such duty.
Whether the business of a corporation should be
operated at a loss during depression, or close down
at a smaller loss, is a purely business and economic
problem to be determined by the directors of the
corporation and not by the court. It is a well-known
rule of law that questions of policy or of management
are left solely to the honest decision of officers and
directors of a corporation, and the court is without
authority to substitute its judgment of the board of
directors; the board is the business manager of the
corporation, and so long as it acts in good faith its
orders are not reviewable by the courts. (Fletcher on
Corporations, Vol. 2, p. 390).‖
And it appearing undisputed in this appeal that sugar
centrals of La Carlota, Hawaiian Philippines, San
Carlos and Binalbagan (which produce over one-
third of the entire annual sugar production in
Occidental Negros) have granted progressively
increasing participations to their adhered planter at
an average rate of
62.333% for the 1951-52 crop year;
5. 64.2% for 1952-53; 

6. 64.3% for 1953-54; 

64.5% for 1954-55; and
63.5% for 1955-56,
the appellee Bacolod-Murcia Milling Company is,
under the terms of its Resolution of August 20, 1936,
duty bound to grant similar increases to plaintiffs-
appellants herein.
STRONG VS. REPIDE (41 Phil. 947; May 3, 1909) –
the Governor of the Philippine Islands, on behalf of
the government, made an offer of purchase for the
total sum of $6,,043,219.47 in gold for all the friar
lands, though owned by different owners.
While this state of things existed, and before the final
offer had been made by the Governor, the defendant,
although still holding out for a higher price for the
lands, took steps to purchase the 800 shares of stock
in his own company from Mrs. Strong, which he knew
were in the possession of F. Stuart Jones, as her
agent. The defendant employed Krauffman and the
latter employed Mr. Sloan, a broker, to purchase the
stock for him. Mr. Sloan, the husband, did not know
who wanted to buy the shares nor did Jones when he
was spoken to. Jones would not have sold at the
price he did had he known it was the defendant who
was purchasing, because, as he said, it would show
increased value, as the defendant would not be likely
to purchase ore stock unless the price was going up.
ISSUE: WON it was the duty of the defendant to
disclose to the agent of the plaintiff the facts bearing
upon or which might affect the value of the stock?
HELD: Yes. A director upon whose action the value
of the shares depends cannot avail of his knowledge
of what his own action will be to acquire shares from
those whom he intentionally keeps in ignorance of his
expected action and the resulting value of the shares.
Even though a director may not be under the
obligation of a fiduciary nature to disclose to a
shareholder his knowledge affecting the value of the
shares, that duty may exist in special cases, and did
exist upon the facts in this case.
In this case, the facts clearly indicate that a director
of a corporation owning friar lands in the Philippine
Islands, and who controlled the action of the
corporation, had so concealed his exclusive
knowledge of the impending sale to the government
from a shareholder from whom he purchased,
through an agent, shares in the corporation, that the
concealment was in violation of his duty as a director
to disclose such knowledge, and amounted to deceit
sufficient to avoid the sale; and, under such
circumstances, it was immaterial whether the
shareholder's agent did or did not have power to sell
the stock.
In addition to his ownership of almost three-fourths of
the shares of the stock of the company, the
defendant was one of the five directors of the
company, and was elected by the board the agent
and administrator general of such company, "with
exclusive intervention in the management" of its
general business.
Concealing his identity when procuring the purchase
of stock, by his agent, was in itself stock evidence of
fraud on the part of the defendant. The concealment
was not a mere inadvertent omission but was a
studied and intentional omission, to be characterized
as part of the deceitful machination to obtain the
purchase without giving information whatever as to
the state and probable result of the negotiations, to
the vendor of the stock, and to, in that way, obtain the
same at a lower price.
PRIME WHITE CEMENT CORPORATION,
petitioner, vs.
 IAC and ALEJANDRO TE,
respondents
 (GR No. L-68555; 220 SCRA 103;
March 19, 1993)
FACTS: Respondent Alejandro Te, a director of
petitioner corporation, was awarded a dealership
agreement whereby Te would be the exclusive dealer
and/or distributor of the corporation in the entire
Mindanao. As a consequence, Te entered into
different contracts for selling white cement. Laer on,
defendant corporation decided to impose certain
conditions upon the dealership agreement.
Several demands to comply with the agreement were
made by Te to the corporation but was refused and
Te was constrained to cancel the contracts he
entered into.
Defendant corporation entered into an exclusive
dealership agreement with Napoleon Co for the
marketing of white cement in Mindanao. Hence, this
suit.
ISSUE: WON the dealership agreement entered into
by Te with his own corporation is valid and binding?
HELD: No. In the instant case respondent Te was not
an ordinary stockholder; he was a member of the
Board of Directors and Auditor of the corporation as
well. He was what is often referred to as a "self-
dealing" director.
A director of a corporation holds a position of trust
and as such, he owes a duty of loyalty to his
corporation. In case his interests conflict with those of
the corporation, he cannot sacrifice the latter to his
own advantage and benefit. As corporate managers,
directors are committed to seek the maximum
amount of profits for the corporation. This trust
relationship "is not a matter of statutory or technical
law. It springs from the fact that directors have the
control and guidance of corporate affairs and
property and hence of the property interests of the
stockholders.
Granting arguendo that the "dealership agreement"
involved here would be valid and enforceable if
entered into with a person other than a director or
officer of the corporation, the fact that the other party
to the contract was a Director and Auditor of the
petitioner corporation changes the whole situation.
