Lunar, Heather 3S Corpo

Rural Bank of Salinas v Court of Appeals, 210 SCRA 510 (1992)

Facts:
The case involves a dispute over the registration of 473 shares of stock of the Rural Bank of Salinas. The shares
were originally owned by Clemente G. Guerrero, who executed a Special Power of Attorney in favor of his wife,
Melania Guerrero, to sell or dispose of the shares. Melania Guerrero then transferred the shares to Luz Andico,
Wilhelmina Rosales, and Francisco Guerrero, Jr. Subsequently, she transferred the remaining one share to
Francisco Guerrero, Sr. The Rural Bank of Salinas refused to register the transferred shares in its stock and transfer
book, citing pending controversies over ownership and claims of fictitious and antedated deeds of assignment.

Issue:
Whether the Securities and Exchange Commission erred in compelling the Rural Bank of Salinas to register the
transfer of shares in its stock and transfer book.

Ruling:
The Supreme Court ruled in favor of the respondents, upholding the decision of the Securities and Exchange
Commission. The Court dismissed the petition for lack of merit and affirmed the decision of the SEC.

Rationale:
The Court based its decision on Section 5 (b) of P.D. No. 902-A, which grants the SEC original and exclusive
jurisdiction to hear and decide cases involving intracorporate controversies. The case at hand involves shares of
stock, their registration, cancellation, and issuances by the petitioner Rural Bank of Salinas, falling within the power
of the SEC to adjudicate. The Court also cited Section 63 of the Corporation Code, which states that shares of stock
are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner
or legally authorized person. The duty of the corporation to transfer is ministerial, and mandamus will lie to
compel the officers of the corporation to transfer the stock. The registration of the shares in the names of the
private respondents is without prejudice to the proceedings in court to determine the validity of the deeds of
assignment. Therefore, the SEC correctly ruled in favor of registering the shares of stock in the private
respondents' names.
Fleischer vs. Botica Nolasco Co., Inc.

Facts:

Henry Fleischer filed a complaint against the board of directors of Botica Nolasco, Inc., a corporation in the
Philippines, seeking to register five shares of its stock in his name and to claim damages amounting to P500 for the
refusal of the corporation to register the shares in his name. The shares were originally owned by Manuel
Gonzalez, who assigned and delivered them to Fleischer in March 1923.

The corporation, through its secretary-treasurer, offered to buy the shares from Fleischer, but he refused to sell
them, and requested the corporation to register the shares in his name. The corporation refused, citing a by-law
giving it preferential right to buy shares from retiring stockholders.

Issue:
Whether the by-law of Botica Nolasco, Inc., giving the corporation preferential right to buy shares from retiring
stockholders, is in conflict with the provisions of the Corporation Law (Act No. 1459).

Ruling:
The lower court held that the by-law of Botica Nolasco, Inc. was in conflict with Act No. 1459 and ordered the
corporation to register the shares in Fleischer's name. The defendant appealed the judgment.

Rationale:
The by-law in question was found to be in conflict with the Corporation Law. Section 35 of Act No. 1459 explicitly
states that shares of stock are personal property and may be transferred by delivery of the certificate endorsed by
the owner. The by-law, which gives the corporation preferential right to buy shares, was deemed to be ultra vires,
violative of the property rights of shareholders, and in restraint of trade. It was also noted that Fleischer, as a
purchaser, obtained the shares in good faith and for a valuable consideration, and was not a party to the contract
created by the by-law between Gonzalez and the corporation. Therefore, the by-law could not operate to defeat
his rights as a purchaser.

In conclusion, the by-law of Botica Nolasco, Inc. was found to be in conflict with the provisions of the Corporation
Law, and the judgment of the lower court ordering the registration of the shares in Fleischer's name was affirmed.
Loyola Grand Villas Homeowners Association v Court of Appeals, 276 SCRA 681 (1997)

Facts:
The Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was registered with the Home Financing
Corporation (HFC), later succeeded by the Home Insurance and Guaranty Corporation (HIGC), and was recognized
as the sole homeowners' association in Loyola Grand Villas. However, LGVHAI failed to file its by-laws within the
period required by the Corporation Code. Years later, two other associations within the subdivision (North and
South Associations) were registered with HIGC. Upon inquiring about LGVHAI's status, the legal head of HIGC
informed that LGVHAI was considered automatically dissolved due to its failure to file by-laws and lack of activity
reports. This led to a legal challenge where LGVHAI contested the revocation of its registration and the validity of
the North and South Associations.

