G.R. No.

L-37331 March 18, 1933

FRED M. HARDEN vs. BENGUET CONSOLIDATED MINING COMPANY,
BALATOC MINING COMPANY, H. E. RENZ, JOHN W. JAUSSERMANN, and
A. W. BEAM

Facts:
The Benguet Consolidated Mining Co. was organized in June, 1903, as
a sociedad anonima in conformity with the provisions of Spanish law; while the
Balatoc Mining Co. was organized in December 1925, as a corporation, in
conformity with the provisions of the Corporation Law (Act No. 1459). Both
entities were organized for the purpose of engaging in the mining of gold in the
Philippine Islands, and their respective properties are located only a few miles
apart in the sub province of Benguet. The capital stock of the Balatoc Mining Co.
consists of one million shares of the par value of one peso (P1) each.
When the Balatoc Mining Co. was first organized the properties acquired
by it were largely undeveloped; and the original stockholders were unable to
supply the means needed for profitable operation. For this reason, then president
and general manager of the Benguet Company secured the capital necessary to
the development of the Balatoc property. But as soon as the success of the
development had become apparent, the plaintiffs began this litigation in which
he has been joined by two others of the eighty shareholders of the Balatoc
Company claiming the action is planted is that it is unlawful for the Benguet
Company to hold any interest in a mining corporation

Issues:
Whether the plaintiffs can maintain an action based upon the violation of
law supposedly committed by the Benguet Company
Whether the Benguet Company, which was organized as a sociedad
anonima, is a corporation within the meaning of the language used by the
Congress of the United States, and later by the Philippine
Legislature, prohibiting a mining corporation from becoming interested in
another mining corporation

Ruling:
SEC. 190 (A). Penalties. The violation of any of the provisions of this Act
and its amendments not otherwise penalized therein, shall be punished by
a fine of not more than five thousand pesos and by imprisonment for not
more than five years, in the discretion of the court. If the violation is
committed by a corporation, the same shall, upon such violation being
proved, be dissolved by quo warranto proceedings instituted by the
Attorney-General or by any provincial fiscal by order of said Attorney-
General: . . . .

1) Upon the first point it is at once obvious that the provision referred to was
adopted by the lawmakers with a sole view to the public policy that should
control in the granting of mining rights. Furthermore, the penalties imposed in
what is now section 190 (A) of the Corporation Law for the violation of the
prohibition in question are of such nature that they can be enforced only by a
criminal prosecution or by an action of quo warranto. But these proceedings can
be maintained only by the Attorney-General in representation of the Government.
The defendant Benguet Company has committed no civil wrong against the
plaintiffs, and if a public wrong has been committed, the directors of the Balatoc
Company, and the plaintiff Harden himself, were the active inducers of the
commission of that wrong.
2) Having shown that the plaintiffs in this case have no right of action against the
Benguet Company for the infraction of law supposed to have been committed, we
forego cny discussion of the further question whether a sociedad
anonima created under Spanish law, such as the Benguet Company, is a
corporation within the meaning of the prohibitory provision already so many
times mentioned. That important question should, in our opinion, be left until it
is raised in an action brought by the Government.
 PHILIPPINE STOCK EXCHANGE, INC., vs. COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL
LAND, INC.

G.R. No. 125469 October 27, 1997

TORRES, JR., J.:

FACTS:

Puerto Azul Land, Inc. (PALI), a domestic real estate corporation,

sought to offer its shares to the public in order to raise funds allegedly
to develop its properties and pay its loans with several banking
institutions. In January, 1995, PALI was issued a Permit to Sell its
shares by the SEC. To facilitate the trading of its shares among
investors, PALI sought to course the trading of its shares through the
Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the
said stock exchange an application to list its shares, with supporting
documents attached.

The Listing Committee of the PSE recommended to the PSE's

Board of Governors the approval of PALI's listing application.

