Iv.

Promoters Contract

G.R. No. L-43350 December 23, 1937

CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,

vs.
TEODORO SANDIKO, defendant-appellee.

Arsenio P. Dizon for appellant.

Sumulong, Lavides and Sumulong for appellee.

LAUREL, J.:

FACTS:
Manuel Tabora is the registered owner of four parcels of land. The four parcels were mortgaged for loans and indebtedness.
However, Tabora executed a public document (Exhibit A) by virtue of which the four parcels of land owned by him was sold to the
plaintiff company, which at that time is still under the process of incorporation.
A year later, the BOD of said company adopted a resolution authorizing its president to sell the four parcels of lands in
question to Teodoro Sandiko. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale where the plaintiff
sold, ceded and transferred to the defendant the four parcels of land. Exhibit C is a promissory note drawn by the defendant in favor of
the plaintiff. Exhibit D is a deed of mortgage executed where the four parcels of land were given a security for the payment of the
promissory note. Defendant failed to pay thus plaintiff filed a collection of sum of money in the Court of First Instance in Manila. The
latter rendered judgment absolving the defendant. Plaintiff has appealed to this court and makes an assignment of various errors.

ISSUE:
WON the sale made by the plaintiff corporation is valid.

HELD:
The contract here was entered into not between Manuel Tabora and a non-existent corporation but between the Manuel
Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a
corporations on the other hand. For reasons that are self-evident, these promoters could not have acted as agent for a projected
corporation since that which no legal existence could have no agent. This is not saying that under no circumstances may the acts of
promoters of a corporation be ratified by the corporation if and when subsequently organized, however, under the peculiar facts and
circumstances of the present the court declined to extend the doctrine of ratification which would result in the commission of injustice
or fraud to the candid and unwary. A corporation, until organized, has no life and therefore no faculties. Cagayan Fishing Dev’t Corp
could not and did not acquire the four parcels of land sold by Tabora, it also follows that it did not possess any resultant right to
dispose of them by sale to the defendant, Teodoro Sandiko. The corporation had no juridical personality to enter into a contract.
Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. It should have a full
and complete organization and existence as an entity before it can enter into any kind of a contract or transact any business.

RIZAL LIGHT & ICE CO., INC. vs MORONG, RIZAL & the PUBLIC SERVICE COMMISSION
(consolidated w/ RLICI vs PSC and Morong Electric Inc.)

FACTS: Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation. The Commission required the petitioner to appear before it
on February 18, 1957 to show cause why it should not be penalized for violation of the conditions of its certificate of public
convenience and the regulations of the Commission, and for failure to comply with the directives to raise its service voltage and
maintain them within the limits and to acquire and install a kilowatt meter. The petitioner failed to appear at the hearing hence the
cancellation and revocation of Certificate of public convenience. A motion for reconsideration was filed but respondent municipality
opposed the motion, alleging that petitioner has not rendered efficient and satisfactory service and has not complied with the
requirements of the Commission for the improvement of its service.

Finding that the sole basis of the revocation of petitioner's certificate was really due to the illness of its manager, Juan D. Francisco,
the Commission set aside its order of revocation. Respondent municipality moved for reconsideration of this order of reinstatement of
the certificate, but the motion was denied.

Petitioner opposed in writing the application of Morong Electric, alleging among other things, that it is a holder of a certificate of
public convenience to operate an electric light, heat and power service in the same municipality of Morong, Rizal, and that the
approval of said application would not promote public convenience, but would only cause ruinous and wasteful competition.
The Commission, in its decision dated March 13, 1963, found that there was an absence of electric service in the municipality of
Morong and that applicant Morong Electric, a Filipino-owned corporation duly organized and existing under the laws of the
Philippines, has the financial capacity to maintain said service. As far as the Commission was concerned the certificate of the
petitioner was already declared revoked and cancelled, the Commission approved the application of Morong Electric and ordered the
issuance in its favor of the corresponding certificate of public convenience and necessity. Petitioner then filed with the SC a petition
for review.

(Pertinent) ISSUE: Whether Morong Electric should have been granted a certificate of public convenience

HELD: YES.

Before a certificate to operate a public service may be granted, three requisites must be complied with, namely: (1) the applicant must
be a citizen of the Philippines or of the United States, or a corporation or co-partnership, association or joint-stock company
constituted and organized under the laws of the Philippines, 60% at least of the stock or paid up capital of which belongs entirely to
the citizens of the Philippines or the United States; (2) the applicant must be financially capable of undertaking the proposed service
and meeting the responsibilities incident to its operation; and (3) the applicant must prove that the operation of the public service
proposed and the authorization to do business will promote the public interest in a proper and suitable manner.

