1. GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs.

THE as a stockholder, Gokongwei had acquired rights inherent in

COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, stock ownership, such as the rights to vote and to be voted upon
INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, in the election of directors; and that in amending the by-laws,
respondents. (Permanent seat; election) Soriano, et. al. purposely provided for Gokongwei's
disqualification and deprived him of his vested right as afore-
FACTS: Grace Village Association, Inc. (GVAI) has an mentioned, hence the amended by-laws are null and void. As
existing by-laws which was already in effect since 1968. But in additional causes of action, it was alleged that corporations have
1975, the board of directors made a draft amending the by-laws no inherent power to disqualify a stockholder from being elected
whereby the representative of petitioner shall have a permanent as a director and, therefore, the questioned act is ultra vires and
seat in the 15-seat board. The draft however was never void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while
presented to the general membership for approval. But representing other corporations, entered into contracts
nevertheless, the representative of GCHS held a seat in the (specifically a management contract) with the corporation, which
board for 15 years. Thereafter, an election was scheduled for was avowed because the questioned amendment gave the
the 15 seat in the board. GCHS opposed the election as it insists Board itself the prerogative of determining whether they or other
that the election should only be for 14 directors because it has persons are engaged in competitive or antagonistic business;
a permanent seat. GVAI argued that GCHS claim has no basis that the portion of the amended by-laws which states that in
because the 1975 proposed amendment was never ratified. determining whether or not a person is engaged in competitive
GCHS averred that it was ratified when it was allowed to take business, the Board may consider such factors as business and
the seat for 15 years and as such its right has already vested. family relationship, is unreasonable and oppressive and,
therefore, void; and that the portion of the amended by-laws
ISSUE: Whether or not the representative from Grace Christian
which requires that "all nominations for election of directors shall
High School should be allowed to have a permanent seat in the
be submitted in writing to the Board of Directors at least five (5)
board of directors.
working days before the date of the Annual Meeting" is likewise
HELD: No. The Corporation Code is clear when it provides that unreasonable and oppressive. It was, therefore, prayed that the
members of the board of a corporation must be elected by the amended by-laws be declared null and void and the certificate
stockholders (stock corporation) or the members (non-stock of filing thereof be cancelled, and that Soriano, et. al. be made
corporation). No provision of the by-laws can be adopted if it is to pay damages, in specified amounts, to Gokongwei. On 28
contrary to law. Tolerance cannot be considered a ratification. October 1976, in connection with the same case, Gokongwei
filed with the Securities and Exchange Commission an "Urgent
2. Gokongwei vs. Securities and Exchange Commission Motion for Production and Inspection of Documents", alleging
that the Secretary of the corporation refused to allow him to
Facts: John Gokongwei Jr., as stockholder of San Miguel inspect its records despite request made by Gokongwei for
Corporation, filed with the SEC a petition for "declaration of production of certain documents enumerated in the request, and
nullity of amended by-laws, cancellation of certificate of filing of that the corporation had been attempting to suppress
amended by-laws, injunction and damages with prayer for a information from its stockholders despite a negative reply by the
preliminary injunction" against the majority of the members of SEC to its query regarding their authority to do so.
the Board of Directors and San Miguel Corporation as an
unwilling petitioner. As a first cause of action, Gokongwei The motion was opposed by Soriano, et. al. The Corporation,
alleged that on 18 September 1976, Andres Soriano, Jr., Jose Soriano, et. al. filed their answer, and their opposition to the
M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, petition, respectively. Meanwhile, on 10 December 1976, while
Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto the petition was yet to be heard, the corporation issued a notice
amended by bylaws of the corporation, basing their authority to of special stockholders' meeting for the purpose of "ratification
do so on a resolution of the stockholders adopted on 13 March and confirmation of the amendment to the By-laws", setting such
1961, when the outstanding capital stock of the corporation was meeting for 10 February 1977. This prompted Gokongwei to ask
only P70,139.740.00, divided into 5,513,974 common shares at the SEC for a summary judgment insofar as the first cause of
P10.00 per share and 150,000 preferred shares at P100.00 per action is concerned, for the alleged reason that by calling a
share. At the time of the amendment, the outstanding and paid special stockholders' meeting for the aforesaid purpose,
up shares totalled 30,127,043, with a total par value of Soriano, et. al. admitted the invalidity of the amendments of 18
P301,270,430.00. September 1976. The motion for summary judgment was
opposed by Soriano, et. al. Pending action on the motion,
It was contended that according to section 22 of the Corporation Gokongwei filed an "Urgent Motion for the Issuance of a
Law and Article VIII of the by-laws of the corporation, the power Temporary Restraining Order", praying that pending the
to amend, modify, repeal or adopt new by-laws may be determination of Gokongwei's application for the issuance of a
delegated to the Board of Directors only by the affirmative vote preliminary injunction and or Gokongwei's motion for summary
of stockholders representing not less than 2/3 of the subscribed judgment, a temporary restraining order be issued, restraining
and paid up capital stock of the corporation, which 2/3 should Soriano, et. al. from holding the special stockholders' meeting
have been computed on the basis of the capitalization at the as scheduled. This motion was duly opposed by Soriano, et. al.
time of the amendment. Since the amendment was based on On 10 February 1977, Cremation issued an order denying the
the 1961 authorization, Gokongwei contended that the Board motion for issuance of temporary restraining order. After receipt
acted without authority and in usurpation of the power of the of the order of denial, Soriano, et. al. conducted the special
stockholders. As a second cause of action, it was alleged that stockholders' meeting wherein the amendments to the by-laws
the authority granted in 1961 had already been exercised in were ratified. On 14 February 1977, Gokongwei filed a
1962 and 1963, after which the authority of the Board ceased to consolidated motion for contempt and for nullification of the
exist. As a third cause of action, Gokongwei averred that the special stockholders' meeting. A motion for reconsideration of
membership of the Board of Directors had changed since the the order denying Gokongwei's motion for summary judgment
authority was given in 1961, there being 6 new directors. As a was filed by Gokongwei before the SEC on 10 March 1977.
fourth cause of action, it was claimed that prior to the questioned
amendment, Gokogwei had all the qualifications to be a director [SEC Case 1423] Gokongwei alleged that, having discovered
of the corporation, being a substantial stockholder thereof; that that the corporation has been investing corporate funds in other
corporations and businesses outside of the primary purpose Inc., a fully owned subsidiary of San Miguel
clause of the corporation, in violation of section 17-1/2 of the Corporation.
Corporation Law, he filed with SEC, on 20 January 1977, a 4. Whether the SEC gravely abused its
petition seeking to have Andres M. Soriano, Jr. and Jose M. discretion in allowing the stockholders of San Miguel
Soriano, as well as the corporation declared guilty of such Corporation to ratify the investment of corporate funds
violation, and ordered to account for such investments and to in a foreign corporation.
answer for damages. On 4 February 1977, motions to dismiss
Held:
were filed by Soriano, et. al., to which a consolidated motion to
strike and to declare Soriano, et. al. in default and an opposition
ad abundantiorem cautelam were filed by Gokongwei. Despite 1. It is recognized by all authorities that "every corporation has
the fact that said motions were filed as early as 4 February 1977, the inherent power to adopt by-laws 'for its internal government,
the Commission acted thereon only on 25 April 1977, when it and to regulate the conduct and prescribe the rights and duties
denied Soriano, et. al.'s motions to dismiss and gave them two of its members towards itself and among themselves in
(2) days within which to file their answer, and set the case for reference to the management of its affairs.'" In this jurisdiction
hearing on April 29 and May 3, 1977. Soriano, et. al. issued under section 21 of the Corporation Law, a corporation may
notices of the annual stockholders' meeting, including in the prescribe in its by-laws "the qualifications, duties and
Agenda thereof, the "reaffirmation of the authorization to the compensation of directors, officers and employees." This must
Board of Directors by the stockholders at the meeting on 20 necessarily refer to a qualification in addition to that specified by
March 1972 to invest corporate funds in other companies or section 30 of the Corporation Law, which provides that "every
businesses or for purposes other than the main purpose for director must own in his right at least one share of the capital
which the Corporation has been organized, and ratification of stock of the stock corporation of which he is a director." Any
the investments thereafter made pursuant thereto." By reason person "who buys stock in a corporation does so with the
of the foregoing, on 28 April 1977, Gokongwei filed with the SEC knowledge that its affairs are dominated by a majority of the
an urgent motion for the issuance of a writ of preliminary stockholders and that he impliedly contracts that the will of the
injunction to restrain Soriano, et. al. from taking up Item 6 of the majority shall govern in all matters within the limits of the act of
Agenda at the annual stockholders' meeting, requesting that the incorporation and lawfully enacted by-laws and not forbidden by
same be set for hearing on 3 May 1977, the date set for the law." To this extent, therefore, the stockholder may be
second hearing of the case on the merits. The SEC, however, considered to have "parted with his personal right or privilege to
cancelled the dates of hearing originally scheduled and reset the regulate the disposition of his property which he has invested in
same to May 16 and 17, 1977, or after the scheduled annual the capital stock of the corporation, and surrendered it to the will
stockholders' meeting. For the purpose of urging the of the majority of his fellow incorporators. It can not therefore be
Commission to act, Gokongwei filed an urgent manifestation on justly said that the contract, express or implied, between the
3 May 1977, but this notwithstanding, no action has been taken corporation and the stockholders is infringed by any act of the
up to the date of the filing of the instant petition. former which is authorized by a majority." Pursuant to section 18
of the Corporation Law, any corporation may amend its articles
Gokongwei filed a petition for petition for certiorari, mandamus of incorporation by a vote or written assent of the stockholders
and injunction, with prayer for issuance of writ of preliminary representing at least two-thirds of the subscribed capital stock
injunction, with the Supreme Court, alleging that there appears of the corporation. If the amendment changes, diminishes or
a deliberate and concerted inability on the part of the SEC to restricts the rights of the existing shareholders, then the
act. dissenting minority has only one right, viz.: "to object thereto in
writing and demand payment for his share." Under section 22 of
In the case of Gokongwei v. Securities and Exchange the same law, the owners of the majority of the subscribed
Commission, this Court quoted with favor from Pepper v. capital stock may amend or repeal any by-law or adopt new by-
Litton,11 thus: laws. It cannot be said, therefore, that Gokongwei has a vested
"x x x He cannot by the intervention of a corporate entity right to be elected director, in the face of the fact that the law at
violate the ancient precept against serving two masters. x x the time such right as stockholder was acquired contained the
x He cannot utilize his inside information and his strategic prescription that the corporate charter and the by-law shall be
position for his own preferment. He cannot violate rules of subject to amendment, alteration and modification.
fair play by doing indirectly through the corporation what
he could not do directly. He cannot use his power for his 2. Although in the strict and technical sense, directors of a
personal advantage and to the detriment of the private corporation are not regarded as trustees, there cannot
stockholders and creditors no matter how absolute in terms be any doubt that their character is that of a fiduciary insofar as
that power may be and no matter how meticulous he is to the corporation and the stockholders as a body are concerned.
satisfy technical requirements. For that power is at all times As agents entrusted with the management of the corporation for
subject to the equitable limitation that it may not be the collective benefit of the stockholders, "they occupy a
exercised for the aggrandizement, preference, or advantage fiduciary relation, and in this sense the relation is one of trust."
