Professional Documents
Culture Documents
I.
DOCTRINE
OF
CENTRALIZED
MANAGEMENT:
Powers
of
Board
of
Directors
(Section
23)
Section
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
until
their
successors
are
elected
and
qualified.
Every
director
must
own
at
least
one
(1)
share
of
the
capital
stock
of
the
corporation
of
which
he
is
a
director,
which
share
shall
stand
in
his
name
on
the
books
of
the
corporation.
Any
director
who
ceases
to
be
the
owner
of
at
least
one
(1)
share
of
the
capital
stock
of
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
determine
policy
and
conduct
the
ordinary
business
of
the
corporation
within
the
scope
of
its
charter.
As
long
as
the
board
acts
honestly
and
the
contract
does
not
defraud
or
abuse
the
rights
of
the
minority,
the
courts
will
not
interfere
in
their
judgments
and
transactions.
The
minority
members
of
the
board
and
the
minority
A.
Rationale
for
Centralized
Management
Doctrine:
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
offices
and
given
a
monthly
salary.
They
also
increased
the
salaries
of
the
Chairman
and
other
officers.
Eliodoro
Cruz
(previous
board
director)
wrote
a
letter
to
the
Board
questioning
these
decisions,
saying
that
the
Board
was
not
authorized
to
do
so
by
the
companys
by-laws
as
required
by
Section
35
of
the
Corporation
Code.
Issue:
Whether
or
not
the
Board
of
Directors
had
the
power
to
create
the
assailed
positions
Held:
YES.
While
the
by-laws
do
not
expressly
provide
for
the
boards
authority
to
create
an
executive
committee,
the
Court
cannot
deem
that
the
positions
created
automatically
formed
an
executive
committee.
B.
Theories
on
Source
of
Board
Power
1. Theory
of
Original
Power
The
source
of
the
power
of
the
Board
comes
directly
from
the
law,
and
the
Board
is
originally
conduct
the
ordinary
business
of
the
corporation
within
the
scope
of
its
charter.
However,
the
authority
of
the
board
is
restricted
to
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
These
notions
are
in
accordance
with
the
mandate
of
Section
23
of
the
Corporation
Code.
b. Under
the
theory
of
original
power,
the
Board
is
vested
with
the
legal
or
naked
title
to
the
properties
and
business
enterprise
of
the
corporation,
being
viewed
as
a
medium
or
the
corpus,
with
the
stockholders
being
considered
as
the
beneficiaries,
and
thereby
a
fiduciary
relationship
established
between
the
Board
as
the
trustee,
and
the
stockholders
as
the
beneficiaries.
c. Atty.
Hofilea
the
Board
of
Directors
vis--vis
the
stockholders
have
a
fiduciary/trust
relationship.
2. Theory
of
Delegated
Power
the
authority
exercised
by
the
Board
is
viewed
as
delegated
to
them
by
stockholders.
Under
such
theory,
the
source
of
primary
theory
can
override
the
decisions
of
its
delegates.
a. Such
theory
promotes
the
notion
of
agency
in
the
corporate
set-up,
where
the
real
sources
of
power
are
the
stockholders
or
members,
and
the
representatives
thereof
would
be
the
Board.
It
is
also
consistent
with
notions
in
Property
Law
that
as
a
general
rule,
the
Angeles
v.
Santos
Facts:
A
complaint
was
instituted
by
Angeles,
de
Lara,
Bernabe,
as
stockholders
and
member
of
the
minority
of
the
Board
of
Directors,
for
and
in
behalf
of
the
corporation,
Paraaque
Rice
Mill,
Inc.,
against
Santos,
Mayuga,
Pascual,
and
Rodriguez
who
constitute
the
majority
of
the
Board
of
Directors.
Generally,
the
allegations
consists
of
denial
of
Santos
as
president
of
the
Corporation
to
give
access
to
the
corporations
books
which
was
then
necessary
because
(1)
de
Lara
was
conducting
an
investigation,
(2)
such
books
should
have
been
in
the
hands
of
the
treasurer
(Bernabe)
and
not
the
president,
and
(3)
that
the
defendants
had
been
disposing
of
the
assets
of
the
corporation
without
authority
from
the
Board.
The
court
issued
an
ex
parte
order
of
receivership
appointing
Melchor
de
Lara
as
receiver
but
the
defendants
objected
claiming
that
the
Court
had
no
jurisdiction
over
the
Paraaque
Rice
Mill,
Inc.,
because
it
had
not
been
include
as
party
defendant
in
this
case
and
that,
therefore
the
court
could
not
properly
appoint
a
receiver
of
the
corporation
pendente
lite.
Issue:
Whether
or
not
the
trial
court
was
without
jurisdiction
to
appoint
a
receiver
and
should
have
dismissed
the
case
Held:
NO.
That
the
action
was
properly
instituted
by
the
plaintiff
as
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
receiver
of
the
corporation
pendente
lite.
Doctrine:
Where
a
majority
of
the
board
of
directors
wastes
or
dissipates
the
funds
of
the
corporation
or
fraudulently
disposes
of
its
properties,
or
performs
ultra
vires
acts,
the
court,
in
the
exercise
of
its
of
Atty.
Antonio
C.
Pacis,
who
argued
that
there
was
no
quorum.
In
the
meeting,
Petitioners
Ernesto
Tanchi,
Edwin
Ngo,
Virginia
Khoo,
and
Judith
Tan
were
voted
to
replace
the
four
deceased
member-trustees.
Issue:
Whether
or
not
the
meeting
was
null
and
void
for
lack
of
quorum
Held:
NO.
Under
Section
52
of
the
Corporation
Code,
the
majority
of
Tan
v.
Sycip
Facts:
Grace
Christian
High
School
(GCHS)
is
a
nonstock,
non-profit
educational
corporation
with
fifteen
(15)
regular
members,
who
also
the
members
representing
the
actual
number
of
voting
rights,
not
the
number
or
numerical
constant
that
may
originally
be
specified
in
the
articles
of
incorporation,
constitutes
the
quorum.
Under
the
By-Laws
of
GCHS,
membership
in
the
corporation
shall,
among
others,
be
terminated
by
the
death
of
the
member.
The
dead
members
who
are
dropped
from
the
membership
roster
in
the
manner
and
for
the
cause
provided
for
in
the
By-Laws
of
GCHS
are
not
to
be
counted
in
determining
the
requisite
vote
in
corporate
matters
or
the
requisite
quorum
for
the
annual
members
meeting.