The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as shown by its action in prosecuting
the application filed with the Commission for the approval of said franchise, not only perfected a contract between the respondent
municipality and Morong Electric but also cured the deficiency pointed out by the petitioner in the application of Morong Electric.
Thus, the Commission did not err in denying petitioner's motion to dismiss said application and in proceeding to hear the same. The
efficacy of the franchise, however, arose only upon its approval by the Commission.

The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not incompatible with the holding
of this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko upon which the petitioner leans heavily in support of its
position. In said case this Court held that a corporation should have a full and complete organization and existence as an entity before
it can enter into any kind of a contract or transact any business. It should be pointed out, however, that this Court did not say in that
case that the rule is absolute or that under no circumstances may the acts of promoters of a corporation be ratified or accepted by the
corporation if and when subsequently organized. Of course, there are exceptions. It will be noted that American courts generally hold
that a contract made by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when
organized.

D.A McArthur vs Times Printing Co

Supreme Court of Minnesota

FACTS:
 McArthur filed a petition against the Times Printing Co alleging that:
 Oct 1,1889, Times Printing Co. engaged his services as advertising solicitor for one year.
 September 1890, the respondent discharged his services in violation of their contract.
 Times Printing Co’s defenses:
 The plaintiff’s employment was not for any stated time, but only from week to week.
 That the plaintiff was discharged for good cause
 During trial, the following facts were disclosed:
 In Sep 1889, one C.A Nimocks was a promoter engaged in procuring the organization of the defendant company to publish a
newspaper.
 That as a promoter,Nimocks made a contract with McArthur in behalf of the company for his service as an advertising
solicitor for one year from and after October 1(date at which the corporation is expected to be organized)—Corp however
was not organized until October 16
 That after the organization of the corporation, he continued his employment until he was discharged the following April
 That the Times’ board of directors never took any formal action with reference to the contract made in its behalf by Nimocks;
but that all the directors and stockholders were informed of such contract

ISSUE: WON the contract entered into by a promoter would bind the corporation to which such service was rendered

RULING: Petitioner won!

 The right of the corporate agents to adopt an agreement originally made by a promoter depends upon the purposes of the
corporation and the nature of the transaction
 Of course, the agreement must be one which the corporation itself could make, and one which the usual agents of the company
have express or implied authority to make. That the contract in this case was of that kind is very clear; and the acts and
 acquiescence of the corporate officers, after the organization of the company, fully justified the jury in finding that it had adopted
it as its own.
 The defendant, however, claims that the contract was void under the statute of frauds, because, "by its terms, not to be performed
within one year from the making thereof," which counsel assumes to be September 12th, -- the date of the agreement between
plaintiff and the promoter—such belief proceeds upon the erroneous theory that the act of the corporation, in such cases, is a
ratification, which relates back to the date of the contract with the promoter, under the familiar maxim that "a subsequent
ratification has a retroactive effect, and is equivalent to a prior command."
 But the liability of the corporation, under such circumstances, does not rest upon any principle of the law of agency, but upon the
immediate and voluntary act of the company. Although the acts of a corporation with reference to the contracts made by
promoters in its behalf before its organization are frequently loosely termed "ratification," yet a "ratification," properly so called,
implies an existing person, on whose behalf the contract might have been made at the time. There cannot, in law, be a ratification
of a contract which could not have been made binding on the ratifier at the time it was made, because the ratifier was not then in
existence.
 What is called "adoption," in such cases, is, in legal effect, the making of a contract of the date of the adoption, and not as of some
former date. The contract in this case was, therefore, not within the statute of frauds. The trial court fairly submitted to the jury all
the issues of fact in this case, accompanied by instructions as to the law which were exactly in the line of the views we have
expressed; and the evidence justified the verdict.

ALL DOMINION COPPER MIONING VS BIG CLOW

*NO CASE DIGEST FOUND

V. CORPORATE POWERS

RP VS ACOJE MINING 7 SCRA 361

*NO CASE DIGEST FOUND

G.R. No. L-36207 October 26, 1932

IRINEO G. CARLOS, plaintiff-appellant,
vs.
MINDORO SUGAR CO., ET AL., defendants-appellees.

Facts: The Mindoro Sugar Company is a corporation constituted in accordance with the laws of the country and registered on July 30,
1917. The Philippine Trust Company is another domestic corporation, registered on October 21, 1917. In its articles of incorporation,
some of its purposes are expressed thus: "To acquire by purchase, subscription, or otherwise, and to invest in, hold, sell, or otherwise
dispose of stocks, bonds, mortgages, and other securities, or any interest in either, or any obligations or evidences of indebtedness, of
any other corporation or corporations, domestic or foreign.

