Gokongwei v.

SEC
GR NO. L- 45911
Antonio, J.:

April 11, 1979

Facts:
John Gokongwei Jr., as stockholder of San
Miguel Corporation, filed with the SEC a petition
for "declaration of nullity of amended by-laws,
cancellation of certificate of filing of amended bylaws, 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.
Gokongwei alleged that the Board amended
the bylaws of the corporation, prescribing additional
qualifications for its directors, that no person shall
qualify or be eligible for nomination if he is
engaged in any business which competes with that
of the Corporation.
The board based their authority to do so on a
resolution of the stockholders. It was contended that
according to section 22 of the Corporation Law and
Article VIII of the by-laws of the corporation, the
power to amend, modify, repeal or adopt new bylaws may be delegated to the Board of Directors
only by the affirmative vote of stockholders
representing not less than 2/3 of the subscribed and
paid up capital stock of the corporation, which 2/3
should have been computed on the basis of the
capitalization at the time of the amendment. Since
the amendment was based on the 1961
authorization, Gokongwei contended that the Board
acted without authority and in usurpation of the
power of the stockholders.
Gokongwei claimed that prior to the
questioned amendment, he had all the qualifications
to be a director of the corporation, being a
substantial stockholder thereof; that as a
stockholder, Gokongwei had acquired rights
inherent in stock ownership, such as the rights to
vote and to be voted upon in the election of
directors; and that in amending the by-laws,
Soriano, et. al. purposely provided for Gokongwei's
disqualification and deprived him of his vested right

as afore-mentioned, hence the amended by-laws are

null and void.
As additional causes of action, it was alleged
that corporations have no inherent power to
disqualify a stockholder from being elected as a
director and, therefore, the questioned act is ultra
vires and void.
Issue:
Whether the corporation has the power to
provide for the (additional) qualifications of its
directors
Held:
YES. It is recognized by all authorities that
"every corporation has the inherent power to adopt
by-laws 'for its internal government, and to regulate
the conduct and prescribe the rights and duties of its
members towards itself and among themselves in
reference to the management of its affairs.'" 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." Any person
"who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a
majority of the stockholders and that he impliedly
contracts that the will of the majority shall govern
in all matters within the limits of the act of
incorporation and lawfully enacted by-laws and not
forbidden by law." To this extent, therefore, the
stockholder may be considered to have "parted with
his personal right or privilege to regulate the
disposition of his property which he has invested in
the capital stock of the corporation, and surrendered
it to the will of the majority of his fellow
incorporators. It cannot therefore be justly said that
the contract, express or implied, between the
corporation and the stockholders is infringed by any
act of the former which is authorized by a majority."
Pursuant to section 18 of the Corporation Law, any

corporation may amend its articles of incorporation

by a vote or written assent of the stockholders
representing at least two-thirds of the subscribed
capital stock of the corporation. If the amendment
changes, diminishes or restricts the rights of the
existing shareholders, then the dissenting minority
has only one right, viz.: "to object thereto in writing
and demand payment for his share." Under section
22 of the same law, the owners of the majority of
the subscribed capital stock may amend or repeal
any by-law or adopt new by-laws. It cannot be said,
therefore, that Gokongwei has a vested right to be
elected director, in the face of the fact that the law
at the time such right as stockholder was acquired
contained the prescription that the corporate charter
and the by-law shall be subject to amendment,
alteration and modification.
Note:
A corporation is authorized to prescribe
qualifications of its directors; such is not invalid,
provided, however that before such nominee is
disqualified, he should be given due process to
show that he is not covered by such disqualification.
A director stands in fiduciary relation to the
corporation
and
its
stockholders.
The
disqualification of a competition from being elected
to the board of directors is a reasonable exercise of
corporate authority. Sound principles of corporate
management counsel against sharing sensitive
information with a director whose fiduciary duty to
loyalty may require that he discloses this
information to a competitive rival.

corporation approved two (2) resolutions providing

for the gratuity pay of its employees.
Private respondents were the retained employees of
the Corporation. In a letter, the private respondents
requested for the full payment of their gratuity pay.
Their request was granted in a special meeting held.
At that, time, however, Gonzales was still abroad.
Allegedly, while she was still out of the country, she
sent a cablegram to the corporation, objecting to
certain matters taken up by the board in her
absence, such as the sale of some of the assets of the
corporation. Upon her return, she filed a derivative
suit with the SEC against majority shareholder
Lopez.
Notwithstanding the "corporate squabble" between
Gonzales and Lopez, the first two (2) installments
of the gratuity pay of the private respondents were
paid by the corporation. Also, the corporation had
prepared the cash vouchers and checks for the third
installments of gratuity pay of said private
respondents.
For some reason, said vouchers were cancelled by
Gonzales. Likewise, the first, second and third
installments of gratuity pay of the rest of private
respondents were prepared but cancelled by
Gonzales. Despite private respondents' repeated
demands for their gratuity pay, corporation refused
to pay the same.

Lopez Realty Inc. v. Fontecha

Issue:
Whether the corporation is bound to grant its
employees gratuity pay despite the lack of notice to
a board director during the meeting wherein the said
resolution was passed

Facts:
Lopez Realty, Inc., is a corporation engaged in real
estate business, petitioner Gonzales is one of its
majority shareholders.
Sometime in 1978, Lopez submitted a proposal
relative to the the reduction of employees with
provision for their gratuity pay. The proposal was
deliberated upon and approved in a special meeting
of the board of directors. It appears that petitioner

Held:
YES. As a general rule, a corporation through its
board of directors should act in the manner and
within the formalities prescribed by its charter or by
the general law. Thus, directors must act as a body
in a meeting called pursuant to the law or
corporations by- laws, otherwise any action may be
questioned by any objecting stockholder. However,
an action of the board of directors during a meeting,

which was illegal for lack of notice may be ratified

either expressly, by the action of the directors in
subsequent legal meeting or impliedly by the
corporations subsequent course of conduct. Thus, a
director who was not notified of a board meeting is
precluded from questioning the validity of the
resolution granting gratuity pay to employee
approved at that meeting if she later on acquiesced
to it by signing the vouchers for the payment of the
gratuity pay.