of the fiduciary to the exclusion or detriment of the cestuis. "The ordinary trust relationship of directors of a corporation and
x x x." stockholders is not a matter of statutory or technical law. It
springs from the fact that directors have the control and
Issue: guidance of corporate affairs and property and hence of the
1. Whether the corporation has the power to property interests of the stockholders. Equity recognizes that
provide for the (additional) qualifications of its stockholders are the proprietors of the corporate interests and
directors. are ultimately the only beneficiaries thereof." A director is a
fiduciary. Their powers are powers in trust. He who is in such
2. Whether the disqualification of a competitor fiduciary position cannot serve himself first and his cestuis
from being elected to the Board of Directors is a second. He cannot manipulate the affairs of his corporation to
reasonable exercise of corporate authority. their detriment and in disregard of the standards of common
3. Whether the SEC gravely abused its decency. He cannot by the intervention of a corporate entity
discretion in denying Gokongwei's request for an violate the ancient precept against serving two masters. He
examination of the records of San Miguel International,
cannot utilize his inside information and strategic position for his interest of the corporation. The "general rule that stockholders
own preferment. He cannot violate rules of fair play by doing are entitled to full information as to the management of the
indirectly through the corporation what he could not do so corporation and the manner of expenditure of its funds, and to
directly. He cannot violate rules of fair play by doing indirectly inspection to obtain such information, especially where it
through the corporation what he could not do so directly. He appears that the company is being mismanaged or that it is
cannot use his power for his personal advantage and to the being managed for the personal benefit of officers or directors
detriment of the stockholders and creditors no matter how or certain of the stockholders to the exclusion of others." While
absolute in terms that power may be and no matter how the right of a stockholder to examine the books and records of a
meticulous he is to satisfy technical requirements. For that corporation for a lawful purpose is a matter of law, the right of
power is at all times subject to the equitable limitation that it may such stockholder to examine the books and records of a wholly-
not be exercised for the aggrandizement, preference, or owned subsidiary of the corporation in which he is a stockholder
advantage of the fiduciary to the exclusion or detriment of the is a different thing. Stockholders are entitled to inspect the books
cestuis. The doctrine of "corporate opportunity" is precisely a and records of a corporation in order to investigate the conduct
recognition by the courts that the fiduciary standards could not of the management, determine the financial condition of the
be upheld where the fiduciary was acting for two entities with corporation, and generally take an account of the stewardship
competing interests. This doctrine rests fundamentally on the of the officers and directors. herein, considering that the foreign
unfairness, in particular circumstances, of an officer or director subsidiary is wholly owned by San Miguel Corporation and,
taking advantage of an opportunity for his own personal profit therefore, under Its control, it would be more in accord with
when the interest of the corporation justly calls for protection. It equity, good faith and fair dealing to construe the statutory right
is not denied that a member of the Board of Directors of the San of petitioner as stockholder to inspect the books and records of
Miguel Corporation has access to sensitive and highly the corporation as extending to books and records of such
confidential information, such as: (a) marketing strategies and wholly owned subsidiary which are in the corporation's
pricing structure; (b) budget for expansion and diversification; (c) possession and control.
research and development; and (d) sources of funding,
availability of personnel, proposals of mergers or tie-ups with 4. Section 17-1/2 of the Corporation Law allows a corporation to
other firms. It is obviously to prevent the creation of an "invest its funds in any other corporation or business or for any
opportunity for an officer or director of San Miguel Corporation, purpose other than the main purpose for which it was organized"
who is also the officer or owner of a competing corporation, from provided that its Board of Directors has been so authorized by
taking advantage of the information which he acquires as the affirmative vote of stockholders holding shares entitling them
director to promote his individual or corporate interests to the to exercise at least two-thirds of the voting power. If the
prejudice of San Miguel Corporation and its stockholders, that investment is made in pursuance of the corporate purpose, it
the questioned amendment of the by-laws was made. Certainly, does not need the approval of the stockholders. It is only when
where two corporations are competitive in a substantial sense, the purchase of shares is done solely for investment and not to
it would seem improbable, if not impossible, for the director, if accomplish the purpose of its incorporation that the vote of
he were to discharge effectively his duty, to satisfy his loyalty to approval of the stockholders holding shares entitling them to
both corporations and place the performance of his corporation exercise at least two-thirds of the voting power is necessary. As
duties above his personal concerns. The offer and assurance of stated by the corporation, the purchase of beer manufacturing
Gokongwei that to avoid any possibility of his taking unfair facilities by SMC was an investment in the same business stated
advantage of his position as director of San Miguel Corporation, as its main purpose in its Articles of Incorporation, which is to
he would absent himself from meetings at which confidential manufacture and market beer. It appears that the original
matters would be discussed, would not detract from the validity investment was made in 1947-1948, when SMC, then San
and reasonableness of the by-laws involved. Apart from the Miguel Brewery, Inc., purchased a beer brewery in Hongkong
impractical results that would ensue from such arrangement, it (Hongkong Brewery & Distillery, Ltd.) for the manufacture and
would be inconsistent with Gokongwei's primary motive in marketing of San Miguel beer thereat. Restructuring of the
running for board membership — which is to protect his investment was made in 1970-1971 thru the organization of SMI
investments in San Miguel Corporation. More important, such a in Bermuda as a tax free reorganization. Assuming arguendo
proposed norm of conduct would be against all accepted that the Board of Directors of SMC had no authority to make the
principles underlying a director's duty of fidelity to the assailed investment, there is no question that a corporation, like
corporation, for the policy of the law is to encourage and enforce an individual, may ratify and thereby render binding upon it the
responsible corporate management. originally unauthorized acts of its officers or other agents. This
is true because the questioned investment is neither contrary to
3. Pursuant to the second paragraph of section 51 of the law, morals, public order or public policy. It is a corporate
Corporation Law, "(t)he record of all business transactions of the transaction or contract which is within the corporate powers, but
corporation and minutes of any meeting shall be open to the which is defective from a purported failure to observe in its
inspection of any director, member or stockholder of the execution the requirement of the law that the investment must
corporation at reasonable hours." The stockholder's right of be authorized by the affirmative vote of the stockholders holding
inspection of the corporation's books and records is based upon two-thirds of the voting power. This requirement is for the benefit
their ownership of the assets and property of the corporation. It of the stockholders. The stockholders for whose benefit the
is, therefore, an incident of ownership of the corporate property, requirement was enacted may, therefore, ratify the investment
whether this ownership or interest be termed an equitable and its ratification by said stockholders obliterates any defect
ownership, a beneficial ownership, or a quasi-ownership. This which it may have had at the outset. Besides, the investment
right is predicated upon the necessity of self-protection. It is was for the purchase of beer manufacturing and marketing
generally held by majority of the courts that where the right is facilities which is apparently relevant to the corporate purpose.
granted by statute to the stockholder, it is given to him as such The mere fact that the corporation submitted the assailed
and must be exercised by him with respect to his interest as a investment to the stockholders for ratification at the annual
stockholder and for some purpose germane thereto or in the meeting of 10 May 1977 cannot be construed as an admission
interest of the corporation. In other words, the inspection has to that the corporation had committed an ultra vires act,
be germane to the petitioner's interest as a stockholder, and has considering the common practice of corporations of periodically
to be proper and lawful in character and not inimical to the submitting for the ratification of their stockholders the acts of
their directors, officers and managers. ISSUE: Whether the Labor Arbiter had jurisdiction over the case
contrary to law. Tolerance cannot be considered a ratification. for illegal dismissal and non-payment of benefits filed by
petitioner.
3. Western Institute of Technology Inc. vs. Salas
(Compensation) RULING: NONE. That the position of Comptroller is not
expressly mentioned among the officers of the IBC in the By-
Facts: Salas et al., are the majority and controlling members of Laws is of no moment, because the IBC’s Board of Directors is
the Board of Trustees of petitioner. Prior to a Special Board empowered under Section 25 of the Corporation Code and
Meeting, copies of notice thereof, were distributed to all Board under the corporation’s By-Laws to appoint such other officers
Members.The notice allegedly indicated that the meeting to be as it may deem necessary. The Court has held that in most
held included Item 6 which states that "Possible implementation cases the “by-laws may and usually do provide for such other
of Art. III, Sec. 6 of the Amended By-Laws of Western Institute officers,”and that where a corporate office is not specifically
of Technology, Inc. on compensation of all officers of the indicated in the roster of corporate offices in the by-laws of a
corporation." In said meeting, the Board of Trustees passed a corporation, the board of directors may also be empowered
resolution, granting monthly compensation to Salas, et. al. under the by-laws to create additional officers as may be
necessary.
Issue: Whether the grant of compensation to Salas, et. al. is
proscribed under Section 30 of the Corporation Code. Since complainant’s appointment was approved unanimously by
the Board of Directors of the corporation, he is therefore
Held: NO. Directors or trustees, as the case may be, are not considered a corporate officer and his claim of illegal dismissal
entitled to salary or other compensation when they perform is a controversy that falls under the jurisdiction of the SEC as
nothing more than the usual and ordinary duties of their office. contemplated by Section 5 of P.D. 902-A. The rule is that
Under Section 30 of the CC, there are only two (2) ways by dismissal or non-appointment of a corporate officer is clearly an
which members of the board can be granted compensation intra-corporate matter and jurisdiction over the case properly
apart from reasonable per diems: (1) when there is a provision belongs to the SEC, not to the NLRC.
in the by-laws fixing their compensation; and (2) when the
stockholders representing a majority of the outstanding capital DISMISSED and the Decision of the Court of Appeals is
stock at a regular or special stockholders' meeting agree to give AFFIRMED.
it to them. Also, the proscription, however, against granting 5. People's Aircargo and Warehousing Co. Inc. vs. Court of
compensation to director/trustees of a corporation is not a Appeals
sweeping rule. Worthy of note is the clear phraseology of
Section 30 which state: "[T]he directors shall not receive any Facts: To obtain a license for the corporation from the
compensation, as such directors." The phrase as such directors Bureau of Customs, Punsalan, the petitioner’s president,
is not without significance for it delimits the scope of the solicited a proposal from Saño for the preparation of a feasibility
prohibition to compensation given to them for services study. Saño submitted a letter proposal ("First Contract") to
performed purely in their capacity as directors or trustees. The Punsalan. PAWCI, through Punsalan, sent Saño a letter
unambiguous implication is that members of the board may confirming their agreement. Saño sent PAWCI another letter
receive compensation, in addition to reasonable per diems, proposal ("Second Contract") formalizing its proposal for
when they render services to the corporation in a capacity other consultancy services. Villaceren, vice president of PAWCI,
than as directors/trustees. Herein, resolution 48, s. 1986 granted received the operations manual prepared by Saño. PAWCI
monthly compensation to Salas, et. al. not in their capacity as submitted said operations manual to the Bureau of Customs in
members of the board, but rather as officers of the corporation, connection with the former's application to operate a bonded
more particularly as Chairman, Vice-Chairman, Treasurer and warehouse; thereafter, the Bureau issued to it a license to
Secretary of Western Institute of Technology. operate, enabling it to become one of the three public
4. Nacpil vs. International Broadcasting Corporation (Other customs bonded warehouses at the international airport.
officer; jurisdiction of SEC) Meanwhile, Punsalan sold his shares in PAWCI and resigned as
its president. Saño filed a collection suit against PAWCI. He
Facts: Petitioner states that he was Assistant General Manager alleged that he had prepared an operations manual for
for Finance/Administration and Comptroller of private PAWCI, conducted a seminar workshop for its employees and
respondent. Upon his assumption of the IBC presidency, delivered to it a computer program; but that, despite demand,
Templo allegedly harassed, insulted, humiliated and pressured PAWCI refused to pay him for his services. PAWCI, in its
petitioner into resigning until the latter was forced to retire. answer, alleged that the letter agreement was signed by
However, Templo refused to pay him his retirement benefits. Punsalan without authority. The RTC rendered a Decision
Furthermore, Templo allegedly refused to recognize petitioner’s declaring the Second Contract unenforceable or simulated.
employment, claiming that petitioner was not the Assistant On appeal, the CA modified the decision of the trial court, and
General Manager/Comptroller of IBC but merely usurped the declared the Second Contract valid and binding on PAWCI,
powers of the Comptroller. Hence, petitioner filed with the Labor which was held liable to Saño. MR denied. Hence, this
Arbiter a complaint for illegal dismissal and non-payment of Petition for Review.
benefits. IBC filed a motion to dismiss alleging that the Labor
Arbiter had no jurisdiction over the case. IBC contended that Issue: Whether a single instance where the corporation had
petitioner was a corporate officer who was duly elected by the previously allowed its president to enter into a contract with
Board of Directors of IBC; hence, the case qualifies as an intra- another without a board resolution expressly authorizing
corporate dispute falling within the jurisdiction of the Securities him, has clothed its president with apparent authority to
and Exchange Commission (SEC). However, it was denied and execute the subject contract.
the Labor Arbiter rendered a Decision stating that petitioner had
been illegally dismissed. Held: YES. Apparent authority is derived not merely from
NLRC: dismissed. practice. Its existence may be ascertained through (1) the
CA: GRANTED; complaint is DISMISSED without prejudice. general manner in which the corporation holds out an officer or
agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the 1. That the presence of such director or trustee in the board
acquiescence in his acts of a particular nature, with actual or meeting in which the contract was approved was not
constructive knowledge thereof, whether within or beyond the necessary to constitute a quorum for such meeting;
scope of his ordinary powers. It is not the quantity of similar
2. That the vote of such director or trustee was not necessary
acts which establishes apparent authority, but the vesting
for the approval of the contract;
of a corporate officer with the power to bind the corporation.
