URAGON NOTES
Disclaimer: I do not claim authorship over ALL case digests but merely the consolidation or compilation of the digests according to the course outline provided by the professor. The
digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
TITLE V- BY-LAWS
SEC. 46. Adoption of By-Laws
1. Gokongwei vs SEC, 89 SCRA 336
Doctrine/s:
Sec.46 Adoption of by-laws) A by-law affecting stockholders or
members must be general, that is, it must affect alike, and
operate equally as to all stockholders or members under the
same circumstances, and not be directed against particular
stockholders or members.
Facts:
It was claimed that prior to the questioned amendment,
Gokogwei had all the qualifications to be a director of the corporation,
being a substantial stockholder thereof; that as a stockholder, Gokongwei
had acquired rights inherent in stock ownership, such as the rights to vote
and to be voted upon in the election of directors; and that in amending
the by-laws, Soriano, et. al. purposely provided for Gokongwei's
disqualification and deprived him of his vested right as afore-mentioned,
hence the amended by-laws are null and void. As additional causes of
action, it was alleged that corporations have no inherent power to
disqualify a stockholder from being elected as a director and, therefore,
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
the questioned act is ultra vires and void; that Andres M. Soriano, Jr.
and/or Jose M. Soriano, while representing other corporations, entered
into contracts (specifically a management contract) with the corporation,
which was avowed because the questioned amendment gave the Board
itself the prerogative of determining whether they or other persons are
engaged in competitive or antagonistic business; that the portion of the
amended by-laws which states that in determining whether or not a
person is engaged in competitive business, the Board may consider such
factors as business and family relationship, is unreasonable and
oppressive and, therefore, void; and that the portion of the amended by-
laws which requires that "all nominations for election of directors shall be
submitted in writing to the Board of Directors at least five (5) working
days before the date of the Annual Meeting" is likewise unreasonable and
oppressive. It was, therefore, prayed that the amended by-laws be
declared null and void and the certificate of filing thereof be cancelled,
and that Soriano, et. al. be made to pay damages, in specified amounts,
to Gokongwei.
Issues:
1. Whether the by-law amendment of SMC applies equally to all and
does not discriminate against petitioner only?
2. Whether the contents of by-laws may validly provide for
disqualification for the position of directors?
Held:
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
1. Yes. It is recognized by all authorities that "every
corporation has the inherent power to adopt by-laws 'for its
internal government, and to regulate the conduct and prescribe
the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs.'"
The by-law, by its terms, applies to all stockholders. Here,
the by-law which disqualifies a person who is a director in a
corporation whose business is in competition with or is
antagonistic to another corporation, from election to the board
of directors of the latter corporation, is valid, it appears that the
by-law, by its terms, applies to all stockholders. If the by-law were
to be applied in the case of one stockholder but waived in the
case of another, then it could be reasonably claimed that the by-
law was being applied in a discriminatory manner.
2. Yes. In this jurisdiction under section 21 (now section 47)
of the Corporation Law, a corporation may prescribe in its by-
laws "the qualifications, duties and compensation of directors,
officers and employees." This must necessarily refer to a
qualification in addition to that specified by section 30(now
section 23) of the Corporation Law, which provides that "every
director must own in his right at least one share of the capital
stock of the stock corporation of which he is a director. Here, in
addition, the by-laws may validly provide for disqualification for
the position of directors for being engaged in any business which
competes with or is antagonistic to that of the corporation.
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
2. Gokongwei vs SEC, 97 SCRA 78
Doctrine/s:
Adoption of By-laws - "law of the case" doctrine - validity of the
amended by-laws insofar and only insofar as the parties herein
are concerned, can no longer be re-litigated on the basis of the
"law of the case" doctrine
Facts:
Petitioner seeks to nullify and set aside the resolution en banc of the
Securities and Exchange Commission in SEC Case No. 1375, sustaining the
findings of the San Miguel Corporation's Board of Directors that
petitioner is engaged in a business competitive with or antagonistic to
that of the San Miguel Corporation and, therefore, ineligible for election
as director, pursuant to Section 3, Article III of the amended by-laws.
Issue:
1. WON petitioner's disqualification should not have been heard in view
of the pendency of petitioner's motion for reconsideration with this
Court?
2. WON resolution of disqualification of the respondent Board of
Directors was an "over exertion of corporate power" because by this act
the afore-mentioned Board of Directors intended to perpetuate
themselves in power?
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
Held:
1. No, at the time the questioned resolution was rendered by the
SEC, the Chief Justice and six (6) Justices of this Court had already
promulgated their opinions that the validity of the amended by-
laws insofar and only insofar as the parties herein are concerned,
can no longer be re-litigated on the basis of the "law of the case"
doctrine. Therefore, the enforcement of the amended by-laws
could not have been ipso factor stayed by the motion for
reconsideration.
2. No, the alleged disqualification of some members of the Board
was never in issue during the hearing of the disqualification case.
Petitioner's assertion that the order of respondent Commission
disqualifying him is based on evidence appears unsupported by
the records. The order of respondent Commission was based
principally on the affidavits of Nazario Avendao, Ruperto
Sarandi, Jr., Fernando Constantino, Jose Picornell and Mabini
Antonio and documentary evidence showing that petitioner is
engaged in agricultural and poultry business competitive with
that of San Miguel Corporation. It is well-settled that findings of