193 SCRA 717 Business Organization

Corporation Law Board resolutions may be
questioned by third persons Board Meetings
Quorum Sale of Corporate Properties
In 1962, the Pampanga Bus Company
(PAMBUSCO) took out a loan from the
Development Bank of the Philippines (DBP).
PAMBUSCO used the parcels of land it owns to
secure the loan. In October 1974, due to
PAMBUSCOs nonpayment, DBP foreclosed the
parcels of land. Rosita Pea was the highest bidder.
Meanwhile, in November 1974, the Board of
Directors of PAMBUSCO had a meeting. The
meeting was attended by only 3 out of the 5
Directors. In the said meeting, the Board, through a
resolution, authorized one of the directors, Atty.
Joaquin Briones, to assign the properties of
PAMBUSCO. Pursuant to the resolution, Briones
assigned PAMBUSCOs assets to Marcelino
Enriquez. Enriquez, knowing that the properties
were previously mortgaged and foreclosed,
exercised PAMBUSCOs right to redeem. So in
August 1975, he redeemed the said properties and
thereafter he sold them to Rising Yap.
Yap then registered the properties under his name.
He then demanded Pea to vacate the properties.
Pea refused to do hence Yap filed a complaint. In
her defense, Pea averred that Yap acquired no legal
title over the property because the board resolution

issued by PAMBUSCO in November 1974 is void;

that it is void because the resolution was issued
without a quorum; that there was no quorum
because under the by-laws of PAMBUSCO, a
quorum constitutes the presence of 4 out of 5
directors yet the meeting was only attended by three
directors. As such, the authority granted to Briones
to assign the properties is void; that the subsequent
assignment by Briones to Enriquez is void; that
Enriquez acquired no title hence, likewise, Yap
acquired no title. Yap insists that Pea has no legal
standing to question the board resolution because
she is not a stockholder.
ISSUE: Whether or not the board resolution is
valid.
HELD: No, it is void. The by-laws are the laws of
the corporation. PAMBUSCOs by-laws provides
that a quorum consists of at least four directors.
Hence, the meeting attended by only three directors
did not comply with the required quorum. As such,
the three directors were not able to come up with a
valid resolution which could bind the corporation.
Anent the issue of Pea being a third person, she
can question the board resolution. The resolution
here is liken to a contract. Under the law, a person
who is not a party obliged principally or subsidiarily
in a contract may exercise an action for nullity of
the contract if he or she is prejudiced in his or her
rights with respect to one of the contracting parties,
and can show the detriment which would positively
result to him or her from the contract in which he or
she had no intervention.
Further, the sale of the properties of PAMBUSCO
did not comply with the procedure laid down by the
Corporation Law. Under the law, the sale or
disposition of an and/or substantially all properties
of the corporation requires, in addition to a proper
board resolution, the affirmative votes of the
stockholders holding at least two-thirds (2/3) of the
voting power in the corporation in a meeting duly
called for that purpose. No doubt, the questioned
resolution was not confirmed at a subsequent

stockholders meeting duly called for the purpose by

the affirmative votes of the stockholders holding at
least two-thirds (2/3) of the voting power in the
corporation.
Further still, the Supreme Court discovers a few
other anomalies with PAMBUSCO. One is that
PAMBUSCO has been inactive since 1949 as per
the records provided by the Securities and
Exchange Commission. Its general information
sheet with the SEC has not been updated regularly
even. And the three directors present were not even
listed as current directors of PAMBUSCO.
4. Caltex (Phils), Inc. v. PNOC Shipping and
Transport Corporation
Facts:
PSTC and Luzon Stevedoring Corporation
(LUSTEVECO) entered into an Agreement of
Assumption of Obligations, which provides that
PSTC shall assume all obligations of
LUSTEVECO with respect to certain claims
enumerated in the Annexes of the Agreement. This
Agreement also provides that PSTC shall control
the conduct of any litigation pending which may
be filed with respect to such claims, and that
LUSTEVECO appoints and constitutes PSTC as its
attorney-in-fact to demand and receive any claim
out of the countersuits and counterclaims
arising from said claims. Among the actions
mentioned is Caltex (Phils) v. Luzon Stevedoring
Corporation, which was then pending appeal before
the IAC. The IAC affirmed the decision of the
CFI ordering LUSTEVECO to pay Caltex
P103,659.44 with legal interest. When the decision
became final and executor, a writ of execution was
issued in favor of Caltex but such judgment
was not satisfied because of the prior foreclosure of
LESTEVECOs properties.
Upon learning of the Agreement between PSTC and
LUSTEVECO, Caltex demanded
payment from PSTC and brought the action. The
RTC ruled in favor of Caltex but the CA
reversed on appeal. CA ruled that Caltex has no
personality to sue PSTC, that non-compliance

with the Agreement could only be questioned by

signatories of the contract, and that only
LUSTEVECO and PSTC who can enforce
Agreement. The CA also rendered fatal the
omission of
LUSTEVECO, as real party in interest, as party
defendant, and that Caltex is not a beneficiary of
a stipulation pour atrui because there is no
stipulation which clearly and deliberately favors
Caltex.
Issues:
1. Whether PSTC is bound by the Agreement when
it assumed all the obligations of
LUSTEVECO; and
2. Whether Caltex is a real party in interest to file an
action to recover from PSTC the
judgment debt against LUSTEVECO.
Held:
1. Yes. Caltex may recover the judgment debt from
PSTC not because of a stipulation in
Caltexs favor but because the Agreement provides
that PSTC shall assume all the
obligations of LUSTEVECO. LUSTEVECO
transferred, conveyed and assigned to PSTC
all of LUSTEVECOs business, properties and
assets pertaining to its tanker and bulk
business together with all the obligations relating
to the said business, properties and
assets. The assumption of obligations was
stipulated not only in the Agreement of
Assumption of Obligations but also in the
Agreement of Transfer.
Even without the Agreement, PSTC is still liable.
While the Corporation Code
allows the transfer of all or substantially all the
properties and assets of a corporation, the
transfer should not prejudice the creditors of the
assignor by holding the assignee liable
for the formers obligations. To allow an assignor to
make a transfer without the consent
of its creditors and without requiring the assignee to
assume the formers obligations will
defraud creditors. In the case of Oria v. McMicking,
the Court enumerated the badges of

fraud including a transfer made by a debtor after

suit has been begun and while it is
pending against him, and the transfer of all or nearly
all of his property by a debtor,
especially when he is insolvent or greatly
embarrassed financially.
The Agreement also constitutes a novation of
LUSTEVECOs obligations by
substituting the person of the debtor. And because it
was done without the consent of
Caltex, the assets transferred remain even in the
hands of PSTC still subject to execution
to satisfy the judgment claim of Caltex.
2. Yes. Ordinarily, one who is not privy to a contract
may not bring an action to enforce it.
But this case falls under the exception when those
who are not principally or subsidiarily
LIDATED MINING CO.
Facts: Pursuant to an agreement in a management
contract regarding the compensation of Nielson,
Lepanto Consolidated will pay Nielson 10% of any
dividends declared and paid. Lepanto declared
stock dividends worth one million in 1949 and two
million in 1950. This was during the period
covered by an extension in the management
contract. Nielson sued for his share in the stock
dividends. The Supreme Court declared that
Nielson was entitled to receive 10% of the stock
dividends declared or shares of stock worth 300T.
In this motion for reconsideration, Lepanto
maintains that the court erred in such order because
it is a violation of the Corporation Law, Section 16.
Issue: Whether or not a corporation can issue stock
dividends to a person who is not a stockholder in
payment of services rendered.
Decision: The Supreme Court ruled that Nielson is
not entitled to a share in the stock dividends since
he is not a stockholder. However, he must still be
paid his 10% fee using as the basis for computation
the cash value of the stock dividends declared.
Important Points on the Case of Nielson:

Effects of the Inclusion of a Non-stockholder as a

Stock Dividend Beneficiary
1. It deprives a stockholder of his right share in the
corporate profits.
2. The proportion of a stockholders interest
changes radically to his or her detriment.
3. The non-stockholder benefits without assuming
the same risks as those born by a stockholder.
Source of Dividends
General Rule: No Stock dividend may be declared,
except out of unrestricted retained earnings.
Retained Earnings the net accumulated earnings
of the corporation out transactions with individuals
or firms outside of the corporation. Retained
earnings include earnings from the sale of goods or
services in the ordinary course of its business, as
well as earnings from the sale of corporate property
other than its stock in trade, at a price higher than
cost.
Implicit from the term retained earnings is the
limitation that a corporation has no power to declare
dividends unless its legal or stated capital is
maintained.
Retained earnings do not include transactions
involving treasury stock, since the purchase and sale
of such stock are regarded as contractions and
expansions or paid-in capital. Neither do they
include donations which are also considered as
additional paid-in capital. Where the value of
existing assets has increased and a are appraisal is
made, the increase is merely an unrealized capital
element and therefore does not constitute earnings
from which dividends, whether in cash or stock,
may be declared.
Unrestricted Retained Earnings the undistributed
earnings of the corporation which have NOT been
allocated for any managerial, contractual or legal

purposes and which are free for distribution to the

stockholders as dividends.
220 SCRA 103 Commercial Law Corporation
Code Award of Moral Damages to Corporations
Self-Dealing Director
In July 1969, Zosimo Falcon and Justo Trazo
entered into an agreement with Alejandro Te
whereby it was agreed that from 1970 to 1976, Te
shall be the sole dealer of 20,000 bags Prime White
cement in Mindanao. Falcon was the president of
Prime White Cement Corporation (PWCC) and
Trazo was a board member thereof. Te was likewise
a board member of PWCC. It was agreed that the
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 public that he is the sole
dealer of cements in Mindanao. Various hardwares
then approached him to be his sub-dealers, hence,
Te entered into various contracts with them.
But then apparently, Falcon and Trazo were not
authorized by the Board of PWCC to enter into such
contract. Nevertheless, the Board wished to retain
the contract but they wanted some amendment
which includes the increase of the selling price per
bag to P13.30 and the decrease of the total amount
of cement bags from 20k to 8k only plus the
contract shall only be effective for a period of three
months and not 6 years.
Te refused the counter-offer. PWCC then awarded
the contract to someone else.
Te then sued PWCC for damages. PWCC filed a
counterclaim and in said counterclaim, it is claiming
for moral damages the basis of which is the claim
that Tes filing of a civil case against PWCC
destroyed the companys goodwill. The lower court
ruled in favor Te.
ISSUE: Whether or not the ruling of the lower
court is correct.

HELD: No. Te is what can be called as a selfdealing director he deals business with the same
corporation in which he is a director. There is
nothing wrong per se with that. However, Sec. 32
provides that:
SEC. 32. Dealings of directors, trustees or
officers with the corporation. - A contract of the
corporation with one or more of its directors or
trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are
present:
1. That the presence of such director or trustee in
the board meeting in which the contract was
approved was not necessary to constitute a quorum
for such meeting;
2. That the vote of such director or trustee was not
necessary for the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances; and
4. That in the case of an officer, the contract with
the officer has been previously authorized by the
Board of Directors.
In this particular case, the Supreme Court focused
on the fact that the contract between PWCC and Te
through Falcon and Trazo was not reasonable.
Hence, PWCC has all the rights to void the contract
and look for someone else, which it did. The
contract is unreasonable because of the very low
selling price. The Price at that time was at least
P13.00 per bag and the original contract only
stipulates P9.70. Also, the original contract was for
6 years and theres no clause in the contract which
protects PWCC from inflation. As a director, Te in
this transaction should protect the corporations
interest more than his personal interest. His failure
to do so is disloyalty to the corporation.
Anent the issue of moral damages, there is no
question that PWCCs goodwill and reputation had
been prejudiced due to the filing of this case.

However, there can be no award for moral damages

under Article 2217 of the Civil Code in favor of a
corporation.
A U R B A C H
v .
S A N I T A R Y
W A R E S
M A N U F A C T U R I N
C O R P .
( S A N I W A R E S ) *
15 Dec 1989 G.R. No. 75875 Gutierrez, Jr.,
J.

TOPIC
:
A corporation is without capacity/power to enter
into a contract of partnership because but may
enter into a JV
SUMMARY
:
At the 1983 Saniwares stockholders'
meeting, 2 groups (ASI group/foreign
stockholders, Lagdameo group/Filipino
stockholders) could not agree on the manner
of voting in the BOD elections. Each group
declared its own set of directors. Affirming
the SEC, SC held that the enterprise was a
JV, not a corporation (
I think, hence the rules on partnership, not the
Corporation Code, apply
). Filipino investors' majority status should be
maintained in view of the requirements of
public policy.
NATURE
:
Two consolidated petitions seeking review
of the amended CA decision.
*NOT SURE if I understood the case correctly. SC
kept quoting the SEC/CA decisions without really
explaining anything.

Aug. 1962 - Delaware corp. American

Standard Inc. (ASI), Saniwares, and Filipino

investors entered into an Agreement: ASI and

investors agreed to participate in the
ownership of an enterprise engaged in
manufacturing vitreous china and sanitary
wares in PH, selling in PH and abroad.
o
Operations in PH shall be carried on by an
incorporated enterprise and the name of the
corporation shall initially be "Sanitary Wares
Manufacturing Corporation".

Relevant provisions of the Agreement (re:

nomination and election of directors):
3. Articles of Incorporation. (a) The Articles of
Incorporation of the Corporation shall be
substantially in the form annexed hereto as Exhibit
A and, insofar as permitted under Philippine law,
shall specifically provide for: (1)
Cumulative voting for directors
; 5. Management. (a) The management of the
Corporation shall be vested in a Board of Directors,
which shall consist of nine individuals.
As long as American-Standard shall own at least
30% of the outstanding stock of the Corporation,
three of the nine directors shall be designated by
American-Standard
, and the
other six shall be designated by the other
stockholders of the Corporation
.

At ASI's request, Agreement contained

provisions protecting it as a minority group
, including grant of veto powers over a
number of corporate acts and right to
designate certain officers.

ASI's 30% capital stock was increased to

40%
. The corporation was registered with the
BOI for availment of incentives with

condition: at least 60% of capital stock shall

be owned by PH nationals.

Business prospered but the relations between

parties deteriorated. Filipino group wanted to
expand the export operations; ASI objected
as it had other subsidiaries/ JV groups in the
proposed countries.

