Corporate Law Case Digest: Pioneer Insurance V.

CA (1989)
G.R. No. 84197 July 28, 1989
Lessons Applicable: Defective attempt to form a corp. does NOT result in at least a
partnership absent intent to form one (Corporate Law)

FACTS:
 1965: Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship
 May 17 1965: Japan Domestic Airlines (JDA) and Lim entered into a sales contract
regarding:
 2 DC-#A type aircrafts
 1 set of necessary spare parts
 Total: $ 190,000 in installments
 May 22 1965: Pioneer Insurance and Surety Corp. as surety executed its surety bond in
favor of JDA on behalf of its principal Lim
 Border Machinery and Heacy Equipment Co, Inc. Francisco and Modesto Cervantes and
Constancio Maglana contributed funds for the transaction based on the
misrepresentation of Lim that they will form a new corp.. to expand his business
 Jun 10 1965: Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as
security
 Restructuring of obligation to change the maturity was done 2x w/o the knowledge of
other defendants
 made the surety of JDA prescribed so not entitled to reimbursement
 Upon default on the 2/8 payments, Pioneer paid for him and filed a petition for the
foreclosure of chattel mortgage as security
 CA affirmed Trial of Merits: Only Lim is liable to pay
ISSUE: W/N failure of respondents to incorporate = de facto partnership.

HELD: NO. CA affirmed.

 Partnership inter se does NOT necessarily exist, for ordinarily CANNOT be made to assume
the relation of partners as bet. themselves, when their purpose is that no partnership shall
exists
 Should be implied only when necessary to do justice bet. the parties (i.e. only pretend to
make others liable)
 Lim never intended to form a corp.

Pioneer Insurance vs. CA

G.R. No. 84197; July 28, 1989

FACTS:
Lim is an owner-operator of Southern Airlines (SAL). Japan Domestic Airlines (JDA) and
Lim entered into a sales contract. Pioneer Insurance and Surety Corp. as surety executed its
surety bond in favor of JDA on behalf of its principal Lim. Border Machinery and Heacy
Equipment Co, Inc., Francisco and Modesto Cervantes, and Constancio Maglana contributed
funds based on the misrepresentation of Lim that they will form a new corporation to expand
his business. They executed two separate indemnity agreements in favor of Pioneer, one
signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and
bind themselves jointly and severally to indemnify and hold and save Pioneer from and against
any/all damages, losses, etc. of whatever kind and nature may incur in consequence of
having become surety.
Lim executed in favor of Pioneer a deed of chattel mortgage as security. Upon default
on the payments, Pioneer paid for him and filed a petition for the foreclosure of chattel
mortgage as security. Maglana, Bormaheco and the Cervantes’s filed cross-claims against Lim
alleging that they were not privies to the contracts signed by Lim and for recovery of the sum
of money they advanced to Lim for the purchase of the aircrafts. The decision was rendered
holding Lim liable to pay.
ISSUE: 1. Whether Pioneer has a cause of action against respondents.
2. Whether failure to incorporate automatically resulted to de facto partnership.

HELD:
1. , Pioneer has no right to institute and maintain in its own name an action for the
benefit of the reinsurers. It is well-settled that an action brought by an attorney-in-fact in his
own name instead of that of the principal will not prosper, and this is so even where the name
of the principal is disclosed in the complaint. An attorney-in-fact is not a real party in interest,
that there is no law permitting an action to be brought by an attorney-in-fact.
2. NO. Partnership inter se does not necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners as between themselves, when their purpose is that no
partnership shall exist and it should be implied only when necessary to do justice between the
parties; thus, one who takes no part except to subscribe for stock in a proposed corporation
which is never legally formed does not become a partner with other subscribers who engage
in business under the name of the pretended corporation, so as to be liable as such in an
action for settlement of the alleged partnership and contribution.

Gala vs. Ellice Agro-Industrial Corp. (418 SCRA 431 [2003])

Corp Law Topic: Purpose Clauses
On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia
Gala, Raul Gala, and Rita Benson, and their encargados Virgilio Galeon and Julian Jader
formed and organized the Ellice Agro-Industrial Corporation.

As payment for their subscriptions, the Gala spouses transferred several parcels of land
located in the provinces of Quezon and Laguna to Ellice.

Issue:
Petitioners want this Court to disregard the separate juridical personalities of Ellice and Margo
for the purpose of treating all property purportedly owned by said corporations as property
solely owned by the Gala spouses.

