Montelibano vs Bacolod-Murcia Milling (1962)
165548: June 13, 2011
February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc
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. Originally executed in 1919, said
contracts were stipulated to be in force for 30 years starting with the 1920-21 crop, and provided that
the resulting product should be divided in the ratio of 45% for the mill and 55% for the
planters. Sometime in 1936, it was proposed to execute amended milling contracts, increasing the
planters’ share to 60% of the manufactured sugar and resulting molasses, besides other concessions,
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 Amended Milling Contract.
The appellants initiated the present action, contending that three Negros sugar centrals with a total
annual production exceeding one-third of the production of all the sugar central mills in the
province, had already granted increased participation (of 62.5%)to their planters, and that under the
resolution the appellee had become obligated to grant similar concessions to the plaintiffs. 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
beyond the powers of the corporate directors to adopt.
Issue: WON the board resolution is an ultra vires act and in effect a donation from the board of
directors?
Held: No. 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. As the resolution in question was passed in good faith by the board of
directors, it is valid and binding, and whether or not it will cause losses or decrease the profits of the
central, the court has no authority to review them. Whether the business of a corporation should be
operated at a loss during depression, or close down at a smaller loss, is a purely business and economic
problem to be determined by the directors of the corporation and not by the court. The appellee
Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20, 1936, duty
bound to grant similar increases to plaintiffs-appellants herein.
Philippine Realty vs. Ley Construction Digest
G. R. No.
PHILIPPINE REALTY AND HOLDINGS CORPORATION, Petitioner, v. LEY
CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent.
SERENO, J.:
FACTS:
Ley Construction and Development Corporation(LCDC) was the project contractor for the construction
of several buildings for Philippine Realty & Holdings Corporation (PRHC), the project owner.
Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while Joselito
Santos (Santos) was its general manager and vice-president for operations.
Sometime between April 1988 and October 1989, the two corporations entered into four major
construction projects, as evidenced by four duly notarized "construction agreements." LCDC
committed itself to the construction of the buildings needed by PRHC, which in turn committed itself
to pay the contract price agreed upon.
The agreement covering the construction of the Tektite Building was signed by a Mr. Campos under
the words "Phil. Realty & Holdings Corp." and by Santos as a witness.Manuel Ley, the president of
LCDC, signed under the words "Ley Const. & Dev. Corp."
The terms embodied in the afore-listed construction agreements were almost identical. Each agreement
provided for a fixed price to be paid by PRHC for every project.
In the course of the construction of the Tektite Building, it became evident to both parties that LCDC
would not be able to finish the project within the agreed period.Thus, through its president, LCDC met
with Abcede to discuss the cause of the delay. LCDC explained that the unanticipated delay in
construction was due mainly to the sudden, unexpected hike in the prices of cement and other
construction materials. It claimed that, without a corresponding increase in the fixed prices found in the
agreements, it would be impossible for it to finish the construction of the Tektite Building. In their
analysis of the project plans for the building and of all the external factors affecting the completion of
the project, the parties discovered that even if LCDC were able to collect the entire balance from the
contract, the collected amount would still be insufficient to purchase all the materials needed to
complete the construction of the building.
Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application for the
Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in Makati City
docketed as Civil Case No. 96-160
ISSUE: Whether LCDC is liable for liquidated damages for delay in the construction of the buildings
for PRHC.
HELD: NO
CIVIL LAW: Obligations and Contracts, Delay
There is no question that LCDC was not able to fully construct the Tektite Building and Projects 1, 2,
and 3 on time. It reasons that it should not be made liable for liquidated damages, because its rightful
and reasonable requests for time extension were denied by PRHC.
It is important to note that PRHC does not question the veracity of the factual representations of LCDC
to justify the latters requests for extension of time. It insists, however, that in any event LCDC agreed
to the limits of the time extensions it granted.
The practice of the parties is that each time LCDC requests for more time, an extension agreement is
executed and signed by both parties to indicate their joint approval of the number of days of extension
agreed upon.
As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in a period of
over two years, only 256 out of the 618 days of extension requested were considered. We disregard
these numbers presented by LCDC because of its failure to present evidence to prove its allegation.
The tally that we will acceptas reflected by the evidence submitted to the lower courtis as follows: out
of the 564 days requested, only 237 were considered.
Essentially the same aforementioned reasons or causes are presented by LCDC as defense against
liability for both Projects 1 and 2.
Inasmuch as LCDCs claimed exemption from liability are beyond the approved time extensions,
LCDC, according to the majority of the CA, is liable therefor.
JusticeJuan Q. Enriquez, in his Dissenting Opinion, held that the reasons submitted by LCDC fell
under the definition offorce majeure. This specific point was not refuted by the majority.
We agree with Justice Enriquez on this point and thereby disagree with the majority ruling of the CA.
Article 1174 of the Civil Code provides: "Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk,
no person shall be responsible for those events which could not be foreseen, or which though foreseen,
were inevitable." A perusal of the construction agreements shows that the parties never agreed to make
LCDC liable even in cases offorce majeure. Neither was the assumption of risk required. Thus, in the
occurrence of events that could not be foreseen, or though foreseen were inevitable, neither party
should be held responsible.
Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation
due to an "act of God" orforce majeure, the following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event
must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor.
The shortage in supplies and cement may be characterized asforce majeure. In the present case,
hardware stores did not have enough cement available in their supplies or stocks at the time of the
construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply all
clearly fall underforce majeure. Since LCDC could not possibly continue constructing the building
under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes
aforementioned.
Further, PRHC is barred by the doctrine of promissory estoppel from denying that it agreed, and even
promised, to hold LCDC free and clear of any liquidated damages. Abcede and Santos also promised
that the latter corporation would not be held liable for liquidated damages even for a single day of
delay despite the non-approval of the requests for extension.
PETITION GRANTED.
 1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
Atrium Management Corp VS. CA DIGEST corporation, its stockholders or other persons;
DECEMBER 21, 2016 ~ VBDIAZ 2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does
Articles of Incorporation and by-laws> Ultra vires doctrine; types; business judgment rule not forthwith file with the corporate secretary his written objection thereto;

