ARTICLES OF INCORPORATION AND BY-LAWS

9. RIOSA VS. TABACO LA SUERTE CORP.

Facts:
Petitioner Aquiles Riosa (Aquiles) filed his Complaint for Annulment/Declaration of Nullity
of Deed of Absolute Sale and Transfer Certificate of Title, Reconveyance and Damages
against respondent Tabaco La Suerte Corporation (La Suerte) before the RTC.
Aquiles alleged that he was the owner and in actual possession of a 52-square meter
commercial lot situated in Barangay Quinale, Tabaco City, Albay.
Aquiles claimed that by means of fraud, misrepresentation and deceit employed by Sia
Ko Pio, he was made to sign the document which he thought was a receipt and
undertaking to pay the loan, only to find out later that it was a document of sale. Aquiles
averred that he did not appear before the notary public to acknowledge the sale,
La Suerte averred that it was the actual and lawful owner of the commercial property,
after purchasing it from Aquiles on December 7, 1990; that it allowed Aquiles to remain
in possession of the property to avoid the ire of his father from whom he had acquired
property inter vivos, subject to his obligation to vacate the premises anytime upon
demand
Held:
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers or agents appointed by it. Thus,
contracts or acts of a corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of such director,
are held not binding on the corporation.22[Emphases supplied]
In the case at bench, Sia Ko Pio, although an officer of La Suerte, had no authority from its
Board of Directors to enter into a contract of sale of Aquiles property. It is, thus, clear that the
loan obtained by Aquiles from Sia Ko Pio was a personal loan from the latter, not a transaction
between Aquiles and La Suerte. There was no evidence to show that Sia Ko Pio was clothed
with authority to use his personal fund for the benefit of La Suerte. Evidently, La Suerte was
never in the picture.

10. ADVANCE PAPER CORP. VS. ARMA TRADERS CORP

FACTS:

Petitioner Advance Paper is a domestic corporation engaged in the business of

producing, printing, manufacturing, distributing and selling of various paper

products.4 Petitioner George Haw (Haw) is the President while his wife, Connie Haw, is
the General Manager.5

Respondent Arma Traders is also a domestic corporation engaged in the wholesale and
distribution of school and office supplies, and novelty products.6 Respondent Antonio Tan
(Tan) was formerly the President while respondent Uy Seng Kee Willy (Uy) is the
Treasurer of Arma Traders.7 They represented Arma Traders when dealing with its
supplier, Advance Paper, for about 14 years.8

On the other hand, respondents Manuel Ting, Cheng Gui and Benjamin Ng worked for
Arma Traders as Vice-President, General Manager and Corporate Secretary,
respectively.9

Arma Traders purchased on credit notebooks and other paper products amounting
to P7,533,001.49 from Advance Paper. 10

Upon the representation of Tan and Uy, Arma Traders also obtained three loans from
Advance Paper in November 1994 in the amounts of P3,380,171.82, P1,000,000.00,
and P3,408,623.94 or a total ofP7,788,796.76.11 Arma Traders needed the loan to settle
its obligations to other suppliers because its own collectibles did not arrive on
time.12 Because of its good business relations with Arma Traders, Advance Paper
extended the loans.13

As payment for the purchases on credit and the loan transactions, Arma Traders issued
82 postdated checks14payable to cash or to Advance Paper. Tan and Uy were Arma
Traders authorized bank signatories who signed and issued these checks which had the
aggregate amount of P15,130,636.87.15

Advance Paper presented the checks to the drawee bank but these were dishonored
either for "insufficiency of funds" or "account closed." Despite repeated demands,
however, Arma Traders failed to settle its account with Advance Paper.16

On December 29, 1994, the petitioners filed a complaint17 for collection of sum of money
with application for preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and
Ng.
Claims of the petitioners

The petitioners claimed that the respondents fraudulently issued the postdated checks
as payment for the purchases and loan transactions knowing that they did not have
sufficient funds with the drawee banks.1

HELD:
Arma Traders is liable to pay the
loans on the basis of the doctrine of
apparent authority.

The doctrine of apparent authority provides that a corporation will be estopped from
denying the agents authority if it knowingly permits one of its officers or any other agent
to act within the scope of an apparent authority, and it holds him out to the public as
possessing the power to do those acts. 76 The doctrine of apparent authority does not
apply if the principal did not commit any acts or conduct which a third party knew and
relied upon in good faith as a result of the exercise of reasonable prudence. Moreover,
the agents acts or conduct must have produced a change of position to the third partys
detriment.

