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POWERS OF CORPORATIONS Sec. 36. Corporate powers and capacity. - Every corporation incorporated under this Code has the power and capacity: 1. To sue and be sued in its corporate name; THIRD DIVISION

[G.R. No. 131214. July 27, 2000]

BA SAVINGS BANK, petitioner, vs. ROGER T. SIA, TACIANA U. SIA and JOHN DOE, respondents. DECISION PANGANIBAN, J.: The certificate of non-forum shopping required by Supreme Court Circular 28-91 may be signed, for and on behalf of a corporation, by a specifically authorized lawyer who has personal knowledge of the facts required to be disclosed in such document. Unlike natural persons, corporations may perform physical actions only through properly delegated individuals; namely, its officers and/or agents.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the August 6, 1997 Resolution [2] the Court of Appeals (CA) in CA-GR SP No. 43209. Also challenged by petitioner is the October 24, 1997 CA Resolution
[3]

[1]

of

denying its Motion for Reconsideration.

The Facts

On August 6, 1997, the Court of Appeals issued a Resolution denying due course to a Petition for Certiorari filed by BA Savings Bank, on the ground that the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular No. 28-91, but by its counsel, in contravention of said circular x x x. A Motion for Reconsideration was subsequently filed by the petitioner, attached to which was a BA Savings Bank Corporate [4] Secretarys Certificate, dated August 14, 1997. The Certificate showed that the petitioners Board of Directors approved a Resolution on May 21, 1996, authorizing the petitioners lawyers to represent it in any action or proceeding before any court , tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum Shopping, among others. On October 24, 1997, the Motion for Reconsideration was denied by the Court of Appeals on the ground that Supreme Court Revised Circular No. 28-91 requires that it is the petitioner, not the coun sel, who must certify under oath to all of the facts and undertakings required therein. Hence, this appeal.
[5]

Issue

In its Memorandum, petitioner submits the following issues for the consideration of the Court:

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I Whether or not petitioner-corporations lawyers are authorized to execute and sign the certificate of non -forum shopping. x xx II Whether or not the certification of petitioners authorized lawyers will bind the corporation. III Whether or not the certification by petitioner corporations lawyers is in compliance with the requirements on non -forum [6] shopping. Simply stated, the main issue is whether Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its counsel to execute a certificate of non-forum shopping for and on its behalf.

The Courts Ruling

The Petition is meritorious.

Main Issue: Authority of Counsel

A corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. All acts within the powers of a corporation may be performed by agents of its selection; and, except so far as limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities [7] as are agents of individuals and private persons. In the present case, the corporations board of directors issued a Resolution specifically authorizing its lawyers to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit, certificate of nonforum shopping and other instruments necessary for such action and proceeding. The Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. In the case of natural persons, Circular 28-91 requires the parties themselves to sign the certificate of non-forum shopping. However, such requirement cannot be imposed on artificial persons, like corporations, for the simple reason that they cannot personally do the task themselves. As already stated, corporations act only through their officers and duly authorized agents. In fact, physical actions, like the signing and the delivery of documents, may be performed, on behalf of the corporate entity, only by specifically authorized individuals. It is noteworthy that the Circular does not require corporate officers to sign the certificate. More important, there is no prohibition against authorizing agents to do so. In fact, not only was BA Savings Bank authorized to name an agent to sign the certificate; it also exercised its appointing authority reasonably well. For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular officers, like its board chairman and president, may not even know the details required therein. Consistent with this rationale, the Court en banc in Robern Development Corporation v. Judge Jesus Quitain has allowed even an acting regional counsel of the National Power Corporation to sign, among others, the certificate of non-forum shopping required by Circular 28-91. The Court held that the counsel was in the best position to verify the truthfulness and the correctness of the [9] allegations in the Complaint and to know and to certify if an action x x x had already been filed and pending with the courts. Circular 28-91 was prescribed by the Supreme Court to prohibit and penalize the evils of forum shopping. We see no circumvention of this rationale if the certificate was signed by the corporations specifically authorized counsel, who had personal
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knowledge of the matters required in the Circular. In Bernardo v. NLRC, we explained that a literal interpretation of the Circular should be avoided if doing so would subvert its very rationale. Said the Court: x x x. Indeed, while the requirement as to certificate of non-forum shopping is mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping. Finally, we stress that technical rules of procedure should be used to promote, not frustrate, justice. While the swift unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal. WHEREFORE, the Petition is GRANTED and the appealed Resolution is REVERSED and SET ASIDE. The case is REMANDED to the Court of Appeals, which is directed to continue the proceedings in CA-GR SP No. 43209 with all deliberate speed. No costs. SO ORDERED. Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
[11] [10]