Herein, PAWCI, through its president Antonio Punsalan Jr., 3. That the contract is fair and reasonable under the
entered into the First Contract without first securing board circumstances; and
approval. Despite such lack of board approval, PAWCI did not
4. That in the case of an officer, the contract with the officer
object to or repudiate said contract, thus "clothing" its
has been previously authorized by the Board of
president with the power to bind the corporation. The grant
Directors."
of apparent authority to Punsalan is evident in the testimony
of Yong senior vice president, treasurer and major In this particular case, the Supreme Court focused on the fact
stockholder of PAWCI. The First Contract was that the contract between PWCC and Te through Falcon and
consummated, implemented and paid without a hitch. Trazo was not reasonable. Hence, PWCC has all the rights to
Hence, Sano should not be faulted for believing that void the contract and look for someone else, which it did. The
Punsalan's conformity to the contract in dispute was also contract is unreasonable because of the very low selling price.
binding on petitioner. It is familiar doctrine that if a corporation The Price at that time was at least P13.00 per bag and the
knowingly permits one of its officers, or any other agent, to act original contract only stipulates P9.70. Also, the original contract
within the scope of an apparent authority, it holds him out to the was for 6 years and there’s no clause in the contract which
public as possessing the power to do those acts; and thus, protects PWCC from inflation. As a director, Te in this
the corporation will, as against anyone who has in good faith transaction should protect the corporation’s interest more than
dealt with it through such agent, be estopped from denying the his personal interest. His failure to do so is disloyalty to the
agent's authority. Furthermore, Saño prepared an operations corporation. Anent the issue of moral damages, there is no
manual and conducted a seminar for the employees of question that PWCC’s goodwill and reputation had been
PAWCI in accordance with their contract. PAWCI accepted prejudiced due to the filing of this case. However, there can be
the operations manual, submitted it to the Bureau of no award for moral damages under Article 2217.
Customs and allowed the seminar for its employees. As a result
of its aforementioned actions, PAWCI was given by the Bureau 7. BENJAMIN A. SANTOS, petitioner, vs. NATIONAL
of Customs a license to operate a bonded warehouse.
LABOR RELATIONS COMMISSION, HON. LABOR ARBITER
Granting arguendo then that the Second Contract was
outside the usual powers of the president, PAWCI's FRUCTUOSO T. AURELLANO and MELVIN D. MILLENA,
ratification of said contract and acceptance of benefits have respondents (Attachment of personal liability)
made it binding, nonetheless. The enforceability of contracts
under Article 1403(2) is ratified "by the acceptance of
benefits under them" under Article 1405. FACTS: Abaño, the treasurer of Mana Mining and
Development Corporation (MMDC), sent a letter to Melvin
6.PRIME WHITE CEMENT CORPORATION vs. IAC and Millena, a project accountant of MMDC, advising the latter that
ALEJANDRO TE he is being laid-off due to the fact that the rainy season is on;
that there is deteriorating peace and order in the area, and that
FACTS: Falcon and Trazo entered into an agreement with Te there will be little paperwork to do. As a result, Millena filed an
whereby it was agreed that from 1970 to 1976, Te shall be the illegal dismissal case against MMDC before the labor arbiter.
sole dealer of 20,000 bags Prime White cement in Mindanao. Millena won and a writ of execution was issued against MMDC.
Falcon was the president of Prime White Cement Corporation However, since MMDC’s office closed down, the writ was served
(PWCC) and Trazo was a board member thereof. Te was to Santos, the former president of MMDC.
likewise a board member of PWCC. It was agreed that the ISSUE: Whether or not Santos shall be held liable
selling price for a bag of cement shall be P9.70. Before the bags
of cement can be delivered, Te already made known to the HELD: NO. In Tramat Mercantile, Inc. vs. Court of Appeals,the
public that he is the sole dealer of cements in Mindanao. Various Court has collated the settled instances when, without
hardwares then approached him to be his sub-dealers, hence, necessarily piercing the veil of corporate fiction, personal civil
Te entered into various contracts with them. But then liability can also be said to lawfully attach to a corporate director,
apparently, Falcon and Trazo were not authorized by the Board trustee or officer; to wit: When—
of PWCC to enter into such contract. Nevertheless, the Board
1. “(1)He assents (a) to a patently unlawful act of the
wished to retain the contract but they wanted some
corporation, or (b) for bad faith or gross negligence in
amendments. Te refused the counter-offer. PWCC then
directing its affairs, or (c) for conflict of interest,
awarded the contract to someone else. Te then sued PWCC for
resulting in damages to the corporation, its
damages. PWCC filed a counterclaim and in said counterclaim,
stockholders or other persons;
it is claiming for moral damages the basis of which is the claim
that Te’s filing of a civil case against PWCC destroyed the 2. “(2)He consents to the issuance of watered stocks or who,
company’s goodwill. The lower court ruled in favor Te. having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto;
ISSUE: Whether or not the "dealership agreement" referred by
the President and Chairman of the Board of petitioner 3. “(3)He agrees to hold himself personally and solidarily
corporation is a valid and enforceable contract. liable with the corporation; or
HELD: No. SEC. 32 provides, "A contract of the corporation with 4. “(4)He is made, by a specific provision of law, to
one or more of its directors or trustees or officers is voidable, at personally answer for his corporate action.”
the option of such corporation, unless all the following conditions The case of petitioner is way off these exceptional instances. It
are present: is not even shown that petitioner has had a direct hand in the
dismissal of private respondent enough to attribute to him
(petitioner) a patently unlawful act while acting for the account/client servicing department in Taguig, Metro Manila. For
corporation. failure to find a suitable place in Metro Manila for relocation of
8. SPOUSES DAVID and COORDINATED GROUP, INC. vs. its factory and manufacturing operations, the company was
CONSTRUCTION INDUSTRY AND ARBITRATION constrained to move the said departments to Tacloban, Leyte.
COMMISSION and SPS. NARCISO & AIDA QUIAMBAO, The company accordingly notified its employees of a temporary
FACTS : Respondent-spouses QUIAMBAO engaged the shutdown in operations. On 1992, the respondent Labor Arbiter
services of petitioner CGI, with petitioner-spouses ROBERTO Ramos dismissed the complaint filed by the petitioners finding
and EVELYN DAVID as its President and Treasurer, the termination to be valid in compliance with the union security
respectively, to design and construct an office/residential clause of the collective bargaining agreement. Petitioners then
building. Petitioners failed to follow the specifications and plans appealed to the NLRC. The First Division affirmed the Labor
as previously agreed upon. Respondents demanded the Arbiter's disposition. They filed a motion for reconsideration but
correction of the errors but petitioners failed to act on their the same was denied, hence they elevated the case to the
complaint. Consequently, respondents rescinded the contract. It Supreme Court which ordered the immediate reinstatement of
was found that petitioners revised and deviated from the petitioners to their respective positions and the payment of
structural plan of the building without notice to or approval by the backwages from the time of dismissal until their actual
respondents. Respondents filed a case for breach of contract reinstatement and should reinstatement be not feasible,
against petitioners. After the parties agreed to submit the case respondent company shall pay separation pay of one month
for arbitration to CIAC, the latter rendered judgment against salary for every year of service and full backwages from the time
petitioners. Petitioners appealed to the Court of Appeals which of dismissal until the finality of this decision. It also ruled that the
affirmed the arbitrator’s Decision but deleted the award for lost company officials cannot be held personally liable for damages
rentals. on account of the employees' dismissal because the employer
corporation has a personality separate and distinct from its
ISSUE : Whether or not petitioner-spouses David can be held officers who merely acted as its agents.
jointly and severally liable with petitioner
Petitioners filed a motion for partial reconsideration
HELD: YES. As a general rule, the officers of a corporation are alleging that this Court erred in ruling that the respondent
not personally liable for their official acts unless it is shown that company officials cannot be held personally liable for damages.
they have exceeded their authority. However, the personal They contended that they were hastily, arbitrarily and unlawfully
liability of a corporate director, trustee or officer, along with dismissed from work through the respondent company officers
corporation, may so validly attach when he assents to a Saul Tawil, Carlos T. Javelosa and Renato C. Puangco, who as
patently unlawful act of the corporation or for bad faith or top officials of the respondent company, handed down the
gross negligence in directing its affairs. In the at bar, when decision dismissing them. They further alleged that the
asked whether the building was underdesigned considering the respondent company officials are also the officers and
poor quality of the soil, Engr. Villasenor defended his structural incorporators of the satellite company that performed the jobs
design as adequate. He admitted that the revision of the plans intended for the regular employees whose machineries and
which resulted in the construction of additional columns equipments were removed by the respondent company from its
was in pursuance of the request of Engr. David to revise the plants during the pendency of this case before the public
structural plans to provide for a significant reduction of the respondents. They added that during their ocular inspection of
cost of construction. When Engr. David was asked for the the plant site of the respondent company, they found that the
justification for the revision of the plans, he confirmed that same is being used by other unnamed business entities also
he wanted to reduce the cost of construction.x x engaged in the manufacture of garments. Petitioners further
x” DISMISSED. claim that the respondent company no longer operates its plant
site as M. Greenfield thus it will be very difficult for them to fully
enforce and implement the court’s decision.
TITLE III, CASE NO. 9:
ISSUE:
Malayang Samahan ng mga Manggagawa sa M. Greenfield
vs. Ramos
WON the company officials can be held personally
G.R. No. 113907. April 20, 2001
liable for the dismissal of the employees.
GONZAGA-REYES, J.
RULING:
FACTS:
NO. A corporation is a juridical entity with legal
Petitioners are employees of the respondent company personality separate and distinct from those acting for and in its
who were allegedly terminated from work. They filed a complaint behalf and, in general from the people comprising it.The rule is
against the respondent company and its officers for unfair labor that obligations incurred by the corporation, acting through its
practice. After the filing of the complaint, the lease contracts on directors, officers and employees, are its sole liabilities.
the company's office and factory at Merville Subdivision, Although sometimes, solidary liabilities may be incurred, but it is
Parañaque expired and were not renewed. Upon demand of the only when exceptional circumstances warrant such as,
owners of the premises, the company was compelled to vacate generally, in the following cases:
its office and factory and transferred its administration and
 1. When directors and trustees or, in appropriate RULING: YES.
cases, the officers of a corporation— vote for or
assent to patently unlawful acts of the corporation; A corporate officer or agent may represent and bind the
act in bad faith or with gross negligence in corporation in transactions with third persons to the extent that
directing the corporate affairs; are guilty of conflict the authority to do so has been conferred upon him, and this
of interest to the prejudice of the corporation, its includes powers as, in the usual course of the particular
stockholders or members, and other persons. business, are incidental to, or may be implied from, the powers
2. When a director or officer has consented to the intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such
issuance of watered stocks or who, having
apparent powers as the corporation has caused person dealing
knowledge thereof, did not forthwith file with the
with the officer or agent to believe that it has conferred.
corporate secretary his written objection thereto.
3. When a director, trustee or officer has As correctly argued by private respondent, an officer of a
contractually agreed or stipulated to hold himself corporation who is authorized to purchase the stock of another
personally and solidarily liable with the corporation has the implied power to perform all other
Corporation. obligations arising therefrom, such as payment of the shares of
4. When a director, trustee or officer is made, by stock. By allowing its president to sign the Agreement on its
specific provision of law, personally liable for his behalf, petitioner clothed him with apparent capacity to perform
corporate action. all acts which are expressly, impliedly and inherently stated
therein.
In labor cases, particularly, the Court has held corporate
directors and officers solidarily liable with the corporation for the PARTLY GRANTED. The assailed decision of the Court of
termination of employment of corporate employees done with Appeals affirming that of the trial court is modified in that the
malice or in bad faith. Bad faith or negligence is a question of award of attorney’s fees in favor of private respondent is
fact and is evidentiary. It has been held that bad faith does not deleted.
connote bad judgement or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; 11. Lapu-Lapu Foundation vs. Court of Appeals (Estoppel)
it means breach of a known duty thru some motive or interest or
Facts: Tan, then President of Lapulapu Foundation, Inc.,
ill will; it partakes of the nature of fraud. In the instant case, there
obtained four loans from Allied Banking Corporation covered by
is nothing substantial on record to show that respondent officers four promissory notes. Despite demands made on them by the
acted in patent bad faith or were guilty of gross negligence in Bank, Tan and the foundation failed to pay the same. The Bank
terminating the services of petitioners so as to warrant personal was constrained to file a complaint seeking payment by Tan and
liability. the foundation, jointly and solidarily of a sum of money. After due
trial, the court held Tan and the Foundation jointly and solidarily
10. INTER-ASIA INVESTMENTS INDUSTRIES, INC., liable to the Bank. Tan and the foundation filed the petition for
review on certiorari.
petitioner, vs. COURT OF APPEALS and ASIA INDUSTRIES,
INC., Issue: Whether Tan and the foundation should be held jointly
and solidarily liable.