Before it could act upon PALI's application, the Board of Governors

of the PSE received a letter from the heirs of Ferdinand E. Marcos,
claiming that the late President Marcos was the legal and beneficial
owner of certain properties forming part of the Puerto Azul Beach Hotel
and Resort Complex which PALI claims to be among its assets and that
the Ternate Development Corporation, which is among the stockholders
of PALI, likewise appears to have been held and continue to be held in
trust by Rebecco Panlilio for President Marcos and now, effectively for
his estate, and requested PALI's application to be deferred. PALI was
requested to comment upon the said letter.

PALI's answer stated that the properties forming part of the Puerto
Azul Beach Hotel and Resort Complex were not claimed by PALI as its
assets. On the contrary, the resort is actually owned by Fantasia
Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct
from PALI. Furthermore, the Ternate Development Corporation owns
only 1.20% of PALI. The Marcoses responded that their claim is not
confined to the facilities forming part of the Puerto Azul Hotel and
Resort Complex, thereby implying that they are also asserting legal and
beneficial ownership of other properties titled under the name of PALI.

The PSE wrote Chairman Magtanggol Gunigundo of the

Presidential Commission on Good Government (PCGG) requesting for
comments on the letters of the PALI and the Marcoses. The PSE was
informed that the Marcoses received a TRO, enjoining the Marcoses
from "further impeding, obstructing, delaying or interfering in any
manner by or any means with the consideration, processing and
approval by the PSE of the initial public offering of PALI."

In its regular meeting, the Board of Governors of the PSE rejected

PALI's application, citing the existence of serious claims, issues and
circumstances surrounding PALI's ownership over its assets that
adversely affect the suitability of listing PALI's shares in the stock
exchange.

PALI wrote a letter to the SEC bringing to the SEC's attention the
action taken by the PSE and requesting that the SEC, in the exercise of
its supervisory and regulatory powers over stock exchanges under
Section 6(j) of P.D. No. 902-A, review the PSE's action on PALI's listing
application and institute such measures as are just and proper under
the circumstances.

The SEC wrote to the PSE directing PSE to file its comments within
five days and for its authorized representative to appear for an "inquiry"
on the matter.

On April 24, 1996, SEC rendered its Order, reversing PSE's

decision.

PSE filed a motion for reconsideration but was denied by the

Commission. Dissatisfied with this ruling, the PSE filed with the Court
of Appeals a Petition for Review (with Application for Writ of Preliminary
Injunction and Temporary Restraining Order).

The Court of Appeals dismissed PSE's Petition for Review.

ISSUE:

1. WON SEC erred in reversing the decision of PSE.

2. WON PSE acted erred disapproving the application of PALI for
listing of its shares.

HELD:

1. YES. SEC is the entity with the primary say as to whether or not
securities, including shares of stock of a corporation, may be
traded or not in the stock exchange. This is in line with the SEC's
mission to ensure proper compliance with the laws, such as the
Revised Securities Act and to regulate the sale and disposition of
 securities in the country

This is not to say, however, that the PSE's management

prerogatives are under the absolute control of the SEC. The PSE is,
after all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One of the
PSE's main concerns, as such, is still the generation of profit for its
stockholders. Moreover, the PSE has all the rights pertaining to
corporations, including the right to sue and be sued, to hold property
in its own name, to enter (or not to enter) into contracts with third
persons, and to perform all other legal acts within its allocated
express or implied powers.

Questions of policy and of management are left to the honest

decision of the officers and directors of a corporation, and the courts
are without authority to substitute their judgment for the 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.

Thus, notwithstanding the regulatory power of the SEC

over the PSE, and the resultant authority to reverse the PSE's
decision in matters of application for listing in the market,
the SEC may exercise such power only if the PSE's judgment
is attended by bad faith.

2. YES. The Court of Appeals erred in ruling that the SEC had
authority to order the PSE to list the shares of PALI in the stock
exchange. Under presidential decree No. 902-A, the powers of the
SEC over stock exchanges are more limited as compared to its
authority over ordinary corporations.
 The case records reveal that PALI did not comply with the listing
rules and disclosure requirements. In fact, PALI's documents supporting
its application contained misrepresentations and misleading statements,
and concealed material information. The matter of sequestration of
PALI's properties and the fact that the same form part of
military/naval/forest reservations were not reflected in PALI's
application.

