Montelibano v.
Bacolod-Murcia Milling
Co.
Facts: Alfredo Montelibano, Alejandro
Montelibano, and the
Limited co-partnership Gonzaga and
Company are sugar planters who adhered
to the Bacolod-Murcia Milling sugar
central mill under identical milling
contracts.
Originally executed in 1919, said contracts
provided that the resulting product should
be divided in the ratio of 45% for the mill
and 55% for the planters.
In 1936, it was proposed to execute
amended milling contracts, increasing the
planters‘ share to 60% of the manufactured
sugar and resulting molasses, besides other
concessions, but extending the operation of
the milling contract
from the original 30 years to 45 years.
To this effect, a printed Amended Milling
Contract form was drawn up.
The Board of Directors of Bacolod-Murcia
Milling Co., Inc., adopted a resolution
granting further concessions to the planters
over and above those contained in the
printed Amended Milling Contract.
The bone of contention is paragraph 9 of the
resolution:
9. That if, during the term of this Amended
Milling contract, the sugar plants of Negros
Occidental, whose annual production of
centrifuged sugar is more than a third of the
total production of all the sugar plants of
Negros Occidental, grant their planters
better conditions than those stipulated in
this contract.
Montelibano then filed a civil case seeking
to compel the Milling Company to increase
Montelibano et al’s share in the sugar
produced from their cane from 60% to
62.33% contending that three Negros sugar
centrals with a total annual production
exceeding one-third of the production of
all the sugar central mills in the province,
had already granted increased
participation (of 62.5%) to their planters,
and that under the resolution, the milling
company was obligated to grant similar
concessions to them.
Bacolod-Murcia Milling Co., inc., resisted
the claim and contended
that the stipulations contained in the
resolution were made without
consideration;
that the resolution in question was,
therefore, null
and void ab initio, being in effect a
donation that was ultra vires and beyond
the powers of the corporate directors to
adopt.
Issue: Whether the act of the BOD was ultra
vires (in effect null and void?) NO
Held:
The business judgment rule is applicable. As
the resolution in question was passed in
good faith by the board of directors, it is
valid and binding, and whether or not it
will cause losses or decrease the profits of
the central, the court has no authority to
review them.
The directors of the Bacolod Murcia
company had authority to modify the
proposed terms of the Amended Milling
Contract for the purpose of making its terms
more acceptable to the other contracting
parties.
The test to be applied is whether the act in
question is in direct and immediate
furtherance of the corporation's business,
fairly incident to the express powers and
reasonably necessary to their exercise.
HERE, As the resolution in question was
passed in good faith by the board of
directors, it is valid and binding, and
whether or not it will cause losses or
decrease the profits of the central, the court
has no authority to review them
(highlighted in the ppt)
It is a well-known rule of law that questions
of policy or of management are left solely to
the honest decision of officers and directors
of a corporation, and the court is without
authority to substitute its judgment of the
board of directors; the board is the business
manager of the corporation, and so long as it
acts in good faith its orders are not
reviewable by the courts.
In this case, since other sugar central (sugar
centrals of La Carlota, Hawaiian Philippines,
San Carlos and Binalbagan)
which produce over one-third of the entire
annual sugar production in Occidental
Negros have granted progressively
increasing participations to their adhered
planter, Bacolod-Murcia Milling Company
is, under the terms of its Resolution duty
bound to grant similar increases to
Montelibano et al.
ZOMER DEVELOPMENT
CORPORATION vs
INTERNATIONAL EXCHANGE BANK
We find the Petitioner's stance grossly
inequitable. We must take heed and pay
obeisance to the equity rule that if one
maintains silence when, in conscience he
ought to speak, equity will debar him from
speaking when, in conscience, he
ought to remain silent.
He who remains silent when he ought to
speak cannot be heard to speak when he
ought to be silent.
FACTS: Zomer Development issued a
resolution to guarantee by executing REM
the loans of Prime Aggregates in
International Exchange Bank. Eventually
Prime Aggregates defaulted in payment and
the REM over the properties of Zomer
Development were foreclosed and
consolidated in favor of International
Exchange Bank. Zomer now comes to Court
to declare the REM void for being
ULTRA VIRES as it was not empowered by
its by-laws to mortgage its property in favor
of third party – Prime Aggregates.
