Cagayan Fishing Development Co. Inc. VS Sandiko GR.No.

L43350, December 23, 1937

-DIGEST- Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko (G.R. No. L-43350, December 23, 1937)
Facts:
1. Ownership and Mortgages:
o Manuel Tabora owned four parcels of land in Aparri, Cagayan, evidenced by Transfer Certificate of Title No.
217.
o To secure loans, Tabora executed three mortgages:
 A first mortgage in favor of the Philippine National Bank (PNB) for PHP 8,000 on August 14, 1929.
 A second mortgage also in favor of PNB for PHP 7,000 in April 1930.
 A third mortgage in favor of Severina Buzon for PHP 2,900 on April 16, 1930.
o These mortgages were registered, and annotations were made on the title.
2. Transfer to Cagayan Fishing Development Co., Inc.:
o On May 31, 1930, Tabora executed a document titled "Escritura de Transpaso de Propiedad Inmueble"
(Exhibit A), transferring the four parcels to Cagayan Fishing Development Co., Inc., which was under
incorporation at the time, for PHP 1.
o The transfer was subject to existing mortgages and a condition that the title would not be transferred to the
company until Tabora's debt to PNB was paid.
3. Incorporation of Plaintiff Company:
o The company, Cagayan Fishing Development Co., Inc., was officially incorporated on October 22, 1930,
nearly five months after the transfer was executed.
4. Subsequent Sale to Defendant:
o On October 28, 1931, the company’s board authorized its president, Jose Ventura, to sell the land to
Teodoro Sandiko for PHP 42,000.
o Three documents were executed on February 15, 1932:
 Exhibit B: Deed of sale transferring the company’s rights to Sandiko, who assumed the mortgages.
 Exhibit C: Promissory note for PHP 25,300 payable after one year.
 Exhibit D: Mortgage deed securing the promissory note with the four parcels of land.
5. Failure to Pay:
o Sandiko failed to pay the promissory note, prompting the plaintiff to file a suit for PHP 25,300 plus interest in
the Court of First Instance of Manila on January 25, 1934.
6. Lower Court Decision:
o The court dismissed the complaint, holding Exhibit B invalid due to a vice in consent and illegality.

Issue:
  Whether the plaintiff corporation, Cagayan Fishing Development Co., Inc., had a valid right to sell the four parcels
of land to the defendant, Teodoro Sandiko, given that the transfer from Manuel Tabora to the plaintiff was made
before the company's incorporation.