[1]

Penned by J. Quirino D. Abad Santos Jr., Division chairman; with the concurrence of JJ Conchita Carpio Morales and B.A. Adefuindela Cruz, members. [2] Rollo, p. 16. The text of the Resolution reads as follows: It appearing that the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular No. 28-91, but by its counsel, in contravention of said circular, the instant petition for certiorari and mandamus with urgent prayer for issuance of a writ of preliminary injunction and/or temporary restraining order is hereby DENIED DUE COURSE and ordered DISMISSED pursuant to paragraph 2 of Supreme Court Circular No. 28-91. [3] Rollo, pp. 18-19. The text of the Resolution reads as follows: For resolution is the Motion for Reconsideration filed by petitioner to Our Resolution dated August 6,1997, dismissing petitioners petition for certiorari and mandamus for failure to comply with Supreme Court Circular No. 28-91, it appearing that the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, but by its counsel, in contravention of the requirement of said Circular. In this motion for reconsideration, petitioner justifies said failure by claiming that counsel for petitioner was the duly a uthorized representative of the petitioner by virtue of a Resolution issued by the Board of Directors of the petitioner. We deny the motion for reconsideration Supreme Court Revised Circular No. 28-91 is clear that x x x in every petition filed with the Supreme Court or the Court of Appeals, the petitioner, aside from complying with pertinent provisions of the Rules of Court and existing circulars, must certify under oath to all of the following facts or undertaking , x x x. Said Circular specifically requires that it is the petitioner, not the counsel, who must certify under oath to all of the facts and undertakings required therein The rationale behind the requirement is that a counsel might not have personal knowledge of any and all matters relative to the historical background of the case, and therefore counsel would only be relying on what his client has told him, and thus the certification executed by the counsel would not bind the client. WHEREFORE, foregoing considered, the Motion for Reconsideration is hereby DENIED. [4] Annex C, Petition; rollo, p. 20. [5] The case was deemed submitted for resolution on December 16, 1999, upon receipt by this Court of petitioners Memorandum, which was signed by Atty. Rainer H.T. Defante. Respondents 4-page Memorandum, signed by Atty. Rotelio U. Lumjod, had been filed earlier, on July 19, 1999. [6] Petitioners Memorandum, pp. 2-3; rollo, pp. 71-72. [7] Yao Ka Sin Trading v. Court of Appeals, 209 SCRA 763, June 15, 1992, per Davide Jr., J. (now CJ). See also Citibank, N.A. v. Chua, 220 SCRA 75, March 17, 1993. [8] GR No. 135042, September 23, 1999, per Panganiban, J. [9] Ibid., pp. 12-13 [10] 255 SCRA 108, 117, March 15, 1996, per Mendoza, J. [11] Cf. Cusi-Hernandez v. Diaz, GR No. 140436, July 18, 2000.