ISSUE: Can Zomer raise ULTRA VIRES as a
defense? NO.
RULING: The transactions between the
Petitioner and the Private Respondent over
its properties are neither malum in se or
malum prohibitum. Hence, the Petitioner
cannot hide behind the cloak of ultra vires
for a defense. x x x x The plea of ultra vires
will not be allowed to prevail, whether
interposed for or against a corporation,
when it will not advance justice but, on the
contrary, will accomplish a legal wrong to
the prejudice of another who acted in good
faith.
2019 TSN Discussion
Ultra vires here was used to invalidate the
mortgage. The Court said it cannot be used
to justify a wrong. Take note that in this
particular case the Court ruled whether or
not it will side with the legal wrong to the
prejudice of another who acted in good
faith. Ang nangyari, minortgage tapos na
forclose. Ngayon, ultra vires na ang defense
to invalidate the
mortgage. (Lifted from 2018 TSN)
Republic vs. Acoje Mining
FACTS: Acoje Mining wrote the Director of
Posts requesting the opening of a post,
telegraph and money order offices its
mining camp at Sta. Cruz, Zambales to serve
its employees and their families that were
living in the camp. Acting on the request,
Director of Posts replied that aside from free
quarters, the company would provide for all
the essential equipment and assign
responsible employee to perform a
postmasters duties.
It is also indicated that the company shall
assure direct responsibility for whatever
pecuniary loss the Bureau of Post may suffer
by reason of any act of dishonesty,
carelessness or negligence on the part of the
employee of the company who is assigned
to take charge of the post office. So, a
resolution was adopted by the board of
directors of the company expressing
conformity to that condition.
The post office branch was opened at the
camp with one Hilario Sandrez as
postmaster. Subsequently, the postmasters
went on a 3 day leave but never returned.
The company immediately informed the
Manila Post Office of Sanchez's
disappearance, with the result that the
accounts of the postmaster were checked
and a shortage was found.
Several demands were made upon the
company for the payment of the shortage in
line with the liability it has assumed but
failed. The company denied liability for said
amount contending that the resolution of the
board of directors wherein it assumed
responsibility for the act of thepostmaster is
ultra vires.
ISSUE: Whether the resolution issued by
the board of directors is ultra vires? NO.
RULING: The claim that the resolution
adopted by the board of directors of Acoje
Mining company is an ultra vires act cannot
be entertained, it appearing that the same
covers a subject which concerns the benefit,
convenience and welfare of its employees
and their families.
While as a rule an ultra vires act is one
committed outside the object for which a
corporation is created as defined by the
law of its organization and therefore,
beyond the powers conferred upon it by
law, however there are certain corporate
acts that may be performed outside of the
scope of the powers expressly conferred if
they are necessary to promote the interest
or welfare of the corporation.
Thus, it has been held that “although not
expressly authorized to do so a corporation
may become a surety where the particular
transaction is reasonably necessary or
proper to the conduct of its business,” and
here it is undisputed that the establishment
of the local post office is a reasonable and
proper adjunct to the conduct of the
business of appellant company. Indeed,
such post office is a vital improvement in
the living condition of its employees and
laborers who came to settle in its mining
camp which is far removed from the postal
facilities or means of communication
accorded to people living in a city or
municipality.
Assuming arguendo that the resolution in
question constitutes an ultra vires act, the
same however is not void for it was
approved not in contravention of law,
customs, public order or public policy.
The term ultra vires should be distinguished
from an illegal act for the former is merely
voidable which may be
enforced by performance, ratification, or
estoppel, while the latter is void and cannot
be validated. It being merely voidable, an
ultra vires act can be enforced or validated if
there are equitable grounds for taking such
action. Here it is fair that the resolution be
upheld at least on the ground
of estoppel.
HARDEN vs BENGUET
CONSOLIDATED MINING
Although a contract or transaction may fall
within the corporate powers of a corporation, if it
is done against prohibition of law, such contract
or transaction would then be void.
FACTS:
On June 1903. Benguet Consolidated Mining
Company was organized as a sociedad
anonima in conformity with the provisions
of the Spanish Law.
On December 1925. Balatoc Mining
Company was organized as a corporation in
conformity with the provisions of the
Corporation Law (Act No. 1459). Both were
organized for mining of gold and their
respective properties are located only a few
miles apart in Benguet.