First of all, We believe that the contract was neither
fair nor reasonable. The "dealership agreement"
entered into in July, 1969, was to sell and supply to
respondent Te 20,000 bags of white cement per
month, for five years starting September, 1970, at the
fixed price of P9.70 per bag. Respondent Te is a
businessman himself and must have known, or at
least must be presumed to know, that at that time,
prices of commodities in general, and white cement
in particular, were not stable and were expected to
rise. At the time of the contract, petitioner corporation
had not even commenced the manufacture of white
cement, the reason why delivery was not to begin
until 14 months later. He must have known that within
that period of six years, there would be a
considerable rise in the price of white cement. In fact,
respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and
by the middle of 1975, it was already P37.50 per bag.
Despite this, no provision was made in the
"dealership agreement" to allow for an increase in
price mutually acceptable to the parties. Instead, the
price was pegged at P9.70 per bag for the whole five
years of the contract. Fairness on his part as a
director of the corporation from whom he was to buy
the cement, would require such a provision. In fact,
this unfairness in the contract is also a basis which
renders a contract entered into by the President,
without authority from the Board of Directors, void or
voidable, although it may have been in the ordinary
course of business. We believe that the fixed price of
P9.70 per bag for a period of five years was not fair
and reasonable. Respondent Te, himself, when he
subsequently entered into contracts to resell the
cement to his "new dealers" Henry Wee and
Gaudencio Galang stipulated as follows:
The price of white cement shall be mutually
determined by us but in no case shall the same be
less than P14.00 per bag (94 lbs)
As director, especially since he was the other party in
interest, respondent Te's bounden duty was to act in
such manner as not to unduly prejudice the
corporation. In the light of the circumstances of this
case, it is to Us quite clear that he was guilty of
disloyalty to the corporation; he was attempting in
effect, to enrich himself at the expense of the
corporation. There is no showing that the
stockholders ratified the "dealership agreement" or
that they were fully aware of its provisions. The
contract was therefore not valid and this Court cannot
allow him to reap the fruits of his disloyalty.
CHARLES W. MEAD, plaintiff-appellant,
 vs.
 E. C.
McCULLOUGH, ET AL., and THE PHILIPPINE
ENGINEERING AND CONSTRUCTION COMPANY,
defendant-appellants
 (GR No. 6217; 21 Phil. 95;
Dec. 26, 1911)
FACTS: Herein plaintiff-appellant Mead with
defendant McCullough formed the Philippine
Engineering and Construction Company, the
incorporators being the only stockholders and
directors of the company. When Mead left for China,
the other directors entered into an agreement where
all the rights in a ―wrecking contract‖ with the naval
authorities were sold to defendant. The defendant, in
turn, sold these rights with R.W. Brown, HDC jones,
John Macleod and TH Twentyman, and retaining one
sixth interest, formed Manila Salvage Association.
ISSUE: WON officers or directors of the corporation
may purchase the corporate property?
HELD: Yes. While a corporation remains solvent, we
can see no reason why a director or officer, by the
authority of a majority of the stockholders or board of
managers, may not deal with the corporation, loan it
money or buy property from it, in like manner as a
stranger. So long as a purely private corporation
remains solvent, its directors are agents or trustees
for the stockholders. They owe no duties or
obligations to others. But the moment such a
corporation becomes insolvent, its directors are
trustees of all the creditors, whether they are
members of the corporation or not, and must manage
its property and assets with strict regard to their
interest; and if they are themselves creditors while
the insolvent corporation is under their management,
they will not be permitted to secure to themselves by
purchasing the corporate property or otherwise any
personal advantage over the other creditors.
Nevertheless, a director or officer may in good faith
and for an adequate consideration purchase from a
majority of the directors or stockholders the property
even of an insolvent corporation, and a sale thus
made to him is valid and binding upon the minority.
(Beach et al. vs. Miller, supra; Twin-Lick Oil Company
vs. Marbury, supra; Drury vs. Cross, 7 Wall., 299;
Curran vs. State of Arkansas, 15 How., 304; Richards
vs. New Hamphshire Insurance Company, 43 N. H.,
263; Morawetz on Corporations (first edition), sec.
579; Haywood vs. Lincoln Lumber Company et al., 64
Wis., 639; Port vs. Russels, 36 Ind., 60; Lippincott vs.
Shaw Carriage Company, 21 Fed. Rep., 577.)
In the case of the Twin-Lick Oil Company vs.
Marbury, he court said:
That a director of a joint-stock corporation occupies
one of those fiduciary relations where his dealings
with the subject-matter of his trust or agency, and
with the beneficiary or party whose interest is
confided to his care, is viewed with jealousy by the
courts, and may be set aside on slight grounds, is a
doctrine founded on the soundest morality, and which
has received the clearest recognition in this court and
others. (Koehler vs. Iron., 2 Black, 715; Drury vs.
Cross, 7 Wall., 299; R.R. Co. vs. Magnay, 25 Beav.,
586; Cumberland Co vs. Sherman, 30 Barb., 553;
Hoffman S. Coal Co. vs. Cumberland Co., 16 Md.,
456.) The general doctrine, however, in regard to
contracts of this class, is, not that they are absolutely
void, but that they are voidable at the election of the
party whose interest has been so represented by the
party claiming under it. We say, this is the general
rule; for there may be cases where such contracts
would be void ab initio; as when an agent to sell buys
of himself, and by his power of attorney conveys to
himself that which he was authorized to sell. but even
here, acts which amount t a ratification by the
principal may validate the sale
The sale or transfer of the corporate property in the
case at bar was made by three directors who were at
the same time a majority of stockholders. If a majority
of the stockholders have a clear and a better right to
sell the corporate property than a majority of the
directors, then it can be said that a majority of the
stockholders made this sale or transfer to the
defendant McCullough.