Ruling:
 The Supreme Court affirmed the lower court’s decision to dismiss the complaint against Sandiko.
Reasoning:
1. Non-Existence of the Corporation at the Time of Transfer:
o The transfer of the four parcels of land by Tabora to the plaintiff was executed on May 31, 1930 (Exhibit A),
while the plaintiff was incorporated on October 22, 1930.
o At the time of the transfer, the plaintiff was not yet a legal entity; hence, it lacked the juridical capacity to
enter into any contract.
2. Legal Principles on Corporations:
o Corporations are creations of law and can only enter into contracts or conduct business after they have been
lawfully organized according to statutory requirements.
o Before lawful organization, a corporation does not have legal existence and cannot be considered an entity
capable of owning property or entering into contracts.
3. Contractual Implications:
o The court found that Exhibit A (the contract of sale) was not between Tabora and a valid corporation but
rather between Tabora and a group of promoters for a projected corporation that did not yet exist.
o Because the corporation did not legally exist at the time of the sale, it could not acquire any rights over the
property.
4. Lack of Resultant Right to Dispose of Property:
o Since the plaintiff corporation never validly acquired the parcels of land, it did not possess the right to sell
them to Sandiko.
5. Condition Precedent:
o The transfer to the plaintiff was subject to the condition that the mortgage debt to PNB be paid. This
condition was not met, rendering the transfer ineffective under the doctrine of condition precedent.
Conclusion:
 The Supreme Court affirmed the lower court’s judgment dismissing the complaint against Sandiko. The plaintiff
corporation had no legal capacity to acquire or dispose of the property in question due to its non-existence at the
time of the initial transfer and failure to fulfill conditions precedent. The corporation's acts were invalid, and
Sandiko could not be held liable for the promissory note.
Hall VS Picco, G.R.no. L-2598, June 29, 1950
-DIGEST- C. Arnold Hall and Bradley P. Hall vs. Edmundo S. Piccio, et al. (G.R. No. L-2598, June 29, 1950)
Facts:
1. Incorporation and Business Activities:
o On May 28, 1947, C. Arnold Hall, Bradley P. Hall, Fred Brown, Emma Brown, Hipolita D. Chapman, and
Ceferino S. Abella signed and acknowledged the articles of incorporation for the Far Eastern Lumber and
Commercial Co., Inc., in Leyte. The company was organized to engage in a general lumber business.
o An affidavit by the treasurer was attached, stating that 23,428 shares of stock had been subscribed and fully
paid through the transfer of certain properties to the corporation.
o Immediately after executing the articles of incorporation, the company began its business operations,
adopted by-laws, and elected officers.
o The articles of incorporation were submitted to the Securities and Exchange Commissioner on December 2,
1947, for the issuance of a certificate of incorporation.
2. Filing of the Lawsuit:
o On March 22, 1948, while awaiting the issuance of the certificate of incorporation, Fred Brown, Emma
Brown, Hipolita D. Chapman, and Ceferino S. Abella filed Civil Case No. 381 before the Court of First Instance
of Leyte. They alleged that the company was an unregistered partnership, and they sought its dissolution
due to internal dissension, mismanagement, fraud, and financial losses.
3. Response from Defendants:
o Defendants C. Arnold Hall and Bradley P. Hall filed a motion to dismiss, arguing that the court lacked
jurisdiction and that the complaint was insufficient to state a cause of action.
o After hearing the arguments, Judge Edmundo S. Piccio ordered the dissolution of the company and
appointed a receiver for its properties upon the plaintiffs' request, subject to a PHP 20,000 bond.
4. Subsequent Actions:
o The defendants (petitioners) offered to post a counter-bond to discharge the receiver, but the respondent
judge refused to accept this offer and maintained the appointment of the receiver.
o Consequently, the petitioners filed a special civil action before the Supreme Court to set aside all
proceedings in Civil Case No. 381 and to enjoin the respondent judge from further acting on the case.
Issues:
o Whether the Court of First Instance of Leyte had jurisdiction to decree the dissolution of the company, Far
Eastern Lumber and Commercial Co., Inc., on the basis that it was a de facto corporation, whose dissolution
could only be ordered through a quo warranto proceeding in accordance with Section 19 of the Corporation
Law.
o Whether the company was a corporation de facto or an unregistered partnership and whether the actions
taken by the stockholders were sufficient to claim corporate status.
Ruling:
 The Supreme Court dismissed the petition to set aside the proceedings of the Court of First Instance of Leyte.
Reasoning:
 1. Lack of Corporate Status:
o The Court noted that the Far Eastern Lumber and Commercial Co., Inc. had not obtained a certificate of
incorporation from the Securities and Exchange Commission. Under Section 11 of the Corporation Law, a
corporation's legal existence begins only upon the issuance of such a certificate. Since the certificate was not
issued, the corporation did not legally exist.
2. Application of Section 19 of the Corporation Law:
o Section 19 of the Corporation Law protects the corporate status from collateral attacks in private suits only if
the entity claims, in good faith, to be a corporation under the law. The Court concluded that this protection
did not apply because the Far Eastern Lumber and Commercial Co., Inc. did not exist as a legal entity due to
the lack of a certificate of incorporation.
o Additionally, this was not a suit where the corporation itself was a party. Instead, it was a dispute among
stockholders seeking the dissolution of the entity. Even a de jure corporation could be dissolved in a private
suit among stockholders.
3. No Estoppel Against Respondents:
o The Court held that there was no estoppel because all parties were aware that the certificate of
incorporation had not been issued and thus could not claim they were misled into believing the corporation
existed.
4. Appointment of Receiver and Counter-Bond:
o The appointment of a receiver was appropriate in a suit for the dissolution of the company. The Court did
not find any abuse of discretion by the lower court in rejecting the counter-bond and appointing a receiver.
5. Remedy through Appeal:
o The Supreme Court indicated that the petitioners had an available remedy through an appeal of the order of
dissolution if they wished to challenge the decision of the lower court.
Conclusion:

 The Supreme Court dismissed the petition for lack of merit, affirming that the Court of First Instance of Leyte acted within its
jurisdiction to dissolve the company and appoint a receiver. The preliminary injunction issued by the Supreme Court was also
dissolved.
The Missionary Sisters of Our Lady of Fatima VS Alzona, GR.No. 224307, AUGUST 6,2018

Facts

1. Parties Involved:

o Petitioner: The Missionary Sisters of Our Lady of Fatima, also known as the Peach Sisters of Laguna, a religious and
charitable group established under the patronage of the Roman Catholic Bishop of San Pablo.

o Respondents: The legal heirs of the late Purificacion Y. Alzona, who owned several parcels of land in Calamba City,
Laguna.

2. Purificacion's Involvement with the Petitioner:

o Purificacion, a spinster and property owner, desired to devote her life to charitable causes. In 1996, she became a
benefactor of the petitioner by supporting their community and charitable works.

o In 1997, Purificacion was diagnosed with lung cancer and requested the petitioner's Superior General, Mother Ma.
Concepcion R. Realon, to take care of her.

3. Donation to the Petitioner:

o In October 1999, Purificacion expressed her intent to donate her properties in Calamba, Laguna, to the petitioner
through a handwritten letter.

o On August 29, 2001, Purificacion executed a formal Deed of Donation Inter Vivos, conveying her properties to the
petitioner. The Deed was notarized and witnessed by her relatives.

4. Registration Issues and Subsequent Death:

o After the donation, the petitioner applied for a donor's tax exemption and attempted to register the Deed with the
Register of Deeds. The registration was denied due to an Affidavit of Adverse Claim filed by Purificacion's brother,
Amando Y. Alzona.

o Purificacion passed away on October 30, 2001, leaving her brother Amando as her sole heir. Amando, who later died
during the pendency of the case, was substituted by his legal heirs, the respondents.

5. Legal Proceedings:

o Amando filed a complaint to annul the Deed of Donation, claiming the petitioner lacked the juridical personality to
accept the donation as it was not registered with the SEC at the time of the donation.

o The RTC dismissed the complaint, ruling in favor of the petitioner. The RTC held that the petitioner had the capacity to
accept the donation as a de facto corporation.

o The respondents appealed to the CA, which set aside the RTC decision and declared the Deed of Donation void,
concluding that the petitioner, not being a registered corporation at the time, lacked the capacity to accept the
donation.

o The petitioner sought reconsideration, which the CA denied, prompting the petitioner to elevate the case to the
Supreme Court.

Issue

 Whether the Deed of Donation executed by Purificacion in favor of the petitioner is valid and binding, considering the
petitioner's legal capacity to accept the donation and the authority of Mother Concepcion to act on behalf of the petitioner in
accepting the donation.
Ruling

 The Supreme Court ruled in favor of the petitioner, finding the petition meritorious.

1. Legal Capacity to Accept Donation:

o The Court held that the petitioner, although not a de facto corporation at the time of the donation, could be
considered a corporation by estoppel. Purificacion dealt with the petitioner as if it were a corporation, evidenced by
her execution of documents conveying her properties to the petitioner. Thus, the petitioner is vested with the
personality to accept the donation.

2. Authority of Mother Concepcion:

o The Court affirmed that Mother Concepcion had the authority to accept the donation on behalf of the petitioner. The
petitioner's subsequent incorporation and ratification of Mother Concepcion's actions validated the acceptance of the
donation.

