China Banking Corporation vs CA Case Digest

China Banking Corporation vs. Court of Appeals

[GR 117604, 26 March 1997]

Facts: On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf & Country Club, Inc.
(VGCCI), pledged his Stock Certificate 1219 to China Banking Corporation (CBC). On 16 September 1974,
CBC wrote VGCCI requesting that the pledge agreement be recorded in its books. In a letter dated 27
September 1974, VGCCI replied that the deed of pledge executed by Calapatia in CBC's favor was duly
noted in its corporate books. On 3 August 1983, Calapatia obtained a loan of P20,000.00 from CBC,
payment of which was secured by the pledge agreement still existing between Calapatia and CBC. Due
to Calapatia's failure to pay his obligation, CBC, on 12 April 1985, filed a petition for extrajudicial
foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public
auction sale of the pledged stock. On 14 May 1985, CBC informed VGCCI of the foreclosure proceedings
and requested that the pledged stock be transferred to its name and the same be recorded in the
corporate books. However, on 15 July 1985, VGCCI wrote CBC expressing its inability to accede to CBC's
request in view of Calapatia's unsettled accounts with the club. Despite the foregoing, Notary Public de
Vera held a public auction on 17 September 1985 and CBC emerged as the highest bidder at P20,000.00
for the pledged stock. Consequently, CBC was issued the corresponding certificate of sale.

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in
the amount of P18,783.24. Said notice was followed by a demand letter dated 12 December 1985 for
the same amount and another notice dated 22 November 1986 for P23,483.24. On 4 December 1986,
VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a number of its
stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own
share of stock (Stock Certificate 1219). Through a letter dated 15 December 1986, VGCCI informed
Calapatia of the termination of his membership due to the sale of his share of stock in the 10 December
1986 auction. On 5 May 1989, CBC advised VGCCI that it is the new owner of Calapatia's Stock
Certificate 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested
that a new certificate of stock be issued in its name. On 2 March 1990, VGCCI replied that "for reason of
delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00.
On 9 March 1990, CBC protested the sale by VGCCI of the subject share of stock and thereafter filed a
case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and
for the issuance of a new stock certificate in its name. On 18 June 1990, the Regional Trial Court of
Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it
involves an intra-corporate dispute and on 27 August 1990 denied CBC's motion for reconsideration. On
20 September 1990, CBC filed a complaint with the Securities and Exchange Commission (SEC) for the
nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued
pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's
fees and costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in
the main that considering that the said share is delinquent, VGCCI had valid reason not to transfer the
share in the name of CBC in the books of VGCCI until liquidation of delinquency. Consequently, the case
was dismissed. On 14 April 1992, Hearing Officer Perea denied CBC's motion for reconsideration. CBC
appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision
of its hearing officer; holding that CBC has a prior right over the pledged share and because of pledgor's
failure to pay the principal debt upon maturity, CBC can proceed with the foreclosure of the pledged
share; declaring that the auction sale conducted by VGCCI on 10 December 1986 is declared NULL and
VOID; and ordering VGCCI to issue another membership certificate in the name of CBC. VGCCI sought
reconsideration of the order. However, the SEC denied the same in its resolution dated 7 December
1993. The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August
1994, the Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its
hearing officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed
CBC's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is
not intra-corporate; nullifying the SEC orders and dismissing CBC’s complaint. CBC moved for
reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994.
CBC filed the petition for review on certiorari.

Issue: Whether CBC is bound by VGCCI's by-laws.

Held: In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at
the time the transaction or agreement between said third party and the shareholder was entered into.
Herein, at the time the pledge agreement was executed. VGCCI could have easily informed CBC of its by-
laws when it sent notice formally recognizing CBC as pledgee of one of its shares registered in
Calapatia's name. CBC's belated notice of said by-laws at the time of foreclosure will not suffice. By-laws
signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and its stockholders or members and directors and officers
with relation thereto and among themselves in their relation to it. In other words, by-laws are the
relatively permanent and continuing rules of action adopted by the corporation for its own government
and that of the individuals composing it and having the direction, management and control of its affairs,
in whole or in part, in the management and control of its affairs and activities. The purpose of a by-law is
to regulate the conduct and define the duties of the members towards the corporation and among
themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no
status as public law. Therefore, it is the generally accepted rule that third persons are not bound by by-
laws, except when they have knowledge of the provisions either actually or constructively. For the
exception to the general accepted rule that third persons are not bound by by-laws to be applicable and
binding upon the pledgee, knowledge of the provisions of the VGCCI By-laws must be acquired at the
time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive,
at the time of foreclosure will not affect pledgee's right over the pledged share. Article 2087 of the Civil
Code provides that it is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists maybe alienated for the payment to
the creditor. Further, VGCCI's contention that CBC is duty-bound to know its by-laws because of Article
2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the
diligence of a good father of a family, fails to convince. CBC was never informed of Calapatia's unpaid
accounts and the restrictive provisions in VGCCI's by-laws. Furthermore, Section 63 of the Corporation
Code which provides that "no shares of stock against which the corporation holds any unpaid claim shall
be transferable in the books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim"
refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness which a
subscriber or stockholder may owe the corporation arising from any other transaction." Herein, the
subscription for the share in question has been fully paid as evidenced by the issuance of Membership
Certificate 1219. What Calapatia owed the corporation were merely the monthly dues. Hence, Section
63 does not apply.

SAPPARI K. SAWADJAAN V. CA (G.R. NO. 141735)

Facts:

Petitioner Sawadjaan was an appraiser/investigator in the Philippine Amanah Bank (PAB) when on the
basis of his report, a credit line was granted to Compressed Air Machineries and Equipment Corporation
(CAMEC) by virtue of the two parcels of land it offered as collaterals. Meanwhile, Congress passed a law
which created Al-Amanah Investment Bank of the Philippines (AIIBP) and repealed the law creating PAB,
transferring all its assets, liabilities and capital accounts to AIIBP. Later, AIIBP discovered that the
collaterals were spurious, thus conducted an investigation and found petitioner Sawadjaan at fault.
Petitioner appealed before the SC which ruled against him. Petitioner moved for a new trial claiming he
recently discovered that AIIBP had not yet adopted its corporate by-laws and since it failed to file within
60 days from the passage of its law, it had forfeited its franchise or charter and thus has no legal
standing to initiate an administrative case. The motion was denied.

Issue:

Whether or not the failure of AIIBP to file its by-laws within the period prescribed results to a nullity of
all actions and proceedings it has initiated.

Ruling: NO.

The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has
shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here
represented by the Office of the Government Corporate Counsel, “the principal law office of
government-owned corporations, one of which is respondent bank.” At the very least, by its failure to
submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise
corporate powers may not be inquired into collaterally in any private suit to which such corporations
may be a party.

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso
facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration
of Corporations, details the procedures and remedies that may be availed of before an order of
revocation can be issued. There is no showing that such a procedure has been initiated in this case.
Salafranca vs. Philamlife (Pamplona) Village Homeowners Association (300 SCRA 469 [1998])
In 1981, Enrique Salafranca was hired as an administrative officer by the Philamlife Village Homeowners
Associaiton, Inc. (PVHAI). Salafranca was tasked to manage the village’s day to day activities. His
employment was originally for 6 months only but his contract was renewed multiple times until
1983. But even after 1983, he was still allowed to continue work even without a renewed contract. In
1987, PVHAI amended its by-laws. Among the amendment was a provision that the administrative
officer (Salafranca) shall have a tenure which is co-terminus with the Board of Directors which appointed
him. In 1992, the tenure of said Board of Directors expired and so Salafranca was terminated.

ISSUE: Whether or not Salafranca was illegally dismissed.

HELD: Yes. At that time, Salafranca already enjoys security of tenure because he is already a regular
employee. It is true that PVHAI has the right to amend its by-laws but such amendment must not impair
existing contracts or rights. In this case, the provision that Salafranca’s position shall be co-terminus with
the appointing Board impairs his right to security of tenure which has already vested even prior to the
amendment of the by-laws in 1987.
Corporate Law Case Digest: Filipinas Port V. Go (2007)

FACTS:

 Sept 4 1992: Eliodoro C. Cruz, Filport’s president from 1968-1991, wrote a letter to the
corporation’s BOD questioning the creation and election of the following positions with a
monthly remuneration of P13,050.00 each. Cruz requested the board to take necessary
action/actions to recover from those elected to the aforementioned positions the salaries they
have received.

 Jun 4 1993: Cruz, purportedly in representation of Filport and its stockholders, among which is
herein co-petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with the
SEC a derivative suit against Filport's BOD for acts of mismanagement detrimental to the
interest of the corporation and its shareholders at large.

 Cruz prayed that the BOD be made to pay Filport, jointly and severally, the sums of
money variedly representing the damages incurred as a result of the creation of the
offices/positions complained of and the aggregate amount of the questioned increased
salaries.

 RTC: BOD have the power to create positions not in the by-laws and can increase
salaries. But Edgar C. Trinidad under the third and fourth causes of action to restore to the
corporation the total amount of salaries he received as assistant vice president for corporate
planning; and likewise ordering Fortunato V. de Castro and Arsenio Lopez Chua under the fourth
cause of action to restore to the corporation the salaries they each received as special assistants
 respectively to the president and board chairman. In case of insolvency of any or all of them, the
members of the board who created their positions are subsidiarily liable.

 Appealed: creation of the positions merely for accommodation purposes - GRANTED

ISSUES:

1. W/N there was mismanagement - NO

2. W/N there is a proper derivative suit - YES

HELD: CA Affirmed

1. NO

 Section 35 of the Corporation Code, the creation of an executive committee (as powerful as the
BOD) must be provided for in the bylaws of the corporation

 Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the
creation of the executive committee by the board of directors is illegal or unlawful. One
reason is the absence of a showing as to the true nature and functions of executive
committee

 But even assuming there was mismanagement resulting to corporate damages and/or business
losses, respondents may not be held liable in the absence of a showing of bad faith in doing the
acts complained of. ("dishonest purpose","some moral obliquity","conscious doing of a
wrong", "partakes of the nature of fraud")

 determination of the necessity for additional offices and/or positions in a corporation is a

management prerogative which courts are not wont to review in the absence of any proof that
such prerogative was exercised in bad faith or with malice

2. YES

 Besides, the requisites before a derivative suit can be filed by a stockholder: - present

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; - a stockholder of Filport

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

- he wrote a letter

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. - wrong against
the stockholders of the corporation generally
Corporation Law – Power of the Board – Ultra Vires Acts of Corporate Officers – Agency

In 1988, Manuel Cruz, Jr., a board member of Dieselman Freight Services, Co. (DFS) authorized Cristeta
Polintan to sell a 2,094 sq. m. parcel of land owned by DFS. Polintan in turn authorized Felicisima Noble
to sell the same lot. Noble then offered AF Realty & Development, Co., represented by Zenaida Ranullo,
the land at the rate of P2,500.00 per sq. m. AF Realty accepted the offer and issued a P300,000 check as
downpayment.

However, it appeared that DFS did not authorize Cruz, Jr. to sell the said land. Nevertheless, Manuel
Cruz, Sr. (father) and president of DFS, accepted the check but modified the offer. He increased the
selling price to P4,000.00 per sq. m. AF Realty, in its response, did not exactly agree nor disagree with
the counter-offer but only said it is willing to pay the balance (but was not clear at what rate).
Eventually, DFS sold the property to someone else.

Now AF Realty is suing DFS for specific performance. It claims that DFS ratified the contract when it
accepted the check and made a counter-offer.

ISSUE: Whether or not the sale made through an agent was ratified.

HELD: No. There was no valid agency created. The Board of Directors of DFS never authorized Cruz, Jr. to
sell the land. Hence, the agreement between Cruz, Jr. and Polintan, as well as the subsequent
agreement between Polintan and Noble, never bound the corporation. Therefore the sale transacted by
Noble purportedly on behalf of Polintan and ultimately purportedly on behalf of DFS is void.

Being a void sale, it cannot be ratified even if Cruz, Sr. accepted the check and made a counter-offer.
(Cruz, Sr. returned the check anyway). Under Article 1409 of the Civil Code, void transactions can never
be ratified because they were void from the very beginning.

Corporate Law Case Digest: San Juan Structural V. CA (1998)

G.R. No. 129459 September 29, 1998

Lessons Applicable: Definition of a Close Corporation (Corporate Law)

FACTS:
 February 14 1989: San Juan Structural and Steel Fabricators, Inc.'s (San Juan) entered into an
agreement with Motorich Sales Corporation (Motorich) for the transfer to it of a parcel of land
containing an area of 414 square meters

 San Juan paid the down payment of P100,000, the balance to be paid on or before March 2, 1989

 March 1, 1989: Mr. Andres T. Co, president of San Juan, wrote a letter course through Motorich's
broker requesting for a computation of the balance to be paid

 Linda Aduca, who wrote the computation of the balance

 March 2, 1989: San Juan was ready with the amount corresponding to the balance, covered by
Metrobank Cashier's Check, payable to Motorich

 they were supposed to meet in the office of San Juan but Motorich's treasurer, Nenita Lee
Gruenberg, did not appear

 Motorich refused to execute the Transfer of Rights/Deed of Assignment which is necessary to

transfer the certificate of title

 ACL Development Corp. (ACL) is impleaded as a necessary party since Transfer Certificate of Title
No. (362909) 2876 is still in its name

 JNM Realty & Development Corp. (JNM) is impleaded as a necessary party in view of the fact that it
is the transferor of right in favor of Motorich
 April 6, 1989: ACL and Motorich entered into a Deed of Absolute Sale

 the Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation,
represented by Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title
No. 3571

 as a result of Nenita Lee Gruenberg and Motorich's bad faith in refusing to execute a formal Transfer
of Rights/Deed of Assignment, San Juan suffered moral and nominal damages of P500,000 and
exemplary damages of P100,000.00 and P100,000 attorneys fees

 San Juan lost the opportunity to construct a residential building in the sum of P100,000.00 Pesos

 CA affirmed RTC for dismissing

 San Juan argues that the veil of corporate fiction of Motorich should be pierced because it is a close
corporation.

 Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866%
to be accurate, of the subscribed capital stock" of Motorich, San Juan argues that Gruenberg needed
no authorization from the board to enter into the subject contract.

 being solely owned by the Spouses Gruenberg, the company can treated as a close corporation
which can be bound by the acts of its principal stockholder who needs no specific authority

ISSUE: W/N Motorich is a close corp. which does not need to be bound by its principal SH

HELD: NO. petition is hereby DENIED

 Gruenberg, treasurer of Motorich, and Andres Co signed the contract but that cannot bind
Motorich, because it never authorized or ratified such sale or even the receipt of the earnest money

 A corporation is a juridical person separate and distinct from its stockholders or members

 San Juan failed to prove otherwise

 The document is a hand-written one, not a corporate receipt, and it bears only Nenita Gruenberg's
signature
 GR: acts of corporate officers within the scope of their authority are binding on the corporation. But
when these officers exceed their authority, their actions "cannot bind the corporation, unless it has
ratified such acts or is estopped from disclaiming them.

 statutorily granted privilege of a corporate veil may be used only for legitimate purposes

 utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse
legitimate issues; or serve as a mere alter ego or business conduit of a person or an instrumentality,
agency or adjunct of another corporation - none here

Sec. 96. Definition and Applicability of Title. — A close corporation, within the meaning of this Code, is
one whose articles of incorporation provide that: (1) All of the corporation's issued stock of all classes,
exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not
exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a
corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stock or
voting rights is owned or controlled by another corporation which is not a close corporation within the
meaning of this Code. . . . .
 The articles of incorporation of Motorich Sales Corporation does not contain any provision stated in
Sec. 96

 mere ownership by a single stockholder or by another corporation of all or capital stock of a

corporation is not of itself sufficient ground for disregarding the separate corporate personalities

 A narrow distribution of ownership does not, by itself, make a close corporation

 Even if veil is peice it will then be a sale of conjugal property which Nenita alone could not have
effected

 Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt
issued by the former specifically indicating that she was signing on behalf of Motorich

 The amount paid as "earnest money" was not proven to have redounded to the benefit of Motorich

 it was deposited with the account of Aren Commercial c/o Motorich

 Andres Co being a President of San Juan for more than 10 years cannot feign ignorance of the scope
of the authority of a corporate treasurer

 However, Nenita Gruenberg should be ordered to return to petitioner the amount she received as
earnest money, as "no one shall enrich himself at the expense of another.

G.R. No. 137321 October 15, 2007

PHILIPPINE ASSOCIATION OF STOCK TRANSFER AND REGISTRY AGENCIES, INC., Petitioner,

vs.
THE HONORABLE COURT OF APPEALS; THE HONORABLE SECURITIES AND EXCHANGE COMMISSION;
AND SEC CHAIRMAN PERFECTO R. YASAY, JR., Respondents.

FACTS: Petitioner Philippine Association of Stock Transfer and Registry Agencies, Inc.(PASTRA) is an
association of stock transfer agents principally engaged in the registration of stock transfers in the stock-
and-transfer book of corporations.

On May 10, 1996, petitioner’s Board of Directors unanimously approved a resolution allowing its
members to increase the transfer processing fee they charge their clients.

After a dialogue with petitioner, public respondent Securities and Exchange Commission (SEC) allowed
petitioner to impose the P75 per certificate transfer fee and P20 per certificate cancellation fee effective
July 1, 1996. But, approval of the additional increase of the transfer fees to P100 per certificate effective
October 1, 1996, was withheld until after a public hearing. The SEC issued a letter-authorization to this
effect.

The Philippine Association of Securities Brokers and Dealers, Inc. registered its objection to the measure
advanced by petitioner and requested the SEC to defer its implementation. On June 27, 1996, the SEC
advised petitioner to hold in abeyance the implementation of the increases until the matter was cleared
with all the parties concerned.

Petitioner nonetheless proceeded with the implementation of the increased fees.

Petitioner’s Contention: that the SEC cannot restrict petitioner’s members from increasing the transfer
and processing fees they charge their clients because there is no specific law, rule or regulation
authorizing it. Section 40 of the then Revised Securities Act, according to petitioner, only lays down the
general powers of the SEC to regulate and supervise the corporate activities of organizations related to
or connected with the securities market like petitioner. It could not be interpreted to justify the SEC’s
unjustified interference with petitioner’s decision to increase its transfer fees and impose processing
fees, especially since the decision involved a management prerogative and was intended to protect the
viability of petitioner’s members.

On July 8, 1996, the SEC issued Order No. 104, series of 1996, enjoining petitioner from imposing the
new fees (pursuant to Sec. 40 of the Revised Securities Act) and to show a cause why no administrative
sanctions should be imposed upon the board and officers of PASTRA.
Subsequently on July 11, 1996, after hearing SEC ordered petitioner to pay a basic fine of P5,000 and a
daily fine of P500 for continuing violations; it is hereby ordered to immediately cease and desist from
imposing the new rates for issuance and cancellation of stock certificates, until further orders from this
Commission.

CA affirmed. Hence this petition.

(While this case was pending, The Revised Securities Act by authority of which the assailed orders
were issued was repealed by Republic Act No. 8799 or The Securities Regulation Code,6 which became
effective on August 8, 2000. Nonetheless,.. July 11, 1996 Order had not been obliterated by the repeal
of The Revised Securities Act and there is still present a need to rule on whether petitioner was liable for
the fees imposed upon it).

ISSUE: whether the SEC acted with grave abuse of discretion or lack or excess of jurisdiction in issuing
the controverted Orders of July 8 and 11, 1996.

HELD: NO. We find the instant petition bereft of merit.

The Court notes that before its repeal, Section 47 of The Revised Securities Act clearly gave the SEC the
power to enjoin the acts or practices of securities-related organizations even without first conducting
a hearing if, upon proper investigation or verification, the SEC is of the opinion that there exists the
possibility that the act or practice may cause grave or irreparable injury to the investing public, if left
unrestrained. Section 47 clearly provided,

SEC. 47. Cease and desist order.—The Commission, after proper investigation or verification, motu
proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without
the necessity of a prior hearing if in its judgment the act or practice, unless restrained may cause grave
or irreparable injury or prejudice to the investing public or may amount to fraud or violation of the
disclosure requirements of this Act and the rules and regulations of the Commission. (Emphasis
supplied.)

Said section enforces the power of general supervision of the SEC under Section 40 of the then Revised
Securities Act.

As a securities-related organization under the jurisdiction and supervision of the SEC by virtue of Section
40 of The Revised Securities Act and Section 3 of Presidential Decree No. 902-A,10 petitioner was under
the obligation to comply with the July 8, 1996 Order. Defiance of the order was subject to administrative
sanctions provided in Section 4611 of The Revised Securities Act.

Petitioner was fined for violating the SEC’s cease-and-desist order which the SEC had issued to protect
the interest of the investing public, and not simply for exercising its judgment in the manner it deems
appropriate for its business.

The regulatory and supervisory powers of the Commission under Section 40 of the then Revised
Securities Act, in our view, were broad enough to include the power to regulate petitioner’s
fees. Indeed, Section 47 gave the Commission the power to enjoin motu proprio any act or practice of
petitioner which could cause grave or irreparable injury or prejudice to the investing public. The
intentional omission in the law of any qualification as to what acts or practices are subject to the control
and supervision of the SEC under Section 47 confirms the broad extent of the SEC’s regulatory powers
over the operations of securities-related organizations like petitioner.

PETITION DENIED.

Case Digest: Islamic Directorate of the Philippines v. CA

ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES & EXCHANGE
COMMISSION, petitioners, vs.COURT OF APPEALS and IGLESIA NI CRISTO, respondents.
G.R. No. 117897, 14 May 1997.

HERMOSISIMA, JR., J.:

1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP") was incorporated with the primary
purpose of establishing a mosque, school, and other religious infrastructures in Quezon City.

IDP purchased a 49,652-square meter lot in Tandang Sora, QC, which was covered by TCT Nos. RT-26520
(176616) and RT-26521 (170567).

When President Marcos declared martial law in 1972, most of the members of the 1971 Board of
Trustees ("Tamano Group")flew to the Middle East to escape political persecution.

Thereafter, two contending groups claiming to be the IDP Board of Trustees sprung: the Carpizo group
and Abbas group.

In a suit between the two groups, SEC rendered a decision in 1986 declaring both groups to be null and
void. SEC recommeded that the a new by-laws be approved and a new election be conducted upon the
approval of the by-laws. However, the SEC recommendation was not heeded.

In 1989, the Carpizo group passed a Board Resolution authorizing the sale of the land to Iglesia Ni Cristo
("INC"), and a Deed of Sale was eventually executed.

In 1991, the Tamano Group filed a petition before the SEC questioning the sale.

Meanwhile, INC filed a suit for specific performance before RTC Branch 81 against the Carpizo group.
INC also moved to compel a certain Leticia Ligon (who is apparently the mortgagee of the lot) to
surrender the title.

The Tamano group sought to intervene, but the intervention was denied despite being informed of the
pending SEC case. In 1992, the Court subsequently ruled that the INC as the rightful owner of the land,
and ordered Ligon to surrender the titles for annotation. Ligon appealed to CA and SC, but her appeals
were denied.

In 1993, the SEC ruled that the sale was null and void . On appeal CA reversed the SEC ruling.

MAIN ISSUE: W/N the sale between the Carpizo group and INC is null and void.

RULING: YES.
Since the SEC has declared the Carpizo group as a void Board of Trustees, the sale it entered into with
INC is likewise void. Without a valid consent of a contracting party, there can be no valid contract.

In this case, the IDP, never gave its consent, through a legitimate Board of Trustees, to the disputed
Deed of Absolute Sale executed in favor of INC. Therefore, this is a case not only of vitiated consent, but
one where consent on the part of one of the supposed contracting parties is totally wanting. Ineluctably,
the subject sale is void and produces no effect whatsoever.

Further, the Carpizo group failed to comply with Section 40 of the Corporation Code, which provides
that: " ... a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or substantially all of its property and assets... when
authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock; or in case of non-stock corporation, by the vote of at least two-thirds (2/3) of the
members, in a stockholders' or members' meeting duly called for the purpose...."

The subject lot constitutes the only property of IDP. Hence, its sale to a third-party is a sale or
disposition of all the corporate property and assets of IDP. For the sale to be valid, the majority vote of
the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of
the corporation should have been obtained. These twin requirements were not met in the case at bar.

ANCILLARY ISSUE: W/N The Ligon ruling constitutes res judicata.

RULING: NO.

Section 49(b), Rule 39 enunciates the first concept of res judicata known as "bar by prior judgment,"
whereas, Section 49(c), Rule 39 is referred to as "conclusiveness of judgment."

There is "bar by former judgment" when, between the first case where the judgment was rendered, and
the second case where such judgment is invoked, there is identity of parties, subject matter and cause
of action. When the three identities are present, the judgment on the merits rendered in the first
constitutes an absolute bar to the subsequent action. But where between the first case wherein
judgment is rendered and the second case wherein such judgment is invoked, there is only identity of
parties but there is no identity of cause of action, the judgment is conclusive in the second case, only as
to those matters actually and directly controverted and determined, and not as to matters merely
involved therein. This is what is termed "conclusiveness of judgment."

Neither applies to the case at bar. There is no "bar by former judgment" since while there may be
identity of subject matter (IDP property) in both cases, there is no identity of parties. The principal
parties in the first case were Ligon and the Iglesia Ni Cristo. The IDP can not be considered essentially a
formal party thereto for the simple reason that it was not duly represented by a legitimate Board of
Trustees.

Res Judicata in the form of "conclusiveness of judgment" cannot likewise apply for the reason that the
primary issue in the first case is the possession of the titles, and not the sale of the land, as in this case.
Corporate Law Case Digest: Lee V. CA (1992)

G.R. No. 93695 February 4, 1992

Lessons Applicable: Voting Trust Agreements (Corporate Law)

FACTS:
 November 15, 1985: a complaint for a sum of money was filed by the International Corporate Bank,
Inc. (ICB) against the private respondents

 March 17, 1986: private respondents, in turn, filed a 3rd-party complaint against ALFA and ICB

 September 17, 1987: petitioners filed a motion to dismiss the third party complaint - denied

 July 12, 1988: trial court issued an order requiring the issuance of an alias summons upon ALFA
through the DBP

 consequence of the petitioner's letter that ALFA management was transferred to DBP

 July 22, 1988: DBP claimed that it was not authorized to receive summons on behalf of ALFA

 August 4, 1988: trial court issued an order advising the private respondents to take the appropriate
steps to serve the summons to ALFA

 September 12, 1988: petitioners filed a motion for reconsideration submitting that Rule 14, section
13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that
the private respondents should have availed of another mode of service under Rule 14, Section 16
of the said Rules, i.e., through publication to effect proper service upon ALFA - denied

 January 19, 1989: 2nd motion for reconsideration was filed by the petitioners reiterating their stand
that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA

 attached a copy of the voting trust agreement between all the stockholders of ALFA and the DBP
whereby the management and control of ALFA became vested upon the DBP

 April 25, 1989: trial court reversed itself by setting aside its previous Order dated January 2, 1989
and declared that service upon the petitioners who were no longer corporate officers of ALFA
cannot be considered as proper service of summons on ALFA
 October 17, 1989: trial court (NOT notified of the petition for certiorari) declared final its decision
on April 25, 1989

ISSUE: W/N the voting trust agreement is valid despite being contrary to the general principle that a
corporation can only be bound by such acts which are within the scope of its officers' or agents'
authority

HELD:
 voting trust

 trust created by an agreement between a group of the stockholders of a corporation and the
trustee or by a group of identical agreements between individual stockholders and a common
trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain
event, or until the agreement is terminated, control over the stock owned by such stockholders,
either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a
reservation to the owners, or persons designated by them, of the power to direct how such control
shall be used (Ballentine's Law Dictionary)

 Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting trust
for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining
to the share for a period rights pertaining to the shares for a period not exceeding 5 years at any
one time: Provided, that in the case of a voting trust specifically required as a condition in a loan
agreement, said voting trust may be for a period exceeding 5 years but shall automatically expire
upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the
corporation and with the Securities and Exchange Commission; otherwise, said agreement is
ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust
agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees
stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be
noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust
agreement.