What were the circumstances under which said sale
was made? The corporation had been going from
bad to worse. The work of trying to raise the sunken
Spanish fleet had been for several months
abandoned. The corporation under the management
of the plaintiff had entirely failed in this undertaking. It
had broken its contract with the naval authorities and
the $10,000 Mexican currency deposited had been
confiscated. It had no money. It was considerably in
debt. It was a losing concern and a financial failure.
To continue its operation meant more losses.
Success was impossible. The corporation was civilly
dead and had passed into the limbo of utter
insolvency. The majority of the stockholders or
directors sold the assets of this corporation, thereby
relieving themselves and the plaintiff of all
responsibility. This was only the wise and sensible
thing for them to do. They acted in perfectly good
faith and for the best interests of all the stockholders.
"It would be a harsh rule that would permit one
stockholder, or any minority of stockholders to hold a
majority to their investment where a continuation of
the business would be at a loss and where there was
no prospect or hope that the enterprise would be
profitable."
We therefore conclude that the sale or transfer made
by the quorum of the board of directors — a majority
of the stockholders — is valid and binding upon the
majority-the plaintiff.
CANDIDO PASCUAL, plaintiff-
appellant,
 vs.
 EUGENIO DEL SAZ OROZCO, ET
AL, defendants-appellees (GR No. L-5174; 19 Phil.
83; March 17, 1911)
FACTS: During 1903-1907, the defendant-appellees,
without the knowledge and acquiescence of the
stockholders deducted their compensation from gross
income instead of from the net profits of the bank, the
same with their predecessors for the years 1899-
1902.
Plaintiff-appellant brings this action in his own right as
a stockholder of the bank, for the benefit of the bank
and all the stockholders, in behalf of the corporation,
which, even though, nominally a defendant, is to all
intents and purposes the real plaintiff in this case as
shown in the prayer of the complaint.
ISSUE: WON plaintiff has capacity to sue?
HELD: Yes. In suits of this character the corporation
itself and not the plaintiff stockholder is the real party
in interest. The rights of the individual stockholder are
merged into that of the corporation. It is a universally
recognized doctrine that a stockholder in a
corporation has no title legal or equitable to the
corporate property; that both of these are in the
corporation itself for the benefit of all the
stockholders. Text writers illustrate this rule by the
familiar example of one person or entity owning all
the stock and still having no greater or essentially
different title than if he owned but one single share.
Since, therefore, the stockholder has no title, it is
evident that what he does have, with respect to the
corporation and his fellow stockholder, are certain
rights sui generis. These rights are generally
enumerated as being, first, to have a certificate or
other evidence of his status as stockholder issued to
him; second, to vote at meetings of the corporation;
third, to receive his proportionate share of the profits
of the corporation; and lastly, to participate
proportionately in the distribution of the corporate
assets upon the dissolution or winding up. (Purdy's
Beach on Private Corporations, sec. 554.)
The right of individual stockholders to maintain suits
for and on behalf of the corporation was denied until
within a comparatively short time, but his right is now
no longer doubted. Accordingly, in 1843, in the
leading case of Foss vs. Harbottle, a stockholder
brought suit in the name of himself and other
defrauded stockholders, and for the benefit of the
corporation, against the directors, for a breach of
their duty to the corporation. This case was decided
against the complaining stockholder, on the ground
that the complainant had not proved that the
corporation itself was under the control of the guilty
parties, and had not proved that it was unable to
institute suit. The court, however, broadly intimated
that a case might arise when a suit instituted by
defrauded stockholders would be entertained by the
court and redress given. Acting upon this suggestion,
and impelled by the utter inadequacy of suits
instituted by the corporation, defrauded stockholders
continued to institute these suits and to urge the
courts of equity to grant relief. These efforts were
unsuccessful in clearly establishing the right of
stockholders herein until the cases of Atwol against
Merriwether, in England, 1867, and of Dodge vs.
Woolsey, in this country, in 1855. These two great
and leading cases have firmly established the law for
England and America, that where corporate
directors have committed a breach of trust either
by their frauds, ultra vires acts, or negligence,
and the corporation is unable or unwilling to
institute suit to remedy the wrong, a single
stockholder may institute that suit, suing on
behalf of himself and other stockholders and for
the benefit of the corporation, to bring about a
redress of the wrong done directly to the
corporation and indirectly to the stockholders.
So it is clear that the plaintiff, by reason of the fact
that he is a stockholder in the bank (corporation) has
a right to maintain a suit for and on behalf of the
bank, but the extent of such a right must depend
upon when, how, and for what purpose he acquired
the shares which he now owns. In the determination
of these questions we can not see how, if it be true
that the bank is a quasi-public institution, it can affect
in any way the final result.
It is alleged that the plaintiff became a stockholder on
the 13th of November, 1903; that the defendants, as
members of the board of directors and board of
government, respectively, during each and all the
years 1903, 1904, 1905, 1906, and 1907, did
fraudulently, and to the great prejudice of the bank
and its stockholders, appropriate to their own use
from the profits of the bank sums of money
amounting approximately to P20,000 per annum.
It is self-evident that the plaintiff in the case at bar
was not, before he acquired in September, 1903, the
shares which he now owns, injured or affected in any
manner by the transactions set forth in the second
cause of action. His vendor could have complained of
these transactions, but he did not choose to do so.