On November 17, 1917, the board of directors of the Philippine Trust Company, adopted a resolution authorizing its president, among
other things, to purchase at par bonds in the value of P3,000,000 that the Mindoro Sugar Company was about to issue, and to resell
them, with or without the guarantee of said trust corporation, at a price not less than par, and to guarantee to the Philippine National
Bank the payment of the indebtedness to said bank by the Mindoro Sugar Company up to P2,000,000.

In pursuance of this resolution, on December 21, 1917, the Mindoro Sugar Company executed in favor of the Philippine Trust
Company the deed of trust transferring all of its property to it in consideration of the bonds it had issued to the value of P3,000,000. In
consequence of this transaction, the bonds, with their coupons were placed on the market and sold by the Philippine Trust Company.
The Philippine Trust Company paid the appellant, upon presentation of the coupons, the stipulated interest from the date of their
maturity until the 1st of July, 1928, when it stopped payments; and thenceforth it alleged that it did not deem itself bound to pay such
interest or to redeem the obligation because the guarantee given for the bonds was illegal and void.

Issue: Whether the Philippine Trust Company acquired the four bonds in question, and whether as such it bound itself legally and
acted within its corporate powers in guaranteeing them.

Ruling: This question was answered in the affirmative. It is not ultra vires for a corporation to enter into contracts of guaranty or
suretyship where it does so in the legitimate furtherance of its purposes and business. And it is well settled that where a corporation
acquires commercial paper or bonds in the legitimate transaction of its business it may sell them, and in furtherance of such a sale it
may, in order to make them the more readily marketable, indorse or guarantee their payment.

"Whenever a corporation has the power to take and dispose of the securities of another corporation, of whatsoever kind, it may, for the
purpose of giving them a marketable quality, guarantee their payment, even though the amount involved in the guaranty may subject
the corporation to liabilities in excess of the limit of indebtedness which it is authorized to incur. A corporation which has power by its
charter to issue its own bonds has power to guarantee the bonds of another corporation, which has been taken in payment of a debt due
to it, and which it sells or transfers in payment of its own debt, the guaranty being given to enable it to dispose of the bond to better
advantage. And so guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its business, made in
connection with their sale, are not ultra vires, and are binding."

When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the
absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within their powers. The doctrine of
ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would defeat the ends of justice or
work a legal wrong. It has been intimated according to section 121 of the Corporation Law, the Philippine Trust Company, as a
banking institution, could not guarantee the bonds to the value of P3,000,000 because this amount far exceeds its capital of P1,000,000
of which only one-half has been subscribed and paid.

This difficulty is easily obviated by bearing in mind that the banking operations are not
the primary aim of said corporation, which is engaged essentially in the trust business, and that the prohibition of the law is not
applicable to the Philippine Trust Company, for the evidence shows that Mindoro Sugar Company transferred all its real property,
with the improvements, to it, and the value of both, which surely could not be less than the value of the obligation guaranteed, became
a part of its capital and assets; in other words, with the value of the real property transferred to it, the Philippine Trust Company had
enough capital and assets to meet the amount of the bonds guaranteed with interest thereon.

National Power Corp. vs. Vera

G.R. No. 83558; February 27, 1989

FACTS:
Sea Lion International Port Services, private respondent, filed a complaint for prohibition and mandamus against petitioner
NPC alleging that it had acted in bad faith in not renewing its contract for stevedoring services for its plant and in taking over its
stevedoring services. Respondent judge issued a restraining order against NPC enjoining the latter from undertaking stevedoring
services at its pier. Consequently, NPC filed an "Urgent Motion" to dissolve the restraining order, asserting that respondent judge
had no jurisdiction to issue the order and private respondent, whose contract with NPC had expired prior to the commencement of
the suit, failed to establish a cause of action for a writ of preliminary injunction. The respondent judge denied the NPC’s motion
and issued a TRO after finding that NPC was not empowered by its Charter to engage in stevedoring and arrastre services.

ISSUE:
WON the undertaking of stevedoring services is empowered by the NPC’s charter powers.