The purpose of the Revised Securities Act, after all, is to give adequate
and effective protection to the investing public against fraudulent
representations, or false promises, and the imposition of worthless
ventures.

In any case, for the purpose of determining whether PSE acted

correctly in refusing the application of PALI, the true ownership of
the properties of PALI need not be determined as an absolute fact.
What is material is that the uncertainty of the properties'
ownership and alienability exists, and this puts to question the
qualification of PALI's public offering.

G.R. No. 6217 December 26, 1911

CHARLES W. MEAD, plaintiff-appellant,
vs.
E. C. McCULLOUGH, ET AL., and THE PHILIPPINE ENGINEERING AND CONSTRUCTION
COMPANY,defendant-appellants

FACTS:

Plaintiff Mead, defendant McCullough, Hilbert, Green, and Hartigan instituted the corporation The
Philippine Engineering and Construction Company. It was engaged in the general engineering and
construction work, primarily in the construction of warehouses and wharf for the US and attempted to
rise the sunken Spanish Fleet.

The five of them are directors and stockholders of the company with general ordinary powers. Plaintiff
was appointed as a general manager, he held such position until he took another job as an engineer in
another company located in China. According to the court plaintiffs acceptance of such job effectively
abandoned and vacated his position as a director in the company because they were inconsistent with
each other, making him merely a stockholder.

After Mead left for China the contracts secured by Mead were taken over by McCullough. However
clients of the company refused to transact with the old company unless McCullough shall agree to form
a new association. The remaining four directors and stockholders (McCullough included) held a
meeting to determine the next course of action to be taken. As a result the company sold corporate
property to McCullough in an attempt to save the company form further incurring losses and he formed
another company which is now called the Manila Salvage Company. However the latter company
failed and McCullough incurred losses.

Plaintiff comes before the court questioning the propriety of the course of action undertaken by the
directors. Primarily he questioned the power of the stockholders to transfer corporate property to one of
the members of the corporation considering that his consent was not obtained to allow such transfer.

ISSUES:

1. Whether a majority of the stockholders, who were at the same time a majority of the directors of
this corporation, have the power under the law and its articles of agreement, to sell or transfer to
one of its members the assets of said corporation?

2. Whether an officer or a director may purchase corporate property

3. Whether McCullough purchased the property in good faith

RULING:

1. Yes. Under their statutes of incorporation , Article XI of which states: "In all the questions with
reference to the administration of the affairs of the sociedad, it shall be necessary to secure the
unanimous vote of the board of directors, and at least three of said board must be provides that
all of the stock, except that which was divided among the organizers should remain in the
treasury subject to the disposition of the board of directors.
Article XIII reads: "In all the meetings of the stockholders, a majority vote of the stockholders present
shall be necessary to determine any question discussed."

During the time of transfer there were only 4 directors and 5 stockholders, the decision to transfer the
property was unanimous, as it was consented by the remaining 4 directors of the company. Under the
articles of incorporation, the stockholders and directors had general ordinary powers. Administration
was in the hands of the directors. There is nothing in said articles which expressly prohibits the sale or
transfer of the corporate property to one of the stockholders of said corporation.

