J. F. RAMIREZ, plaintiff-appellee, vs.
THE Petitioners, directors of respondent up to March
ORIENTALIST CO., and RAMON J. FERNANDEZ,
defendants- appellants (G.R. No. 11897
September 24, 1918)
Facts:
 Orientalist Company was engaged in the
business of maintaining and conducting a theatre
in the city of Manila for the exhibition of
cinematographic films, engaged in the business
of marketing films for a manufacturer or
manufacturers, there engaged in the production
or distribution of cinematographic material.
 In this enterprise the plaintiff was represented in
the city of Manila by his son, Jose Ramirez. The
directors of the Orientalist Company became
apprised of the fact that the plaintiff in Paris had
control of the agencies for two different marks of
films, namely, the “Eclair Films” and the
“Milano Films;” and negotiations were begun with
said officials of the Orientalist Company by Jose
Ramirez, as agent of the plaintiff.
 The defendant Ramon J. Fernandez, one of the
directors of the Orientalist Company and also its
treasurer, was chiefly active in this matter.
Ramon J. Fernandez had an informal conference
with all the members of the company’s board of
directors except one, and with approval of those
with whom he had communicated, addressed a
letter to Jose Ramirez, in Manila, accepting the
offer contained in the memorandum the exclusive
agency of the Eclair films and Milano films.
 In due time the films began to arrive in Manila, it
appears that the Orientalist Company was
without funds to meet these obligations. Action
was instituted by the plaintiff to Orientalist
Company, and Ramon J. Fernandez for sum of
money.
Issue:  WON the Orientalist Co. is liable for the acts
of its treasurer, Fernandez?
Held:  Yes. It will be observed that Ramon J.
Fernandez was the particular officer and member of
the board of directors who was most active in the
effort to secure the films for the corporation. The
negotiations were conducted by him with the
knowledge and consent of other members of the
board; and the contract was made with their prior
approval. In the light of all the circumstances of the
case, we are of the opinion that the contracts in
question were thus inferentially approved by the
company’s board of directors and that the company is
bound unless the subsequent failure of the
stockholders to approve said contracts had the effect
of abrogating the liability thus created.
BARRETO VS. LA PREVISORY FILIPINA (57 Phil.
649; Dec. 8, 1932)
1929, sought to recover 1% (to each plaintiff) of the
profits of the company for the year 1929, under and
in accordance with an amendment to the by-laws
which was made at the general meeting of the
stockholders on Feb. 1929, to which the lower court
rendered in their favor.
ISSUE: WON the amendment has a binding effect as
to grant plaintiffs’ claim?
HELD: No. Sec. 20 of the Corporation Law limits the
authority of a corporation to adopt by-laws which are
not consistent with the provisions of the law. The
appellees contend that the articled in question is
merely a provision of the compensation of directors
which is not only consistent with but expressly
authorized by Sec. 21 of the Corporation Law.
We cannot agree with this contention. The authority
conferred upon corporations in that section refers
only to providing compensation for the future services
of directors, officers, and employees thereof after the
adoption of the by-law or other provisions in relation
thereto, and cannot in any sense be held to authorize
the giving, as in this case, of continuous
compensation to particular directors after their
employment has terminated for part services
rendered gratuitously by them to the corporation. To
permit the transaction involved in this case would be
to create an obligation unknown to law, and to
countenance a misapplication of the funds of the
defendant building and loan association to the
prejudice of the substantial rights of its shareholders.
Irrespective of the above, the conclusion is the same.
The article which the appellees rely upon is merely a
by-law provision adopted by the stockholders of the
defendant corporation, without any action having
been takin in relation thereto by its board of directors.
The law is settled that contracts between a
corporation and third person must be made by or
under the authority of its board of directors and not by
its stockholders. Hence, the action of the
stockholders in such matters is only advisory and not
in any wise binding on the corporation. There could
not be a contract without mutual consent, and it
appears that the plaintiffs did not consent to the
provisions of the by-law in question, but, on the
contrary, they objected to and voted against it in the
stockholders‘ meeting in which it was adopted.
RAMON C. LEE and ANTONIO DM. LACDAO,
petitioners, vs. THE HON. COURT OF
APPEALS, SACOBA MANUFACTURING CORP.,
PABLO GONZALES, JR. and THOMAS
GONZALES, respondents. (GR No. 93695; 205
SCRA 752; Feb. 4, 1992)
FACTS: A complaint for a sum of money was filed by
International Corporate Bank, Inc. against the private
respondents who, in turn, filed a third-party complaint
against Alfa Integrated Textile Mills, Inc.