Whether or not the purposes for which Ellice and Margo were organized should be declared
as illegal and contrary to public policy?

They claim that the respondents never pursued exemption from land reform coverage in
good faith and instead merely used the corporations as tools to circumvent land reform laws
and to avoid estate taxes.

Specifically, they point out that respondents have not shown that the transfers of the land in
favor of Ellice were executed in compliance with the requirements of Section 13 of R.A. 3844.

Held:
The Court holds that petitioners’ contentions impugning the legality of the purposes for which
Ellice and Margo were organized, amount to collateral attacks which are prohibited in this
jurisdiction.

The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The
articles of incorporation must state the primary and secondary purposes of the corporation,
while the by-laws outline the administrative organization of the corporation, which, in turn, is
supposed to insure or facilitate the accomplishment of said purpose.

In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign
of the allegedly illegal purposes that petitioners are complaining of.

If a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has
no authority to inquire whether the corporation has purposes other than those stated, and
mandamus will lie to compel it to issue the certificate of incorporation.

Assuming there was even a grain of truth to the petitioners’ claims regarding the legality of
what are alleged to be the corporations’ true purposes, we are still precluded from granting
them relief. We cannot address here their concerns regarding circumvention of land reform
laws, for the doctrine of primary jurisdiction precludes a court from arrogating unto itself the
authority to resolve a controversy the jurisdiction over which is initially lodged with an
administrative body of special competence.

With regard to their claim that Ellice and Margo were meant to be used as mere tools for the
avoidance of estate taxes, suffice it say that the legal right of a taxpayer to reduce the
amount of what otherwise could be his taxes or altogether avoid them, by means which the
law permits, cannot be doubted.

Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of
the Gala spouses from the coverage of land reform legislation and avoiding estate taxes, we
cannot disregard their separate juridical personalities.

BOYER – ROXAS VS. COURT OF APPEALS

211 SCRA 470 (1992)
FACTS OF THE CASE
When Eugenia V. Roxas died, her heirs formed a corporation under the name and style of Heirs
of Eugenia V. Roxas, Inc. using her estate as the capital of the corporation, the private
respondent herein. It was primarily engaged in agriculture business, however it amended its
purpose to enable it to engage in resort and restaurant business. Petitioners are stockholders
of the corporation and two of the heirs of Eugenia. By tolerance, they were allowed to occupy
some of the properties of the corporation as their residence. However, the board of directors
of the corporation passed a resolution evicting the petitioners from the property of the
corporation because the same will be needed for expansion.
At the RTC, private respondent presented its evidence averring that the subject premises are
owned by the corporation. Petitioners failed to present their evidence due to alleged
negligence of their counsel. RTC handed a decision in favor of private respondent.
Petitioners appealed to the Court of Appeals but the latter denied the petition and affirmed
the ruling of the RTC. Hence, they appealed to the Supreme Court. In their appeal, petitioners
argues that the CA made a mistake in upholding the decision of the RTC, and that their
occupancy of the subject premises should be respected because they own an aliquot part of
the corporation as stockholders, and that the veil of corporate fiction must be pierced by virtue
thereof.

ISSUE
1. Whether petitioner’s contention were correct as regards the piercing of the corporate veil.
2. Whether petitioners were correct in their contention that they should be respected as
regards their occupancy since they own an aliquot part of the corporation.

RULING
1.Petitioner’s contention to pierce the veil of corporate fiction is untenable. As aptly held by
the court: “..The separate personality of a corporation may ONLY be disregarded when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or when
necessary to achieve equity or when necessary for the protection of creditors.”
2. As regards petitioners contention that they should be respected on their occupancy by
virtue of an aliquot part they own on the corporation as stockholders, it also fails to hold water.
The court held that “properties owned by a corporation are owned by it as an entity separate
and distinct from its members. While shares of stocks are personal property, they do not
represent property of the corporation. A share of stock only typifies an aliquot part of the
corporation’s property, or the right to share in its proceeds to that extent when distributed
according to law and equity, but its holder is not the owner of any part of the capital of the
corporation. Nor is he entitled to the possession of any definite portion of its property or assets.
The holder is not a co-owner or a tenant in common of the corporate property.”