Balatoc capital stock consists of one million
shares of the par value of one peso (P1) each.
When Balatoc was first organized, its
properties were largely undeveloped. To
improve its operations, the company’s
committee approached A. W. Beam, then
president and general manager of the
Benguet Company, to secure the capital
necessary to the development of the Balatoc
property. A contract was entered into
wherein Benguet will (1) construct a milling
plant for the Balatoc mine, of a capacity of
100 tons of ore per day, and with an
extraction of at least 85 per cent of the gold
content; (2) erect an appropriate power
plant. In return, Benguet will receive from
Balatoc shares of a par value of P600,000.
The total cost incurred by Benguet in
developing Balatoc was P1,417,952.15. A
certificate for 600,000 shares of the stock of
the Balatoc Company was given to Benguet
and the excess value was paid to Benguet by
Balatoc in cash. Due to the improvements
made by Benguet, the value of shares of
Balatoc increased in the market (from P1 to
more than P11) and dividends enriched its
stockholders. Harden (the owner of
 thousands of shares of Balatoc) questioned
the transfer of 600,000 shares to Benguet
with the success of the development.
ISSUE: Whether the plaintiffs can maintain
an action based upon the violation of law
supposedly committed by the Benguet
Company in this case.
RULING: NO. Inasmuch as the Corporation
Law contains, in section 190 (A), provisions
fully penalizing the violation of subsection 5
of Section 13 of Act No. 1459,—which
prohibits the acquisition by one mining
corporation of any interest in another,—and
inasmuch as these provisions have been
enacted in the exercise of the general police
powers of the Government, it results that,
where one mining corporation acquires a
prohibited interest in another such
corporation,
the shareholders of the latter cannot
maintain an action to annul the contract by
which such interest was acquired. The
remedy must be sought in a criminal
proceeding or quo warranto action, under
section 190 (A), instituted by the
Government. Until thus assailed in a direct
proceeding the contract by which the
interest was acquired will be treated as
valid, as between the parties.
Magallanes Watercraft vs. Aguis
Characters
Petitioner - Magallanes Watercraft
Association, Inc. (MWAI) - a local
association of motorized banca owners and
operators ferrying cargoes and passengers
from Magallanes, Agusan del Norte, to
Butuan City and back.
Respondents - Margarito C. Auguis
(Auguis) and Dioscoro C. Basnig (Basnig),
members and officers of MWAI - vice-
president and secretary, respectively
Facts: December 5, 2003 - Board of Trustees
(Board) of MWAI passed a resolution and
issued a memorandum suspending the
rights and privileges (30 days) of Auguis
and basing as members of the association for
their refusal to pay
Membership dues and
Berthing fees
Reason – they have a pending oral
complaint and demand for financial audit of
the association funds.
Accumulated unpaid obli:
Auguis - P4,059.00
Basnig - P7,552.00.4
Despite of the suspension of their privileges
as members, Auguis and Basnig still failed
to settle their obligations with MWAI.
Thus, MWAI issued another memorandum
suspending their rights and privileges for
another thirty (30) days. Due to this, Auguis
and Basnig filed an action for damages with
a prayer for the issuance of a writ of
preliminary injunction before the RTC.
Neither MWAI's Articles of Incorporation
nor its By-Laws contained any provision
that expressly and/or impliedly vested
power or authority upon its Board to
recommend the imposition of disciplinary
sanctions on its delinquent officers and/or
members.
Issue: Did the BOT of MWAI commit an
ultra vires act?
Ruling: NO.
Corporate powers include implied and
incidental powers
Section 45 of the Corporation Code
provides for the powers possessed by a
corporation, to wit:
Sec. 45. Ultra vires acts of corporations. - No
corporation under this Code shall possess or
exercise any corporate powers except those
conferred by this Code or by its articles of
incorporation and except such as are
necessary or incidental to the exercise of
the powers so conferred.
From a reading of the said provision, it is
clear that a corporation has: express powers,
which are bestowed upon by law or its
articles of incorporation; and necessary or
incidental powers to the exercise of those
expressly conferred.
An act which cannot fall under a
corporation's express or necessary or
incidental powers is an ultravires act.
In this case, not ultra vires
Under Section 3(a) and Section 3(c) Article V
of MWAI's By-Laws, its members are bound
"[t]o obey and comply with the by-laws, rules
and regulations that may be promulgated by the
association from time to time" and "[t]o pay
membership dues and other assessments of the
association."
