G.R. No.

151969
September 4, 2009
Lessons Applicable: Election of Directors; Vacancy in the Board
(Corporate Law)
FACTS:

February 27, 1996: Ernesto Villaluna, Jaime C. Dinglasan

(Dinglasan), Eduardo Makalintal (Makalintal), Francisco
Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato
Dee, Augusto Sunico, and Ray Gamboa were elected as BOD
during the Annual Stockholders Meeting of petitioner Valle
Verde Country Club, Inc. (VVCC)

1997 - 2001: Requisite quorum could not be obtained so

they continued in a hold-over capacity

September 1, 1998: Dinglasan resigned, BOD still constituting a

quorom elected Eric Roxas (Roxas)
November 10, 1998: Makalintal resigned
on March 6, 2001: Jose Ramirez (Ramirez) was elected by the
remaining BOD
Respondent Africa (Africa), a member of VVCC, questioned the
election of Roxas and Ramirez as members of the VVCC Board with
the Securities and Exchange Commission (SEC) and the Regional Trial
Court (RTC) as contrary to:
Sec. 23. The board of directors or trustees. - Unless
otherwise provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation,
who shall hold office for 1 year until their successors are elected and
qualified.
Sec. 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. xxx.

Makalintal's term should have expired after 1996 there being

no unexpired term. The vacancy should have been filled by the
stockholders in a regular or special meeting called for that purpose

RTC: Favored Africa - Ramirez as Makalintal's replacement

= null and void
SEC: Roxas as Vice hold-pver director of Dinglasan = null
and void
VVCC appealed in SC for certiorari being partially contrary
to law and jurisprudence

ISSUES:
1. W/N there is an unexpired term - NO
2. W/N the remaining directors of a corporations Board, still constituting a
quorum, can elect another director to fill in a vacancy caused by the
resignation of a hold-over director. - NO

HELD: Petition Denied. RTC Affirmed.

1. NO

term time during which the officer may claim to hold the office as
of right
not affected by the holdover
fixed by statute and it does not change simply because the office may
have become vacant, nor because the incumbent holds over in office beyond the end
of the term due to the fact that a successor has not been elected and has failed to
qualify.

tenure
term during which the incumbent actually holds office.
Section 23 of the Corporation Code: term of BOD only 1 year - fixed
and has expired (1 yr after 1996)

2. NO

underlying policy of the Corporation Code is that the business and

affairs of a corporation must be governed by a board of directors whose
members have stood for election, and who have actually been elected by
the stockholders, on an annual basis. Only in that way can the directors'
continued accountability to shareholders, and the legitimacy of their
decisions that bind the corporation's stockholders, be assured. The
shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties that they do not own.
theory of delegated power of the board of directors

Section 29 contemplates a vacancy occurring within the directors

term of office (unexpired)
vacancy caused by Makalintals leaving lies with the VVCCs
stockholders, not the remaining members of its board of directors

G.R. No. 166862 December 20, 2006

Lessons Applicable: Doctrine of Centralized Management: Powers of Board
of Directors (Corporate Law)
Doctrine of Centralized Management (Corporate Law)
Price (Sales)
Earnest Money (Sales)
FACTS:
Manila Metal Corp. executed a real estate mortgage (TCT. 32098) as a security
for its loan from PNB amounting to 900,000 php, later on 1,000,000 php and
653,000 php
Aug. 5, 1982: PNB filed a petition for extrajudicial foreclosure for the property to
be sold at a public auction 911,532.21 php (outstanding as of June 30) + interest
+ attorney's fees
Sept. 2, 1982: PNB won the public auction at 1,000,000 php
Feb. 17, 1983: Certificate of Sale was issued and registered at the Registry of
Deeds and was annotated at the dorsal portion of the title (Redeemable until Feb
17,1983)
Petitioner requested 1 year extension until Feb 17,1984 but was rejected by PNB
saying it is their policy not to accept partial redemption
Jun. 1,1984: Since petitioner failed to redeem, TCT. 32098 was cancelled and a
new title was issued in favor of PNB
Meanwhile, Special Assets Management Department (SAMD) had prepared a
statement of account as of Jun 25,1984 amounting to 1,574,560.47 php (bid
price + interest + advances of insurance premiums + advances on relaty taxes +
reg. exp. +misc. exp + piblication cost)
Petitioner deposited 725,000 php as deposit to repurchase and was issued an
O.R.
PNB management rejected the recommendation of SAMD and demanded that
petitioner pay the markt value of 2,660,000 php.
Jun 24, 1984: PNB informed petitioner that its B.O.D had agreed to accept its
offer to purchase but at 1,931,389.53 less the 725,000 php.
PNB President did not conform to the letter but merely indicated that he has
received it.
Petitioner rejected this since PNB has already accepted its downpayment so it
can no longer increase the price.
PNB also rejected petitioners payment for the balance.
Petitioner filed a complaint against PNB for Annulment of Mortgage and
Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages
CA affirmed RTC: Favored PNB and demanded that it refund the 725,000 php
(no sale because no meeting of the minds in terms of price)