Mar. 1983 - Annual stockholders' meeting;

elections were held, chaired by Baldwin
Young. Nominees:
o
ASI (3): Wolfgang Aurbach, John Griffin,
and David Whittingham.
o
Fil. investors (6): Ernesto Lagdameo Sr. & Jr.,
Enrique Lagdameo, Raul Boncan, George Lee, and
Young.
o
Eduardo Ceniza then nominated Luciano
Salazar, who in turn nominated Charles
Chamsay.
o
Chairman Young ruled the
last 2 nominations out of order
based on 5(a) of the Agreement +
consistent practice of nominating only 9
persons for the 9-member BOD, + legal
counsel's advice.
o
Heated arguments ensued. Votes were cast
for the different nominees including Salazar
and Chamsay. Chairman nevertheless
instructed the Secretary to cast all votes
equally in favor of the first 9. Meeting was
adjourned. Chairman threatened to have
protesters bodily thrown out.

o
ASI Group, Salazar, and other stockholders
allegedly representing 53-54% of the shares
of Saniwares decided to continue the meeting
at the elevator lobby.
!
ASI nominated Aurbach, Griffin,
Whittingham, and Chamsay. Salazar voted
for himself. These 5 were certified as elected
directors by the Acting Secretary Andres
Gatmaitan.

These incidents triggered separate petitions filed at

SEC (both sets claiming to be legitimate directors).
1.
Preliminary injunction by Saniwares,
Lagdameo, et al. vs. Salazar and Chamsay 2.
Quo warranto
and application for receivership by the
Aurbach group vs. the Lagdameo group

SEC upheld the election of the Lagdameo

group
; dismissed the
quo warranto
petition. Affirmed by SEC en banc. (Note:
cases were consolidated and jointly heard.)

IAC remanded to SEC

with directive that a new stockholders'
meeting be ordered convoked ASAP.

On MR, CA upheld the SEC

and directed: In all subsequent elections, ASI
cannot nominate more than 3 directors;
Filipino stockholders shall not interfere in
ASI's choice; Filipino stockholders can

nominate only 6 (if they cannot agree on the

5, they shall vote among themselves, with
cumulative voting to be allowed but without
interference from ASI)
Commercial Law Corporation Law Derivative
Suit
Legal Ethics Conflict of Interests
Benedicto Hornilla and Federico Ricafort were
members of the Philippine Public School Teachers
Association (PPSTA). In 1997, they accused the
Board of Directors of PPSTA of unlawfully
spending the funds of PPSTA. However, since the
PPSTA was not initiating a complaint against the
Board of Directors, the two then filed a suit on
behalf of PPSTA against the Board of PPSTA.
In the said suit, the Board of Directors were
represented by Atty. Ernesto Salunat. Hornilla et al
were against the legal representation being made by
Salunat for and on behalf of the Board of Directors
because of the fact that Salunat is part of the ASSA
Law Offices. And the ASSA Law Offices happen to
be the retained law firm of the PPSTA. In short,
Hornilla et al alleged that there is conflict of
interests.
ISSUE: Whether or not there is conflict of interest.
HELD: Yes. The suit filed by Hornilla et al against
the Board of PPSTA is a derivative suit. Where
corporate directors have committed a breach of trust
either by their frauds, ultra vires acts, or negligence,
and the corporation is unable or unwilling to
institute suit to remedy the wrong, a stockholder (in
this case a member because PPSTA is non-stock)
may sue on behalf of himself and other stockholders
and for the benefit of the corporation, to bring about
a redress of the wrong done directly to the
corporation and indirectly to the stockholders. In
such a case, even though it was the members who
filed the case and not the corporation itself, the real
party in interest is still the corporation (PPSTA) and
the suing members (Hornilla et al) are only the
nominal party.

Therefore, since it is the corporation suing, Salunat

cannot represent the Board Members of PPSTA
because he is a member of ASSA Law Office which
is the retained law firm of PPSTA. Surely, there is
conflict of interest in him representing the Board
while his law office represents the corporation.
Salunat was admonished by the Supreme Court.

Peoples Aircargo and Warehousing Co., Inc. vs.

Court of Appeals [October 7, 1998]
Post under case digests, Commercial Law at
Wednesday, March 21, 2012 Posted by
Schizophrenic Mind
Facts: Petitioner is a domestic corporation
organized in 1986 to operate a customs bonded
warehouse at the old Manila International Airport
(MIA). To obtain a license from the Bureau of
Customs, Antonio Punsalan, Jr., the corporation
president, solicited a proposal from private
respondent Stefani Sano for the preparation of a
feasibility study. Sano submitted a letter proposal
dated October 17, 1986 (First Contract) to Punsalan
regarding his request for professional engineering
consultancy services which services are offered in
the amount of P350,000.00. Initially, Cheng Yang,
the majority stockholder of petitioner, objected to
said offer as another company can provide for the
same service at a lower price. However, Punsalan
preferred Sanos services because of latters
membership in the task force, which task force was
supervising the transition of the Bureau from the
Marcos to the Aquino government. Petitioner,
through Punsalan, thereafter confirmed the
contract.
On December 4, 1986, upon Punsalans request,
private respondent sent petitioner another letterproposal (Second Contract) which offers the same
service already at P400,000.00 instead of the
previous P350,000.00 offer. On January 10, 1987,
Andy Villaceren, vice-president of petitioner,
received the operations manual prepared by Sano

and which manual operations was submitted by

petitioner to the Bureau in compliance for its
application to operate a bonded warehouse.
Thereafter, in May 1987, the Bureau issued to it a
license to operate. Private respondent also
conducted in the third week of January 1987 in the
warehouse of petitioner, a three-day training
seminar for the petitioners employees.
On February 9, 1988, private respondent filed a
collection suit against petitioner. He alleged that he
had prepared an operations manual for petitioner,
conducted a seminar-workshop for its employees
and delivered to it a computer program but that
despite demand, petitioner refused to pay him for
his services. Petitioner, on its part, denied that Sano
had prepared such manual operations and at the
same time alleged that the letter-agreement was
signed by Punsalan without authority and as such
unenforceable. It alleges that the disputed contract
was not authorized by its board of directors.
Issue: Whether or not the Second Contract signed
by Punsalan is enforceable and binding against
petitioner.
Held: Yes, the Second Contract is binding and
enforceable. The general rule is that, in the absence
of authority from the board of directors, no person,
not even its officers, can validly bind a corporation.
A corporation is a juridical person, separate and
distinct from its stockholders and members having
xxx powers, attributes and properties expressly
authorized by law or incident to its existence. Being
a juridical entity, a corporation may act through its
board of directors, which exercises almost all
corporate powers, lays down all corporate business
policies and is responsible for the efficiency of
management, as provided in Section 23 of the
Corporation Code.
However, it is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other
agent, to act within the scope of an apparent
authority, it holds him out to the public as