The discretion whether to sue to set them aside, or to
acquiesce in and agree to them, is, in our opinion,
incapable of transfer. If the plaintiff himself had been
injured by the acts of defendants' predecessors that
is another matter. He ought to take things as he
found them when he voluntarily acquired his ten
shares. If he was defrauded in the purchase of these
shares he should sue his vendor. (Thus, he may sue
for the second half of 1903 to 1907 but not for the
years 1989 to the first half of 1903.)
So it seems to be settled by the Supreme Court of
the United States, as a matter of substantive law, that
a stockholder in a corporation who was not such at
the time of the transactions complained of, or whose
shares had not devolved upon him since by operation
of law, cannot maintain suits of this character, unless
such transactions continue and are injurious to the
stockholder, or affect him especially and specifically
in some other way.
HARRIE S. EVERETT, CRAL G. CLIFFORD, ELLIS
H. TEAL and GEORGE W. ROBINSON, plaintiffs-
appellants,
 vs.
 THE ASIA BANKING
CORPORATION, NICHOLAS E. MULLEN, ERIC
BARCLAY, ALFRED F. KELLY, JOHN W. MEARS
and CHARLES D. MACINTOSH, defendants-
appellees.
(GR No. L-25241; 49 Phil. 512; Nov. 3, 1926)
FACTS: Plaintiffs, stockholders (together with
Barclay) of Teal and Company (Company), entered
into a Memorandum of Agreement and Voting Trust
Agreement with defendant Asia Banking Corporation
(Bank) with the understanding that it was intended for
the protection of all parties thereto from outside
creditors, but that they were not intended to be
enforced according to the letter thereof, and that they
did not contain the true agreement between the Bank
and the Company which was to finance the company
without interference from the above-named creditors.
That shortly after, Mullen caused the removal of the
plaintiffs as directors of the Company and their
replacement. The defendants thereafter gave
pledges and mortgages from the Company to the
Bank and entered into contracts as directed by the
Bank, and permitted the Bank to foreclose the same
and to sell the property of the Company itself and
permitted the Bank to institute suits against the
Company, in which the Company was not
represented by anyone having its interest at heart
and in which reason the Bank occupied both plaintiff
and defendant and tricked and deluded the courts
into giving judgment in which the rights of the real
parties were concealed and unknown to the courts.
Thereafter, defendants incorporated Philippine
Motors Corporation where all the assets and goodwill
of the Company were transferred by the Bank.
ISSUE: WON the plaintiffs have the legal capacity to
bring an action?
HELD: Yes. Invoking the well-known rule that
shareholders cannot ordinarily sue in equity to
redress wrongs done to the corporation, but that the
action must be brought by the Board of Directors, the
appellees argue — and the court below held — that
the corporation Teal and Company is a necessary
party plaintiff and that the plaintiff stockholders, not
having made any demand on the Board to bring the
action, are not the proper parties plaintiff. But, like
most rules, the rule in question has its exceptions. It
is alleged in the complaint and, consequently,
admitted through the demurrer that the corporation
Teal and Company is under the complete control
of the principal defendants in the case, and, in
these circumstances, it is obvious that a demand
upon the Board of Directors to institute an action
and prosecute the same effectively would have
been useless, and the law does not require
litigants to perform useless acts. (Exchange bank
of Wewoka vs. Bailey, 29 Okla., 246; Fleming and
Hewins vs. Black Warrior Copper Co., 15 Ariz., 1;
Wickersham vs. Crittenden, 106 Cal., 329; Glenn vs.
Kittaning Brewing Co., 259 Pa., 510; Hawes vs.
Contra Costa Water Company, 104 U. S., 450.)
The conclusion of the court below that the plaintiffs,
not being stockholders in the Philippine Motors
Corporation, had no legal right to proceed against
that corporation in the manner suggested in the
complaint evidently rest upon a misconception of the
character of the action. In this proceeding it was
necessary for the plaintiffs to set forth in full the
history of the various transactions which eventually
led to the alleged loss of their property and, in making
a full disclosure, references to the Philippine Motors
Corporation appear to have been inevitable. It is to
be noted that the plaintiffs seek no judgment against
the corporation itself at this stage of the proceedings.
In our opinion the plaintiffs state a good cause of
action for equitable relief and their complaint is not in
any respect fatally defective. The judgment of the
court below is therefore reversed, the defendants
demurrer is overruled, and it is ordered that the return
of the record to the Court within ten days from the
return of the record to the Court of First Instance. So
ordered
REPUBLIC BANK, represented in this action by
DAMASO P. PEREZ, etc., plaintiff-
appellant,
 vs.
 MIGUEL CUADERNO,
BIENVENIDO DIZON, PABLO ROMAN, THE
BOARD OF DIRECTORS OF THE REPUBLIC BANK
AND THE MONETARY BOARD OF THE CENTRAL
BANK OF THE PHILIPPINES, defendants-appellees
(GR No. L-22399; 19 SCRA 671; March 30, 1967)
FACTS: Damaso Perez, a stockholder of Republic
Bank, instituted a derivative suit against defendant
Pablo Roman, then President of the Bank, for
granting certain loans to fictitious and non-existing
persons and to their close friends, relatives and/or
employees, who were in reality their dummies on the
basis of fictitious or inflated appraised value of real
estate properties, in connivance with other officials.
The complaint alleged that Miguel Cuaderno, then
Central Bank Governor, acting upon the complaint,
and the Monetary Board ordered an investigation and
found violations of the General Banking Act, but no
information was filed until his retirement; that to
neutralize the impending action against him, Pablo
Roman engaged Miguel Cuaderno as technical
consultant and selected Bienvenido Dizon as
Chairman of the Board of the Bank; that such
appointment was done in bad faith and without
intention to protect the interest of the Bank but were
only prompted to protect Pablo Roman.