Lot was later transferred to its PNB President Bayani Gabriel

Petitioner filed a petition for certiorari
ISSUE:
W/N the statement of account by SAMD is only a recommendation subject to the
approval of the BOD - YES
W/N there was a contract of sale - NO
W/N earnest money establishes a contract of sale - NO
HELD: Denied. Costs Against Petitioner.
YES
Art. 1318 of NCC:
no contract unless the following requisites concur:
Consent of the contracting parties;
Object certain which is the subject matter of the contract;
Cause of the obligation which is established
The fixing of the price can never be left to the decision of one of the contracting
parties. But a price fixed by one of the contracting parties, if accepted by the
other, gives rise to a perfected sale.
When there is merely an offer by one party without acceptance of the other, there
is no contract.
2. NO
Section 23 of the Corporation Code:
corporate powers of all corporations shall be exercised by the board of directors.
Just as a natural person may authorize another to do certain acts in his behalf,
so may the board of directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it. Thus, contracts or acts
of a corporation must be made either by the board of directors or by a corporate
agent duly authorized by the board. Absent such valid delegation/authorization,
the rule is that the declarations of an individual director relating to the affairs of
the corporation, but not in the course of, or connected with the performance of
authorized duties of such director, are held not binding on the corporation.
a corporation can only execute its powers and transact its business through its:
Board of Directors
officers and agents when authorized by:
a board resolution;or
its by-laws
3. NO
ART. 1482. Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract
The deposit of P725,000 was accepted by PNB on the condition that the
purchase price is still subject to the approval of the PNB Board
Absent proof of the concurrence of all the essential elements of a contract of
sale, the giving of earnest money cannot establish the existence of a perfected
contract of sale.

151 SCRA 355 Business Organization Corporation Law Cash

Dividends
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 appeal.
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.

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

Philippine Trust Co. vs. Rivera

In the case at bar, 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.

G.R. No. L-19761; January 29, 1923

FACTS:
Cooperative Naval Filipinas was incorporated under the
Philippine laws. Mariano Rivera was one of the incorporators.
The AOI were registered in the Bureau of Commerce and
Industry. In the course of time, the corporation became insolvent
and went into the hands of Phil. Trust Co., as assignee in
bankruptcy. The latter instituted an action to recover unpaid
stock subscription of defendant. Defendant insists the resolution
that has been made on the reduction of the capital, the reason
why he did not fully pay the entire subscription.
ISSUE:
WON the reduction of the corporate capital by releasing
the subscribers from payment of their subscription is valid and
proper.
HELD:
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

[G.R. No. 118043. July 23, 1998]

LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now
JARDINE-CMG LIFE INSURANCE CO. INC.), petitioner, vs.
COURT OF APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
FACTS:
Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a
domestic corporation engaged in the life insurance business. It issued
shares of stock as stock dividends and paid documentary stamp taxes on
each certificate on the basis of its par value. The CIR, held Lincoln liable
based on the book value of the shares, and consequently, should be used
as basis for determining the amount of the documentary stamp
tax. Accordingly, the CIR issued a deficiency documentary stamp tax
assessment. Lincoln appealed the Commissioners ruling to the CTA, which
held that the amount of the documentary stamp tax should be based on
the par value stated on each certificate of stock. In turn, CIR appealed to
the Court of Appeals which, reversed the CTAs decision.
ISSUE: Whether in determining the amount to be paid as documentary
stamp tax, it is the par value of the certificates of stock or the book value
of the shares which should be considered.

