55 Grace Christian High School Vs

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Laureano Investment and Development Corp. vs CA and Bormaheco Inc. FACTS: In 1988, Bormaheco, Inc. (Bormaheco) filed an ex-parte petition with the Registry of Deeds of Makati for the issuance of a writ of possession over various lots that it bought from a bank. Subsequently, a motion for intervention was filed by LIDECO Corporation (Lideco) for certain adverse claims. Bormaheco opposed the motion on the ground that Lideco has no personality to sue because it is not a juridical entity. Apparently, Lideco is not a corporation registered with the Securities and Exchange Commission. Bormaheco’s opposition was granted. Lideco assailed the decision on the ground that LIDECO is an acronym for Laureano Investment & Development Corporation which is a duly organized corporation. ISSUE: Whether or not Laureano Investment & Development Corporation can sue Bormaheco, Inc. as ―LIDECO‖ Corporation. HELD: No. A corporation cannot sue under a name other than that registered with the SEC. The contention that Laureano Investment & Development Corporation merely used the abbreviation is not tenable. ―Lideco Corporation‖ had no personality to intervene since it had not been duly registered as a corporation. If Laureano Investment & Development Corporation truly wished to intervene, it should have, it should have used its corporate name as the law requires and not another name which it had not registered. CENON CERVANTES VS. THE AUDITOR GENERAL FACTS: Cenon Cervantes was a the General manager of the National Abaca & Other Fibers Corporation (NAFCO). NAFCO was created by Commonwealth Act 332 with a capital stock of 20 Million. 51% of NAFCO is owned by the governmentand the remainder is offered to the public making NAFCO a GOCC. NAFCO is managed by a BOD of five members and 1 chairman who would also act as a general manager(Cervantes) and they were appointed by the president. NAFCO is made subject to the provisions of the corporation law in so far as they were compatible with its charter and it enjoys the powers under the corporation law. RA 51 authorized the president to effect reforms to GOCCs so he enacted EO 93 or the Government Enterprise Council which will have a control committee that has the power to pass upon the resolutions of the BOD of GOCCs such as NAFCO to ensure their efficient and economic operations. CONTROVERSY: According to NAFCO's charter its General Manager should receive a salary not exceeding P15, 000 per year. NAFCO through a Board Resolution granted Cervantes quarters allowance amounting to P400 per month. The control committee denied such Board Resolution. ISSUE: 1. WON Executive Order No. 93 exercising control over Government Owned and Controlled Corporations (GOCC) implemented under R.A. No. 51 is valid. 2. WON the quarters allowance should be allowed. RULING: 1. R.A. No. 51 is constitutional. It is not illegal delegation of legislative power to the executive as

argued by petitioner but a mandate for the President to streamline GOCC�s operation. Executive Order 93 is valid because it was promulgated within the 1 year period given. 2. It is undisputed that NAFCO is a GOCC and is therefore subject to RA 51 and EO 93. The control committee of the Government Enterprise Council has the power to pass upon the resolutions of the BOD of GOCCs. It has the power to approve or disapprove the BOD resolutions of GOCCs including NAFCO. The additional quarters allowance granted to Cervantes would form part of his additional compensation thus it violated NAFCO's charter limiting the annual salary of the GM to P15,000. It is also because NAFCO is in a precarious financial condition at the time. 40 G.R. No. 120138. September 5, 1997 MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN, petitioners, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY & DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES and DANTE D. MORALES, respondents. KAPUNAN, J.: First Controversy FACTS Manuel A. Torres Jr. (Judge Torres) was the majority stockholder of Tormil Realty and Development Corporation while private respondents constituted the minority stockholders. In order to make substantial savings in taxes, Judge Torres adopted an estate planning scheme under which he assigned to Tormil Realty and Development Corporation various real properties he owned and his shares of stock in other corporations in exchange for 225,972 Tormil shares. At the time of the assignments and exchange, only 225,000 Tormil shares remained unsubscribed and all of which were duly issued to and received by Judge Torres. Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private respondents to approve the needed increase in the corporation authorized capital stock, he revoked the 2 deed of assignment covering the properties in Makati and Pasay. This prompted private respondent to file a complaint with the SEC to compel Judge Torres to deliver the subject property and to cause the registration of the titles in the name of Tormil ISSUE WON the revocation of the assignment of the property should be declared null and void? RULING Yes. Rescission of a contract will not be permitted for a slight or carnal breach, but only for substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The shortage of 972 shares definitely is not substantial and fundamental breach as would defeat the very object of the parties in entering into contract. Moreover the shortage of shares should not have affected the assignment of the Makati and Pasay City properties which were executed in July 13 and 14 and the consideration of which have been duly paid or fulfilled but should have been applied logically to the last assignment of property – Ayala Fund Shares – which was executed on August 29, 1984. Second Controversy FACTS Pursuant to the scheduled election of directors of Tormil Corporation held on March 25, 1987, Judge Torres assigned one share each to petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of qualifying shares, for the sole purpose of meeting the legal requirement to be able to elect them to the BOD as Tor res’ nominees. The reason behind the aforestated action was to remedy the inequitable lopsided set-up obtaining in the corporation,