Under this provision [referring to Sec. 23 of the Corporation Code], the power and
responsibility to decide whether the corporation should enter into a contract that will bind
the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or
relevant provisions of law. However, just as a natural person who may authorize
another to do certain acts for and on his behalf, the board of directors may validly
delegate some of its functions and powers to officers, committees or agents. The
authority of such individuals to bind the corporation is generally derived from law,
corporate bylaws or authorization from the board, either expressly or impliedly by
habit, custom or acquiescence in the general course of business, viz.:

A corporate officer or agent may represent and bind the corporation in transactions with
third persons to the extent that [the] authority to do so has been conferred upon him, and
this includes powers as, in the usual course of the particular business, are incidental to,
or may be implied from, the powers intentionally conferred, powers added by custom
and usage, as usually pertaining to the particular officer or agent, and such apparent
powers as the corporation has caused person dealing with the officer or agent to believe
that it has conferred.

[A]pparent authority is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds out an
officer or agent as having the power to act or, in other words the apparent authority to
act in general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, within or beyond
the scope of his ordinary powers. It requires presentation of evidence of similar
act(s) executed either in its favor or in favor of other parties. It is not the quantity
of similar acts which establishes apparent authority, but the vesting of a corporate
officer with the power to bind the corporation. [emphases and underscores ours]

"Inasmuch as a corporate president is often given general supervision and control over
corporate operations, the strict rule that said officer has no inherent power to act for the

corporation is slowly giving way to the realization that such officer has certain limited
powers in the transaction of the usual and ordinary business of the corporation." 80 "In the
absence of a charter or bylaw provision to the contrary, the president is presumed
to have the authority to act within the domain of the general objectives of its
business and within the scope of his or her usual duties."81

In the present petition, we do not agree with the CAs findings that Arma Traders is not
liable to pay the loans due to the lack of board resolution authorizing Tan and Uy to
obtain the loans. To begin with, Arma Traders Articles of Incorporation82 provides that the
corporation may borrow or raise money to meet the financial requirements of its
business by the issuance of bonds, promissory notes and other evidence of
indebtedness. Likewise, it states that Tan and Uy are not just ordinary corporate officers
and
authorized
bank
signatories
because
they
are
also
Arma
Traders incorporators along with respondents Ng and Ting, and Pedro Chao.
Furthermore, the respondents, through Ng who is Arma Traders corporate secretary,
incorporator, stockholder and director, testified that the sole management of Arma
Traders was left to Tan and Uy and that he and the other officers never dealt with
the business and management of Arma Traders for 14 years. He also confirmed
that since 1984 up to the filing of the complaint against Arma Traders, its
stockholders and board of directors never had its meeting.83

Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to
transact with third persons without the necessary written authority from its nonperforming board of directors. Arma Traders failed to take precautions to prevent its own
corporate officers from abusing their powers. Because of its own laxity in its business
dealings, Arma Traders is now estopped from denying Tan and Uys authority to obtain
loan from Advance Paper.

We also reject the respondents claim that Advance Paper, through Haw, connived with
Tan and Uy. The records do not contain any evidence to prove that the loan transactions
were personal to Tan and Uy. A different conclusion might have been inferred had the
cashiers checks been issued in favor of Tan and Uy, and had the postdated checks in
favor of Advance Paper been either Tan and/or Uys, or had the respondents presented
convincing evidence to show how Tan and Uy conspired with the petitioners to defraud
Arma Traders.84 We note that the respondents initially intended to present Sharow Ong,
the secretary of Tan and Uy, to testify on how Advance Paper connived with Tan and Uy.
As mentioned, the respondents failed to present her on the witness stand.