Atrium Management Corporation v. Court of Appeals, G.R. No. 109491, February 28, 2001. 3. He agrees to hold himself personally and solidarily liable with the corporation; or

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

Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de Leon, treasurer, and In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-
the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the
E.T. Henry and Co., Inc., in turn, endorsed the four checks to Atrium for valuable consideration. confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting
Enrique Tan of E.T. Henry approached Atrium for financial assistance, offering to discount four RCBC of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly
checks in the total amount of P2 million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed endorsed for deposit only to the payee’s account and not to be further negotiated. What is more, the
to discount the checks, provided it be allowed to confirm with Hi-Cement the fact that the checks confirmation letter contained a clause that was not true, that is, “that the checks issued to E.T. Henry
represented payment for petroleum products which E.T. Henry delivered to Hi-Cement. Upon were in payment of Hydro oil bought by Hi-Cement from E.T. Henry”. Her negligence resulted in
presentment for payment, the drawee bank dishonored all four checks for the common reason damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor.
“payment stopped”. As a result thereof, Atrium filed an action for collection of the proceeds of 4 PDC
in the total amount of 2M with RTC Manila. Judgment was rendered in favor of Atrium ordering
Lourdes and Rafael de Leon, E.T. Henry and Co., and Hi-Cement to pay Atrium the said amount plus
interest and attorneys fees. CA absolved Hi-cement Corporation from liability. It also ruled that since
Lourdes was not authorized to issue the subjects checks in favor of E.T. Henry Inc., the said act was
ultra vires.

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

Ruling: Yes.