HELD: The par value of the certificates of stock should be the basis for
determining the amount to be paid as documentary stamp tax. First, the
NIRC Sec. 224 provides that On every original issue, whether on
organization, reorganization or for any lawful purpose, of certificates of
stock by any association, company or corporation, there shall be collected
a documentary stamp tax of one peso and ten centavos on each two
hundred pesos, or fractional part thereof, of the par value of such
certificates
There is no basis for considering stock dividends as a distinct class
from ordinary shares of stock since under this provision only certificates of
stock are required to be distinguished (into either one with par value or
one without) rather than the classes of shares themselves.
A stock certificate is merely evidence of a share of stock and not the
share itself. (Sec. 63, Corporation Code). Stock dividends are in the nature
of shares of stock, the consideration for which is the amount of
unrestricted retained earnings converted into equity in the corporations
books. There is, therefore, no reason for determining the actual value of
such dividends for purposes of the documentary stamp tax if the
certificates representing them indicate a par value.
Second. The documentary stamp tax here is not levied upon the specific
transaction which gives rise to such original issuance but on the privilege
of issuing certificates of stock. A documentary stamp tax is in the nature
of an excise tax. It is not imposed upon the business transacted but is an
excise upon the privilege, opportunity or facility offered at exchanges for

Supervision and Regulation Fees (SRF) of PhP 0.50 for every

PhP 100 or a fraction of the capital andstock subscribed or paid
for of a stock corporation, partnership or single proprietorship of
the capital invested, or of the property and equipment,
whichever is higher.
PLDT wanted the July 28, 1999 Decision in G.R. No. 127937
clarified. It posited that the SRF should be based on the par
value in consonance with our holding in Philippine Long
Distance Telephone Company v. Public Service Commission,
and that the premiums on issued shares should not be included
in the valuation of the outstanding capital stock. Through the
November 15, 1999 Resolution in G.R. No. 127937, we
elucidated that the July 28, 1999 decision was not in conflict
with the ruling in Philippine Long Distance Telephone Company
since it never enunciated in the said case that the phrase
capital stock subscribed or paid must be determined at par
value. It is reiterated that the term capital stocksubscribed or
paid is the amount that the corporation receives, inclusive of
the premiums, if any, in consideration of the original issuance of
the shares.

the transaction of the business.

"PHILIPPINE LONG DISTANCE TELEPHONE COMPANY

(PLDT) VS. NATIONAL TELECOMMUNICATIONS
COMMISSION (NTC), G.R. 152685, DECEMBER 4, 2007"
Facts: This case pertains to Section 40 (e) of the
Public Service Act(PSA), as amended on March 15, 1984,
pursuant to Batas Pambansa Blg. 325, which authorized the
NTC to collect from public telecommunications companies

PLDT now contends that the disposition in G.R. No. 127937

excluded stock dividends from the SRF coverage, while the
NTC asserts the contrary. Also, PLDT questions the
assessments for violating the disposition in G.R. No. 127937
since these assessments were identical to the previous
assessments from 1988 which were questioned by PLDT in
G.R. No. 127937 for being based on the market value of its
outstanding capital stock.
Issue: Whether or not the appellate court erred in holding that
the assessments of the NTC were contrary to our Decision in
G.R. No. 127937 entitled NTC v. Honorable Court of Appeals

Held: No. The term capital and other terms used to describe
the capital structure of a corporation are of universal acceptance
and their usages have long been established in jurisprudence.
The capital subscribed is the total amount of the capital that
subscribers or shareholders have agreed to take and pay for,
which need not necessarily by, and can be more than, the par
value of the shares. In fine, it is the amount that the corporation
receives, inclusive of the premiums if any, in consideration of the
original issuance of the shares. In the case of stock dividends, it
is the amount that the corporation transfers from its surplus
profit account to its capital account. It is the same amount that
can be loosely termed as the trust fund of the corporation. The
Trust Fund doctrine considers this subscribed capital as a trust
fund for the payment of the debts of the corporation, to which
the creditors may look for satisfaction. Until the liquidation of the
corporation, no part of the subscribed capital may be returned or
released to the stockholder without violating this principle. Thus,
dividends must never impair the subscribed capital; subscription
commitments cannot be condoned or remitted; nor can the
corporation buy its own shares using the subscribed capital as
the considerations therefore.

Philippine National Bank vs. Andrada Electric & Engineering Co.