11. IRCP VS. CA

Facts:

Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized

on October 13, 1976. On June 22, 1977, it registered its corporate and business name with the
Bureau of Domestic Trade.
Petitioner IRCP was incorporated on August 23, 1979 originally under the name "Synclaire
Manufacturing Corporation". It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to "Industrial Refractories Corp. of the Philippines".
Both companies are the only local suppliers of monolithic gunning mix.
Respondent RCP then filed a petition with the Securities and Exchange Commission to compel
petitioner IRCP to change its corporate name.
The SEC rendered judgment in favor of respondent RCP.
Petitioner appealed to the SEC En Banc. The SEC En Banc modified the appealed decision and
the petitioner was ordered to delete or drop from its corporate name only the word
"Refractories".
Petitioner IRCP filed a petition for review on certiorari to the Court of Appeals and the appellate
court upheld the jurisdiction of the SEC over the case and ruled that the corporate names of
petitioner IRCP and respondent RCP are confusingly or deceptively similar, and that respondent
RCP has established its prior right to use the word "Refractories" as its corporate name.
Petitioner then filed a petition for review on certiorari
Issue:
Are corporate names Refractories Corporation of the Philippines (RCP) and "Industrial
Refractories Corp. of the Philippines" confusingly and deceptively similar?
Ruling:
Yes, the petitioner and respondent RCPs corporate names are confusingly and deceptively
similar.
Further, Section 18 of the Corporation Code expressly prohibits the use of a corporate name
which is "identical or deceptively or confusingly similar to that of any existing corporation or to
any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws". The policy behind said prohibition is to avoid fraud upon the public that will have
occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the
reduction of difficulties of administration and supervision over corporation.
The Supreme Court denied the petition for review on certiorari due for lack of merit.

12. ZUELLIG FREIGHT AND CARGO SYSTEMS VS. NLRC

Facts: This is a petition appealing the decision of CA, whereby it dismissed its petition for
certiorari and upheld the adverse decision of the NLRC finding San Miguel to have been illegally
dismissed. San Miguel, employed as checker/custom representative, brought a complaint for
unfair labor practice, illegal dismissal, non-payment of salaries and moral damages against

petitioner, formerly known as Zeta Brokerage Corporation (Zeta). He contended that

amendments of the articles of incorporation of Zeta were for the purpose of changing the
corporate name, broadening the primary functions, and increasing the capital stock; and that
such amendments could not mean that Zeta had been thereby dissolved. Petitioner countered
that San Miguels termination from Zeta had been for a cause authorized by the Labor Code;
that its non-acceptance of him had not been by any means irregular or discriminatory; that its
predecessor-in-interest had complied with the requirements for termination due to the cessation
of business operations and that it had no obligation to employ San Miguel in the exercise of its
valid management prerogative.
NLRC and CA rendered its decision holding San Miguel to have been illegally dismissed
ordering Zuellig to pay San Miguel his back wages and Attorneys fees equivalent to ten percent
(10%) of the total award.
Issue: Whether or not the awarding of attorneys fees had basis in fact and in law.
Ruling: Yes, the court upheld the CA, NLRC and Labor Arbiter unanimous decision, where the
amendments of the articles of incorporation of Zeta to change the corporate name to Zuellig
Freight and Cargo Systems, Inc. did not produce the dissolution of the former as a corporation,
therefore not giving them the license to terminate employees without just or authorized cause
and considering that that San Miguel had been compelled to litigate and to incur expenses to
protect his rights and interest entitles him to recover attorneys fees.
In Producers Bank of the Philippines v. Court of Appeals, the Court ruled that attorneys fees
could be awarded to a party whom an unjustified act of the other party compelled to litigate or to
incur expenses to protect his interest.

13. FLEISHCER VS. BOTICA NOLASCO

FACTS:
March 13, 1923: Manuel Gonzales made a written statement to the Botica Nolasco, Inc.,

requesting that 5 shares of stock sold by him to Henry Fleischer be noted transferred to
Fleischer's name. He also acknowledged in said written statement the preferential right
of the corporation to buy said five shares .June 14, 1923: he withdraw and cancelled his
written statement of March 13, 1923 .
Nolasco replied that his letter of June 14th was of no effect, and that the shares in

question had been registered in the name of the Botica Nolasco, Inc.,
November 15, 1923: Fleischer filed an amended complaint against the Botica Nolasco,

Inc., alleging that he became the owner of 5 shares of fully paid stock of Botica Nolasco
Co (Nolasco) by purchase from their original owner, Manuel Gonzalez
Despite repeated demands, Nolasco refused to register said shares in his name in the

books of the corporation caused him damages amounting to P500

Nolasco's defense:

article 12 of its by-laws: it had preferential right to buy the shares at the par value

of P100/share, plus P90 as dividends corresponding to the year 1922

offer was refused by Fleischer
Trial Court: favored Fleischer and ordered the shared be registered