With
11
remaining
members,
the
quorum
in
the
present
case
should
be
6.
Therefore,
there
being
a
quorum,
the
annual
members
meeting,
conducted
with
six
members
present,
was
valid
(as
to
other
resolutions).
HOWEVER,
the
election
of
the
four
trustees
cannot
be
legally
upheld
for
the
obvious
reason
that
it
was
held
in
an
annual
meeting
of
the
members
(where
a
majority
of
the
Board
were
present),
not
of
the
board
of
trustees.
We
cannot
ignore
the
GCHS
bylaw
provision,
which
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
specifically
prescribes
that
vacancies
in
the
board
must
be
filled
up
by
the
remaining
trustees
who
must
sit
as
a
board
in
order
to
validly
elect
the
new
ones.
Doctrine:
Membership
in
and
all
rights
arising
from
a
non-stock
The
directors
or
trustees
and
officers
to
be
elected
shall
perform
the
duties
enjoined
on
them
by
law
and
the
by-laws
of
the
corporation.
Unless
the
articles
of
incorporation
or
the
by-laws
provide
for
a
greater
majority,
a
majority
of
the
number
of
directors
or
trustees
as
Atty.
Hofilea
if
you
push
the
point
that
the
directors
are
the
agents
of
the
stockholders,
there
may
be
complications
because
in
agency,
the
principal
can
override
the
agent.
However,
in
the
case
of
corporations,
the
stockholders
(principal)
are
not
allowed
to
overrule
or
supplant
the
decisions
of
the
Board
of
Directors (agent).
also
be
the
treasurer.
This
was
laid
down
via
a
SEC
rule
and
not
found
in
the
Corporation
Code.
C.
Board
Must
Act
As
a
Body
(Section
25)
The
SEC
has
opined
that
directors
and
trustees
can
only
exercise
their
power
as
a
board,
not
individually.
They
shall
meet
and
counsel
each
other
and
any
determination
affecting
the
corporation
shall
be
arrived
at
only
after
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
consultation
at
a
meeting
of
the
board
attended
by
at
least
a
quorum.
SEC
Opinion,
10
March
1972,
SEC
FOLIO
1960-1976,
at
p.
526.
1
Villanueva,
C.
L.,
&
Villanueva-Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
the
corporation.
Board
of
Liquidators
v.
Heirs
of
Maximo
M.
Kalaw,
20
SCRA
987
(1967).
The
SEC
has
ruled
that
alternate
directors
are
not
allowed
by
law,
since
directors
are
required
to
exercise
their
judgment
and
discretion
in
running
the
affairs
of
the
corporation
and
cannot
be
substituted
by
others
because
their
position
is
one
of
trust
and
confidence.2
D.
Effects
of
Bogus
Board:
The
acts
or
contracts
effected
by
a
bogus
board
would
be
void
pursuant
to
Article
1318
of
Civil
Code3
because
of
the
lack
of
consent.
Islamic
Directorate
of
the
Philippines
v.
Court
of
Appeals,
272
SCRA
454
(1997).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
E.
Executive
Committee
(Section
35)
II.
BUSINESS
JUDGMENT
RULE:
Montelibano
v.
Bacolod-Murcia
Miling
Co.,
Inc.
Facts:
The
Bacolod-Murica
Milling
entered
into
Milling
Contracts
with
Montelibano
and
Gonzaga
&
Co.
(planters).
The
contract
provided
that
the
resulting
product
should
be
divided
in
the
ratio
of
45%
for
the
mill
and
55%
for
the
planters.
This
was
amended
to
give
the
planters
an
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
increased
participation
of
60%.
Years
later,
Bacolod
denied
the
5%
share
increase
of
Petitioner
citing
that
it
had
no
consideration,
thus
its
considered
a
donation
a
ultra
vires
act.
Issue:
Whether
or
not
the
Resolution
is
valid
and
binding
on
the
Facts:
Puerto
Azul
Land
Inc.
(PALI),
a
domestic
real
estate
corporation,
made
an
application
to
the
SEC
for
the
purpose
of
having
its
stocks
listed
in
order
for
it
to
be
sold
in
the
public.
A
year
after
a
permit
to
sell
was
granted,
heirs
of
the
former
President
Marcos
claimed
that
President
Marcos
was
the
legal
owner
of
certain
properties
forming
part
of
the
Puerto
Azul
Beach
Hotel
Complex
which
PALI
claims
to
be
among
its
assets.
The
PSE,
taking
into
consideration
these
claims,
rejected
the
application
for
listing.
In
response,
PALI
sought
the
decision
of
the
SEC
which
then
reversed
the
decision
of
the
PSE
and
ordered
the
latter
to
list
the
PALI
stocks.
Issue:
Whether
or
not
the
SEC
acted
arbitrarily
in
reversing
the
decision
of
the
PSE
and
ordering
the
listing
of
PALI
stocks
Doctrine:
The
court
also
reiterated
the
rule
that
questions
of
policy
or
of
management
are
left
solely
to
the
honest
decision
of
officers
and
directors
of
a
corporation,
and
the
court
is
without
authority
to
substitute
its
judgment
with
that
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
nor
reviewable
by
the
courts.
Held:
YES.
The
PSE
is
engaged
in
a
business
imbued
with
high
public
interest
and
is
under
the
control
and
supervision
of
the
SEC.
Though
under
such
control
and
supervision
by
the
SEC,
the
PSE
cannot
be
questioned
on
matters
of
internal
management,
policies,
and
administration
in
the
absence
of
bad
faith.
In
fact,
in
the
decision
rendered
by
the
board
of
the
PSE,
was
found
of
good
standing
by
the
court.
PSE
was
correct
in
denying
the
listing
of
the
PALI
stocks
since
there
were
various
allegations
against
the
listing.
Taking
all
these
into
consideration,
the
PSE
deemed
that
PALI
stocks
are
not
for
the
best
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
interest
of
the
investing
public
and
will
deteriorate
the
high
standards
and
goodwill
upheld
by
the
PSE.
Doctrine:
Questions
of
policy
and
of
management
are
left
to
the
honest
decision
of
the
officers
and
directors
of
a
corporation,
and
the
courts
Facts:
The
Tiu
family
members
are
the
owners
of
First
Landlink
Asia
Development
Corporation
(FLADC).
One
of
the
corporations
projects
is
the
construction
of
Masagana
Citimall
in
Pasay
City.