HELD:
YES. To carry out the national policy of total electrification of the country, the NPC was created and empowered not only to
construct, operate and maintain power plants, reservoirs, transmission lines, and other works, but also to exercise such powers and
do such things as may be reasonably necessary to carry out the business and purposes for which it was organized, or which, from
time to time, may be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish said purpose.
In determining whether or not an NPC act falls within the purview of the above provision, the Court must decide whether or
not a logical and necessary relation exists between the act questioned and the corporate purpose expressed in the NPC charter. For
if that act is one which is lawful in itself and not otherwise prohibited, and is done for the purpose of serving corporate ends, and
reasonably contributes to the promotion of those ends in a substantial and not in a remote and fanciful sense, it may be fairly
considered within the corporation's charter powers.

G.R. No. L-48237 June 30, 1987

MADRIGAL & COMPANY, INC., petitioner,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, THE HON. SECRETARY OF LABOR,
and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION, respondents.

Facts:
Madrigal & Company, Inc. (MCI) manages the business of another corporation, Rizal Cement Co., Inc. (RCC). In 1973, a labor union
in MCI sought the renewal of the collective bargaining agreement (CBA). The union proposes a P200.00 monthly wage increase and
an additional P100 monthly allowance. MCI refused to negotiate. Later, MCI reduced its authorized capital stocks. It then wrote a
letter to the Department of Labor averring that it is incurring losses and so it will enforce a retrenchment program. The letter is
however unsupported by documents and so the Department of Labor ignored it. However, MCI went on to dismiss several employees
which led the labor union to sue MCI for unfair labor practices and illegal dismissal. The labor arbiter ruled in favor of the labor
union. The issue reached the Office of the President. The then Presidential Assistant For Legal Affairs, Ronaldo Zamora, denied
MCI’s appeal.
On appeal, MCI insists that it is incurring losses; that as such, it has to reduce its capitalization; that the profits it is earning are cash
dividends from RCC; that under the law, dividends are the absolute property of a stockholder like MCI and cannot be compelled to
share it with creditors (like the employees).

Issue:
Whether or not cash dividends are absolute property of the stockholders and cannot be made available for disposition to a
corporation’s creditors.

Held:
No. As found by the labor arbiter, MCI is in fact making significant profits. MCI’s reduction of its capitalization is simply a scheme to
avoid negotiations with the labor union. It is therefore correct for the arbiter to order MCI to comply with the union’s demands.

It is true that cash dividends are the absolute property of the stockholders and cannot be made available for disposition to a
corporation’s creditors. However, this should be viewed in context. This is only true in the case of corporation distributing dividends
to its stockholders. If this is the case (if the dividends are still with the corporation, in this case RCC), then creditors cannot touch such
dividends. But if the stockholder already receives the dividends, then it becomes a profit on the part of the stockholder hence its
creditors (like the employees) can make some demands out of it. In this case, MCI is a stockholder of RCC. While RCC still has not
distributed the dividends, creditors cannot demand it because such dividends are owned by stockholders like MCI. But when MCI
already receives the dividends, then MCI’s creditors can already demand share from the dividends because such dividends are already
the profits of the stockholder/MCI. So in this case, the employees can demand their share from said profits (not strictly viewed as
dividends now) by way of salary increase.

UNIVERSITY OF MINDANAO VS BSP

*NO CASE DIGEST FOUND

HARDEN VS. BENGUET CONSOLIDATED 58 PHIL 141 (1963)

58 Phil 141 – Business Organization – Corporation Law – Proper Action to File in Case Violator is a Corporation
In 1927, Benguet Consolidated Mining Company, registered as a sociedad anonima under the Spanish Law, agreed to invest and
build capital equipments in favor of Balatoc Mining Company, a corporation registered under the then relatively new Corporation
Law of 1925. In exchange, Balatoc Mining agreed to give Benguet Mining 600,000 shares.
The venture proved to be profitable and Balatoc Mining earned and so did its stockholders, and of course, Benguet Mining was
earning big too because it now owns 600k shares. This prompted, Fred Harden a stockholder of Balatoc Mining who also owns
thousands of shares to sue Benguet Mining on the ground that under the Corporation Law a corporation like Benguet Mining
which is engaged in the mining industry is prohibited from being interested in other corporations which are also engaged in the
mining industry like Balatoc Mining.
ISSUE: Whether or not Harden’s suit should prosper.
HELD: No. The Corporation Law of 1925 subjects sociedades anonimas to its provisions “so far as such provisions may be
applicable”. In 1929, the Corporation Law was amended and the prohibition cited by Harden was so modified as merely to
prohibit any such corporation from holding more than fifteen per centum of the outstanding capital stock of another such
corporation.
Further and more importantly, the Corporation Law of 1925 provides that if the person who allegedly violated the provisions of
said law is a corporation, the proper action is a quo warranto which should be initiated by the Attorney-General or its deputized
provincial fiscal and not a private action as the one filed by Harden