PREMIUM MARBLE RESOURCES V. CA AND INTERNATIONAL CORPORATE BANK (G.R. NO. 96551)

Facts:

Premium Marble Resources, assisted by Atty. Dumadag as counsel, filed an action for damages against
respondent bank on the ground that the latter allowed the checks issued to petitioner to be deposited
to the account of the former officer of Premium and that respondent bank refused to restitute the value
of the checks to the prejudice of Premium. Meantime, the same corporation Premium but this time
represented by Siguion Reyna, Montecillo and Ongsiako Law Office as counsel, moved to dismiss on the
ground that the filing of the case was without authority from its duly constituted board of directors.
Premium thru Atty. Dumadag opposed contending that based on the Articles of Incorporation the
persons who signed the board resolution are not majority stockholders. On the other hand, Siguion
Reyna law firm asserted that it is the general information sheet filed with the SEC that is the best
evidence to show who the stockholders of a corporation are. The lower court and CA both ruled to
dismiss the case.

Issue:

Whether or not the filing of the case for damages against private respondent was authorized by a duly
constituted Board of Directors of the petitioner corporation.

Ruling: NO.

While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for
the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to
show proof that this election was reported to the SEC. In fact, the last entry in their General Information
Sheet with the SEC, as of 1986 appears to be the set of officers elected in March 1981 who were
Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes. These officers presented a Resolution
dated July 30, 1986, to show that Premium did not authorize the filing in its behalf of any suit against
the private respondent International Corporate Bank.

We agree with the finding of public respondent Court of Appeals, that “in the absence of /any board
resolution from its board of directors the [sic] authority to act for and in behalf of the corporation, the
present action must necessarily fail. The power of the corporation to sue and be sued in any court is
lodged with the board of directors that exercises its corporate powers. The claim, therefore, of
petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium
has not been fully substantiated. In the absence of an authority from the board of directors, no person,
not even the officers of the corporation, can validly bind the corporation.

By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant
thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange
Commission the names, nationalities and residences of the directors, trustees and officers elected.
Corporate Law Case Digest: Tan V. Sycip (2006)

G.R. No. 153468 August 17, 2006

Lessons Applicable: Release from Subscription Obligation (Corporate Law)

FACTS:
 Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation w/ 15 regular
members, who also constitute the board of trustees.
 April 6, 1998: During the annual members’ meeting only 11 living member-trustees, as 4 had already
died.
 7 attended the meeting through their respective proxies.
 The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty.
Antonio C. Pacis, who argued that there was no quorum.
 In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to
replace the 4 deceased member-trustees.
 SEC: meeting void due to lack of quorum (NOT living but based on AIC)
 Sec 24 read together with Sec 89
 CA: Dismissed due to technicalities
ISSUE: W/N dead members should still be counted in the quorum - NO based on by-laws

HELD: NO. remaining members of the board of trustees of GCHS may convene and fill up the vacancies
in the board
 Except as provided, the vote necessary to approve a particular corporate act as provided in this
Code shall be deemed to refer only to stocks with voting rights:
 1. Amendment of the articles of incorporation;
 2. Adoption and amendment of by-laws;
 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporation property;
 4. Incurring, creating or increasing bonded indebtedness;
 5. Increase or decrease of capital stock;
 6. Merger or consolidation of the corporation with another corporation or other corporations;
 7. Investment of corporate funds in another corporation or business in accordance with this Code;
and
 8. Dissolution of the corporation.
 quorum in a members’ meeting is to be reckoned as the actual number of members of the
corporation
 stock corporations - shareholders may generally transfer their shares
 on the death of a shareholder, the executor or administrator duly appointed by the Court is vested
with the legal title to the stock and entitled to vote it
 Until a settlement and division of the estate is effected, the stocks of the decedent are held by the
administrator or executor
 nonstock corporation - personal and non-transferable unless the articles of incorporation or the
bylaws of the corporation provide otherwise
 Section 91 of the Corporation Code: termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of incorporation or the bylaws.
 whether or not "dead members" are entitled to exercise their voting rights (through their executor
or administrator), depends on those articles of incorporation or bylaws
 By-Laws of GCHS: membership in the corporation shall be terminated by the death of the member
 With 11 remaining members, the quorum = 6.
 SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the board of
directors or trustees other than by removal by the stockholders or members or by expiration of
term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or
 special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be
elected only for the unexpired term of his predecessor in office.
 the filling of vacancies in the board by the remaining directors or trustees constituting a quorum is
merely permissive, not mandatory
 either by the remaining directors constituting a quorum, or by the stockholders or members in a
regular or special meeting called for the purpose
 By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of
directors; that is, by a majority vote of the remaining members of the board
 remaining member-trustees must sit as a board (as a body in a lawful meeting)
in order to validly elect the new ones

EXPERTRAVEL & TOURS, INC. 
vs.
COURT OF APPEALS and KOREAN AIRLINES, G.R. No. 152392, May 26,
2005, Callejo, Sr., J.
Facts:
Korean Airlines through its general manager Suk Kyoo Kim and through their appointed counsel Atty.
Aguinaldo filed a complaint against Expertravel and tours (ETI) for a collection of sum of money. In the
course of the proceeding a special teleconference occurred and it is alleged that the general manager and
counsel attended such meeting and it is further alleged the board of directors approved a resolution
authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint.
Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution.
ETI now challenge the authority of the appointed counsel to sign for the certification against non forum
shopping.
Issue: Whether or not a special teleconference would authorize Atty. Aguinaldo to certify a certification
against non forum shopping
Ruling: Petition GRANTED.
In this age of modern technology, the courts may take judicial notice that business transactions may be
made by individuals through teleconferencing. Teleconferencing is interactive group communication
(three or more people in two or more locations) through an electronic medium. In general terms,
teleconferencing can bring people together under one roof even though they are separated by hundreds
of miles.18 This type of group communication may be used in a number of ways, and have three basic
types: (1) video conferencing - television-like communication augmented with sound; (2) computer
conferencing - printed communication through keyboard terminals, and (3) audio-conferencing-verbal
communication via the telephone with optional capacity for telewriting or telecopying.19
A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first introduced in
the 1960’s with American Telephone and Telegraph’s Picturephone. At that time, however, no demand
existed for the new technology. Travel costs were reasonable and consumers were unwilling to pay the
monthly service charge for using the picturephone, which was regarded as more of a novelty than as an
actual means for everyday communication.20 In time, people found it advantageous to hold
teleconferencing in the course of business and corporate governance, because of the money saved,
among other advantages include:
1. People (including outside guest speakers) who wouldn’t normally attend a distant FTF meeting can
participate.
2. Follow-up to earlier meetings can be done with relative ease and little expense.
3. Socializing is minimal compared to an FTF meeting; therefore, meetings are shorter and more oriented
to the primary purpose of the meeting.
4. Some routine meetings are more effective since one can audio-conference from any location equipped
with a telephone.
5. Communication between the home office and field staffs is maximized.
6. Severe climate and/or unreliable transportation may necessitate teleconferencing.
7. Participants are generally better prepared than for FTF meetings.
8. It is particularly satisfactory for simple problem-solving, information exchange, and procedural tasks.
9. Group members participate more equally in well-moderated teleconferences than an FTF meeting.21
On the other hand, other private corporations opt not to hold teleconferences because of the following
disadvantages:
1. Technical failures with equipment, including connections that aren’t made.
2. Unsatisfactory for complex interpersonal communication, such as negotiation or bargaining.
3. Impersonal, less easy to create an atmosphere of group rapport.
4. Lack of participant familiarity with the equipment, the medium itself, and meeting skills.
5. Acoustical problems within the teleconferencing rooms.
6. Difficulty in determining participant speaking order; frequently one person monopolizes the meeting.
7. Greater participant preparation time needed.
8. Informal, one-to-one, social interaction not possible.22
Indeed, teleconferencing can only facilitate the linking of people; it does not alter the complexity of group
communication. Although it may be easier to communicate via teleconferencing, it may also be easier to
miscommunicate. Teleconferencing cannot satisfy the individual needs of every type of meeting.23
In the Philippines, teleconferencing and videoconferencing of members of board of directors of private
corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission issued
SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be complied with
related to such conferences.24 Thus, the Court agrees with the RTC that persons in the Philippines may
have a teleconference with a group of persons in South Korea relating to business transactions or
corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference along
with the respondent’s Board of Directors, the Court is not convinced that one was conducted; even if
there had been one, the Court is not inclined to believe that a board resolution was duly passed specifically
authorizing Atty. Aguinaldo to file the complaint and execute the required certification against forum
shopping.
G.R. No. L-35603 June 28, 1988

CENTRAL COOPERATION EXCHANGE, INC., plaintiff-appellant,

vs.
NICOLAS T. ENCISO, and THE HONORABLE COURT OF APPEALS, defendant-appellee.

PARAS, J.:

This is a petition for review of the decision of the Court of Appeals * dated June 20, 1972, affirming the
decision of the then Court of First Instance of Manila, Branch XV, in Civil Case No. 4439, dismissing a
complaint by herein petitioner against herein private respondent to recover a sum of money received by
the latter from the corporation, while he was serving as member of the Board of Directors of the
Exchange.

As gathered from the records, the antecedent facts of this case are as follows:

Petitioner Central Cooperative Exchange, Inc. is the National Federation of Farmers' Cooperative Marked
Association (FACOMA) in the Philippines. Its single major stockholder is a government entity, the
Agricultural Credit and Cooperative Financing Administration (ACCFA) now Agricultural Credit
Administration (ACA), as reorganized under the Land Reform Code. Respondent Nicolas T. Enciso was
then member of the Board of Governors of ACCFA and concurrently a member of petitioner's Board of
Directors from August 1, 1958 to January, 1960.

The ACCFA took over the management of the affairs of CCE by virtue of a resolution of the latter's board
of directors and ACCFA removed the general manager of CCE and on January 22, 1960, designated
Eugenio V. Mendoza, one of ACCFA's staff officers, as Officer-in-Charge of petitioner corporation
(Petition; Rollo, pp. 2-3).

In various meetings, the Board of Directors of the CCE unanimously adopted the following Resolutions:

(1) May 28, 1958 — Res. No. 41, granting a kilometrage allowance of P35.00 to every CCE director who
uses his own car in attending Board Meeting (Exh. L, p. 79);

(2) July 8, 1958 — Res. No. 52, appropriating the amount of P10,000.00 as discretionary fund of the
Board of Directors of the CCE (Exh. G, p. 107-G);

(3) July 10, 1958 — Res. No. 49, granting a commutable allowance of P200.00 per month to each CCE
director, starting July 1, 1958, in lieu of the regular waiting time per them and transportation expenses
in Manila while attending regular and special Board Meetings and committee meetings (Exh. I, p. 115);
(4) July 24, 1958 — Res. No. 57, amending Resolution No. 49 (FY 1958) and granting to each Director a
monthly commutable allowance of P200.00 in lieu of waiting time per them and commutable
transportation allowance of P20.00 for attending meetings in Manila (Exh- H, p. 124);

(5) June 11, 1959 — Res. No. 39, increasing the monthly commutable allowance of each CCE Director
from P300.00 to P500.00 per month but cancelling the authorized per diems and transportation
expenses for FACOMA visitations (Exh. F, p. 75); and

(6) October 9, 1959 — Res. No. 87, appropriating the sum of P10,000.00 as commutable discretionary
fund of the Board of Directors (Exh. J, p. 192)."

As shown by the payrolls and petty cash and check vouchers of the CCE Nicolas T. Enciso, as director of
said Exchange, received as compensation in the form of commutable per diem, per them Facoma
visitations, kilometrage allowance, commutable discretionary funds and representation expenses in the
total amount of P10,967.85 for the period 1958 to 1960 (CA-G.R. No. 32593-R; Rollo, p. 19).

On October 22, 1960, CCE filed a complaint with prayer for a writ of attachment verified by its Officer-in-
Charge, against Nicolas T. Enciso for the recovery of said amount, the same having been collected and
received by Enciso in violation of Section 8, Article V of CCE's By-Laws, which reads:

Section 8. Compensation. — The compensation, if any, and the per diems for attendance at meetings of
the members of the Board of Directors shall determined by the members of any annual meeting or
special meeting of the Exchange called for the purpose." (Ibid.; Rollo, pp. 19-20).

and of the resolution adopted by the stockholders in their annual meeting on January 31, 1956, that the
"members of the board of Directors attending the CCE (plaintiff) board meetings be entitled to actual
transportation expenses plus the per them of P30.00 and actual expenses, while waiting." Upon
plaintiffs (petitioner herein) filing of a bond, the lower court issued an Order of Attachment (Ibid.; Rollo,
p. 20).

Otherwise stated petitioner claims it is the stockholders not the board of directors who can fix the
compensation per diem, and allowances of the members of the Board of Directors.

In his answer, respondent stated that he was a director of petitioner and that the amount of
compensation and per diems of the directors was fixed by stockholders in their annual meeting. As
affirmative defenses, he averred that: (1) plaintiff corporation has neither the legal personality to
institute the action; nor to question the legality of the resolutions enacted by the Board of which he is a
member; (2) plaintiff corporation is guilty of laches; (3) that the stockholders had ratified in their
General Annual Meetings the acts of the Board of Directors, including the collection of the amounts in
question; and (4) under the circumstances, CCE is under estoppel to seek the refund of the amounts
involved in the litigation (Ibid.; Rollo, p. 20; Petition, Rollo, p. 4).

After trial, the lower court rendered judgment in favor of defendant (private respondent herein) and
dismissed plaintiff s complaint as well as defendant's counterclaim with costs against plaintiff (Record
On Appeal, p. 70).