The complaint, therefore, prayed for a writ of
preliminary injunction against eh Monetary Board in
confirming such appointments, but was dismissed by
the lower court.
ISSUE: WON the court below erred in dismissing the
complaint?
HELD: Yes. The defendants mainly controvert the
right of plaintiff to question the appointment and
selection of defendants Cuaderno and Dizon, which
they contend to be the result of corporate acts with
which plaintiff, as stockholder, cannot interfere.
Normally, this is correct, but Philippine jurisprudence
is settled that an individual stockholder is
permitted to institute a derivative or
representative suit on behalf of the corporation
wherein he holds stock in order to protect or
vindicate corporate rights, whenever (1) the
officials of the corporation refuse to sue, or (2)
are the ones to be sued or (3) hold the control of
the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with
the corporation as the real party in interest
(Pascual vs. Del Saz Orozco, 19 Phil. 82, 85; Everett
vs. Asia Banking Corp., 45 Phil. 518; Angeles vs.
Santos, 64 Phil. 697; Evangelista vs. Santos, 86 Phil.
388). Plaintiff-appellant's action here is precisely in
conformity, with these principles. He is neither
alleging nor vindicating his own individual
interest or prejudice, but the interest of the
Republic Bank and the damage caused to it. The
action he has brought is a derivative one,
expressly manifested to be for and in behalf of
the Republic Bank, because it was futile to
demand action by the corporation, since its
Directors were nominees and creatures of
defendant Pablo Roman (Complaint, p. 6). The
frauds charged by plaintiff are frauds against the
Bank that redounded to its prejudice.
The complaint expressly pleads that the appointment
of Cuaderno as technical consultant, and of
Bienvenido Dizon to head the Board of Directors of
the Republic Bank, were made only to shield Pablo
Roman from criminal prosecution and not to further
the interests of the Bank, and avers that both men
are Roman's alter egos. There is no denying that the
facts thus pleaded in the complaint constitute a cause
of action for the bank: if the questioned appointments
were made solely to protect Roman from criminal
prosecution, by a Board composed by Roman's
creatures and nominees, then the moneys disbursed
in favor of Cuaderno and Dizon would be an unlawful
wastage or diversion of corporate funds, since the
Republic Bank would have no interest in shielding
Roman, and the directors in approving the
appointments would be committing a breach of trust;
the Bank, therefore, could sue to nullify the
appointments, enjoin disbursement of its funds to pay
them, and recover those paid out for the purpose, as
prayed for in the complaint in this case (Angeles vs.
Santos, supra.).
Defendants urge that the action is improper because
the plaintiff was not authorized by the corporation to
bring suit in its behalf. Any such authority could not
be expected as the suit is aimed to nullify the action
taken by the manager and the board of directors of
the Republic Bank; and any demand for intra-
corporate remedy would be futile, as expressly
pleaded in the complaint. These circumstances
permit a stockholder to bring a derivative suit
(Evangelista vs. Santos, 86 Phil. 394). That no other
stockholder has chosen to make common cause
with plaintiff Perez is irrelevant, since the
smallness of plaintiff's holdings is no ground for
denying him relief (Ashwander vs. TVA, 80 L. Ed.
688). At any rate, it is yet too early in the proceedings
for the absence of other stockholders to be of any
significance, no issues having even been joined.
ISSUE2: WON the Corporation should be a plaintiff
or defendant?
HELD2: The English practice is to make the
corporation a party plaintiff, while in the United
States, the usage leans in favor of its being joined as
party defendant (see Editorial Note, 51 LRA [NS]
123). Objections can be raised against either method.
(1) Absence of corporate authority would seem to
militate against making the corporation a party
plaintiff, while (2) joining it as defendant places
the entity in the awkward position of resisting an
action instituted for its benefit. What is important
is that the corporation' should be made a party, in
order to make the Court's judgment binding upon
it, and thus bar future relitigation of the issues.
On what side the corporation appears loses
importance when it is considered that it lay within
the power of the trial court to direct the making of
such amendments of the pleadings, by adding or
dropping parties, as may be required in the
interest of justice (Revised Rule 3, sec. 11).
Misjoinder of parties is not a ground to dismiss
an action. (Ibid.)
ISSUE3: WON the action of the plaintiff amounts to a
quo warranto proceeding?
HELD: No. Plaintiff Perez is not claiming title to
Dizon's position as head of the Republic Bank's
board of directors. The suit is aimed at preventing the
waste or diversion of corporate funds in paying
officers appointed solely to protect Pablo Roman
from criminal prosecution, and not to carry on the
corporation's bank business. Whether the complaint's
allegations to such effect are true or not must be
determined after due hearing.
WESTERN INSTITUTE OF TECHNOLOGY, INC.,
vs. SALAS (supra, under Compensation of Directors)
– Petitioners assert that the motion for
reconsideration of the civil aspect of the RTC
decision acquitting respondents is a derivative suit
brought by them as minority stockholders of WIT for
and on behalf of the corporation
ISSUE: WON the appeal may be considered as a
derivative action?
