BUSINESS ORGANIZATION II Based on the syllabus of Atty.

Therese Xyza Gemelo - Abarca

Case Digest by April Gem B. Balucanag Friday 5:30PM - 9:30PM
JMC College of Law 5-Year Program

G.R. No. 11897           September 24, 1918

J. F. RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendants-appellants.

FACTS:

The Orientalist Company is a corporation organized under the laws of the Philippine Islands. It was engaged in the
business of maintaining and conducting a theatre in the city of Manila for the exhibition of cinematographic films.
Under the articles of incorporation the company is authorized to manufacture, buy, or otherwise obtain all
accessories necessary for conducting such a business.

Plaintiff J. F. Ramirez was engaged in the business of marketing films for a manufacturer or manufacturers, and in
the production or distribution of cinematographic material. In this enterprise the plaintiff was represented in the
city of Manila by his son, Jose Ramirez.

In July, 1913, certain of the directors of the Orientalist Company, in Manila, and Jose Ramirez negotiated to place
the exclusive agency of these “Eclair Films” and “Milano Films” in Orientalist Company. On July 4, 1913 details of
the terms were made and placed in the hands of Ramon J. Fernandez. Later, an informal conference with all the
members of the company's board of directors except one was held. Thereafter, Jose Ramirez received two letters
from Fernandez, communicating the acceptance of the offer. The letter was signed by Fernandez as Orientalist’s
Treasurer.

In due time, the films began to arrive in Manila. However, Orientalist was unable to meet its obligations to Jose
Ramirez, as agreed. An action was instituted by Ramirez against Orientalist to recover the amount.

ISSUE:

WON the corporation is liable.

RULING:

Yes. Where the name of a corporation is signed to the document which is the basis of an action, the failure of the
defendant corporation to put in issue, by denial under oath the due execution of the instrument, as required in
section 103 of the Code of Civil Procedure, operates as an admission of the authority of the officer to execute the
contract, since the authority of the officer to bind the company is essential to the due execution of its contract.

The power to make corporate contracts resides primarily in the company's board of directors; but the board may
ratify an unauthorized contract made by an officer of the corporation. Ratification in this case is held to have
occurred when the board, with knowledge that the contract had been made, adopted a resolution recognizing the
existence of the contract and directing that steps be taken to enable the corporation to utilize its benefits. Where a
corporate contract has been effected with the approval of the board of directors, a resolution adopted at a meeting
of stockholders refusing to recognize the contract or repudiating it is without effect.
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
Case Digest by April Gem B. Balucanag Friday 5:30PM - 9:30PM
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G.R. No. L-32991 June 29, 1972

SALVADOR P. LOPEZ, President of the University of the Philippines; BOARD OF REGENTS, University
of the Philippines; and OSEAS DEL ROSARIO, Officer-in-Charge, College of Education, University of
the Philippines, petitioners,
vs.
HON. VICENTE ERICTA, Judge of the Court of First Instance of Rizal, Branch XVIII (Quezon City), and
DR. CONSUELO S. BLANCO, respondents.

FACTS:

President Lopez submitted the ad interim appointment of Dr. Blanco. The minutes of that meeting disclose that
"the Board voted to defer action on the matter in view of the objections of Regent Kalaw (Senator Eva Estrada
Kalaw) based on the petition against the appointment, addressed to the Board, from a majority of the faculty and
from a number of alumni ..." The "deferment for further study" having been approved, the matter was referred to
the Committee on Personnel, which was thereupon reconstituted with the following composition: Regent Ambrosio
F. Tangco, chairman; Regent Pio Pedrosa and Regent Liceria B. Soriano, members. The opinion was then
expressed by the Chairman of the Board that in view of its decision to defer action, Dr. Blanco's appointment had
lapsed, but (on the President's query) that there should be no objection to another ad interim appointment in favor
of Dr. Blanco pending final action by the Board. Later, the Board of Regents terminated the ad interim appointment
of Dr. Blanco by not acting on the matter.

In the transcript of the meeting which was latter agreed to be deleted, it was found out that the BOR, consisting of
12 members, voted 5 in favor of Dr. Blanco's appointment 3 voted against, and 4 abstained.

ISSUE:

WON the abstentation was an affirmative vote.

RULING:

NO. It should be noted that an abstention, according to the respondents’ citations, is counted as an affirmative
vote insofar as it may be construed as an acquiescence in the action of those who voted affirmatively. This manner
of counting is obviously based on what is deemed to be a presumption as to the intent of the one abstaining,
namely to acquiesce in the action of those who vote affirmatively, but which presumption, being merely prima
facie, would not hold in the face of clear evidence to the contrary. Before it adjourned, the Board of Regents
resolved to cancel the action which had been taken, including the result of the voting, and “to return the case to its
original status—to render the case subject to further thinking.” It cannot be seriously argued that the Board had no
authority to do what it did: the meeting had not yet been adjourned, the subject of the deliberations had not yet
been closed, and as in the case of any deliberative body the Board had the right to reconsider its action. No title to
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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the office of Dean of the College of Education had yet vested in respondent Blanco at the time of such
reconsideration.