Article X of the articles of incorporation above referred to provides that the board of directors shall
elect the officers of the corporation and "have under its charge the administration of the said
corporation." Articles XI reads: "In all the questions with reference to the administration of the affairs
of the corporation, it shall be necessary to secure the unanimous vote of the board of directors, and at
least three of said board must be present in order to constitute a legal meeting." It will be noted that
article X statute a legal meeting." It will be noted that Article X placed the administration of the affairs
of the corporation in the hands of the board of directors. If Article XI had been omitted, it is clear that
under the rules which govern business of that character, and in view of the fact that before the plaintiff
left this country and abandoned his office as director, there were only five directors in the corporation,
then three would have been sufficient to constitute a quorum and could perform all the duties and
exercise all the powers conferred upon the board under this article. It would not have been necessary
to obtain the consent of all three of such members which constituted the quorum in order that a
solution affecting the administration of the corporation should be binding, as two votes a majority
of the quorum would have been sufficient for this purpose. (Buell vs. Buckingham & Co., 16 Iowa,
284; 2 Kent. Com., 293; Cahill vs. Kalamazoo Mutual Insurance Company, 2 Doug. (Mich.), 124;
Sargent vs. Webster, 13 Met., 497; In re Insurance Company, 22 Wend., 591; Ex parte Wilcox, 7 Cow.,
402; id., 527, note a.)

It might appear on first examination that the organizers of this corporation when they asserted the first
part of Article XI intended that no resolution affecting the administration of the affairs should be
binding upon the corporation unless the unanimous consent of the entire board was first obtained; but
the reading of the last part of this same article shows clearly that the said organizers had no such
intention, for they said: "At least three of said board must be present in order to constitute a legal
meeting." Now, if three constitute a legal meeting, three were sufficient to transact business, three
constituted the quorum, and, under the above-cited authorities, two of the three would be sufficient to
pass binding resolutions relating to the administration of the corporation.

If the clause "have under in charge and administer the affairs of the corporation" refers to the ordinary
business transactions of the corporation and does not include the power to sell the corporate property
and to dissolve the corporation when it becomes insolvent a change we admit organic and
fundamental then the majority of the stockholders in whom the ultimate and controlling power lies
must surely have the power to do so.

McCullough as the president need not participate in the voting only in instances to break a tied
decision. In this case the corporation was sufficiently represented by a quorum of three who were the
directors and at the same time stockholders of the corporation. We therefore conclude that the sale or
transfer made by the quorum of the board of directors a majority of the stockholders is valid and
binding upon the majority-the plaintiff. This conclusion is not in violation of the articles of
incorporation of the Philippine Engineering and Construction Company

2. Yes. While a corporation remains solvent, we can see no reason why a director or officer, by the
authority of a majority of the stockholders or board of managers, may not deal with the
corporation, loan it money or buy property from it, in like manner as a stranger. So long as a
purely private corporation remains solvent, its directors are agents or trustees for the
stockholders. They owe no duties or obligations to others.

But the moment such a corporation becomes insolvent, its directors are trustees of all the creditors,
whether they are members of the corporation or not, and must manage its property and assets with strict
regard to their interest; and if they are themselves creditors while the insolvent corporation is under
their management, they will not be permitted to secure to themselves by purchasing the corporate
property or otherwise any personal advantage over the other creditors.

Nevertheless, a director or officer may in good faith and for an adequate consideration purchase from
a majority of the directors or stockholders the property even of an insolvent corporation, and a sale
thus made to him is valid and binding upon the minority.
The sale or transfer of the corporate property in the case at bar was made by three directors who were at
the same time a majority of stockholders. If a majority of the stockholders have a clear and a better
right to sell the corporate property than a majority of the directors, then it can be said that a majority of
the stockholders made this sale or transfer to the defendant McCullough.

3. Yes. The corporation had been going from bad to worse. The work of trying to raise the sunken
Spanish fleet had been for several months abandoned. The corporation under the management
of the plaintiff had entirely failed in this undertaking. It had broken its contract with the naval
authorities and the $10,000 Mexican currency deposited had been confiscated. It had no money.
It was considerably in debt. It was a losing concern and a financial failure. To continue its
operation meant more losses. Success was impossible. The corporation was civilly dead and had
passed into the limbo of utter insolvency. The majority of the stockholders or directors sold the
assets of this corporation, thereby relieving themselves and the plaintiff of all responsibility.
This was only the wise and sensible thing for them to do. They acted in perfectly good faith and
for the best interests of all the stockholders.

G.R. No. L-2880 December 4, 1906

FRANK S. BOURNS, plaintiff-appellee,
vs.
D. M. CARMAN, ET AL., defendants-appellants.