The trial court ordered the issuance of alias
summons upon Alfa through DBP, who is said to be
the transferee of Alfa’s management by virtue of a
voting trust agreement.
DBP declined to receive the summons saying it is not
authorized, Alfa having a personality separate and
distinct. The trial court, in turn ordered private
respondents to take the appropriate steps to serve
the summons to Alfa which they made through the
officers and later on, was later on declared to be
proper service of summons.
After the second motion for reconsideration, the trial
court reversed itself, saying that the service of
summons upon the petitioners were not proper, them
not being officers of the corporation anymore. On
appeal, the CA reversed the trial court.
ISSUE: WON the petitioners can still be authorized to
receive the summons despite the voting trust
agreement with DBP?
HELD: No. Sec. 59 of the Code expressly recognizes
VTAs and gives a more definitive meaning. By its
very nature, a VTA results in the separation of the
voting right of a stockholder from his other rights such
as the right to receive dividends, the right to inspect
the books of the corporation, the right to sell certain
interests in the assets of the corporation and other
rights to which a stockholder may be entitled until the
liquidation of the corporation. However,
in order to distinguish a VTA from proxies and other
voting pool and agreements, it must pass three
criteria or tests, namely: (1) the voting rights of the
stock are separated from other attributes or
ownership; (2) that the voting right granted are
intended to be irrevocable for a definite period of
time; and (3) that the principal purpose of the grant of
voting rights is to acquire voting control of the
corporation.
The execution of VTA, therefore, may create a
dichotomy between the equitable and beneficial
ownership of the corporate shares of stockholder, on
the one hand and the legal title thereto, on the other
hand.
By virtue of the VTA, the petitioners are no longer
directors. Under the old and new Corporation Code,
the most immediate effect of a VTA on the status of a
stockholder who is a party to its execution is that he
becomes only an equitable or beneficial owner, from
being the legal titleholder or owner of the shares
subject of the VTA.
Under the old code, the eligibility of a director, strictly
speaking, cannot be adversely affected by a VTA
inasmuch as he remains the owner (although
beneficial or equitable only) of the shares subject of
the VTA pursuant to which a transfer of the
stockholder’s shares in favor of the trustee is
required. No disqualification arises by virtue of the
phrase ―in his own right‖ provided under the Old
Code, which has been omitted.
Hence, this omission requires that in order to be
eligible as director, what is material is the legal title
to, not beneficial ownership, of the stock as
appearing on the books of the corporation.
The petitioners ceased to be the owners of at least
one share standing in their names on the books of
Alfa as required under Sec. 23 of the new Code.
They also ceased to have anything to do with the
management of the enterprise. The petitioners
ceased to be directors.
Considering the VTA, DBP as trustee, became the
stockholder of record with respect to the said shares
of stocks.
DETECTIVE AND PROTECTIVE BUREAU VS.
CLORIBEL (26 SCRA 256; Nov. 29, 1968)
A complaint was filed by herein petitioner-plaintiff
Detective and Protective Bureau against defendant-
respondent Fausto Alberto, alleging that defendant
illegally seized and took control of all the assets as
well as the books, records, vouchers and receipt of
the corporation from the accountant- cashier,
concealed them illegally and refused to allow any
member of the corporation to see and examine the
same. That on a meeting, the stockholders removed
defendant as managing director and elected Jose
dela Rosa.
Alberto, on the other hand, stated that Jose dela
Rosa could not be elected managing director
because he did not own any stock in the corporation.
ISSUE:  WON dela Rosa may be elected managing
director?
HELD: No. There is no record showing that Jose dela
Rosa owned a share of stock in the corporation. If he
did not own any share of stock, certainly he could not
be a director pursuant to Sec. 30 of the Corporation
Law and consequently he cannot be a managing
director by virtue of the by-laws of the corporation
that the manager shall be elected by the BOD among
its members.
Accordingly, Faustino Alberto could not be compelled
to vacate his office and cede the same to dela Rosa
because the by-laws provide that the Directors shall
serve until the election and qualification of their duly
qualified successor.
YAO KA SIN TRADING VS. CA (209 SCRA 763;
June 15, 1992)
Constacio B. Malagna, President and Chairman of
the Board of private respondent Prime White Cement
Corporation (PWCC), sent a letter-offer (Exhibit A) to
Mr. Yao for the delivery of cement, which was
accepted by the latter by delivering a check for
P243,000.
ISSUE: WON the letter-offer sent by Malagna binds
the corporation?