[GR 142936, 17 April 2002]
Third Division, Panganiban (J): 3 concur, 1 on official leave
Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the
Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the Development Bank of
the Philippines (DBP) under LOI 311. The PNB organized the ational Sugar Development
Corporation (NASUDECO) in September 1975, to take ownership and possession of the assets
and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills.
Prior to 29 October 1971, PASUMIL engaged the services of the Andrada
Electric & Engineering Company (AEEC) for electrical rewinding and repair, most of which
were partially paid by PASUMIL, leaving several unpaid accounts with AEEC. On 29 October
1971, AEEC and PASUMIL entered into a contract for AEEC to perform the (a) Construction
of a power house building; 3 reinforced concrete foundation for 3 units 350 KW diesel engine

generating sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo
generator sets, among others. Aside from the work contract, PASUMIL required AEEC to
perform extra work, and provide electrical equipment and spare parts. Out of the total
obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid balance,
as of 27 June 1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80,
PASUMIL made a partial payment to AEEC of P14,000.00, in broken amounts, covering the
period from 5 January 1974 up to 23 May 1974, leaving an unpaid balance of P513,263.80.
PASUMIL and PNB, and now NASUDECO, allegedly failed and refused to pay AEEC their
just, valid and demandable obligation (The President of the NASUDECO is also the VicePresident of the PNB. AEEC besought said official to pay the outstanding obligation of
PASUMIL, inasmuch as PNB and NASUDECO now owned and possessed the assets of
PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the
engineering and repairs, performed by AEEC). Because of the failure and refusal of PNB,
PASUMIL and/or NASUDECO to pay their obligations, AEEC allegedly suffered actual
damages in the total amount of P513,263.80; and that in order to recover these sums, AEEC
was compelled to engage the professional services of counsel, to whom AEEC agreed to pay a
sum equivalent to 25% of the amount of the obligation due by way of attorney's fees. PNB and
NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to state
sufficient allegations to establish a cause of action against PNB and NASUDECO, inasmuch
as there is lack or want of privity of contract between the them and AEEC. Said motion was
denied by the trial court in its 27 November order, and ordered PNB nad NASUDECO to file
their answers within 15 days. After due proceedings, the Trial Court rendered judgment in
favor of AEEC and against PNB, NASUDECO and PASUMIL; the latter being ordered to pay
jointly and severally the former (1) the sum of P513,623.80 plus interest thereon at the rate of
14% per annum as claimed from 25 September 1980 until fully paid; (2) the sum of
P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of
Appeals affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV
57610. PNB and NASUDECO filed the petition for review.
Issue: Whether PNB and NASUDECO may be held liable for PASUMILs liability to
AEEC.
Held: Basic is the rule that a corporation has a legal personality distinct and separate from
the persons and entities owning it. The corporate veil may be lifted only if it has been used to
shield fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith or
perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired
ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which
had earlier been foreclosed and purchased at the resulting public auction by the Development
Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts
to Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate fiction
may be allowed only if the following elements concur: (1) control not mere stock control,
but complete domination not only of finances, but of policy and business practice in respect
to the transaction attacked, must have been such that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own; (2) such control must have been
used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory
or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal
right; and (3) the said control and breach of duty must have proximately caused the injury or
unjust loss complained of. The absence of the foregoing elements in the present case precludes
the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO
acquired the assets of PASUMIL, there is no showing that their control over it warrants the
disregard of corporate personalities. Second, there is no evidence that their juridical

personality was used to commit a fraud or to do a wrong; or that the separate corporate entity
was farcically used as a mere alter ego, business conduit or instrumentality of another entity or
person. Third, AEEC was not defrauded or injured when PNB and
NASUDECO acquired the assets of PASUMIL. Hence, although the assets of NASUDECO
can be easily traced to PASUMIL, the transfer of the latter's assets to PNB and NASUDECO
was not fraudulently entered into in order to escape liability for its debt to AEEC. Neither was
there any merger or consolidation with respect to PASUMIL and PNB. The procedure
prescribed under Title IX of the Corporation Code 59 was not followed. In fact, PASUMIL's
corporate existence had not been legally extinguished or terminated. Further, prior to PNB's
acquisition of the foreclosed assets, PASUMIL had previously made partial payments to AEEC
for the former's obligation in the amount of P777,263.80. As of 27 June 1973, PASUMIL had
paid P250,000 to AEEC and, from 5 January 1974 to 23 May 1974, another P14,000. Neither
did PNB expressly or impliedly agree to assume the debt of PASUMIL to AEEC. LOI 11
explicitly provides that PNB shall study and submit recommendations on the claims of
PASUMIL's creditors. Clearly, the corporate separateness between
PASUMIL and PNB remains, despite AEEC's insistence to the contrary.