FACTS: Petitioner, by a Stock Purchase Agreement, sold to 1.
private respondent for and in consideration of the sum of Held: YES. It is a familiar doctrine that if a corporation knowingly
P19,500,000.00 all its right, title and interest in and to all the permits one of its officers, or any other agent, to act within the
outstanding shares of stock of FARMA-COR. The Agreement scope of an apparent authority, it holds him out to the public as
was signed by Gonzales and Vergara, presidents of petitioner possessing the power to do those acts; and thus, the corporation
and private respondent, respectively. Respondent paid will, as against anyone who has in good faith dealt with it through
petitioner a total amount of P12,000,000.00. However, From the such agent, be estopped from denying the agent’s authority. Per
STATEMENT OF INCOME AND DEFICIT attached to the its Secretary’s Certificate, the Foundation had given its
financial report, it appears that FARMACOR had a deficit. The President, Tan, ostensible and apparent authority to inter alia
contract price was then adjusted to P6,225,775.00. Private deal with the Bank. Accordingly, the Foundation is estopped
respondent having already paid petitioner P12,000,000.00, it from questioning Tan’s authority to obtain the subject loans from
was entitled to a refund of P5,744,225.00. Petitioner thereafter the respondent Bank.
proposed, by letter signed by its president, that private
respondent’s claim for refund be reduced to P4,093,993.00, it 12. Hydro Resources Contractors vs National Irrigation
promising to pay the cost of the NOCOSII superstructures in the Administration


amount of P759,570.00. To the proposal respondent agreed.
Petitioner, however, welched on its promise. Petitioner’s total Facts:
A contract was entered into between Hydro and NIA for
liability thus stood at P4,853,503.00 exclusive of interest. the project of the latter. The contract price is to be payable partly
Private respondent filed a complaint against petitioner, one of in Philippine peso and US dollars. Upon execution of the
two causes of action of which was for the recovery of above-said contract however, there was depreciation in value of Peso
amount plus interest.The trial court ruled in favor of private resulting to price differential. To resolve the issue, the
respondent. On appeal to the Court of Appeals, affirmed the trial administrator of NIA, Mr Tek, and Hydro made a joint
court's decision. Hence, this petition for review on certiorari. computation of the amount corresponding to the foreign
currency differential. The computation showed that NIA owed
ISSUE: WHETHER OR NOT THE LETTER OF THE Hydro for the differential. When a demand was made by Hydro
PRESIDENT OF THE PETITIONER IS BINDING ON THE against NIA, NIA refused to pay contending that Mr Tek has no
PETITIONER BEING INTRA VIRES. authority to participate into a joint computation of the foreign
currency differential and that Mr Tek has no authority to bind
NIA.

 powers. The names of the last four (4) signatories to the said
Board Resolution do not appear in the 1996 General Information
Issue:
Whether or not Mr Tek has the authority to bind NIA in Sheet submitted by the Corporation with the SEC. There is thus
the joint computation of the foreign currency differential.

 a doubt as to whether Paul M. Monfort, Yvete M. Benedicto,
Jaqueline M. Yusay and Ester S. Monfort, were indeed duly
Held: YES.
Even assuming for the sake of argument that the elected Members of the Board legally constituted to bring suit in
Administrator had no authority to bind NIA, the latter is already behalf of the Corporation. Ma. Antonia M. Salvatierra failed to
estopped after repeatedly representing to Hydro that the prove that four of those who authorized her to represent the
Administrator had such authority. A corporation may be held in Corporation were the lawfully elected Members of the Board of
estoppel from denying as against third persons the authority of
the Corporation. As such, they cannot confer valid authority for
its officers or agents who have been clothed by it with ostensible
or apparent authority. The rule is of course settled that although her to sue on behalf of the corporation.
an officer or agent acts without, or in excess of, his actual
authority if he acts within the scope of an apparent authority with 14. JOHN F. McLEOD, vs. NLRC, FILIPINAS SYNTHETIC
which the corporation has clothed him by holding him out or FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE
permitting him to appear as having such authority, the MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS,
corporation is bound thereby in favor of a person who deals with INC.), PATRICIO L. LIM, and ERIC HU,
him in good faith in reliance on such apparent authority, as
where an officer is allowed to exercise a particular authority with FACTS: McLeod filed a complaint for retirement and other
respect to the business, or a particular branch of it, continuously benefits against private respondents. Complainant was the
and publicly, for a considerable time. former VP and Plant Manager of Peggy Mills, Inc.;he was hired
in 1980 and Peggy Mills closed operations due to irreversible
13. MONFORT HERMANOS AGRICULTURAL losses but its assets were acquired by Sta. Rosa Textile Corp.
DEVELOPMENT CORPORATION vs MONFORT III Complainant was hired by Sta. Rosa Textile but he resigned and
that while complainant was Vice President and Plant Manager
Facts: Monfort Hermanos Agricultural Development of Peggy Mills, the union staged a strike up resulting in closure
of operations due to irreversible losses as per Notice .The
Corporation is a domestic private corporation. The same
complainant was relied upon to settle the labor problem but due
allowed Ramon H. Monfort, its Executive Vice President, to to his lack of attention and absence the strike continued resulting
breed and maintain fighting cocks in his personal capacity at in closure of the company. He contends that the corporations
Hacienda San Antonio. The group of Antonio Monfort III, through are solidarily liable. The LA rendered his decision in favor of
force and intimidation, allegedly took possession of the 4 Mcleod. The NLRC – Reversed decision. CA- Modified the
Haciendas, the produce thereon and the motor vehicle and NLRC’s decision. Lim was solidarily liable.
tractors, as well as the fighting cocks of Ramon H. Monfort. The
Corporation, represented by its President, Ma. Antonia M. Issue: Whether or not Patricio Lim must be solidarily liable with
PMI
Salvatierra, and Ramon H. Monfort, in his personal capacity,
filed against the group of Antonio Monfort III, a complaint. The Held: NO. It is settled that in the absence of malice, bad faith,
group of Antonio Monfort III filed a motion to dismiss contending, or specific provision of law, a stockholder or an officer of a
inter alia, that Ma. Antonia M. Salvatierra has no capacity to sue corporation cannot be made personally liable for corporate
on behalf of the Corporation because the March 31, 1997 Board liabilities. To reiterate, a corporation is a juridical entity with legal
Resolution[7] authorizing Ma. Antonia M. Salvatierra and/or personality separate and distinct from those acting for and in its
Ramon H. Monfort to represent the Corporation is void as the behalf and, in general, from the people comprising it. The rule is
that obligations incurred by the corporation, acting through its
purported Members of the Board who passed the same were not
directors, officers, and employees, are its sole liabilities.
validly elected officers of the Corporation. The trial court denied Personal liability of corporate directors, trustees or officers
the motion to dismiss.[8] The group of Antonio Monfort III filed a attaches only when (1) they assent to a patently unlawful act of
petition for certiorari with the Court of Appeals but the same was the corporation, or when they are guilty of bad faith or gross
dismissed on June 7, 2002. The motion for reconsideration filed negligence in directing its affairs, or when there is a conflict of
by the group of Antonio Monfort III was denied. The group of interest resulting in damages to the corporation, its stockholders
Antonio Monfort III claims that the March 31, 1997 Board or other persons; (2) they consent to the issuance of watered
down stocks or when, having knowledge of such issuance, do
Resolution authorizing Ma. Antonia M. Salvatierra and/or
not forthwith file with the corporate secretary their written
Ramon H. Monfort to represent the Corporation is void because objection; (3) they agree to hold themselves personally and
the purported Members of the Board who passed the same were solidarily liable with the corporation; or (4) they are made by
not validly elected officers of the Corporation. specific provision of law personally answerable for their
corporate action.
Issues: Whether or not Ma. Antonia M. Salvatierra has the
legal capacity to sue on behalf of the Corporation. 15. ANTONIO CARAG VS NLRC ET. AL.
FACTS: National Federation of Labor Unions (NAFLU) and
Ruling: NONE. A corporation has no power except those
Mariveles Apparel Corporation Labor Union (MACLU), on behalf
expressly conferred on it by the Corporation Code and those that of all of MAC’s rank and file employees, filed a complaint against
are implied or incidental to its existence. In turn, a corporation MAC for illegal dismissal brought about by its illegal closure of
exercises said powers through its board of directors and/or its business. They included in their complaint Mariveles Apparel
duly authorized officers and agents. Thus, it has been observed Corporation’s Chairman of the Board Antonio Carag in order to
that the power of a corporation to sue and be sued in any court be solidarily liable for the illegal dismissal and illegal closure of
business. According to the Labor Union of MAC, the Corporation
is lodged with the board of directors that exercises its corporate
 suddenly closed its business without following the notice as laid renewed expired in 1947. Under the terms thereof, the
down in the Labor Law of the Philippines. The Labor Arbiter management contract shall remain in suspense in case
decided in favor of the Labor Union and held that Antonio Carag fortuitous event or force majeure, such as war or civil
being the owner of the corporation be solidarily liable for commotion, adversely affects the work of mining and milling.
the payment of separation pay and back wages of the rank Nielson held the view that, on account of the war, the contract
and file employees. Antonio Carag questioned the decision of was suspended during the war; hence the life of the contract
the Labor Arbiter and alleged that the Corporation and its should be considered extended for such time of the period of
officers have separate and distinct personality and the latter suspension. On the other hand, lepanto contended that the
cannot be held liable solidarily in cases of payment of damages. contract should expire in 1947 as originally agreed upon
because the period of suspension accorded by virtue of the war
Issue:Whether or not Antonio Carag be held solidarily liable for did not operate to extend further the life of the contract.
the payment of the illegally dismissed employees.
Hence, plaintiff brought this action against defendant
Held: NO. The rule is that a director is not personally liable for before the Court of First Instance of Manila to recover certain
the debts of the corporation, which has a separate legal sums of money representing damages allegedly suffered by the
personality of its own; Section 31 of the Corporation Code former in view of the refusal of the latter to comply with the terms
makes a director personally liable for corporate debts if he of a management contract entered into between them on
willfully and knowingly votes for or assents to patently unlawful January 30, 1937, including attorney's fees and costs.
acts of the corporation, or if he is guilty of gross negligence or
bad faith in directing the affairs of the corporation. Complainants
did not allege in their complaint that Carag willfully and After trial, the court a quo rendered a decision dismissing
knowingly voted for or assented to any patently unlawful act of the complaint with costs on the ground that it is already barred
MAC. Complainants did not present any evidence showing that by statute of limitations. Hence, an appeal. Plaintiff now,
Carag willfully and knowingly voted for or assented to any questioned whether they are entitled to the claims which refers
patently unlawful act of MAC. Neither did Arbiter Ortiguerra to (1) cash dividends; (2) stock dividends; (3) depletion reserves;
make any finding to this effect in her Decision. Complainants did and (4) amount expended on capital investment.
not also allege that Carag is guilty of gross negligence or bad
faith in directing the affairs of MAC. Complainants did not The Supreme court reverse the decision of the court a quo
present any evidence showing that Carag is guilty of gross and enter in lieu thereof another, ordering the appellee Lepanto
negligence or bad faith in directing the affairs of MAC. Neither to pay appellant Nielson the different amounts as specified
did Arbiter Ortiguerra make any finding to this effect in her herein below:
Decision.
TITLE IV - CASES (1) 10% share of cash dividends of December, 1941 in the
1. Nielson & Company, Inc. vs. Lepanto Consolidated Mining amount of P17,500.00, with legal interest thereon from the date
Company of the filing of the complaint;
G.R. No. L-21601. December 28, 1968.
J. Zaldivar
(2) management fee for January, 1942 in the amount of
P2,500.00, with legal interest thereon from the date of the filing
Consideration for which shares of stock may be issued- A share
of the complaint;
of stock coming from stock dividends declared cannot be issued
to one who is not a stockholder of a corporation. ; “Stock
dividend"; "Dividend"; (3) management fees for the sixty-month period of
extension of the management contract, amounting to
FACTS: P150,000.00, with legal interest from the date of the filing of the
complaint;
-1966 case- The suit involves an operating agreement
executed before world war 2 between the plaintiff (nielson) and (4) 10% share in the cash dividends during the period of
the defendant (lepanto) whereby the former operated and extension of the management contract, amounting to
managed the mining properties owned by the latter for a P1,400,000.00, with legal interest thereon from the date of the
management fee of p2,500.00 a month and a 10% participation filing of the complaint;
in the net profits resulting from the operation of the mining
properties.