On appeal to the Court of Appeals, the trial court's decision was affirmed (Rollo, p. 26). Petitioner's
motion for reconsideration of the said decision was denied (Rollo, p. 40).
Hence, this petition.

In the resolution of October 16, 1972, this Court gave due course to the petition. The brief for the
petitioner was filed on November 22, 1972 (Rollo, p. 37), while the brief for the private respondent was
filed on April 27, 1973 (Rollo, p. 53).

The petitioner raises the following issues:

THE LOWER COURT ERRED IN FINDING AND CONCLUDING THAT THE PRESENT ACTION AS FILED CAN
NOT BE DEEMED A CORPORATE ACT OF APPELLANT CORPORATION AND THAT APPELLANT'S
STOCKHOLDERS HAD NOTHING TO DO WITH THE FILING OF THIS CASE.

II

THE LOWER COURT ERRED IN FINDING AND CONCLUDING THAT THE VARIOUS RESOLUTIONS OF
APPELLANT'S FORMER BOARD OF DIRECTORS AUTHORIZING AND APPROPRIATING COMPENSATION AND
OR PER DIEMS OR ALLOWANCES FOR THEMSELVES (EXHS. "F", "G", "H", "I", and "L") ARE NOT VIOLATIVE
OF APPELLANT'S BY-LAWS AND THE MANDATE OF THE STOCKHOLDERS.

III

THE LOWER COURT ERRED IN FINDING AND CONCLUDING THAT APPELLANT IS UNDER ESTOPPEL TO
QUESTION THE AFORESAID BOARD RESOLUTIONS OR THE PAYMENTS MADE TO APPELLEE THEREUNDER.

IV

THE LOWER COURT ERRED IN FINDING THAT A PREVIOUS DEMAND UPON APPELLEE IS PREREQUISITE
FOR THE INSTITUTION OF THIS ACTION.

The main issue in this case is whether or not the said of directors of the petitioner had the power and
authority to adopt the resolutions above-enumerated which appropriated finds of the corporation for
per diems, transportation allowance and discretionary funds for the members of its Board of Directors.

The petitioner contends that the resolutions in question enacted by the Board of Directors are contrary
to the By-Laws of the federation and, therefore, not within the power of the board of directors to enact
as specifically ruled by this court in Central Cooperative Exchange, Inc. vs. Concordio Tibe, Sr. and the
Court of Appeals, G. R. No. L-27972, June 30, 1970. The private respondent was a member of the board
of directors from August 1, 1958 up to the end of January 1960 and participated in the enactment of the
said resolutions and received sums of money by virtue of the same.

It is further argued by the petitioner that the Court of Appeals erred in holding that the questioned
resolutions are merely voidable and may be ratified by the stockholders because the said board
resolutions are illegal per se for the reason that: (1) the directors are not entitled to compensation even
without the express reservation of the power to grant the same unto the stockholders; (2) the
resolutions were already declared contrary to the by-laws' and 'not within the power of the board of
directors to enact; and (3) the board resolutions were enacted in violation of the express prohibition in
the by-laws they having been found to be "specifically withheld from the board of directors, and
reserved to the stockholders." The exercise of such withheld power by the board renders the act
resulting therefrom illegal and void.

On the other hand, the private respondent maintains that the questioned resolutions are all valid and
legal, as resolved pursuant to Section 8, Article V of the petitioner's By-Laws by its stockholders on
January 31, 1956, that "members of the Board of Directors attending the CCE Board Meeting entitled to
actual transportation expenses plus the per diems of P30.00 and actual expenses while waiting." It was
inferred from this resolution that the stockholders intended to allow the members" actual
transportation expenses and actual expenses while waiting, without limitations.

The private respondent also argued that the discretionary funds cannot be considered as compensation
because the meaning of the term "compensation" as applied to officers is remunerations in whatever
form it may be given, whether it be in salaries and fees, or both combined, whereas the amounts drawn
as discretionary funds are actually spent by the directors in carrying negotiations with third persons
which are necessary in managing the affairs of the corporation.

Another point raised by the private respondent is the verification of the complaint by the Officer-in-
Charge which cannot be considered as in compliance with the legal requirement, for the reason that the
Officer-in-Charge is not of the category of a General Manager who is the one authorized to use the
name of the corporation in filing a suit of this nature.

The petition is impressed with merit.

It is not disputed that during the term of private respondent as a member of the Board of Directors, he
collected sums of money by virtue of the Resolutions in question.

In an earlier case, Central Cooperative Exchange, Inc. v. Tibe, Sr. (33 SCRA 596-597 [1970], the legality of
the same resolutions, involving the same corporation as petitioner and another Board Member, who
received the same allowances and benefits thereunder, under the same circumstances and set of facts
as the case at bar, was resolved by this Court, holding that the questioned resolutions (Nos. 35, 52, 49,
57 and 87) are contrary to the By-Laws of the federation and, therefore, not within the power of the
board of directors to enact. It will be noted that in interpreting the same Section 8 of the By-Laws
likewise invoked in the previous case as in the case at bar, this Court held that the right of the
stockholders to determine the compensation of the Board of Directors was explicitly reserved and even
without said reservation, the directors are not entitled to compensation. Moreover, this Court declared
that the law is well settled that directors of corporations presumptively serve without compensation so
that while the directors, in assigning themselves additional duties acted within their power, they
nonetheless acted in excess of their authority by voting for themselves compensation for such additional
duties.

Laches was also ruled out by this Court in the same case the tribunal holding that the board of directors
under the By-Laws of the Corporation, had the control of the affairs of the corporation and it is not to be
expected that the board would sue its members to recover the sums of money voted by and for
themselves. Thus, under the circumstances, where the corporation was virtually immobilized from
commencing suit against its directors, laches does not begin to attach against the corporation until the
directors cease to be such. (Ibid., pp. 597-598).
In resume, almost all the issues raised in the case at bar have already been resolved in Central
Cooperative Exchange, Inc. v. Tibe, Sr. (supra) and there appears to be no logical reason why the ruling in
said case which has long become final, should not apply to the instant case.

Concerning the point that the complaint was verified by the officer-in-charge who is not of the category
of a General Manager, it win be noted that said officer-in-charge took over the functions and duties of
the deposed general manager. In general, the authority to supervise the business and affairs of the
corporation includes the authority to institute proceedings against all accountable persons in order to
protect and preserve the assets of the corporation and to prevent their dissipation (In re Winston, 122
Fed. 187).

Even granting that the authority of the stockholders is necessary in the institution of the suit, the lack of
authority was corrected by ratification or conformation of the stockholders as expressed in their
resolution of May 25, 1962, when a meeting was held with the presence of a quorum (Brief for
Petitioner, pp. 41-42).

PREMISES CONSIDERED, the decision under review is REVERSED and SET ASIDE, and another one is
hereby rendered ordering the respondent to pay unto the petitioner the sum of P10,967.85 with legal
interests from the date of the filing of the complaint until fully paid with costs against the respondent.

SO ORDERED.

Pamplona Plantation Company vs. Ramon Acosta

G.R. No. 153193, December 6, 2006

(Labor Law, Liability of Corporation Officers)

FACTS

This stems from a case before the Labor Arbiter for underpayment, overtime pay, premium pay for rest
day and holiday, service incentive leave pay, damages, attorney’s fees, and 13th month pay. The
complainants claimed that they were regular rank and file employees of petitioner Pamplona Plantation
Co., Inc. with different hiring periods, work designations, and salary rates.

Petitioner, however, denied this, alleging that some of the complainants are seasonal employees, some
are contractors, others were hired under the pakyaw system, while the rest were hired by the Pamplona
Plantation Leisure Corporation, which has a separate and distinct entity from it.

The Labor Arbiter (LA) held petitioner and Pamplona Plantation’s manager, Jose Luis Bondoc, liable for
underpayment as complainants were regular employees of petitioner. They were also held guilty of
illegal dismissal with regard to two complainants.

The NLRC reversed the LA’s decision, dismissing all the complaints, finding that the complaint should
have been directed against the Pamplona Plantation Leisure Corporation since complainants’ individual
affidavits contained the allegations that their tasks pertained to their work “in the golf course.”
The Court of Appeals (CA) set aside the NLRC’s dismissal and reinstated the LA’s Decision with
modification.

ISSUES

1) Whether or not Pamplona Plantation is liable for the wage differentials of the worker-respondents
who themselves admitted in their affidavits that their employer was another entity – Pamplona
Plantation Leisure Corporation?

2) Whether or not Pamplona Plantation’s manager is personally liable for the money claims awarded to
the workers?

RULING

Petition PARTIALLY GRANTED.

For the purpose of resolving the workers’ claims, Pamplona Plantation and Pamplona Leisure are hereby
deemed one and the same entity. The CA is MODIFIED in that the manager of Pamplona Plantation is
absolved of any personal liability as regards the money claims awarded to respondents.

In all other respects, the Decision is AFFIRMED.

Petitioner is estopped from denying that respondents worked for it. It never raised this defense in the
proceedings before the Labor Arbiter. Notably, the defense it raised pertained to the nature of
respondents’ employment, i.e., whether they are seasonal employees, contractors, or worked under the
pakyaw system. Thus, in its Position Paper, petitioner alleged that some of the respondents are coconut
filers and copra hookers or sakadors; some are seasonal employees who worked as scoopers or
lugiteros; some are contractors; and some worked under the pakyaw system. In support of these
allegations, petitioner even presented the company’s payroll.

By setting forth these defenses, petitioner, in effect, admitted that respondents worked for it, albeit in
different capacities. Such allegations are negative pregnants – denials pregnant with the admission of
the substantial facts in the pleading responded to which are not squarely denied, and amounts to an
acknowledgement that respondents were indeed employed by petitioner.

Reiterating Pamplona Plantation Company, Inc. v. Tinghil, the Court holds that by piercing the veil of
corporate fiction, the two corporations – the Pamplona Plantation Corporation, Inc. and the Pamplona
Plantation Leisure Corporation – are one and the same. An examination of the facts reveals that, for
both the coconut plantation and the golf course, there is only one management which the laborers deal
with regarding their work. A portion of the plantation (also called Hacienda Pamplona) had actually been
converted into a golf course and other recreational facilities. The weekly payrolls issued by petitioner-
company bore the name “Pamplona Plantation Co., Inc.”

It is also a fact that respondents all received their pay from the same person, Bondoc -- the managing
director of the company. True, Pamplona Plantation Co., Inc., and the Pamplona Plantation Leisure
Corporation appear to be separate corporate entities. But it is settled that this fiction of law cannot be
invoked to further an end subversive of justice. The corporations have basically the same incorporators
and directors and are headed by the same official. Both use only one office and one payroll and are
under one management. The attempt to make the two corporations appear as two separate entities,
insofar as the workers are concerned, should be viewed as a devious but obvious means to defeat the
ends of the law. Such a ploy should not be permitted to cloud the truth and perpetrate an injustice. Also,
just because they worked at the golf course did not necessarily mean that they were not employed to do
other tasks, especially since the golf course was merely a portion of the coconut plantation. Thus,
petitioner cannot now deny that respondents are its employees.

As to the issue on the dismissal of one particular worker, Joselito Tinghil, it is well-settled that the
employer has the burden of proving that the dismissal was for a valid and just cause. Failure to discharge
this burden of proof substantially means that the dismissal was not justified and therefore, illegal. Given
petitioner’s failure to discharge this burden, the Court sustains the finding of illegal dismissal vis-à-vis
respondent Joselito Tinghil.

Lastly, petitioner believes that its manager, Jose Luis Bondoc, should not have been held solidarily liable
with the company for the wage differentials awarded to respondents. Petitioner argues that Bondoc is
merely an employee of the company and not a corporate director or officer who can be held personally
liable therefor.

The rule is that officers of a corporation are not personally liable for their official acts unless it is shown
that they have exceeded their authority. However, the legal fiction that a corporation has a personality
separate and distinct from stockholders and members may be disregarded if it is used as a means to
perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues. Moreover, assuming Bondoc is a corporate
officer, a corporate officer is not personally liable for the money claims of discharged corporate
employees unless he acted with evident malice and bad faith in terminating their employment.

Kwok vs. Philippine Carpet Manufacturing Corporation (457 SCRA 465)

06

MAR

DONALD KWOK, petitioner,

vs. PHILIPPINE CARPET MANUFACTURING CORPORATION, respondent.

[G.R. No. 149252. April 28, 2005]

FACTS:
Petitioner filed a complaint against the respondent corporation for the recovery of accumulated
vacation and sick leave credits before the NLRC. Petitioner clung to the verbal contract with Mr. Lim, the
President of the respondent corporation and his father-in-law for his claims. Petitioner obtained
favorable judgment. In their appeal, respondent averred that the position the petition held was not
entitled cash conversions of vacation and sick leave credits. The decision of the Labor Arbiter was
reversed. The Court of Appeals affirmed the reversed decision.

ISSUE:

Whether or not the verbal contract in favor of petitioner is valid.

RULING:

NO. It is true that for a contract to be binding on the parties thereto, it need not be in writing unless the
law requires that such contract be in some form in order that it may be valid or enforceable or that it be
executed in a certain way, in which case that requirement is absolute and independent. (Art. 1356, NCC)
But the court disbelieved petitioner’s testimony and gave credence and probative weight to the
collective testimonies of the employees and officers of the respondent corporation, including Mr. Lim,
whom the petitioner presented as a hostile witness. Even assuming that the petitioner was entitled of
such benefits, there was no record to show the record of absences to arrive at the actual number of
leave credits. There was no conformity of such agreement with the Board and if so, such claim was
already barred by prescription under Article 291 of the Labor Code.

RAYMUNDO ODANI SECOSA v. HEIRS OF ERWIN SUAREZ FRANCISCO, GR No. 160039, 2004-06-29

Facts:

Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was
being tailed by the Isuzu truck driven by Secosa.

The three vehicles were traversing the southbound lane at a fairly high speed. When Secosa overtook
the sand and gravel truck, he... bumped the motorcycle causing Francisco to fall. The rear wheels of the
Isuzu truck then ran over Francisco, which resulted in his instantaneous death. Fearing for his life,
petitioner Secosa left his truck and fled the scene of the collision.