where, notwithstanding his controlling interest in the corporation, the late judge held only a single seat in the 9 members of COD and was therefore at the mercy of the minority, a combination of any 2 of whom would suffice to overrule the majority stockholder in the Boards decision making functions. The stockholders meeting was held as scheduled. During the election, Judge Torres nominated the petitioners as his nominees and asked the corporate secretary to put the name of the his nominees to the corporate record but she refused to, prompting Judge Torres to assign Pabalan as an acting corporate secretary and caused the recording of the nominees. After the election, Manuel Torres Jr., Ma. Jacinta Torres, Edgardo Pabalan, Graciano Tobias, Rodolfo Jocson Jr., Melvin Jurisprudencia, Augustus Ceasar Azuna, Josefina Torres and Dante Morales were elected as the BOD. Consequently, private respondents constituted a complaint with the SEC praying that the election of petitioners to the BOD be annulled. They alleged that petitioners-nominees were not legitimate stockholders of Tormil because the assignment of shares to them violated the minority stockholder’s right of pre-emption as provided in the corporations’ articles and by-laws. ISSUE WON the election of petitioners should be annulled? RULING Yes. Petitioners cannot use the flimsy excuse that it would have been a vain attempt to force the incumbent corporate secretary to register the aforestated assignments in the stock and transfer book because the latter belonged to the opposite faction, it is the corporate secretary’s duty and obligation to register valid transfer of stocks and if said corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel performance. In other words there are remedies within the law that petitioners could have availed of instead of taking the law in their own hands, as the cliché goes. Petitioners contend that Judge Torres himself made the entry for the assignment of the stocks to petitioners hence there is a valid transfer. The corporate secretary is the custodian of the corporate records and he keeps the stock and transfer book and makes the proper necessary entries therein. Contrary to the generally accepted corporate practice, the stock and transfer book of Tormil was kept by Torres and further it was not kepti in the principal place of business. therefore, the entries made in the stock and transfer made are not valid hence Pabalan and company are not considered stockholders of Tormil. The fact that Torres holds 81.28% of the outstanding capital stock of Tormil is of no moment and is not a license for him to arrogate unto himself a duty lodged to the corporate secretary. All corporations, big or small, must abide by the provisions of the Corporation Code. Being small family Corporation is not an exemption. Such corporation cannot have rules and practices other than those established by law. NOTE: • There are two cases filed.. it was consolidated by the SC because it involves the same parties • JUDGE TORRES died pending appeal • Respondents are the nephew and nieces of Judge