HELD: No. A corporation can act only through its
officers and agents, all acts within the powers of said
corporation may be performed by agents of his
selection and except in so far as limitations or
restrictions may be imposed by special charter, by-
law or statutory provisions, the same general
provision of law which govern the relation of agency
for natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to
his power to act for the corporation; and the agents
once appointed, or members acting in their stead, are
subject to the same rules, liabilities and incapacities
as are agents of individuals and private persons.
Moreover, a corporate officer or agent may represent
and bind the corporation in transactiosn with third
person to the extent that authority has been
conferred upon him, and this includes powers which
have been (1) intentionally conferred, and (2) also
such powers as, in the usual course of business, are
incidental thereto, or may be implied therefrom, (3)
powers added by custom and usage, as usually
pertaining to the particular officer or agent, and (4)
such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe
that it has conferred.
While Mr. Maglana was an officer, the by-laws do not
in any way confer upon the president the authority to
enter into contracts for the corporation independently
of the BOD. That power is expressly lodged in the
latter.
Nevertheless, to expedite or facilitate the execution of
the contract, only the President shall sign the contact
for the corporation. No greater power can be implied
from such express, but limited delegated authority.
Neither can it be logically claimed that any power
greater than that expressly conferred is inherent in
Mr. Maglana’s position as president and chairman of
the corporation.
Although there is authority "that if the president is
given general control and supervision over the affairs
of the corporation, it will be presumed that he has
authority to make contract and do acts within the
course of its ordinary business," We find such
inapplicable in this case. We note that the private
corporation has a general manager who, under its
By-Laws has, inter alia, the following powers: "(a) to
have the active and direct management of the
business and operation of the corporation,
conducting the same accordingly to the order,
directives or resolutions of the Board of Directors or
of the president." It goes without saying then that Mr.
Maglana did not have a direct and active and in the
management of the business and operations of the
corporation.
Petitioner's last refuge then is his alternative
proposition, namely, that private respondent had
clothed Mr. Maglana with the apparent power to act
for it and had caused persons dealing with it to
believe that he was conferred with such power. The
rule is of course settled that "[a]lthough an officer or
agent acts without, or in excess of, his actual
authority if he acts within the scope of an apparent
authority with which the corporation has clothed him
by holding him out or permitting him to appear as
having such authority, the corporation is bound
thereby in favor of a person who deals with him in
good faith in reliance on such apparent authority, as
where an officer is allowed to exercise a particular
authority with respect to the business, or a particular
branch of it, continuously and publicly, for a
considerable time." Also, "if a private corporation
intentionally or negligently clothes its officers or
agents with apparent power to perform acts for it, the
corporation will be estopped to deny that such
apparent authority in real, as to innocent third
persons dealing in good faith with such officers or
agents." This "apparent authority may result from (1)
the general manner, by which the corporation holds
out an officer or agent as having power to act or, in
other words, the apparent authority with which it
clothes him to act in general or (2) acquiescence in
his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or
without the scope of his ordinary powers.
It was incumbent upon the petitioner to prove that
indeed the private respondent had clothed Mr.
Maglana with the apparent power to execute Exhibit
"A" or any similar contract. This could have been
easily done by evidence of similar acts executed
either in its favor or in favor of other parties.
Petitioner miserably failed to do that. Upon the other
hand, private respondent's evidence overwhelmingly
shows that no contract can be signed by the
president without first being approved by the Board of
Directors; such approval may only be given after the
contract passes through, at least, the comptroller,
who is the NIDC representative, and the legal
counsel.
LOPEZ REALTY, INC. VS. FOTENCHA (147 SCRA
183; Aug. 11, 1995)
Petitioner corporation approved two resolutions
providing for the gratuity pay of its employees. Except
for Asuncion Lopez-Gonzales, who was then abroad,
the remaining member of the board convened a
special meeting and passed a resolution adopting the
above-mentioned resolutions. Private respondents
requested for the full payment of the gratuity pay
which was granted.
At that time, however, petitioner Asuncion was still
abroad, and allegedly sent a cablegram objecting to
certain matters taken up by the board in her absence.
Notwithstanding a corporate squabble between
Asuncion and Arturo Lopez, the first two installments
of the gratuity pay of private respondents were paid.
Also, petitioner corporation had prepared the cash
vouchers and checks for the thir installment. For
some reason, said voucher was cancelled by
petitioner Asuncion.
A complaint was filed before the labor arbiter who
decided in favor of private respondents.
ISSUE: WON the gratuity pay should be paid?
HELD:  Yes. The general rules is that a corporation,
through its board of directors, should act in the
manner and within the formalities, if any, prescribed
by its charter or by the general law. Thus, the
directors must act as a body in a meeting called
pursuant to the law or the corporation’s by -laws,
otherwise, any action taken therein may be
questioned by any objecting director or shareholder.