Creditors of a corporation have the right to assume that so long as there are outstanding debts and
liabilities, the BOD will not use the assets of the corporation to buy its own stock, and will not declare dividends to
stockholders when the corporation is insolvent.
In this case, it was found that the corporation did not have an actual bona fide surplus from which
dividends could be paid. Moreover, the Court noted that the Board of Directors purchased the stock from the
corporation and declared the dividends on the stock at the same Board meeting, and that the directors were permitted
to resign so that they could sell their stock to the corporation. Given all of this, it was apparent that the directors did
not act in good faith or were grossly ignorant of their duties. Either way, they are liable for their actions which affected
the financial condition of the corporation and prejudiced creditors.

Steinberg vs. Velasco

G.R. No. L-30460; March 12, 1929
FACTS:
The board of the corporation authorized the purchase of 330shares of capital stock of the corporation and
the declaration of dividends at a time when the corporation was indebted and in such a bad financial condition. The
directors relied on the face value on the books of its A/R, which had little or no value. Furthermore it appears that two
of the directors were permitted to resign so that they could sell their stock to the corporation. The corporation became
insolvent, and the receiver Steinberg sues the directors.

MSCI-NACUSIP Local Chapter

vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION and
MONOMER SUGAR CENTRAL, INC.
G.R. No. 125198. March 3, 1997

ISSUE:
Duty to creditors.
HELD:

FACTS:
On January 11, 1990, Asturias Sugar Central, Inc.
(ASCI), executed a Memorandum of Agreement with Monomer
Trading Industries, Inc. (MTII), whereby MTII shall acquire the

assets of ASCI by way of a Deed of Assignment provided that

an entirely new organization in place of MTII shall be
organized, which new corporation shall be the assignee of the
assets of ASCI.
By virtue of this Agreement, a new corporation was
organized and incorporated on February 15, 1990 under the
corporate name Monomer Sugar Central, Inc. or MSCI, the
private respondent herein. On January 16, 1991, MSCI applied
for exemption from the coverage of Wage Order No. RO VI-01
issued by the Board on the ground that it is a distressed
employer.
On January 16, 1991, MSCI applied for exemption from
the coverage of Wage Order No. RO VI-01 issued by the Board
on the ground that it is a distressed employer. In support
thereto, MSCI submitted its audited financial statements and
income tax returns duly stamped "received" by the Bureau of
Internal Revenue (BIR) and the Securities and Exchange
Commission (SEC) for the period beginning February 15, 1990
and ending August 31, 1990, including the quarterly financial
statements and income tax returns for the two quarters ending
November 30, 1990 and February 28, 1991.

authorized capital stock of P60 million, P20 million of which

was subscribed. Of the P20 million subscribed capital stock,
P5 million was paid-up. This fact is only too glaring for the
Board to have been misled into believing that MSCI'S paid-up
capital stock was P64 million plus and not P5 million.
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 stockholders' 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.
The above requirements, which are condition precedents

ISSUE:

of P5 million by as much as 68%. Likewise, the losses incurred

Whether or not the correct paid-up capital of MSCI for

the pertinent period covered by the application for exemption is
P5 million, not P64,688,528.00.
RULING:

before the capital stock of a corporation may be increased, were

unquestionably not observed in this case. Henceforth, the
paid-up capital stock of MSCI for the period covered by the
application for exemption still stood at P5 million. The losses,
therefore, amounting to P3,400,738.00 for the period February
15, 1990 to August 31, 1990 impaired MSCI's paid-up capital
by MSCI for the interim period from September 1, 1990 to
November 30, 1990, as found by the Commission, per MSCI's
quarterly income statements, amounting to P13,554,337.33
impaired the company's paid-up capital of P5 million by a
whopping 271.08%, more than enough to qualify MSCI as a
distressed employer

YES.
It is P5 million. The Supreme Court held that in the case
under consideration, there is no dispute, and the Board even
mentioned in its August 17, 1993 Decision, that MSCI was
organized and incorporated on February 15, 1990 with an

PHILIPPINE COCONUT PRODUCERS FEDERATION, INC.

