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VII. Directors, Trustees and Officers A. Term; qualifications etc.

Case No. 1

Señeres vs.COMELEC

FACTS: In 1999, Melquiades Robles was elected president and chairperson of BUHAY, a party-list group duly registered with the Commission on Elections (COMELEC). The constitution of BUHAY provides for a three-year term for all its party officers, without re-election. BUHAY participated in the 2001 and 2004 elections, with Robles as its president. All the required Manifestations of Desire to Participate in the said electoral exercises, including the Certificates of Nomination of representatives, carried the signature of Robles as president of BUHAY. On January 26, 2007, in connection with the May 2007 elections, BUHAY again filed a Manifestation of its Desire to Participate in the Party-List System of Representation. As in the past two elections, the manifestation to participate bore the signature of Robles as BUHAY president.

Dr. Hans Christian Señeres, on the other hand, filed with the COMELEC a Petition to Deny Due Course to Certificates. In it, Señeres alleged that he was the acting president and secretary-general of BUHAY, having assumed that position since August 17, 2004 when Robles vacated the position. Señeres also claim that the nominations made by Robles (nominations pertaining as to who should represent BUHAY in Congress) were, for lack of authority, void owing to the expiration of the latter’s term as party president. Furthermore, Señeres asserted that Robles was, under the Constitution, disqualified from being an officer of any political party, the latter being the Acting Administrator of the Light Railway Transport Authority (LRTA), a government-controlled corporation. Robles, so Señeres would charge, was into a partisan political activity which civil service members, like the former, were enjoined from engaging in.

On July 9 and July 18, 2007, respectively, the COMELEC issued two resolutions proclaiming BUHAY as a winning party-list organization for the May 2007 elections entitled to three (3) House seats and it also declared Robles as the duly authorized representative of BUHAY.

ISSUE: Whether or not Robles should be disqualified as president of BUHAY.

HELD: No, Robles is not disqualified as the president of BUHAY. His being the chairman of LRTA and the president of BUHAY, a party-list group, is not compatible. There is no law prohibiting that the LRTA chair cannot be a president of a party-list group. Further, Robles is not guilty of electioneering. Robles’ act of nominating BUHAY representatives to Congress is not electioneering. The crime electioneering is clearly defined under Section 79 (b) of the Omnibus Election Code but Robles did not commit any act defined thereunder.

Anent the issue that Robles’ term as president of BUHAY already expired when he made the nominations hence the nominations are void, the Supreme Court ruled that the nominations are valid. This is because of the “Hold-Over” doctrine under corporation law. As a general rule, officers and directors of a corporation hold over after the

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expiration of their terms until such time as their successors are elected or appointed. The holdover doctrine has, to be sure, a purpose which is at once legal as it is practical. It accords validity to what would otherwise be deemed as dubious corporate acts and gives continuity to a corporate enterprise in its relation to outsiders.

Case No. 2

South Cotabato vs Sto. Tomas FACTS:

Case No. 3

Lopez Realty vs Spouses Tanjangco HELD:

Anent the first procedural issue, the Court had summarized the jurisprudential principles on the matter in Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue. [15] In said case, we held that a President of a corporation, among other enumerated corporate officers and employees, can sign the verification and certification against of non-forum shopping in behalf of the said corporation without the benefit of a board resolution. We quote the pertinent portion of the decision here:

It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all corporate powers are exercised, all business conducted, and all properties controlled by the board of directors. A corporation has a separate and distinct personality from its directors and officers and can only exercise its corporate powers through the board of directors. Thus, it is clear that an individual corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors. This has been our constant holding in cases instituted by a corporation.

In a slew of cases, however, we have recognized the authority of some corporate officers to sign the verification and certification against forum shopping. In Mactan-Cebu International Airport Authority v. CA, we recognized the authority of a general manager or acting general manager to sign the verification and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of a verification signed by an “employment specialist” who had not even presented any proof of her authority to represent the company; in Novelty Philippines, Inc. v. CA, we ruled that a personnel officer who signed the petition but did not attach the authority from the company is authorized to sign the verification and non-forum shopping certificate; and in Lepanto Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and President of the Company can sign the verification and certificate against non-forum shopping even without the submission of the board’s authorization.