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

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when:
Rural Bank of Milaor vs. Francisca Ocfemia et. al The bank is estopped from questioning the authority of the bank to enter into contract of sale. If a
corporation knowingly permits one of its officers or any other agent to act within the scope of an
G.R. No 137686 apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus,
February 8, 2000 the corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent’s authority.
FACTS: Several parcels of land were mortgaged by the respondents during the lifetime of the
respondent’s grandparents to the Rural bank of Milaor as shown by the Deed of Real Estate Mortgage
and the Promissory Note. Spouses Felicisimo Ocfemia and Juanita Ocfemia, one of the respondents,
were not able to redeem the mortgaged properties consisting of seven parcels of land and so the
mortgage was foreclosed and thereafter ownership was transferred to the petitioner bank. Out of the
seven parcels of land that were foreclosed, five of them are in the possession of the respondents
because these five parcels of land were sold by the petitioner bank to the respondents as evidenced by a
Deed of Sale. However, the five parcels of land cannot be transferred in the name of the parents of INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES vs. COURT OF
Merife Nino, one of the respondents, because there is a need to have the document of sale registered. APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES
The Register of deeds, however, said that the document of sale cannot be registered without the board CORPORATION OF THE PHILIPPINES
resolution of the petitioner bank confirming both the Deed of sale and the authority of the bank
manager, Fe S. Tena, to enter such transaction.
G.R. No. 122174, October 3, 2002
The petitioner bank refused her request for a board resolution and made many alibis. Respondents
initiated the present proceedings so that they could transfer to their names the subject five parcel of
land and subsequently mortgage said lots and to use the loan proceeds for the medical expenses of their Facts:
ailing mother.
Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized on
ISSUE: May the Board of Directors of a rural banking corporation be compelled to confirm a deed of October 13, 1976. On June 22, 1977, it registered its corporate and business name with the Bureau of
absolute sale of real property owned by the corporation which deed of sale was executed by the bank Domestic Trade.
manager without prior authority of the board of directors of the rural banking corporation?
Petitioner IRCP was incorporated on August 23, 1979 originally under the name "Synclaire
HELD: YES. The bank acknowledges, by its own acts or failure to act, the authority of Fe S. Tena to Manufacturing Corporation". It amended its Articles of Incorporation on August 23, 1985 to change its
enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the corporate name to "Industrial Refractories Corp. of the Philippines".
properties in dispute and paid the real estate taxes. If the bank management believed that it had title to
the property, it should have taken measured to prevent the infringement and invasion of title thereto Both companies are the only local suppliers of monolithic gunning mix.
and possession thereof. Likewise, Tena had previously transacted business on behalf of the bank, and
the latter had acknowledged her authority. A bank is liable to innocent third persons where Respondent RCP then filed a petition with the Securities and Exchange Commission to compel
representation is made in the course of its normal business by an agent like Manager Tena even though petitioner IRCP to change its corporate name.
such agent is abusing her authority. Clearly, persons dealing with her could not be blamed for
believing that she was authorized to transact business for and on behalf of the bank. The SEC rendered judgment in favor of respondent RCP.
Petitioner appealed to the SEC En Banc. The SEC En Banc modified the appealed decision and the
petitioner was ordered to delete or drop from its corporate name only the word "Refractories".
Petitioner IRCP filed a petition for review on certiorari to the Court of Appeals and the appellate court
upheld the jurisdiction of the SEC over the case and ruled that the corporate names of petitioner IRCP
and respondent RCP are confusingly or deceptively similar, and that respondent RCP has established
its prior right to use the word "Refractories" as its corporate name.
Petitioner then filed a petition for review on certiorari
Issue:
Are corporate names Refractories Corporation of the Philippines (RCP) and "Industrial Refractories
Corp. of the Philippines" confusingly and deceptively similar?
Ruling:
Yes, the petitioner and respondent RCP’s corporate names are confusingly and deceptively similar.
Further, Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is
"identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws". The policy
behind said prohibition is to avoid fraud upon the public that will have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the reduction of difficulties of
administration and supervision over corporation.
The Supreme Court denied the petition for review on certiorari due for lack of merit.
G.R. No. 157900: July 22, 2013
ZUELLIG FREIGHT AND CARGO SYSTEMS, Petitioner, v. NATIONAL LABOR
RELATIONS COMMISSION AND RONALDO V. SAN MIGUEL, Respondents.
BERSAMIN,J.:
FACTS:
San Miguel brought a complaint for unfair labor practice, illegal dismissal, non-payment of salaries
and moral damages against petitioner, formerly known as Zeta Brokerage Corporation (Zeta). San
Miguel contended that the amendments of the articles of incorporation of Zeta were for the purpose of
changing the corporate name, broadening the primary functions, and increasing the capital stock; and
that such amendments could not mean that Zeta had been thereby dissolved.
On its part, petitioner countered that San Miguels termination from Zeta had been for a cause
authorized by the Labor Code; that its non-acceptance of him had not been by any means irregular or
discriminatory; that its predecessor-in-interest had complied with the requirements for termination due
to the cessation of business operations; that it had no obligation to employ San Miguel in the exercise
of its valid management prerogative; that all employees had been given sufficient time to make their
decision whether to accept its offer of employment or not, but he had not responded to its offer within
the time set; that because of his failure to meet the deadline, the offer had expired; that he had
nonetheless been hired on a temporary basis; and that when it decided to hire another employee instead
of San Miguel, such decision was not arbitrary because of seniority considerations.
LA ruled that San Miguel has been illegally dismissed. The NLRC affirmed the LAs decision and
denied the motion for reconsideration of petitioner. Petitioner then filed a petition for certiorari in the
CA, imputing to the NLRC grave abuse of discretion amounting to lack or excess of jurisdiction. The
CA affirmed the NLRC decision. Hence, this petition.
ISSUE: Whether or not CA erred in affirming NLRC decision
HELD: No. CA decision affirmed
Labor Law
It is worthy to point out that the Labor Arbiter, the NLRC, and the CA were united in concluding that
the cessation of business by Zeta was not a bona fide closure to be regarded as a valid ground for the its new name, was the mere continuation of Zeta's corporate being, and still held the obligation to
termination of employment of San Miguel within the ambit of Article 283 of the Labor Code. honor all of Zeta's obligations, one of which was to respect San Miguel's security of tenure. The
dismissal of San Miguel from employment on the pretext that petitioner, being a different corporation,
Article 283. Closure of establishment and reduction of personnel. The employer may also terminate the had no obligation to accept him as its employee, was illegal and ineffectual.
employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment
to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on
the workers and the Department of Labor and Employment at least one (1) month before the intended
date thereof.