Zachary v. Milin

Supreme Court of Michigan

Sep 9, 1940293 N.W. 770 (Mich. 1940)

FACTS:

Theodore Zachary and William Phillips filed an action of quo warranto to test the right of Ernest C. Wunsch and
Charles Milin to hold, use, exercise and enjoy the office of directors of the Great Lakes Champagne Wineries, Inc.,
a Michigan corporation.

The result depends upon the validity of the directors' meeting at the company's laboratory December 8, 1937. If
Zachary was legally removed as president of the company, then the trial court should be affirmed. But, if that
meeting be considered as an informal one, not in the nature of a directors' meeting, then the case should be
reversed.

Zachary claims he was not given notice of the meeting of December 8, 1937, and, therefore, its action was void.
On the other hand, the defendants claim that notice was waived by Zachary's appearance at the meeting.

ISSUE:

WON the directors’ meeting was valid.

RULING:

YES. The Supreme Court held a directors' meeting to be formal, in light of the trial judge's finding that the director
complaining of lack of notice had first sought at the meeting to have another director removed as an officer of the
corporation. The meeting was not affected by the failure to give notice as required by the by-laws, provided that
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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the parties were personally present. Since all the parties were present at the meeting of December 8, and
understood that the meeting was to be a directors' meeting, then the action taken is final and may not be voided
by any informality in connection with its being called.

Kaplan v. Block

Supreme Court of Virginia

Nov 20, 194431 S.E.2d 893 (Va. 1944)

FACTS:

The Old Dominion Office Building, Incorporated, is a Virginia corporation, chartered in November, 1940, with its
principal office in Arlington county. The names and residences of the officers and directors, who, unless sooner
changed by the stockholders, were for the first year to manage the affairs of the corporation are as follows:

Harry Kaplan, President and director, Washington, D.C. Emile Beauvais, Vice-president and director, Washington,
D.C. Ellis P. Block, Secretary and director, Washington, D.C. Samuel Goldberg, Treasurer and director, Washington,
D.C.

On March 2, 1943, Block filed a petition for mandamus, in which he asked that Kaplan, president of the
corporation, admit him to its office as secretary and treasurer and deliver to him all proper books, papers, etc.

To that petition Kaplan demurred. This demurrer was overruled. Afterwards Kaplan and Willett both filed answers,
which in turn were stricken out, and thereupon mandamus issued. This writ seems to have been treated as a
proceeding in equity by the court below. In point of fact, it is a command issuing from a common law court of
competent jurisdiction.

ISSUE:

WON the mandamus was proper.

BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
Case Digest by April Gem B. Balucanag Friday 5:30PM - 9:30PM
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RULING:

No. In the instant case, a proceeding by mandamus by a discharged director, secretary and treasurer of a private
corporation, the charter of the corporation provided that no act of the directors should be binding unless ratified by
the unanimous vote of the stockholders and this provision was also contained in the by-laws. Appellee, after due
notice, was discharged by the vote of the directors. He dissented from this action of the board and the lower court
issued a writ of mandamus to admit him to his office as secretary and treasurer of the corporation and deliver to
him all proper books, etc. Appellants contended that the provision of the charter and by-laws requiring ratification
of the acts of the directors by the stockholders was void as contrary to common law, the statutes of Virginia, and
the public policy of the state; that the board of directors possessed the power to remove the secretary and
treasurer, and had validly exercised it, and if the stockholders possessed the power of removal they had exercised
it validly.

G.R. No. L-27155 May 18, 1978

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC., respondents.

FACTS:

Rita Tapnio was indebted to PNB. She failed to pay despite the demands. She did not consider herself indebted to
PNB because she had an agreement with one Jacobo-Nazon whereby she had leased her unused export sugar
quota with PNB’s knowledge. PNB placed obstacles to the consummation of the lease, and these forced Nazon to
rescind the lease contract. Thus, Rita filed her third-party complaint against PNB to recover any and all sums of
money which may be adjudged against her and in favor of the plaintiff plus moral damages, attorney’s fees and
costs.

ISSUE:

WON PNB is liable for damages.

RULING:
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
Case Digest by April Gem B. Balucanag Friday 5:30PM - 9:30PM
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YES. While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota
was mortgaged to the bank, the latter certainly cannot escape its responsibility of observing, for the protection of
the interest of private respondents, that degree of care, precaution and vigilance which the circumstances justly
demand in approving or disapproving the lease of said sugar quota. The law makes it imperative that every person
“must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.” This petitioner failed to do. Certainly, it knew that the agricultural year was about
to expire, that by its disapproval of the lease private respondents would be unable to utilize the sugar quota in
question. In failing to observe the reasonable degree of care and vigilance which the surrounding circumstances
reasonably impose, petitioner is consequently liable for the damages caused on private respondents. Under Article
21 of the New Civil Code, “any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.” The afore-cited provisions on
human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal
remedy for the untold number of moral wrongs which is impossible for human foresight to specifically provide in
the statutes.

A corporation is civilly liable in the same manner as natural persons for torts, because “generally speaking, the
rules governing the liability of a principal or master for a tort committed by an agent or servant are the same
whether the principal or master be a natural person or a corporation, and whether the servant or agent be a
natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which he
expressly directs or authorizes, and this is just as true of a corporation as of a natural person.