(COCOFED), et al.

vs.
REPUBLIC OF THE PHILIPPINES
G.R. Nos. 177857-58
February 11, 2010
FACTS:
The Court, in its earlier resolution adverted to,
approved, upon motion of petitioner Philippine Coconut
Producers Federation, Inc. (COCOFED), the conversion of the
sequestered 753,848,312 Class "A" and "B" common shares of
San Miguel Corporation (SMC), registered in the name of
Coconut Industry Investment Fund (CIIF) Holding Companies
(hereunder referred to as SMC Common Shares), into
753,848,312 SMC Series 1 Preferred Shares. The oppositors
herein made the following arguments: (1) economic
disadvantage and harm that government might suffer by such
proposed conversion; (2) they question the wisdom of PCGG in
converting those sequestered shares; (3) that the conversion is
invalid in view of the Commission on Audit Circular No. 89296 which provides that disposal of government property must
be undertaken via public Auction; (4) that the conversion
thereof needs the acquiescence of the 14 CIIF companies; (5)
As to the Motion to Intervene by UCPB, that it should be the
sole depositary of the proceeds of the dividends.
ISSUE:
Whether or not the arguments of the Oppositors herein
have merits.
RULING:
NO.

Anent the 1st contention, it is not tenable because in fact

this conversion is a business strategy to preserve and conserve
the value of the Governments interest in the CIIF SMC shares.
As to the 2nd argument, it is also untenable because it is not
within the Courts to determine wisdom of other agencies of the
government. As to the 3rd argument, likewise untenable
because FIRST, there is really no disposal of SMC shares and
SECOND, there is no yet government assets to talk about
because the ownership thereto is still to be determined, hence,
those shares are akin to properties subject of attachment. As
to the 4th contention, PCGG need not obtain the acquiescence
of the owners of those sequestered shares with respect to any
of its acts intended to preserve such assets. Otherwise, it
would be impossible for it to perform its function as provided
by law. And as to the 5 th argument, it is also of no merit
because the Court has the discretion where to deposit those
net dividends, whether it be on Development Bank of the
Philippines/ Land Bank of the Philippines or the UCPB.

However, the appellee Bacolod-Murcia Milling Co., inc., resisted the claim,
and defended by urging that the stipulations contained in the resolution were
made without consideration; that the resolution in question was, therefore,
null and void ab initio, being in effect a donation that was ultra vires and
Montelibano, et.al. vs. Bacolod Murcia Milling Co. Inc. [G.R. No. L-15092
May 18, 1962]

Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and

the Limited co-partnership Gonzaga and Company, had been and are sugar
planters adhered to the defendant-appellee's sugar central mill under
identical milling contracts.
The contracts were stipulated to be in force for 30 years and that the
resulting product should be divided in the ratio of 45% for the mill and 55%
for the planters. It was later proposed to execute amendedmilling contracts,
increasing the planters' share to 60% of the manufactured sugar and
resulting molasses, besides otherconcessions, but extending the operation of
the milling contract from the original 30 years to 45 years.
The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc.,
adopted a resolution granting further concessions to the planters over and
above those contained in the printed AmendedMilling Contract. Appellants
signed and executed the printedAmended Milling Contract but a copy of the
resolution was not attached to the printed contract.
In 1953, the appellants initiated the present action, contending that three
Negros sugar centrals had already granted increased participation to their
planters, and that under paragraph 9 of the abovementioned resolution, the
appellee had become obligated to grant similar concessions to the plaintiffs
(appellants herein).

beyond the powers of the corporate directors to adopt.

After trial, the court below rendered judgment upholding the stand of the
defendant Milling company, and dismissed the complaint. Thereupon,
plaintiffs duly appealed to this Court.

Issue: Whether or not the resolution is valid and binding between the
corporation and planters.

Held: The Supreme Court held in the affirmative. There can be no doubt that
the directors of the appellee company had authority to modify the proposed
terms of the Amended Milling Contract for the purpose of making its terms
more acceptable to the other contracting parties. The rule is that

It is a question, therefore, in each case of the logical relation of the act to the
corporate purpose expressed in the charter. If that act is one which is lawful
in itself, and not otherwise prohibited, is done for the purpose of serving
corporate ends, and is reasonably tributary to the promotion of those ends, in
a substantial, and not in a remote and fanciful sense, it may fairly be
considered within charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the corporation's business,
fairly incident to the express powers and reasonably necessary to their
exercise. If so, the corporation has the power to do it; otherwise, not.

As the resolution in question was passed in good faith by the board of

and the court is without authority to substitute its judgment of the board of

directors, it is valid and binding, and whether or not it will cause losses or

directors; the board is the business manager of the corporation, and so long

decrease the profits of the central, the court has no authority to review them.

as it acts in good faith its orders are not reviewable by the courts. Hence, the
appellee Bacolod-Murcia Milling Company is, under the terms of its

It is a well-known rule of law that questions of policy or of management are

Resolution, duty bound to grant similar increases to plaintiffs-appellants

left solely to the honest decision of officers and directors of a corporation,

herein.