possessing the power to do those acts and thus, the

corporation witll, as against anyone who has in
good faith dealt with it through such agent, be
estopped from denying the agents authority. Thus
private respondent shall not be faulted for believing
that Punsalans conformity to the contract in dispute
was also binding on petitioner. In the case at bar,
petitioner, through its president Antonio Punsalan
Jr., entered into the First Contract without first
securing board approval. Despite such lack of board
approval, petitioner did not object to or repudiate
said contract, thus "clothing" its president with the
power to bind the corporation. The grant of
apparent authority to Punsalan is evident in the
testimony of Yong senior vice president,
treasurer and major stockholder of petitioner.
Furthermore, private respondent prepared an
operations manual and conducted a seminar for the
employees of petitioner in accordance with their
contract. Petitioner accepted the operations manual,
submitted it to the Bureau of Customs and allowed
the seminar for its employees. As a result of its
aforementioned actions, petitioner was given by the
Bureau of Customs a license to operate a bonded
warehouse. Granting arguendo then that the Second
Contract was outside the usual powers of the
president, petitioner's ratification of said contract
and acceptance of benefits have made it binding,
nonetheless. The enforceability of contracts under
Article 1403(2) is ratified "by the acceptance of
benefits under them" under Article 1405.
DONALD KWOK, petitioner,
vs. PHILIPPINE CARPET MANUFACTURING
CORPORATION, respondent.
[G.R. No. 149252. April 28, 2005]
FACTS:
Petitioner filed a complaint against the respondent
corporation for the recovery of accumulated
vacation and sick leave credits before the NLRC.
Petitioner clung to the verbal contract with Mr. Lim,
the President of the respondent corporation and his
father-in-law for his claims. Petitioner obtained

favorable judgment. In their appeal, respondent

averred that the position the petition held was not
entitled cash conversions of vacation and sick leave
credits. The decision of the Labor Arbiter was
reversed. The Court of Appeals affirmed the
reversed decision.
ISSUE:
Whether or not the verbal contract in favor of
petitioner is valid.
RULING:
NO. It is true that for a contract to be binding on the
parties thereto, it need not be in writing unless the
law requires that such contract be in some form in
order that it may be valid or enforceable or that it be
executed in a certain way, in which case that
requirement is absolute and independent. (Art.
1356, NCC) But the court disbelieved petitioners
testimony and gave credence and probative weight
to the collective testimonies of the employees and
officers of the respondent corporation, including
Mr. Lim, whom the petitioner presented as a hostile
witness. Even assuming that the petitioner was
entitled of such benefits, there was no record to
show the record of absences to arrive at the actual
number of leave credits. There was no conformity
of such agreement with the Board and if so, such
claim was already barred by prescription under
Article 291 of the Labor Code.
Francisco vs GSIS (1963)
February 14, 2013 markerwins Corporation Law,
Mercantile Lawcorpo, merc
Facts: The plaintiff, Trinidad J. Francisco, in
consideration of a loan mortgaged in favor of the
defendant, Government Service Insurance System a
parcel of land known as Vic-Mari Compound,
located at Baesa, Quezon City. The System
extrajudicially foreclosed the mortgage on the
ground that up to that date the plaintiff-mortgagor
was in arrears on her monthly instalments. The

System itself was the buyer of the property in the

foreclosure sale. The plaintiffs father, Atty. Vicente
J. Francisco, sent a letter to the general manager of
the defendant corporation, Mr. Rodolfo P. Andal.
And latter the System approved the request of
Francisco to redeem the land through a telegram.
Defendant received the payment and it did not,
however, take over the administration of the
compound. The System then sent a letter to
Francisco informing of his indebtedness and the 1
year period of redemption has been expired. And
the System argued that the telegram sent to
Francisco saying that the System has approved the
request in redeeming the property is incorrect due to
clerical problems.
Issue: WON the System is liable for the acts of its
employees regarding the telegram?
Held: Yes. There was nothing in the telegram that
hinted at any anomaly, or gave ground to suspect its
veracity, and the plaintiff, therefore, can not be
blamed for relying upon it. There is no denying that
the telegram was within Andals apparent authority.
Hence, even if it were the board secretary who sent
the telegram, the corporation could not evade the
binding effect produced by the telegram.
Knowledge of facts acquired or possessed by an
officer or agent of a corporation in the course of his
employment, and in relation to matters within the
scope of his authority, is notice to the corporation,
whether he communicates such knowledge or not.
Yet, notwithstanding this notice, the defendant
System pocketed the amount, and kept silent about
the telegram not being in accordance with the true
facts, as it now alleges. This silence, taken together
with the unconditional acceptance of three other
subsequent remittances from plaintiff, constitutes in
itself a binding ratification of the original
agreement.

is not reasonable for it was too long and onerous to

thebusiness.Woodchild Holdings vs. Roxas
ElectricG.R. No. 140667; August 12, 2004FACTS:
The respondent was the owner of two parcels of
landlocated along the Sumulong Highway.
Petitioner wanted tobuy the one parcel on which it
planned to construct itswarehouse building. Roxas,
as the president of respondentcompany, accepted
the offer through the BOD resolutionissued by the
latter. However, the respondent posits thatRoxas
was not so authorized under the May 17,
1991Resolution of its Board of Directors to impose
a burden or togrant a right of way in favor of the
petitioner on Lot No.491-A-3-B-1, much less
convey a portion thereof to thepetitioner. Hence, the
respondent was not bound by suchprovisions
contained in the deed of absolute sale.ISSUE:WON
whether the respondent is bound by theprovisions in
the deed of absolute sale granting to thepetitioner
beneficial use and a right of way over a portion of
Lot No. 491-A-3-B-1 accessing to the Sumulong
Highway.HELD:NO. Generally, the acts of the
corporate officerswithin the scope of their authority
are binding on thecorporation. However, under
Article 1910 of the New CivilCode, acts done by
such officers beyond the scope of theirauthority
cannot bind the corporation unless it has
ratifiedsuch acts expressly or tacitly, or is estopped
from denyingthem. Thus, contracts entered into by
corporate officersbeyond the scope of authority are
unenforceable against thecorporation unless ratified
by the corporation.Evidently, Roxas was not
specifically authorizedunder the said resolution to
grant a right of way in favor of the petitioner on a
portion of Lot No. 491-A-3-B-1 or toagree to sell to
the petitioner a portion thereof. Theauthority of
Roxas, under the resolution, to sell Lot No. 491-A3-B-2 covered by TCT No. 78086 did not include
theauthority to sell a portion of the adjacent lot, Lot
No. 491-A-3-B-1, or to create or convey real rights
thereon. Neithermay such authority be implied from
the authority granted toRoxas to sell Lot No. 491A-3-B-2 to the petitioner on suchterms and
conditions which he deems most reasonable
andadvantageous. The general rule is that the

power of attorney must be pursued within legal

strictures, and theagent can neither go beyond it;
nor beside it. The act donemust be legally identical
with that authorized to be done. Insum, then, the
consent of the respondent to the assailedprovisions
in the deed of absolute sale was not obtained;hence,
the assailed provisions are not binding on it. The
doctrine of apparent authority was not applicablein
this case because the president of the company
wasgiven a specific authority by virtue of a board
resolution tosell a particular land. Any actions of the
president outsidesuch vested authority shall not bind
the corporation withthird party. The apparent power
of an agent is to bedetermined by the acts of the
principal and not by the actsof the agent.
ientalist Co. (1918)
Ramirez vs Orientalist Co. (1918)
February 14, 2013 markerwins Corporation Law,
Mercantile Lawcorpo, merc
Facts: Orientalist Company was engaged in the
business of maintaining and conducting a theatre in
the city of Manila for the exhibition of
cinematographic films. engaged in the business of
marketing films for a manufacturer or
manufacturers, there engaged 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. The directors of
the Orientalist Company became apprised of the
fact that the plaintiff in Paris had control of the
agencies for two different marks of films, namely,
the Eclair Films and the Milano Films; and
negotiations were begun with said officials of the
Orientalist Company by Jose Ramirez, as agent of
the plaintiff. The defendant Ramon J. Fernandez,
one of the directors of the Orientalist Company and
also its treasure, was chiefly active in this matter.
Ramon J. Fernandez had an informal conference
with all the members of the companys board of
directors except one, and with approval of those