G.R. No. L-18805             August 14, 1967

THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE REPUBLIC OF THE

PHILIPPINES, plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA,3 and
LEONOR MOLL, defendants-appellees.

FACTS:

The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental
organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection, preservation and
development of the coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended
[Republic Act 5] to grant that corporation the express power "to buy, sell, barter, export, and in any other
manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent,
broker or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was
enacted to stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to
cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly aliens.
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
Case Digest by April Gem B. Balucanag Friday 5:30PM - 9:30PM
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NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of
contracts executed by general manager Kalaw are the disputed contracts. An unhappy chain of events
conspired to deter NACOCO from fulfilling these contracts. Kalaw submitted the contract for approval. They
unanimously approved the contracts. Later, NACOCO was only able to partially perform the contracts.
NACOCO was sued for damages. NACOCO paid the said damages, and later sought to recover what they
paid from Kalaw, and three named directors, arguing that the contract were not binding to NACOCO since
Kalaw had no authority to enter into said contracts.

ISSUE:

WON Kalaw was authorized to enter the said contracts on behalf of NACOCO.

RULING:

YES. A corporate officer, entrusted with the general management and control of its business, has implied
authority to make any contract or do any other act which is necessary or appropriate to the conduct of the
ordinary business of the corporation. As such officer, he may, without any special authority from the Board of
Directors, perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and
may bind the corporation by contracts in matters arising in the usual course of business.

Where similar acts have been approved by the directors as a matter of general practice, custom, and policy,
the general manager may bind the company without formal authorization of the board of directors. In varying
language, existence of such authority is established by proof of the course of business, the usages and
practices of the company and by the knowledge which the board of directors has, or must be presumed to
have, of acts and doings of its subordinates in and about the affairs of the corporation. Where the practice of
the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading
activities for and in Nacoco's behalf without prior board approval, and the board itself, by its acts and through
acquiescence, practically laid aside the by-law requirement of prior approval, the contracts of the general
manager, under the given circumstances, are valid corporate acts.

Kalaw was a corporate officer entrusted with general management and control of NACOCO.  He had implied
authority to make any contract or do any act which is necessary for the conduct of the business.   He may,  without
authority from the board, perform acts of ordinary nature for as long as these redound to the interest of the
corporation.  Particularly, he contracted forward sales with business entities. Long before some of these contracts
were disputed, he contracted by himself alone, without board approval.  All of the members of the board knew
about this practice and have entrusted fully such decisions with Kalaw.  He was never questioned nor reprimanded
nor prevented from this practice.  In fact, the board itself, through its acts and by acquiescence, have laid aside
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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the by-law requirement of prior board approval.  Thus, it cannot now declare that these contracts (failures) are not
binding on NACOCO.

G.R. No. L-27694             October 24, 1928

ZAMBOANGA TRANSPORTATION COMPANY, INC., plaintiff-appellee,

vs.
THE BACHRACH MOTOR CO., INC., defendant-appellant.

-------------------------

G.R. No. L-27997             October 24, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee,

vs.
ZAMBOANGA TRANSPORTATION COMPANY, INC., defendant-appellant.

FACTS:

Erquiaga is one of the largest stockholder, and was the all-in-one officer (he was the President, GM, Attorney,
Auditor, etc.). Two other directors approved his actions and expressed satisfaction with the advantages
obtained by him in securing the chattel mortgage. The corporation took advantage of the benefits of the
chattel mortgage. There were even partial payments made with the knowledge of the three directors.

ISSUE:

WON Erquiaga was an authorized officer.

RULING:

YES. When the president of a corporation, who is one of the principal stockholders and at the same time its
general manager, auditor, attorney or legal adviser, is empowered by its by-laws to enter into chattel
mortgage contracts, subject to the approval of the board of directors, and enters into such contracts with the
tacit approval of two members of the board of directors, one of whom is a principal shareholder, both of
whom, together with the president, form a majority, and said corporation takes advantage of the benefits
afforded by said contract, such acts are equivalent to an implied ratification of said contract by the board of
directors and binds the corporation even if not formally approved by said board of directors as required by the
by-laws of the aforesaid corporation.
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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G.R. No. L-20333             June 30, 1967

EMILIANO ACUÑA, plaintiff-appellant,
vs.
BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION, INC., JUSTINO GALANO,
TEODORO NARCISO, PABLO BACTIN, (DR.) EMMANUEL BUMANGLAG, VENANCIO DIRIC, MARCOS
ESQUIVEL, EVARISTO CAOILI, FIDEL BATTULAYAN, DAMIAN ROSSINI, RAYMUNDO BATALLONES,
PLACIDO QUIAOIT, and LEON Q. VERANO defendants-appellees.