The contract was made on january 30, 1937 for a period of (5) 10% of the depletion reserve set up during the period
(5) years, and the parties agreed to renew for another period of of extension, amounting to P53,928.88, with legal interest
(5) years, but the pacific war broke out in december 1941. thereon from the date of the filing of the complaint;
During the outbreak of war, the japanese forces occupied the
mining properties, operated the mines, and were ousted from
the mining in august 1945. Lepanto then took possession of the (6) 10% of the expenses for capital account during the
mining and embarked in rebuilding and reconstructing the mines period of extension, amounting to P694,364.76, with legal
and mill. The rehabilitation and reconstruction of the mine and interest thereon from the date of the filing of the complaint;
mill was not completed until 1948. On june 26, 1948 the mines
resumed operation under the exclusive management of (7) to issue and deliver to Nielson and Co., Inc. shares of
Lepanto. stock of Lepanto Consolidated Mining Co. at par value
equivalent to the total of Nielson's l0% share in the stock
After the mines were liberated from the japanese invaders dividends declared on November 28, 1949 and August 22, 1950,
in 1945, a disagreement arose between nielson and lepanto together with all cash and stock dividends, if any, as may have
over the status of the operating contract in question which as
 been declared and issued subsequent to November 28, 1949
and August 22, 1950, as fruits that accrued to said shares Generally, "No corporation shall make or declare any
dividend except from the surplus profits arising from its
If sufficient shares of stock of Lepanto's are not available to business, or divide or distribute its capital stock or property other
satisfy this judgment, defendant-appellee shall pay plaintiff- than actual profits among its members or stockholders until after
appellant an amount in cash equivalent to the market value of the payment of its debts and the termination of its existence by
said shares at the time of default that is, all shares of the stock limitation or lawful dissolution: Provided, That banking, savings
that should have been delivered to Nielson before the filing of and loan, and trust corporations may receive deposits and issue
the complaint must be paid at their market value as of the date certificates of deposit, checks, drafts, and bills of exchange, and
of the filing of the complaint; and all shares, if any, that should the like in the transaction of the ordinary business of banking,
have been delivered after the filing of the complaint at the market savings and loan, and trust corporations." (As amended by Act
value of the shares at the time Lepanto disposed of all its No. 2792, and Act No. 3518; Italics supplied.)
available shares, for it is only then that Lepanto placed itself in
condition of not being able to perform its obligation (Article 1160, Therefore, that under Section 16 of the Corporation Law
Civil Code); stock dividends can not be issued to a person who is not a
stockholder in payment of services rendered. And so, in the case
at bar Nielson can not be paid in shares of stock which form part
(8) the sum of P50,000.00 as attorney's fees; and of the stock dividends of Lepanto for services it rendered under
(9) the management contract. We sustain the contention of Lepanto
(10) the costs. It is so ordered. that the understanding between Lepanto and Nielson was
simply to make the cash value of the stock dividends declared
-1968 Resolution case- Lepanto seeks the reconsideration of as the basis for determining the amount of compensation that
the decision rendered on December 17, 1966. Lepanto should be paid to Nielson, in the proportion of 10% of the cash
contends that the payment to Nielson of stock dividends as value of the stock dividends declared. And this conclusion of
compensation for its services under the management contract is Ours finds support in the-record.
a violation of the Corporation Law,
However, In the minutes of the meeting of the Board of
ISSUE: Directors of Lepanto on August 21. 1940, the president hereby
autorized to into an agreement with Nielson & Company, Inc.,
modifying Paragraph V of management contract of January 30,
Whether or not the payment to Nielson of Stock dividends 1937, effective January 1, 1940, in such a way that Nielson &
as compensation for its services under the management Company, Inc. shall receive 10% of any dividends declared and
contract is a violation of the corporation law? / whether they are paid, when and as paid during the period of the contract and at
entitle… the end of each year, 10% of any depletion reserve that may be
set up and 10% of any amount expended during the year out of
HELD: surplus earnings for capital account."

Therefore, reconsider that part of Our decision which

This court arrived at the conclusion that there is merit in the
declares that Nielson is entitled to shares of stock worth
contention of Lepanto.
P300,000.00 based on the stock dividends declared on
November 28, 1949 and on August 20, 1950, together with all
Section 16 of the Corporation Law, in part, provides as the fruits accruing thereto. Instead, We declare that Nielson is
follows: entitled to payment by Lepanto of P300,000.00 in cash, which is
equivalent to 10% of the money value of the stock dividends
"No corporation organized under this Act shall worth P3,000,000.00 which were declared on November 28,
create or issue bills, notes or other evidence of debt, 1949 and on August 20, 1950, with interest thereon at the rate
for circulation as money, and no corporation shall of 6% from February 6, 1958. (-1966 case po ito, ni breakdown
issue stock or bonds except in exchange for actual ni Lepanto ung record of cash dividends)
cash paid to the corporation or for:
Accordingly, We resolve to modify the decision that we
rendered on December 17, 1966, in the sense that instead of
(1) property actually received by it at a fair valuation equal to
awarding Nielson shares of stock worth P300,000.00 at the par
the par or issued value of the stock or bonds so issued; and in
value of ten centavos (P0.10) per share based on the stock
case of disagreement as to their value, the same shall be
dividends declared by Lepanto on November 28, 1949 and
presumed to be the assessed value or the value appearing in
August 20, 1950, together with their fruits, Nielson should be
invoices or other commercial documents, as the case may be;
awarded the sum of P300,000.00 which is an amount equivalent
and the burden or proof that the real present value of the
to 10% of the cash value of the stock dividends thus declared,
property is greater than the assessed value or value appearing
as part of the compensation due Nielson under the management
in invoices or other commercial documents, as the case may
contract.
be,shall be upon the corporation, or for
(2)
MOR by Lepanto questioning the “payment of stock
(3) profits earned by it but not distributed among its
dividends to Nielson” was denied. Hence, the decision of 1966
stockholders or members; Provided, however, That no stock or
was modified.
bond dividend shall be issued without the approval of
stockholders representing not less than two-thirds of all stock
then outstanding and entitled to vote at a general meeting of
2. ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL
the corporation or at a special meeting duly called for the
F. PEREA and SECURITIES & EXCHANGE COMMISSION,
purpose.
petitioners, vs. COURT OF APPEALS and IGLESIA NI
CRISTO, respondents.
G.R. No. 117897. May 14, 1997.* members, in a stockholders' or members' meeting duly called for
the purpose...."
HERMOSISIMA, JR., J.:
FACTS The subject lot constitutes the only property of IDP. Hence, its
1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES sale to a third-party is a sale or disposition of all the corporate
("IDP") was incorporated with the primary purpose of property and assets of IDP. For the sale to be valid, the majority
establishing a mosque, school, and other religious vote of the legitimate Board of Trustees, concurred in by the vote
infrastructures in Quezon City. of at least 2/3 of the bona fide members of the corporation
IDP purchased a 49,652-square meter lot in Tandang Sora, QC, should have been obtained. These twin requirements were not
which was covered by TCT Nos. RT-26520 (176616) and RT- met in the case at bar.
26521 (170567).
ANCILLARY ISSUE: W/N The Ligon ruling constitutes res
When President Marcos declared martial law in 1972, most of judicata.
the members of the 1971 Board of Trustees ("Tamano
Group")flew to the Middle East to escape political persecution. RULING: NO.
Thereafter, two contending groups claiming to be the IDP Board
of Trustees sprung: the Carpizo group and Abbas group. Section 49(b), Rule 39 enunciates the first concept of res
judicata known as "bar by prior judgment," whereas, Section
In a suit between the two groups, SEC rendered a decision in 49(c), Rule 39 is referred to as "conclusiveness of judgment."
1986 declaring both groups to be null and void. SEC
recommeded that the a new by-laws be approved and a new There is "bar by former judgment" when, between the first case
election be conducted upon the approval of the by-laws. where the judgment was rendered, and the second case where
However, the SEC recommendation was not heeded. such judgment is invoked, there is identity of parties, subject
matter and cause of action. When the three identities are
In 1989, the Carpizo group passed a Board Resolution present, the judgment on the merits rendered in the first
authorizing the sale of the land to Iglesia Ni Cristo ("INC"), and constitutes an absolute bar to the subsequent action. But where
a Deed of Sale was eventually executed. between the first case wherein judgment is rendered and the
second case wherein such judgment is invoked, there is only
In 1991, the Tamano Group filed a petition before the SEC identity of parties but there is no identity of cause of action, the
questioning the sale. judgment is conclusive in the second case, only as to those
Meanwhile, INC filed a suit for specific performance before RTC matters actually and directly controverted and determined, and
Branch 81 against the Carpizo group. INC also moved to not as to matters merely involved therein. This is what is termed
compel a certain Leticia Ligon (who is apparently the "conclusiveness of judgment."
mortgagee of the lot) to surrender the title.
Neither applies to the case at bar. There is no "bar by former
The Tamano group sought to intervene, but the intervention was judgment" since while there may be identity of subject matter
denied despite being informed of the pending SEC case. In (IDP property) in both cases, there is no identity of parties. The
1992, the Court subsequently ruled that the INC as the rightful principal parties in the first case were Ligon and the Iglesia Ni
owner of the land, and ordered Ligon to surrender the titles for Cristo. The IDP can not be considered essentially a formal party
annotation. Ligon appealed to CA and SC, but her appeals were thereto for the simple reason that it was not duly represented by
denied. a legitimate Board of Trustees.

In 1993, the SEC ruled that the sale was null and void. On Res Judicata in the form of "conclusiveness of judgment" cannot
appeal CA reversed the SEC ruling. likewise apply for the reason that the primary issue in the first
case is the possession of the titles, and not the sale of the land,
MAIN ISSUE: W/N the sale between the Carpizo group and as in this case.
INC is null and void.

RULING: YES. 3. PEDRO LOPEZ DEE, petitioner, vs.

Since the SEC has declared the Carpizo group as a void Board SECURITIES AND EXCHANGE COMMISSION, respondents.
of Trustees, the sale it entered into with INC is likewise void.
Without a valid consent of a contracting party, there can be no G.R. No. L-60502 July 16, 1991
valid contract.
Preemptive Rights (Sec.39) (Corporate Law)
In this case, the IDP, never gave its consent, through a Facts: In 1954, Naga Telephone Company, Inc. (Natelco) was
legitimate Board of Trustees, to the disputed Deed of Absolute organized, the authorized capital was P100,000.00. Natelco
Sale executed in favor of INC. Therefore, this is a case not only decided to increase its authorized capital to P3,000,000.00 in
of vitiated consent, but one where consent on the part of one of 1974. As required by the Public Service Act, Natelco filed an
the supposed contracting parties is totally wanting. Ineluctably, application for the approval of the increased authorized capital
the subject sale is void and produces no effect whatsoever. with the then Board of Communications under BOC Case 74-84.
On 8 January 1975, a decision was rendered in said case,
Further, the Carpizo group failed to comply with Section 40 of approving the said application subject to certain conditions,
the Corporation Code, which provides that: " ... a corporation among which was "That the issuance of the shares of stocks will
may, by a majority vote of its board of directors or trustees, sell, be for a period of one year from the date hereof, 'after which no
lease, exchange, mortgage, pledge or otherwise dispose of all further issues will be made without previous authority from this
or substantially all of its property and assets... when authorized Board." Pursuant to the approval given by the then Board of
by the vote of the stockholders representing at least two-thirds Communications, Natelco filed its Amended Articles of
(2/3) of the outstanding capital stock; or in case of non-stock Incorporation with the Securities and Exchange Commission
corporation, by the vote of at least two-thirds (2/3) of the (SEC). When the amended articles were filed with the SEC, the
original authorized capital of P100,000.00 was already paid. Of for directors would be held on 22 May 1982. On 20 May 1982,
the increased capital of P2,900,000.00 the subscribers the SEC en banc denied the motions for reconsideration.
subscribed to P580,000.00 of which P145,000 was fully paid.