3. Application of Doctrine of Corporation by Estoppel:

o The Court applied the doctrine of corporation by estoppel, which prevents a person who has dealt with a non-existent
corporation from denying its existence to avoid enforcement of a contract. Since Purificacion treated the petitioner as
a corporate entity and executed the donation in favor of the petitioner, the doctrine applies, and the donation is valid.

4. Conclusion:

o The Supreme Court concluded that the Deed of Donation was valid and binding on the parties involved, including the
respondents as heirs of Purificacion. The Court reversed the CA's decision and reinstated the RTC ruling, thereby
upholding the validity of the Deed of Donation.
SEC Memorandum Circular No. 16 Series 2002

Guidelines on the Nomination and Election of Independent Directors

This circular provides guidelines for companies in the nomination and election of independent directors, ensuring
uniform procedures and compliance with corporate governance standards.

I. Coverage

This circular applies to public companies and those subject to secondary licenses from the Securities and Exchange
Commission (SEC). These include:

A. Issuers of registered securities to the public, regardless of listing status in the Philippine Stock Exchange (PSE).
B. Public companies with assets of at least PHP 50,000,000 and 200 or more shareholders, each holding at least 100
shares.
C. Finance companies.
D. Investment houses.
E. Brokers and dealers of securities.
F. Investment companies.
G. Pre-need companies.
H. Subsidiaries or branches of foreign corporations operating in the Philippines and listed in the PSE.
I. Stock and other securities exchanges.

II. Definition

A. Independent Director: A person who, apart from their fees and shareholdings, is independent of management and free
from any business or other relationship that could interfere with their independent judgment as a director. This includes
individuals who:

i. Are not directors, officers, or substantial shareholders of the corporation, its related companies, or any substantial
shareholders, except as an independent director.
ii. Are not relatives of any director, officer, or substantial shareholder of the corporation or its related companies.
iii. Are not acting as nominees or representatives of a substantial shareholder of the corporation or its related
companies.
iv. Have not been employed in an executive capacity by the public company, its related companies, or substantial
shareholders within the last five years.
v. Are not retained as professional advisers by the public company, its related companies, or substantial
shareholders within the last five years.
vi. Have not engaged in any transaction with the corporation, its related companies, or substantial shareholders,
except transactions at arm's length and insignificant.

B. Related Company: Another company that is a holding company, subsidiary, or a subsidiary of a holding company.
Substantial Shareholder: A person who owns more than 10% of any class of equity security.

C. Qualifications for Independent Directors:

i. Must own at least one share of stock in the corporation.

ii. Must be a college graduate or have been engaged or exposed to the business of the corporation for at least five
years.
 iii. Must possess integrity and probity.
iv. Must be diligent and assiduous.

D. Disqualifications: An independent director shall be disqualified if:

i. They become an officer or employee of the corporation or any person enumerated under letter (A).
ii. Their beneficial ownership exceeds 10% of the outstanding capital stock of the company.
iii. They fail to attend at least 50% of the total number of Board meetings without justifiable cause.
iv. Any other disqualifications provided in the company's Manual on Corporate Governance.

III. Number of Independent Directors

A. All companies are encouraged to have independent directors. Issuers of registered securities and public
companies must have at least two independent directors or at least 20% of the board size, whichever is lesser.
Companies may opt to have more than the minimum requirement.

B. Stock exchanges are required to have at least three independent directors and an independent director-
President.

IV. Nomination and Election of Independent Directors

A. The Nomination Committee must have at least three members, including one independent director, to oversee
the nomination process and disclose guidelines in the company's information statement or proxy statement.

B. Nomination of independent directors shall occur before a stockholders' meeting, with recommendations signed
by nominating stockholders and accepted by the nominees.

C. The Nomination Committee will pre-screen qualifications and prepare a final list of candidates.

D. Only candidates on the final list may be elected as independent directors. No nominations will be accepted
during the stockholders' meeting.

E. The election must comply with the standard procedures of the company, and the Chairman of the Meeting must
ensure independent directors are elected.