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Sec. 37. Power to extend or shorten corporate term. - A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That in case of extension of corporate term, any dissenting stockholder may exercise his appraisal right under the conditions provided in this code. (n) Sec. 81. Instances of appraisal right. - Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances: 1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; 2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Code; and 3. In case of merger or consolidation. (n)

Sec. 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. - No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and, at a stockholder's meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally. A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders' meeting, setting

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forth:

Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission. One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: Provided, further, That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors. Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose. Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the authority to determine the sufficiency of the terms thereof. (17a)

Sec. 16. Amendment of Articles of Incorporation . - Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that

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said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation.

MADRIGAL & CO. INC, VS ZAMORA DIGESTED Madrigal & Company, Inc. (MCI) manages the business of another corporation, Rizal Cement Co., Inc. (RCC). In 1973, a labor union in MCI sought the renewal of the collective bargaining agreement (CBA). The union proposes a P200.00 monthly wage increase and an additional P100 monthly allowance. MCI refused to negotiate. Later, MCI reduced its authorized capital stocks. It then wrote a letter to the Department of Labor averring that it is incurring losses and so it will enforce a retrenchment program. The letter is however unsupported by documents and so the Department of Labor ignored it. However, MCI went on to dismiss several employees which led the labor union to sue MCI for unfair labor practices and illegal dismissal. The labor arbiter ruled in favor of the labor union. The issue reached the Office of the President. The then Presidential Assistant For Legal Affairs, Ronaldo Zamora, denied MCIs ap peal. On appeal, MCI insists that it is incurring losses; that as such, it has to reduce its capitalization; that the profits it is earning are cash dividends from RCC; that under the law, dividends are the absolute property of a stockholder like MCI and cannot be compelled to share it with creditors (like the employees). ISSUE: Whether or not the dividends in this case, as understood by MCI, cannot be made available to meet its employees economic demands. HELD: No. As found by the labor arbiter, MCI is in fact making significant profits. MCIs reduction of its capitalization is simply a scheme to avoid negotiations with the labor union. It is therefore correct for the arbiter to order MCI to comply with the unions demands. It is true that cash dividends are the absolute property of the stockholders and cannot be made available for disposition to a corporations creditors. However, this should be viewed in context. This is only true in the case of corporation distributing dividends to its stockholders. If this is the case (if the dividends are still with the corporation, in this case RCC), then creditors cannot touch such dividends. But if the stockholder already receives the dividends, then it becomes a profit on the part of the stockholder hence its creditors (like the employees) can make some demands out of it. In this case, MCI is a stockholder of RCC. While RCC still has not distributed the dividends, creditors cannot demand it because such dividends are owned by stockholders like MCI. But when MCI already receives the dividends, then MCIs creditors can already demand share from the dividends because such dividends are already the profits of the stockholder/MCI. So in this case, the employees can demand their share from said profits (not strictly viewed as dividends now) by way of salary increase. Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal combinations and monopolies, 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, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, 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 to two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the