55 TOPIC:COMMON LAW LIMITATIONS ON BY-LAWS GRACE CHRISTIAN HIGH SCHOOL vs.THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO G.R. No. 108905 October 23, 1997 FACTS: Petitioner Grace Christian High School (GCHS) is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc. (GVAI), on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election, respectively, in 1990, when the suit was brought. GVAI has existing by-laws which was already in effect since 1968. But in 1975, the board of directors made a draft amending the by-laws whereby the representative of GCHS shall have a permanent seat in the 15-seat board. The draft however was never presented to the general membership for approval. But nevertheless, the representative of GCHS held a seat in the board for 15 years until in 1990 when a proposal was made to the board to reconsider the practice of allowing the GCHS representative in taking a permanent seat. Thereafter, an election was scheduled for the 15 seat in the board. GCHS opposed the election as it insists that the election should only be for 14 directors because it has a permanent seat. GVAI argued that GCHS claim has no basis because the 1975 proposed amendment was never ratified. GCHS averred that it was ratified when it was allowed to take the seat for 15 years and as such its right has already vested. As the board denied petitioner's request to be allowed representation without election, petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGC's appeals board.

ISSUE: 1. Whether or not the representative from Grace Christian High School should be allowed to have a permanent seat in the board of directors. 2. Whether or not the draft of the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an election. HELD: 1. No. The *Corporation Code (Section 23) is clear when it provides that members of the board of a corporation must be elected by the stockholders (stock corporation) or the members (non-stock corporation). Admittedly, there are corporations who allow some of their directors to sit in the board without being elected – but such practice cannot prevail over provisions of law. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Further, there is no reason as to why a representative from GCHS should be given an automatic seat. It should therefore go through the process of election. 2. It cannot also be argued that the draft of the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal was merely a draft and even if passed and approved by the general membership, it cannot be given effect because it is void and contrary to th e law. GCHS’ seat in the corporate board is at best merely tolerated by GVAI. The hearing officer held that the amended by-laws, upon which petitioner based its claim, "was merely a proposed by-laws which, although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority"; that, on the contrary, in the meeting held on April 17, 1990, the directors of the association declared "the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and void" and the by-laws of December 17, 1968 as the "prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and approved by the pertinent government agency." The hearing officer rejected petitioner's contention that it had acquired a vested right to a permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to say that "allowing the automatic inclusion of a member representative of petitioner as permanent director was contrary to law and the registered bylaws of respondent association." It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioner's representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification.

*It is actually §§28 and 29 of the Corporation Law — not §92 of the present law or §29 of the former one — which require members of the boards of directors of corporations to be elected. These provisions read: §28. Unless otherwise provided in this Act, the corporate powers of all corporations formed under this Act shall be exercised, all business conducted and all property of such corporations controlled and held by a board of not less than five nor more than eleven directors to be elected from among the holders of stock or, where there is no stock, from the members of the corporation: Provided, however, That in corporations, other than banks, in which the United States has or may have a vested interest, pursuant to the powers granted or delegated by the Trading with the Enemy Act, as amended, and similar Acts of Congress of the United States relating to the same subject, or by Executive Order No. 9095 of the President of the United States, as heretofore or hereafter amended, or both, the directors need not be elected from among the holders of the stock, or, where there is no stock from the members of the corporation. (emphasis added) §29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then determined, directors shall be elected to hold their offices for one year and until their successors are elected and qualified. Thereafter the directors of the corporation shall be elected annually by the stockholders if it be a stock corporation or by the members if it be a nonstock corporation, and if no provision is made in the by-laws for the time of election the same shall be held on the first Tuesday after the first Monday in January. Unless otherwise provided in the by-laws, two weeks' notice of the election of directors must be given by publication in some newspaper of general

circulation devoted to the publication of general news at the place where the principal office of the corporation is established or located, and by written notice deposited in the post-office, postage prepaid, addressed to each stockholder, or, if there be no stockholders, then to each member, at his last known place of residence. If there be no newspaper published at the place where the principal office of the corporation is established or located, a notice of the election of directors shall be posted for a period of three weeks immediately preceding the election in at least three public places, in the place where the principal office of the corporation is established or located. (Emphasis added) The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980, similarly provides: §23. 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 holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. (Emphasis added) These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.