In sum, we have held that the following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case.

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While the above cases do not provide a complete listing of authorized signatories to the verification and certification required by the rules, the determination of the sufficiency of the authority was done on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers or representatives of the corporation to sign the verification or certificate against forum shopping, being “in a position to verify the truthfulness and correctness of the allegations in the petition.”[16] (Emphases supplied.)

It must be stressed, however, that the Cagayan ruling qualified that the better procedure is still to append a board resolution to the complaint or petition to obviate questions regarding the authority of the signatory of the verification and certification.[17]

Nonetheless, under the circumstances of this case, it bears reiterating that the requirement of the certification of non-forum shopping is rooted in the principle that a party-litigant shall not be allowed to pursue simultaneous remedies in different fora, as this practice is detrimental to an orderly judicial procedure. However, the Court has relaxed, under justifiable circumstances, the rule requiring the submission of such certification considering that, although it is obligatory, it is not jurisdictional. Not being jurisdictional, it can be relaxed under the rule of substantial compliance.[18]

In the case at bar, the Court holds that there has been substantial compliance with Sections 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure on the petitioners’ part in consonance with our ruling in the Lepanto Consolidated Mining Company v. WMC Resources International PTY LTD.[19] that we laid down in 2003 with the rationale that the President of petitioner-corporation is in a position to verify the truthfulness and correctness of the allegations in the petition. Petitioner Benzonan clearly satisfies the aforementioned jurisprudential requirement because he is the President of petitioner South Cotabato Communications Corporation. Moreover, he is also named as co-respondent of petitioner-corporation in the labor case which is the subject matter of the special civil action for certiorari filed in the Court of Appeals.

Clearly, it was error on the part of the Court of Appeals to dismiss petitioners’ special civil action for certiorari despite substantial compliance with the rules on procedure. For unduly upholding technicalities at the expense of a just resolution of the case, normal procedure dictates that the Court of Appeals should be tasked with properly disposing the petition, a second time around, on the merits.

The Court is mindful of previous rulings which instructs us that when there is enough basis on which a proper evaluation of the merits can be made, we may dispense with the time-consuming procedure in order to prevent further delays in the disposition of the case.[20] However, based on the nature of the two remaining issues propounded before the Court which involve factual issues and given the inadequacy of the records, pleadings, and other evidence available before us to properly resolve those questions, we are constrained to refrain from passing upon them.

After all, the Court has stressed that its jurisdiction in a petition for review on certiorari under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless the findings of fact complained of are devoid of support by the evidence on record, or the assailed judgment is based on the misapprehension of facts.[21]

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WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Resolutions of the Court of Appeals are REVERSED and SET ASIDE. The case is REMANDED to the Court of Appeals for proper disposition of CA-G.R. SP No. 00179-MIN.

E. Meetings, type

Case No 3

Lopez Realty vs Spouses Tajangco

By virtue of ratification, the acts of the board of directors become the acts of the stockholders themselves, even if those acts were, at the outset, unauthorized.

G.R. No. 154291, 12 November 2014 FACTS:

Lopez Realty, Inc. (LRI) and Asuncion Lopez-Gonzalez initiated a “Complaint for annulment of sale, cancellation of title, reconveyance and damages with prayer for the issuance of temporary restraining order (TRO) and/or writ of preliminary injunction against the spouses Tanjangco, Arturo and the Registrar of Deeds of Manila.”

Previously, LRI and Dr. Jose Tanjangco (Jose) “were the registered co-owners of three parcels of land and the building erected thereon known as the ‘Trade Center Building’… Jose’s one-half share in the subject properties were later transferred and registered in the name of his son Reynaldo Tanjangco and daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco).”