FACTS:

The complaint alleged, inter alia, that on or about May 5, 1962 it was tentatively agreed upon between plaintiff
and defendant Leon Q. Verano, as Manager of the defendant Batac Procoma, Inc., that the former would
seek and obtain the sum of not less, than P20,000.00 to be advanced to the defendant Batac Procoma, Inc.,
to be utilized by it as additional funds for its Virginia tobacco buying operations during the current redrying
season; that plaintiff would be constituted as the corporation's representative in Manila to assist in handling
and facilitating its continuous shipments of tobacco and their delivery to the redrying plants and in speeding
up the prompt payment and collection of all amounts due to the corporation for such shipments; that for his
services plaintiff would be paid a remuneration at the rate of P0.50 per kilo of tobacco; that said tentative
agreement was favorably received by the Board of Directors of the defendant Batac Procoma Inc., and on
May 6, 1962 all the defendants named above, who constituted the entire Board of Directors of said
corporation (except Leon Q. Verano, who was its Manager), together with defendants Justino Galano and
Teodoro Narciso, as President and Vice-President, respectively, unanimously authorized defendant Leon Q.
Verano, by a formal resolution, "to execute any agreement with any person or entity, on behalf of the
corporation,

Acuna diligently went about his business and even used personal funds for the benefit of the corporation.
During the face-to-face meeting with the board, Acuna was assured that there need not be any board
approval for his constitution as agent for it would only be a mere formality.  Later on, the board disapproved
the agency and did not pay him.

ISSUE:

WON the acts of Acuna are considered acts of the corporation.

BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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RULING:

YES. The ratification of a contract may be express or implied. Implied ratification may take diverse forms.
such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance
and retention of benefits flowing therefrom. The SC ruled that the agreement was valid due to the ratification
of the corp. proven by these acts: (a) He was assured by the board that no board approval was necessary; (b)
He delivered P 20,000, performed his work with the knowledge of the board; and, (c) Due to acquiescence,
the board cannot disown or disapprove the contract.

Hayes v. Canada, Atlantic & Plant S.S. Co. Limited

Putnam, Circuit Judge (1910)

FACTS:

Canada, Atlantic is a Canadian corporation, and Hayes was its director and president. The corporation sued
Hayes, for recovery of the salary and other payment/s (rent a room in Boston) paid to the latter. The
corporation argued that the salary was not legally authorized/established. Hayes contended that the salary
and payment was authorized by the executive committee in its meetings. Moreover, relies entirely both for
this and his salary on the alleged action of the executive committee and that of the board of directors. The
following matters were also established during the meetings: the Exec. Comm. (1) removed the Treasurer and
appointed a new one; (2) fixed the annual salary of the members of the Executive Committee; (3) amended
the by-laws by giving the President the sole authority tocall a stockholder's meeting and a board of directors
meeting; and (4) amended thecomposition of the Executive Committee by limiting it to just 2 persons.

ISSUE:

WON the actions were authorized by the corporation, thereby barring recovery from Hayes.

RULING:

NO. The Executive Committee usurped the powers vested in the board and the stockholders.  If their actions
were valid, it would put the corporation in a situation wherein only two men, acting in their own pecuniary
interests, would have absorbed the powers of the entire corporation.  "Full powers" should be interpreted only
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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in the ordinary conduct of business and not total abdication of board and stockholders' powers to the
Executive Committee. "FULL POWERS" does not mean unlimited or absolute power.

G.R. No. L-12282             March 31, 1959

THE BOARD OF DIRECTORS AND ELECTION COMMITTEE OF THE SMB WORKERS SAVINGS AND
LOAN ASSOCIATION, INC., ET AL., petitioners,
vs.
HON. BIENVENIDO A. TAN, ETC., ET AL., respondents.

FACTS:

John Castillo commenced a suit in the Court of First Instance of Manila to:

a. Declare the election of the members of the board of directors of SMB Workers Savings and Load null and
void;

b. Call and hold another election in accordance with its constitution and by-laws and the Corporation Law

Restrain defendants from exercising the functions of their officer since they have been illegally elected.

ISSUE:

WON the election of the board of directors was valid.

RULING:

NO. The constitution and by-laws of the petitioner association provide that notice of a special meeting of
members should be given at least five days before the date of the meeting. It appears that the notice was
posted on 26 March and the election was set for 28 March. Here, the notice requirement was not complied
with. Hence, the meeting where the election was held is not valid.
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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J Logan Johnston et.al v. Louis Johnston et.a.l

61 O.G. No.39, 6160 (1965)

FACTS:

Logan Johnston et.al.(Logan) and Louis Johnston et.al. (Louis) are shareholders of a family stock corporation
known as the Johnston Lumber Co., Inc. According to Article II Sec.1 of their by-laws, the annual meeting of
stockholders shall be held in the principal office of the corporation at Zamboanga during April. Pursuant to the
said provision, the annual stockholders meeting for 1963 was scheduled for April 3,1963. The purpose of the
meeting was to elect a new set of directors who would choose its new officers.

When the meeting was called to order by Louis, who was then presiding, requested the corporate secretary to
determine if there existed a quorum. During the said meeting, an election to select the board of directors and
officers was conducted. Logan Johnston requested that the shares he acquired from a certain Solis will be
registered in the books of the corporation for voting purposes. His request was denied, which prompted him to
walk-out from the meeting.

Later, in May 1963, Logan Johnston requested that a special stockholders meeting will be conducted on the
basis of his claim that he represents the majority stocks of the corporation. He wanted to conduct an election
for new board of directors and officers, contending that the previous meeting held was not valid because it did
not reach the quorum.