65 GR No. 122452 January 29, 2001 TAM WING TAK, petitioner,vs.HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the RegionalTrial Court of Manila, Branch 35) and ZENON DE GUIA (in his capacity as ChiefState Prosecutor), respondents. Facts:On November 11, 1992, petitioner, as a director of Concord-World PropertiesInc., filed a complaint affidavit charging Vic Ang Siong for violation of BP 22 in the QCProsecutors Office. It was alleged in the said affidavit that the check issued by the latterto the company was dishonored when presented for encashment. Ang Siong moved todismiss the said case on the ground that petitioner had no authority to file the said caseand that he and the company had agreed to settle amicably after paying partially thedishonored check. On March 23, 1994, the City Prosecutor dismissed the said case on thegrounds given by Ang Sio ng. The Chief State Prosecutor denied petitioner’s appeal andMotion for Reconsideration; hence he filed a civil case for mandamus in the RTC of QCto compel the Chief State Prosecutor to file the information charging Ang Siong forviolating BP 22. The trial court also dismissed the case for lack of merit, thus the petitionfor review on certiorari in the SC. Issue:Whether or not the petitioner had the personality to file the said case. Held:No, it is not disputed in the instant case that Concord, a domestic corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord, as payee of the bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the bad check, he had neither the personality to sue nor cause of action against Vic Ang Siong. Under Section 36 of the Corporation Code, in relation to Section 23, it is clear that where a corporation is an injured party, its power to sue is lodged with its board of directors or turstees. Note that petitioner failed to show any proof that he was authorized or deputized or granted specific powers by Concord's board of director to sue Victor And Siong for and on behalf of the firm. Clearly,petitioner as a minority stockholder and member of the board of directors had no such power or authority to sue on Concord's behalf. Nor uphold his act as a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. There is no showing that petitioner has complied with the foregoing requisites. It is obvious that petitioner has not shown any clear legal right which would warrant the overturning of the

decision of public respondents to dismiss the complaint against Vic Ang Siong. A public prosecutor, by thenature of his office, is under no compulsion to file a criminal information where no clearlegal justification has been shown, and no sufficient evidence of guilt nor prima faciecase has been presented by the petitioner. No reversible error may be attributed to thecourt a quo when it dismissed petitioner's special civil action for mandamus.

CASE 66/ TOPIC: POWER TO INCREASE OR DECREASE CAPITAL STOCK G.R. No. L-48237 June 30, 1987 MADRIGAL & COMPANY, INC. vs. HON. RONALDO B. ZAMORA, SEC OF LABOR, and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION No. L-49023 June 30, 1987 MADRIGAL & COMPANY, INC. vs. HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION FACTS: MADRIGAL was engaged in the management of Rizal Cement Co., Inc. The petitioner and Rizal Cement are sister companies. Both are owned by the same stockholders. The Madrigal Union, sought for the renewal of its CBA with the petitioner. UNION proposed a wage increase of P200/month, an allowance of P100/month, and other economic benefits. MADRIGAL however, requested for a deferment in the negotiations. By an alleged resolution of its stockholders, MADRIGAL reduced its capital stock from 765,000 shares to 267,366 shares. This was effected through the distribution of the marketable securities owned by the petitioner to its stockholders in exchange for their shares in an equivalent amount in the corporation. By yet another alleged stockholders' action, the petitioner reduced its authorized capitalization from 267,366 shares to 110,085 shares, again, through the same scheme. After petitioner's failure to sit down with the union, the latter, commenced with the NLRC a complaint for ULP. The petitioner alleged operational losses. The petitioner informed the SOLE that Rizal Cement "from which it derives income" "as the General Manager or Agent" had "ceased operating temporarily. In addition, in order to prevent further losses, it had to reduce its capital stock on two occasions. It averred that the Madrigal Inc. is without substantial income, necessitating a retrenchment, of its employees. The petitioner then requested that it "be allowed to effect said reorganization gradually considering all the circumstances, by phasing out in at least 3 stages, or in a manner the Company deems just, equitable and convenient to all concerned. The DOLE took no action on the petitioner's request because the letter was not verified. The LA rendered a decision granting a general wage increase of P200/month plus a monthly living allowance of P100 monthly in favor of the petitioner's employees. The LA found that the petitioner "had been making substantial profits in its operation". MADRIGAL appealed. The petitioner applied for clearance to terminate the services of a number of employees pursuant supposedly to its retrenchment program. The union went to the DOLE to complain of illegal lockout against the petitioner. Acting on this complaint, the SOLE found the dismissals "to be contrary to law" and ordered the petitioner to reinstate some 40 employees, 37 of them with backwages. The petitioner then moved for reconsideration, which the Acting Labor Secretary denied. MADRIGAL filed an appeal to the Office of the President. The respondent, the Presidential Assistant on Legal Affairs, affirmed with modification the Labor Department's decision. The petitioner appealed to SC. Meanwhile, the NLRC rendered a decision affirming the labor arbiter's judgment. The petitioner appealed to the SOLE which dismissed the appeal. Petitioner appealed to SC. ISSUE: WON MADRIGAL INC’s ACT of DECREASING ITS CAPITAL STOCK is VALID SC DISCUSSIONs: There is no merit in these 2 petitions. We do not subscribe to appellant's argument that by reducing its capital, it is made evident that it is phasing out its operations. On the contrary, whatever may be the reason behind such reductions, it is indicative of an intention to keep