Meanwhile on 20 May 1982 (GR 63922), Antonio
The capital stock of Natelco was divided into 213,000 Villasenor filed Civil Case 1507 with the Court of First Instance
common shares and 87,000 preferred shares, both at a par of Camarines Sur, Naga City, against Luciano Maggay, Nildo I.
value of P10.00 per shares. On 12 April 1977, Natelco entered Ramos, Desirerio Saavedra, Augusto Federis, Ernesto Miguel,
into a contract with Communication Services, Inc. (CSI) for the Justino de Jesus St., Vicente Tordilla, Pedro Lopez Dee and
"manufacture, supply, delivery and installation" of telephone Julio Lopez Dee, which was raffled to Branch I, presided over by
equipment. In accordance with this contract, Natelco issued Judge Delfin Vir. Sunga. Villasenor claimed that he was an
24,000 shares of common stocks to CSI on the same date as assignee of an option to repurchase 36,000 shares of common
part of the downpayment. On 5 May 1979, another 12,000 stocks of Natelco under a Deed of Assignment executed in his
shares of common stocks were issued to CSI. In both instances, favor. The Maggay group allegedly refused to allow the
no prior authorization from the Board of Communications, now repurchase of said stocks when Villasenor offered to CSI the
the National Telecommunications Commission, was secured repurchase of said stocks by tendering payment of its price. The
pursuant to the conditions imposed by the decision in BOC Case complaint therefore, prayed for the allowance to repurchase the
74-84. On 19 May 1979, the stockholders of the Natelco held aforesaid stocks and that the holding of the 22 May 1982
their annual stockholders' meeting to elect their seven directors election of directors and officers of Natelco be enjoined. A
to their Board of Directors, for the year 1979-1980. In this restraining order dated 21 May 1982 was issued by the lower
election Pedro Lopez Dee was unseated as Chairman of the court commanding desistance from the scheduled election until
Board and President of the Corporation, but was elected as one further orders. Nevertheless, on 22 May 1982, as scheduled, the
of the directors, together with his wife, Amelia Lopez Dee. In the controlling majority of the stockholders of the Natelco defied the
election CSI was able to gain control of Natelco when the latter's restraining order, and proceeded with the elections, under the
legal counsel, Atty. Luciano Maggay won a seat in the Board supervision of the SEC representatives. On 25 May 1982, the
with the help of CSI. In the reorganization Atty. Maggay became SEC recognized the fact that elections were duly held, and
president. Dee having been unseated in the election, filed a proclaimed that the following are the "duly elected directors" of
petition in the SEC (SEC Case 1748), questioning the validity of the Natelco for the term 1982-1983: Felipa T. Javalera, Nilda I.
the elections of 19 May 1979 upon the main ground that there Ramos, Luciano Maggay, Augusto Federis, Daniel J. Ilano,
was no valid list of stockholders through which the right to vote Nelin J. Ilano, Sr., and Ernesto A. Miguel. The following are the
could be determined. recognized officers to wit: Luciano Maggay (President), Nilda I.
Ramos (Vice-President), Desiderio Saavedra (Secretary),
As prayed for in the petition, a restraining order was Felipa Javalera (Treasurer), and Daniel Ilano (Auditor). Despite
issued by the SEC placing Dee and the other officers of the service of the order of 25 May 1982, the Lopez Dee group
1978-1979 Natelco Board in hold-over capacity. The SEC headed by Messrs. Justino De Jesus and Julio Lopez Dee kept
restraining order was elevated to the Supreme Court in GR insisting no elections were held and refused to vacate their
50885 where the enforcement of the SEC restraining order was position. On 28 May 1982, the SEC issued another order
restrained. Maggay, et. al. replaced the hold-over officers. directing the hold-over directors and officers to turn over their
During the tenure of the Maggay Board, from 22 June 1979 to respective posts to the newly elected directors and officers and
10 March 1980, it did not reform the contract of 12 April 1977, directing the Sheriff of Naga City, with the assistance of PC and
and entered into another contract with CSI for the supply and INP of Naga City, and other law enforcement agencies of the
installation of additional equipment but also issued to CSI City or of the Province of Camarines Sur, to enforce the
113,800 shares of common stock. Subsequently, the Supreme aforesaid order. On 29 May 1982, the Sheriff of Naga City,
Court dismissed the petition in GR 50885 upon the ground that assisted by law enforcement agencies, installed the newly
the same was premature and the Commission should be elected directors and officers of the Natelco, and the hold-over
allowed to conduct its hearing on the controversy. The dismissal officers peacefully vacated their respective offices and turned-
of the petition resulted in the unseating of the Maggay group over their functions to the new officers. On 2 June 1982, a
from the board of directors of Natelco in a "hold-over" capacity. charge for contempt was filed by Villasenor alleging that
In the course of the proceedings in SEC Case 1748, SEC Maggay, et. al. have been claiming in press conferences and
Hearing officer Emmanuel Sison issued an order on 23 June over the radio airlanes that they actually held and conducted
1981, declaring: (1) that CSI is a stockholder of Natelco and, elections on 22 May 1982 in the City of Naga and that they have
therefore, entitled to vote; (2) that unexplained 16,858 shares of a new set of officers, and that such acts of Maggay, et. al.
Natelco appear to have been issued in excess to CSI which constitute contempt of court. On 7 September 1982, the lower
should not be allowed to vote; (3) that 82 shareholders with their court rendered judgment on the contempt charge, declaring CSI,
corresponding number of shares shall be allowed to vote; and Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto
(4) consequently, ordering the holding of special stockholder' Federis and Ernesto Miguel, guilty of contempt of court, and
meeting to elect the new members of the Board of Directors for accordingly punished with imprisonment of 6 months and to pay
Natelco based on the findings made in the order as to who are fine of P1,000.00 each: and ordering rNilda Ramos, Luciano
entitled to vote. From the foregoing order dated 23 June 1981, Maggay, Desiderio Saavedra, Augusto Federis and Ernesto
Dee filed a petition for certiorari/appeal with the SEC en banc Miguel, and those now occupying the positions of directors and
(SEC-AC 036). Thereafter, the Commission en banc rendered a officers of NATELCO to vacate their respective positions
decision on 5 April 1982, sustaining the order of the Hearing therein, and ordering them to reinstate the hold-over directors
Officer; dismissing the petition/appeal for lack of merit; and and officers of NATELCO, such as Pedro Lopez Dee as
ordering new elections as the Hearing Officer shall set after President, Justino de Jesus, Sr., as Vice President, Julio Lopez
consultations with Natelco officers, among others. On 21 April Dee as Treasurer and Vicente Tordilla, Jr. as Secretary, and
1982, Dee and Natelco filed their respective motions for others referred to as hold-over directors and officers of
reconsideration. Pending resolution of the motions for NATELCO in the order dated 28 May 1982 of SEC Hearing
reconsideration, on 4 May 1982, the hearing officer without Officer Emmanuel Sison, in SEC Case 1748, by way of
waiting for the decision of the commission en banc, to become RESTITUTION, and consequently, ordering said respondents to
final and executory rendered an order stating that the election
turn over all records, property and assets of NATELCO to said therefore, the stockholders of Natelco approved the issuance of
hold-over directors and officers. stock to CSI.
(2) The issuance of the 113,800 stocks is not invalid
The trial judge issued an order dated 10 September even assuming that it was made without notice to the
1982 directing the respondents in the contempt charge to stockholders as claimed by Dee, et. al.. The power to issue
"comply strictly, under pain of being subjected to imprisonment shares of stocks in a corporation is lodged in the board of
until they do so." Maggay, et. al. filed on 17 September 1982, a directors and no stockholders meeting is required to consider it
petition for certiorari and prohibition with preliminary injunction because additional issuance of shares of stocks does not need
or restraining order against the CFI Judge of Camarines Sur, approval of the stockholders. Consequently, no pre-emptive
Naga City and de Jesus, Sr., et.a al., with the then Intermediate right of Natelco stockholders was violated by the issuance of the
Appellate Court which issued a resolution ordering de Jesus, 113,800 shares to CSI.
Sr., et. al. to comment on the petition, which was complied with,
and at the same time temporarily refrained from implementing
and or enforcing the questioned judgment and order of the lower 4. PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
court. On 14 April 1983, the then Intermediate Appellate Court, DEVELOPMENT CORPORATION,
rendered a decision, annuling the judgment dated 7 September petitioners, vs. ANDRADA ELECTRIC & ENGINEERING
1982 rendered by the trial judge on the contempt charge, and COMPANY, respondent.
his order dated 10 September 1982, implementing said G.R. No. 142936. April 17, 2002.*
judgment; ordering the 'hold-over' directors and officers of
NATELCO to vacate their respective offices; directing PANGANIBAN, J.:
respondents to restore or re-establish Maggay, et. al. who were Facts: On 26 August 1975, the Philippine national Bank (PNB)
ejected on 22 May 1982 to their respective offices in the acquired the assets of the Pampanga Sugar Mills (PASUMIL)
NATELCO; and prohibiting whoever may be the successor of that were earlier foreclosed by the Development Bank of the
the Judge from interfering with the proceedings of the Securities Philippines (DBP) under LOI 311. The PNB organized the
and Exchange Commission in SEC-AC 036. The order of re- ational Sugar Development Corporation (NASUDECO) in
implementation was issued, and, finally, the Maggay group has September 1975, to take ownership and possession of the
been restored as the officers of the Natelco. assets and ultimately to nationalize and consolidate its interest
in other PNB controlled sugar mills. Prior to 29 October 1971,
Lopez Dee, et. al. filed the petitions for certiorari with PASUMIL engaged the services of the Andrada Electric &
preliminary injunction and/or restraining order. In the resolution Engineering Company (AEEC) for electrical rewinding and
of the Court En Banc dated 23 August 1983, GR 63922 was repair, most of which were partially paid by PASUMIL, leaving
consolidated with GR 60502. several unpaid accounts with AEEC. On 29 October 1971,
AEEC and PASUMIL entered into a contract for AEEC to
Issue: (1) Whether the issuance of 113,800 shares of Natelco perform the (a) Construction of a power house building; 3
to CSI, made during the pendency of SEC Case 1748 in the reinforced concrete foundation for 3 units 350 KW diesel engine
Securities and Exchange Commission was valid. generating sets, 3 reinforced concrete foundation for the 5,000
KW and 1,250 KW turbo generator sets, among others. Aside
(2) Whether Natelco stockholders have a right of from the work contract, PASUMIL required AEEC to perform
preemption to the 113,800 shares in question; else, whether the extra work, and provide electrical equipment and spare parts.
Maggay Board, in issuing said shares without notifying Natelco Out of the total obligation of P777,263.80, PASUMIL had paid
stockholders, violated their right of pre-emption to the unissued only P250,000.00, leaving an unpaid balance, as of 27 June
shares . 1973, amounting to P527,263.80. Out of said unpaid balance of
P527,263.80, PASUMIL made a partial payment to AEEC of
Ruling: (1) The issuance of 113,800 shares of Natelco stock to P14,000.00, in broken amounts, covering the period from 5
CSI made during the pendency of SEC Case 1748 in the January 1974 up to 23 May 1974, leaving an unpaid balance of
Securities and Exchange Commission was valid. The findings of P513,263.80. PASUMIL and PNB, and now NASUDECO,
the SEC En Banc as to the issuance of the 113,800 shares of allegedly failed and refused to pay AEEC their just, valid and
stock was stated as follows: "But the issuance of 113,800 shares demandable obligation (The President of the NASUDECO is
was pursuant to a Board Resolution and stockholders' approval also the Vice-President of the PNB. AEEC besought said official
prior to 19 May 1979 when CSI was not yet in control of the to pay the outstanding obligation of PASUMIL, inasmuch as
Board or of the voting shares. There is distinction between an PNB and NASUDECO now owned and possessed the assets of
order to issue shares on or before 19 May 1979 and actual PASUMIL, and these defendants all benefited from the works,
issuance of the shares after 19 May 1979. The actual issuance, and the electrical, as well as the engineering and repairs,
it is true, came during the period when CSI was in control of performed by AEEC).
voting shares and the Board (if they were in fact in control) - but
only pursuant to the original Board and stockholders' orders, not Because of the failure and refusal of PNB, PASUMIL and/or
on the initiative to the new Board, elected 19 May 1979, which NASUDECO to pay their obligations, AEEC allegedly suffered
petitioners are questioning. The Commission en banc finds it actual damages in the total amount of P513,263.80; and that in
difficult to see how the one who gave the orders can turn around order to recover these sums, AEEC was compelled to engage
and impugn the implementation of the orders he had previously the professional services of counsel, to whom AEEC agreed to
given. The reformation of the contract is understandable for pay a sum equivalent to 25% of the amount of the obligation due
Natelco lacked the corporate funds to purchase the CSI by way of attorney's fees. PNB and NASUDECO filed a joint
equipment.... Appellant had raise the issue whether the motion to dismiss on the ground that the complaint failed to state
issuance of 113,800 shares of stock during the incumbency of sufficient allegations to establish a cause of action against PNB
the Maggay Board which was allegedly CSI controlled, and and NASUDECO, inasmuch as there is lack or want of privity of
while the case was sub judice, amounted to unfair and undue contract between the them and AEEC. Said motion was denied
advantage. This does not merit consideration in the absence of by the trial court in its 27 November order, and ordered PNB nad
additional evidence to support the proposition." In effect, NASUDECO to file their answers within 15 days. After due
proceedings, the Trial Court rendered judgment in favor of
AEEC and against PNB, NASUDECO and PASUMIL; the latter CORPORATION, EMDEN ENCARNACION and HORATIO
being ordered to pay jointly and severally the former (1) the sum AYCARDO, respondents.
of P513,623.80 plus interest thereon at the rate of 14% per G.R. No. 117188. August 7, 1997.* ROMERO, J.:
annum as claimed from 25 September 1980 until fully paid; (2)
the sum of P102,724.76 as attorney's fees; and, (3) Costs. PNB 276 SCRA 681 – Business Organization – Corporation Law –
and NASUDECO appealed. The Court of Appeals affirmed the Failure to File By-Laws
decision of the trial court in its decision of 17 April 2000 (CA-GR
CV 57610. PNB and NASUDECO filed the petition for review.