Issue:
Whether the failure of a corporation to file its by-laws within one month from the date of its incorporation, as
mandated by Section 46 of the Corporation Code, results in its automatic dissolution.

Ruling:
The Supreme Court denied the petition, affirming the decision of the Court of Appeals. It ruled that the failure to
file by-laws within the prescribed period does not result in automatic dissolution of a corporation.

Rationale:
The Court clarified that while Section 46 of the Corporation Code uses the word "must," indicating a mandatory
action, the context of the law allows for some flexibility, considering the provision as directory rather than
mandatory. The Court referred to deliberations of the Batasang Pambansa which indicated that while the filing of
by-laws is mandatory, minor delays or failures to file are not intended to automatically dissolve a corporation. The
correct remedy for such a failure is provided under P.D. 902-A, which allows for suspension or revocation of the
corporation’s registration after due notice and hearing, rather than automatic dissolution. Furthermore, the Court
emphasized that the corporation continues to exist as long as it has not been formally dissolved through
appropriate proceedings, maintaining its ability to transact business and exercise its corporate powers.

This case highlights the importance of adhering to statutory requirements while also demonstrating the procedural
safeguards designed to prevent undue harm to the rights and existence of corporations due to technical non-
compliance. The decision stresses the judiciary's role in interpreting statutory provisions with a focus on fairness
and reasonableness within the context of business operations and governance.
Bernas v Cinco, 761 SCRA 104 (2015)

Facts:
The Makati Sports Club, Inc. (MSC) underwent a contentious change in leadership, initiated by a special
stockholders' meeting called on December 17, 1997, by the MSC Oversight Committee (MSCOC), not the President
or the Board as mandated by the corporation's by-laws. This meeting led to the removal of the existing board
members (Bernas Group) and the election of new ones (Cinco Group). The Bernas Group challenged the legality of
this meeting, citing it was improperly called. Subsequent annual meetings in 1998, 1999, and 2000 ratified the
decisions of the special meeting, including the removal of Bernas and the sale of his shares. However, the
Securities and Exchange Commission (SEC) and later the Court of Appeals found the 1997 meeting invalid.

Issue:

1. Whether the December 17, 1997, special stockholders' meeting was validly called.
2. Whether the actions taken in the subsequent annual stockholders' meetings should be nullified.

Ruling:
The Supreme Court affirmed the decision of the Court of Appeals, holding that the December 17, 1997, special
stockholders' meeting was invalidly called, thus nullifying its resolutions including the removal of the Bernas Group
and the auction of Bernas’s shares. The Court also upheld the validity of the subsequent annual meetings except
for the ratifications of the actions taken during the invalid 1997 meeting.

Rationale:
The Supreme Court found that the MSCOC, which called the special meeting, did not have the authority under the
corporation's by-laws or the Corporation Code to do so. Only the President or the Board of Directors was vested
with such power. The Court emphasized the importance of adhering to the by-laws and statutory provisions
governing corporate governance, ensuring that corporate actions are taken within the legal framework to maintain
their validity. Moreover, the ratification of the actions taken during the invalidly called meeting could not cure the
fundamental defects in calling the meeting, as a void act cannot be ratified. The annual meetings that followed
were found to be validly convened and conducted, except insofar as they attempted to ratify the invalid actions
from the 1997 meeting. Thus, the Court affirmed the legal principle that corporate actions must align strictly with
the law and corporate by-laws to be valid.
Pena v Court of Appeals, 193 SCRA 717 (1991)

Facts:
PAMBUSCO mortgaged three lots to Development Bank of the Philippines (DBP) in 1962. Upon foreclosure, Rosita
Peña purchased these properties at an auction in 1974. Subsequently, PAMBUSCO’s board, via a questionable
resolution passed by only three of its five directors, assigned its redemption rights over the lots to Marcelino
Enriquez, who then redeemed and sold the properties to spouses Yap. The validity of the board resolution, the
assignment, and subsequent transactions were challenged, leading to multiple legal disputes, including the claim
by Peña that the redemption was invalid due to the void assignment. The case escalated to the Court of Appeals,
which reversed the trial court's decision favoring Peña and ruled in favor of the Yaps.

Issue:
Whether the Court of Appeals erred in reversing the trial court’s decision that declared the board resolution,
assignment of redemption rights, and subsequent property sales null and void.

Ruling:
The Supreme Court reversed the decision of the Court of Appeals, thereby affirming the trial court's decision that
declared the board resolution and subsequent transactions null and void.