FACTS:
Lo-Chim-Lim had a certain lumber yard in Calle Lemery of the city of Manila, and that
he was the manager of the same, having ordered the plaintiff to do some work for him at his
sawmill in the city of Manila; and that Vicente Palanca was his partner, and had an interest in
the said business as well as in the profits and losses thereof . . .," and that Go-Tuaco received
part of the earnings of the lumber yard in the management of which he was interested.
Lo-Chim-Lim, Vicente Palanca, Go-Tuaco had a lumber yard in Calle Lemmery of the
city of Manila in the year 1904, and participated in the profits and losses of business and that
Lo-Chim-Lim was managing partner of the said lumber yard." In other words, coparticipants
with the said Lo-Chim-Lim in the business in question.
The plaintiff in this action seeks to recover the sum of $437.50, United Stated currency,
balance due on a contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. the
contract relating to the said work was entered into by the said Lo-Chim-Lim, acting as in his
own name with the plaintiff, and it appears that the said Lo-Chim-Lim personally agreed to
pay for the work himself. The plaintiff, however, has brought this action against Lo-Chim-Lim
and his codefendants jointly, alleging that, at the time the contract was made, they were
the joint proprietors and operators of the said lumber yard engaged in the purchase and sale
of lumber under the name and style of Lo-Chim-Lim. Apparently the plaintiff tries to show by
the words above italicized that the other defendants were the partners of Lo-Chim-Lim in the
said lumber-yard business.lawphil.net
The court below dismissed the action as to the defendants D. M. Carman and
Fulgencio Tan-Tongco on the ground that they were not the partners of Lo-Chim-Lim, and
rendered judgment against the other defendants for the amount claimed in the complaint with
the costs of proceedings. Vicente Palanca and Go-Tauco only excepted to the said judgment,
moved for a new trial, and have brought the case to this court by bill of exceptions.
ISSUE:
What is the real legal nature of the participation which the appellants had in Lo-Chim-
Lim's lumber yard, and consequently their liability toward the plaintiff, in connection with the
transaction which gave rise to the present suit?

RULING:
The alleged partnership between Lo-Chim-Lim and the appellants was formed by
verbal agreement only. At least there is no evidence tending to show that the said agreement
was reduced to writing, or that it was ever recorded in a public instrument.
The partnership is considered to be partnership of cuentas en participacion. The
partnership had no corporate name. The partnership was engaged in business under the
name and style of Lo-Chim-Lim only, which according to the evidence was the name of one of
the defendants. On the other hand, and this is very important, it does not appear that there
was any mutual agreement, between the parties, and if there were any, it has not been shown
what the agreement was. As far as the evidence shows it seems that the business was
conducted by Lo-Chim-Lim in his own name, although he gave to the appellants a share was
has been shown with certainty. The contracts made with the plaintiff were made by Lo-Chim-
Lim individually in his own name, and there is no evidence that the partnership over
contracted in any other form.
We see nothing, according to the evidence, but a simple business conducted by Lo-
Chim-Lim exclusively, in his own name, the names of other persons interested in the profits
and losses of the business nowhere appearing. A partnership constituted in such a manner,
the existence of which was only known to those who had an interest in the same, being no
mutual agreements between the partners and without a corporate name indicating to the
public in some way that there were other people besides the one who ostensibly managed
and conducted the business, is exactly the accidental partnership of cuentas en participacion
defined in article 239 of the Code of Commerce.
Those who contract with the person under whose name the business of such
partnership of cuentas en participacionis conducted, shall have only a right of action against
such person and not against the other persons interested, and the latter, on the other hand,
shall have no right of action against the third person who contracted with the manager unless
such manager formally transfers his right to them. (Art 242 of the code Of Commerce.) It
follows, therefore that the plaintiff has no right to demand from the appellants the payment of
the amount claimed in the complaint, as Lo-Chim-Lim was the only one who contracted with
him. the action of the plaintiff lacks, therefore, a legal foundation and should be accordingly
dismissed.