the company a going concern. So much so that until now almost 4 years later, it is still very much in existence and operational as before. In support of such assertion, the company points that the profits reflected in its yearly Statement of Income and Expenses are dividends from security holdings. We, however reject as puerile its suggestion to dissociate the dividends it received from security holdings on the pretext that they belong exclusively to its stockholders. The dividends received by the company are corporate earnings arising from corporate investment which no doubt are attended to by the employees involved in this proceedings. What clearly emerges from the recorded facts is that the petitioner, awash with profits from its business operations but confronted with the demand of the union for wage increases, decided to evade its responsibility towards the employees by a devised capital reduction. While the reduction in capital stock created an apparent need for retrenchment, it was, by all indications, just a mask for the purge of union members, who, by then, had agitated for wage increases. In the face of the petitioner company's piling profits, the unionists had the right to demand for such salary adjustments. The dividends received by the company are corporate earnings arising from corporate investment. Moreover, it is incorrect to say that such profits — in the form of dividends — are beyond the reach of the petitioner's creditors since the petitioner had received them as compensation for its management services in favor of the companies it managed as a shareholder thereof. As such shareholder, the dividends paid to it were its own money, which may then be available for wage increments. It is not a case of a corporation distributing dividends in favor of its stockholders, in which case, such dividends would be the absolute property of the stockholders and hence, out of reach by creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in that case, the right to a share in such dividends, by way of salary increases, may not be denied its employees. A clear scrutiny of the financial reports of MADRIGAL reveals that it had been making substantial profits in the operation. EXAMPLE: 1972, when it still had 765,000 common shares, the respondent made a net profit of P2,403,211.58. Its total assets were P70,821,317.81. In 1973, based on the same capitalization, its profit increased to P2,724,465.33. Its total assets increased to P83,240,473.73. Accordingly, this court is convinced that the petitioner's capital reduction efforts were, a subterfuge, a deception as it were, to camouflage the fact that it had been making profits, and consequently, to justify the mass layoff in its employee ranks, especially of union members. They were nothing but a premature and plain distribution of corporate assets to obviate a just sharing to labor of the vast profits obtained by its joint efforts with capital through the years. Surely, we can neither countenance nor condone this. It is an unfair labor practice. Retrenchment can only be availed of if the company is losing or meeting financial reverses in its operation, which certainly is not the case at bar. ***NOTES***: Section 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. – No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and, at a stockholder’s meeting duly called for the purpose, two thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the stockholder’s meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally. A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders’ meeting, setting forth: (1) That the requirements of this section have been complied with; (2) The amount of the increase or diminution of the capital stock; (3) If an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually subscribed, the names, nationalities and residences of the persons subscribing, the amount of capital stock or number of no-par stock subscribed by each, and the amount paid by each on his subscription in cash or property, or the amount of