Issues:

Hence the present petition, based on the following arguments:

I.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT
THAT PETITIONER DASSAD DID NOT EXERCISE THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE
SELECTION AND SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN ACCORDANCE WITH ARTICLE 2180
OF

THE NEW CIVIL CODE AND RELATED JURISPRUDENCE ON THE MATTER.

Ruling:

Based on the foregoing provisions, when an injury is caused by the negligence of an employee, there
instantly arises a presumption that there was negligence on the part of the employer either in the
selection of his employee or in the supervision over him after such selection.

The presumption, however, may be rebutted by a clear showing on the part of the employer that it
exercised the care and diligence of a good father of a family in the selection and supervision of his
employee. Hence, to evade solidary liability for quasi-delict committed by an... employee, the employer
must adduce sufficient proof that it exercised such degree of care.[6]

In the selection of prospective employees, employers are required to examine them as to their
qualifications, experience, and service records.[13]

On the other hand, with respect to the supervision of employees, employers should formulate...
standard operating procedures, monitor their implementation, and impose disciplinary measures for
breaches thereof. To establish these factors in a trial involving the issue of vicarious liability, employers
must submit concrete proof, including documentary evidence.

Principles:

Article 2176 of the Civil Code provides:

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by... the provisions of this Chapter.

On the other hand, Article 2180, in pertinent part, states:

The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also
for those of persons for whom one is responsible x x x.

Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry x x x.

The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage.
Petitioner's attempt to prove its "deligentissimi patris familias" in the selection and supervision of
employees through oral evidence must fail as it was unable to buttress... the same with any other
evidence, object or documentary, which might obviate the apparent biased nature of the
testimony.[10]... employers must submit concrete proof, including documentary evidence.

Rovels Enterprises vs. Ocampo (392 SCRA 176 [2002])

Assailed in this petition for review on certiorari[1] is the Decision of the Court of Appeals dated June 5,
1998[2] in CA-G.R. SP No. 43260, affirming the Decision of the Securities and Exchange Commission (SEC)
in SEC Case No. 09-95-5135 dismissing the petition to be declared the majority stockholder of Tagaytay
Taal Tourist Development Corporation (TTTDC). The petition was filed by Rovels Enterprises, Inc.
(Rovels), herein petitioner. Rovels is a domestic corporation engaged in construction work. Its President
is Eduardo Santos. TTTDC was among Rovels clients.

In payment for the services rendered by Rovels, the Board of Directors of TTTDC passed a Resolution on
December 29, 1975 providing as follows:

RESOLVED, as it is hereby resolved that payment for professional fees and services rendered by x x x
Rovels Enterprises x x x be made in cash if funds are available, or its equivalent number of shares of
stock of the corporation at par value, and should said creditors elect the latter mode of payment, it is
further resolved that the President and/or his Secretary be authorized as they are hereby authorized,
to issue the corresponding unissued shares of stock of the corporation.[3] (emphasis added)

The Resolution was signed by three of TTTDCs directors, namely, Victoriano Leviste, Bienvenido Cruz,
Jr., and Roberto Roxas. Roberto Roxas is the President of TTTDC and stockholder of Rovels at the same
time. Noticeably, the signatures of the other two (2) TTTDC directors Jose Silva, Jr. and Emmanuel
Ocampo do not appear in the subject Resolution despite their presence in the December 29, 1975 Board
meeting.[4]

On February 23, 1976, Eduardo Santos, President of Rovels, on behalf of TTTDC, filed with the SEC an
application for exemption from registration of TTTDCs unissued shares of stock transferred to it (Rovels)
as payment for its services worth One Hundred Eight Thousand Pesos (P108,000.00). This was done
because under Section 4 (a) of the Revised Securities Act, no shares of stocks shall be transferred unless
first registered with the SEC or permitted to be sold.[5]

On May 7, 1976, the SEC, in its Resolution No. 260,[6] granted Eduardo Santos application.

On March 1, 1976, the TTTDC Board of Directors passed another Resolution[7] repealing its Resolution of
December 29, 1975, thus:

RESOLVED, as it is hereby resolved, that the Resolution of December 29, 1975 authorizing the payment
of creditors with unissued shares of the corporation be as it is hereby repealed: Resolved further that
the matter as well as the amount of the creditors claims be given adequate study and consideration by
the Board. (emphasis added)

In view of the December 29, 1975 TTTDC Board Resolution transferring to Rovels the said shares of stock
as construction fee, TTTDC Directors Jose Silva, Jr. and Emmanuel Ocampo filed a complaint with the SEC
against Roberto Roxas, TTTDC President, and Eduardo Santos, Rovels President, docketed as SEC Case
No. 1322. In their complaint, Silva and Ocampo alleged that there was no meeting of the TTTDCs Board
of Directors on December 29, 1975; that they did not authorize the transfer of TTTDCs shares of stock to
Rovels; that they never signed the alleged minutes of the meeting; and that the signatures of the other
two (2) Directors, Victoriano Leviste and Bienvenido Cruz, Jr., as well as that of TTTDCs Secretary
Francisco Carreon, Jr., were obtained through fraud and misrepresentation. They also alleged that the
TTTDC Board Resolution dated December 29, 1975 was repealed by the March 1, 1976 Resolution. They
thus prayed that the transfer of TTTDCs shares of stock to Rovels pursuant to Resolution dated
December 29, 1975 be annulled.

On March 17, 1979, SEC Hearing Officer Eugenio E. Reyes issued a Decision[8] in favor of Silva and
Ocampo, the dispositive portion of which reads:

Considering that the (December 29, 1975) board resolution which authorizes the corporation to pay its
creditors with its unissued shares of stock x x x had been expressly revoked or repealed on March 1,
1976 as earlier pointed out, Commission Resolution No. 260 (granting Santos application for exemption
from registration of the unissued shares), when issued on May 7, 1976 x x x had lost its legal
basis. Consequently, the corresponding issuance of shares was without authority of the board of
directors.

xxxxxxxxx

WHEREFORE, premises considered, this Commission finds and so holds that the purported board
resolution of December 29, 1975, not having been properly passed upon at a duly constituted board
meeting, cannot be recognized as valid and hence, without legal force and effect. Consequently, the
issuance of shares of stock to corporate creditors of the Tagaytay Taal Tourist Development
Corporation is null and void. In view thereof, the shares in question are still considered unissued and
remain part of the authorized capital stocks of the Tagaytay Taal Tourist Development Corporation. This
is without prejudice to the rights of said corporate creditors as against Tagaytay Taal Tourist
Development Corporation for the latters contractual obligations. (emphasis added)

On appeal by Roberto Roxas and Eduardo Santos, the SEC en banc, in its Decision dated September 2,
1982 in SEC-AC No. 049,[9] affirmed the Decision of the SEC Hearing Officer. This Court, in its Decision of
June 20, 1983 in G.R. No. 61863,[10] likewise affirmed the Decision of the SEC en banc. The Decision of
this Court became final and executory on September 2, 1983.[11]

Subsequently, TTTDC, Jose Silva, Emmanuel Ocampo, Victoriano Leviste, Francisco Carreon, Jr., and
Expedito Leviste, Sr., another stockholder of TTTDC, (the SILVA GROUP, now respondents), filed with the
SEC a petition against Eduardo Santos, Sylvia S. Veloso, Josefina Carballo, Augusto del Rosario, Reynaldo
Alcantara and Lauro Sandoval (the SANTOS GROUP), docketed as SEC Case No. 3806. (The SANTOS
GROUP were nominees of Rovels who, by virtue of the shares of stock issued pursuant to the December
29, 1975 Resolution, proceeded to act as directors and officers of TTTDC). In their petition, the SILVA
GROUP prayed that they be declared the true and lawful stockholders and incumbent directors and
officers of TTTDC.

On July 6, 1993, SEC Hearing Officer Alberto P. Atas rendered a Decision[12] in favor of the SILVA GROUP,
thus:

WHEREFORE, judgment is hereby rendered in favor of the petitioners (SILVA GROUP) and against the
respondents (SANTOS GROUP), as follows:
a. Declaring petitioners as the lawful stockholders, directors and officers of Tagaytay Taal Tourist
Development Corporation;

b. Declaring respondents, to be not stockholders of Tagaytay Taal Tourist Development Corporation;

c. Declaring respondents to be not directors or officers of Tagaytay Taal Tourist Development

Corporation;

d. The writ of preliminary injunction issued on November 6, 1990 is hereby made permanent; and

e. Ordering the Records Division of this Commission to purge the records of Tagaytay Taal Tourist
Development Corporation of all papers and documents filed by respondents purportedly in behalf of
Tagaytay Taal Tourist Development Corporation. (emphasis and words in parentheses added)

The above Decision became final and executory on September 1, 1994[13] as no appeal was interposed
by either the SILVA GROUP or the SANTOS GROUP.

However, Rovels, to whom the TTTDC shares of stock (worth P108,000.00) were transferred, claimed
that it became aware of the July 6, 1993 SEC Decision only in June of 1995. So on September 6, 1995, it
filed a petition with the SEC,[14] docketed as SEC Case No. 09-95-5135, praying that it be declared the
majority stockholder of TTTDC as against respondents Ocampo, Silva, Leviste, Sr., Calalang and Carreon
(belonging to the SILVA GROUP). The material allegations of the petition state that: (1) TTTDC passed a
Resolution dated December 29, 1975 authorizing the transfer of its unissued shares to Rovels as the
latters construction fee;[15] (2) Pursuant to that Resolution, TTTDC shares of stock worth P692,000.00
were transferred to Rovels;[16] (3) While TTTDC, in its March 1, 1976 Resolution, repealed the December
29, 1975 Resolution, such repeal does not bind Rovels for lack of notice;[17] (4) Several interrelated cases
(SEC Case Nos. 1322 and 3806) were filed with the SEC involving the SILVA and SANTOS GROUPS;[18] (5)
Rovels is not bound by the SEC Decisions since it was not impleaded as a party in said cases.[19]

Forthwith, the SILVA GROUP filed a motion to dismiss[20] the petition on the following grounds: (1)
Rovels has no cause of action since TTTDCs December 29, 1975 Board Resolution was repealed by its
March 1, 1976 Resolution;[21] (2) the petition is barred by the prior SEC Decisions in SEC Case No. 1322
declaring that the issuance of TTTDCs shares of stock to Rovels is valid, and the SEC Decision in 3806
declaring the SILVA GROUP as the lawful stockholders of TTTDC;[22] and (3) the petition is barred by
estoppel, prescription and laches since it was filed long after Rovels was notified of the repeal of the
December 29, 1975 TTTDC Resolution.[23]

In an Order dated April 22, 1996[24] in SEC Case No. 09-95-5135, SEC Hearing Officer Manuel P. Perea
dismissed Rovels petition on the grounds of lack of cause of action, res judicata, estoppel, laches and
prescription. This Order was affirmed by the SEC en banc in its Decision dated January 20, 1997[25] in SEC
AC No. 560.

Upon a petition for review, docketed as CA-G.R. SP. No. 43260, the Court of Appeals, in its Decision
dated June 5, 1998,[26] affirmed the January 20, 1997 SEC en banc Decision. Rovels motion for
reconsideration was likewise denied.[27]

Hence, the instant petition for review on certiorari,[28] alleging that the Court of Appeals erred:

I
IN HOLDING THAT PETITIONER ROVELS HAS NO CAUSE OF ACTION AGAINST PRIVATE RESPONDENTS;
and

II

IN HOLDING THAT THE PETITION IN SEC CASE NO. 09-95-5135 IS BARRED BY PRIOR JUDGMENT (RES
JUDICATA), LACHES, PRESCRIPTION AND ESTOPPEL.[29]

The petition is unmeritorious.

On the first assigned error, we find that the Court of Appeals is correct in affirming the dismissal of
Rovels petition in SEC Case No. 09-955135 for lack of cause of action.

A cause of action is defined as the delict or wrongful act or omission committed by a person in violation
of the right of another.[30] A cause of action exists if the following elements are present: (1) a right in
favor of the plaintiff, (2) the correlative obligation of the defendant to respect such right, and (3) the act
or omission of the defendant in violation of plaintiffs right.[31] The test is whether the material
allegations of the complaint, assuming them to be true, state ultimate facts which constitute plaintiffs
cause of action, such that plaintiff is entitled to a favorable judgment as a matter of law.[32]

The pertinent portions of Rovels petition filed with the SEC read:

xxxxxxxxx

5. x x x. On December 29, 1975, TTTDC in a Resolution signed by majority members of the Board of
Directors resolved that TTTDC pay its creditors through a debt-to-equity swap;

xxxxxxxxx

9. x x x the relation between the Silva faction and the Santos faction became adversarial. The Silva
faction attempted to form an alleged new board of directors and repealed the Board Resolution dated
December 29, 1975Resolution regarding the debt to equity swap. Thus, it resolved:

RESOLVED, as it is hereby resolved, that the Resolution of December 29, 1975 authorizing the payment
of creditors with unissued shares of the corporation be as it is hereby repealed: Resolved further that
the matter as well as the amount of the creditors claims be given adequate study and consideration by
the Board. x x x

10. That what is clear from the above Resolution of March 1, 1976 is the admission that indeed TTTDC
owes certain amount of money from its creditors. The creditors became stockholders of record as a
result of shares of stock issued in implementation of the debt to equity conversion. Corresponding
shares of stock were issued and signed by then president of the corporation Roberto Roxas and then
corporate secretary Francisco N. Carreon, Jr.