The unanimous conclusions of the CA, the NLRC and the Labor Arbiter, being in accord with law,
were not tainted with any abuse of discretion, least of all grave, on the part of the NLRC. Verily, the
amendments of the articles of incorporation of Zeta to change the corporate name to Zuellig Freight
and Cargo Systems, Inc. did not produce the dissolution of the former as a corporation. For sure, the
Corporation Code defined and delineated the different modes of dissolving a corporation, and
amendment of the articles of incorporation was not one of such modes. The effect of the change of
name was not a change of the corporate being, for, as well stated in Philippine First Insurance Co., Inc.
v. Hartigan:"The changing of the name of a corporation is no more the creation of a corporation than
the changing of the name of a natural person is begetting of a natural person. The act, in both cases,
would seem to be what the language which we use to designate it imports a change of name, and not a
change of being."
From the foregoing documents, it cannot be denied that petitioner corporation was aware of First
Summa Savings and Mortgage Banks change of corporate name to PAIC Savings and Mortgage Bank,
Inc. Knowing fully well of such change, petitioner corporation has no valid reason not to pay because
the IGLF loans were applied with and obtained from First Summa Savings and Mortgage Bank. First
Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc., are one and the same
bank to which petitioner corporation is indebted. A change in the corporate name does not make a new
corporation, whether effected by a special act or under a general law. It has no effect on the identity of
the corporation, or on its property, rights, or liabilities. The corporation, upon to change in its name, is
in no sense a new corporation, nor the successor of the original corporation. It is the same corporation
with a different name, and its character is in no respect changed.
In short, Zeta and petitioner remained one and the same corporation. The change of name did not give
petitioner the license to terminate employees of Zeta like San Miguel without just or authorized cause.
The situation was not similar to that of an enterprise buying the business of another company where the
purchasing company had no obligation to rehire terminated employees of the latter. Petitioner, despite
FLEISCHER vs. BOTICA NOLASCO CO. DIGEST
DECEMBER 21, 2016 ~ VBDIAZ
G.R. No. L-23241 March 14, 1925
HENRY FLEISCHER, plaintiff-appellee,
vs.
BOTICA NOLASCO CO., INC., defendant-appellant.
FACTS: This action was commenced in the CFI against the board of directors of the Botica Nolasco,
Inc., a corporation duly organized and existing under the laws of the Philippine Islands. The plaintiff
prayed that said board of directors be ordered to register in the books of the corporation five shares of
its stock in the name of Henry Fleischer, the plaintiff, and to pay him the sum of P500 for damages
sustained by him resulting from the refusal of said body to register the shares of stock in question.
(Basta na amend ung complaint)
defendant answered the amended complaint denying generally and specifically each and every one of
the material allegations thereof, and, as a special defense, alleged that the defendant, pursuant to
article 12 of its by-laws, had preferential right to buy from the plaintiff said shares at the par
value of P100 a share, plus P90 as dividends corresponding to the year 1922, and that said offer was
refused by the plaintiff.
Trial Court held that, in his opinion, article 12 of the by-laws of the corporation which gives it
preferential right to buy its shares from retiring stockholders, is in conflict with Act No. 1459
(Corporation Law), especially with section 35 thereof; and rendered a judgment in favor of plaintiff.
Hence, this appeal.
ISSUE: whether or not article 12 of the by-laws of the corporation is in conflict with the provisions of
the Corporation Law (Act No. 1459).
Questioned article 12 creates in favor of the Botica Nolasco, Inc., a preferential right to buy, under the
same conditions, the share or shares of stock of a retiring shareholder. Has said corporation any power,
under the Corporation Law (Act. No. 1459), to adopt such by-law?
HELD:
The particular provisions of the Corporation Law referring to transfer of shares of stock are as follows:
SEC. 13. Every corporation has the power:
xxx xxx xxx
(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the number
of its officers and directors within the limits prescribed by law, and for the transferring of its stock, the
administration of its corporate affairs, etc.
xxx xxx xxx
SEC. 35. The capital stock of stock corporations shall de divided into shares for which certificates
signed by the president or the vice-president, countersigned by the secretary or clerk and sealed with
the seal of the corporation, shall be issued in accordance with the by-laws. Shares of stock so issued