Thus, the respondent members were
obligated to pay the membership dues of
which they were delinquent. MWAI could
not be faulted in suspending the rights and
privileges of its delinquent members. The
fact alone that neither the articles of
incorporation nor the bylaws of MWAI
granted its Board the authority to
discipline members does not make the
suspension of the rights and privileges of
the respondents ultra vires
In National Power Corporation v. Vera, the
Court stressed that an act might be
considered within corporate
powers, even if it was not among the
express powers, if the same served the
corporate ends.
RULE: a corporation is not restricted to the
exercise of powers expressly conferred upon
it by its charter, but has the power to do
what is reasonably necessary or proper to
promote the interest or welfare of the
corporation.
Montelibano, et al. v. Bacolod-Murcia Milling
Co., Inc. stated the test to determine if a
corporate act is in accordance with its
purposes:
What is the logical relation of the act to the
corporate purpose?
If that act is one which is lawful in itself, and
not otherwise prohibited,
is done for the purpose of serving corporate
ends, is reasonably tributary to the
promotion of those ends, in a substantial,
and not in a remote and fanciful, sense, it
may fairly be considered within charter
powers.
The test to be applied is whether the act in
question is in direct and immediate
furtherance of the corporation's business,
fairly incident to the express powers and
reasonably necessary to their exercise. If so,
the corporation has the power to do it;
otherwise, not.
IN THIS CASE, MWAI can properly
impose sanctions on Auguis and Basnig for
being delinquent members considering that
the payment of membership dues enables
MWAI to discharge its duties and functions
enumerated under its charter.
Moreover, respondents were obligated by
the by-laws of the association to pay said
dues. The suspension of their rights and
privileges is not an ultra vires act as it is
reasonably necessary or proper in order to
further the interest and welfare of MWAI.
Also, the imposition of the temporary ban
on the use of MWAI's berthing facilities
until Auguis and Basnig have paid their
outstanding obligations was a reasonable
measure that the former could undertake to
ensure the prompt payment of its
membership dues.
Otherwise, MWAI will be unable to
continue with its operations if the members
continue to be delinquent in the payment of
their obligations, without fear of possible
sanctions.
Ruling: Was the suspension proper? The
suspension of their rights and privileges is
not ultra vires act as it is reasonably
necessary
Office of the Ombudsman v. De Guzman
Facts:
The case involves the unauthorized contract
entered into by the General Manager of the
Philippine Postal Corporation, Antonio Z.
De Guzman, with a private entity for mail
delivery in Luzon.
The contract was entered into without prior
approval from the Philippine Postal
Corporation Board of Directors.
The contract included an increase in the cost
of delivery from P5.00 to P8.00 per kilogram.
The contract was executed on May 7, 2004,
and was fully implemented by the time the
Postmaster General resumed work.
The Office of the Ombudsman found De
Guzman guilty of grave misconduct and
dishonesty for entering into the contract
without proper authorization.
Issue:
Whether or not De Guzman committed
grave misconduct and dishonesty in
entering into the unauthorized contract for
mail delivery in Luzon without prior
approval from the Philippine Postal
Corporation Board of Directors.
Ruling:
The Court of Appeals annulled and set aside
the decision of the Office of the
Ombudsman, finding that De Guzman was
not guilty of grave misconduct and
dishonesty.
The Court of Appeals found that De
Guzman's actions were ratified by the
silence and subsequent approval of the
Board of Directors and the Postmaster
Generals.
The Court of Appeals also found that the
outsourcing of mail delivery in Luzon was
justified due to the expiration of the
employment contracts of the mail delivery
drivers.
The Supreme Court partially granted the
petition and reversed the decision of the
Court of Appeals.
The Supreme Court found De Guzman
guilty of gross neglect of duty for entering
into the unauthorized contract without
proper authorization.
De Guzman was dismissed from
government service with all the accessory
penalties.
Ratio:
The lack of authority to enter into a contract
may be ratified through the silence or
acquiescence of the Board of Directors.
Ratification of the unauthorized act does not
necessarily mean that the contract is valid.
If the contract is executed without
complying with the laws on procurement,
the erring public official may be held
administratively liable.