However,
due
to
financial
difficulties
(they
were
indebted
to
PNB
for
P190
million),
the
Tius
feared
that
the
construction
would
not
be
finished.
So
to
prevent
the
foreclosure
of
the
mortgage
on
the
two
lots
where
the
mall
was
being
built,
they
invited
the
Ongs
to
invest
in
FLADC.
The
two
parties
A.
BJR
First
Branch:
Resolutions
approved,
contracts
and
transactions
entered
into,
by
the
Board
of
Directors
within
the
powers
of
the
corporation
cannot
be
reversed
by
the
Courts,
not
even
on
the
behest
of
the
stockholders
of
the
corporation.1
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Issue:
Whether
or
not
the
Court
of
Appeals
erred
in
ordering
liquidation
Held:
YES.
The
Tius
also
argued
that
the
rescission
would
not
result
into
liquidation
because
their
case
is
actually
a
petition
to
decrease
the
capital
stock.
As
provided
in
Section
122
of
the
Corporation
Code,
Examples:
Exceptions:
B.
BJR
Second
Branch:
General
Rule:
Directors
and
officers
acting
within
3
4
Ibid.
Sections
31
and
34,
Corporation
Code.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
interest
or
ill-will
partaking
of
the
nature
of
fraud.
Filipinas
Port
Services,
Inc.
v.
Go,
518
SCRA
453
(2007).
III.
COUNTER-VEILING
DOCTRINES
TO
PROTECT
CORPORATE
CONTRACTS
A.
Theory
of
Estoppel
or
Ratification
Lipat
v.
Pacific
Banking
Corp.
Facts:
Spouses
Lipat
(Alfredo
and
Estelita)
owns
Belas
Export
Trading
(BET),
a
single
proprietorship
engaged
in
garment
manufacturing
in
Quezon
City.
The
Lipats
also
owned
the
Mystical
Fashions
in
the
United
States,
which
sells
goods
imported
from
the
Philippines
through
BET.
Estelita
designated
her
daughter,
Teresita,
to
manage
BET
in
the
Philippines
while
she
was
managing
Mystical
Fashions
in
the
United
States.
In
order
to
facilitate
the
convenient
operation
of
BET,
Estelita
executed
a
special
power
of
attorney
appointing
Teresita
as
her
attorney-in-fact
to
obtain
loans.
By
virtue
of
this
SPA,
Teresita
obtained
a
sizeable
loan
from
Pacific
Bank.
Three
months
after
the
loan,
BET
was
incorporated
into
a
family
corporation
named
Belas
Export
Corporation
(BEC),
engaged
in
the
same
business
and
utilized
the
same
properties.
The
loan
was
restructured
in
the
name
of
BEC
and
secured
with
Lipats
property.
BEC
defaulted,
and
the
bank
foreclosed
on
the
real
mortgage
and
Eugenio
Trinidad
was
the
highest
bidder.
The
spouses
Lipat
claim
that
the
loan
obtained
by
Teresita
were
ultra
vires
acts
because
they
were
executed
without
the
requisite
board
resolution
of
the
Board
of
Directors
of
BEC.
Pacific
Bank
and
Trinidad
alleged
in
common
that
petitioners
Lipat
cannot
evade
payments
because
they
and
the
BEC
are
one
and
the
same,
the
latter
being
a
family
corporation.
Respondent
Trinidad
further
claimed
that
he
was
a
buyer
in
good
faith
and
for
value
and
that
petitioners
are
estopped
from
denying
BECs
existence
after
holding
themselves
out
as
a
corporation.
Issue:
Whether
or
not
petitioners
are
estopped
from
asserting
that
the
acts
were
ultra
vires
for
not
being
supported
by
Board
Resolutions.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Held:
YES.
Firstly,
it
could
not
have
been
possible
for
BEC
to
release
a
board
resolution
no
business
or
stockholders
meetings
were
conducted
nor
were
there
election
of
officers
held
since
its
incorporation.
In
fact,
not
a
single
board
resolution
was
passed
by
the
corporate
board
and
it
was
Estelita
Lipat
and/or
Teresita
Lipat
who
decided
business
matters.
Secondly,
the
principle
of
estoppel
precludes
petitioners
from
denying
the
validity
of
the
transactions
entered
into
by
Teresita
Lipat
with
Pacific
Bank,
who
in
good
faith,
relied
on
the
authority
of
the
former
as
manager
to
act
on
behalf
of
petitioner
Estelita
Lipat
and
both
BET
and
BEC.
Teresita
Lipat
had
dealt
with
Pacific
Bank
on
the
mortgage
contract
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
representative.1
o The
admission
by
counsel
on
behalf
of
the
corporation
of
the
latters
culpability
for
personal
loans
obtained
by
its
corporate
officers
cannot
be
given
legal
effect
when
the
admission
was
without
any
enabling
act
or
attendant
ratification
of
corporate
act,
as
would
authorize
or
even
ratify
such
admission.
In
the
absence
of
such
ratification
or
authority,
such
admission
does
B.
Doctrine
of
Laches
or
Stale
Demands
The
ratificatory
act
that
would
bind
the
corporation
would
have
to
come
from
the
Board
of
Directors
or
a
properly
authorized
C.
Doctrine
of
Apparent
Authority:
Article
1883,
Civil
Code.
Francisco
v.
GSIS
Facts:
Trinidad
J.
Francisco,
in
consideration
of
a
loan,
mortgaged
parcel
of
land
with
21
bungalows
known
as
Vic-Mari
Compound.
In
January
1959,
GSIS
extrajudicially
foreclosed
the
mortgage
on
the
ground
that
up
to
that
date
the
Francisco
was
in
arrears
on
her
monthly
installments.
On
the
same
date,
Atty.
Vicente
Franciscos
(father
of
Trinidad)
request
was
approved
by
the
GSIS
board
which
was
sent
in
the
form
of
a
telegram
with
the
signature
of
Rodolfo
Andal,
general
manager
of
GSIS.
The
defendant
received
the
said
amount
however
it
did
not,
take
over
the
administration
of
the
compound
as
agreed
upon.
United
Coconut
Planters
Bank
v.
Planters
Products,
Inc.,
672
SCRA
285
(2012).
Villanueva,
C.
L.,
&
Villanueva-Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
3
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Thus,
the
Franciscos
continued
to
administer
the
same,
but
remitting
the
proceeds
to
the
GSIS.