ISSUE:

WON the meeting in April 1963 was valid.

RULING:

As a general rule, a quorum at a stockholders' meeting, once reached, cannot be nullified by a subsequent
walkout.  

However, the proceedings can be nullified if the walkout was for a reasonable and justifiable cause. In this
case, F. Logan Johnston, who owned and/or represented more than 50% of the corporation's outstanding
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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shares, was prohibited from voting the shares of the Silos family (which he had validly purchased) and of the
minor children of Albert S. Johnston (of whom he was guardian) on the ground that such shares must first be
registered in the names of the wards, thereby prompting the walkout.  The Court of Appeals held that the
walkout was neither unreasonable nor unjustifiable.  It noted however that there was no formal declaration of
a quorum before the withdrawal from the meeting by F. Logan Johnston.

G.R. No. L-5883            November 28, 1953

DOMINGO PONCE AND BUHAY L. PONCE, petitioners,

vs.
DEMETRIO B. ENCARNACION, Judge of the Court of First Instance of Manila, Branch I, and
POTENCIANO GAPOL, respondents.

FACTS:

Daguhoy Enterprises, Inc. Called for a meeting for the voluntary dissolution of the corporation. Potenciano
Gapol, the largest stockholder, was appointed as the receiver. However, instead of filing the voluntary
dissolution, he instead filed clains against Domingo Ponce, et. Al. Later, Potenciano Gapol filed a petition in
court, praying that he will be allowed to call and preside a meeting with the stockholders. Two days later,
without notice to the Domingo Ponce et al. and to the other members of the board of directors and in violation
of the Rules of Court which require that the adverse parties be notified of the hearing of the motion three days
in advance, the court, presided by Judge Encarnacion, issued the order allowing Potenciano Gapol’s prayer.
Domingo Ponce, et al, learned only of this order of the court on 27 February, when the Bank of America
refused to recognize the new board of directors elected at such meeting and returned the checks drawn upon
it by the said board of directors.

ISSUE:

WON the meeting was valid.

RULING:

YES. Under and pursuant to section 26 of Act No. 1459, on the showing of good cause therefor the court may
authorize a stockholder to call a meeting and to preside thereat until the majority stockholders representing a
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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majority of the stockholders present and permitted to be voted shall have chosen one among them to preside
it. And this showing of good cause therefor exists when the court is apprised of the fact that the by-laws of the
corporation require the calling of a general meeting of 'the stockholders to elect the board of directors but the
call for such meeting has not been done.

The respondent court was satisfied that there was a showing of good cause for authorizing the respondent
Potenciano Gapol to call a meeting of the stockholders for the purpose of electing the board of directors as
required and provided for in the by-laws, because the chairman of the board of directors called upon to do so
had failed, neglected, or refused to perform his duty. It may be likened to a writ of preliminary injunction or of
attachment which may be issued ex-parte upon compliance with the requirements of the rules and upon the
court being satisfied that the same should be issue. Such provisional reliefs have not been deemed and held
as violative of the due process of law clause of the Constitution.

G.R. No. L-23428      November 29, 1968

DETECTIVE & PROTECTIVE BUREAU, INC., petitioner,

vs.
THE HONORABLE GAUDENCIO CLORIBEL, in his capacity as Presiding Judge of Branch VI, Court of
First Instance of Manila, and FAUSTINO S. ALBERTO, respondents.

FACTS:

Fausto Alberto was the managing director of Detective & Protective Bureau Inc. The corporation, in a
stockholders meeting, removed him from office, and elected Jose Dela Rosa to replace him. Fausto Alberto
refused and argued that Jose Dela Rosa could not be elected as managing director because he did not own
any stock in the corporation.

ISSUE:

WON Jose Dela Rosa can be elected as managing director.

RULING:

NO. Every director must own in his own right at least one share of the capital stock of the stock corporation of
which he is a director, which stock shall stand in his name on the books of the corporation (Sec. 30,
Corporation Law). So that, if the By-Laws of the Corporation provides that "The manager shall be elected by
the Board of Directors from among its members," one could not be a managing director of said corporation
unless he owns at least one share of stock thereof.
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There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he did not
own any share of stock, certainly he could not be a director pursuant to the mandatory provision of Section 30
of the Corporation Law, which in part provides:

There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he did not
own any share of stock, certainly he could not be a director pursuant to the mandatory provision of Section 30
of the Corporation Law.

Sec. 30. Every director must own in his own right at least one share of the capital stock of the stock
corporation of which he is a director, which stock shall stand in his name on the books of the corporations....

If he could not be a director, he could also not be a managing director of the corporation, pursuant to Article
V, Section 3 of the By-Laws of the Corporation which provides that:

The manager shall be elected by the Board of Directors from among its members.... (Record, p. 48)

If the managing director-elect was not qualified to become managing director, respondent Fausto Alberto
could not be compelled to vacate his office and cede the same to the managing director-elect because the by-
laws of the corporation provides in Article IV, Section 1 that "Directors shall serve until the election and
qualification of their duly qualified successor."

G.R. No. L-45911 April 11, 1979

JOHN GOKONGWEI, JR., petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE
ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO
PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R.
VISAYA, respondents.