F. If independent directors are not elected, a separate election will be called.

G. Companies must amend their by-laws to align with these requirements.

V. Termination/Cessation of Independent Directorship

In the event of resignation, disqualification, or cessation, and upon notifying the SEC within five days, the vacancy
shall be filled by a majority vote of the remaining directors if a quorum is present. If not, stockholders will fill the
vacancy in a regular or special meeting.

VI. Effectivity

This Memorandum Circular takes effect 15 days after its publication in a newspaper of general circulation, effective
from November 28, 2002.
 Valle Verde Country Club Inc. et.al. VS Africa, GR.No. 151969, September 4, 2009

Facts:

 The members of the Board of Directors of Valle Verde Country Club, Inc. (VVCC) were elected during the annual
stockholders' meeting on February 27, 1996. Due to a lack of quorum in the succeeding years (1997 to 2001), the
directors continued to serve in a hold-over capacity.
 On September 1, 1998, one of the directors, Jaime C. Dinglasan, resigned. The remaining board members elected
Eric Roxas to fill the vacancy. Similarly, after Eduardo Makalintal's resignation on November 10, 1998, the board
elected Jose Ramirez on March 6, 2001.
 Victor Africa, a VVCC member, contested these elections, arguing that the election of Roxas and Ramirez violated
Sections 23 and 29 of the Corporation Code. He claimed that once a director's one-year term expired, any vacancies
should be filled by the stockholders and not by the remaining directors.

Issue:

 Can the remaining members of a corporation's board of directors elect another director to fill a vacancy caused by
the resignation of a hold-over director?

Ruling: -- NO

 The Supreme Court ruled that the remaining directors of the VVCC Board could not elect another director to fill the
vacancy caused by the resignation of a hold-over director. The Court explained that once a director's one-year term
has expired, the vacancy should be filled by the corporation's stockholders in a regular or special meeting called for
that purpose. The Court emphasized that the term of office of a director is for one year, and any period beyond that
is considered a holdover period, not part of the original term. Since Makalintal's term had expired and he was only
holding over, the vacancy caused by his resignation should have been filled by the stockholders.
SEC-OGC Opinion No. 14-10, June 2, 2014 addresses the issue of filling vacancies in the board of directors of a corporation,
particularly in the context of the term of office of directors and the holdover period.

Key Points:
1. Term of Office of Directors:
o The term of office of directors is generally one year, as stated in the Corporation Code, unless the
corporation's articles of incorporation or by-laws provide otherwise.
o Directors hold office for one year and until their successors are elected and qualified. If a new election is not
held due to lack of quorum or any other reason, the current directors will continue to hold office in a
holdover capacity.
2. Holdover Period:
o The holdover period is the period after the expiration of a director's term but before the election and
qualification of their successor.
o During the holdover period, the directors continue to function with full authority, as there is no vacancy per
se in their positions despite the expiration of their official term.
3. Filling of Vacancies:
o Vacancies in the board of directors may arise due to resignation, death, removal, or any other reason that
prevents a director from continuing their term.
o If a vacancy arises not due to the expiration of the director's term but for other reasons (such as resignation
or death), and the remaining directors still constitute a quorum, the remaining directors may elect a
replacement to serve for the unexpired term of the vacating director.
4. Restriction on Filling Vacancies for Expired Terms:
o If the vacancy occurs due to the expiration of a director's term and not due to other reasons (such as
resignation or death), the vacancy must be filled by the stockholders in a regular or special meeting called
for that purpose.
o The directors do not have the authority to fill a vacancy resulting from the expiration of a director's term;
this power is reserved to the stockholders to ensure their right to elect their representatives.
5. Authority of Remaining Directors:
o The opinion clarifies that the authority of the remaining directors to fill a vacancy is contingent on the
existence of an unexpired term. If the term has already expired, there is no unexpired term to fill, and
therefore, the stockholders must elect a replacement.
o The legal framework ensures that corporate governance remains in the hands of the stockholders and
prevents directors from unduly perpetuating themselves in office.