Subsequently,
letters
were
sent
asking
the
plaintiff
for
a
proposal
for
the
payment
of
her
indebtedness,
since
the
one-year
period
for
redemption
had
expired.
In
reply,
Atty.
Francisco
protested
against
this,
saying
that
they
have
already
accepted
his
offer
and
that
he
has
already
commenced
his
part
on
the
terms
of
his
contract.
Issue:
Whether
or
not
the
compromise
made
is
binding
upon
defendant
corporation.
Held:
YES.
The
compromise
made
through
the
telegrams
is
binding.
Under
Article
1910
of
the
New
Civil
Code,2
acts
done
by
such
officers
beyond
the
scope
of
their
authority
cannot
bind
the
corporation
unless
it
has
ratified
such
acts
expressly
or
tacitly,
or
is
estopped
from
denying
themThus,
contracts
entered
into
by
corporate
officers
beyond
the
scope
of
authority
are
unenforceable
against
the
corporation
unless
ratified
by
the
There
was
apparent
authority
that
of
the
GM,
Andal.
Even
assuming
there
was
a
mistake
in
the
telegram,
GSIS
notified
the
Franciscos
too
late
and
only
after
having
received
several
remittances.
There
was
also
notice
to
the
GSIS,
because
Vicente
attached
the
disputed
telegram
in
replying
to
that
which
was
sent
by
GSIS.
Notice
to
an
officer
with
regard
to
matters
within
his
authority
is
tantamount
to
notice
to
the
corporation.
There
was
thus
implied
ratification.
Doctrine:
Persons
transacting
with
corporations
need
not
disbelieve
every
act
of
its
officers,
especially
those
regular
on
their
face.
They
are
entitled
to
rely
upon
external
manifestations
of
corporate
consent.
And
if
a
corporation
knowingly
permits
its
officers
to
do
acts
with
apparent
authority,
it
is
estopped
from
denying
such
authority.
Woodchild
Holdings,
Inc.
v.
Roxas
Electric
Constructions
Co.,
Inc.,
436
SCRA
235
(2004)
as
cited
in
Villanueva,
C.
L.,
&
Villanueva-Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
2
Article
1910.
The
principal
must
comply
with
all
the
obligations
which
the
agent
may
have
contracted
within
the
scope
of
his
authority.
As
for
any
obligation
wherein
the
agent
has
exceeded
his
power,
the
principal
is
not
bound
except
when
he
ratifies
it
expressly
or
tacitly.
(1727)
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Woodchild
Holdings,
Inc.
v.
Roxas
Electric
Constructions
Co.,
Inc.
Facts:
Roxas
Electric
and
Construction
Company
Inc
(RECCI)
owned
2
parcels
of
land,
Lot
B1
and
Lot
B2.
RECCIs
Board
of
Directors
issued
a
resolution
authorizing
the
corporation
through
its
President,
Roberto
Roxas,
to
sell
B2
and
to
sign
and
execute
the
necessary
documents.
Roxas
sold
B2
to
Woodchild
Holdings
Inc
(WHI)
through
its
President,
Jonathan
Dy.
In
the
Deed
of
Absolute
Sale,
Roxas
also
granted
WHI
a
right
of
way
over
B1
and
an
option
to
purchase
certain
portions
thereof
in
case
the
need
arose
as
earlier
requested
by
WHI.
After
Roxas
died,
WHI
demanded
that
RECCI
sell
a
portion
of
B1
but
it
refused
claiming
it
never
authorized
Roxas
to
do
so.
Doctrine:
For
an
act
of
the
principal
to
be
considered
as
an
implied
ratification
of
an
unauthorized
act
of
an
agent,
such
act
must
be
inconsistent
with
any
other
hypothesis
than
that
he
approved
and
intended
to
adopt
what
had
been
done
in
his
name.
Issue:
Whether
or
not
RECCI
is
estopped
from
claiming
that
Roxas
had
not
authority
to
sell
B1.
Held:
NO.
For
the
principle
of
apparent
authority
to
apply,
the
WHI
was
burdened
to
prove
the
following:
(a)
the
acts
of
RECCI
justifying
belief
in
the
agency
by
the
WHI;
(b)
knowledge
by
RECCI
which
is
sought
to
be
held;
and,
(c)
reliance
thereon
by
WHI
consistent
with
ordinary
care
and
prudence.
The
apparent
power
of
an
agent
is
to
be
determined
by
the
acts
of
the
principal
and
not
by
the
acts
of
the
agent.
There
is
no
evidence
of
specific
acts
made
by
the
RECCI
showing
or
indicating
that
it
had
full
knowledge
of
any
representations
made
by
Roxas
to
WHI
that
it
had
authorized
Roxas
to
grant
WHI
an
option
to
buy
B1,
or
to
create
a
burden
or
lien
thereon.
There
is
no
implied
ratification
when
RECCI
received
the
P5M
purchase
price
for
B2.
Westmont
Bank
v.
Inland
Construction
and
Dev.
Corp.
Facts:
Inland
Construction
and
Development
Corp.
executed
real
estate
mortgages
over
its
3
properties
and
3
promissory
notes
for
the
loans
it
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
obtained
from
Westmont
Bank.
A
Deed
of
Assignment,
Conveyance
and
Release
was
executed
by
Aranda
(President
of
Inland)
wherein
he
assigns
all
his
rights
and
interest
in
Hanil-Gonzalez
Corp
in
favour
of
Abrantes.
In
the
deed,
the
obligations
of
Inland
(including
that
with
Westmont
Bank)
shall
be
transferred
to
Abrantes.
Westmont
Banks
Account
officer,
Calo,
signed
for
its
conformity
to
the
deed.
Inland
then
filed
a
complaint
for
injunction
in
the
Regional
Trial
against
Westmont
Bank
when
the
latter
foreclosed
the
properties
mortgaged
by
Inland.
In
their
Answer,
the
bank
claimed
that
it
had
no
knowledge
of
such
assignment
of
obligation
and
did
not
conform
to
it.
Issue:
Whether
or
not
Westmont
Bank
is
bound
by
the
deed
of
Assignment
Held:
YES.
Calo
(signee
in
the
deed
of
assignment)
was
the
one
assigned
to
transact
on
behalf
of
the
Bank
with
respect
to
the
loan
transactions
with
Inland.
Because
of
this,
it
is
presumed
that
he
had
the
authority
to
sign
for
the
bank
in
the
Deed
of
Assignment.