with whom he had communicated, addressed a letter

to Jose Ramirez, in Manila, accepting the offer
contained in the memorandum the exclusive agency
of the Eclair films and Milano films. In due time
the films began to arrive in Manila, it appears that
the Orientalist Company was without funds to meet
these obligations. Action was instituted by the
plaintiff to Orientalist Company, and Ramon J.
Fernandez for sum of money.
Issue: WON the Orientalist Co. is liable for the acts
of its treasurer, Fernandez?
Held: Yes. It will be observed that Ramon J.
Fernandez was the particular officer and member of
the board of directors who was most active in the
effort to secure the films for the corporation. The
negotiations were conducted by him with the
knowledge and consent of other members of the
board; and the contract was made with their prior
approval. In the light of all the circumstances of the
case, we are of the opinion that the contracts in
question were thus inferentially approved by the
companys board of directors and that the company
is bound unless the subsequent failure of the
stockholders to approve said contracts had the effect
of abrogating the liability thus created.
209 SCRA 763 Business Organization
Corporation Law Liability of Officers Apparent
Authority
In 1973, Constancio Maglana, president of Prime
White Cement Corporation, sent an offer letter to
Yao Ka Sin Trading. The offer states that Prime
White is willing to sell 45,000 bags of cement at
P24.30 per bag. The offer letter was received by
Yao Ka Sins manager, Henry Yao. Yao accepted the
letter and pursuant to the letter, he sent a check in
the amount of P243,000.00 equivalent to the value
of 10,000 bags of cement. However, the Board of
Directors of Prime White rejected the offer letter
sent by Maglana but it considered Yaos acceptance
letter as a new contract offer hence the Board sent a
letter to Yao telling him that Prime White is instead
willing to sell only 10,000 bags to Yao Ka Sin and

that he has ten days to reply; that if no reply is made

by Yao then they will consider it as an acceptance
and that thereafter Prime White shall deposit the
P243k check in its account and then deliver the
cements to Yao Ka Sin. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the
latter to comply with what Yao Ka Sin considered as
the true contract, i.e., 45,000 bags at P24.30 per
bag. Prime White in its defense averred that
although Maglana is empowered to sign contracts in
behalf of Prime White, such contracts are still
subject to approval by Prime Whites Board, and
then it still requires further approval by the National
Investment and Development Corporation (NIDC),
a government owned and controlled corporation
because Prime White is a subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a
binding contract because it was made under the
apparent authority of Maglana. The trial court ruled
in favor of Yao Ka Sin. The Court of Appeals
reversed the trial court.
ISSUE: Whether or not the president of a
corporation is clothed with apparent authority to
enter into binding contracts with third persons
without the authority of the Board.
HELD: No. The Board may enter into contracts
through the president. The president may only enter
into contracts upon authority of the Board. Hence,
any agreement signed by the president is subject to
approval by the Board. Unlike a general manager
(like the case of Francisco vs GSIS), the president
has no apparent authority to enter into binding
contracts with third persons. Further, if indeed the
by-laws of Prime White did provide Maglana with
apparent authority, this was not proven by Yao Ka
Sin.
As a rule, apparent authority may result from (1) the
general manner, by which the corporation holds out
an officer or agent as having power to act or, in
other words, the apparent authority with which it
clothes him to act in general or (2) acquiescence in

his acts of a particular nature, with actual or

constructive knowledge thereof, whether within or
without the scope of his ordinary powers. These are
not present in this case.
Also, the subsequent letter by Prime White to Yao
Ka Sin is binding because Yao Ka Sins failure to
respond constitutes an acceptance, per stated in the
letter itself which was not contested by Henry Yao
during trial.

Business Organization Corporation Law Ultra

Vires Acts of Corporate Officers
In 1985, Safic Alcan & Cie (SAC), a corporation,
entered into an agreement with Imperial Vegetable
Oil Co., Inc. (IVO) whereby the latter shall deliver
tones of coconut oil to SAC. Both parties complied.
IVO was represented by its president, Dominador
Monteverde. In 1986, SAC again entered into an
several agreements with IVO but this time it was
agreed that IVO shall deliver the coconut oil 8
months from the agreement or sometime in 1987.
This time, IVO failed to deliver and SAC sued IVO.
IVO in its defense aver that Monteverde was acting
beyond his power as president when he made the
1986 agreement with SAC; that Monteverde is
acting beyond his power because the 1986 contracts
were speculative in nature and speculative
contracts are prohibited by the by-laws of IVO.

contracts are speculative because at the time of the

contracts, the coconuts are not even growing at that
time and are yet to be harvested. Hence, the 1986
contracts are sales of mere expectations and this is
something prohibited by the by-laws and the Board
of Directors of IVO.
There can be no implied agency too simply because
there has been a previous transaction between SAC
and IVO where IVO was represented by
Monteverde. This is because the 1985 contract and
the 1986 contracts are very different. The 1985
contract is not speculative while the 1986 contracts
are speculative hence, SAC should have secured the
confirmation by IVOs Board that Monteverde is
indeed authorized to enter into such agreements.
Further, Monteverde did not even present the said
1986 agreements before the Board of Directors so
there was, in fact, no occasion at all for ratification.
The contracts were not even reported in IVOs
export sales book and turn-out book. Neither were
they reflected in other books and records of the
corporation. It must be pointed out that the Board of
Directors, not Monteverde, exercises corporate
power. Clearly, Monteverdes speculative contracts
with Safic never bound IVO and Safic cannot
therefore enforce those contracts against IVO.
GAMBOA V VICTORIANNO
FILIINAS PORT CASE -Lessons Applicable:
Rationale for "Centralized Management" Doctrine
FACTS:

SAC insists that there is an implied agency between

IVO and Monteverde because SAC and Monteverde
has been transacting since 1985 and that IVO
benefited from said transactions.
ISSUE: Whether or not Monteverdes act in
entering into the 1986 contracts is ultra vires.
HELD: Yes. It was proven by IVO, when they
presented a copy of their by-laws, that Monteverde
acted beyond his authority when he entered into
speculative contracts with SAC in 1986. The 1986

Sept 4 1992: Eliodoro C. Cruz, Filports

president from 1968-1991, wrote a letter to
the corporations BOD questioning the
creation and election of the following
positions with a monthly remuneration of
P13,050.00 each. Cruz requested the board
to take necessary action/actions to recover
from those elected to the aforementioned
positions the salaries they have received.