Conclusion:

The SEC-OGC Opinion No. 14-10 emphasizes the distinction between filling a vacancy caused by reasons other than the
expiration of a term and those caused by the expiration of a term. For vacancies caused by reasons other than the
expiration of a term, remaining directors may fill the vacancy if they still constitute a quorum. However, for vacancies due
to the expiration of a term, the power to elect a replacement rests solely with the stockholders.

SEC Memorandum Circular No. 4, Series of 2002 outlines the paid-up capital requirements for existing and new pre-need
companies in the Philippines. This circular is in accordance with the Securities Regulation Code, specifically addressing the
minimum capital that pre-need companies must maintain to continue their operations and sell pre-need plans.

Key Points:
1. Paid-Up Capital Requirements for Existing Pre-Need Companies:

o Companies with Traditional Education Plans: Must have a minimum paid-up capital of PHP 100,000,000.
o Companies with Three Types of Pre-Need Plans: Must have a minimum paid-up capital of PHP 100,000,000.
o Companies with Two Types of Pre-Need Plans: Must have a minimum paid-up capital of PHP 75,000,000.
o Companies with One Type of Pre-Need Plan: Must have a minimum paid-up capital of PHP 50,000,000.

2. Guidelines for Companies with Insufficient Paid-Up Capital:

o Pre-need companies currently authorized to sell two or three types of pre-need plans but with a paid-up
capital of PHP 50 million but less than PHP 75 million are restricted to selling only one type of plan.
o Affected companies must indicate their chosen plan type no later than May 7, 2002.
o These companies have the option to increase their paid-up capital to meet the required levels for multiple
plan types.
o Companies selling traditional plans that do not meet the PHP 100 million requirement can also infuse
additional capital to continue offering these plans.

3. Compliance for Companies with Paid-Up Capital Below PHP 50 Million:

o Pre-need companies with a paid-up capital below PHP 50 million must raise their capital to at least PHP 50
million by May 30, 2002 to sell one type of plan.
o Failure to meet the capital deficiency within this non-extendible period will result in the suspension of their
permit to sell.

4. Requirements for New Pre-Need Companies:

o The minimum paid-up capital for new pre-need companies remains at PHP 100 million, irrespective of the
type of plans they intend to offer.

5. Compliance Date:

o All companies are expected to comply strictly with these requirements as stipulated in the circular dated
April 30, 2002.
This circular sets the financial groundwork to ensure that pre-need companies are adequately capitalized to fulfill their
contractual obligations to planholders and maintain financial stability within the industry.

Section 29 of RA 11232: Revised Corporation Code of the Philippines outlines the rules regarding the compensation of
directors or trustees of a corporation. Here are the key points:

1. Compensation in the Absence of Bylaws:

o If the corporation's bylaws do not specify the compensation for directors or trustees, they shall not receive
any compensation in their capacity as directors or trustees, except for reasonable per diems (allowances for
attending meetings).
2. Approval of Compensation by Stockholders or Members:
o Stockholders representing at least a majority of the outstanding capital stock or a majority of the members
can grant compensation to directors or trustees and approve the amount at a regular or special meeting.
3. Limitation on Yearly Compensation:
o The total yearly compensation of directors shall not exceed 10% of the net income before income tax of
the corporation from the preceding year.
4. Restriction on Participation in Compensation Decisions:
o Directors or trustees are not allowed to participate in determining their own per diems or compensation.
This rule ensures fairness and prevents conflicts of interest in compensation decisions.
5. Reporting Requirements for Corporations Vested with Public Interest:
o Corporations with public interest must submit an annual report to their shareholders and the Securities and
Exchange Commission (SEC) detailing the total compensation of each director or trustee. This promotes
transparency and accountability in the compensation practices of such corporations.

Overall, Section 29 of the Revised Corporation Code emphasizes transparency, fairness, and shareholder control over the
compensation of corporate directors or trustees, with specific limits and requirements to prevent conflicts of interest and
ensure responsible corporate governance.