TOPIC: STOCKHOLDERS
G.R. No. 133969 January 26, 2000
NEMESIO GARCIA, petitioner,
vs. NICOLAS JOMOUAD, Ex-officio Provincial Sheriff of Cebu and SPOUSES JOSE ATINON &
SALLY ATINON, respondents.
Doctrine: All transfers not so entered on the books of the corporation are absolutely void; not
because they are without notice or fraudulent in law or fact, but because they are made so
void by statute.
FACTS:
1. Jaime Dico used to be employed as the manager of Young Auto Supply, which was
owned by the petitioner, Nemesio Garcia. In order to assist Dico in entertaining the clients,
Garcia “lent” his Proprietary Ownership Certificate (POC) in Cebu Country Club so that Dico
could enjoy the “signing provileges” of its members.
2. Thereafter, Dico resigned from the Company and returned the POC. He then executed a
Deed of Transfer covering the POC in favor of Garcia. The Club was furnished with a copy of
the said deed but the transfer was not recorded in the books of the Club because Garcia
failed to present proof of payment of the requisite capital gains tax.
3. The Spouses Atinon, respondents, filed a collection case against Jaime Dico for the
amount of P900,000.00. After the judgment became final and executory, the respondent
sheriff proceeded with its execution and levied on the POC share of Dico in the Cebu
Country Club, and scheduled it for public auction.
4. Claiming ownership over the POC, Garcia filed an action for injunction to enjoin
respondents from proceeding with the auction.
5. The RTC dismissed the complaint of Garcia for injunction for lack of merit, and on appeal,
such was likewise affirmed by the CA. Garcia claimed the POC although in the name of
Dico cannot be levied upon on execution to satisfy the judgment debt because even prior
to the institution of the case:
a. The spouses Atinon had knowledge that Dico already conveyed back the ownership of
the subject, certificate to petitioner;
b. Dico executed a deed of transfer, dated 18 November 1992, covering the subject
certificate in favor of petitioner and the Club was furnished with a copy thereof; and

c. Dico resigned as a proprietary member of the Club and his resignation was accepted by
the board of directors at their meeting on 4 May 1993.
ISSUE: "Whether a bona fide transfer of the shares of a corporation, not registered or noted in
the books of the corporation, is valid as against a subsequent lawful attachment of said
shares, regardless of whether the attaching creditor had actual notice of said transfer or not."
HELD: NO, such is not valid.
1. Sec. 63 of the Corporation Code reads:
Sec. 63 Certificate of stock and transfer of shares. — The capital stock of 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 showing 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.
2. The transfer of the subject certificate made by Dico to petitioner was not valid as to the
spouses Atinon, the judgment creditors, as the same still stood in the name of Dico, the
judgment debtor, at the time of the levy on execution. In addition, as correctly ruled by the
CA, the entry in the minutes of the meeting of the Club's board of directors noting the
resignation of Dico as proprietary member thereof does not constitute compliance with
Section 63 of the Corporation Code. Said provision of law strictly requires the recording of the
transfer in the books of the corporation, and not elsewhere, to be valid as against third
parties. Accordingly, the CA committed no reversible error in rendering the assailed decision.
DISPOSITIVE:
IN VIEW OF THE FOREGOING, the Court RESOLVED to DENY the petition.

SAN JUAN STRUCTURAL FABRICATORS VS CA (296 SCRA 631)