are personal property and may be transferred by delivery of the certificate indorsed by the owner or
his attorney in fact or other person legally authorized to make the transfer. 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, that date of the transfer, the
number of the certificate, and the number of shares transferred.
No share of stock against which the corporation holds any unpaid claim shall be transferable on the
books of the corporation.
The holder of shares, as owner of personal property, is at liberty, under said section (Sec. 35), to
dispose 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 by-law now in question was adopted under the power conferred upon the corporation by
section 13, paragraph 7, above quoted; but in adopting said by-law the corporation has
transcended the limits fixed by law in the same section, and has not taken into consideration the
provisions of section 35 of Act No. 1459.
As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry
into effect the objects of the corporation, and are not contradictory to the general policy of the laws of
the land.
On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and
for a corporate purpose, and always within the charter limits. They must always be strictly
subordinate to the constitution and the general laws of the land. They must not infringe the policy of
the state, nor be hostile to public welfare. They must not disturb vested rights or impair the obligation
of a contract, take away or abridge the substantial rights of stockholder or member, affect rights of
property or create obligations unknown to the law.
The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad Co. vs.
Rhodes, 25 Fla., 40.)
The power to enact by-laws restraining the sale and transfer of stock must be found in the governing
statute or the charter. Restrictions upon the traffic in stock must have their source in legislative
enactment, as the corporation itself cannot create such impediments. By-law are intended merely for
the protection of the corporation, and prescribe regulation and not restriction; they are always subject
to the charter of the corporation. The corporation, in the absence of such a power, cannot ordinarily
inquire into or pass upon the legality of the transaction by which its stock passes from one person to
another, nor can it question the consideration upon which a sale is based. A by-law cannot take away
or abridge the substantial rights of stockholder. Under a statute authorizing by- laws for the transfer of
stock, a corporation can do no more than prescribe a general mode of transfer on the corporate books
and cannot justify an unreasonable restriction upon the right of sale.
xxx
that a corporation has no power to prevent or to restrain transfers of its shares, unless such power is
expressly conferred in its charter or governing statute. This conclusion follows from the further
consideration that by-laws or other regulations restraining such transfers, unless derived from
authority expressly granted by the legislature, would be regarded as impositions in restraint of trade.
The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of
Act No. 1459, quoted above, 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 xxx 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.
And moreover, the by-laws now in question cannot have any effect on the appellee. He had no
knowledge of such by-law when the shares were assigned to him. He obtained them in good faith
and for a valuable consideration. He was not a privy to the contract created by said by-law between
the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his
rights as a purchaser.
A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by
the board of directors, while it may be enforced as a reasonable regulation for the protection of the
corporation against worthless stockholders, cannot be made available to defeat the rights of third
persons. (Farmers’ and Merchants’ Bank of Lineville vs. Wasson, 48 Iowa, 336.)
Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will
lie to compel the officers of the corporation to transfer said stock upon the books of the corporation.
Petition denied. Decision of trial court affirmed.
MSCI-NACUSIP Local Chapter, petitioner, vs. NATIONAL WAGES AND PRODUCTIVITY
COMMISSION and MONOMER SUGAR CENTRAL, INC., respondents. G.R. No.
125198. March 3, 1997
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. Thus, a new corporation
was organized and incorporated on February 15, 1990 under the corporate name Monomer Sugar
Central, Inc. (MSCI), the private respondent herein.
MSCI applied for exemption from the coverage of Wage Order No. RO VI-01 issued by the Regional
Tripartite Wages and Productivity Board VI (Board) on the ground that it is a distressed employer.
MSCI submitted its audited financial statements and income tax returns duly stamped “received” by