fact of 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 afore-mentioned findings are not
supported by substantial evidence.
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
3. Fleischer vs Botica Nolasco, 47 Phil 583
Doctrine/s:
A corporation may adopt such by-laws provided these are not
inconsistent with the provisions of the general law and the
Corporation Code.
Facts:
Manuel Gonzalez was the original owner of the five shares of
stock in question of the Botica Nolasco, Inc. On March 11, 1923, he
assigned and delivered said five shares to the plaintiff, Henry Fleischer, by
accomplishing the form of endorsement provided on the back thereof,
together with other credits, in consideration of a large sum of money
owed by Gonzalez to Fleischer. On March 13, 1923, Dr. Eduardo Miciano,
who was the secretary-treasurer of said corporation, offered to buy from
Henry Fleischer, on behalf of the corporation, said shares of stock, at their
par value of P100 a share, for P500; that by virtue of Article 12 of the by-
laws of Botica Nolasco, Inc., said corporation had the preferential right to
buy from Manuel Gonzalez said shares. The plaintiff refused to sell them
to the defendant and requested Doctor Miciano to register said shares in
his name. Doctor Miciano refused to do so, saying that it would be in
contravention of the by-laws of the corporation.
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 URAGON NOTES
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
On the March 13, 1923, two days after the assignment of the
shares to the plaintiff, Manuel Gonzalez made a written statement to the
Botica Nolasco, Inc., requesting that the five shares of stock sold by him
to Henry Fleischer be noted transferred to Fleischer's name. He also
acknowledged in said written statement the preferential right of the
corporation to buy said five shares. On June 14, 1923, Gonzalez wrote a
letter to the Botica Nolasco, withdrawing and cancelling his written
statement of March 13, 1923 to which letter the Botica Nolasco on June
15, 1923, replied, declaring that his written statement was in conformity
with the by-laws of the corporation; that his letter of June 14th was of no
effect, and that the shares in question had been registered in the name of
the Botica Nolasco, Inc.
Issue: Whether or not Article 12 of the by-laws of the Botica Nolasco, Inc.
is in conflict with the provisions of the Corporation Law (Act No. 1459)?
Held:
Yes. The latter part of said article creates in favor of Botica
Nolasco, Inc., a preferential right to buy, under the same conditions, the
share or shares of stock of a retiring shareholder. Section 35 of Act No.
1459 provides that the shares of stock "are personal property and may be
transferred by delivery of the certificate indorsed by the owner, etc." Said
section contemplates no restriction as to whom they may be transferred
or sold. It does not suggest that any discrimination may be created by the
corporation in favor or against a certain purchaser. The holder of shares,
as owner of personal property, is at liberty, under said section, to dispose
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
of them in favor of whomsoever he pleases, without any other limitation
in this respect, than the general provisions of law. Therefore, a stock
corporation in adopting a by-law governing transfer of shares of stock
should take into consideration the specific provisions of section 35 of Act
No. 1459, and said by-law should be made to harmonize with said
provisions. It should not be inconsistent therewith.
The only restraint imposed by the Corporation Law upon transfer
of shares is found in Section 35 of Act No. 1459, quoted as follows: "No
transfer, however, shall be valid, except as between the parties, until the
transfer is entered and noted upon the books of the corporation so as to
show the names of the parties to the transaction, the date of the transfer,
the number of the certificate, and the number of shares transferred." This
restriction is necessary in order that the officers of the corporation may
know who are the stockholders, which is essential in conducting elections
of officers, in calling meeting of stockholders, and for other purposes, but
any restriction of the nature of that imposed in the by-law now in
question, is ultra vires, violative of the property rights of shareholders,
and in restraint of trade.
4. Salafranca vs Philam Life Village Homeowners Assoc, 300 SCRA 469
Facts:
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 URAGON NOTES
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
Salafranca works as an Administrative Officer for Philamlife
Village Homeowners Assoc for a period of 6 months. Upon expiration of
his term of employment, he still continued working on the same capacity
without renewal of contract. Philamlife amended its by-laws which
mentions Officers term of office shall be conterminous with the BOD.
Aggrieved Salafranca filed a complaint for dismissal.
Issue: Whether or not the amendment of by-laws would be a valid
ground for the dismissal of Salafranca?
Held:
No. The right to amend the by-laws lies solely in the discretion of
the employer, this being in the exercise of management prerogative or
business judgment. However this right, extensive as it may be, cannot
impair the obligation of existing contracts or rights. Petitioner, being a
regular employee, is entitled to security of tenure; hence, his services
may only be terminated for causes provided by law. A contrary
interpretation would not find justification in the laws or the Constitution.
If we were to rule otherwise, it would enable an employer to remove any
employee from his employment by the simple expediency of amending its
by-laws and providing that his/her position shall cease to exist upon the
occurrence of a specified event.
If private respondent wanted to make the petitioners position co-
terminus with that of the Board of Directors, then the amendment must
be effective after petitioners stay with the private respondent, not during
his term. Obviously, the measure taken by the private respondent in
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
amending its by-laws is nothing but a devious, but crude, attempt to
circumvent petitioners right to security of tenure as a regular employee
guaranteed under the Labor Code
5. Barretto vs La Previsora Filipina, 57 SCRA 649
Doctrine/s:
Associations are expressly authorized by the Corporation Law to
adopt by-laws for their government, as construed by this court in
the case of Fleischer vs. Botica Nolasco Co. (47 Phil., 583),