HELD: No. A derivative suit is an action brought
by minority shareholders in the name of the
corporation to redress wrongs committed against
it, for which the directors refuse to sue. It is a
remedy designed by equity and has been the
principal defense of the minority shareholders
against abuses by the majority. Here, however, the
case is not a derivative suit but is merely an appeal
on the civil aspect of Criminal Cases Nos. 37097 and
37098 filed with the RTC of Iloilo for estafa and
falsification of public document. Among the basic
requirements for a derivative suit to prosper is
that the minority shareholder who is suing for
and on behalf of the corporation must allege in
his complaint before the proper forum that he is
suing on a derivative cause of action on behalf of
the corporation and all other shareholders
similarly situated who wish to join. This is
necessary to vest jurisdiction upon the tribunal in line
with the rule that it is the allegations in the complaint
that vests jurisdiction upon the court or quasi-judicial
body concerned over the subject matter and nature of
the action. This was not complied with by the
petitioners either in their complaint before the court a
quo nor in the instant petition which, in part, merely
states that "this is a petition for review on certiorari on
pure questions of law to set aside a portion of the
RTC decision in Criminal Cases Nos. 37097 and
37098" since the trial court's judgment of acquittal
failed to impose any civil liability against the private
respondents. By no amount of equity considerations,
if at all deserved, can a mere appeal on the civil
aspect of a criminal case be treated as a derivative
suit.
Granting, for purposes of discussion, that this is a
derivative suit as insisted by petitioners, which it is
not, the same is outrightly dismissible for having been
wrongfully filed in the regular court devoid of any
jurisdiction to entertain the complaint. The ease
should have been filed with the Securities and
Exchange Commission (SEC) which exercises
original and exclusive jurisdiction over derivative
suits, they being intra-corporate disputes, per Section
5 (b) of P.D. No. 902-A.
SAN MIGUEL CORPORATION, represented by
EDUARDO DE LOS ANGELES,
petitioners,
 vs.
 ERNEST KAHN, ANDRES
SORIANO III, BENIGNO TODA, JR., ANTONIO
ROXAS, ANTONIO PRIETO, FRANCISCO
EIZMENDI, JR., EDUARDO SORIANO, RALPH
KAHN and RAMON DEL ROSARIO, JR.,
respondents.
(GR No. 85339; 176 SCRA 447; Aug. 11, 1989)
FACTS: Eduardo de los Angeles was a director
appointed by PCGG who sequestered the shares of
Andres Soriano III claiming it to belong to Eduardo
Conjuangco, a close associate and dummy of then
President Marcos. De los Angeles initiated a
derivative suit against herein respondents, in behalf
of SMC, for the revocation of a Board Resolution
adopted to assume the loans incurred by Neptunia
Corporation, a foreign company, said to be a wholly-
owned subsidiary of SMC. The action was dismissed
by the SEC on the grounds that De los Angeles does
not have adequate shares to represent the interest of
the stockholders and that his assumed role as a
PCGG appointed director is inconsistent with his
assumed role as a representative of minority
stockholders.
ISSUE: WON De Los Angeles can institute a
derivative suit?
HELD: Yes. The theory that de los Angeles has no
personality to bring suit in behalf of the corporation —
because his stockholding is minuscule, and there is a
"conflict of interest" between him and the PCGG —
cannot be sustained.
It is claimed that since de los Angeles 20 shares
(owned by him since 1977) represent only.
00001644% of the total number of outstanding
shares (1 21,645,860), he cannot be deemed to fairly
and adequately represent the interests of the minority
stockholders. The implicit argument — that a
stockholder, to be considered as qualified to bring a
derivative suit, must hold a substantial or significant
block of stock — finds no support whatever in the
law. The requisites for a derivative suit are as
follows:
a) the party bringing suit should be a shareholder
as of the time of the act or transaction complained of,
the number of his shares not being material;
b) he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has
failed or refused to heed his plea; and
 c) the cause
of action actually devolves on the corporation,
the wrongdoing or harm having been, or being
caused to the corporation and not to the particular
stockholder bringing the suit.
The bona fide ownership by a stockholder of
stock in his own right suffices to invest him with
standing to bring a derivative action for the
benefit of the corporation. The number of his
shares is immaterial since he is not suing in his
own behalf, or for the protection or vindication of
his own particular right, or the redress of a wrong
committed against him, individually, but in behalf
and for the benefit of the corporation.
Neither can the "conflict-of-interest" theory be upheld.
From the conceded premise that de los Angeles now
sits in the SMC Board of Directors by the grace of the
PCGG, it does not follow that he is legally obliged to
vote as the PCGG would have him do, that he cannot
legitimately take a position inconsistent with that of
the PCGG, or that, not having been elected by the
minority stockholders, his vote would necessarily
never consider the latter's interests. The proposition
is not only logically indefensible, non sequitur, but
also constitutes an erroneous conception of a
director's role and function, it being plainly a director's
duty to vote according to his own independent
judgment and his own conscience as to what is in the
best interests of the company. Moreover, it is
undisputed that apart from the qualifying shares
given to him by the PCGG, he owns 20 shares in his
own right, as regards which he cannot from any
aspect be deemed to be "beholden" to the PCGG, his
ownership of these shares being precisely what he
invokes as the source of his authority to bring the
derivative suit.
ELTON W. CHASE, as minority Stockholder and on
behalf of other Stockholders similarly situated and for
the benefit of AMERICAN MACHINERY AND PARTS
MANUFACTURING, INC., plaintiff-appellant,
 vs.
DR. VICTOR BUENCAMINO, SR., VICTOR
BUENCAMINO, JR., JULIO B. FRANCIA and
DOLORES A. BUENCAMINO, respondents.
 (GR
No. L-20395; 136 SCRA 365; May 13, 1985)
FACTS: Herein plaintiff-appellant Elton Chase,
entered into an agreement with Dr. Buencamino and
William Cranker (already business partners) for the
establishment of a factory in Manila called American
Machinery Engineering Parts, Inc. (Amparts), where
chase was to transfer his tractor plant, ship his
machineries from his former plant in America to
Manila, install said machineries at Amparts plant and
he is to be the production manager of Amparts.