Rationale:
The Supreme Court's decision to reverse the Court of Appeals and affirm the trial court’s findings hinges on several
critical legal doctrines that underscore the necessity of procedural correctness in corporate decision-making and
the enforcement of rights under property law.

Validity of the Board Resolution

The Supreme Court found that the board resolution was invalid as it was not passed with the required quorum as
stipulated in PAMBUSCO’s by-laws. At least four directors needed to be present to transact business; however,
only three were present. This violation of the by-laws automatically rendered the resolution void ab initio, meaning
from the beginning. The Supreme Court's strict interpretation emphasizes that corporate by-laws are not mere
formalities but essential rules that bind the corporation and its officers, ensuring decisions are made with
adequate authority and participation.

Void Assignment
The resolution to assign redemption rights being void inherently invalidated the subsequent assignment of those
rights to Enriquez. This nullity extends to all subsequent transactions based on the original void act, creating a
domino effect that nullifies all subsequent related transactions, including Enriquez’s redemption of the properties
and his sale of the same to the Yap spouses. This chain of nullity illustrates the legal principle that no valid
contractual or property rights can arise from an illegal act, protecting the integrity of property transactions and
corporate dealings from the effects of unauthorized actions.

Donation Formalities
The Court considered the assignment as a donation, which required formalities such as explicit acceptance in a
public document, none of which were met, rendering the deed of assignment void. Given the absence of valuable
consideration, the court treated the transfer as a donation, invoking strict compliance with formalities prescribed
under the Civil Code for donations to be valid. Specifically, donations must be made in a public document with an
explicit acceptance by the donee, documented formally. The failure to adhere to these formalities in Enriquez's
case further solidified the void nature of the transaction.

Legal Consequences of Ultra Vires Acts

The directors’ actions were beyond their corporate authority (ultra vires), and the fact that the company was
defunct and insolvent at the time of the transaction suggested that the sale of its last asset should have had
shareholder approval, which was not obtained. Given the absence of valuable consideration, the court treated the
transfer as a donation, invoking strict compliance with formalities prescribed under the Civil Code for donations to
be valid. Specifically, donations must be made in a public document with an explicit acceptance by the donee,
documented formally. The failure to adhere to these formalities in Enriquez's case further solidified the void
nature of the transaction.

Implications of Void Transactions

The assignment of redemption rights to Enriquez, stemming from a void resolution, was rightly declared null. This
nullity extends to all subsequent transactions based on the original void act, creating a domino effect that nullifies
all subsequent related transactions, including Enriquez’s redemption of the properties and his sale of the same to
the Yap spouses. This chain of nullity illustrates the legal principle that no valid contractual or property rights can
arise from an illegal act, protecting the integrity of property transactions and corporate dealings from the effects of
unauthorized actions.

Protection of Third Parties and Good Faith Purchasers

The case also subtly addresses the protection afforded to third parties in property transactions. While the Supreme
Court did not delve deeply into whether the Yap spouses were purchasers in good faith, the implication of their
transaction based on a void act suggests a cautionary tale for all property buyers to ensure that the property rights
they are acquiring have been legitimately and validly obtained.
Board of Liquidators v Heirs of Maximo Kalaw, 20 SCRA 987 (1967)

Facts:
The National Coconut Corporation (NACOCO) engaged in numerous copra trading contracts under the general
management of Maximo M. Kalaw. These contracts were executed without prior board approval due to the nature
of the copra market, which often required quick decision-making. However, a series of devastating typhoons in
1947 severely affected copra production and prices, leading to substantial losses and NACOCO's inability to fulfill
its contractual obligations. This led to legal challenges from various parties, including Louis Dreyfus & Co.
(Overseas) Ltd., seeking damages for unfulfilled contracts.

Issue:

1. Whether the contracts entered into by Kalaw were valid despite not having prior board approval.
2. Whether the subsequent board ratification of these contracts was valid.
3. Whether the actions of Kalaw and the board members constituted bad faith or negligence leading to
liability for the losses incurred.

Ruling:
The court upheld the validity of the contracts and the board's ratification, ruling that there was no bad faith or
negligence on the part of Kalaw or the board members. The contracts were considered necessary and typical
business activities given the nature of copra trading. The board’s customary practice of ratifying contracts post-
execution implied authority for Kalaw to enter into such agreements. Additionally, external factors like typhoons,
which significantly impacted copra supply and prices, were acknowledged as the primary reasons for NACOCO’s
losses, not managerial negligence or bad faith.