FACTS:

On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and
Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of
filing of amended by- laws, injunction and damages with prayer for a preliminary injunction" against the majority
of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition,
entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC
Case No. 1375.

As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the
qualifications to be a director of respondent corporation, being a Substantial stockholder thereof; that as a
stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted
upon in the election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's
disqualification and deprived him of his vested right as afore-mentioned hence the amended by-laws are null and
void.

ISSUE:

WON the corporation had authority to prescribe the qualifications of directors that are expressly conferred by law.

RULING:

YES. In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the
qualifications, duties and compensation of directors, officers and employees ... " This must necessarily refer to a
qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director
must own in his right at least one share of the capital stock of the stock corporation of which he is a director ... "
In Government v. El Hogar, 14 the Court sustained the validity of a provision in the corporate by-law requiring that
persons elected to the Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall
be held as security for their action, on the ground that section 21 of the Corporation Law expressly gives the power
to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in
conformity with good practice. "

G.R. No. L-26555             November 16, 1926

BALDOMERO ROXAS, ENRIQUE ECHAUS and ROMAN J. LACSON, petitioners,

vs.
Honorable MARIANO DE LA ROSA, Auxiliary Judge of First Instance of Occidental Negros, AGUSTIN
CORUNA, MAURO LEDESMA and BINALBAGAN ESTATE, INC., respondents.

FACTS:
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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Binalbagan Estate, Inc., is a corporation having its principal plant in Occidental Negros where it is engaged in the
manufacture of raw sugar from canes grown upon farms accessible to its central. In July, 1924, the possessors of
a majority of the shares of the Binalbagan Estate, Inc., formed a voting trust composed of three members, namely,
Salvador Laguna, Segunda Monteblanco, and Arthur F. Fisher, as trustee. By the document constituting this voting
trust the trustees were authorized to represent and vote the shares pertaining to their constituents, and to this end
the shareholders undertook to assign their shares to the trustees on the books of the company. The total number
of outstanding shares of the corporation is somewhat over 5,500, while the number of shares controlled by the
voting trust is less than 3,000.

On February 1, 1926, the general annual meeting of the shareholders of the Binalbagan Estate, Inc., took place, at
which Mr. J. P. Heilbronn appeared as representative of the voting trust, his authority being recognized by the
holders of all the other shares present at this meeting. Upon said occasion Heilbronn, by virtue of controlling the
majority of the shares, was able to nominate and elect a board of directors to his own liking, without opposition
from the minority. After the board of directors had been thus elected and had qualified, they chose a set of officers
constituting of Jose M. Yusay, president, Timoteo Unson, vice-president, Jose G. Montalvo, secretary-treasurer,
and H. W. Corp and Agustin Coruna, as members. Said officials immediately entered upon the discharged of their
duties and have continued in possession of their respective offices until the present time.

ISSUE:

WON the removal of the old board of directors was valid.

RULING:

NO. Where it appears that a corporation already has a duly functioning board of directors, -without any existing
vacancies, the election of a new board of directors at a called meeting is irregular; and a Court of First Instance
has jurisdiction to enjoin the holding of a special meeting of the shareholders called by a committee representing a
majority of the shareholders, when the call shows that the purpose is to elect a new board of directors. The action
of the court in issuing a temporary injunction against the holding of such meeting will not be disturbed by the
Supreme Court upon petition for the writ of certiorari. Under the Law, directors can only be removed from office by
a vote of the stockholders representing 2/3 of subscribed capital stock, while vacancies can be filled by a mere
majority. A director cannot be removed by a mere majority by disguising it as filling a vacancy.

Although the present officers of the Binalbagan Estate, Inc., were elected by the representative of the voting trust,
the present trustee are apparently desirous of ousting said officers, without awaiting the termination of their
official terms at the expiration of one year from the date of their election.

G.R. No. L-43413             August 31, 1937

HIGINIO ANGELES, JOSE E. LARA and AGUEDO BERNABE,

as stockholders for an in behalf and for the benefit of the corporation, Parañaque Rice Mill, Inc. and
the other stockholders who may desire to join, plaintiffs-appellees,
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vs.
TEODORICO B. SANTOS, ESTANISLAO MAYUGA, APOLONIO PASCUAL, and BASILISA
RODRIGUEZ, defendant-appellants.

FACTS:

The complaint prays that the members of the board of directors of the Parañaque Rice Mill, Inc., be removed and
an exrtraodinary meeting of the stockholders called for the purpose of electing a new board of directors.

ISSUE:

WON the court can order the removal of the board of directors.

RULING:

NO. The Corporation Law, as amended, in sections 29 to 34, provide for the election and removal of the directors
of a corporation. Our Corporation Law (Act No. 1459, as amended), does not confer expressly upon the courts the
power to remove a director of a corporation. In some jurisdictions, statutes expressly provide a more or less
summary method for the confirmation of the election and for the amotion of the directors of a corporation. This is
true in New York, New Jersey, Virginia and other states of the American Union. There are abundant authorities,
however, which hold that if the court has acquired jurisdiction to appoint a receiver because of the
mismanagement of directors these may thereafter be removed and others appointed in their place by the court in
the exercise of its equity jurisdiction (2 Fletcher, Cyc. of Corp., ftn. sec. 358, pp. 118 and 119). In the present
case, however, the properties and assets of the corporation being amply protected by the appointment of a
receiver and in view of the statutory provisions above referred to, we are of the opinion that the removal of the
directors is, under the circumstances, unnecessary and unwarranted.