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corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. After such authorization or approval by the stockholders or members, the board of directors or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval by the stockholders or members. Nothing in this section is intended to restrict the power of any corporation, without the authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of business of said corporation or if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business. In non-stock corporations where there are no members with voting rights, the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section. (28 1/2a) PENA VS CA 1991 DIGESTED 193 SCRA 717 Business Organization Corporation Law Board resolutions may be questioned by third persons Board Meetings Quorum Sale of Corporate Properties In 1962, the Pampanga Bus Company (PAMBUSCO) took out a loan from the Development Bank of the Philippines (DBP). PAMBUSCO used the parcels of land it owns to secure the loan. In October 1974, due to PAMBUSCOs nonpayment, DBP foreclosed the parcel s of land. Rosita Pea was the highest bidder. Meanwhile, in November 1974, the Board of Directors of PAMBUSCO had a meeting. The meeting was attended by only 3 out of the 5 Directors. In the said meeting, the Board, through a resolution, authorized one of the directors, Atty. Joaquin Briones, to assign the properties of PAMBUSCO. Pursuant to the resolution, Briones assigned PAMBUSCOs assets to Marcelino Enriquez. Enriquez, knowing that the properties were previously mortgaged and foreclosed, exercised PAMBUSCOs right to redeem. So in August 1975, he redeemed the said properties and thereafter he sold them to Rising Yap. Yap then registered the properties under his name. He then demanded Pea to vacate the properties. Pea refused to do hence Yap filed a complaint. In her defense, Pea averred that Yap acquired no legal title over the property because the board resolution issued by PAMBUSCO in November 1974 is void; that it is void because the resolution was issued without a quorum; that there was no quorum because under the by-laws of PAMBUSCO, a quorum constitutes the presence of 4 out of 5 directors yet the meeting was only attended by three directors. As such, the authority granted to Briones to assign the properties is void; that the subsequent assignment by Briones to Enriquez is void; that Enriquez acquired no title hence, likewise, Yap acquired no title. Yap insists that Pea has no legal standing to question the board resolution because she is not a stockholder. ISSUE: Whether or not the board resolution is valid. HELD: No, it is void. The by-laws are the laws of the corporation. PAMBUSCOs by -laws provides that a quorum consists of at least four directors. Hence, the meeting attended by only three directors did not comply with the required quorum. As such, the three directors were not able to come up with a valid resolution which could bind the corporation. Anent the issue of Pea being a third person, she can question the board resolution. The resolution here is liken to a contract. Under the law, a person who is not a party

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obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if he or she is prejudiced in his or her rights with respect to one of the contracting parties, and can show the detriment which would positively result to him or her from the contract in which he or she had no intervention. Further, the sale of the properties of PAMBUSCO did not comply with the procedure laid down by the Corporation Law. Under the law, the sale or disposition of an and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. Further still, the Supreme Court discovers a few other anomalies with PAMBUSCO. One is that PAMBUSCO has been inactive since 1949 as per the records provided by the Securities and Exchange Commission. Its general information sheet with the SEC has not been updated regularly even. And the three directors present were not even listed as current directors of PAMBUSCO.

Islamic Directorate of the Philippines vs. CA Case Digest Islamic Directorate of the Philippines vs. Court of Appeals [GR 117897, 14 May 1997] Facts: Sometime in 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to establish an Islamic Center in Quezon City for, the construction of a "Mosque (prayer place, Madrasah (Arabic School), and other religious infrastructures" so as to facilitate the effective practice of Islamic faith in the area. Towards this end, that is, in the same year, the Libyan government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center for the Islamic populace. The land, with an area of 49,652 square meters, we covered by two titles: TCTs RT-26520 (176616) and RT-26521 (170567), both registered in the name of IDP. In 1971, the Board of Trustees of the IDP was composed of Senator Mamintal Tamano, Congressman Ali Dimaporo, Congressman Salipada Pendatun, Dean Cesar Adib Majul, Sultan Harun Al-Rashid Lucman, Delegate Ahmad Alonto, Commissioner Datu Mama Sinsuat and Mayor Aminkadra Abubakar. In 1972, after the purchase of the land by the Libyan government in the name of IDP, Martial Law was declared by the late President Ferdinand Marcos. Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution. Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. Significantly, on 3 October 1986, the SEC, in a suit between these two contending groups, came out with a Decision in SEC Case 2687 declaring the election of both the Carpizo Group and the Abbas Group as IDP board members to be null and void. Neither group, however, took the necessary steps prescribed by the SEC in its 3 October 1986 Decision, and no valid election of the members of the Board of Trustees of IDP was ever called. Although the Carpizo Group attempted to submit a set of by-laws, the SEC found that, aside from that Engineer Farouk Carpizo and Atty. Musib Buat, those who prepared and adopted the by-laws were not bona fide members of the IDP, thus rendering the adoption of the by-laws likewise null and void. On 20 April 1989, without having been properly elected as new members of the Board of Trustees of IDP, the Carpizo Group caused to be signed an alleged Board Resolution of the IDP, authorizing the sale of the subject two parcels of land to the Iglesia ni Cristo (INC) for a consideration of P22,343,400.00, which sale was evidenced by a Deed of Absolute Sale 12 dated 20 April 1989. On 30 May 1991, the 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano, or the Tamano Group, filed a petition before the SEC (SEC Case 4012) seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP. Meanwhile, INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for Specific Performance with Damages against the vendor, Carpizo Group, before Branch 81 of the Regional Trial Court of Quezon City (Civil Case Q-90-6937) to compel said group to clear the property of squatters and deliver complete and full physical possession thereof to INC. Likewise, INC filed a motion in the same case to compel one Mrs. Leticia P. Ligon to produce and surrender to the Register of Deeds of Quezon City the owner's duplicate copy of TCTs RT-26521 and RT-26520 covering the two parcels of land, so that the sale in INC's favor may be registered and new titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the two parcels of land executed in her favor by certain Abdulrahman R.T. Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group. Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court of Quezon City, denied IDP's motion to intervene on the ground of lack of juridical personality of the IDP-Tamano Group and that the issues being raised by way of intervention are intra-corporate in nature, jurisdiction thereto properly pertaining to the SEC. Apprised of the pendency of SEC Case 4012 involving the controverted status of