expressly limits such authority to the adoption of by-laws which
are not inconsistent with the provisions of the law.
Facts:
La Previsora is a mutual building & loan association, being sued in
this action by Barreto who were directors since its incorporation up
to 1929.
By virtue of amendment to the associations by-laws, the
directors were to each receive 1%of the net profits of the association as
annual gratuity as long as they lived, upon ceasing to be its directors. Per
Google Translate:
In consideration of the valuable services for several years so far
have been providing free favor of the Company, Messrs. Alberto
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 URAGON NOTES
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
Barretto, Ariston de Guzman, Miguel Romualdez, Pedro Mata,
Vicente L.Legarda, Alexander Bachrach, Jose M. of Amusategui
and Jose A. Barreto and Moratinos, agrees and hereby grants to
each and every one of these gentlemen, an amount equal to one
percent (1%) of all net profits of the Company in the year and
years in which they stop be a director of it. Provided, however,
that this special remuneration remain for as long such director
alive, and ceased during the time when the said gentleman again
be director of the Company. It is stated by this, that this article of
this Constitution is a formal contract between the Company and
each of the above directors gentlemen, and this agreement may
not be modified or amended, but by agreement between the
parties.
Issue: Whether or not said by-law provision is valid?
Held:
No. The assailed by-law provision was beyond the lawful powers
of the B&L association and, thus, does not create an obligation owing to
the plaintiffs of a life gratuity or pension out of the associations profits.
The authority conferred upon corporations under the Corporation Law
refers only to providing compensation for the future services of directors,
officers, and employees after the adoption of the by-law or other
provisions in relation thereto, and cannot in any sense be held to
authorize the giving of continuous compensation to particular directors
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
after their employment has terminated for past services rendered
gratuitously by them to the corporation.
The underlying principle of the founding of B&L associations is
the equal participation of its members in its profits (and the losses). The
use/diversion of funds which are foreign to its purpose therefore is
violative of its character of mutuality and equality. Moreover, if such
obligation be alleged to be based on contract, still it is shown that no
mutual consent by the parties was had and that no valid consideration for
the same was made.
6. Loyola Grand Villas Homeowners Assoc vs CA, 276 SCRA 681
Doctrine/s:
Although the Corporation Code requires the filing of by-laws, it
does not expressly provide for the consequences of the non-filing
of the same within the period provided for in Section 46.
However, such omission has been rectified by Presidential Decree
No. 902-A under which there can be no automatic corporate
dissolution simply because the incorporators failed to abide by
the required filing of by-laws. The incorporators must be given
the chance to explain their neglect or omission and remedy the
same.
Facts:
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Disclaimer: I do not claim authorship over ALL case digests but merely the consolidation or compilation of the digests according to the course outline provided by the professor. The
digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
On February 8, 1983, Loyola Grand Villas Homeowners
Association (LGVHAI) was organized as the association of homeowners
and residents of the Loyola Grand Villas and duly registered with herein
respondent Home Insurance and Guaranty Corporation (HIGC), as the
sole home-owners organization in the said subdivision. Sometime in
1988, the officers of the LGVHAI tried to register its by-laws. They failed
to do so. To the officers consternation, they discovered that there were
two other organizations within the subdivision, the North Association and
the South Association, registered with the HIGC. Upon inquiry about the
status of LGVHAI, it found out that LGVHAI o was automatically dissolved
for two reasons: First, it did not submit its by-laws within the period
required by the Corporation Code and, second, there was non-user of
corporate charter because HIGC had not received any report on the
associations activities.
These developments prompted the officers of the LGVHAI,
private respondents herein, to lodge a complaint with the HIGC. They
questioned the revocation of LGVHAIs certificate of registration without
due notice and hearing and concomitantly prayed for the cancellation of
the certificates of registration of the North and South Associations by
reason of the earlier issuance of a certificate of registration, in favor of
LGVHAI. The private respondents obtained a favorable ruling from HIGC.
Upon appeal by South Association, the Court of Appeals affirmed the
Resolution of the HIGC Appeals Board.
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
Undaunted, the South Association filed the instant petition for
review on certiorari with the SC. Petitioner concedes that Section 46 and
the other provisions of the Corporation Code do not provide for sanctions
for non-filing of the by-laws. However, it insists that no sanction need be
provided because the mandatory nature of the provision is so clear that
there can be no doubt about its being an essential attribute of corporate
birth.
Private respondents counter that under Sec 6 (I) of P.D. No. 902-
A, such is only a ground for suspension or revocation of the certificate
of registration of corporations and, therefore, it may not result in
automatic dissolution of the corporation.
Issue: Whether or not 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, result in its automatic dissolution?
Held:
No. Section 46 reveals the legislative intent to attach a directory,
and not mandatory, meaning for the word must in the first sentence
thereof. Note should be taken of the second paragraph of the law which
allows the filing of the by-laws even prior to incorporation. This provision
in the same section of the Code rules out mandatory compliance with the
requirement of filing the by-laws within one (1) month after receipt of
official notice of the issuance of certificate of incorporation by the
Securities and Exchange Commission. It necessarily follows that failure to
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)