In this case, De Guzman's actions were not
authorized by the Board of Directors and he
committed gross neglect of duty by entering
into the unauthorized contract without
proper authorization.
The Supreme Court emphasized the
importance of following proper
procurement procedures and the
responsibility of public officers in high
positions to be circumspect in their actions.
SUMMARY:
Lack of authority may be ratified through
silence or acquiescence of the Board of
Directors
The Postmaster General can only execute
contracts for procurement of services with
the approval of the Board of Directors.
However, the lack of authority can be
ratified if the Board of Directors remains
silent or acquiesces to the unauthorized act.
Ratification does not automatically make the
contract valid.
If the contract is executed without
complying with procurement laws, the
public official responsible may be held
administratively liable.
Background of the case
The Office of the Ombudsman filed a
Petition for Review on Certiorari against
Antonio Z. De Guzman.
De Guzman was found guilty of grave
misconduct and dishonesty for entering into
a contract with a private entity for mail
delivery in Luzon without prior approval
from the Philippine Postal Corporation
Board of Directors.
Details of the contract with Aboitiz Air
In 2001, the Philippine Postal Corporation
entered into a contract with Aboitiz Air
Transport Corporation for mail carriage at a
rate of P5.00 per kilogram. This contract
expired on December 31, 2002.
Decision to outsource mail delivery in
Luzon
In October 2003, after the contract with
Aboitiz Air expired, the Philippine Postal
Corporation purchased vehicles and hired
drivers for mail deliveries in Luzon.
The Central Mail Exchange Center
conducted a study and recommended
outsourcing mail delivery in Luzon to save
costs.
On April 29, 2004, the Board of Directors
held a Special Board Meeting where De
Guzman endorsed the recommendation to
outsource mail delivery in Luzon.
Contract with Aboitiz One
On May 7, 2004, De Guzman sent a letter to
Aboitiz Air (now Aboitiz One) stating that
they can re-assume mail carriage in Luzon at
a rate of P8.00 per kilogram. Aboitiz One
accepted the proposal and started its
delivery operations in Luzon on May 20,
2004.
Postmaster General Villanueva approved
payments to Aboitiz One when he resumed
work.
Administrative complaint and
Ombudsman's decision
In October 2005, an administrative
complaint was filed against De Guzman for
the unauthorized contract renewal without
public bidding.
In August 2007, the Office of the
Ombudsman found De Guzman guilty of
grave misconduct and dishonesty and
ordered his dismissal from service.
De Guzman filed a motion for
reconsideration, which was denied.
Court of Appeals decision
In May 2011, the Court of Appeals annulled
the Office of the Ombudsman's decision and
dismissed the complaint against De
Guzman.
The Court of Appeals found that the
engagement of Aboitiz One's services was
approved by the Board of Directors and that
there was an urgent need for outsourcing
due to the expiration of the drivers'
employment contracts.
The Court of Appeals also found that the
rate increase per kilogram was approved by
the Board of Directors.
Petitioner's arguments
The petitioner argues that De Guzman
committed grave misconduct by entering
into the contract without proper authority
and allowing a rate increase without
approval.
The petitioner claims that the approval of
the contract was contingent upon De
Guzman's compliance with certain
conditions set by the Board of Directors.
The petitioner also argues that negotiated
procurement was not applicable in this case.
Respondent's arguments
De Guzman argues that he obtained the
Board of Directors' approval after presenting
a cost-benefit analysis.
He claims that he had no legal duty to
conduct a public bidding since he was not
the procuring entity.
De Guzman argues that the non-renewal of
the drivers' employment contracts would
cause delays in mail delivery, justifying the
outsourcing.
Scope of respondent's authority
The Postmaster General manages the
Philippine Postal Corporation and can sign
contracts on behalf of the corporation with
the approval of the Board of Directors.
The Board of Directors' approval is
necessary for a valid corporate act.
There is no evidence of a board resolution
authorizing De Guzman to enter into the
contract with Aboitiz One.
The transcript of the April 29, 2004 Special
Board Meeting shows that the Board of
Directors did not take a vote on the contract.
Ratification of unauthorized acts
The Board of Directors' silence and the
subsequent approval of payments by the
Postmaster Generals can be considered as
ratification of De Guzman's unauthorized
acts.
Ratification does not make the contract
valid, but it means that De Guzman's actions
are not considered ultra vires.