FACTS: In 1983, the Loyola Grand Villas Association, Inc.
Issue: Whether PNB and NASUDECO may be held liable for (LGVAI) was incorporated by the homeowners of the Loyola
PASUMIL’s liability to AEEC. Grand Villas (LGV), a subdivision. The Securities and Exchange
Commission (SEC) issued a certificate of incorporation under its
Held: Basic is the rule that a corporation has a legal personality official seal to LGVAI in the same year. LGVAI was likewise
distinct and separate from the persons and entities owning it. recognized by the Home Insurance and Guaranty Corporation
The corporate veil may be lifted only if it has been used to shield (HIGC), a government-owned-and-controlled corporation whose
fraud, defend crime, justify a wrong, defeat public convenience, mandate is to oversee associations like LGVAI.
insulate bad faith or perpetuate injustice. Thus, the mere fact
that the Philippine National Bank (PNB) acquired ownership or Later, LGVAI later found out that there are two homeowners
management of some assets of the Pampanga Sugar Mill associations within LGV, namely: Loyola Grand Villas
(PASUMIL), which had earlier been foreclosed and purchased Homeowners (South) Association, Inc. (LGVAI-South) and
at the resulting public auction by the Development Bank of the Loyola Grand Villas Homeowners (North) Association, Inc.
Philippines (DBP), will not make PNB liable for the PASUMIL's (LGVAI-North). The two associations asserted that they have to
contractual debts to Andrada Electric & Engineering Company be formed because LGVAI is inactive. When LGVAI inquired
(AEEC). Piercing the veil of corporate fiction may be allowed about its status with HIGC, HIGC advised that LGVAI was
only if the following elements concur: (1) control — not mere already terminated; that it was automatically dissolved when it
stock control, but complete domination — not only of finances, failed to submit it By-Laws after it was issued a certificate of
but of policy and business practice in respect to the transaction incorporation by the SEC.
attacked, must have been such that the corporate entity as to
this transaction had at the time no separate mind, will or ISSUE: Whether or not a corporation’s failure to submit its by-
existence of its own; (2) such control must have been used by laws results to its automatic dissolution.
the defendant to commit a fraud or a wrong to perpetuate the
violation of a statutory or other positive legal duty, or a dishonest
and an unjust act in contravention of plaintiff's legal right; and HELD: No. A private corporation like LGVAI commences to
(3) the said control and breach of duty must have proximately have corporate existence and juridical personality from the date
caused the injury or unjust loss complained of. The absence of the Securities and Exchange Commission (SEC) issues a
the foregoing elements in the present case precludes the certificate of incorporation under its official seal. The submission
piercing of the corporate veil. First, other than the fact that PNB of its by-laws is a condition subsequent but although it is merely
and NASUDECO acquired the assets of PASUMIL, there is no such, it is a MUST that it be submitted by the corporation. Failure
showing that their control over it warrants the disregard of to submit however does not warrant automatic dissolution
corporate personalities. Second, there is no evidence that their because such a consequence was never the intention of the law.
juridical personality was used to commit a fraud or to do a wrong; The failure is merely a ground for dissolution which may be
or that the separate corporate entity was farcically used as a raised in a quo warranto proceeding. It is also worthwhile to note
mere alter ego, business conduit or instrumentality of another that failure to submit can’t result to automatic dissolution
entity or person. Third, AEEC was not defrauded or injured when because there are some instances when a corporation does not
PNB and NASUDECO acquired the assets of PASUMIL. Hence, require a by-laws.
although the assets of NASUDECO can be easily traced to
PASUMIL, the transfer of the latter's assets to PNB and 6. CHINA BANKING CORPORATION, petitioner, vs. COURT
NASUDECO was not fraudulently entered into in order to OF APPEALS, and VALLEY GOLF and COUNTRY CLUB,
escape liability for its debt to AEEC. Neither was there any INC., respondents.
merger or consolidation with respect to PASUMIL and PNB. The G.R. No. 117604. March 26, 1997.*
procedure prescribed under Title IX of the Corporation Code 59
was not followed. In fact, PASUMIL's corporate existence had KAPUNAN, J.:
not been legally extinguished or terminated. Further, prior to FIRST DIVISION
PNB's acquisition of the foreclosed assets, PASUMIL had Facts:
previously made partial payments to AEEC for the former's On 21 August 1974, Galicano Calapatia, Jr., a stockholder of
obligation in the amount of P777,263.80. As of 27 June 1973, Valley Golf & Country Club, Inc. (VGCCI), pledged his Stock
PASUMIL had paid P250,000 to AEEC and, from 5 January Certificate 1219 to China Banking Corporation (CBC). On 16
1974 to 23 May 1974, another P14,000. Neither did PNB September 1974, CBC wrote VGCCI requesting that the pledge
expressly or impliedly agree to assume the debt of PASUMIL to agreement be recorded in its books. In a letter dated 27
AEEC. LOI 11 explicitly provides that PNB shall study and September 1974, VGCCI replied that the deed of pledge
submit recommendations on the claims of PASUMIL's creditors. executed by Calapatia in CBC's favor was duly noted in its
Clearly, the corporate separateness between PASUMIL and corporate books. On 3 August 1983, Calapatia obtained a loan
PNB remains, despite AEEC's insistence to the contrary. of P20,000.00 from CBC, payment of which was secured by the
pledge agreement still existing between Calapatia and CBC.
Due to Calapatia's failure to pay his obligation, CBC, on 12 April
1985, filed a petition for extrajudicial foreclosure before Notary
5. LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) Public Antonio T. de Vera of Manila, requesting the latter to
ASSOCIATION, INC., petitioner, vs. HON. COURT OF conduct a public auction sale of the pledged stock. On 14 May
APPEALS, HOME INSURANCE AND GUARANTY 1985, CBC informed VGCCI of the foreclosure proceedings and
requested that the pledged stock be transferred to its name and reconsideration but the same was denied by the Court of
the same be recorded in the corporate books. However, on 15 Appeals in its resolution dated 5 October 1994. CBC filed the
July 1985, VGCCI wrote CBC expressing its inability to accede petition for review on certiorari.
to CBC's request in view of Calapatia's unsettled accounts with
the club. Despite the foregoing, Notary Public de Vera held a Issue:
public auction on 17 September 1985 and CBC emerged as the Whether CBC is bound by VGCCI's by-laws.
highest bidder at P20,000.00 for the pledged stock.
Consequently, CBC was issued the corresponding certificate of Held:
sale. In order to be bound, the third party must have acquired
knowledge of the pertinent by-laws at the time the transaction or
On 21 November 1985, VGCCI sent Calapatia a notice agreement between said third party and the shareholder was
demanding full payment of his overdue account in the amount entered into. Herein, at the time the pledge agreement was
of P18,783.24. Said notice was followed by a demand letter executed. VGCCI could have easily informed CBC of its by-laws
dated 12 December 1985 for the same amount and another when it sent notice formally recognizing CBC as pledgee of one
notice dated 22 November 1986 for P23,483.24. On 4 of its shares registered in Calapatia's name. CBC's belated
December 1986, VGCCI caused to be published in the notice of said by-laws at the time of foreclosure will not suffice.
newspaper Daily Express a notice of auction sale of a number By-laws signifies the rules and regulations or private laws
of its stock certificates, to be held on 10 December 1986 at 10:00 enacted by the corporation to regulate, govern and control its
a.m. Included therein was Calapatia's own share of stock (Stock own actions, affairs and concerns and its stockholders or
Certificate 1219). Through a letter dated 15 December 1986, members and directors and officers with relation thereto and
VGCCI informed Calapatia of the termination of his membership among themselves in their relation to it. In other words, by-laws
due to the sale of his share of stock in the 10 December 1986 are the relatively permanent and continuing rules of action
auction. On 5 May 1989, CBC advised VGCCI that it is the new adopted by the corporation for its own government and that of
owner of Calapatia's Stock Certificate 1219 by virtue of being the individuals composing it and having the direction,
the highest bidder in the 17 September 1985 auction and management and control of its affairs, in whole or in part, in the
requested that a new certificate of stock be issued in its name. management and control of its affairs and activities. The
On 2 March 1990, VGCCI replied that "for reason of purpose of a by-law is to regulate the conduct and define the
delinquency" Calapatia's stock was sold at the public auction duties of the members towards the corporation and among
held on 10 December 1986 for P25,000.00. On 9 March 1990, themselves. They are self-imposed and, although adopted
CBC protested the sale by VGCCI of the subject share of stock pursuant to statutory authority, have no status as public law.
and thereafter filed a case with the Regional Trial Court of Therefore, it is the generally accepted rule that third persons are
Makati for the nullification of the 10 December 1986 auction and not bound by by-laws, except when they have knowledge of the
for the issuance of a new stock certificate in its name. On 18 provisions either actually or constructively. For the exception to
June 1990, the Regional Trial Court of Makati dismissed the the general accepted rule that third persons are not bound by
complaint for lack of jurisdiction over the subject matter on the by-laws to be applicable and binding upon the pledgee,
theory that it involves an intra-corporate dispute and on 27 knowledge of the provisions of the VGCCI By-laws must be
August 1990 denied CBC's motion for reconsideration. On 20 acquired at the time the pledge agreement was contracted.