file the by-laws within that period does not imply the demise of the
corporation.
Although the Corporation Code requires the filing of by-laws, it
does not expressly provide for the consequences of the non-filing of the
same within the period provided for in Section 46. However, such
omission has been rectified by Presidential Decree No. 902-A, the
pertinent provisions on the jurisdiction of the SEC of which state in SEC. 6.
In order to effectively exercise such jurisdiction, the Commission shall
possess the following powers: xxxxx (l) To suspend, or revoke, after
proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds
provided by law, including the following: xxxxxFailure to file by-laws
within the required period; xxxxx"
As the rules and regulations or private laws enacted by the
corporation to regulate, govern and control its own actions, affairs and
concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it,by-laws are
indispensable to corporations in this jurisdiction. These may not be
essential to corporate birth but certainly, these are required by law for an
orderly governance and management of corporations. Nonetheless,
failure to file them within the period required by law by no means tolls
the automatic dissolution of a corporation.
7. Grace Christian High school vs CA, 281 SCRA 133
Doctrine/s:

Even under the foregoing express grant of power and authority,

The provisions of the former and present Corporation Law leave
there can be no automatic corporate dissolution simply because the
no room for doubt that the board of directors of corporations
incorporators failed to abide by the required filing of by-laws embodied in
must be elected from among the stockholders or members.
Section 46 of the Corporation Code. There is no outright demise of
There may be corporations in which there are unelected
corporate existence. Proper notice and hearing are cardinal components
members in the board but it is clear that in the examples cited by
of due process in any democratic institution, agency or society. In other
petitioner the unelected members sit as ex officio members, i.e.,
words, the incorporators must be given the chance to explain their
by virtue of and for as long as they hold a particular office.
neglect or omission and remedy the same.
The provision in the by-laws, providing for a permanent
(unelected) position in the board, cannot attain validity through