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the IDP-Carpizo Group but without waiting for the outcome of said case, Judge Reyes, on 12 September 1991, rendered Partial Judgment in Civil Case Q-90-6937 ordering the IDP-Carpizo Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the actual possession thereof to INC. Thereupon Judge Reyes in another Order, dated 2 March 1992, pertaining also to Civil Case Q-90-6937, treated INC as the rightful owner of the real properties and disposed. On 6 April 1992, the Order was amended by Judge Reyes directing Ligon "to deliver the owner's duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the Order of March 2, 1992." Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari (CA-GR SP-27973), assailing the Orders of Judge Reyes. The appellate court dismissed her petition on 28 October 1992. Undaunted, Ligon filed a petition for review before the Supreme Court (GR 107751). In the meantime, the SEC, on 5 July 1993, finally came out with a Decision in SEC Case 4012, Declaring the by-laws submitted by the IDP-Caprizo group as unauthorized, and hence, null and void; declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by Iglesia ni Kristo and the Islamic Directorate of the Philippines, Inc. null and void; declaring the election of the Board of Directors 23 of the corporation from 1986 to 1991 as null and void; and Declaring the acceptance of the respondents, except Farouk Carpizo and Musnib Buat, as members of the IDP null and void. The INC filed a Motion for Intervention, dated 7 September 1993, in SEC Case 4012, but the same was denied on account of the fact that the decision of the case had become final and executory, no appeal having been taken therefrom. INC elevated SEC Case 4012 to the Court of Appeals by way of a special civil action for certiorari (CA-GR SP 33295). On 28 October 1994, the appeallate court promulgated a Decision granting INC's petition. The portion of the SEC Decision in SEC Case 4012 which declared the sale of the two (2) lots in question to INC as void was ordered set aside by the Court of Appeals. Thus, the IDP-Tamano Group brought the petition for review, dated 21 December 1994, to the Supreme Court. While the petition was pending, however, the Supreme Court rendered judgment in GR 107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision, dated 1 June 1995, denied the Ligon petition and affirmed the 28 October 1992 Decision of the Court of Appeals in CA-GR SP-27973 which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owner's duplicate copies of TCTs RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so that the Deed of Absolute Sale in INC's favor may be properly registered. Issue: Whether the Tandang Sora property was legitimately sold to the INC. Held: As far back as 3 October 1986, the SEC, in Case 2687, in a suit between the Carpizo Group and the Abbas Group, already declared the election of the Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being violative of the Articles of Incorporation. Nothing thus becomes more settled than that the IDP-Carpizo Group with whom INC contracted is a fake Board. Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of the IDP, have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees. Article 1318 of the New Civil Code lays down the essential requisites of contracts, and where all these elements must be present to constitute a valid contract. For, where even one is absent, the contract is void. Specifically, consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent. Herein, the IDP, owner of the subject parcels of land, never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC. This is, therefore, 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. The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group's failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation. The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. 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 no met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to appear to be. Apparently, there are only 15 official members of the IDP including the 8 members of the Board of Trustees. All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and INC was intrinsically void ab initio.