Copy of said Certificate of Stocks are hereto attached and marked as Annexes D to P and made an
integral part hereof.

xxxxxxxxx

12. That several interrelated cases were filed by Eduardo L. Santos (SEC Case No. 1322), on one hand,
and Expedito M. Leviste, Francisco Carreon, Felicisimo Ocampo and Jose M. Silva (SEC Case No. 3806)
and vice versa on the other. Petitioner, Rovels Enterprises, Inc. was never made a party in any of these
cases and its nominees in the Board of Directors of TTTDC continued to exercise its function from 1976.

xxxxxxxxx

19. That to implement the decision in SEC CASE 3806, which declared the Silva Group as the duly
authorized directors and officers, without looking deeply into the records of the case, i.e. the sub-
poened authentic Stock and Transfer Book of TTTDC and the earlier decision in PED Case No. 89-0644,
will constitute irreparable damage to the petitioner. Specially so, Silva executed an affidavit showing 5
Directors of TTTDC but the stock certificates were not signed by the corporate secretary who died in
1982.

xxxxxxxxx

21. That petitioner which became duly registered majority stockholder thru debt to equity swap had
been an innocent party to such controversy between the aforesaid 2 ruling thereof, hence, petitioner
remains as is on a status quo basis as majority stockholder of TTTDC.

xxxxxxxxx

PRAYER

WHEREFORE, premises considered, petitioner prays that this Honorable Commission render judgment in
favor of petitioner and against respondents (SILVA GROUP):

xxxxxxxxx

2. After due notice and hearing, re-declaring petitioner lawful registered majority stockholder of TTTDC
x x x;

3. Ordering respondents to desist from sitting in the Board of Directors of TTTDC as they are not lawful
registered stockholders in the books of the said corporation.

x x x x x x x x x[33]

A reading of the above petition (paragraph 5) shows that Rovels prayer to be declared the majority
stockholder of TTTDC is anchored on the December 29, 1975 TTTDC Board Resolution transferring its
shares of stock to Rovels as construction fee. This Resolution could have vested in Rovels a right to be
declared a stockholder of TTTDC. However, the same petition (paragraphs 9 and 10) concedes that the
December 29, 1975 Resolution was repealed by the March 1, 1976 Resolution. The petition likewise
alleges (paragraphs 12 and 19) that there were prior interrelated cases filed with the SEC between the
SILVA and SANTOS GROUPS, namely: (1) SEC Case No. 1322 (wherein the SEC en banc in its Decision
dated September 2, 1982 nullified the TTTDC Board Resolution dated December 29, 1975, which
Decision was affirmed with finality by this Court in G.R. No. 61863) and (2) SEC Case No. 3806 (wherein
the SEC declared the SILVA GROUP as the legitimate stockholders of TTTDC, not Rovels nominees [the
SANTOS GROUP]). Clearly, on the face of its petition, Rovels cannot claim to be the majority stockholder
of TTTDC.
Relative to the second assigned error, Rovels contends that it is not bound by the SEC Decision in SEC
Case Nos. 1322 and 3806 and in G.R. No. 61863 as it was never a party in any of these cases. This
contention brings us to the issue of res judicata.

The requisites of res judicata,[34] also known as the rule on bar by prior judgment, are:

1) the former judgment must be final;

2) the court which rendered it had jurisdiction over the subject matter and the parties;

3) the judgment must be on the merits; and

4) there must be between the first and the second actions, identity of parties, subject matter and causes
of action.

The first three (3) requisites of res judicata are present in this case. This is not disputed by the parties
and is, in fact, established by the record. The controversy arises as to whether there is identity of the
parties in the present SEC Case No. 09-95-5135, on the one hand, and in prior SEC Case Nos. 1322 and
3806, on the other.

Contrary to its claim, Rovels is bound by the previous SEC Decisions. It must be noted that Eduardo
Santos, President of Rovels, was one of the respondents in both SEC Case Nos. 1322 and 3806. Clearly,
Rovels and Eduardo Santos, being its President, share an identity of interests sufficient to make
them privies-in-law, as correctly found by the Court of Appeals in its assailed Decision, thus:

In the case at bench, there can be no question that the rights claimed by petitioner and its
stockholders/directors/officers who were parties in SEC Case Nos. 1322 and 3806 are identical in that
they are both based on the December 29, 1975 Resolution. Stated differently, they shared an identity of
interest from which flowed an identity of relief sought, namely, to be declared owners of the stocks of
TTTDC, premised on the same December 29, 1975 Resolution. x x x. This identity of interest is sufficient
to make them privies-in-law, one to the other, and meets the requisite of substantial identity of
parties.[35]

It bears stressing that absolute identity of parties is not required for the principle of res judicata, or the
rule on bar by prior judgment, to apply. Mere substantial identity of parties, or a community of interests
between a party in the first case and a party in the subsequent case even if the latter was not impleaded
in the first case, is sufficient.[36]

Rovels cannot take refuge in the argument that, as a corporation, it is imbued with personality separate
and distinct from that of the respondents in SEC Case Nos. 1322 and 3806. The legal fiction of separate
corporate existence is not at all times invincible and the same may be pierced when employed as a
means to perpetrate a fraud, confuse legitimate issues, or used as a vehicle to promote unfair objectives
or to shield an otherwise blatant violation of the prohibition against forum-shopping. While it is
settled that the piercing of the corporate veil has to be done with caution, this corporate fiction may be
disregarded when necessary in the interest of justice.[37]

The doctrine of res judicata states that a final judgment on the merits rendered by a court of competent
jurisdiction is conclusive as to the rights of the parties and their privies, and constitutes an absolute bar
to subsequent actions involving the same claim, demand or cause of action.[38] This is founded on public
policy and necessity, which makes it to the interest of the State that there should be an end to
litigations, and on the principle that an individual should not be vexed twice for the same cause.[39]

Just recently, we emphatically declared in In Re: Petition Seeking for Clarification as to the Validity and
Forceful Effect of Two (2) Final and Executory but Conflicting Decisions of the Honorable Supreme
Court:[40] Every litigation must come to an end once a judgment becomes final, executory and
unappealable. This is a fundamental and immutable legal principle. For (j)ust as a losing party has the
right to file an appeal within the prescribed period, the winning party also has the correlative right to
enjoy the finality of the resolution of his case by the execution and satisfaction of the judgment, which is
the life of the law. Any attempt to thwart this rigid rule and deny the prevailing litigant his right to
savour the fruit of his victory, must immediately be struck down.

Finally, this Court sustains the Appellate Courts finding that the filing of Rovels petition in the instant
SEC Case No. 09-95-5135 is barred by estoppel, prescription and laches. There is no merit to Rovels
claim that it was only in June of 1995[41] when it became aware of the repeal of the December 29, 1975
TTTDC Resolution and of the consequent nullification of the transfer of its shares of stock.

It is undisputed that Eduardo Santos was present in the March 1, 1976 TTTDC Board meeting wherein
the December 29, 1975 Resolution was repealed. We hold that Eduardo Santos, being the President of
Rovels, is considered as its (Rovels) agent. As such, his knowledge of the repeal of the December 29,
1975 Resolution, under the theory of imputed knowledge, is ascribed to his principal (Rovels).

It was only on September 6, 1995, or almost twenty (20) years from the time Eduardo Santos learned of
the March 1, 1976 Resolution, that Rovels filed its petition in SEC Case No. 09-95-5135. Within that long
period of time, Rovels did nothing to contest the March 1, 1976 TTTDC Resolution to protect its rights, if
any. Obviously, such inaction constitutes estoppel, prescription and laches. As stated by Rovels itself,
Article 1149 of the New Civil Code limits the filing of actions, whose periods are not fixed therein or in
any other laws, to only five (5) years. In addition, the principle of laches or stale demands provides that
the failure or neglect, for an unreasonable and unexplained length of time, to do that which by
exercising due diligence could or should have been done earlier, or the negligence or omission to assert
a right within a reasonable time, warrants a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.[42]

In sum, this Court finds that the Court of Appeals did not commit any reversible error in its challenged
Decision.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated June 5, 1998
and its Resolution dated December 21, 1998 in CA-G.R. SP. No. 43260, are AFFIRMED.

SO ORDERED.

May a wife secure a writ of habeas corpus to compel her husband to live with her in conjugal bliss? The
answer is no. Marital rights including coverture and living in conjugal dwelling may not be enforced by
the extra-ordinary writ of habeas corpus.

A writ of habeas corpus extends to all cases of illegal confinement or detention,[1] or by which the
rightful custody of a person is withheld from the one entitled thereto.[2] Slx
"Habeas corpus is a writ directed to the person detaining another, commanding him to produce the
body of the prisoner at a designated time and place, with the day and cause of his capture and
detention, to do, submit to, and receive whatsoever the court or judge awarding the writ shall consider
in that behalf."[3]

It is a high prerogative, common-law writ, of ancient origin, the great object of which is the liberation of
those who may be imprisoned without sufficient cause.[4] It is issued when one is deprived of liberty or is
wrongfully prevented from exercising legal custody over another person.[5]

The petition of Erlinda K. Ilusorio[6] is to reverse the decision[7] of the Court of Appeals and its
resolution[8] dismissing the application for habeas corpus to have the custody of her husband, lawyer
Potenciano Ilusorio and enforce consortium as the wife.

On the other hand, the petition of Potenciano Ilusorio[9] is to annul that portion of the decision of the
Court of Appeals giving Erlinda K. Ilusorio visitation rights to her husband and to enjoin Erlinda and the
Court of Appeals from enforcing the visitation rights.

The undisputed facts are as follows: Scslx

Erlinda Kalaw Ilusorio is the wife of lawyer Potenciano Ilusorio.

Potenciano Ilusorio is about 86 years of age possessed of extensive property valued at millions of pesos.
For many years, lawyer Potenciano Ilusorio was Chairman of the Board and President of Baguio Country
Club.

On July 11, 1942, Erlinda Kalaw and Potenciano Ilusorio contracted matrimony and lived together for a
period of thirty (30) years. In 1972, they separated from bed and board for undisclosed reasons.
Potenciano lived at Urdaneta Condominium, Ayala Ave., Makati City when he was in Manila and at
Ilusorio Penthouse, Baguio Country Club when he was in Baguio City. On the other hand, Erlinda lived in
Antipolo City.

Out of their marriage, the spouses had six (6) children, namely: Ramon Ilusorio (age 55); Erlinda Ilusorio
Bildner (age 52); Maximo (age 50); Sylvia (age 49); Marietta (age 48); and Shereen (age 39).

On December 30, 1997, upon Potencianos arrival from the United States, he stayed with Erlinda for
about five (5) months in Antipolo City. The children, Sylvia and Erlinda (Lin), alleged that during this time,
their mother gave Potenciano an overdose of 200 mg instead of 100 mg Zoloft, an antidepressant drug
prescribed by his doctor in New York, U.S.A. As a consequence, Potencianos health deteriorated.

On February 25, 1998, Erlinda filed with the Regional Trial Court, Antipolo City a petition[10] for
guardianship over the person and property of Potenciano Ilusorio due to the latters advanced age, frail
health, poor eyesight and impaired judgment.

On May 31, 1998, after attending a corporate meeting in Baguio City, Potenciano Ilusorio did not return
to Antipolo City and instead lived at Cleveland Condominium, Makati. Slxsc

On March 11, 1999, Erlinda filed with the Court of Appeals a petition for habeas corpus to have the
custody of lawyer Potenciano Ilusorio. She alleged that respondents[11] refused petitioners demands to
see and visit her husband and prohibited Potenciano from returning to Antipolo City.
After due hearing, on April 5, 1999, the Court of Appeals rendered decision the dispositive portion of
which reads:

"WHEREFORE, in the light of the foregoing disquisitions, judgment is hereby rendered:

"(1) Ordering, for humanitarian consideration and upon petitioners manifestation, respondents Erlinda
K. Ilusorio Bildner and Sylvia Ilusorio-Yap, the administrator of Cleveland Condominium or anywhere in
its place, his guards and Potenciano Ilusorios staff especially Ms. Aurora Montemayor to allow visitation
rights to Potenciano Ilusorios wife, Erlinda Ilusorio and all her children, notwithstanding any list limiting
visitors thereof, under penalty of contempt in case of violation of refusal thereof; xxx

"(2) ORDERING that the writ of habeas corpus previously issued be recalled and the herein petition for
habeas corpus be DENIED DUE COURSE, as it is hereby DISMISSED for lack of unlawful restraint or
detention of the subject of the petition.

"SO ORDERED."[12]

Vice President

• Ilusorio vs. Ilusorio (540 SCRA 182 [2007])

Hence, the two petitions, which were consolidated and are herein jointly decided.

As heretofore stated, a writ of habeas corpus extends to all cases of illegal confinement or
detention,[13] or by which the rightful custody of a person is withheld from the one entitled thereto. It is
available where a person continues to be unlawfully denied of one or more of his constitutional
freedoms, where there is denial of due process, where the restraints are not merely involuntary but are
unnecessary, and where a deprivation of freedom originally valid has later become arbitrary.[14] It is
devised as a speedy and effectual remedy to relieve persons from unlawful restraint, as the best and
only sufficient defense of personal freedom.[15] Jksm

The essential object and purpose of the writ of habeas corpus is to inquire into all manner of involuntary
restraint, and to relieve a person therefrom if such restraint is illegal.[16]

To justify the grant of the petition, the restraint of liberty must be an illegal and involuntary deprivation
of freedom of action.[17] The illegal restraint of liberty must be actual and effective, not merely nominal
or moral.[18]

The evidence shows that there was no actual and effective detention or deprivation of lawyer
Potenciano Ilusorios liberty that would justify the issuance of the writ. The fact that lawyer Potenciano
Ilusorio is about 86 years of age, or under medication does not necessarily render him mentally
incapacitated. Soundness of mind does not hinge on age or medical condition but on the capacity of the
individual to discern his actions.

After due hearing, the Court of Appeals concluded that there was no unlawful restraint on his liberty.

The Court of Appeals also observed that lawyer Potenciano Ilusorio did not request the administrator of
the Cleveland Condominium not to allow his wife and other children from seeing or visiting him. He
made it clear that he did not object to seeing them.
As to lawyer Potenciano Ilusorios mental state, the Court of Appeals observed that he was of sound and
alert mind, having answered all the relevant questions to the satisfaction of the court.