The
Court
stated
that
if
a
corporation
consciously
lets
one
of
its
officers,
or
any
other
agent,
to
act
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
thus,
no
legal
basis
to
bind
the
bank
into
any
valid
contract
of
sale
with
the
buyers,
given
the
absolute
absence
of
any
approval
or
consent
by
any
responsible
officer
of
the
bank.
DBP
v.
Ong,
460
SCRA
170
(2005).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Associated
Bank
v.
Pronstroller
Facts:
The
Spouses
Vaca
executed
a
Real
Estate
Mortgage
in
favor
of
Associated
Bank
over
their
parcel
of
residential
land
in
Green
Meadows
Subdivision.
Eventually,
the
property
was
foreclosed
and
sold
at
public
auction
with
Associated
Bank
as
the
highest
bidder.
However,
the
Vacas
commenced
an
action
for
the
nullification
of
the
real
estate
mortgage
and
the
foreclosure
sale.
Pending
its
resolution
in
the
Supreme
Court,
Associated
Bank
negotiated
with
the
Spouses
Pronstroller
through
Atty.
Jose
Soluta,
the
banks
Vice
President
and
member
of
its
Board
of
Directors.
Letter
agreements
were
executed
whereby
the
Spouses
Pronstrollers
would
give
a
downpayment
(first
letter
agreement),
and
then
given
an
extension
to
pay
the
balance
which
would
be
given
upon
delivery
of
the
property
subsequent
to
the
resolution
of
the
Vaca
case
with
such
property
being
free
from
occupants
(embodied
in
the
second
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Atty.
Hofilea
the
by-laws
do
not
always
have
all
the
details
of
the
officers
but
it
is
a
good
place
to
start
to
determine
whether
the
officer
you
are
dealing
with
has
authority
or
not
to
deal
with
you
regarding
the
matter.
Absent
this,
you
can
ask
the
company
to
provide
you
with
a
Board
Resolution
authorizing
a
particular
person
to
deal
with
you
and
under
what
limitations.
IV.
Qualifications
of
Directors/Trustees
(Sections
23
and
27)
law
requires
is
that
he
has
legal
title
to
the
share.
Under
the
old
Corporation
Law
it
was
required
that
every
director
must
own
"in
his
own
right"
at
least
one
share
of
the
capital
stock
of
the
corporation.
Under
the
present
Section
23
of
the
Corporation
Code,
it
requires
only
that
the
share
of
a
director
"shall
stand
in
his
name
on
the
books
of
the
corporation."1
Gokongwei,
Jr.
v.
Securities
and
Exchange
Commission
Facts:
John
Gokongwei,
a
stockholder
of
San
Miguel
Corporation
(and
a
president
and
stockholder
of
Robina
Corp.
and
Consolidated
Foods
Corp.,
a
competitor
of
SMC,
in
various
areas,
such
as
Instant
Coffee,
Ice
1. Qualifications
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Cream,
Poultry
and
Hog
Feeds
and
many
more),
filed
a
petition
for
declaration
of
nullity
of
amended
by-laws,
cancellation
of
certificate
of
filing
of
the
amended-by
laws,
injunction
and
damages
against
the
majority
of
the
members
of
the
Board
of
Directors
of
the
SMC
based
on
the
following
grounds:
Issue:
Whether
or
not
the
corporation
has
the
power
to
disqualify
a
Lee
v.
Court
of
Appeals
Facts:
Herein
petitioners
were
served
summons
in
accordance
with
a
third
party
complaint
filed
against
Alfa
Integrated
Textile
Mills
of
which
Lee
and
Lacdao
was
president
and
vice
president
respectively.
They
claim
that
the
summons
for
Alfa
was
erroneously
served
upon
them
considering
that
the
management
of
Alfa
had
been
transferred
to
Development
Bank
of
the
Philippines.
They
claim
that
the
voting
trust
agreement
between
Alfa
and
DBP
vests
all
management
and
control
of
Alfa
to
the
DBP.
DBP
claimed
that
it
was
not
authorized
to
receive
summons
on
behalf
of
Alfa
since
DBP
had
not
taken
over
the
company
which
has
a
separate
and
distinct
corporate
personality
and
existence.
Also Detective & Protective Bureau, Inc. v. Cloribel, 26 SCRA 255 (1969).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Issue:
Whether
or
not
the
execution
of
the
voting
trust
agreement
by
Lee
and
Lacdao
whereby
all
their
shares
to
the
corporation
have
been
transferred
to
the
trustee
deprives
the
stockholder
of
their
positions
as
directors
of
the
corporation.
director,
what
is
material
is
the
legal
title
to,
not
beneficial
ownership
of,
the
stock
as
appearing
on
the
books
of
the
corporation.
3. Rule
on
Corporate
Stockholders1
Held:
YES.
Lee
and
Lacdao,
by
virtue
of
the
voting
trust
agreement
executed
in
1981
disposed
of
all
their
shares
through
assignment
and
delivery
in
favor
of
DBP,
as
trustee.
Consequently,
Lee
and
Lacdao
ceased
to
own
at
least
one
outstanding
share
in
their
names
on
the
books
of
Alfa
as
required
under
Section
23
of
the
new
Corporation
code.
They
also
ceased
to
have
anything
to
do
with
the
management
of
the
4. Disqualifications
Section
27.
Disqualification
of
directors,
trustees
or
officers.
No
person
convicted
by
final
judgment
of
an
offense
punishable
by
imprisonment
for
a
period
exceeding
six
(6)
years,
or
a
violation
of
this
Code
committed
within
five
(5)
years
prior
to
the
date
of
his
election
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
or
appointment,
shall
qualify
as
a
director,
trustee
or
officer
of
any
corporation.
V.
Election
of
Directors
and
Trustees
A.
Directors
(Sections
24
and
26)
Section
24.
Election
of
directors
or
trustees.
At
all
elections
of
directors
or
trustees,
there
must
be
present,
either
in
person
or
by
representative
authorized
to
act
by
written
proxy,
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
then
the
stockholders
can
choose
to
just
fill
some
of
the
seats
and
not
all.
1. Cumulative
Voting1
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
corporation
is
conditioned
upon
the
reports
submitted
to
the
SEC
pursuant
to
said
section.1
Premium
Marble
Resources
v.
Court
of
Appeals
Facts:
The
case
began
when
Premium
Marble
Resources
Inc.,
assisted
by
Atty.
Arnulfo
Dumadag
as
counsel,
filed
an
action
for
damages
against
International
Corporate
Bank.