San Juan Structural and Steel Fabricators, Inc. vs Court of Appeals
296 SCRA 631 [GR No. 129459 September 29, 1998]
Facts: Plaintiff-appellant San Juan structural and steel fabricators Inc.’s amended complaint
alleged that on February 14, 1989, plaintiff-appellant entered into an agreement with
defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land
identified as lot 30, Block 1 of the Acropolis Greens Subdivision located in the district of Murphy,
Quezon City, Metro Manila containing an area of 414 sqm, covered by TCT no. 362909; that as
stipulated in the agreement of February 14, 1i989, plaintiff-appellant paid the down payment
in the sum of P100,000, the balance to be paid on or before March 2, 19889; that on March 1,
1989,Mr. Andres T. Co, president of Plaintiff-appellant corporation, wrote a letter to defendant-
appellee Motorich Sales Corporation requesting a computation for the balance to be paid;
that said letter was coursed through the defendant-appellee’s broker. Linda Aduca who wrote
the computation of the balance; that on March 2, 1989, plaintiff-appellant was ready with the
amount corresponding to the balance, covered by Metrobank cashier’s check no. 004223
payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and
defendant-appellee were supposed to meet in the plaintiff-appellant’s office but defendant-
appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that defendant-appelle despite
repeated demands and in utter disregard of its commitments had refused to execute the
transfer of rights/deed of assignment which is necessary to transfer the certificate of title; that
defendant ACL development corporation is impleaded as a necessary party since TCT no.
362909 is still in the name of said defendant; while defendant VNM Realty and Development
Corporation is likewise impleaded as a necessary party in view of the fact that it is the transferor
of the right in favor of defendant-appellee Motorich Sales Corporation; that on April 6, 1989
defendant ACL Development Corporation and Motorich Sales Corporation entered into a
deed of absolute sale whereby the former transferred to the latter the subject property; that
by reason of said transfer; the registry of deeds of Quezon City issued a new title in the name
of Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenbeg and
Reynaldo L. Gruenbeg, under TCT no. 3751; that as a result of defendants-appellees Nenita
and Motorich’s bad faith in refusing to execute a formal transfer of rights/deed of assignment,
plaintiff-appellant suffered moral and nominal damages which may be assessed against
defendant-appellees in the sum of P500,000; that as a result of an unjustified and unwarranted
failure to execute the required transfer or formal deed of sale in favor of plaintiff-appellant,
defendant-appellees should be assessed exemplary damages in the sum of P100,000; that by
reason of the said bad faith in refusing to execute a transfer in favor of plaintiff-appellant the
latter lost opportunity to construct a residential building in the sum of P100,000 and that as a
consequence of such bad faith, it has been constrained to obtain the services of counsel at
an agreed fee of P100,000 plus appearance fee of for every appearance in court hearings.
Issues: Whether or not the corporation’s treasurer act can bind the corporation.
Whether or not the doctrine of piercing the veil of corporate entity is applicable.
Held: No. Such contract cannot bind Motorich, because it never authorized or ratified such
sale.
A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of the corporation is not the
property of its stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporation’s board of directors.
Section 23 of BP 68 provides the Board of Directors or Trustees – Unless otherwise provided in
this code, the corporate powers of all corporations formed under this code shall be exercised,
all business conducted, and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the stockholders of stocks, or where
there is no stock, from among the members of the corporations, who shall hold office for 1 year
and until their successors are elected and qualified.
As a general rule, the acts of corporate officers within the scope of their authority are binding
on the corporation. But when these officers exceed their authority, their actions, cannot bind
the corporation, unless it has ratified such acts as is estopped from disclaiming them.
Because Motorich had never given a written authorization to respondent Gruenbeg to sell its
parcel of land, we hold that the February 14, 1989 agreement entered into by the latter with
petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified.
The statutorily granted privilege of a corporate veil may be used only for legitimate purposes.
On equitable consideration,the veil can be disregarded when it is utilized as a shield to commit
fraud, illegality or inequity, defeat public convenience; confuse legitimate issues; or serve as a
mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of
another corporation.
We stress that the corporate fiction should be set aside when it becomes a shield against
liability for fraud, or an illegal act on inequity committed on third person. The question of
piercing the veil of corporate fiction is essentially, then a matter of proof. In the present case,
however, the court finds no reason to pierce the corporate veil of respondent Motorich.
Petitioner utterly failed to establish the said corporation was formed, or that it is operated for
the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders;
or that the said veil was used to conceal fraud, illegality or inequity at the expense of third
persons like petitioner.

Case Digest on San Juan Structural and Steel Fabricators vs. CA

July 27, 2010
San Juan Structural and Steel Fabricators Inc. vs. CA [296 SCRA 631 (Sept 29 1998)]
Effect of Unauthorized Acts of Corporate Officer
Sufficiency of Proof to Pierce Veil of Corporate Fiction
Facts: San Juan Structural and Steel Fabricators entered into an agreement with Motorich
Sales Corporation through Nenita Gruenberg, corporate treasurer of Motorich, for the transfer
to the former a parcel of land upon a P100,000 earnest money, balance to be payable within
March 2, 1989. Upon payment of the earnest money, and on March 1, 1989, San Juan
allegedly asked to be submitted a computation of the balance due to Motorich. The latter,
despite repeated demands, refused to execute the Deed of Assignment of the land. San Juan
discovered that Motorich entered into a Deed of Absolute Sale of the land to ACL
Development Corporation. Hence, San Juan filed a complaint with the RTC.
On the other hand, Motorich contends that since Nenita Gruenberg was only the treasurer of
said corporation, and that its president, Reynaldo Gruenberg, did not sign the agreement
entered into by San Juan and Motorich, the treasurer’s signature was inadequate to bind
Motorich to the agreement. Furthermore, Nenita contended that since San Juan was not able
to pay within the stipulated period, no deed of assignment could be made. The deed was
agreed to be executed only after receipt of the cash payment, and since according to
Nenita, no cash payment was made on the due date, no deed could have been executed.
RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich to
enter into said contract with San Juan, and that a majority vote of the BoD was necessary to
sell assets of the corporation in accordance with Sec. 40 of the Corporation Code. CA
affirmed this decision. Hence, this petition with SC.