Being of sound mind, he is thus possessed with the capacity to make choices. In this case, the crucial
choices revolve on his residence and the people he opts to see or live with. The choices he made may
not appeal to some of his family members but these are choices which exclusively belong to Potenciano.
He made it clear before the Court of Appeals that he was not prevented from leaving his house or seeing
people. With that declaration, and absent any true restraint on his liberty, we have no reason to reverse
the findings of the Court of Appeals.

With his full mental capacity coupled with the right of choice, Potenciano Ilusorio may not be the
subject of visitation rights against his free choice. Otherwise, we will deprive him of his right to privacy.
Needless to say, this will run against his fundamental constitutional right. Es m

The Court of Appeals exceeded its authority when it awarded visitation rights in a petition for habeas
corpus where Erlinda never even prayed for such right. The ruling is not consistent with the finding of
subjects sanity.

When the court ordered the grant of visitation rights, it also emphasized that the same shall be enforced
under penalty of contempt in case of violation or refusal to comply. Such assertion of raw, naked power
is unnecessary.

The Court of Appeals missed the fact that the case did not involve the right of a parent to visit a minor
child but the right of a wife to visit a husband. In case the husband refuses to see his wife for private
reasons, he is at liberty to do so without threat of any penalty attached to the exercise of his right.

No court is empowered as a judicial authority to compel a husband to live with his wife. Coverture
cannot be enforced by compulsion of a writ of habeas corpus carried out by sheriffs or by any other
mesne process. That is a matter beyond judicial authority and is best left to the man and womans free
choice.

WHEREFORE, in G. R. No. 139789, the Court DISMISSES the petition for lack of merit. No costs.

In G. R. No. 139808, the Court GRANTS the petition and nullifies the decision of the Court of Appeals
insofar as it gives visitation rights to respondent Erlinda K. Ilusorio. No costs.
Atrium Management Corporation v. Court of Appeals, G.R. No. 109491, February 28, 2001.

Facts:

Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de Leon, treasurer, and
the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T.
Henry and Co., Inc., in turn, endorsed the four checks to Atrium for valuable consideration. Enrique Tan
of E.T. Henry approached Atrium for financial assistance, offering to discount four RCBC checks in the
total amount of P2 million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the
checks, provided it be allowed to confirm with Hi-Cement the fact that the checks represented payment
for petroleum products which E.T. Henry delivered to Hi-Cement. Upon presentment for payment, the
drawee bank dishonored all four checks for the common reason “payment stopped”. As a result thereof,
Atrium filed an action for collection of the proceeds of 4 PDC in the total amount of 2M with RTC Manila.
Judgment was rendered in favor of Atrium ordering Lourdes and Rafael de Leon, E.T. Henry and Co., and
Hi-Cement to pay Atrium the said amount plus interest and attorneys fees. CA absolved Hi-cement
Corporation from liability. It also ruled that since Lourdes was not authorized to issue the subjects
checks in favor of E.T. Henry Inc., the said act was ultra vires.

Issue: Whether the issuance of the questioned checks was an ultra vires act;

Ruling: Yes.

An ultra vires act is one committed outside the object for which a corporation is created as defined by
the law of its organization and therefore beyond the power conferred upon it by law. The term “ultra
vires” is “distinguished from an illegal act for the former is merely voidable which may be enforced by
performance, ratification, or estoppel, while the latter is void and cannot be validated.

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 down 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; or

4. He is made, by a specific provision of law, to personally answer for his corporate action.

In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement
were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the
confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of
the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed
for deposit only to the payee’s account and not to be further negotiated. What is more, the
confirmation letter contained a clause that was not true, that is, “that the checks issued to E.T. Henry
were in payment of Hydro oil bought by Hi-Cement from E.T. Henry”. Her negligence resulted in damage
to the corporation. Hence, Ms. de Leon may be held personally liable therefor.

BANK OF THE PHILIPPINE ISLANDS v. CASA MONTESSORI INTERNATIONALE and LEONARDO T. YABUT

[G.R. No. 149454. May 28, 2004] (430 SCRA 261)

FACTS:

CASA Montessori International opened a current account with BPI with CASAs President Ms. Ma.
Carina C. Lebron as one of its authorized signatories. In 1991, after conducting an investigation, plaintiff
discovered that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the
total amount of P782,000.00. It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch
[was] a fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor
of CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and
encashed the checks.

The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that
the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the
latter.

On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against
defendant bank.

ISSUE 1:

Was there forgery under the Negotiable Instruments Law (NIL)?

HELD:

YES. Forgery cannot be presumed. It must be established by clear, positive and convincing evidence.
Under the best evidence rule as applied to documentary evidence like the checks in question, no
secondary or substitutionary evidence may inceptively be introduced, as the original writing itself must
be produced in court. But when, without bad faith on the part of the offeror, the original checks have
already been destroyed or cannot be produced in court, secondary evidence may be produced. Without
bad faith on its part, CASA proved the loss or destruction of the original checks through the Affidavit of
the one person who knew of that fact- Yabut. He clearly admitted to discarding the paid checks to cover
up his misdeed. In such a situation, secondary evidence like microfilm copies may be introduced in
court.

Even with respect to documentary evidence, the best evidence rule applies only when the contents of a
document -- such as the drawers signature on a check -- is the subject of inquiry.

ISSUE 2:

Is BPI liable as the drawee bank for allowing payment on the checks to a wrongful and fictitious
payee?

HELD:

YES. BPI -- the drawee bank -- becomes liable to its depositor-drawer for allowing payment on the
checks to a wrongful and fictitious payee. Since the encashing bank is one of its branches, BPI can easily
go after it and hold it liable for reimbursement. It may not debit the drawers account and is not entitled
to indemnification from the drawer. In both law and equity, when one of two innocent persons must
suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was
the proximate cause of the loss or who put it into the power of the third person to perpetrate the
wrong.
 A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily charge the amount so
paid to the account of the depositor whose name was forged.

Corporate Law Case Digest: Filipinas Port V. Go (2007)

FACTS:
Sept 4 1992: Eliodoro C. Cruz, Filport’s president from 1968-1991, wrote a letter to the corporation’s
BOD questioning the creation and election of the following positions with a monthly remuneration of
P13,050.00 each. Cruz requested the board to take necessary action/actions to recover from those
elected to the aforementioned positions the salaries they have received.

 Jun 4 1993: Cruz, purportedly in representation of Filport and its stockholders, among which is
herein co-petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with the
SEC a derivative suit against Filport's BOD for acts of mismanagement detrimental to the
interest of the corporation and its shareholders at large.

 Cruz prayed that the BOD be made to pay Filport, jointly and severally, the sums of
money variedly representing the damages incurred as a result of the creation of the
offices/positions complained of and the aggregate amount of the questioned increased
salaries.

 RTC: BOD have the power to create positions not in the by-laws and can increase
salaries. But Edgar C. Trinidad under the third and fourth causes of action to restore to the
corporation the total amount of salaries he received as assistant vice president for corporate
planning; and likewise ordering Fortunato V. de Castro and Arsenio Lopez Chua under the fourth
cause of action to restore to the corporation the salaries they each received as special assistants
respectively to the president and board chairman. In case of insolvency of any or all of them, the
members of the board who created their positions are subsidiarily liable.

 Appealed: creation of the positions merely for accommodation purposes - GRANTED

ISSUES:

1. W/N there was mismanagement - NO

2. W/N there is a proper derivative suit - YES

HELD: CA Affirmed

1. NO

 Section 35 of the Corporation Code, the creation of an executive committee (as powerful as the
BOD) must be provided for in the bylaws of the corporation

 Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the
creation of the executive committee by the board of directors is illegal or unlawful. One
 reason is the absence of a showing as to the true nature and functions of executive
committee

 But even assuming there was mismanagement resulting to corporate damages and/or business
losses, respondents may not be held liable in the absence of a showing of bad faith in doing the
acts complained of. ("dishonest purpose","some moral obliquity","conscious doing of a
wrong", "partakes of the nature of fraud")

 determination of the necessity for additional offices and/or positions in a corporation is a

management prerogative which courts are not wont to review in the absence of any proof that
such prerogative was exercised in bad faith or with malice

2. YES

 Besides, the requisites before a derivative suit can be filed by a stockholder: - present

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; - a stockholder of Filport

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

- he wrote a letter

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. - wrong against
the stockholders of the corporation generally.

Gokongwei vs. SEC Case Digest

Gokongwei vs. Securities and Exchange Commission

[GR L-45911, 11 April 1979]

Facts: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel
Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of
nullity of amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and
damages with prayer for a preliminary injunction" against the majority of the members of the Board of
Directors and San Miguel Corporation as an unwilling petitioner. As a first cause of action, Gokongwei
alleged that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas,
Emeterio Buñao, Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the
corporation, basing their authority to do so on a resolution of the stockholders adopted on 13 March
1961, when the outstanding capital stock of the corporation was only P70,139.740.00, divided into
5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At
the time of the amendment, the outstanding and paid up shares totalled 30,127,043, with a total par
value of P301,270,430.00.
It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of
the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the
Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the
subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the
basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961
authorization, Gokongwei contended that the Board acted without authority and in usurpation of the
power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961
had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As
a third cause of action, Gokongwei averred that the membership of the Board of Directors had changed
since the authority was given in 1961, there being 6 new directors. As a fourth cause of action, it was
claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a director of
the corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei had acquired
rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of
directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's
disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws
are null and void. As additional causes of action, it was alleged that corporations have no inherent
power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is
ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other
corporations, entered into contracts (specifically a management contract) with the corporation, which
was avowed because the questioned amendment gave the Board itself the prerogative of determining
whether they or other persons are engaged in competitive or antagonistic business; that the portion of
the amended by-laws which states that in determining whether or not a person is engaged in
competitive business, the Board may consider such factors as business and family relationship, is
unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws which
requires that "all nominations for election of directors shall be submitted in writing to the Board of
Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable
and oppressive. It was, therefore, prayed that the amended by-laws be declared null and void and the
certificate of filing thereof be cancelled, and that Soriano, et. al. be made to pay damages, in specified
amounts, to Gokongwei. On 28 October 1976, in connection with the same case, Gokongwei filed with
the Securities and Exchange Commission an "Urgent Motion for Production and Inspection of
Documents", alleging that the Secretary of the corporation refused to allow him to inspect its records
despite request made by Gokongwei for production of certain documents enumerated in the request,
and that the corporation had been attempting to suppress information from its stockholders despite a
negative reply by the SEC to its query regarding their authority to do so.

The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer, and their
opposition to the petition, respectively. Meanwhile, on 10 December 1976, while the petition was yet to
be heard, the corporation issued a notice of special stockholders' meeting for the purpose of
"ratification and confirmation of the amendment to the By-laws", setting such meeting for 10 February
1977. This prompted Gokongwei to ask the SEC for a summary judgment insofar as the first cause of
action is concerned, for the alleged reason that by calling a special stockholders' meeting for the
aforesaid purpose, Soriano, et. al. admitted the invalidity of the amendments of 18 September 1976.
The motion for summary judgment was opposed by Soriano, et. al. Pending action on the motion,
Gokongwei filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that
pending the determination of Gokongwei's application for the issuance of a preliminary injunction and
or Gokongwei's motion for summary judgment, a temporary restraining order be issued, restraining
Soriano, et. al. from holding the special stockholders' meeting as scheduled. This motion was duly
opposed by Soriano, et. al. On 10 February 1977, Cremation issued an order denying the motion for
issuance of temporary restraining order. After receipt of the order of denial, Soriano, et. al. conducted
the special stockholders' meeting wherein the amendments to the by-laws were ratified. On 14 February
1977, Gokongwei filed a consolidated motion for contempt and for nullification of the special
stockholders' meeting. A motion for reconsideration of the order denying Gokongwei's motion for
summary judgment was filed by Gokongwei before the SEC on 10 March 1977.

[SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been investing
corporate funds in other corporations and businesses outside of the primary purpose clause of the
corporation, in violation of section 17-1/2 of the Corporation Law, he filed with SEC, on 20 January 1977,
a petition seeking to have Andres M. Soriano, Jr. and Jose M. Soriano, as well as the corporation
declared guilty of such violation, and ordered to account for such investments and to answer for
damages. On 4 February 1977, motions to dismiss were filed by Soriano, et. al., to which a consolidated
motion to strike and to declare Soriano, et. al. in default and an opposition ad abundantiorem cautelam
were filed by Gokongwei. Despite the fact that said motions were filed as early as 4 February 1977, the
Commission acted thereon only on 25 April 1977, when it denied Soriano, et. al.'s motions to dismiss
and gave them two (2) days within which to file their answer, and set the case for hearing on April 29
and May 3, 1977. Soriano, et. al. issued notices of the annual stockholders' meeting, including in the
Agenda thereof, the "reaffirmation of the authorization to the Board of Directors by the stockholders at
the meeting on 20 March 1972 to invest corporate funds in other companies or businesses or for
purposes other than the main purpose for which the Corporation has been organized, and ratification of
the investments thereafter made pursuant thereto." By reason of the foregoing, on 28 April 1977,
Gokongwei filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to
restrain Soriano, et. al. from taking up Item 6 of the Agenda at the annual stockholders' meeting,
requesting that the same be set for hearing on 3 May 1977, the date set for the second hearing of the
case on the merits. The SEC, however, cancelled the dates of hearing originally scheduled and reset the
same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of
urging the Commission to act, Gokongwei filed an urgent manifestation on 3 May 1977, but this
notwithstanding, no action has been taken up to the date of the filing of the instant petition.

Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for issuance
of writ of preliminary injunction, with the Supreme Court, alleging that there appears a deliberate and
concerted inability on the part of the SEC to act.

Issue:
 1. Whether the corporation has the power to provide for the (additional) qualifications of its
directors.

2. Whether the disqualification of a competitor from being elected to the Board of Directors is a
reasonable exercise of corporate authority.

3. Whether the SEC gravely abused its discretion in denying Gokongwei's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San
Miguel Corporation.

4. Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel
Corporation to ratify the investment of corporate funds in a foreign corporation.