September 1990, CBC filed a complaint with the Securities and Knowledge of said provisions, either actual or constructive, at
Exchange Commission (SEC) for the nullification of the sale of the time of foreclosure will not affect pledgee's right over the
Calapatia's stock by VGCCI; the cancellation of any new stock pledged share. Article 2087 of the Civil Code provides that it is
certificate issued pursuant thereto; for the issuance of a new also of the essence of these contracts that when the principal
certificate in petitioner's name; and for damages, attorney's fees obligation becomes due, the things in which the pledge or
and costs of litigation. mortgage consists maybe alienated for the payment to the
creditor. Further, VGCCI's contention that CBC is duty-bound to
On 3 January 1992, SEC Hearing Officer Manuel P. Perea know its by-laws because of Article 2099 of the Civil Code which
rendered a decision in favor of VGCCI, stating in the main that stipulates that the creditor must take care of the thing pledged
considering that the said share is delinquent, VGCCI had valid with the diligence of a good father of a family, fails to convince.
reason not to transfer the share in the name of CBC in the books CBC was never informed of Calapatia's unpaid accounts and the
of VGCCI until liquidation of delinquency. Consequently, the restrictive provisions in VGCCI's by-laws. Furthermore, Section
case was dismissed. On 14 April 1992, Hearing Officer Perea 63 of the Corporation Code which provides that "no shares of
denied CBC's motion for reconsideration. CBC appealed to the stock against which the corporation holds any unpaid claim shall
SEC en banc and on 4 June 1993, the Commission issued an be transferable in the books of the corporation" cannot be
order reversing the decision of its hearing officer; holding that utilized by VGCCI. The term "unpaid claim" refers to "any unpaid
CBC has a prior right over the pledged share and because of claim arising from unpaid subscription, and not to any
pledgor's failure to pay the principal debt upon maturity, CBC indebtedness which a subscriber or stockholder may owe the
can proceed with the foreclosure of the pledged share; declaring corporation arising from any other transaction." Herein, the
that the auction sale conducted by VGCCI on 10 December subscription for the share in question has been fully paid as
1986 is declared NULL and VOID; and ordering VGCCI to issue evidenced by the issuance of Membership Certificate 1219.
another membership certificate in the name of CBC. VGCCI What Calapatia owed the corporation were merely the monthly
sought reconsideration of the order. However, the SEC denied dues. Hence, Section 63 does not apply.
the same in its resolution dated 7 December 1993. The sudden
turn of events sent VGCCI to seek redress from the Court of 7. ASSOCIATED BANK, petitioner, vs. COURT OF
Appeals. On 15 August 1994, the Court of Appeals rendered its APPEALS and LORENZO SARMIENTO, JR., respondents,
decision nullifying and setting aside the orders of the SEC and G.R. No. 123793. June 29, 1998.*
its hearing officer on ground of lack of jurisdiction over the
subject matter and, consequently, dismissed CBC's original PANGANIBAN, J.:
* FIRST DIVISION.
complaint. The Court of Appeals declared that the controversy
between CBC and VGCCI is not intra-corporate; nullifying the Commercial Law, Corporation, Merger, Negotiable Instruments,
SEC orders and dismissing CBC’s complaint. CBC moved for Promissory Note
FACTS: intention of the parties as disclosed by their contract. It did not
Associated Banking Corporation and Citizens Bank and Trust indicate that a benefit or interest was created in favor of a third
Company (CBTC) merged to form just one banking corporation person. The instrument itself says nothing on the purpose of the
known as Associated Citizens Bank (later renamed Associated loan, only the terms of payment and the penalties in case of
Bank), the surviving bank. After the merger agreement had been failure to pay.
signed, but before a certificate of merger was issued,
respondent Lorenzo Sarmiento, Jr. executed in favor of Private respondent also claims that he received no
Associated Bank a promissory note, promising to pay the bank consideration for the promissory note, citing petitioner's failure
P2.5 million on or before due date at 14% interest per annum, to submit any proof of his loan application and of his actual
among other accessory dues. For failure to pay the amount due, receipt of the amount loaned. These arguments deserve no
Sarmiento was sued by Associated Bank. merit. Res ipsa loquitur. The instrument, bearing the signature
of private respondent, speaks for itself. Respondent Sarmiento
Respondent argued that the plaintiff is not the proper party in has not questioned the genuineness and due execution thereof.
interest because the promissory note was executed in favor of That he partially paid his obligation is itself an express
CBTC. Also, while respondent executed the promissory note in acknowledgment of his obligation.
favor of CBTC, said note was a contract pour autrui, one in favor
of a third person who may demand its fulfillment. Also, WHEREFORE, the petition is GRANTED
respondent claimed that he received no consideration for the
promissory note and, in support thereof, cites petitioner's failure 8. G.R. No. 99398. January 26, 2001.*
to submit any proof of his loan application and of his actual CHESTER BABST, petitioner, vs. COURT OF APPEALS,
receipt of the amount loaned. BANK OF THE PHILIPPINE ISLANDS, ELIZALDE STEEL
CONSOLIDATED, INC., and PACIFIC MULTI-COMMERCIAL
ISSUE: CORPORATION, respondents.
1.) Whether or not Associated Bank, the surviving corporation,
may enforce the promissory note made by private respondent in YNARES-SANTIAGO, J.:
favor of CBTC, the absorbed company, after the merger FIRST DIVISION.
agreement had been signed, but before a certificate of merger
was issued? Facts:
Elizalde Steel Consolidated, Inc. (ELISCON) obtained a loan
2.) Whether or not the promissory note was a contract pour from Commercial Bank and Trust Company *(CBTC) in the
autrui and was issued without consideration? amount of P8,015,900.84, evidenced by a promissory note.
ELISCON defaulted on its payments, leaving an outstanding
HELD: The petition is impressed with merit. balance of P2,795,240.67.
The letters of credit, on the other hand, were opened for
Associated Bank assumed all the rights of CBTC. Although ELISCON by CBTC using credit facilities of Pacific Multi-
absorbed corporations are dissolved, there is no winding up of Commercial Corporation (MULTI) with the said bank.
their affairs or liquidation of their assets, because the surviving Subsequently, Antonio Roxas Chua and Chester Babst
corporation automatically acquires all their rights, privileges and executed a Continuing Surety ship, whereby they bound
powers, as well as their liabilities. The merger, however, does themselves jointly and severally liable to pay any existing
not become effective upon the mere agreement of the indebtedness of MULTI to CBTC.
constituent corporations. The Securities and Exchange
Commission (SEC) and majority of the respective stockholders The Bank of the Philippine Islands(BPI) and CBTC entered into
of the constituent corporations must have approved the merger. a merger, wherein BPI, as the surviving corporation, acquired all
(Section 79, Corporation Code) It will be effective only upon the the assets and assumed all the liabilities of CBTC. Meanwhile,
issuance by the SEC of a certificate of merger. Records do not ELISCON became heavily indebted to DBP as it suffered
show when the SEC approved the merger. financial difficulties.

But assuming that the effectivity date of the merger was the date ELISCON called its creditors to a meeting to announce the take-
of its execution, we still cannot agree that petitioner no longer over by DBP of its assets, including its indebtedness to BPI.
has any interest in the promissory note. The agreement itself Thereafter, DBP proposed formulas for the settlement of all of
clearly provides that all contracts — irrespective of the date of ELISCON`s obligations to its creditors, but BPI rejected the
execution — entered into in the name of CBTC shall be formula.
understood as pertaining to the surviving bank, herein petitioner.
Such must have been deliberately included in the agreement in BPI then filed a complaint for sum of money against ELISCON,
order to avoid giving the merger agreement a farcical MULTI, and Babst. ELISCON argued that the complaint was
interpretation aimed at evading fulfillment of a due obligation. premature since DBP had made serious efforts to settle its
Thus, although the subject promissory note names CBTC as the obligations with BPI. Babst, on the other hand, asserted that his
payee, the reference to CBTC in the note shall be construed, surety ship covers only obligations which MULTI incurred solely
under the very provisions of the merger agreement, as a for its benefit and not for any third party liability. MULTI denied
reference to petitioner bank. knowledge of the BPI-CBTC merger.
BPI argued that it did not give consent to the DBP take-over of
On the issue that the promissory note was a contract pour autrui ELISCON. Hence no valid novation has been affected.
and was issued without consideration, the Supreme Court held
it was not. In a contract pour autrui, an incidental benefit or Issue: WON BPI consented to the assumption by DBP of the
interest, which another person gains, is not sufficient. The obligations of ELISCON. YES. The original obligation having
contracting parties must have clearly and deliberately conferred been extinguished, the contracts of surety ship executed by
a favor upon a third person. The "fairest test" in determining Babst and MULTI are also extinguished.
whether the third person's interest in a contract is a stipulation
pour autrui or merely an incidental interest is to examine the Ratio:
 BPI contends that there must be an express consent of the came to know about the sale, almost two years after, while
creditor. However, the rule that it must be “express” is not liquidating MSLAI's assets. MSLAI stated that the sale was
absolute for the existence of the consent may well be inferred illegal not only due to lack of notice, but also because the assets
from the acts of the creditor, since volition may as well be under liquidation should be deemed in custodia legis and
expressed by deeds as by words. In short there can be implied exempt from garnishment, levy, attachment or execution.
consent of the creditor to the substitution of debtors.
 Respondents stated that MSLAI had no cause of action;
In the instant case, the failure of BPI to register its objection to MSLAI is a separate entity from FSLAI, further stating that
the take-over by DBP of ELISCON`s assets at the creditors’ the merger was unofficial and did not comply with formalities
meeting is deemed to be a form of implied consent on the part and procedure.
of BPI. BPI merely objected to the payment formula, not the
substitution of debtors.  RTC: dismissed the case for a supposed lack of jurisdiction.
BPI`s conduct evinced a clear and unmistakable consent to the
substitution of DBP for ELISCON as debtor. Hence, there was a
 CA affirmed the dismissal but stated that accdg. to Associated
valid novation which resulted in the release of ELISCON from its
Bank vs CA, there was no merger between FISLAI and MSLAI
obligation to BPII. Whose cause of action should be directed
for failure to follow procedure for a valid merger, but even if there
against DBP as the new debtor.
was a de facto merger, Willkom was an innocent purchaser and
had a superior right. The assignment of assets and liabilities was
not binding on third parties because it wasn't registered. The
9. G.R. No. 178618. October 20, 2010.*
validity of the auction sale could not be invalidated by the fact
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC.,
that the sheriff had no authority to conduct the sale.
represented by its Liquidator, THE PHILIPPINE DEPOSIT
INSURANCE CORPORATION, petitioner, vs.EDWARD
Issues:
WILLKOM;
1. Whether the merger between FISLAI and DSLAI valid and
NACHURA, J.:
effective
2. Whether there was novation of the obligation by substituting the
Facts:
person of the debtor
 The First Iligan Savings and Loan Association, Inc. (FISLAI) and
the Davao Savings and Loan Association, Inc. (DSLAI) are Held:
entities duly registered with the Securities and Exchange
Commission, primarily engaged in the business of granting 1. No. A merger does not become effective upon the mere
loans and receiving deposits from the general public, and agreement of the corporations. There must be an express
treated as banks. provision of law authorizing them. There is a procedure to be
followed as stated in the Corporation Code. The board of each
 1985, FISLAI and DSLAI entered into a merger, DSLAI being corporation draws up a plan of merger and is submitted to
the surviving corporation. The articles of merger were not stockholders or members for approval. The formal agreement is
registered with the SEC due to incomplete documentation. executed (the articles of merger) and is submitted to the SEC
DSLAI changed its corporate name to MSLAI. for approval. If approved, the SEC issues a certificate of
merger. The merger shall only be effective upon the
 May 26, 1986, The Board of Directors of FSLAI approved issuance of the certificate. (An exception would be if a party
the assignment of assets in favor of DSLAI, which assumed to a merger is a special corporation governed by its own charter,
FISLAI's liabilities (the novation in question) then a favorable recommendation of the appropriate
government agency should first be obtained.)
 MSLAI's business failed and the Monetary Board of the Central
Bank of the Philippines ordered its closure. The Monetary Board In this case, no certificate was issued and such merger is
found that MSLAI was insolvent and to continue business would incomplete without it. The certificate is important because
involve probable loss to its depositors and creditors. The it bears the approval of the SEC and it marks the moment
Monetary Board ordered the liquidation of MSLAI with PDIC when the consequences of a merger take place. Since there
as its liquidator. is no valid merger, FISLAI and MSLAI are still considered as two
separate corporations. ASs far as third parties are concerned,
 Prior to MSLAI's closure, Uy filed an action for collection of FISLAI's assets still belongs to them, not MSLAI.
sum of money against FISLAI. RTC rendered a decision in
favor of Uy and ordered defendants (including FISLAI) to pay 2. No. The assumption by MSLAI of FISLAI's liabilities did not
the sum of P136,801.70 plus interest, 25% attorney's fees and result in novation. "Novation is the extinguishment of an
the costs of suit. CA modified the decision by ordering the third obligation by the substitution or change of the obligation
party defendant to reimburse the payments that would be made by a subsequent one which extinguishes or modifies the
by defendants. first, either by changing the object or principal conditions,
by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor."
 April 28, 1993, sheriff Bantuas levied on 6 parcels of land of
FSLAI in Cagayan de Oro, and during the public auction,
Novation must always be done with the consent of the
Willkom was the highest bidder. A certificate of sale was issued,
creditor as stated in Article 1293 of the Civil Code. In this case,
and was registered with the Register of Deeds. September 20,
it was not shown that Uy consented to the agreement between
1994, Willkom sold one of the parcels of land to Go.
FISLAI and MSLAI. MSLAI cannot question the levy, and
subsequent sale of the properties of FISLAI.
 June 14, 1995, MSLAI, represented by PDIC, filed a Since novation implies a waiver of right which the creditor had
complaint for the Annulment of the Sale, Cancellation of before novation, such waiver must be express.
Title and Reconveyance of the properties, stating that the sale *CA ruling affirmed.
was conducted without notice given to them and PDIC. PDIC