For some time the three maintained harmonious
relations until Chase tendered his resignation which
was accepted by Buencamino and Cranker. Chase
initially filed a case in California against Cranker for
the recovery of the purchase price of his plant, but
this died a natural death. Eventually, he filed a case
before the CFI alleging various acts of frauds
allegedly committed by the other two.
ISSUE: WON Chase has capacity to institute a
derivative suit?
HELD: Yes. The evidence of defendants proves very
clearly that right from the start, Chase was by them
recognized as a stockholder and initial incorporator
with 600 paid up shares representing a 1/3 interest in
Amparts, and that would be enough for Chase to
have the correct personality to institute this derivative
suit; the second place, it also appears apparently
undenied that Chase did not win in California so that
he did not recover the $150,000.00 that he had
prayed for there against Overseas, which if he had
would really in the mind of the Court have put him in
estoppel to intervene in any manner as incorporator
or stockholder of Amparts; and in the third place and
most important it should not be forgotten that Chase
has filed the present case not for his personal benefit,
but for the benefit of Amparts, so that to the Court the
argument of estoppel as against him would appear to
be out of place; the estoppel to be valid as a defense
must be an estoppel against Amparts itself; the long
and short of it is that the Court is impelled and
constrained to discard all the other defenses set up
by Dr. Buencamino on the principal complaint; the
result of all these would be to sustain so far, the
position of Chase that Dr. Buencamino must account
for the P570,000.00 used to pay the second series of
payment on the subscription, the P330,000.00 used
in paying the lsst series on the subscription, plus
another sum of P245,000.00 entered as loan on his
favor and against Amparts, for the sum of
P434,000.00 earned in the blackmarketing of the
excess of $140,000.00 dollars on the forwarding
costs and promotional expenses, for the sum of
P391,200.00 earned in the blackmarketing of the
excess of $117,000.00 in the transaction with Bertoni
and Cotti, and all these would reach a total of
P1,970,200.00; and as the appropriation of the profits
for himself was a quasi-delict, the liability therefore
assuming that it had been done with the cooperation
of Cranker would have to be solidary, 2194 New Civil
Code.
CATALINA R. REYES, petitioner,
 vs.
 HON.
BIENVENIDO A. TAN, as Judge of the Court of First
Instance of Manila, Branch XIII and FRANCISCA R.
JUSTINIANI, respondents.
 (GR No. L-16982; 3
SCRA 198; Sept. 30, 1961)
FACTS: Several purchases were made by Roxas-
Kalaw Textile Mills in New York for raw materials but
were found out to consist of already finished product
for which reason the Central Bank of the Philippines
stopped all dollar allocations for raw materials for the
corporation which necessarily led to the paralyzation
of the operations. It was alleged that the supplier of
the said finished goods was United Commercial
Company of New York in which Dalamal, appointed
by the BOD of the Textile Mills as co-manager, had
inrterests and that the letter of credit for said goods
were guaranteed by the Indian Commercial Company
and Indian Traders in which Dalamal likewise has
interests. It was further alleged that the sale of the
finished products was the business of Indian
Commercial Company of Manila who cannot obtain
dollar allocations for imporations of finished goods.
An action for the appointment of a receiver was filed
before the trial court after the BOD refused to
proceed against Dalamal, which was granted.
ISSUE: WON Justiniani may be allowed to institute
the case for receivership and damages?
HELD: Yes. It is not denied by petitioner that the
allocation of dollars to the corporation for the
importation of raw materials was suspended. In the
eyes of the court below, as well as in our own, the
importation of textiles instead of raw materials, as
well as the failure of the Board of Directors to take
action against those directly responsible for the
misuse of dollar allocations constitute fraud, or
consent thereto on the part of the directors.
Therefore, a breach of trust was committed which
justified the derivative suit by a minority stockholder
on behalf of the corporation.
―It is well settled in this jurisdiction that where
corporate directors are guilty of a breach of trust
— not of mere error of judgment or abuse of
discretion — and intracorporate remedy is futile
or useless, a stockholder may institute a suit in
behalf of himself and other stockholders and for
the benefit of the corporation, to bring about a
redress of the wrong inflicted directly upon the
corporation and indirectly upon the stockholders.
An illustration of a suit of this kind is found in the case
of Pascual vs. Del Saz Orozco (19 Phil. 82), decided
by this Court as early as 1911. In that case, the
Banco Español-Filipino suffered heavy losses due to
fraudulent connivance between a depositor and an
employee of the bank, which losses, it was
contended, could have been avoided if the president
and directors had been more vigilant in the
administration of the affairs of the bank. The
stockholders constituting the minority brought a suit
in behalf of the bank against the directors to recover
damages, and this over the objection of the majority
of the stockholders and the directors. This court held
that the suit could properly be maintained.‖ (64 Phil.,
Angeles vs. Santos [G.R. No. L-43413, prom. August
31, 1937] p. 697).
The claim that respondent Justiniani did not take
steps to remedy the illegal importation for a period of
two years is also without merit. During that period of
time respondent had the right to assume and expect
that the directors would remedy the anomalous
situation of the corporation brought about by their
own wrong doing. Only after such period of time had
elapsed could respondent conclude that the directors
were remiss in their duty to protect the corporation
property and business.
We are led to agree with the judge below that the
appointment of a receiver was not only expedient but
also necessary to restore the faith and confidence of
the Central Bank authorities in the administration of
the affairs of the corporation, thus ultimately leading
to a restoration of the dollar allocation so essential to
the operation of the textile mills.