the BIR and the SEC.
The petitioner MSCI-NACUSIP Local Chapter (Union), in opposition, maintained that MSCI is not
distressed; that respondent applicant has not complied with the requirements for exemption; and that
the financial statements submitted by MSCI do not reflect the true and valid financial status of the
company, etc.
The Board denied MSCI’s application for exemption based on the finding that the applicant’s losses
of P3,400,738.00 for the period February 15, 1990 to August 31, 1990 constitute an impairment of only
5.25% of its paid-up capital of P64,688,528.00, cannot be said to be sufficient to meet the required
25% loss in order to qualify for the exemption, as provided in NWPC Guidelines No. 01, Series of
1992. An appeal was brought before the public respondent NATIONAL WAGES AND
PRODUCTIVITY COMMISSION (Commission). The Commission reversed and set aside the orders
of the Board, and granted MSCI’s application for exemption from Wage Order No. RO VI-01, for a
period of 1 yr from its effectivity. Hence this Petition for Certiorari under Rule 65 by the Petitioner.
ISSUE:
What is the correct paid-up capital of MSCI for the period covered by the application for exemption
— P5 million or P64,688,528.00? (Would it qualify MSCI as a distressed employer and thus be
entitled to exemption from compliance with Wage Order No. RO VI-01)
RULING:
NWPC Guidelines No. 01, Series of 1992 as well as the new NWPC Guidelines No. 01, Series of
1996, define Capital as referring to paid-up capital at the end of the last full accounting period, in the
case of corporations; or total invested capital at the beginning of the period under review, in the case of
partnerships and single proprietorships. To have a clear understanding of what paid-up capital is, a
referral to Sections 12 and 13 of the Corporation Code would be helpful:
“Sec. 12. Minimum capital stock required of stock corporations. — Stock corporations
incorporated under this Code shall not be required to have any minimum authorized capital stock
except as otherwise specifically provided for by special law, and subject to the provisions of the
following section.”
“Sec. 13. Amount of capital stock to be subscribed and paid for purposes of incorporation. — At
least 25% of the authorized capital stock as stated in the articles of incorporation must be subscribed
at the time of incorporation, and at least 25% percent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the contract of subscription without
need of call, or in the absence of a fixed date or dates, upon call for payment by the board of
directors: Provided, however, That in no case shall the paid-up capital be less thanP5,000.00”
increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded
indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness and of the time and place of the
stockholders’ meeting at which the proposed increase or diminution of the capital stock or the
incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each
stockholders at his place of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally.”
The above requirements, which are condition precedents before the capital stock of a corporation may
be increased, were 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 Feb 15, 1990 to Aug 31, 1990 impaired MSCI’s paid-up
capital of P5M by as much as 68%. MSCI is qualified as a distressed employer. Respondent
Commission thus acted well within its jurisdiction in granting MSCI full exemption from Wage Order
No. RO VI-01 as a distressed employer.
WHEREFORE, the petition is DISMISSED.

Paid-up capital is that portion of the authorized capital stock which has been both subscribed and paid.
In the case at bar, MSCI was organized and incorporated on February 15, 1990 with an authorized
capital stock of P60 million, P20 million of which was subscribed. Of theP20 million subscribed
capital stock, P5 million was paid-up.

The argument of the Board that the value of the assets of ASCI transferred to MSCI as well as the
loans or advances made by MTII to MSCI should have been taken into consideration in computing the
paid-up capital of MSCI is unmeritorious. Not all funds or assets received by the corporation can be
considered paid-up capital, for this term has a technical signification in Corporation Law. Such must
form part of the authorized capital stock of the corporation, subscribed and then actually paid up.

The loans and advances of MTII to respondent MSCI cannot be treated as investments, unless the
corresponding shares of stocks are issued. But as it turned out, such loans and advances were in fact
treated as liabilities of MSCI to MTII as shown in its 1990 audited financial statements. The treatment
by the Board of these loans as part of MSCI’s capital stock without satisfying certain mandatory
requirements is prohibited under Sec 38 of the Corporation Code which provides:

“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