These were the stockholders of record of LRI at the time material to this case:

Asuncion Lopez-Gonzalez (Asuncion, Director & Corporate Secretary) – 7,831 shares; Arturo F. Lopez (Arturo) – 7,830 shares;

Teresita Lopez-Marquez (Teresita) – 7,830 shares; Rosendo de Leon (Rosendo, Director) – 5 shares Benjamin Bernardino (Benjamin, Director) – 1 share; Augusto de Leon (Augusto, Director) – 1 share; and Leo Rivera (Leo, Director) – 1 share

During a special stockholders’ meeting held on 27 July 1981, the sale of 1/2 share of LRI in the Trade Center Building was taken up. While the selling price was at P4 M, the Tanjancos offered P3.8 M. To this, Asuncion countered with P5 M which was not accepted by the Tanjancos. Thus, the board agreed to give Asuncion the priority to equal the Tanjanco offer and the same to be exercised within ten (10) days. Otherwise, the Tanjanco offer will be deemed accepted. Just a day after, Teresita died (her estate’s executor Juanito L. Santos represented her afterwards).

As Asuncion failed to exercise her option to purchase the subject properties, and while she was abroad, “the remaining directors: Rosendo, Benjamin and Leo convened in a special meeting” passing and approving the 17 August 1981 Resolution authorizing Arturo to negotiate and “carry out the complete termination of the sale terms and

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conditions as embodied in the Resolution of July 27, 1981″, among others. Subsequently, the sale was perfected with payments subsequently made.

After learning of the sale, Asuncion filed this complaint challenging the validity of the 17 August 1982 Resolution on the ground that she was not notified of the meeting.

HELD: The sale was valid. The 17 August 1981 Board Resolution did not give Arturo the authority to act as LRI’s representative in the sale “as the meeting of the board of directors where such was passed was conducted without giving any notice to Asuncion.” This is in violation of Section 53 of the Corporation Code which requires sending of notices for regular or special meetings to every director.

As a result, “a meeting of the board of directors is legally infirm if there is failure to comply with the requirements or formalities of the law or the corporation’s by laws and any action taken on such meeting may be challenged as a consequence.”

Notwithstanding, “the actions taken in such a meeting by the directors or trustees may be ratified expressly or impliedly.” In the case of ratification, it means that “the principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf.”

Here, “the ratification was expressed through the July 30, 1982 Board Resolution.” Regarding Asuncion’s claims that the 30 July 1982 Board Resolution did not ratify the 17 August 1981 Resolution due to Juanito’s disqualification and Leo’s negative vote. “Asuncion assails the authority of Juanito to vote because he was not a director and he did not own any share of stock which would qualify him to be one. On the contrary, Juanito defends his right to vote as the representative of Teresita’s estate. Upon examination of the July 30, 1982 minutes of the meeting, it can be deduced that the meeting is a joint stockholders and directors’ meeting. The Court takes into account that majority of the board of directors except for Asuncion, had already approved of the sale to the spouses Tanjangco prior to this meeting. As a consequence, the power to ratify the previous resolutions and actions of the board of directors in this case lies in the stockholders, not in the board of directors. It would be absurd to require the board of directors to ratify their own acts—acts which the same director s already approved of beforehand. Hence, Juanito, as the administrator of Teresita’s estate even though not a director, is entitled to vote on behalf of Teresita’s estate as the administrator thereof.” Citing jurisprudence, in stock corporations, “shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor.”

As there exists no corporate secretary’s certification of the minutes of the meeting, “only Juanito, Benjamin and Roseno, whose signature appeared on the minutes, could be considered as to have ratified the sale to the spouses Tanjangco.” As Leo owns only 1 share, the results are the same against the overwhelming shares who voted in favor of ratification.

“In sum, whatever defect there was on the sale to the spouses Tanjangco pursuant to the August 17, 1981 Board Resolution, the same was cured through its ratification in the July 30, 1982 Board Resolution. It is of no moment whether Arturo was authorized to merely negotiate or to enter into a contract of sale on behalf of LRI as all his actions in

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connection to the sale were expressly ratified by the stockholders holding 67% of the outstanding capital stock.”

Citing jurisprudence, “the Court held that by virtue of ratification, the acts of the board of directors become the acts of the stockholders themselves, even if those acts were, at the outset, unauthorized.”