Necessity of public bidding
All government procurement must undergo
competitive bidding, but alternative
methods of procurement are allowed under
certain conditions.
Negotiated procurement is allowed in cases
of failed biddings, imminent danger, take-
over of contracts, adjacent or contiguous
projects, and purchases from another
government agency.
The expiration of the drivers' employment
contracts does not fall under the conditions
for negotiated procurement.
Negotiated procurement should only be
used in situations where immediate action is
necessary to prevent damage to life,
property, or vital public services.
The expiration of the contracts was not a
sudden unexpected event, and there was
time to consider outsourcing and conduct
public bidding.
Characterization of respondent's offense
Dishonesty requires a disposition to lie,
cheat, deceive, or defraud, which is not
present in this case.
Grave misconduct requires corruption, clear
intent to violate the law, or flagrant
disregard of an established rule, which is
also not present.
Respondent should be held administratively
liable for gross neglect of duty for failing to
secure the Board of Directors' approval and
for not ensuring proper procurement
procedures were followed.
Conclusion
The Court partially grants the petition and
reverses the Court of Appeals' decision.
De Guzman is found guilty of gross neglect
of duty and is dismissed from government
service.
The Board of Directors, Postmaster General
Villanueva, and Postmaster General Rama
may also be held administratively liable, but
separate actions must be filed against them.
Mallare v. A&E Industrial Corp.
An intra-corporate dispute arises between
two factions of stockholders of A&E
Industrial Corporation, with the Mallare
Group and the Hwang Group both claiming
to be the legitimate board of directors and
officers, leading to a Supreme Court ruling
in favor of the Mallare Group and the
annulment of the writ of preliminary
injunction issued by the Court of Appeals.
Facts:
The case involves an intra-corporate dispute
between two factions of stockholders of
A&E Industrial Corporation.
The Mallare Group and the Hwang Group
both claim to be the legitimate board of
directors and officers of A&E Industrial
Corporation.
The dispute arose after the death of Jane
Mallare, one of the original stockholders of
A&E.
The Mallare Group argues that they are the
rightful directors and officers of A&E based
on their holdover authority and the failure
to hold a stockholders' meeting for the year
2012.
The Hwang Group asserts that they were
elected as the new board of directors and
officers of A&E during the annual
stockholders' meeting held on February 23,
2013.
The Hwang Group claims that Anthony
Hwang, as the majority shareholder, had the
right to vote the shares registered in Jane
Mallare's name based on an Assignment of
Voting Rights executed by Jane in favor of
Anthony.
The Regional Trial Court (RTC) initially
denied A&E's application for a writ of
preliminary injunction.
The Court of Appeals (CA) reversed the
RTC's decision and granted the preliminary
injunction, recognizing the Hwang Group as
the duly elected directors and officers of
A&E.
Issue:
Whether the CA erred in finding grave
abuse of discretion on the part of the RTC in
denying the application for the issuance of a
writ of preliminary injunction.
Ruling:
The Supreme Court ruled in favor of the
Mallare Group and granted their petition for
review.
The Court annulled and lifted the writ of
preliminary injunction issued by the CA and
ordered the RTC to proceed with the main
case.
A&E Industrial Corporation was also
ordered to pay the costs of the suit.
Ratio:
The Court held that the Hwang Group failed
to establish a clear and legal right to be
protected by the injunction.
The Court emphasized that the issuance of a
preliminary injunction should not dispose of
the main case without trial.
The Hwang Group's claim of being the duly
elected directors and officers of A&E was
doubtful and disputed.
Therefore, the Court concluded that the CA
erred in finding grave abuse of discretion on
the part of the RTC in denying the
application for the issuance of a writ of
preliminary injunction.
Salido, Jr. v. Aramaywan Metals
Development Corp.
An intra-corporate dispute arises over the
reduction of shares in Aramaywan Metals
Development Corp., with the Court ruling
that the reduction was invalid due to the
lack of unrestricted retained earnings and
absence of consideration, while affirming
the validity of certain resolutions passed by
the Salido faction.
Facts:
The case involves an intra-corporate dispute
between two factions within Aramaywan
Metals Development Corporation.
The dispute revolves around the reduction
of Cerlito San Juan's shares in the
corporation from 55% to 15%.
The Salido faction, which includes Agapito
Salido, Jr., claimed that San Juan breached
his obligations under an Agreement to
Incorporate.