Campbell v. Loew's Inc.

37 Del. Ch. 17, 136 A.2d 191 (1957)

FACTS:

Joseph Vogel was president of Loew’s, Inc. (Loew’s) (defendant). Director Joseph Tomlinson and his supporters
attempted to control of Loew’s from Vogel and his supporters. Vogel sent notice setting a stockholders’ meeting in
September 1957 to fill director vacancies, increase the number of directors, and remove Tomlinson and another
director. Vogel sent out a letter claiming the directors were to be removed for cause because they had been
uncooperative, attempted to take control of Loew’s, and harassed the president and corporate officers. Vogel
refused to provide a stockholders’ list to the two directors. Campbell (plaintiff) filed suit in the Court of Chancery
seeking an injunction to stop the shareholders’ meeting, bar consideration of part of the agenda, or stop particular
proxy votes. Loew’s contested the motion, but the remaining defendants did not appear. The court entered an
order to postpone the meeting while the case was under consideration.

ISSUE:

WON the removal was valid.

BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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RULING:

YES. Stockholders have an implied power to remove a director for cause. Even when there is cumulative voting,
stockholders can still remove directors for cause.The injunction was denied as to the meeting itself, as the
president of the board of directors was authorized by the bylaws to call a stockholders' meeting and the bylaws
permit the stockholders to replace the directors for good cause; the injunction was granted as to proxy voting
owing to the failure to afford plaintiffs specifics about the allegations and an opportunity to be heard.

G.R. No. L-17504 & L-17506             February 28, 1969

RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, HORTENCIA SALAS, PAZ SALAS and PATRIA SALAS,
heirs of Magdalena Salas, as stockholders on their own behalf and for the benefit of the Ma-ao Sugar
Central Co., Inc., and other stockholders thereof who may wish to join in this action, plaintiffs-
appellants,
vs.
MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, MRS. RAMON S. ARANETA, ROMUALDO M.
ARANETA, and RAMON A. YULO, defendants-appellants.

FACTS:

This was a representative or derivative suit commenced on October 20, 1953, in the Court of First Instance of
Manila by four minority stockholders against the Ma-ao Sugar Central Co., Inc. and J. Amado Araneta and three
other directors of the corporation. One of the causes of action was illegal investments in the Mabuhay Printing,
P2,280,00, and the Acoje Mining, P7,000.00. The investments were made not in pursuance of the corporate
purpose and without the requisite authority of two-thirds of the stockholders.

ISSUE:

WON the investments were valid due to lack of stockholders approval.

RULING:

YES. Plaintiffs-appellants contend that the investment of corporate funds by defendants-appellants in another
corporation constitutes a violation of section ½ of the Corporation Law. The Supreme Court held that “such an act,
if done pursuance of the corporate purpose, does not need the approval of the stockholders; but when the
purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its
incorporation, the vote of approval of the stockholders is necessary,” and further states that “when purpose or
purposes as stated in its articles of incorporation, the approval of the stockholders is not necessary.”

The lower court’s order refraining the appellant corporation from making investment in other companies whose
purpose is not connected with the sugar central business should be reversed. This is because section 17½ of the
Corporation Law allows a corporation to “invest its funds in any other corporation or business, or for any purpose
BUSINESS ORGANIZATION II Based on the syllabus of Atty. Therese Xyza Gemelo - Abarca
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other than the main purpose for which it was organized,” provided that its board of directors has been so
authorized by the affirmative vote of stockholders holding shares entitling” them to exercise at least two-thirds of
the voting power.

IN RE GIANT PORTLAND CEMENT CO.

21 A. 2d 697, 1951

FACTS:

William Brown and Katherine Murray filed a petition for review on the validity of the election of directors of the
corporation in the stockholders meeting held on February 24, 1991. All powers were vested in the holders of the
common stock of the corporation. William Brown had 1,600 common shares, while Katherine Murray had 160
common shares. During the meeting, the board of directors used proxy during the election.

ISSUE:

WON the use of the proxy was valid.

RULING:

YES. Even if stocks are sold, the stockholder of record remains the owner of the stocks and has the voting right
until the new owner of the stock is registered in the record book of the corporation. Here, the stocks were sold but
not yet registered. As such, the vote of the proxy should still be counted. As long as it has not been registered, the
old stockholder in record shall remain effective, including the proxy. Thus, a proxy given by the stockholder of
record even if he has already sold the share/s of stock remains effective

State ex rel. Everett Trust & Savings Bank v. Pacific Waxed Paper Co.

No. 29264. April 16, 1945.