G. Duties

Case No. 4 Gokongwei vs SEC 1979 Case:

Facts: Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation, which 2/3 could have been computed on the basis of the capitalization at the time of the amendment. Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and void. While this was pending, the corporation called for a stockholder’s meeting for the ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the SEC. In another case filed by petitioner, he alleged that the corporation had been using corporate funds in other corps and businesses outside the primary purpose clause of the corporation in violation of the Corporation Code.

Issue: Are amendments valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable and therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to prescribe the qualifications of directors. It 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. A corporation, under the Corporation law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and employees. 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 he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be

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elected director, in the face of the fact that the law at the time such stockholder's right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be director, if he be also director in a corporation whose business is in competition with that of the other corporation, has been sustained as valid. This is based upon the principle that where the director is employed in the service of a rival company, he cannot serve both, but must betray one or the other. The amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are also not permitted to use their position of trust and confidence to further their private needs, and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the doctrine of corporate opportunity.

1980 Decision:

In this petition for review, petitioner seeks to nullify and set aside the resolution en banc dated May 7, 1979 of respondent Securities and Exchange Commission in SEC Case No. 1375, sustaining the findings of the San Miguel Corporation's Board of Directors that petitioner is engaged in a business competitive with or antagonistic to that of the San Miguel Corporation and, therefore, ineligible for election as director, pursuant to Section 3, Article III of the amended by-laws. Petitioner alleges that the matter of petitioner's disqualification should not have been heard in view of the pendency of petitioner's motion for reconsideration with this Court; that when respondent Commission sustained the disqualification of petitioner, it failed to consider that private respondents are precluded from disqualifying petitioner because of the rule of pari delicto; and that the resolution of disqualification of the respondent Board of Directors was an "over exertion of corporate power" because by this act the afore-mentioned Board of Directors intended to perpetuate themselves in power. Considering the afore-mentioned allegations and the comments thereto, We find no merit in the petition.

Aside from the presumptive validity of the amended by-laws at the time the questioned resolution was rendered by respondent Securities and Exchange Commission, the Chief Justice and six (6) Justices of this Court had already promulgated their opinions that the validity of the amended by-laws insofar and only insofar as the parties herein are concerned, can no longer be relitigated on the basis of the "law of the. case" doctrine and, therefore, the enforcement of the amended by-laws could not have been ipso factor stayed by the motion for reconsideration. Petitioner's allegation that respondent Commission (Securities and Exchange Commission) could not have validly sustained the resolution of the San Miguel Corporation Board because some members of the Board were also disqualified as they were situated like petitioner appears inapposite. The alleged disqualification of some members of the Board was never in issue during the hearing of the disqualification case, and petitioner has not submitted any evidence in support of his contention. Petitioner's assertion that the order of respondent Commission disqualifying him is based on evidence which are "at the most, contingent and flimsy" appears unsupported by the records. The order of respondent Commission was based principally on the affidavits of Nazario Avenda

D. Stock Certificate

Case No.5

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Nature of Certificate of Stock (Corporate Law) Remedy if Registration is Refused (Corporate Law) FACTS:

February 8, 1968: Vicente C. Ponce and Fausto Gaid, incorporator of Victory Cement Corporation (VCC), executed a “Deed of Undertaking” and “Indorsement” whereby Gaid acknowledges that Ponce is the owner of the shares and he was therefore assigning/endorsing it to Ponce. VCC was renamed Floro Cement Corporation (FCC) and then to Alsons Cement Corporation (ACC). Up to the present, no certificates of stock corresponding to the 239,500 subscribed and fully paid shares of Gaid were issued in the name of Fausto G. Gaid and/or the plaintiff. Despite repeated demands, the ACC refused to issue the certificates of stocks. SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss. Upon appeal, the Commission En Banc reversed the decision of the Hearing Officer. Ponce, filed a complaint with the SEC for mandamus

CA: mandamus should be dismissed for failure to state a cause of action in the absence of any allegation that the transfer of the shares was registered in the stock and transfer book

ISSUE: W/N the cert. of stocks of Gaid can be transferred to Ponce

HELD: NO. Petition Denied.