Be that as it may, jurisprudence tells us that an action
of the board of directors during a meeting, which was
illegal for lack of notice, may be ratified either (1)
expressly, by the action of the directors in
subsequent legal meeting, or (2) impliedly, by the
corporations‘ subsequent conduct.
Ratification by directors may be by an express
resolution or vote to that effect, or it may be implied
from adoption of the act, acceptance or
acquiescence. Moreover, the unauthorized acts of an
officer of a corporation may be ratified by the
corporation by conduct implying approval and
adoption of the act in question. Such ratification may
be expressed or may be inferred from silence and
inaction.
In the case at bench, it was established that
petitioner corporation did not issue any resolution
revoking nor nullifying the board resolution granting
gratuity pay to private respondents. Instead, they
paid the gratuity pay, particularly, the first two
installments thereof.
Despite lack of notice to Asuncion, we can glean from
the records that she was aware of the corporation’s
obligations under the said resolution. More
importantly she acquiesced thereto by affixing her
signature on two cash vouchers. The conduct of
petitioners had estopped them from assailing the
validity of the said board resolutions.
PUA CASIM & CO. VS. NEUMARK AND CO. (46
Phil. 242; Oct. 2, 1924)
W. Neumark, president of defendant corporation
borrowed P15000 from plaintiff which was delivered
by means of a check in favor of defendant and
deposited in BPI and the amount of it credited to the
corporation’s current account.
ISSUE:  WON the corporation is responsible for the
money borrowed by its president?
HELD: Yes. W. Neumark is the principal stockholder,
president and general business manager of the
defendant corporation. On behalf of the corporation,
he solicited a loan and was given a check, which was
endorsed by him in his capacity as president and
deposited to the corporation’s account. It may be true
that a large part of the amount so deposited was
diverted by Neumark to his own use, but that does
not alter that the money was borrowed for the
corporation and was placed in its possession.
It is conceded that Neumark was not expressly
authorized by the board of directors to borrow the
money in question and the general rule is that a
business manager or other officer of a corporation,
has no implied power to borrow money on its behalf.
But much depends upon the circumstances of each
particular case and the rule state is subject to
important exceptions. Thus, where a general
business manager of a corporation is clothed with
apparent authority to borrow money and the amount
borrowed does not exceed the ordinary requirements
of the business, it has often been held that the
authority is implied and that the corporation is bound.
YU CHUCK VS. KONG LI PO (46 Phil. 608; Dec. 3,
1924)
CC Chen or TC Chen, General Manager of defendant
corporation Kong Li Po, entered into an agreement
with the plaintiffs by which the latter bound
themselves to do the necessary printing for the
newspaper. Later on, the new general manager, Tan
Tian Hong, discharged plaintiffs with no special
reasons. Aggrieved, plaintiffs sought to recover full
payment of the remaining term of the contract, which
was originally for 3 years, as stated therein.
ISSUE:  WON Chen had the power to bind the
corporation under a contract of that character?
HELD: No. The general rule is that the power to bind
a corporation by contract lies with its board of
directors or trustees, but this power may either be
expressly or impliedly be delegated to other officers
or agents of the corporation, and it is well settled that
except where the authority of employing servants and
agents is expressly vested in the BOD/T, an officer or
agent who has general control and management of
the corporation‘s business, or a specific part thereof,
may bind the corporation as are usual and necessary
in th conduct of such business. But the contracts of
employment must be reasonable.
Chen, as general manager of Kong Li Po, had
implied authority to bind the defendant corporation by
a reasonable and usual contract of employment with
the plaintiffs, but we do not think that contract here in
question can be so considered. Not only is the term
of employment usually long, but the conditions are
otherwise so onerous to the defendant that the
possibility of the corporation being thrown into
insolvency thereby is expressly contemplated in the
same contract. This fact, in itself was, in our opinion,
sufficient to put the plaintiffs upon inquiry as to the
extent of the business manager’s authority; they had
not the right to presume that he or any other single
officer or employee of that corporation had implied
authority to enter into a contract of employment which
might bring about its ruin.
TRINIDAD J. FRANCISCO VS. GSIS (7 SCRA 557;
March 30, 1963)
Trinidad Francisco, in consideration of loan extended
by GSIS, mortgaged her property in QC. For being in
arrears in her installments, GSIS extrajudicially
foreclosed the mortgage.