San Juan allegedly failed to advance the full
payment for the capital stock and failed to
incorporate Narra Mining Corporation.
As a result, the Salido faction proposed the
reduction of San Juan's shares.
The case was initially heard by the Regional
Trial Court (RTC), which ruled in favor of
the Salido faction.
The RTC declared the reduction of San
Juan's shares as valid and upheld the
appointment of Atty. Roland Pay as
corporate secretary.
The RTC also upheld the validity of certain
resolutions passed by the Salido faction.
On appeal, the Court of Appeals (CA)
initially affirmed the RTC's ruling but later
reversed its decision in an Amended
Decision.
The CA held that the reduction of San Juan's
shares was not valid due to the lack of
unrestricted retained earnings and the
absence of consideration.
The CA also upheld the validity of certain
resolutions passed by the Salido faction.
Issue:
Whether the Court of Appeals erred in
ruling that the reduction of San Juan's shares
was not valid.
Ruling:
The reduction of San Juan's shares was not
valid due to the lack of unrestricted retained
earnings and the absence of consideration.
The validity of certain resolutions passed by
the Salido faction was affirmed.
Ratio:
The reduction of shares must be done
through lawful means and with proper
consideration.
In this case, there was no showing that
Aramaywan had unrestricted retained
earnings at the time of the reduction.
San Juan's subscriptions had already been
fully paid, so the reduction of his shares
without a corresponding return of his
investment was not valid.
The Court affirmed the CA's ruling
regarding the validity of certain resolutions
passed by the Salido faction.
The resolutions, except for the transfer of the
corporate place of business, were validly
adopted by the board of directors of
Aramaywan.
Conclusion:
The reduction of San Juan's shares was not
valid due to the lack of unrestricted retained
earnings and the absence of consideration.
The validity of certain resolutions passed by
the Salido faction was affirmed.
Okada v. Tiger Resort, Leisure &
Entertainment, Inc.
Kazuo Okada files a complaint against Tiger
Resort, Leisure & Entertainment, Inc.
(TRLEI) and its directors, seeking to be
reinstated as a stockholder, director,
chairperson, and CEO of TRLEI after his
removal in 2017, leading to a legal battle
over the extent and scope of the Status Quo
Ante Order (SQAO) issued by the Supreme
Court.
Facts:
Kazuo Okada filed a complaint against Tiger
Resort, Leisure & Entertainment, Inc.
(TRLEI) and its directors, alleging unlawful
removal and mismanagement.
Kazuo claims to be an indirect owner of
TRLEI through his shareholding in Okada
Holdings Limited (OHL).
He alleges that his removal as a stockholder,
director, chairperson, and CEO of TRLEI in
2017 was null and void.
Kazuo filed a complaint before the Regional
Trial Court (RTC) seeking to declare his
removal as void and to be reinstated as a
stockholder, director, chairperson, and CEO
of TRLEI.
The RTC dismissed the complaint on the
ground of prescription, stating that it should
have been filed within 15 days from Kazuo's
removal.
Kazuo appealed to the Court of Appeals
(CA), but the appeal was denied.
He then filed a Petition for Review on
Certiorari before the Supreme Court.
Issue:
The main issues raised in the case are:
The extent and scope of the Status Quo Ante
Order (SQAO) issued by the Supreme Court.
The propriety of the issuance of the SQAO.
The propriety of delegating the reception of
evidence to the Court of Appeals.
Ruling:
The Supreme Court issued a Resolution
stating that the SQAO was properly issued
to maintain the status quo ante, which is the
last, actual, peaceable, and uncontested state
of things that preceded the controversy.
The SQAO does not prejudge the merits of
the case or resolve the ownership dispute.
The Court also clarified that the SQAO does
not violate the rights of TRAL or OMI, as
TRAL was impleaded in the complaint and
OMI stands in the shoes of TRAL.
The Court delegated the reception of
evidence to the Court of Appeals to
determine the propriety of maintaining the
SQAO and to resolve factual issues related
to the case.
The CA is directed to receive evidence on
various matters, including TRLEI's financial
condition, the authenticity of foreign
judgments, and the composition of the
board of directors and shareholders.
The CA is required to submit a report and
recommendation to the Supreme Court
within 30 days.
The SQAO remains in effect pending the
resolution of the case.