Prepared by: John Yuri Zapanta

Professor: Atty. Christine Joy K. Tan
University of the East- College of Law Page 8
 URAGON NOTES
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
acquiescence because, if it is contrary to law, it is beyond the
power of the members of the association to waive its invalidity.
Facts:
Petitioner Grace Christian High School is an educational
institution offering preparatory, kindergarten and secondary courses at
the Grace Village in Quezon City. Private respondent Grace Village
Association, Inc., on the other hand, is an organization of lot and/or
building owners, lessees and residents at Grace Village, while private
respondents Alejandro G. Beltran and Ernesto L. Go were its president
and chairman of the committee on election, respectively, in 1990, when
this suit was brought.
In 1975, a committee of the board of directors prepared a draft of
an amendment to the by-laws adding to the 1968 provision on annual
election of members of the Board of Directors, a condition that the
representative for Petitioner Grace Christian High School be a permanent
director for the Association. However, this draft was never presented to
the general membership for approval. Nevertheless, from 1975, after it
was presumably submitted to the board, up to 1990, petitioner was given
a permanent seat in the board of directors of the association.
In 1990, the petitioner was informed that hat "it was the
sentiment that all directors should be elected by members of the
association" because "to make a person or entity a permanent Director
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
would deprive the right of voters to vote for fifteen (15) members of the
Board". Hence, petitioners status as a permanent director was to be re-
examined and an election of directors pursuant to the 1968 by-laws was
to be effected.
Issue: Whether or not the unelected, permanent-director position of
petitioner is valid?
Held:
The provisions of the former and present Corporation Law leave
no room for doubt that the board of directors of corporations must be
elected from among the stockholders or members.
There may be corporations in which there are unelected
members in the board but it is clear that in the examples cited by
petitioner the unelected members sit as ex officio members, i.e., by
virtue of and for as long as they hold a particular office. But in the case of
petitioner, there is no reason at all for its representative to be given a
seat in the board. Nor does petitioner claim a right to such seat by virtue
of an office held. In fact it was not given such seat in the beginning. It was
only in 1975 that a proposed amendment to the by-laws sought to give it
one.
Since the provision in question is contrary to law, the fact that for
fifteen years it has not been questioned or challenged but, on the
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Disclaimer: I do not claim authorship over ALL case digests but merely the consolidation or compilation of the digests according to the course outline provided by the professor. The
digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
contrary, appears to have been implemented by the members of the
association cannot forestall a later challenge to its validity. Neither can it
attain validity through acquiescence because, if it is contrary to law, it is
beyond the power of the members of the association to waive its
invalidity.
Further, it should be noted that they did not actually implement
the provision in question except perhaps insofar as it increased the
number of directors from 11 to 15, but certainly not the allowance of
petitioner's representative as an unelected member of the board of
directors. The members merely tolerated petitioner's representative and
tolerance cannot be considered ratification. Nor can petitioner claim a
vested right to sit in the board on the basis of "practice." Practice, no
matter how long continued, cannot give rise to any vested right if it is
contrary to law.
8. Cebu Mactan Members Center, Inc vs Tsukahara, 593 SCRA 172
Doctrine/s:
When powers are expressly conferred under the corporate by-
laws, the president, in exercising such powers, need not secure a
resolution from the board of directors.
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
Facts:
Petitioner Cebu Mactan Members Center, Inc. (CMMCI), through
Mitsumasa Sugimoto (Sugimoto), the President and Chairman of the
Board of Directors, obtained a loan from Masahiro Tsukahara
(Tsukahara). Sugimoto executed and signed a promissory note in his
capacity as CMMCI President and Chairman, as well as in his personal
capacity.
Under the corporate by-laws of CMMCI, the president is given the
power to borrow money, execute contracts, and sign and indorse checks
and promissory notes, in the name and on behalf of CMMCI. After several
failed attempts to collect the loan, Tsukahara filed the instant case for
collection of sum of money against CMMCI and Sugimoto.
CMMCI denied borrowing the amount from Tsukahara and
claimed that the loan were personal loans of Sugimoto. The company also
contended that if the loans were those of CMMCI, the same should have
been supported by resolutions issued by CMMCIs Board of Directors.
Issue: Whether CMMCI is liable for the loan contracted by its President
without a resolution issued by the CMMCI Board of Directors?
Held:
Yes. A corporation, being a juridical entity, may act through its
board of directors, which exercises almost all corporate powers, lays
down all corporate business policies and is responsible for the efficiency
of management. The general rule is that, in the absence of authority from
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
the board of directors, no person, not even its officers, can validly bind a
corporation.
Under Section 23, the power and the responsibility to decide
whether the corporation should enter into a contract that will bind the
corporation are lodged in the board of directors, subject to the articles of
incorporation, by-laws, or relevant provisions of law. However, just as a
natural person may authorize another to do certain acts for and on his
behalf, the board of directors may validly delegate some of its functions
and powers to officers, committees or agents. The authority of such
individuals to bind the corporation is generally derivedfrom
law, corporateby-laws or authorization from the board, either expressly
or impliedly by habit, custom or acquiescence in the general course of
business.
With such powers expressly conferred under the corporate by-
laws, the CMMCI president, in exercising such powers, need not secure a
resolution from the companys board of directors.
To insist that a board resolution is still required in order to bind
the corporation with respect to the obligations contracted by its
president is to defeat the purpose of the by-laws. By-laws of a
corporation should be construed and given effect according to the
general rules governing the construction of contracts. They, as the self-
imposed private laws of a corporation, have, when valid, substantially the
same force and effect as laws of the corporation, as have the provisions
of its charter insofar as the corporation and the persons within it are
concerned. They are in effect written into the charter and in this sense,
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
they become part of the fundamental law of the corporation. And the
corporation and its directors (or trustees) and officers are bound by and
must comply with them.
The corporation is now estopped from denying the authority of
its president to bind the former into contractual relations.
SEC. 47. Contents of By-Laws
1. Gokongwei vs SEC, 89 SCRA 336
Doctrine/s:
Doctrine: (Sec.47 Contents of by-laws) The by-laws may validly
provide for disqualification for the position of directors.
Requisites of valid by-laws are: (1) The by-laws must be
consistent with law and the articles of incorporation or charter;
(2) they must be consistent with public policy; (3) they must be
general and uniform; (4) they must be reasonable; and (5) they
must not impair vested rights.
Facts:
It was claimed that prior to the questioned amendment,