Later,
the
same
corporation,
i.e.,
Premium,
but
this
time
represented
by
Siguion
Reyna,
Montecillio
and
Ongsiako
Law
Office
as
counsel,
filed
a
motion
to
dismiss
the
action
of
petitioners
on
the
ground
that
the
filing
of
the
case
was
without
authority
from
its
duly
constituted
board
of
directors
as
shown
by
the
excerpt
of
the
minutes
of
the
Premiums
board
of
directors
meeting.
In
its
opposition
to
the
motion
to
dismiss,
Premium
thru
Atty.
Dumadag
contended
that
the
persons
who
signed
the
board
resolution
namely
Belen,
Jr.,
Nograles
&
Reyes,
are
not
directors
of
the
corporation
and
were
allegedly
former
officers
and
stockholders
of
Premium
who
were
dismissed
for
various
irregularities
and
fraudulent
acts;
that
Siguion
Reyna
Law
office
is
the
lawyer
of
Belen
and
Nograles
and
not
of
Premium
and
that
the
Articles
of
Incorporation
of
Premium
shows
that
Belen,
Nograles
and
Reyes
are
not
majority
stockholders.
Issue:
Whether
or
not
the
filing
of
the
case
for
damages
against
private
respondent
bank
(International
Corporate
Bank)
was
authorized
by
a
duly
constituted
Board
of
Directors
of
the
petitioner
corporation
Held:
NO.
The
Minutes
of
the
Meeting
of
the
Board
on
April
1,
1982
states
that
the
newly
elected
officers
for
the
year
1982
were
Oscar
Gan,
Mario
Zavalla,
Aderito
Yujuico
and
Rodolfo
Millare,
petitioner
however,
failed
to
show
proof
that
this
election
was
reported
to
the
SEC.
In
fact,
the
last
entry
in
their
General
Information
Sheet
with
the
SEC,
as
of
1986
appears
to
be
the
set
of
officers
elected
in
March
1981.
The
claim,
therefore,
of
petitioners
as
represented
by
Atty.
Dumadag,
that
Zaballa,
et
al.,
are
the
incumbent
officers
of
Premium
has
not
been
fully
substantiated.
Hence,
the
court
agrees
with
the
finding
of
the
Court
of
Appeals,
that
in
the
absence
of
any
board
resolution
from
its
board
of
directors
the
[sic]
authority
to
act
for
and
in
behalf
of
the
corporation,
the
present
action
must
necessarily
fail.
The
power
of
the
corporation
to
sue
and
be
sued
in
any
court
is
lodged
with
the
board
of
directors
that
exercises
its
corporate
powers.
Doctrine:
By
the
express
mandate
of
the
Corporation
Code
(Section
26),
all
corporations
duly
organized
pursuant
thereto
are
required
to
submit
within
the
period
therein
stated
(30
days)
to
the
Securities
and
Exchange
Commission
the
names,
nationalities
and
residences
of
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Valle
Verde
Country
Club,
Inc.
v.
Africa
Facts:
The
Valle
Verde
Country
Club
(VVCC)
has
a
9-member
Board
of
Directors.
From
1997
to
2001,
the
requisite
quorum
for
holding
of
the
stockholders
meeting
could
not
be
obtained
so
the
directors
continued
to
serve
in
hold-over
capacity.
In
1998,
two
directors
resigned
and
were
replaced.
Africa
questions
the
election
of
the
two
directors
with
the
Securities
and
Exchange
Commission
for
allegedly
being
in
contravention
of
Section
29
of
the
Corporation
Code
which
states
that
all
vacancies
that
occur
other
than
by
removal
by
the
stockholders
or
expiration
of
term
may
be
filled
by
the
vote
of
at
least
a
majority
of
the
remaining
directors
(if
still
constituting
a
quorum).
However
if
the
vacancy
was
caused
by
either
removal
by
the
stockholders
or
expiration
of
term,
then
it
must
be
filled
by
a
vote
of
the
stockholders.
Anyone
who
would
fill
the
vacancy
prior
to
such
will
only
serve
for
the
unexpired
term.
Africa
points
out
that
since
Makalintals
term
had
already
expired
with
the
lapse
of
the
one-year
term
provided
in
Section
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
shall
be
the
corporations
stockholders
who
shall
possess
the
authority
to
fill
in
a
vacancy
caused
by
the
expiration
of
a
members
term.
When
the
names
of
some
of
the
directors
who
signed
the
board
resolution
does
not
appear
in
the
General
Information
Sheet
filed
with
the
SEC,
then
there
is
doubt
whether
they
were
indeed
duly
elected
members
of
the
Board
legally
constituted
to
bring
suit
in
behalf
of
the
Corporation.
Monfort
Hermanos
Agricultural
Dev.
Corp.
v.
Monfort
III,
434
SCRA
27
(2004).
B.
CUMULATIVE
VOTING
(Section
24)
C.
Trustee
(Sections
92
and
138)
Section
92.
Election
and
term
of
trustees.
Unless
otherwise
provided
in
the
articles
of
incorporation
or
the
by-
laws,
the
board
of
trustees
of
non-stock
corporations,
which
may
be
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
either
the
articles
of
incorporation
or
the
by-laws
of
the
corporation.1
VI.
Vacancy
in
Board
(Section
29)
limited
the
period
during
which
the
successor
shall
serve
only
to
the
unexpired
term
of
his
predecessor
in
office.
Valle
Verde
Country
Club,
Inc.
v.
Africa,
598
SCRA
202
(2009).
VII.
Term
of
Office,
Hold-over
Principle
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
The
Corporation
Code
does
not
require
the
taking
of
an
oath
of
office
to
qualify
the
elected
directors
and
officers.
Election
alone
does
not
make
the
person
elected,
a
director
but
there
must
be
an
acceptance,
either
express
or
implied,
although
he
is
rebuttably
presumed
to
accept
upon
notification,
or
enters
upon
the
duties
of
an
office
after
his
election
or
appointment.
SEC
Opinion,
21
January
1986,
XX
SEC
QUARTERLY
BULLETIN
(Nos.
1
&
2,
March
&
June,
1986).
VIII.
Removal
of
Directors
or
Trustees
(Section
28)
Section
28.
Removal
of
directors
or
trustees.