capital stock or number of shares of no-par stock allotted to each stock-holder if such increase is for the purpose of making effective stock dividend therefor authorized; (4) Any bonded indebtedness to be incurred, created or increased; (5) The actual indebtedness of the corporation on the day of the meeting; (6) The amount of stock represented at the meeting; and (7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission. One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: Provided, further, That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors. Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose. Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the authority to determine the sufficiency of the terms thereof. (17a) 69 GR 59114 18 March 1991 Jose Ricafort et al v. Hon Judge Felix Moya et al FACTS: The case stemmed from a deed of absolute sale executed on April 18 1978 between Daniel Aguinaldo as vendor and Ricaforte and Calalang as vendees. Both had failed to fulfil their obligations in the deed which worsened as cases have been filed against each party. After a number of suits filed, Ricafort et al filed for Preliminary injunction against Aguinaldo to prohibit him from representing himself as controlling stockholder of NADECOR and attempting to sell that corporation’s so-called Kingking Mining claims. This was granted by the Court. Ricafort and Calalang believed that they and SAICOR are to be excluded by Aguinaldo and group from the management of NADECOR as Aguinaldo had refused to convoke the stockholders annual meeting for the year 1981 which should have been called on third Monday of August, in the by-laws. Stockholders elected as directors Calalang, Ricafort and 5 others. The stockholders rejected the aforesaid operating agreement in March 25 1981 between NADECOR as represented by Aguinaldo and the consortium of Black Mountain Corp et al and instead approved the proposed operating agreement with Benguet Corporation. The Certificate attesting to these events was filed with SEC. NADECOR, represented by new officers entered into an Operating Agreement with Benguet Corporation for the operation by the latter of the KINGKING MINES. ISSUE: Whether the Operating Agreement with the Black Mountain Consortium of March 25, 1981 is valid RULING: NO. The Operating Agreement with the Black Mountain Consortium was never ratified by the NADECOR stockholders; indeed, it was explicitly rejected by said stockholders. Considering that the Kingking Mines comprise all or substantially the assets of NADECOR, the operating agreement of March 25 1981 had to be ratified by the stockholders in order to be valid and effective. This, in accordance with Section 44 of the Corporation Code. That no such ratification was ever given constitutes yet another reason to invalidate such. The agreement executed on March 25 1981 was entered into in defiance of valid orders of a court of competent jurisdiction and was in fact subsequently nullified by it; it was entered into against the wishes of the majority of the stockholders and directors and in truth, was not only not ratified by the majority of the said stockholders as required by the Corporation Code, but explicitly rejected and disowned by them at a meeting duly convoked, said stockholders thereafter approving an operation agreement with Benguet Corporation; the agreement was sought to be vindicated and enforced by individuals who no longer represented the majority of the stockholders of NADECOR, over the objection and against the wishes of the legitimate majority; the authority granted to the consortium to implement the agreement of March 25 1981 was rescinded and revoked by the Office of the President and one of the companies in said consortium is now no longer capable on account of bankruptcy of complying with its contractual commitments-it is impossible to accord the agreement any validity or effect whatsoever.