ISSUE: W/N article 12 of Nolasco's by-laws is in conflict with Act No. 1459 (CorporationLaw),
especially with section 35 (Now Sec. 63)

HELD: Affirmed. mandamus will lie to compel the officers of the corporation to transfer said
stock upon the books of the corporation

Section 13, paragraph 7, above-quoted, empowers a corporation to make by-laws, not

inconsistent with any existing law, for the transferring of its stock.
section 35 of Act No. 1459 (now Sec. 63)

contemplates no restriction as to whom they may be transferred or sold

It does not suggest that any discrimination may be created by the corporation in favor or
against a certain purchaser.
The holder of shares, as owner of personal property, is at liberty, under said

section, to dispose of them in favor of whomsoever he pleases, without any

other limitation in this respect, than the general provisions of law
As a general rule, the by-laws of a corporation are valid if they are reasonable and

calculated to carry into effect the objective of the corporation and are not contradictory to the
general policy of the laws of the land. Under a statute authorizing by-laws for the transfer of
stock, a corp. can do no more than prescribe a general mode of transfer on the corp. books
and cannot justify an restriction upon the right of sale.
A by-law cannot take away or abridge the substantial rights of stockholder.
Under a statute authorizing by- laws for the transfer of stock, a corporation can

do no more than prescribe a general mode of transfer on the corporate books and cannot
justify an unreasonable restriction upon the right of sale.
by-law cannot operate to defeat his rights as a purchaser who obtained them in good

faith and for a valuable consideration

14. EMELIF VS. LAZARO

FACTS:

Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las
Islas Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its
General Superintendent. Thirty-nine years later in 1948, the IEMELIF enacted and
registered a by-laws that established a Supreme Consistory of Elders (the Consistory),

made up of church ministers, who were to serve for four years. The by-laws empowered
the Consistory to elect a General Superintendent, a General Secretary, a General
Evangelist, and a Treasurer General who would manage the affairs of the
organization. For all intents and purposes, the Consistory served as the IEMELIFs board
of directors.

IEMELIF remained a corporation sole on paper (with all corporate powers theoretically
lodged in the hands of one member, the General Superintendent), it had always acted
like a corporation aggregate.

1973 General Conference, the general membership voted to put things right by changing
IEMELIFs organizational structure from a corporation sole to a corporation
aggregate. On May 7, 1973 the Securities and Exchange Commission (SEC) approved
the vote. For some reasons, however, the corporate papers of the IEMELIF remained
unaltered as a corporation sole.

Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the
IEMELIF, the SEC replied on April 3, 2001 that, although the SEC Commissioner did not
in 1948 object to the conversion of the IEMELIF into a corporation aggregate, that
conversion was not properly carried out and documented. The SEC said that the
IEMELIF needed to amend its articles of incorporation for that purpose.[1]

Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation

aggregate.
ISSUE:
WON corporation sole may be converted into a corporation aggregate by mere amendment
of its articles of incorporation.
HELD:
Corporation Code does not have any provision that allows a corporation sole to convert
into a corporation aggregate by mere amendment of its articles of incorporation, the conversion
can take place only by first dissolving IEMELIF, the corporation sole, and afterwards by creating
a new corporation in its place.
Religious corporations are governed by Sections 109 through 116 of the Corporation
Code. In a 2009 case involving IEMELIF, the Court distinguished a corporation sole from a
corporation aggregate.[9] Citing Section 110 of the Corporation Code, the Court said that a
corporation sole is one formed by the chief archbishop, bishop, priest, minister, rabbi or other