SEC. 63. Certificate of stock and transfer of shares.–The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation.

The stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a stockholder

Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferee’s name. In a case such as that at bar, a mandamus should not issue to compel the secretary of a corporation to make a transfer of the stock on the books of the company. Unless it affirmatively appears that he has failed or refused so to do, upon the demand either of the person in whose name the stock is registered, or of some person holding a power of attorney for that purpose from the registered owner of the stock. Mere indorsee of a stock certificate, claiming to be the owner, will not necessarily be recognized as such by the corporation and its officers, in the absence of express instructions of the registered owner to make such transfer to the indorsee, or a power of attorney authorizing such transfer.

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mandamus - proper remedy to make him the rightful owner and holder of a stock certificate to be issued in his name

IX. Rights and obligations of Stockholders and Members A. Dividends

Case No. 6

Puno vs Puno Enterprise FACTS:

Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises, Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated a complaint for specific performance against respondent. Petitioner averred that he is the son of the deceased with the latter’s common-law wife, Amelia Puno. As surviving heir, he claimed entitlement to the rights and privileges of his late father as stockholder of respondent. The complaint thus prayed that respondent allow petitioner to inspect its corporate book, render an accounting of all the transactions it entered into from 1962, and give petitioner all the profits, earnings, dividends, or income pertaining to the shares of Carlos L. Puno. Respondent filed a motion to dismiss on the ground that petitioner did not have the legal personality to sue because his birth certificate names him as "Joselito Musni Muno." Apropos, there was yet a need for a judicial declaration that "Joselito Musni Puno" and "Joselito Musni Muno" were one and the same. After submitting his corrected birth certificate, the court ordered Jesusa Puno and/or Felicidad Fermin to allow the plaintiff to inspect the corporate books and records of the company from 1962 up to the present including the financial statements of the corporation. CA ordered the dismissal of the complaint in its Decision dated October 11, 2006. According to the CA, petitioner was not able to establish the paternity of and his filiation to Carlos L. Puno since his birth certificate was prepared without the intervention of and the participatory acknowledgment of paternity by Carlos L. Puno. Accordingly, the CA said that petitioner had no right to demand that he be allowed to examine respondent’s books. Moreover, petitioner was not a stockholder of the corporation but was merely claiming rights as an heir of Carlos L. Puno, an incorporator of the corporation. His action for specific performance therefore appeared to be premature; the proper action to be taken was to prove the paternity of and his filiation to Carlos L. Puno in a petition for the settlement of the estate of the latter.

ISSUE: WON petitioner automatically became stockholder of the corporation and acquire the rights and privileges of the deceased as shareholder of the corporation.

HELD: No. Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation and acquire the rights and privileges of the deceased as shareholder of the corporation. The stocks must be distributed first to the heirs in estate proceedings, and the transfer of the stocks must be recorded in the books of the corporation. Section 63 of the Corporation Code provides that no transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation. During such interim period, the heirs stand as the equitable owners of the stocks, the executor or administrator duly appointed by the court being vested with the legal title to the stock.

Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor. Consequently, during such time, it is the

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administrator or executor who is entitled to exercise the rights of the deceased as stockholder.

Thus, even if petitioner presents sufficient evidence in this case to establish that he is the son of Carlos L. Puno, he would still not be allowed to inspect respondent’s books and be entitled to receive dividends from respondent, absent any showing in its transfer book that some of the shares owned by Carlos L. Puno were transferred to him. This would only be possible if petitioner has been recognized as an heir and has participated in the settlement of the estate of the deceased.

Corollary to this is the doctrine that a determination of whether a person, claiming proprietary rights over the estate of a deceased person, is an heir of the deceased must be ventilated in a special proceeding instituted precisely for the purpose of settling the estate of the latter. The status of an illegitimate child who claims to be an heir to a decedent’s estate cannot be adjudicated in an ordinary civil action, as in a case for the recovery of property. The doctrine applies to the instant case, which is one for specific performance — to direct respondent corporation to allow petitioner to exercise rights that pertain only to the deceased and his representatives.

Petition denied.