Gokogwei had all the qualifications to be a director of the corporation,
being a substantial stockholder thereof; that as a stockholder, Gokongwei
had acquired rights inherent in stock ownership, such as the rights to vote
and to be voted upon in the election of directors; and that in amending
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Disclaimer: I do not claim authorship over ALL case digests but merely the consolidation or compilation of the digests according to the course outline provided by the professor. The
digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
the by-laws, Soriano, et. al. purposely provided for Gokongwei's
disqualification and deprived him of his vested right as afore-mentioned,
hence the amended by-laws are null and void. As additional causes of
Held:
action, it was alleged that corporations have no inherent power to
disqualify a stockholder from being elected as a director and, therefore,
the questioned act is ultra vires and void; that Andres M. Soriano, Jr.
and/or Jose M. Soriano, while representing other corporations, entered
into contracts (specifically a management contract) with the corporation,
which was avowed because the questioned amendment gave the Board
itself the prerogative of determining whether they or other persons are
engaged in competitive or antagonistic business; that the portion of the
amended by-laws which states that in determining whether or not a
person is engaged in competitive business, the Board may consider such
factors as business and family relationship, is unreasonable and
oppressive and, therefore, void; and that the portion of the amended by-
laws which requires that "all nominations for election of directors shall be
submitted in writing to the Board of Directors at least five (5) working
days before the date of the Annual Meeting" is likewise unreasonable and
oppressive. It was, therefore, prayed that the amended by-laws be
declared null and void and the certificate of filing thereof be cancelled,
and that Soriano, et. al. be made to pay damages, in specified amounts,
to Gokongwei.
Issues:
(1) Whether the by-law amendment of SMC applies equally to all and
does not discriminate against petitioner only?
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
(2) Whether the contents of by-laws may validly provide for
disqualification for the position of directors?
(1) Yes. It is recognized by all authorities that "every
corporation has the inherent power to adopt by-laws 'for its
internal government, and to regulate the conduct and prescribe
the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs.'"
The by-law, by its terms, applies to all stockholders. Here,
the by-law which disqualifies a person who is a director in a
corporation whose business is in competition with or is
antagonistic to another corporation, from election to the board
of directors of the latter corporation, is valid, it appears that the
by-law, by its terms, applies to all stockholders. If the by-law were
to be applied in the case of one stockholder but waived in the
case of another, then it could be reasonably claimed that the by-
law was being applied in a discriminatory manner.
(2) Yes. In this jurisdiction under section 21 (now section 47)
of the Corporation Law, a corporation may prescribe in its by-
laws "the qualifications, duties and compensation of directors,
officers and employees." This must necessarily refer to a
qualification in addition to that specified by section 30(now
section 23) of the Corporation Law, which provides that "every
director must own in his right at least one share of the capital
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
stock of the stock corporation of which he is a director. Here, in
addition, the by-laws may validly provide for disqualification for
the position of directors for being engaged in any business which
competes with or is antagonistic to that of the corporation.
2. Gokongwei vs SEC, 97 SCRA 78
Held:
1.
Doctrine/s:
Contents of By-laws - findings of fact of 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
afore-mentioned findings are not supported by substantial
evidence
Facts:
Petitioner seeks to nullify and set aside the resolution en banc of 2.
the Securities and Exchange Commission in SEC Case No. 1375, sustaining
the findings of the San Miguel Corporation's Board of Directors that
petitioner is engaged in a business competitive with or antagonistic to
that of the San Miguel Corporation and, therefore, ineligible for election
as director, pursuant to Section 3, Article III of the amended by-laws.
Issue:
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
(1) Whether or not petitioner's disqualification should not have
been heard in view of the pendency of petitioner's motion for
reconsideration with this Court?
(2) Whether or not the resolution of disqualification of the
respondent Board of Directors was an "over exertion of corporate
power" because by this act the afore-mentioned Board of
Directors intended to perpetuate themselves in power?
No, at the time the questioned resolution was rendered
by the SEC, the Chief Justice and six (6) Justices of this Court had
already promulgated their opinions that the validity of the
amended by-laws insofar and only insofar as the parties herein
are concerned, can no longer be re-litigated on the basis of the
"law of the case" doctrine. Therefore, the enforcement of the
amended by-laws could not have been ipso factor stayed by the
motion for reconsideration.
No, the alleged disqualification of some members of the
Board was never in issue during the hearing of the
disqualification case. Petitioner's assertion that the order of
respondent Commission disqualifying him is based on evidence
appears unsupported by the records. The order of respondent
Commission was based principally on the affidavits of Nazario
Avendao, Ruperto Sarandi, Jr., Fernando Constantino, Jose
Picornell and Mabini Antonio and documentary evidence showing
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Disclaimer: I do not claim authorship over ALL case digests but merely the consolidation or compilation of the digests according to the course outline provided by the professor. The
digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
that petitioner is engaged in agricultural and poultry business
competitive with that of San Miguel Corporation. It is well-settled
that findings of fact of 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 afore-
mentioned findings are not supported by substantial evidence.
SEC. 48. Amendments to (or repeal or adoption of new) By-Laws
TITLE VI- MEETINGS
SEC. 49. Kinds of meetings (of Directors, Trustees, Stockholders,
Members)
SEC. 50. Regular and special meetings of stockholders or members
SEC. 51. Place and time of stockholders/members meetings
SEC. 52. Quorum in stockholders or members meetings
1. Lanuza vs CA, 454 SCRA 54
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
Doctrine/s:
The articles of incorporation has been described as one that
defines the charter of the corporation and the contractual
relationships between the State and the corporation, the
stockholders and the State, and between the corporation and
its stockholders.
A stock and transfer book is not in any sense a public record
and thus is not exclusive evidence of the matters and things
which ordinarily are or should be written therein. It may be
impeached or even contradicted by other competent
evidence.
Facts:
PMMSI was incorporated with 770 founder's shares and 76
common shares as its initial capital stock subscription reflected in the
articles of incorporation (total of 776 shares). However, private
respondents herein (Nolasco et. al) registered the company's stock and
transfer book for the first time recording only 33 common shares as the
only issued and outstanding shares of PMMSI (contrary to the articles of
incorporation).
Based on the record in the transfer book, a special stockholders
meeting was held where a quorum of 27 common shares were present
which represented more than 2/3 of the common shares issued and
outstanding, based on the record in the transfer book, not the articles of
incorporation.
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)