Rationale:

1. Implied Authority and Ratification

Kalaw, as General Manager, had implied authority based on past practices where he entered into contracts
without prior board approval, which were typically ratified post-execution. The board’s consistent acceptance
of this practice effectively ratified Kalaw’s authority to enter into such contracts.

The ratification of the contracts by the board, after they were signed, acted retroactively to validate them
from the outset, effectively aligning them with corporate governance practices.

2. Absence of Bad Faith or Negligence

The board and Kalaw’s decision to enter into and ratify the contracts was driven by standard business
judgment aimed at stabilizing copra prices and was not influenced by ill motives or personal gain. The losses
incurred were due to unprecedented natural disasters which were beyond the control of Kalaw and the board,
qualifying as a force majeure event that exempted them from liability.

3. Nature of Copra Trading

The copra trading business inherently required rapid responses to market conditions, necessitating quick
decision-making that could not always await board approval. Forward contracts and speculative elements
were normal in the industry and vital for maintaining business operations and market stability.

In conclusion, the court affirmed the managerial actions under the corporate by-laws and industry practices,
highlighting that external catastrophic events primarily caused the losses, rather than any mismanagement or
breach of duty by the corporation's officials.
 China Banking Corp v Court of Appeals, 270 SCRA 503 (1997)

Facts:

Galicano Calapatia, Jr., a stockholder of Valley Golf & Country Club, Inc. (VGCCI), pledged his Stock Certificate No.
1219 to China Banking Corporation (CBC) on August 21, 1974, as security for future loans. Subsequently, on August
3, 1983, he obtained a loan of P20,000.00 from CBC, secured by the same pledged stock. Calapatia defaulted on
the loan, leading CBC to initiate extrajudicial foreclosure proceedings. Despite CBC emerging as the highest bidder
and the issuance of a certificate of sale to it, VGCCI refused to transfer the stock certificate to CBC, citing
Calapatia’s unpaid club dues and later sold the stock at auction to settle those dues. CBC contested this action,
arguing that it held a prior claim on the stock due to its role as a pledgee.

Issue:

1. Whether the Securities and Exchange Commission (SEC) or regular courts have jurisdiction over the
dispute.

2. Whether CBC, as a pledgee, has a right that supersedes VGCCI's claim to unpaid club dues.

Ruling: The Supreme Court ruled in favor of CBC, reversing the Court of Appeals’ decision and affirming the SEC’s
jurisdiction and decision. The Court held that the SEC is the appropriate body to handle the dispute due to its
nature as an intra-corporate controversy and that CBC's rights as a pledgee are protected, invalidating VGCCI’s sale
of the pledged stock to satisfy unpaid dues.

Rationale:

1. Jurisdiction

The Supreme Court determined that the dispute falls under the jurisdiction of the SEC as it involves an intra-
corporate controversy between a corporation and its stockholder, which in this case includes CBC after it
effectively became a stockholder through the foreclosure of the pledged stock. The nature of the dispute
necessitated the SEC’s expertise in handling matters involving corporate by-laws and stockholder rights.

2. Rights of the Pledgee vs. Corporate By-laws

The Court held that CBC, having stepped into the shoes of the original stockholder by virtue of the pledge, is
entitled to protections typically afforded to a pledgee, which includes the right to foreclose and purchase the
pledged stock in the event of default. The Court found that CBC’s rights superseded those claims VGCCI had for
unpaid dues because CBC was not notified at the time of pledging about the club's by-laws that allowed for
such dues to impact stockholder rights. Moreover, VGCCI acknowledged the pledge in its books without any
reservation related to unpaid dues, which solidified CBC’s position. The Court also clarified that the Corporation
Code’s provisions concerning the transferability of shares do not apply to unpaid dues unrelated to share
subscriptions.

The Court's decision emphasized the protection of rights of pledgees against actions by corporations that could
undermine these rights without proper notice or legal basis.

Gokongwei, Jr. vs SEC, 189 SCRA 336 (1979)

Facts:
John Gokongwei Jr. filed a petition with the Securities and Exchange Commission (SEC) challenging the amended
by-laws of San Miguel Corporation (SMC) which disqualified competitors from serving on its board of directors.
Gokongwei alleged that the amended by-laws were intended to prevent him from being elected to the board
despite being a substantial stockholder. He also claimed that the by-laws were adopted without proper authority
and targeted to suppress minority stockholders. Additionally, Gokongwei sought access to various corporate
records and challenged certain investments made by SMC, claiming they were done without stockholder approval,
thus violating the Corporation Law.