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Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation or an amendment thereto: Provided, That such pre-emptive right shall not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock, in exchange for property needed for corporate purposes or in payment of a previously contracted debt. G.R. No. L-56655 July 25, 1983 Lessons Applicable: Preemptive Rights (Sec. 39) (Corporate Law) DATU VS SEC FACTS: February 6, 1959: Articles of Incorporation (AIC) of Jamiatul Philippine-Al Islamia, Inc. (Jamiatul) (originally Kamilol Islam Institute, Inc.) were filed with the SEC December 14, 1962: approved AIC The corporation had an authorized capital stock of P200K divided into 20K shares at a par value of P10 each. Of the authorized capital stock, 8,058 shares worth P80,580.00 were subscribed and fully paid for Datu Tagoranao Benito subscribed to 460 shares worth P4,600 October 28, 1975: filed a certificate of increase of its capital stock from P200K to P1M November 25, 1975: stockholders meeting was held were P191,560.00 worth of shares were represented P110,980 worth of shares were subsequently issued by the corporation from the unissued portion of the authorized capital stock of P200,000 Of the increased capital stock of P1M0, P160K worth of shares were subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto. November 18, 1976: Datu Tagoranao filed with SEC a petition alleging that the additional issue (worth P110,980) was made in violation of his pre-emptive right to said additional issue and that the increase in the authorized capital stock was illegal considering that the stockholders of record were not notified of the meeting wherein the proposed increase was in the agenda SEC: issuance by the corporation of its unissued shares was validly made and was not subject to the pre-emptive rights of stockholders directed Jamiatul to allow petitioner to subscribe thereto, at par value, proportionate to his present shareholdings, adding thereto the 2,540 shares transferred to him by Mr. Domocao Alonto and Mrs. Moki-in Alonto ISSUES: 1. 2. 1. W/N the issuance of the P110,980 of authorized capital stock of P200,000 is in violation of pre-emptive right - NO W/N the issuance of the increase in the authorized capital stock is in violation of pre-emptive right NO GR: pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares

HELD: Dismissed for lack of merit

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Theory: when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares When the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest. 2. NO stockholders' meeting was held which included the increase of its capital stock from P200,000.00 to P1,000,000.00 he was not notified of said meeting and that he never attended the same as he was out of the country at the time administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence

Sec. 41. Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: 1. To eliminate fractional shares arising out of stock dividends; 2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and 3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code. (n) Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19761 January 29, 1923

PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa Naval Filipina," plaintiff-appellee, vs. MARCIANO RIVERA, defendant-appellant. Araneta and Zaragoza for appellant. Ross and Lawrence for appellee. STREET, J.: This action was instituted on November 21, 1921, in the Court of First Instance of Manila, by the Philippine Trust Company, as assignee in insolvency of La Cooperativa Naval Filipina, against Marciano Rivera, for the purpose of recovering a balance of P22,500, alleged to be due upon defendant's subscription to the capital stock of said insolvent corporation. The trial judge having given judgment in favor of the plaintiff for the amount sued for, the defendant appealed.