Jun 4 1993: Cruz, purportedly in

representation of Filport and its
stockholders, among which is herein copetitioner Mindanao Terminal and
Brokerage Services, Inc. (Minterbro), filed
with the SEC a derivative suit against
Filport's BOD for acts of
mismanagement detrimental to the interest
of the corporation and its shareholders at
large.

2. W/N there is a proper derivative suit

- YES

HELD: CA Affirmed
1. NO

o Cruz prayed that the BOD be made

to pay Filport, jointly and severally,
the sums of money variedly
representing the damages incurred as
a result of the creation of the
offices/positions complained of and
the aggregate amount of the
questioned increased salaries.

RTC: BOD have the power to create

positions not in the by-laws and can increase
salaries. But Edgar C. Trinidad under the
third and fourth causes of action to restore to
the corporation the total amount of salaries
he received as assistant vice president for
corporate planning; and likewise ordering
Fortunato V. de Castro and Arsenio Lopez
Chua under the fourth cause of action to
restore to the corporation the salaries they
each received as special assistants
respectively to the president and board
chairman. In case of insolvency of any or all
of them, the members of the board who
created their positions are subsidiarily liable.

o Notwithstanding the silence of

Filports bylaws on the matter, we
cannot rule that the creation of the
executive committee by the board of
directors is illegal or unlawful. One
reason is the absence of a showing as
to the true nature and functions of
executive committee

But even assuming there was

mismanagement resulting to corporate
damages and/or business losses, respondents
may not be held liable in the absence of a
showing of bad faith in doing the acts
complained of. ("dishonest purpose","some
moral obliquity","conscious doing of a
wrong", "partakes of the nature of fraud")

determination of the necessity for additional

offices and/or positions in a corporation is a
management prerogative which courts are
not wont to review in the absence of any
proof that such prerogative was exercised in
bad faith or with malice

Appealed: creation of the positions merely

for accommodation purposes - GRANTED

ISSUES:

Section 35 of the Corporation Code, the

creation of an executive committee (as
powerful as the BOD) must be provided for
in the bylaws of the corporation

2. YES
1. W/N there was mismanagement NO

Besides, the requisites before a derivative

suit can be filed by a stockholder: - present

a) the party bringing suit should be a

shareholder as of the time of the act or
transaction complained of, the number of his
shares not being material; - a stockholder of
Filport
b) he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the
board of directors for the appropriate relief
but the latter has failed or refused to heed
his plea; and
- he wrote a letter
c) the cause of action actually devolves on
the corporation, the wrongdoing or harm
having been, or being caused to the
corporation and not to the particular
stockholder bringing the suit. - wrong
against the stockholders of the corporation
generally
MANILA METAL CONTAINER CORPORATION
VS. PHILIPPINE NATIONAL BANK
G.R. No. 166862 December 20, 2006

Facts: Petitioner was the owner of 8,015 square

meter parcel of land located in Mandaluyong (now a
City), Metro Manila. To secure a Php 900,000.00
loan it had obtained from respondent philippine
National Bank (pNB), petitioner executed a real
estate mortgage over the lot. Respondent PNB later
granted petitioner a new credit accommodation of
Php1,000,000.00; and, on November 16, 1973,
petitioner executed an Amendment of Real Estate
Mortgage over its property. On March 31, 1981,
petitioner secured another loan of Php 653,000.00
from respondent PNB, payable in quarterly
installments of Php 32,650.00, plus interests and
other charges.
On August 5, 1982, respondent PNB filed a petition
for extrajudicial foreclosure of the real estate
mortgage and sought to have the property sold at

public auction for Php 911,532.21, petitioners

outstanding obligation to respondent PNB as of
June 30, 1982, plus interests and attorneys fees.
After due notice and publication, the property was
sold at public auction on September 28, 1982 where
respondent PNB was declared the winning bidder
for Php 100,000.00. The Certificate of Sale issued
in its favor was registered and annotated at the
dorsal portion of the title on February 17, 1983.
Thus, the period to redeem the property was to
expire on February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to
respondent PNB, requesting that it be granted an
extension of time to redeem/repurchase the
property. Another letter was sent reiterating
petitioners request for a one-year extension within
which to repurchase the property on instalment.
PNB replied that it does not accept partial
payments. Since petitioner failed to redeem the
property, a new title was issued in favour of PNB.
Meanwhile, the Special Assets Management
Department (SAMD) had prepared a statement of
account, and as of June 25, 1984 petitioners
obligation amounted to Php1,574,560.47. When
apprised of the statement of account, petitioner
remitted Php 725,000.00 to respondent PNB as
deposit to repurchase. In a letter dated November
14, 1984, the PNB management informed petitioner
that it was rejecting the offer and the
recommendation of the SAMD. It was suggested
that petitioner purchase the property for Php
2,660,000.00, its minimum market value.
Respondent PNB gave petitioner until December
15, 1984 to act on the proposal; otherwise, its Php
725,000.00 deposit would be returned and the
property would be sold to other interested buyers.
Petitioner, however, did not agree to respondent
PNBs proposal. Instead, it wrote another letter
dated December 12, 1984 requesting for
reconsideration. Respondent PNB replied in a letter
dated December 28, 1984, wherein it reiterated its
proposal that petitioner purchase the property for
Php 2,660,000.00.

On June 4, 1985, respondent PNB informed

petitioner that the PNB Board of Directors had
accepted petitioners offer to purchase the property,
but for Php 1,931,389.53 in cash less the
Php725,000.00 already deposited with it. The
petitioner did not respond to the said letter. On
August 28, 1989, petitioner filed a complaint
against respondent PNB for Annulment of
Mortgage and Mortgage Foreclosure, Delivery of
Title, or Specific Performance with Damages.
During pre-trial, the parties agreed to submit the
case for decision, based on their stipulation of facts.
While the case was pending, respondent PNB
demanded, on September 20, 1989, that petitioner
vacate the property within 15 days from notice, but
petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase
the property for Php3,500,000.00 and subsequently
Php 4,000,000. Both offers were rejected by PNB
since as a matter of their policy they could not sell a
property for less than its market value which is Php
30,000,000.00.
On May 31, 1994, the trial court rendered judgment
dismissing the amended complaint and respondent
PNBs counterclaim. It ordered respondent PNB to
refund the Php725,000.00 deposit petitioner had
made. The trial court ruled that there was no
perfected contract of sale between the parties;
hence, petitioner had no cause of action for specific
performance against respondent. The trial court
declared that respondent had rejected petitioners
offer to repurchase the property. Petitioner, in turn,
rejected the terms and conditions contained in the
June 4, 1985 letter of the SAMD. While petitioner
had offered to repurchase the property per its letter
of July 14, 1988, the amount of Php 643,422.34 was
way below the Php 1,206,389.53 which respondent
PNB had demanded. It further declared that the Php
725,000.00 remitted by petitioner to respondent
PNB on June 4, 1985 was a deposit, and not a
down payment or earnest money.
Meanwhile, on June 17, 1993, petitioners Board of
Directors approved Resolution No. 3-004, where it

waived, assigned and transferred its rights over the

property in favor of Bayani Gabriel, one of its
Directors. Thereafter, Bayani Gabriel executed a
Deed of Assignment over 51% of the ownership and
management of the property in favor of Reynaldo
Tolentino, who later moved for leave to intervene as
plaintiff-appellant. On July 14, 1993, the CA issued
a resolution granting the motion, and likewise
granted the motion of Reynaldo Tolentino
substituting petitioner MMCC, as plaintiffappellant, and his motion to withdraw as intervenor.
The CA rendered judgment on May 11, 2000
affirming the decision of the RTC. It declared that
petitioner obviously never agreed to the selling
price proposed by respondent PNB
(Php1,931,389.53) since petitioner had kept on
insisting that the selling price should be lowered to
Php1,574,560.47. Clearly therefore, there was no
meeting of the minds between the parties as to the
price or consideration of the sale.
Petitioner filed a motion for reconsideration, which
the CA likewise denied. Thus, petitioner filed the
instant petition for review on certiorari.