Any
director
or
trustee
of
a
corporation
may
be
removed
from
office
by
a
vote
of
the
stockholders
holding
or
representing
at
least
two-
thirds
(2/3)
of
the
outstanding
capital
stock,
or
if
the
corporation
be
a
non-stock
corporation,
by
a
vote
of
at
least
two-thirds
(2/3)
of
the
members
entitled
to
vote:
Provided,
That
such
removal
shall
take
place
either
at
a
regular
meeting
of
the
corporation
or
at
a
special
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
meeting
called
for
the
purpose,
and
in
either
case,
after
previous
notice
to
stockholders
or
members
of
the
corporation
of
the
intention
to
propose
such
removal
at
the
meeting.
A
special
meeting
of
the
stockholders
or
members
of
a
corporation
for
the
purpose
of
removal
of
directors
or
trustees,
or
any
of
them,
must
be
called
by
the
Code.
1. Removal
of
Directors
and
Trustees
The
Corporation
Code
does
not
define
the
cause
that
can
be
a
legal
basis
for
removal
of
a
member
of
the
Board.
What
is
clear
is
that
for
cause
goes
into
the
three
duties
of
a
director
and
officer
loyalty,
obedience
and
diligence.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
resolution
was
approved
by
at
least
2/3
of
the
outstanding
capital
stock,
would
make
such
removal
void.1
IX.
Directors
or
Trustees
Meetings
(Sections
49,
53,
54
and
92)
Section
49.
Kinds
of
meetings.
Meetings
of
directors,
trustees,
stockholders,
or
members
may
be
regular
or
special.
(n)
Section
53.
Regular
and
special
meetings
of
directors
or
trustees.
Regular
meetings
of
the
board
of
directors
or
trustees
of
every
corporation
shall
be
held
monthly,
unless
the
by-laws
provide
otherwise.
Special
meetings
of
the
board
of
directors
or
trustees
may
be
held
at
any
time
upon
the
call
of
the
president
or
as
provided
in
the
by-laws.
Meetings
of
directors
or
trustees
of
corporations
may
be
held
anywhere
in
or
outside
of
the
Philippines,
unless
the
by-laws
provide
otherwise.
Notice
of
regular
or
special
meetings
stating
the
date,
time
and
place
of
the
meeting
must
be
sent
to
every
director
or
trustee
at
least
one
(1)
day
prior
to
the
scheduled
meeting,
unless
otherwise
provided
by
the
by-laws.
A
director
or
trustee
may
waive
this
requirement,
either
expressly
or
impliedly.
(n)
Section
54.
Who
shall
preside
at
meetings.
SEC
held
that
a
trustee
may
now
be
allowed
to
vote
through
the
internet,
provided
that
the
internet
medium
to
be
used
is
akin
to
or
similar
to
the
one
being
used
in
videoconferencing
or
teleconferencing,
where
a
participant
can
see
or
hear
the
actual
proceedings
of
a
board
meeting
and
actively
participate
in
the
SEC
Opinion,
7
February
1994,
XXVIII
SEC
Quarterly
Bulletin
4
(No.
3,
March
1994)
3
Likewise,
Section
15
of
the
General
Banking
Law
of
2000
provides
that
the
meeting
of
the
board
of
directors
of
banks
may
be
conducted
through
modern
technologies
such
as,
but
not
limited
to,
teleconferencing
and
videoconferencing.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
deliberation
of
the
Board;
but
that
a
trustee
may
not
validly
vote
by
email
along,
which
was
deemed
an
inadequate
medium
because
a
user-participants
role
in
such
case
is
passive
considering
that
his
access
to
the
entire
proceedings
is
limited
to
the
information
in
print
transmitted
through
the
internet.1
The SEC has opined that the Corporation Code does not confer
C.
Abstention:
In
a
board
meeting,
an
abstention
is
presumed
to
be
counted
as
an
affirmative
vote
insofar
as
it
may
be
construed
as
an
acquiescence
in
the
action
of
those
who
voted
affirmatively;
but
such
presumption,
being
merely
prima
facie
would
not
hold
in
the
face
of
clear
evidence
to
the
contrary.
Lopez
v.
Ericta,
45
SCRA
539
(1972).
D.
Minutes
of
Meetings
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
members
of
the
board,
but
rather
as
officers
of
the
corporation,
more
particularly
as
Chairman,
Vice-Chairman,
Treasurer
and
Secretary
of
Western
Institute
of
Technology.
Clearly,
therefore,
the
prohibition
with
respect
to
granting
compensation
to
corporate
directors/trustees
as
such
under
Section
30
is
not
violated
in
this
particular
case.
Doctrine:
Directors
or
trustees,
as
the
case
may
be,
are
not
entitled
to
salary
or
other
compensation
when
they
perform
nothing
more
than
the
usual
and
ordinary
duties
of
their
office.
This
rule
is
founded
upon
a
presumption
that
directors/trustees
render
service
gratuitously,
and
that
the
return
upon
their
shares
adequately
furnishes
the
motives
for
service,
without
compensation.
Under
Section
30
of
the
Corporation
Code,
there
are
only
two
(2)
ways
by
which
members
of
the
board
can
be
granted
compensation
apart
from
reasonable
per
diems:
(1)
when
there
is
a
provision
in
the
by-laws
fixing
their
compensation;
and
(2)
when
the
stockholders
representing
a
majority
of
the
outstanding
capital
stock
at
a
regular
or
special
stockholders'
meeting
agree
to
give
it
to
them.
A.
Directors
as
Fiduciaries
General
Rule:
The
Courts
of
law
will
not
meddle
into
business
determination,
one
of
which
is
salary
scale
of
people.
Facts:
San
Jose
Petroleum,
Inc.
(SJ
PETROLEUM),
a
corporation
the
courts
may
come
in
and
suspend
the
enforcement
of
the
by-
law
provision.
o Generally,
dividends
and
compensation
policies
represent
areas
of
conflicts
of
interests
and
these
are
an
exception
to
the
business
judgment
rule.
XI.
FIDUCIARY
DUTIES
OF
DIRECTORS
AND
OFFICERS
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
corporation
violates
the
Constitution,
the
Corporation
Law
and
the
Petroleum
Act
of
1949.
In
its
answer,
SJ
Petroleum
stated
that
it
was
a
business
enterprise
enjoying
parity
rights,
with
respect
to
mineral
resources
in
the
Philippines,
which
may
be
exercised
pursuant
to
the
Laurel-Langley
Agreement,
through
a
medium,
the
SJ
Oil.