Case No. 7

Yujuico vs Quiambao HELD:

Corporations; refusal to allow inspection is a criminal offense. We find inaccurate the pronouncement of the RTC that the act of refusing to allow inspection of the stock and transfer book is not a punishable offense under the Corporation Code. Such refusal, when done in violation of Section 74( 4) of the Corporation Code, properly falls within the

purview of Section 144 of the same code and thus may be penalized as an offense. Case No. 8

Lanuza vs CA Facts:

· Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 414731 promulgated on 18 August 1997, affirming the SEC Order dated 20 June 1996,

and the Resolution2 of the Court of Appeals dated 31 October 1997 which denied

petitioners’ motion for reconsideration.

· In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of incorporation

· Onrubia et. al, who were in control of PMMSI registered the company’s stock and transfer book for the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI.

· In 1979, a special stockholders’ meeting was called and held on the basis of what was considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common shares issued and outstanding.

· In 1982, Juan Acayan, one of the heirs of the incorporators filed a petition for the registration of their property rights was filed before the SEC over 120 founders’ shares and 12 common shares owned by their father

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· SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and called for a special stockholders’ meeting to elect a new set of officers.

· SEC en banc: affirmed the decision

· As a result, the shares of Acayan were recorded in the stock and transfer book.

· On May 6, 1992, a special stockholders’ meeting was held to elect a new set of directors

· Onrubia et al filed a petition with SEC questioning the validity of said meeting alleging that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation

· Petition was dismissed

· SC en banc: shares of the deceased incorporators should be duly represented by their respective administrators or heirs concerned. Called for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for the corporation

· Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA, raising the following issues:

1. whether the basis the outstanding capital stock and accordingly also for determining the quorum at stockholders’ meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation

(They contended that the basis is the stock and transfer book, not articles of incorporation in computing the quorum)

2. whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of Jose Acayan in the stock and transfer book) is applicable to the benefit of Onrubia et al

· CA decision:

1. For purposes of transacting business, the quorum should be based on the outstanding capital stock as found in the articles of incorporation

2. To require a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay and expense. Besides. the incorporators have already proved their stockholdings through the provisions of the articles of incorporation.

· Appeal was made by Lanuza et al before the SC · Lanuza et al’ contention:

a. 1992 stockholders’ meeting was valid and legal

b. Reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity of the stock and transfer book Onrubia et al prepared

c. Onrubia et al must show and prove entitlement to the founders and common shares in a separate and independent action/proceeding in order to avail of the benefits secured by the heirs of Acayan

· Onrubia et al’s contention, based on the Memorandum: petition should be dismissed on the ground of res judicata

· Another appeal was made

· Lanuza et al’s contention: instant petition is separate and distinct from G.R. No. 131315, there being no identity of parties, and more importantly, the parties in the two petitions have their own distinct rights and interests in relation to the subject matter in litigation

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Issue: What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles of incorporation or that contained in the company’s stock and transfer book?

Ruling:

· Articles of Incorporation

- Defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders.

- Contents are binding, not only on the corporation, but also on its shareholders. · Stock and transfer book

- Book which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and by and to whom made; and such other entries as may be prescribed by law

- necessary as a measure of precaution, expediency and convenience since it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters

- Not public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein

· In this case, the articles of incorporation indicate that at the time of incorporation, the incorporators were bona fide stockholders of 700 founders’ shares and 76 common shares. Hence, at that time, the corporation had 776 issued and outstanding shares. · According to Sec. 52 of the Corp Code, “a quorum shall consist of the stockholders

representing a majority of the outstanding capital stock.” As such, quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders’ shares or common shares

· To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of the said shares.

· The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book.

· One who is actually a stockholder cannot be denied his right to vote by the corporation merely because the corporate officers failed to keep its records accurately.A corporation’s records are not the only evidence of the ownership of stock in a corporation.

· It is no less than the articles of incorporation that declare the incorporators to have in their name the founders and several common shares. Thus, to disregard the contents of the articles of incorporation would be to pretend that the basic document which legally triggered the creation of the corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and their heirs

WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners

(13)

References

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