presiding elder of a religious denomination, sect, or church, for the purpose of administering or
managing, as trustee, the affairs, properties and temporalities of such religious denomination,
sect or church. A corporation aggregate formed for the same purpose, on the other
hand, consists of two or more persons.
True, the Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole.But, as the RTC correctly held, Section 109 of the
Corporation Code allows the application to religious corporations of the general provisions
governing non-stock corporations.
For non-stock corporations, the power to amend its articles of incorporation lies in its
members. The code requires two-thirds of their votes for the approval of such an
amendment. So how will this requirement apply to a corporation sole that has technically but
one member (the head of the religious organization) who holds in his hands its broad corporate
powers over the properties, rights, and interests of his religious organization?
Although a non-stock corporation has a personality that is distinct from those of its
members who established it, its articles of incorporation cannot be amended solely through the
action of its board of trustees. The amendment needs the concurrence of at least two-thirds of
its membership. If such approval mechanism is made to operate in a corporation sole, its one
member in whom all the powers of the corporation technically belongs, needs to get the
concurrence of two-thirds of its membership. The one member, here the General
Superintendent, is but a trustee, according to Section 110 of the Corporation Code, of its
membership.
There is no point to dissolving the corporation sole of one member to enable the
corporation aggregate to emerge from it.Whether it is a non-stock corporation or a corporation
sole, the corporate being remains distinct from its members, whatever be their number. The
increase in the number of its corporate membership does not change the complexion of its
corporate responsibility to third parties. The one member, with the concurrence of two-thirds of
the membership of the organization for whom he acts as trustee, can self-will the
amendment. He can, with membership concurrence, increase the technical number of the
members of the corporation from sole or one to the greater number authorized by its amended
articles.

15. MSCI vs. NWPC

The issue posed is whether or not respondent MSCI can qualify as a distressed

employer from February 15, 1990 to August 31, 1990 as well as during the
interim period from September 1, 1990 to November 30, 1990 and thus be
entitled to exemption from compliance with Wage Order No. RO VI-01. To resolve
this issue, however, a pivotal determination must first be made: What is the
correct paid-up capital of MSCI for the pertinent period covered by the application
for exemption P5 million or P64,688,528.00?
RULING:
NWPC Guidelines No. 01, Series of 1992 as well as the new NWPC Guidelines No. 01,
Series of 1996, define Capital as referring to paid-up capital at the end of the last full accounting
period, in the case of corporations or total invested capital at the beginning of the period under
review, in the case of partnerships and single proprietorships. To have a clear understanding of
what paid-up capital is, however, a referral to Sections 12 and 13 of BP Blg. 68 or the
Corporation Code would be very helpful, viz:
"Sec. 12. Minimum capital stock required of stock corporations. Stock corporations incorporated
under this Code shall not be required to have any minimum authorized capital stock except as
otherwise specifically provided for by special law, and subject to the provisions of the following
section."
"Sec. 13. Amount of capital stock to be subscribed and paid for purposes of incorporation. At
least twenty-five (25%) percent of the authorized capital stock as stated in the articles of
incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%)
percent of the total subscription must be paid upon subscription, the balance to be payable on a
date or dates fixed in the contract of subscription without need of call, or in the absence of a
fixed date or dates, upon call for payment by the board of directors: Provided, however, That in
no case shall the paid-up capital be less than five thousand (P5,000.00) pesos. (n)"
By express provision of Section 13, paid-up capital is that portion of the authorized capital
stock which has been both subscribed and paid.
the Commission aptly observed that the loans and advances of MTII to respondent MSCI
cannot be treated as investments, unless the corresponding shares of stocks are issued. But as
it turned out, such loans and advances were in fact treated as liabilities of MSCI to MTII as
shown in its 1990 audited financial statements. [7] The treatment by the Board of these loans as
part of MSCI's capital stock without satisfying certain mandatory requirements is proscribed
under Section 38 of the Corporation Code which provides:

"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
stockholders' 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 stockholders' 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 stockholders 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."
The above requirements, which are condition precedents before the capital stock of a
corporation may be increased, were unquestionably not observed in this case.

16. FOREST HILLS GOLF AND COUNTRY CLUB vs. VERDEX SALES
RULING:
Section 63 of the Corporation Code provides:
SEC. 63. Certificate of stock and transfer of shares. The capital stock of stock corporations
shall be divided into shares for which certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other person legally authorized to make the
transfer.1wphi1 No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number
of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation.
In this case, Vertex fully paid the purchase price by February 11, 1999 but the stock certificate
was only delivered on January 23, 2002 after Vertex filed an action for rescission against
FEGDI.
Under these facts, considered in relation to the governing law, FEGDI clearly failed to deliver the
stock certificates, representing the shares of stock purchased by Vertex, within a reasonable

time from the point the shares should have been delivered. This was a substantial breach of
their contract that entitles Vertex the right to rescind the sale under Article 1191 of the Civil
Code. It is not entirely correct to say that a sale had already been consummated as Vertex
already enjoyed the rights a shareholder can exercise. The enjoyment of these rights cannot
suffice where the law, by its express terms, requires a specific form to transfer ownership