NOTA BENE (not all facts stated herein) On April 18, 1978, a deed of sale was executed by Daniel Aguinaldo and DR Aguinaldo Corporation (DRACOR) as vendors, and Jose Ricafort and Conrado Calalang as vendees. In the deed, Aguinaldo and DRACOR sold to Ricafort and Calalang all their shares of stocks and subscriptions in three corporations: ADECOR (Aguinaldo Dev’t Corp), MARBLECORP(Phil. Marble Corp) and NADECOR (Nationwide Devt Corp) Aguinaldo bound himself to convey 9 parcels of rice land in Saug, Davao del Norte held in trust by him, to the real or beneficial owner ADECOR Ricafort and Calalang pledged to Aguinaldo all shares of stocks in the 3 corporations subject of sale and the 9 Saug lots as security for payment of balance price August 18 1980- Shareholders of NADECOR elected Aguinaldo, Aytona, Calalang, Ricafort and 5 others as directors. Aytona, Aguinaldo and Borsoto as Chairman, President and Secretary respectively Sept 26 1980- Aguinaldo executed a deed of reconveyance of 9 Saug lots in favour of ADECOR as called for by the April 18 1978 stipulation which was not complied with by Ricafort and Calalang (on the mortgaged lots) because the deed of reconveyance of the Saug lots executed by Aguinaldo in favour of ADECOR was fatally defective as it did not bear the signature of Aguinaldo’s wife, Helen Leontovich. No remedy done to the omission until controversy between parties has worsened. FIRST CASE: Oct 6 1980 Ricafort and Calalang filed before the CFI of Rizal due to breach o f contract of April 18 1978 by Aguinaldo’s failure to transfer the 9 Saug lots with prayer that Aguinaldo’s obligation to make conveyance be deemed waived and that Ricafort and Calalang be discharged from their obligation Aguinaldo reacted by instructing a notary public, Neis to conduct Auction Sale of pledged stock of DRACOR, ADECOR AND NADECOR Ricafort and Calalang brought suit against Aguinaldo and Neis to be stopped from proceeding with the auction sale and applied for preliminary injunction TRO issued by Judge Maddela enjoining the auction sale. Three more amendments were made by Ricafort Reformation of contract of sale to include all stocks in NADECOR of Aguinaldo and DRACOR Preliminary injunction against Aguinaldo to prohibit him from representing himself as controlling stockholder of NADECOR and attempting to sell that corporation’s so-called Kingking Mining claims. Allowed by court order Third amendment added averments of fraud relative to the transfer by Aguinaldo to himself of ADECOR shares in a foreign company. Preliminary injunctions by Manila CFI Injunctive orders issued against Aguinaldo and his group by the trial court as regards Kingking’s mining claims and Operating Agreement involving Kingking between Aguinaldo in representation of NADECOR and a consortium made up of Black Mountain Inc, Tetra Management Corp, and Energy Corporation Court enjoined NADECOR in ratifying the Operating Management Court stopped the auction sale which was rescheduled by Neis and; Aguinaldo in representing himself as controlling stockholder of NADECOR offering its Kingking claims for sale Court order prohibiting Aguinaldo from selling the ADECOR shares in Sawyer-Adecor International Corporation(SAICOR) which he had caused to be transferred in his name Ricafort and Calalang believed that they and SAICOR are to be excluded by Aguinaldo and group from the management of NADECOR as Aguinaldo had refused to convoke the stockholders annual meeting for the year 1981 which should have been called on third Monday of August, in the by-laws. Stockholders elected as directors Calalang, Ricafort and 5 others. The stockholders rejected the aforesaid operating agreement in March 25 1981 between NADECOR as represented by Aguinaldo and the consortium of Black Mountain Corp et al and instead approved the proposed operating agreement with Benguet Corporation. The Certificate attesting to these events was filed with SEC NADECOR, represented by new officers entered into an Operating Agreement with Benguet Corporation for the operation by the latter of the KINGKING MINES. SEC CASE: NADECOR, represented by its newly elected directors and officers filed against Aguinaldo and group for continuingly fraudulently representing themselves as the legitimate officers of NADECOR. CIVIL CASE no. 143: the consortium of Black Mountain Inc et al filed a complaint against Benguet Corporation and NADECOR and the directors of NADECOR (Ricafort and Calalang included) enjoining them from interfering with Black Mountain’s possession of NADECOR’s Kingking Mines a nd recover damages. Ricafort et al moved to dismiss the complaint for failure to state a cause of action, that NADECOR’s agreement with Black Mountain Inc for the operation of the Kingking mining claims had never been approved by the NADECOR stockholders

owning the majority of the capital stock. The trial court denied the motion to dismiss

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