Held:

1. It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for
its internal government, and to regulate the conduct and prescribe the rights and duties of its members
towards itself and among themselves in reference to the management of its affairs.'" In this jurisdiction
under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications,
duties and compensation of directors, officers and employees." This must necessarily refer to a
qualification in addition to that specified by section 30 of the Corporation Law, which provides that
"every director must own in his right at least one share of the capital stock of the stock corporation of
which he is a director." Any person "who buys stock in a corporation does so with the knowledge that its
affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of
the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted
by-laws and not forbidden by law." To this extent, therefore, the stockholder may be considered to have
"parted with his personal right or privilege to regulate the disposition of his property which he has
invested in the capital stock of the corporation, and surrendered it to the will of the majority of his
fellow incorporators. It can not therefore be justly said that the contract, express or implied, between
the corporation and the stockholders is infringed by any act of the former which is authorized by a
majority." Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of
incorporation by a vote or written assent of the stockholders representing at least two-thirds of the
subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the rights
of the existing shareholders, then the dissenting minority has only one right, viz.: "to object thereto in
writing and demand payment for his share." Under section 22 of the same law, the owners of the
majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It
cannot be said, therefore, that Gokongwei has a vested right to be elected director, in the face of the
fact that the law at the time such right as stockholder was acquired contained the prescription that the
corporate charter and the by-law shall be subject to amendment, alteration and modification.

2. Although in the strict and technical sense, directors of a private corporation are not regarded as
trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation
and the stockholders as a body are concerned. As agents entrusted with the management of the
corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this
sense the relation is one of trust." "The ordinary trust relationship of directors of a corporation and
stockholders 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. Equity recognizes that stockholders are the proprietors of the corporate interests and are
ultimately the only beneficiaries thereof." A director is a fiduciary. Their powers are powers in trust. He
who is in such fiduciary position cannot serve himself first and his cestuis second. He cannot manipulate
the affairs of his corporation to their detriment and in disregard of the standards of common decency.
He cannot by the intervention of a corporate entity violate the ancient precept against serving two
masters. He cannot utilize his inside information and strategic position for his own preferment. He
cannot violate rules of fair play by doing indirectly through the corporation what he could not do so
directly. He cannot violate rules of fair play by doing indirectly through the corporation what he could
not do so directly. He cannot use his power for his personal advantage and to the detriment of the
stockholders and creditors no matter how absolute in terms that power may be and no matter how
meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable
limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary
to the exclusion or detriment of the cestuis. The doctrine of "corporate opportunity" is precisely a
recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was
acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in
particular circumstances, of an officer or director taking advantage of an opportunity for his own
personal profit when the interest of the corporation justly calls for protection. It is not denied that a
member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly
confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for
expansion and diversification; (c) research and development; and (d) sources of funding, availability of
personnel, proposals of mergers or tie-ups with other firms. It is obviously to prevent the creation of an
opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a
competing corporation, from taking advantage of the information which he acquires as director to
promote his individual or corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made. Certainly, where two
corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the
director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place
the performance of his corporation duties above his personal concerns. The offer and assurance of
Gokongwei that to avoid any possibility of his taking unfair advantage of his position as director of San
Miguel Corporation, he would absent himself from meetings at which confidential matters would be
discussed, would not detract from the validity and reasonableness of the by-laws involved. Apart from
the impractical results that would ensue from such arrangement, it would be inconsistent with
Gokongwei's primary motive in running for board membership — which is to protect his investments in
San Miguel Corporation. More important, such a proposed norm of conduct would be against all
accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is
to encourage and enforce responsible corporate management.

3. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business
transactions of the corporation and minutes of any meeting shall be open to the inspection of any
director, member or stockholder of the corporation at reasonable hours." The stockholder's right of
inspection of the corporation's books and records is based upon their ownership of the assets and
property of the corporation. It is, therefore, an incident of ownership of the corporate property,
whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a
quasi-ownership. This right is predicated upon the necessity of self-protection. It is generally held by
majority of the courts that where the right is granted by statute to the stockholder, it is given to him as
such and must be exercised by him with respect to his interest as a stockholder and for some purpose
germane thereto or in the interest of the corporation. In other words, the inspection has to be germane
to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not
inimical to the interest of the corporation. The "general rule that stockholders are entitled to full
information as to the management of the corporation and the manner of expenditure of its funds, and
to inspection to obtain such information, especially where it appears that the company is being
mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the
stockholders to the exclusion of others." While the right of a stockholder to examine the books and
records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine
the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a
different thing. Stockholders are entitled to inspect the books and records of a corporation in order to
investigate the conduct of the management, determine the financial condition of the corporation, and
generally take an account of the stewardship of the officers and directors. herein, considering that the
foreign subsidiary is wholly owned by San Miguel Corporation and, therefore, under Its control, it would
be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as
stockholder to inspect the books and records of the corporation as extending to books and records of
such wholly owned subsidiary which are in the corporation's possession and control.

4. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other
corporation or business or for any purpose other than the main purpose for which it was organized"
provided that its Board of Directors has been so authorized by the affirmative vote of stockholders
holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is
made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is
only when the purchase of shares is done solely for investment and not to accomplish the purpose of its
incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at
least two-thirds of the voting power is necessary. As stated by the corporation, the purchase of beer
manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its
Articles of Incorporation, which is to manufacture and market beer. It appears that the original
investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer
brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San
Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the organization of
SMI in Bermuda as a tax free reorganization. Assuming arguendo that the Board of Directors of SMC had
no authority to make the assailed investment, there is no question that a corporation, like an individual,
may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other
agents. This is true because the questioned investment is neither contrary to law, morals, public order
or public policy. It is a corporate transaction or contract which is within the corporate powers, but which
is defective from a purported failure to observe in its execution the requirement of the law that the
investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the
voting power. This requirement is for the benefit of the stockholders. The stockholders for whose
benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said
stockholders obliterates any defect which it may have had at the outset. Besides, the investment was for
the purchase of beer manufacturing and marketing facilities which is apparently relevant to the
corporate purpose. The mere fact that the corporation submitted the assailed investment to the
stockholders for ratification at the annual meeting of 10 May 1977 cannot be construed as an admission
that the corporation had committed an ultra vires act, considering the common practice of corporations
of periodically submitting for the ratification of their stockholders the acts of their directors, officers and
managers.

Cebu Country Club vs. Elizagague (542 SCRA 65 [2008])

FACTS

Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as a non-profit and non-
stock private membership club, having its principal place of business in Banilad, Cebu City. Petitioners
herein are members of its Board of Directors. In 1996, respondent filed with CCCI an application for
proprietary membership. The application was indorsed by CCCI’s two (2) proprietary members, namely:
Edmundo T. Misa and Silvano Ludo. As the price of a proprietary share was around the P5 million range,
Benito Unchuan, then president of CCCI, offered to sell respondent a share for only P3.5 million.
Respondent, however, purchased the share of a certain Dr. Butalid for only P3 million. Consequently, on
September 6, 1996, CCCI issued Proprietary Ownership Certificate No. 1446 to respondent.

During the meetings dated April 4, 1997 and May 30, 1997 of the CCCI Board of Directors, action on
respondent’s application for proprietary membership was deferred. In another Board meeting held on
July 30, 1997, respondent’s application was voted upon. As shown by the records, the Board adopted a
secret balloting known as the “black ball system” of voting wherein each member will drop a ball in the
ballot box. A white ball represents conformity to the admission of an applicant, while a black ball means
disapproval. Pursuant to Section 3(c), as amended, cited above, a unanimous vote of the directors is
required. When respondent’s application for proprietary membership was voted upon during the Board
meeting on July 30, 1997, the ballot box contained one (1) black ball. Thus, for lack of unanimity, his
application was disapproved.

On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter of reconsideration.
As CCCI did not answer, respondent, on October 7, 1997, wrote another letter of reconsideration. Still,
CCCI kept silent. On November 5, 1997, respondent again sent CCCI a letter inquiring whether any
member of the Board objected to his application. Again, CCCI did not reply. Consequently, on December
23, 1998, respondent filed with the Regional Trial Court (RTC), Branch 71, Pasig City a complaint for
damages against petitioners

ISSUE

Whether in disapproving respondent’s application for proprietary membership with CCCI, petitioners
are liable to respondent for damages, and if so, whether their liability is joint and several.

RULING

YES.
In rejecting respondent’s application for proprietary membership, we find that petitioners violated the
rules governing human relations, the basic principles to be observed for the rightful relationship
between human beings and for the stability of social order. The trial court and the Court of Appeals
aptly held that petitioners committed fraud and evident bad faith in disapproving respondent’s
applications. This is contrary to morals, good custom or public policy. Hence, petitioners are liable for
damages pursuant to Article 19 in relation to Article 21 of the same Code.

It bears stressing that the amendment to Section 3(c) of CCCI’s Amended By-Laws requiring the
unanimous vote of the directors present at a special or regular meeting was not printed on the
application form respondent filled and submitted to CCCI. What was printed thereon was the original
provision of Section 3(c) which was silent on the required number of votes needed for admission of an
applicant as a proprietary member.

Petitioners explained that the amendment was not printed on the application form due to economic
reasons. We find this excuse flimsy and unconvincing. Such amendment, aside from being extremely
significant, was introduced way back in 1978 or almost twenty (20) years before respondent filed his
application. We cannot fathom why such a prestigious and exclusive golf country club, like the CCCI,
whose members are all affluent, did not have enough money to cause the printing of an updated
application form.

It is thus clear that respondent was left groping in the dark wondering why his application was
disapproved. He was not even informed that a unanimous vote of the Board members was required.
When he sent a letter for reconsideration and an inquiry whether there was an objection to his
application, petitioners apparently ignored him. Certainly, respondent did not deserve this kind of
treatment. Having been designated by San Miguel Corporation as a special non-proprietary member of
CCCI, he should have been treated by petitioners with courtesy and civility. At the very least, they should
have informed him why his application was disapproved.

The exercise of a right, though legal by itself, must nonetheless be in accordance with the proper norm.
When the right is exercised arbitrarily, unjustly or excessively and results in damage to another, a legal
wrong is committed for which the wrongdoer must be held responsible.

Section 31 of the Corporation Code provides:

SEC. 31. Liability of directors, trustees or officers. — Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other
persons. (Emphasis ours)

The challenged Decision and Resolution of the Court of Appeals are AFFIRMED with modification in the
sense that (a) the award of moral damages is reduced fromP2,000,000.00 to P50,000.00; (b) the award
of exemplary damages is reduced from P1,000,000.00 toP25,000.00; and (c) the award of attorney’s fees
and litigation expenses is reduced from P500,000.00 andP50,000.00 to P50,000.00 and P25,000.00,
respectively.
Malayang Samahan ng Mga Manggagawa sa M. Greenfields vs. Ramos (326 SCRA 428 [2000])

FACTS: Petitioner MSMS, (local union) is an affiliate of ULGWP (federation). A local union election was
held under the action of the federation. The defeated candidates filed a petition for impeachment. The
local union held a general membership meeting. Several union members failed to attend the meeting.
The local union requested the company to deduct the union fines from the wage of those union
members who failed to attend the general membership meeting. The Secretary General of the
federation disapproved the resolution imposing the Php50 fine. The company then sent a reply to
petitioner’s request stating it cannot deduct fines without going against certain laws. The imposition of
the fine became the subject of a bitter disagreement between the Federation and the local union
culminating to the latter’s declaration of general autonomy from the former. The federation asked the
company to stop the remittance of the local union’s share in the education funds. The company led a
complaint of interpleader with the DOLE. The federation called a meeting placing the local union under
trusteeship and appointing an administrator. Petitioner union officers received letters from the
administrator requiring them to explain why they should not be removed from the office and expelled
from union membership. The officers were expelled from the federation. The federation advised the
company of the expulsion of the 30 union officers and demanded their separation pursuant to the Union
Security Clause in the CBA. The Federation filed a notice of strike with the NCMB to compel the company
to effect the immediate termination of the expelled union officers. Under the pressure of a strike, the
company terminated the 30 union officers from employment. The petitioners filed a notice of strike on
the grounds of discrimination; interference; mass dismissal of union officers and shop stewards; threats,
coercion and intimidation ; and union busting. The petitioners prayed for the suspension of the effects
of their termination. Secretary Drilon dismissed the petition stating it was an intra-union matter. Later,
78 union shop stewards were placed under preventive suspension. The union members staged a walk-
out and officially declared a strike that afternoon. The strike was attended by violence.

ISSUES:
1. Whether or not the company was illegal dismissal.
2. Whether or not the strike was illegal.
3. Whether or not petitioners can be deemed to have abandoned their work.

HELD:
1. Yes. The charges against respondent company proceeds from one main issue – the termination of
several employees upon the demand of the federation pursuant to the union security clause. Although
the union security clause may be validly enforced, such must comply with due process. In this case,
petitioner union officers were expelled for allegedly committing acts of disloyalty to the federation. The
company did not inquire into the cause of the expulsion and merely relied upon the federation’s
allegations. The issue is not a purely intra-union matter as it was later on converted into a termination
dispute when the company dismissed the petitioners from work without the benefit of a separate notice
and hearing. Although it started as an intra-union dispute within the exclusive jurisdiction of the BLR, to
remand the same to the BLR would intolerably delay the case and the Labor Arbiter could rule upon it.
As to the act of disaffiliation by the local union; it is settled that a local union has the right to disaffiliate
from its mother union in the absence of specific provisions in the federation’s constitution prohibiting
such. There was no such provision in federation ULGWP’s constitution.

2. No. As to the legally of the strike; it was based on the termination dispute and petitioners believed in
good faith in dismissing them, the company was guilty of ULP. A no-strike, no lockout provision in the
CBA can only be invoked when the strike is economic. As to the violence, the parties agreed that the
violence was not attributed to the striking employees alone as the company itself hired men to pacify
the strikers. Such violence cannot be a ground for declaring the strike illegal.

3. As to the dismissal of the petitioners; respondents failed to prove that there was abandonment
absent any proof of petitioner’s intention to sever the employee-employer relationship.