RICARDO L. GAMBOA, LYDIA R. GAMBOA,
HONORIO DE 1A RAMA, EDUARDO DE LA RAMA,
and the HEIRS OF MERCEDES DE LA RAMA-
BORROMEO, petitioners,
 vs.
HON. OSCAR R. VICTORIANO as Presiding Judge
of the Court of First Instance of Negros Occidental,
Branch II, BENJAMIN LOPUE, SR., BENJAMIN
LOPUE, JR., LEONITO LOPUE, and LUISA U.
DACLES respondents.
 (GR No. -40620; 90 SCRA
40; May 6, 1979)
FACTS: A writ of prelimiary injunction was filed by
herein respondents as purchasers of 1,328 shares of
stock of Inocented De La Rama, inc. after herein
petitioners surreptitiously met and authorized the sale
of 823 shares to forestall the petitioner’s takeover
from the previous president and vice- president
(sellers of the 1,328 shares), in violation of their pre-
emptive right. The trial court ruled in favor of
respondents. Later on, private respondents entered
into a compromise agreement with the recipients for
the transfer of the 823 shares, against which the
petitioners filed a motion to dismiss which was
denied.
ISSUE: WON a derivative suit is the more proper
action that should have been filed by respondents?
HELD: No. The petitioners contend that the proper
remedy of the plaintiffs would be to institute a
derivative suit against the petitioners in the name of
the corporation in order to secure a binding relief
after exhausting all the possible remedies available
within the corporation.
An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he
holds stock in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse
to sue, or are the ones to be sued or hold the control
of the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with the
corporation as the real party in interest. In the case
at bar, however, the plaintiffs are alleging and
vindicating their own individual interests or
prejudice, and not that of the corporation. At any
rate, it is yet too early in the proceedings since the
issues have not been joined. Besides, misjoinder of
parties is not a ground to dismiss an action.
JUAN D. EVANGELISTA, et. al., plaintiff-appellant
VS. RAFAEL SANTOS, defendant-appelle (86 Phil.
387; May 19, 1950) – Juan D. Evangelista, et. al. are
minority stockholders of the Vitali Lumber Company,
Inc., while Rafael Santos holds more than 50% of the
stocks of said corporation and also is and always has
been the president, manager, and treasurer thereof.
Santos, in such triple capacity, through fault, neglect,
and abandonment allowed its lumber concession to
lapse and its properties and assets, among them
machineries, buildings, warehouses, trucks, etc., to
disappear, thus causing the complete ruin of the
corporation and total depreciation of its stocks.
Evangelista, et. al. therefore prays for judgment
requiring Santos: (1) to render an account of his
administration of the corporate affairs and assets: (2)
to pay plaintiffs the value of their respective
participation in said assets on the basis of the value
of the stocks held by each of them; and (3) to pay the
costs of suit. Evangelista, et. al. also ask for such
other remedy as may be and equitable. The trial court
dismissed the action on the ground of improper
venue and lack of cause of action.
ISSUE: WON plaintiffs have a right to bring the action
for their benefit?
HELD: No. The complaint shows that the action is for
damages resulting from mismanagement of the
affairs and assets of the corporation by its principal
officer, it being alleged that defendant's
maladministration has brought about the ruin of the
corporation and the consequent loss of value of its
stocks. The injury complained of is thus primarily to
that of the corporation, so that the suit for the
damages claimed should be by the corporation rather
than by the stockholders (3 Fletcher, Cyclopedia of
Corporation pp. 977-980). The stockholders may
not directly claim those damages for themselves
for that would result in the appropriation by, and
the distribution among them of part of the
corporate assets before the dissolution of the
corporation and the liquidation of its debts and without prejudice to the filing of the proper action in
liabilities, something which cannot be legally which the venue shall be laid in the proper province.
done in view of section 16 of the Corporation Appellant's shall pay costs. So ordered
Law.

But while it is to the corporation that the action should

pertain in cases of this nature, however, if the officers
of the corporation, who are the ones called upon to
protect their rights, refuse to sue, or where a demand
upon them to file the necessary suit would be futile
because they are the very ones to be sued or
because they hold the controlling interest in the
corporation, then in that case any one of the
stockholders is allowed to bring suit (3 Fletcher's
Cyclopedia of Corporations, pp. 977-980). But in that
case it is the corporation itself and not the plaintiff
stockholder that is the real property in interest, so
that such damages as may be recovered shall pertain
to the corporation (Pascual vs. Del Saz Orosco, 19
Phil. 82, 85). In other words, it is a derivative suit
brought by a stockholder as the nominal party plaintiff
for the benefit of the corporation, which is the real
property in interest (13 Fletcher, Cyclopedia of
Corporations, p. 295).

In the present case, the plaintiff stockholders have

brought the action not for the benefit of the
corporation but for their own benefit, since they ask
that the defendant make good the losses occasioned
by his mismanagement and pay to them the value of
their respective participation in the corporate assets
on the basis of their respective holdings. Clearly, this
cannot be done until all corporate debts, if there be
any, are paid and the existence of the corporation
terminated by the limitation of its charter or by lawful
dissolution in view of the provisions of section 16 of
the Corporation Law.

It results that plaintiff's complaint shows no cause of

action in their favor so that the lower court did not err
in dismissing the complaint on that ground.

While plaintiffs ask for remedy to which they are not

entitled unless the requirement of section 16 of the
Corporation Law be first complied with, we note that
the action stated in their complaint is susceptible of
being converted into a derivative suit for the benefit of
the corporation by a mere change in the prayer. Such
amendment, however, is not possible now, since the
complaint has been filed in the wrong court, so that
the same last to be dismissed.

The order appealed from is therefore affirmed, but