Plaintiff’s father, Atty. Vicente Francisco sent a letter
to Rodolfo Andal, general manager of GSIS, offering
to redeem the property which was replied to by Andal
through a telegram saying ―GSIS BOARD
APPROVED YOUR REQUEST RE REDEMTPION
OF FORECLOSED PROPERTY OF YOUR
DAUGHTER‖
Later, inasmuch as, according to the defendant
GSIS, the remittances made by Atty. Francisco were
allegedly not sufficient to pay off her daughter’s
arrears, the one year redemption period has expired,
said defendant consolidated title to the property in its
name.
price he did had he known it was the defendant who
was purchasing, because, as he said, it would show
increased value, as the defendant would not be likely
to purchase ore stock unless the price was going up.
ISSUE: WON it was the duty of the defendant to
disclose to the agent of the plaintiff the facts bearing
upon or which might affect the value of the stock?
HELD: Yes. A director upon whose action the value
of the shares depends cannot avail of his knowledge
of what his own action will be to acquire shares from
those whom he intentionally keeps in ignorance of his
expected action and the resulting value of the shares.
Even though a director may not be under the
obligation of a fiduciary nature to disclose to a
shareholder his knowledge affecting the value of the
shares, that duty may exist in special cases, and did
exist upon the facts in this case.
In this case, the facts clearly indicate that a director
of a corporation owning friar lands in the Philippine
Islands, and who controlled the action of the
corporation, had so concealed his exclusive
knowledge of the impending sale to the government
from a shareholder from whom he purchased,
through an agent, shares in the corporation, that the
concealment was in violation of his duty as a director
to disclose such knowledge, and amounted to deceit
sufficient to avoid the sale; and, under such
circumstances, it was immaterial whether the
shareholder's agent did or did not have power to sell
the stock.
In addition to his ownership of almost three-fourths of
the shares of the stock of the company, the
defendant was one of the five directors of the
company, and was elected by the board the agent
and administrator general of such company, "with
exclusive intervention in the management" of its
general business.
Concealing his identity when procuring the purchase
of stock, by his agent, was in itself stock evidence of
fraud on the part of the defendant. The concealment
was not a mere inadvertent omission but was a
studied and intentional omission, to be characterized
as part of the deceitful machination to obtain the
purchase without giving information whatever as to
the state and probable result of the negotiations, to
the vendor of the stock, and to, in that way, obtain the
same at a lower price.
PRIME WHITE CEMENT CORPORATION,
petitioner, vs. IAC and ALEJANDRO TE,
respondents (GR No. L-68555; 220 SCRA 103;
March 19, 1993)
FACTS: Respondent Alejandro Te, a director of
petitioner corporation, was awarded a dealership
agreement whereby Te would be the exclusive dealer
and/or distributor of the corporation in the entire
Mindanao. As a consequence, Te entered into
different contracts for selling white cement. Laer on,
defendant corporation decided to impose certain
conditions upon the dealership agreement.
Several demands to comply with the agreement were
made by Te to the corporation but was refused and
Te was constrained to cancel the contracts he
entered into.
Defendant corporation entered into an exclusive
dealership agreement with Napoleon Co for the
marketing of white cement in Mindanao. Hence, this
suit.
ISSUE: WON the dealership agreement entered into
by Te with his own corporation is valid and binding?
HELD: No. In the instant case respondent Te was not
an ordinary stockholder; he was a member of the
Board of Directors and Auditor of the corporation as
well. He was what is often referred to as a "self-
dealing" director.
A director of a corporation holds a position of trust
and as such, he owes a duty of loyalty to his
corporation. In case his interests conflict with those of
the corporation, he cannot sacrifice the latter to his
own advantage and benefit. As corporate managers,
directors are committed to seek the maximum
amount of profits for the corporation. This trust
relationship "is not a matter of statutory or technical
law. It springs from the fact that directors have the
control and guidance of corporate affairs and
property and hence of the property interests of the
stockholders.
Granting arguendo that the "dealership agreement"
involved here would be valid and enforceable if
entered into with a person other than a director or
officer of the corporation, the fact that the other party
to the contract was a Director and Auditor of the
petitioner corporation changes the whole situation.
First of all, We believe that the contract was neither
fair nor reasonable. The "dealership agreement"
entered into in July, 1969, was to sell and supply to
respondent Te 20,000 bags of white cement per
month, for five years starting September, 1970, at the
fixed price of P9.70 per bag. Respondent Te is a
businessman himself and must have known, or at
least must be presumed to know, that at that time,
prices of commodities in general, and white cement
in particular, were not stable and were expected to
rise. At the time of the contract, petitioner corporation
had not even commenced the manufacture of white
cement, the reason why delivery was not to begin
until 14 months later. He must have known that within
that period of six years, there would be a
considerable rise in the price of white cement. In fact,
respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and
by the middle of 1975, it was already P37.50 per bag.