Issues:

1. Whether the SEC and ultimately the Supreme Court has jurisdiction over the dispute regarding the validity
of the amended by-laws and corporate records access.

2. The validity of the amended by-laws disqualifying a competitor from serving on SMC's board of directors.

3. The legality of SMC's investment in foreign entities without prior stockholder approval.

Ruling: The Supreme Court ruled that the SEC has jurisdiction over the matter, and that the amended by-laws are
valid. The Court found that the by-laws did not specifically target Gokongwei but applied to all stockholders
equally, aiming to protect corporate interests by preventing competitors from accessing sensitive information. The
Court also upheld the ratification of SMC's foreign investments by its stockholders as valid, dismissing Gokongwei's
claims that these actions were illegal.

Rationale:

1. Jurisdiction and Inspection Rights

The Court affirmed the SEC's jurisdiction over corporate disputes involving by-laws and internal management
issues. It also ruled that Gokongwei, as a stockholder, had the right to inspect corporate records related to
SMC's investment in a wholly-owned subsidiary, acknowledging stockholders' rights to ensure proper
management and corporate governance.

2. Validity of Amended By-laws

The Court held that the by-laws were a protective measure for SMC to prevent conflicts of interest that might
arise from having competitors as board members. It was reasoned that a competitor in the board could
misuse sensitive information to the detriment of SMC and its stockholders, which justified the by-laws as
reasonable and not discriminatory.

3. Legality of Foreign Investments

On the ratification of investments, the Court ruled that stockholder ratification validated any prior lack of
formal approval, thereby dismissing the allegation of illegal investment activities. The Court highlighted the
corporate practice of seeking retroactive approval from stockholders as a legitimate method of rectifying
earlier oversight in corporate governance.

Overall, the Supreme Court's decision underscores the balance between protecting shareholder rights and allowing
corporations to govern their internal affairs through by-laws that safeguard against conflicts of interest and
competitive threats.
San Miguel Corporation vs Mandaue Packing Products Union – FFW, 467 SCRA 107 (2005)

Facts:

The Mandaue Packing Products Plants-San Miguel Packaging Products–San Miguel Corporation Monthlies Rank-
And-File Union–FFW (respondent) filed a petition for certification election to represent the rank-and-file
employees of San Miguel Corporation. At the time of filing, the respondent submitted its constitution but did not
provide a separate document for its by-laws, indicating instead that its constitution already included necessary
rules for its operation. San Miguel Corporation (petitioner) challenged the legitimacy of the respondent based on
the absence of a separate by-laws document, arguing that it did not fully comply with the procedural requirements
set by the Labor Code and its Implementing Rules.

Issue: Whether the absence of a separate by-laws document affects the acquisition of legal personality by the
respondent union, which could impact its capacity to file a petition for certification election.

Ruling: The Supreme Court denied the petition and upheld the decisions of the DOLE and the Court of Appeals,
affirming that the respondent acquired legal personality on the date of filing the petition for certification election
despite not having submitted a separate by-laws document.

Rationale:

The Court analyzed the requirement under Department Order No. 9, which mandates the submission of a
constitution and by-laws for a local chapter or labor organization. It noted that the Implementing Rules do not
explicitly demand a separate by-laws document if the constitution already provides comprehensive regulations for
the union's operations, including provisions typically covered by by-laws.

Upon reviewing the constitution submitted by the respondent, the Court found that it included detailed provisions
on governance, meetings, elections, duties of officers, financial obligations, and disciplinary procedures, effectively
covering the areas normally addressed in by-laws. Therefore, the constitution alone was deemed sufficient for
fulfilling the requirements laid out for acquiring legal personality.

The Court emphasized avoiding undue technicalities that do not serve legal purposes but rather hinder the
exercise of workers' rights to self-organization. By recognizing the sufficiency of the constitution in detailing
governance procedures, the Court aligned with the principle of interpreting labor laws in favor of labor.

This decision underscored the Court's commitment to protecting the constitutional right to self-organization by
ensuring that procedural requirements do not unnecessarily impede the formation and activities of labor unions.

In conclusion, the Supreme Court's ruling clarified that a separate by-laws document is not mandatory if the
union's constitution adequately addresses internal governance and operational rules, thereby supporting a more
practical and purposive approach to the registration and recognition of labor organizations.