Petitioners Lanuza thereafter filed a petition with the SEC
questioning the validity of the said meeting alleging that the quorum
should not be based on the transfer book records, but on the initial
subscribed capital stock of 776 shares as reflected in the Articles of
Incorporation.
the articles would work injustice to the owners and successors in interest
of the said shares.
One who is a stockholder cannot be denied his right to vote by
the corporation merely because the corporate officers failed to keep its
records accurately.

Issue: Whether or not the basis of the quorum should be the articles of
incorporation and not the transfer book? SEC 53. Regular or special meetings of directors / trustees

Section 50, Corporation Code

Held:
No. The stock and transfer book of PMMSI cannot be used as the SEC. 54. Who shall preside at meetings (of Directors/Trustees or
sole basis for determining the quorum as it does not reflect the totality of Stockholders/Members)
shares which have been subscribed, more so when the articles of
SEC. 55. Right to vote of pledgors, mortgagors, and administrators
incorporation show a significantly larger amount of shares and
outstanding as compared to that listed in the stock and transfer book. A SEC. 56. Voting in case of owners
quorum is based on the totality of shares which have been subscribed to
and issued whether it be founder's or common shares. SEC. 57. Voting rights of Treasury Shares
The articles of incorporation has been described as one that
SEC. 58. Proxies (of Stockholders / Members)
defines the charter of the corporation and the contractual relationships
between the State and the corporation, the stockholders and the State, Section 89, Corporation Code
and between the corporation and its stockholders. PMMSI's articles being
in compliance with the requirements of law, the contents of the articles SEC. 59. Voting trusts
are binding not only on the corporation, but also on the shareholders. At
1. Everett vs Asia Banking, 49 Phil 512
the time of incorporation, the corporation had 77 issued and outstanding
shares. To base the shares on the transfer book, completely disregarding
Doctrine/s:

Prepared by: John Yuri Zapanta

Professor: Atty. Christine Joy K. Tan
University of the East- College of Law Page 15
 URAGON NOTES
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
It may be inferred that the stockholders
may bring suit against the trustees if the voting trust agreement
is being used by the said Trustees to perpetuate fraud against the
corporation, as is present in this case.
The stockholders would still have legal standing to institute the
suit in behalf of the corporation for acts done by the trustees to
defraud the corporation, when the said trustees already have
control of the Board of the said corporation.
Facts:
The Asia Banking Corporation hereinafter called "the Bank", was
and now is a foreign banking corporation duly licensed to transact
banking business in the Philippine Islands, having, its principal office and
place of business at Manila aforesaid and that said Asia Banking
Corporation never has been empowered by law or licensed to do any
business other than commercial banking in the Philippine Islands. That
the defendants Nicholas E. Mullen, Alfred F. Kelly, John W. Mears, and
Charles D. Macintosh were residents of said City of Manila and were
officers, agents and employees of the said Asia Banking Corporation.
That, Teal & Company is indebted to HW Peabody & Co. forP300K
for tractors, plows, and parts delivered, of which it has paid P150K. Asia
Banking Corporation held drafts accepted
by Teal under the HW Peabodys guarantee. Tractors were returned to
HW Peabody due to its being unsellable due to financial and agricultural
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
depression in the RP. Teal ordered another lot of tractors from Smith
Kirkpatrick, but shipment was delayed until the rescission of the credit of
Teal with action (in the nature of a derivative suit) on behalf of Tealand
Co.
That on said 29th day of December, 1922, the said Company was
indebted to the Bank in about the sum of P750,000, which said sum was
secured by mortgage on its personal property and the improvements
upon the real estate occupied by it. the Bank, through its manager the
defendant Mullen represented to the Company and its managers that for
the protection both of the Bank and the Company it was advisable for
them both that the Bank should temporarily obtain control of the
management and affairs of the Company in order that the affairs of the
Company could be conducted by the Bank without interference or
hindrance from outside, and to this end that it would be necessary for the
stockholders in the Company to place their shares therein in a Voting
Trust to be held by the Bank would then finance the Company under its
own supervision and that if and when the same were successful and in
position to resume independent operation the said trust would be
terminated and the stock returned to its true owners, and further
represented that in case at any time the Bank decided to discontinue
operation under the said trust that then the stock also would be so
returned.
Relying upon the previous friendly relations between the bank
and the Company and between the individual defendants and these
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
plaintiffs and relying upon the promise and representations of the
defendants, these plaintiffs were induced to sign and did sign and deliver
to the Bank simultaneously a so-called "Voting Trust Agreement,"
executed by the plaintiff stockholders and a Memorandum of Agreement
executed by the Company.
The defendant Mullen, caused and procured, by virtue of the
powers delegated in the said voting trust, the displacement and removal
from the Board of Directors of the Company of each and every person
who was at the time of the execution of the said voting trust a
stockholder in the Company.
That thereafter said defendants conducted the business of the
Company without consulting the stockholders thereof and denied to the
stockholders any knowledge or information as to their actions, or the
business of the Company, and at all times thereafter carried on the
business and management in all respects as if they and the Bank were the
real stockholders and owners thereof and in utter and entire disregard of
the rights and interests of these plaintiffs who were and are the real
owners.
In order more effectually to plunder the Company and to defraud
these plaintiffs the said defendants, Mullen, Barclay, Mears and
Macintosh, made, executed and filed in the Bureau of Commerce and
Industry of the Philippine Islands, articles of incorporation of a
corporation called the "Philippine Motors Corporation.
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
The Bank has prevented these plaintiffs from obtaining any such
information by refusing after demand to return to these plaintiffs their
stock in the Company or to dissolve the Voting Trust or in any wise to
allow them to regain control of what is left of the Company or its records
and has endeavoured to forestall and prevent any action toward
regaining such control or enforcement of their rights by bringing suit
against one of the principal stockholders in the Company.
Hence the plaintiffs prays to order the said defendants at once to
cancel the said Voting trust and to return to plaintiffs their shares of the
stock of Teal and Company, taken under said trust and to return to them
all the books and records of every kind and nature of said Teal and
Company, and to regain to these defendants their pretended positions in
and control of Teal and Company.
Defendants demurred the complaint. One of the grounds is that,
the plaintiffs has no legal capacity to file a suit.
The court sustained the demurer.
Issue: Whether or not the plaintiffs have the capacity to file a suit, as a
stockholder?
Held:
YES. The Philippine Motors Corporations never obtained and has
now no legal existence for the reason that it was and is the Bank itself
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)
operating under a disguise and because said Bank, under its license to do
business in the Philippine Islands, is without power or authority to engage
in the business assumed by the Philippine Motors Corporation, and
because said corporation so pretendly created by the Bank is in violation
of its duties and obligations assumed by it as Trustee of the stockholders
of the Company. The stockholders would still have legal standing to
institute the suit in behalf of the corporation for acts done by the trustees
to defraud the corporation, when the said trustees already have control
of the Board of the said corporation.
2. Lee vs CA, 205 SCRA 752
Doctrine/s:
The immediate effect of a voting trust agreement on the status of
a stockholder who is a party to its execution from legal titleholder
or owner of the shares subject of the voting trust agreement, he
becomes the equitable or beneficial owner. In order to be a
director, he must own at least one share, through legal title.
a voting trust agreement results in the separation of the voting
rights of a stockholder from his other rights such as the right to
receive dividends, the right to inspect the books of the
corporation, the right to sell certain interests in the assets of the
corporation and other rights to which a stockholder may be
entitled until the liquidation of the corporation.
Prepared by: John Yuri Zapanta
Professor: Atty. Christine Joy K. Tan
University of the East- College of Law
in order to distinguish a voting trust agreement from proxies and
other voting pools and agreements, it must pass three criteria or
tests, namely:
(1) that the voting rights of the stock are separated from
the other attributes of ownership;
(2) that the voting rights granted are intended to be
irrevocable for a definite period of time; and
(3) that the principal purpose of the grant of voting rights
is to acquire voting control of the corporation.
Facts:
A complaint for sum of money was filed by International
Corporate Bank against the private respondents, who in turn, filed a third
party complaint against Alfa Integrated Textile Mills (ALFA) and the
petitioners. The trial court issued an order requiring the issuance of an
alias summons for upon ALFA, through DBP, as a consequence of
petitioners letter informing the court that the summons for ALFA was
erroneously served upon them considering that the management of ALFA
has been transferred to DBP which the latter denied, having separate and
distinct corporate personality and existence. The private respondents
filed a Manifestation and Motion for the Declaration of Proper Service of
Summons which the trial court granted. Petitioners filed a motion for
reconsideration alleging that Rule 14 Sec. 13 of the Rules of Court is not
applicable since they are no longer officers of ALFA.
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digests are compiled from different sources (digests written by me, by my classmates pursuant to the digest pool agreement, and digests from the internet)