Issues: (1) Whether or not there was a valid contract existing between San Juan and Motorich.
(2) Whether or not the veil of corporate fiction could be pierced.
Held: (1) No. The contract entered into between Nenita and San Juan cannot bind Motorich,
because the latter never authorized nor ratified such sale. A corporation is a juridical person
separate and distinct from its stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders and may not be sold by them without express
authorization from the corporation’s BoD. This is in accordance with Sec. 23 of the Corporation
Code.
Indubitably, a corporation can only act through its BoD or, when authorized either by its by
laws or by its board resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation between the corporation and
its officers or agents, subject to the AoI, by laws, or relevant provisions of law. A corporate
officer or agent may represent and bind the corporation in transactions with 3rd persons to
the extent that the authority to do so has been conferred upon him, and this includes powers
which have been intentionally conferred, and also such powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to the particular officer
or agent, and such apparent powers as the corporation has caused persons dealing with the
officer or agent to believe that it has conferred. Furthermore, persons dealing with an
assumed agent, whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to establish it. Unless duly authorized, a treasurer, whose powers are limited, cannot
bind the corporation in a sale of its assets.
In the case at bar, San Juan had the responsibility of ascertaining the extent of Nenita’s
authority to represent the corporation. Selling is obviously foreign to a corporate treasurer’s
function. Neither was real estate sale shown to be a normal business activity of Motorich. The
primary purpose of said corporation is marketing, distribution, import and export relating to a
general merchandising business. Unmistakably, its treasurer is not cloaked with actual or
apparent authority to buy or sell real property, an activity which falls way beyond the scope
of her general authority.
Acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions cannot bind the
corporation, unless it has ratified such acts or is estopped from disclaiming them.
(2) No. San Juan argues that the veil of corporate fiction should be pierced because the
spouses Reynaldo and Nenita Gruenberg own 99.96% of the subscribed capital stock, they
needed no authorization from the BoD to enter into the said contract.
The veil can only be disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience, confuse legitimate issues, or serve as a mere alter ego
or business conduit of a person or an instrumentality, agency or adjunct of another
corporation. Hence, the question of piercing the veil becomes a matter of proof. In the case
at bar, SC found no reason to pierce the veil. San Juan failed to establish that said corporation
was formed for the purpose of shielding any fraudulent act of its officers and stockholders.

SINGSON vs COA

FACTS: The Philippine International Convention Center, Inc. (PICCI) is a government

corporation whose sole stockholder is the Bangko Sentral ng Pilipinas (BSP). Petitioner Araceli
E. Villanueva was then a member of the PICCI Board of Directors and Officer-in-Charge
(OIC) of PICCI, while co-petitioners Gabriel C. Singson, Andre Navato, Edgardo P. Zialcita,
and Melpin A. Gonzaga, Alejandra C. Clemente, Jose Clemente, Jr., Federico Pascual,
Albert P. Fenix, Jr., and Tyrone M. Reyes were then members of the PICCI Board of Directors
and officials of the BSP. By virtue of the PICCI By-Laws, petitioners were authorized to receive
P1,000.00 per diem each for every meeting attended. Pursuant to its Monetary Board (MB)
Resolution No. 15 as amended the BSP MB granted additional monthly RATA, in the amount
of P1,500.00, to each of the petitioners, as members of the Board of Directors of PICCI.
Consequently, from January 1996 to December 1998, petitioners received their
corresponding RATA in the total amount of P1,565,000.00.
On June 7, 1999, then PICCI Corporate Auditor Adelaida A. Aldovino issued Notice of
Disallowance addressed to petitioner Araceli E.Villanueva disallowing in audit the payment
of petitioners' RATA in the total amount of P1,565,000.00, and directing them to settle
immediately the said disallowances. They alleged that there was double payment which was
in violation of Section 8, Article IX-B of the 1987 Constitution and PICCI By-laws.