Issue: Whether or not petitioner and respondent

PNB had entered into a perfected contract for
petitioner to repurchase the property from
respondent.

Ruling: The ruling of the appellate court that there

was no perfected contract of sale between the
parties on June 4, 1985 is correct. A contract is a
meeting of minds between two persons whereby
one binds himself, with respect to the other, to give
something or to render some service. Under Article
1318 of the New Civil Code, there is no contract
unless the following requisites concur: (1) Consent
of the contracting parties; (2) Object certain which
is the subject matter of the contract; (3) Cause of the
obligation which is established.

Contracts are perfected by mere consent which is

manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are
to constitute the contract. By the contract of sale,
one of the contracting parties obligates himself to
transfer the ownership of and deliver a determinate
thing, and the other to pay there for a price certain
in money or its equivalent. The absence of any of
the essential elements will negate the existence of a
perfected contract of sale.
A contract of sale is consensual in nature and is
perfected upon mere meeting of the minds. When
there is merely an offer by one party without
acceptance of the other, there is no contract. When
the contract of sale is not perfected, it cannot, as an
independent source of obligation, serve as a binding
juridical relation between the parties.
A negotiation is formally initiated by an offer,
which, however, must be certain. At any time prior
to the perfection of the contract, either negotiating
party may stop the negotiation. At this stage, the
offer may be withdrawn; the withdrawal is effective
immediately after its manifestation. To convert the
offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer;
it must be plain, unequivocal, unconditional and
without variance of any sort from the proposal.
A qualified acceptance or one that involves a new
proposal constitutes a counteroffer and a rejection
of the original offer. A counter-offer is considered in
law, a rejection of the original offer and an attempt
to end the negotiation between the parties on a
different basis. Consequently, when something is
desired which is not exactly what is proposed in the
offer, such acceptance is not sufficient to guarantee
consent because any modification or variation from
the terms of the offer annuls the offer. The
acceptance must be identical in all respects with that
of the offer so as to produce consent or meeting of
the minds.
We do not agree with petitioners contention that
the Php 725,000.00 it had remitted to respondent
was earnest money which could be considered as

proof of the perfection of a contract of sale under

Article 1482 of the New Civil Code. Thus, the Php
725,000.00 was merely a deposit to be applied as
part of the purchase price of the property, in the
event that respondent would approve the
recommendation of SAMD for respondent to accept
petitioners offer to purchase the property for Php
1,574,560.47.
In sum, then, there was no perfected contract of sale
between petitioner and respondent over the subject
property.
Lee vs ca
G.R. No. 93695 February 4, 1992
Lessons Applicable: Voting Trust
Agreements (Corporate Law)
FACTS:

November 15, 1985: a complaint

for a sum of money was filed by
the International Corporate Bank,
Inc. (ICB) against the private
respondents

March 17, 1986: private

respondents, in turn, filed a 3rdparty complaint against ALFA and
ICB

September 17, 1987: petitioners

filed a motion to dismiss the third
party complaint - denied

July 12, 1988: trial court issued an

order requiring the issuance of
an alias summons upon ALFA
through the DBP

o consequence of the
petitioner's letter that
ALFA management was
transferred to DBP

July 22, 1988: DBP claimed that it

was not authorized to receive
summons on behalf of ALFA

August 4, 1988: trial court issued

an order advising the private
respondents to take the
appropriate steps to serve the
summons to ALFA

September 12, 1988: petitioners

filed a motion for reconsideration
submitting that Rule 14, section 13
of the Revised Rules of Court is not
applicable since they were no
longer officers of ALFA and that the
private respondents should have
availed of another mode of service
under Rule 14, Section 16 of the
said Rules, i.e., through publication
to effect proper service upon ALFA
- denied

January 19, 1989: 2nd motion for

reconsideration was filed by the
petitioners reiterating their stand
that by virtue of the voting trust
agreement they ceased to be
officers and directors of ALFA

o attached a copy of the voting

trust agreement between all
the stockholders of ALFA and
the DBP whereby the

management and control of

ALFA became vested upon
the DBP

April 25, 1989: trial court reversed

itself by setting aside its previous
Order dated January 2, 1989 and
declared that service upon the
petitioners who were no longer
corporate officers of ALFA cannot
be considered as proper service of
summons on ALFA

October 17, 1989: trial court (NOT

notified of the petition for
certiorari) declared final its
decision on April 25, 1989

ISSUE: W/N the voting trust agreement

is valid despite being contrary to the
general principle that a corporation can
only be bound by such acts which are
within the scope of its officers' or agents'
authority
HELD:

voting trust

o trust created by an
agreement between a group
of the stockholders of a
corporation and the trustee
or by a group of identical
agreements between
individual stockholders and a
common trustee, whereby it
is provided that for a term of
years, or for a period
contingent upon a certain
event, or until the agreement
is terminated, control over

the stock owned by such

stockholders, either for
certain purposes or for all
purposes, is to be lodged in
the trustee, either with or
without a reservation to the
owners, or persons
designated by them, of the
power to direct how such
control shall be used
(Ballentine's Law Dictionary)

o Sec. 59. Voting Trusts One

or more stockholders of a
stock corporation may create
a voting trust for the purpose
of conferring upon a trustee
or trustees the right to vote
and other rights pertaining to
the share for a period rights
pertaining to the shares for a
period not exceeding 5 years
at any one time: Provided,
that in the case of a voting
trust specifically required as
a condition in a loan
agreement, said voting trust

may be for a period

exceeding 5 years but shall
automatically expire upon full
payment of the loan. A
voting trust agreement must
be in writing and notarized,
and shall specify the terms
and conditions thereof. A
certified copy of such
agreement shall be filed with
the corporation and with the
Securities and Exchange
Commission; otherwise, said
agreement is ineffective and
unenforceable. The certificate
or certificates of stock
covered by the voting trust
agreement shall be cancelled
and new ones shall be issued
in the name of the trustee or
trustees stating that they are
issued pursuant to said
agreement. In the books of
the corporation, it shall be
noted that the transfer in the
name of the trustee or
trustees is made pursuant to
said voting trust agreement.