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It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly incorporated under the laws of the Philippine Islands, with a capital of P100,000, divided into one thousand shares of a par value of P100 each. Among the incorporators of this company was numbered the defendant Mariano Rivera, who subscribed for 450 shares representing a value of P45,000, the remainder of the stock being taken by other persons. The articles of incorporation were duly registered in the Bureau of Commerce and Industry on October 30 of the same year. In the course of time the company became insolvent and went into the hands of the Philippine Trust Company, as assignee in bankruptcy; and by it this action was instituted to recover one-half of the stock subscription of the defendant, which admittedly has never been paid. The reason given for the failure of the defendant to pay the entire subscription is, that not long after theCooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a resolution was adopted to the effect that the capital should be reduced by 50 per centum and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50 per centum of the same. As a result of this resolution it seems to have been supposed that the subscription of the various shareholders had been cancelled to the extent stated; and fully paid certificate were issued to each shareholders for one-half of his subscription. It does not appear that the formalities prescribed in section 17 of the Corporation Law (Act No. 1459), as amended, relative to the reduction of capital stock in corporations were observed, and in particular it does not appear that any certificate was at any time filed in the Bureau of Commerce and Industry, showing such reduction. His Honor, the trial judge, therefore held that the resolution relied upon the defendant was without effect and that the defendant was still liable for the unpaid balance of his subscription. In this we think his Honor was clearly right. It is established doctrine that subscription to the capital of a corporation constitute a find to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner an under the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations is necessary (14 C. J., 498, 620). In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum of their respective subscriptions was an attempted withdrawal of so much capital from the fund upon which the company's creditors were entitled ultimately to rely and, having been effected without compliance with the statutory requirements, was wholly ineffectual. The judgment will be affirmed with cost, and it is so ordered. Araullo, C. J., Malcolm, Avancea, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION v. CA AND NILCAR FAJILANGRIO-AQUINO, J.: G.R. No. 77860 November 22, 1988 Nature: Petition for Certiorari and mandamus with preliminary attachmentFacts: Respondent Nilcar Y. Fajilan offered in writing to resign as President and Member of the Board of Directorsof petitioner, Boman Environmental Development Corporation (BEDECO), Respondent Fajilan also stated that he wants sell to the company all his shares, rights, and interests thereinfor P 300,000 plus the transfer to him of the company's Isuzu pick-up truck which he had been using. At a meeting of the Board of Directors of BEDECO on June 14, 1984, Fajilan's resignation as president wasaccepted and new officers were elected.

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Fajilan's offer to sell his shares back to the corporation was approved, the Board promising to pay for themon a staggered basis from July 15, 1984 to December 15, 1984 (Annex B). <re||an1 w> The resolution of the Board was communicated to Fajilan through a letter-agreement dated June 25,1984 to which he affixed his conformity (Annex C). As payment, a promissory note dated July 3, 1984, was signed by BEDECO'S new president, AlfredoPangilinan, in the presence of two directors, committing BEDECO to pay him P300,000 over a six-monthperiod from July 15, 1984 to December 15, 1984. However, BEDECO paid only P50,000 on July 15, 1984 and another P50,000 on August 31, 1984 anddefaulted in paying the balance of P200,000. On April 30, 1985, Fajilan filed a complaint in the Regional Trial Court of Makati for collection of that balancefrom BEDECO. TC: the trial court, through Judge Ansberto Paredes, dismissed the complaint for lack of jurisdiction. o It ruled that the controversy arose out of intracorporate relations, hence, the Securities andExchange Commission has original and exclusive jurisdiction to hear and decide it. His motion for reconsideration of that order having been denied, Fajilan filed a "Petition for Certiorari, andmandamus with Preliminary Attachment" in the Intermediate Appellate Court. IAC: the Court of Appeals set aside Judge Paredes' order of dismissal and directed him to take cognizanceof the case. BEDECO's motion for reconsideration was denied in a resolution dated March 24, 1987 of theCourt of Appeals. o THE CA characterized the case as a suit for collection of a sum of money as Fajilan "was merelysuing on the balance of the promissory note" which BEDECO failed and refused to pay in full.More particularly, the Court of Appeals held:Issue: (1) WoN this case involves an intracorporate issue?(2) WoN this case is cognizable by the SEC?Held: (1) Yes. because the parties are a stockholder and the corporation.Section 5(b) of P.D. No. 902-A