Despite this, no provision was made in the
"dealership agreement" to allow for an increase in
price mutually acceptable to the parties. Instead, the
price was pegged at P9.70 per bag for the whole five
years of the contract. Fairness on his part as a
director of the corporation from whom he was to buy
the cement, would require such a provision. In fact,
this unfairness in the contract is also a basis which
renders a contract entered into by the President,
without authority from the Board of Directors, void or
voidable, although it may have been in the ordinary
course of business. We believe that the fixed price of
P9.70 per bag for a period of five years was not fair
and reasonable. Respondent Te, himself, when he
subsequently entered into contracts to resell the
cement to his "new dealers" Henry Wee and
Gaudencio Galang stipulated as follows:
The price of white cement shall be mutually
determined by us but in no case shall the same be
less than P14.00 per bag (94 lbs)
As director, especially since he was the other party in
interest, respondent Te's bounden duty was to act in
such manner as not to unduly prejudice the
corporation. In the light of the circumstances of this
case, it is to Us quite clear that he was guilty of
disloyalty to the corporation; he was attempting in
effect, to enrich himself at the expense of the
corporation. There is no showing that the
stockholders ratified the "dealership agreement" or
that they were fully aware of its provisions. The
contract was therefore not valid and this Court cannot
allow him to reap the fruits of his disloyalty.
CHARLES W. MEAD, plaintiff-appellant, vs. E. C.
McCULLOUGH, ET AL., and THE PHILIPPINE
ENGINEERING AND CONSTRUCTION COMPANY,
defendant-appellants (GR No. 6217; 21 Phil. 95;
Dec. 26, 1911)
FACTS: Herein plaintiff-appellant Mead with
defendant McCullough formed the Philippine
Engineering and Construction Company, the
incorporators being the only stockholders and
directors of the company. When Mead left for China,
the other directors entered into an agreement where
all the rights in a ―wrecking contract‖ with the naval
authorities were sold to defendant. The defendant, in
turn, sold these rights with R.W. Brown, HDC jones,
John Macleod and TH Twentyman, and retaining one
sixth interest, formed Manila Salvage Association.
ISSUE: WON officers or directors of the corporation
may purchase the corporate property?
HELD: Yes. While a corporation remains solvent, we
can see no reason why a director or officer, by the
authority of a majority of the stockholders or board of
managers, may not deal with the corporation, loan it
money or buy property from it, in like manner as a
stranger. So long as a purely private corporation
remains solvent, its directors are agents or trustees
for the stockholders. They owe no duties or
obligations to others. But the moment such a
corporation becomes insolvent, its directors are
trustees of all the creditors, whether they are
members of the corporation or not, and must manage
its property and assets with strict regard to their
interest; and if they are themselves creditors while
the insolvent corporation is under their management,
they will not be permitted to secure to themselves by
purchasing the corporate property or otherwise any
personal advantage over the other creditors.
Nevertheless, a director or officer may in good faith
and for an adequate consideration purchase from a
majority of the directors or stockholders the property
even of an insolvent corporation, and a sale thus
made to him is valid and binding upon the minority.
(Beach et al. vs. Miller, supra; Twin-Lick Oil Company
vs. Marbury, supra; Drury vs. Cross, 7 Wall., 299;
Curran vs. State of Arkansas, 15 How., 304; Richards
vs. New Hamphshire Insurance Company, 43 N. H.,
263; Morawetz on Corporations (first edition), sec.
579; Haywood vs. Lincoln Lumber Company et al., 64
Wis., 639; Port vs. Russels, 36 Ind., 60; Lippincott vs.
Shaw Carriage Company, 21 Fed. Rep., 577.)
In the case of the Twin-Lick Oil Company vs.
Marbury, he court said:
That a director of a joint-stock corporation occupies
one of those fiduciary relations where his dealings
with the subject-matter of his trust or agency, and
with the beneficiary or party whose interest is
confided to his care, is viewed with jealousy by the
courts, and may be set aside on slight grounds, is a
doctrine founded on the soundest morality, and which
has received the clearest recognition in this court and
others. (Koehler vs. Iron., 2 Black, 715; Drury vs.