FACTS:

Jordan was the owner of all the capital stock of the Paine-Mitchell, Engle on the other hand was the owner of
preferred and common stock of Pacific Waxed Paper Company(PACIFIC WAXED). Paine-Mitchell was also an owner
of common stock of Pacific Waxed. All stocks of Pacific Waxed had voting power, and the combined shares of
Engle and Paine-Mitchell were more than a majority of all the issued stock. On 1931, Engle and Paine-Mitchell
entered into an agreement wherein both promise that before one sells or transfers any part or portion of the stock
then owned and held by each other, the person selling or transferring shall notify the other party of the intention
to sell or transfer, and also give the other party 15 days an exclusive right and option to purchase the stock
proposed to be sold or transferred. The agreement was to be in force for 25 years. On 1932, Engle, Paine-Mitchell
and Jordan entered into another agreement where they recited the fact that Jordan owned all of the stocks of
Paine-Mitchell. The contract also assured continuity of the present co-operation between them even after the death
of either Engle or Jordan.
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ISSUE:

WON he proxy to vote exercised by Engle was revocable.

RULING:

NO. The option and proxy agreements were both based upon a valid consideration. The proxy agreement provided
that the proxy should be irrevocable. The agreements did not violate any rule of public policy. Their purposeswere
lawful and beneficial to the parties to them, and no sufficient reason has been given why the intention of the
parties as expressed should not be carried out.The general rule is that a proxy given by a stockholder to vote is
corporate stock at a stockholders meeting of acorporation is revocable by him even though the proxy by its terms
is expressly made irrevocable.- The exceptions are: 1.) Where the authority or power is coupled with an interest
2.) where the authority is givenas part of a security or is necessary to effectuate such a securityIt is clear that from
the proxy agreement and the facts that the parties intended that the Paine-Mitchell stock should beused in
conjunction with the stock owned by Engle so that the policies of Pacific Waxed could be controlled. It wasagreed
that the proxy should exist and continue until such time as Engle should sell or transfer the stock owned byhim at
the time of the death of Jordan.

ALEJANDRINO V. DE LEON

FACTS:

PASUDECO held a meeting to elect a new board. Nine (9) respondents were voted. However, the 6,000 shares
held by Alejandrino was not accepted by the chairman and the secretary for registration and election. A quo
warranto was filed by De Leon, et al. to annul the election.

ISSUE:

WON the irrevocable proxies were not valid.

RULING:

NO. There are no allegations that the proxies were procured thru error, deceit, fraud or intimidation. The
circumstances of the case are not sufficient in law to vitiate or invalidate the proxies. The desire and design of a
majority of stockholders of a private corporation to control management and operations is legitimate per se.
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Rosenfeld v. Fairchild Engine & Airplane Corporation

FACTS:

Plaintiff, William Rosenfeld, filed a shareholder’s derivative action against Defendant corporation, Fairchild Engine &
Airplane Corp. and its directors, after Defendants spent Fairchild’s funds on proxy solicitation. The old board of
directors and the new board spent over $120,000 each in soliciting proxies for a shareholder vote for new
directors. After the new board won, they authorized Fairchild to reimburse the old board for most of their
expenses, and they voted to have Fairchild reimburse their own expenses. Plaintiff did not allege any fraudulent
behavior, and agreed that the expenses were reasonable, but nonetheless not legal.

ISSUE:

WON the directors can use the company treasury to fund the solicitation of proxies.

RULING:

YES. A corporation’s directors may spend the corporation’s money for proxy solicitation in a bona fide policy
contest provided that the amount is reasonable. When there is a good faith dispute concerning a significant policy,
the directors should be able to use corporate resources to fund proxy solicitations to ensure that the upcoming
vote receives the attention that it is due. In a situation such as the case at bar, the expenses were reasonable and
did go to a reasonable dispute between to factions.

Duffy v. Loft Inc.

17 Del. Ch. 140 (Del. Ch. 1930)

FACTS:

The argument has reduced the questions involved in this cause to two in number. 1. The first question is whether
the meeting which convened on March 19th was an invalid one because of the fact that Mr. Miller, the incumbent
president of the corporation, was not allowed to preside after the meeting was convened. A steno graphic report of
the meeting was made and the stenographer’s transcript of his notes is conceded by both factions to be as faith ful
an account of what transpired as it was possible for any person to get in the midst of the confusion that was at
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times prevalent. The rival factions had been engaged, prior to the meeting, in a rather strenuous campaign for
proxies and as soon as the meeting started, that happened which so often happens on such occasions, namely, the
spirit of contest which the proxy campaign had engendered began to show itself. The president, Mr. Miller, at the
hour of twelve, the time designated in the call for the convening of the meeting, appeared and commenced to
address the gathering of from 250 to 300 people there assembled. He did not get far before he was asked to
proceed in accordance with the by-laws. He replied that he had not yet called the meeting. There then followed a
great amount of discussion and argument. Whether the president formally opened the meeting or not, is of no
moment, for stockholders were present in response to the call and the president as a matter of fact made rulings
from the chair. Of course it was not in the power of the president to prevent the meeting by refusing or neglecting
to formally announce its opening. The first controversy that engaged the attention of the meeting presented the
question of who should preside.

ISSUE:

WON the corporation can pay for the expenses of the proxy solicitation.

RULING:

YES. Where a stockholder’s meeting was validly convened, the proxies must be deemed present even if the proxies
were not presented, provided: (a) their existence is established; (b) the agents were so designated to attend and
act in SH’s behalf; (c) the agents were present in the meeting.