Private respondents contend that the voting trust agreement director, what is material is the legal title and not the beneficial title.
(VTA) did not divest petitioners as corporate officers (president and Consequently, the petitioners ceased to own at least one share standing
executive vice-president) of ALFA and so the service of summons upon in their names on the books of ALFA as required under Section 23 of the
ALFA was proper. The trial court upheld the validity of the service on new Corporation Code. They also ceased to have anything to do with the
ALFA through the petitioners and denied the motion for reconsideration management of the enterprise. The petitioners ceased to be directors.
filed by petitioners. As a result, petitioners filed a second motion for Hence, the transfer of the petitioners' shares to the DBP created
reconsideration, attaching therewith a copy of the voting trust agreement vacancies in their respective positions as directors of ALFA.
between all the stockholders of ALFA, on one hand, and of DBP, on the
other. The VTA vested management and control to DBP. The trial court
reversed itself ruling that petitioners are no longer corporate officers of
AFLA. Private respondents moved for reconsideration, which was denied
by the court.

A petition for certiorari was filed by private respondent with the

Court of Appeals. After the petitioner filed their answer, the CA reversed
the order, ruling that there was proper service of summons.

Issue: Whether or not the voting trust agreement divested the petitioners
of their position as corporate officers?

Held:

Yes. Both under the old and the new Corporation Codes there is
no dispute as to the most immediate effect of a voting trust agreement
on the status of a stockholder who is a party to its execution from legal
titleholder or owner of the shares subject of the voting trust agreement,
he becomes the equitable or beneficial owner. In order to be eligible as

Prepared by: John Yuri Zapanta

Professor: Atty. Christine Joy K. Tan
University of the East- College of Law Page 19