Cross, 7 Wall., 299; R.R. Co. vs. Magnay, 25 Beav.,
586; Cumberland Co vs. Sherman, 30 Barb., 553;
Hoffman S. Coal Co. vs. Cumberland Co., 16 Md.,
456.) The general doctrine, however, in regard to
contracts of this class, is, not that they are absolutely
void, but that they are voidable at the election of the
party whose interest has been so represented by the
party claiming under it. We say, this is the general
rule; for there may be cases where such contracts
would be void ab initio; as when an agent to sell buys
of himself, and by his power of attorney conveys to
himself that which he was authorized to sell. but even
here, acts which amount t a ratification by the
principal may validate the sale
The sale or transfer of the corporate property in the
case at bar was made by three directors who were at
the same time a majority of stockholders. If a majority
of the stockholders have a clear and a better right to
sell the corporate property than a majority of the
directors, then it can be said that a majority of the
stockholders made this sale or transfer to the
defendant McCullough.
What were the circumstances under which said sale
was made? The corporation had been going from
bad to worse. The work of trying to raise the sunken
Spanish fleet had been for several months
abandoned. The corporation under the management
of the plaintiff had entirely failed in this undertaking. It
had broken its contract with the naval authorities and
the $10,000 Mexican currency deposited had been
confiscated. It had no money. It was considerably in
debt. It was a losing concern and a financial failure.
To continue its operation meant more losses.
Success was impossible. The corporation was civilly
dead and had passed into the limbo of utter
insolvency. The majority of the stockholders or
directors sold the assets of this corporation, thereby
relieving themselves and the plaintiff of all
responsibility. This was only the wise and sensible
thing for them to do. They acted in perfectly good
faith and for the best interests of all the stockholders.
"It would be a harsh rule that would permit one
stockholder, or any minority of stockholders to hold a
majority to their investment where a continuation of
the business would be at a loss and where there was
no prospect or hope that the enterprise would be
profitable."
We therefore conclude that the sale or transfer made
by the quorum of the board of directors — a majority
of the stockholders —  is valid and binding upon the
majority-the plaintiff.
CANDIDO PASCUAL, plaintiff-
appellant, vs. EUGENIO DEL SAZ OROZCO, ET
AL, defendants-appellees (GR No. L-5174; 19 Phil.
83; March 17, 1911)
FACTS: During 1903-1907, the defendant-appellees,
without the knowledge and acquiescence of the
stockholders deducted their compensation from gross
income instead of from the net profits of the bank, the
same with their predecessors for the years 1899-
1902.
Plaintiff-appellant brings this action in his own right as
a stockholder of the bank, for the benefit of the bank
and all the stockholders, in behalf of the corporation,
which, even though, nominally a defendant, is to all
intents and purposes the real plaintiff in this case as
shown in the prayer of the complaint.
ISSUE: WON plaintiff has capacity to sue?
HELD: Yes. In suits of this character the corporation
itself and not the plaintiff stockholder is the real party
in interest. The rights of the individual stockholder are
merged into that of the corporation. It is a universally
recognized doctrine that a stockholder in a
corporation has no title legal or equitable to the
corporate property; that both of these are in the
corporation itself for the benefit of all the
stockholders. Text writers illustrate this rule by the
familiar example of one person or entity owning all
the stock and still having no greater or essentially
different title than if he owned but one single share.
Since, therefore, the stockholder has no title, it is
evident that what he does have, with respect to the
corporation and his fellow stockholder, are certain
rights sui generis. These rights are generally
enumerated as being, first, to have a certificate or
other evidence of his status as stockholder issued to
elapsed could respondent conclude that the directors
were remiss in their duty to protect the corporation
property and business.
We are led to agree with the judge below that the
appointment of a receiver was not only expedient but
also necessary to restore the faith and confidence of
the Central Bank authorities in the administration of
the affairs of the corporation, thus ultimately leading
to a restoration of the dollar allocation so essential to
the operation of the textile mills.
RICARDO L. GAMBOA, LYDIA R. GAMBOA,
HONORIO DE 1A RAMA, EDUARDO DE LA RAMA,
and the HEIRS OF MERCEDES DE LA RAMA-
BORROMEO, petitioners, vs.
HON. OSCAR R. VICTORIANO as Presiding Judge
of the Court of First Instance of Negros Occidental,
Branch II, BENJAMIN LOPUE, SR., BENJAMIN
LOPUE, JR., LEONITO LOPUE, and LUISA U.
DACLES respondents. (GR No. -40620; 90 SCRA
40; May 6, 1979)
FACTS: A writ of prelimiary injunction was filed by
herein respondents as purchasers of 1,328 shares of
stock of Inocented De La Rama, inc. after herein
petitioners surreptitiously met and authorized the sale
of 823 shares to forestall the petitioner’s takeover
from the previous president and vice- president
(sellers of the 1,328 shares), in violation of their pre-
emptive right. The trial court ruled in favor of
respondents. Later on, private respondents entered
into a compromise agreement with the recipients for
the transfer of the 823 shares, against which the
petitioners filed a motion to dismiss which was
denied.