Petitioners sought reconsideration of the Notice of Disallowance, but the PICCI Corporate
Auditor Aldovino denied it. They filed a notice of appleal but Director Sunico of the
Corporate Audit Office I of COA affirmed the disallowance based upon the principle
expression unius est exclusio alterius (the express mention of one thing in a law means the
exclusion of others not expressly mentioned). Neither can the payment of RATA be legally
founded on Section 30 of the Corporation Code. The power to fix the compensation which
the directors shall receive, if any, is left to the corporation, to be determined in its by-laws or
by the vote of stockholders. The PICC By-Laws allows only the payment of per diem to the
directors. Thus, the BSP board resolution granting RATA of P1,500.00 to petitioners violated the
PICCI By-Laws.

Director Sunico also explained that although MB Resolution No. 15, dated January 5, 1994, as
amended by MB Resolution No. 34, dated January 12, 1994, would have the effect of
amending the PICCI By-laws, and may render the grant of RATA valid, such amendment,
however, had no effect because it failed to comply with the procedural requirements set
forth under Section 48 of the Corporation Code. On petition for review by petitioners, the
COA rendered the assailed decision affirming the COA I decision. Thus this petiton.

Petitioners contend that since PICCI was incorporated with the Securities and Exchange
Commission (SEC) (SEC Regulation No. 68840) and has no original charter, it should be
governed by Section 30 of the Corporation Code. According to petitioners, their receipt of
RATA as directors of PICCI was sanctioned by PICCI's sole stockholder, BSP. Respondent
counters that said provision does not apply to petitioners as Section 8 of the PICCI By-laws
provides that the compensation of the members of the PICCI Board of Directors shall be
given only through per diems.

ISSUE: Whether petitioners' right to compensation as members of the PICCI Board of Directors
is limited only to per diem of P1,000.00 or is it P1,500

HELD: It's limited only to per diem of P1,000, BUT they don't need to refund the amount.

Section 30 of the Corporation Code, which authorizes the stockholders to grant

compensation to its directors, states: "In the absence of any provision in the by-laws fixing
their compensation, the directors shall not receive any compensation, as such directors,
except for reasonable per diems; Provided, however, that any such compensation (other
than per diems) may be granted to directors by the vote of the stockholders representing at
least a majority of the outstanding capital stock at a regular or special stockholders' meeting.
In no case shall the total yearly compensation of directors, as such directors, exceed ten
(10%) percent of the net income before income tax of the corporation during the preceding
year.”

In construing the said provision, it bears stressing that the directors of a corporation shall not
receive any compensation for being members of the board of directors, except for
reasonable per diems. The two instances where the directors are to be entitled to
compensation shall be when it is fixed by the corporation's by-laws or when the stockholders,
representing at least a majority of the outstanding capital stock, vote to grant the same at a
regular or special stockholder's meeting, subject to the qualification that, in any of the two
situations, the total yearly compensation of directors, as such directors, shall in no case
exceed ten (10%) percent of the net income before income tax of the corporation during
the preceding year.

Section 8 of the Amended By-Laws of PICCI, in consonance with Section 30 of the

Corporation Code, restricted the scope of petitioners' compensation by fixing their per diem
at P1,000.00. However, the Board of Directors may increase or decrease the amount of per
diems, when the prevailing circumstances shall warrant. No other compensation may be
given to them, except only when they serve the corporation in another capacity.
Section 8, Article IX-B of the Constitution provides that no elective or appointive public officer
or employee shall receive additional, double or indirect compensation, unless specifically
authorized by law, nor accept without the consent of the Congress, any present emolument,
office or title of any kind from any foreign government. Pensions and gratuities shall not be
considered as additional, double or indirect compensation. This provision, however, does not
apply to the present case as there was no double compensation of RATA to the petitioners.

The Court upholds the findings of respondent that petitioners' right to compensation as
members of the PICCI Board of Directors is limited only to per diem of P1,000.00 for every
meeting attended, by virtue of the PICCI By-Laws. In the same vein, we also clarify that there
has been no double compensation despite the fact that, apart from the RATA they have
been receiving from the BSP, petitioners have been granted the RATA of P1,500.00 for every
board meeting they attended, in their capacity as members of the Board of Directors of
PICCI, pursuant to MB Resolution No. 15 dated January 5, 1994, as amended by MB
Resolution No. 34 dated January 12, 1994, of the Bangko Sentral ng Pilipinas. In this regard,
we take into consideration the good faith of petitioners.

As petitioners believed in good faith that they are entitled to the RATA of P1,500.00 for every
board meeting they attended, in their capacity as members of the Board of Directors of
PICCI, pursuant to MB Resolution No. 15 as amended the Court sees no need for them to
refund their RATA respectively.