ISSUE: WON a derivative suit is the more proper
action that should have been filed by respondents?
HELD: No. The petitioners contend that the proper
remedy of the plaintiffs would be to institute a
derivative suit against the petitioners in the name of
the corporation in order to secure a binding relief
after exhausting all the possible remedies available
within the corporation.
An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he
holds stock in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse
to sue, or are the ones to be sued or hold the control
of the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with the
corporation as the real party in interest. In the case
at bar, however, the plaintiffs are alleging and
vindicating their own individual interests or
prejudice, and not that of the corporation . At any
rate, it is yet too early in the proceedings since the
issues have not been joined. Besides, misjoinder of
parties is not a ground to dismiss an action.
JUAN D. EVANGELISTA, et. al., plaintiff-appellant
VS. RAFAEL SANTOS, defendant-appelle (86 Phil.
387; May 19, 1950)  – Juan D. Evangelista, et. al. are
minority stockholders of the Vitali Lumber Company,
Inc., while Rafael Santos holds more than 50% of the
stocks of said corporation and also is and always has
been the president, manager, and treasurer thereof.
Santos, in such triple capacity, through fault, neglect,
and abandonment allowed its lumber concession to
lapse and its properties and assets, among them
machineries, buildings, warehouses, trucks, etc., to
disappear, thus causing the complete ruin of the
corporation and total depreciation of its stocks.
Evangelista, et. al. therefore prays for judgment
requiring Santos: (1) to render an account of his
administration of the corporate affairs and assets: (2)
to pay plaintiffs the value of their respective
participation in said assets on the basis of the value
of the stocks held by each of them; and (3) to pay the
costs of suit. Evangelista, et. al. also ask for such
other remedy as may be and equitable. The trial court
dismissed the action on the ground of improper
venue and lack of cause of action.
ISSUE: WON plaintiffs have a right to bring the action
for their benefit?
HELD: No. The complaint shows that the action is for
damages resulting from mismanagement of the
affairs and assets of the corporation by its principal
officer, it being alleged that defendant's
maladministration has brought about the ruin of the
corporation and the consequent loss of value of its
stocks. The injury complained of is thus primarily to
that of the corporation, so that the suit for the
damages claimed should be by the corporation rather
than by the stockholders (3 Fletcher, Cyclopedia of
Corporation pp. 977-980). The stockholders may
not directly claim those damages for themselves
for that would result in the appropriation by, and
the distribution among them of part of the
corporate assets before the dissolution of the
corporation and the liquidation of its debts and without prejudice to the filing of the proper action in
liabilities, something which cannot be legally which the venue shall be laid in the proper province.
done in view of section 16 of the Corporation Appellant's shall pay costs. So ordered
Law.

But while it is to the corporation that the action should

pertain in cases of this nature, however, if the officers
of the corporation, who are the ones called upon to
protect their rights, refuse to sue, or where a demand
upon them to file the necessary suit would be futile
because they are the very ones to be sued or
because they hold the controlling interest in the
corporation, then in that case any one of the
stockholders is allowed to bring suit (3 Fletcher's
Cyclopedia of Corporations, pp. 977-980). But in that
case it is the corporation itself and not the plaintiff
stockholder that is the real property in interest, so
that such damages as may be recovered shall pertain
to the corporation (Pascual vs. Del Saz Orosco, 19
Phil. 82, 85). In other words, it is a derivative suit
brought by a stockholder as the nominal party plaintiff
for the benefit of the corporation, which is the real
property in interest (13 Fletcher, Cyclopedia of
Corporations, p. 295).

In the present case, the plaintiff stockholders have

brought the action not for the benefit of the
corporation but for their own benefit, since they ask
that the defendant make good the losses occasioned
by his mismanagement and pay to them the value of
their respective participation in the corporate assets
on the basis of their respective holdings. Clearly, this
cannot be done until all corporate debts, if there be
any, are paid and the existence of the corporation
terminated by the limitation of its charter or by lawful
dissolution in view of the provisions of section 16 of
the Corporation Law.

It results that plaintiff's complaint shows no cause of

action in their favor so that the lower court did not err
in dismissing the complaint on that ground.

While plaintiffs ask for remedy to which they are not

entitled unless the requirement of section 16 of the
Corporation Law be first complied with, we note that
the action stated in their complaint is susceptible of
being converted into a derivative suit for the benefit of
the corporation by a mere change in the prayer. Such
amendment, however, is not possible now, since the
complaint has been filed in the wrong court, so that
the same last to be dismissed.

The order appealed from is therefore affirmed, but