Issue:
Whether
or
not
the
tie-up
between
the
respondent
San
Jose
Petroleum,
a
foreign
corporation,
and
San
Jose
Oil
Company,
Inc.,
a
domestic
mining
corporation,
is
violative
of
the
Constitution,
the
Laurel-
Langley
Agreement,
the
Petroleum
Act
of
1949,
and
the
Corporation
Law.
Held:
YES.
SJ
Petroleum
is
not
accorded
with
Parity
Rights,
which
would
have
allowed
the
Company
to
interest
in
mining.
1. It
is
not
owned
or
controlled
directly
by
US
citizens
because
it
is
owned
and
controlled
by
Panamanian
corporation;
2. It
is
not
indirectly
owned
and
controlled
by
US
citizens
because
the
controlling
corporation
is
in
turn
owned
by
two
Venezuelan
corporations;
3. Although
the
two
Venezuelan
corporations
claim
to
be
owned
by
stockholders
residing
in
the
US,
there
is
no
showing
that
said
stockholders
were
US
citizens;
4. The
word
indirectly
should
not
be
unduly
stretched
in
application.
Doctrine:
Our
Constitution
provides
that,
the
exploitation
of
natural
resources
shall
be
limited
to
citizens
of
the
Philippines
or
to
corporations
or
associations
at
least
60%
of
the
capital
of
which
is
owned
by
such
citizens.
However,
this
right
was
earlier
extended
to
US
Facts:
Prime
White
Cement
Corp
(PWCC)
thru
its
President
and
Chairman
of
the
Board
entered
into
a
dealership
agreement
with
Alejandro
Te,
making
him
the
exclusive
dealer
and/or
distributor
of
PWCCs
cement
products
in
the
entire
Mindanao
area
for
5
years.
The
agreement
is
that
the
price
of
cement
per
bag
(P9.70)
is
fixed
for
the
entire
5-year
period,
and
that
Te
must
sell
20,000
bags
per
month.
Later,
PWCC
through
its
corporate
secretary
informed
Te
that
the
board
of
directors
decided
to
impose
limitations
on
their
agreement,
including
limiting
the
period
of
the
dealership
(3
months),
decreasing
allocation
(8,000
bags)
and
increasing
the
price
per
bag
(P13.30).
Te
demanded
the
enforcement
of
the
original
dealership
agreement
but
PWCC
refused
to
comply.
The
latter
even
entered
into
an
exclusive
dealership
agreement
with
Napoleon
Co
for
the
marketing
of
the
cement
in
Mindanao,
hence
this
suit.
Issue:
Whether
or
not
the
"dealership
agreement"
referred
by
the
President
and
Chairman
of
the
Board
of
PWCC
is
a
valid
and
enforceable
contract.
Held:
NO.
The
general
rules
provided
by
the
Corporate
Law
(in
force
at
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
the
time
of
the
case)
as
well
as
the
present
Corporation
Code
whereby
the
corporate
powers
are
exercised
by
the
Board
of
Directors
and
may
be
delegated
to
its
president
or
officers
cannot
apply
with
the
case
on
hand,
since
the
said
rules
pertain
to
dealings
with
3rd
persons
(i.e.
person
outside
the
corporation).
In
this
case,
Te
was
not
only
an
ordinary
stockholder
of
PWCC,
but
was
a
member
of
the
Board
of
Directors
and
Auditor
of
the
corporation.
He
is
what
is
often
referred
to
as
a
self-dealing
director.
Granting
arguendo
that
the
dealership
agreement
involved
here
would
be
valid
and
enforceable
if
entered
into
with
a
person
other
than
a
director
or
officer
of
the
corporation,
the
fact
that
the
other
party
to
Strategic
Alliance
Dev.
Corp.
v.
Radstock
Securities
Ltd.
Facts:
The
Construction
Development
Corporation
of
the
Philippines
(CDCP)
had
a
30-year
franchise
to
construct,
operate
and
maintain
toll
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
facilities
in
the
North
and
South
Luzon
Tollways.
Basay
Mining
Corporation
(an
affiliate
of
CDCP)
obtained
loans
from
Marubeni
Corporation
of
Japan
amounting
to
P10
billion,
which
CDCP
guaranteed
solidarily.
Thereafter,
CDCP
changed
its
corporate
name
to
PNCC
to
reflect
the
governments
(90.3%)
shareholding
in
the
corporation.
Second.
The
PNCC
Board
admitted
liability
for
the
Marubeni
loans
despite
PNCCs
total
liabilities
far
exceeding
its
assets.
There
is
no
dispute
that
the
Marubeni
loans,
once
recognized,
would
wipe
out
the
assets
of
PNCC,
virtually
emptying
the
coffers
of
the
PNCC.
While
The
money
owed
Marubeni
remained
unpaid
and
unacknowledged
for
20
years.
But
in
October
2000,
PNCC
recognized
this
financial
obligation
to
Marubeni.
Barely
3
months
after,
Marubeni
assigned
its
entire
credit
to
Radstock
Corporation
for
less
than
P100
million,
who
in
turn
sought
to
collect
from
PNCC.
Eventually,
Radstock
and
PNCC
entered
into
the
compromise
agreement
whereby
PNCC
shall
assign
to
a
third
party
PNCC
insists
that
it
remains
financially
viable,
the
figures
in
the
COA
Audit
Reports
tell
otherwise.
Third.
In
a
debilitating
self-inflicted
injury,
the
PNCC
Board
revived
what
appeared
to
have
been
a
dead
claim
by
abandoning
one
of
PNCCs
strong
defenses,
which
is
the
prescription
of
the
action
to
collect
the
Marubeni
loans.
In
this
case,
Basay
Mining
obtained
the
Marubeni
loans
Issue:
Whether
or
not
the
PNCC
Board
Acted
in
Bad
Faith
and
with
Gross
Negligence
in
Directing
the
Affairs
of
PNCC
Held:
YES.
The
PNCC
Board
blatantly
violated
its
duty
of
diligence
as
it
miserably
failed
to
act
in
good
faith
in
handling
the
affairs
of
PNCC.
First.
For
almost
two
decades,
the
PNCC
Board
had
consistently
refused
to
admit
liability
for
the
Marubeni
loans
because
of
the
absence
of
a
Fourth.
The
basis
for
the
admission
of
liability
for
the
Marubeni
loans,
which
was
an
opinion
of
the
Feria
Law
Office,
was
not
even
shown
to
the
PNCC
Board.
Atty.
Raymundo
Francisco,
the
Asset
Privatization
Trust
trustee
overseeing
the
proposed
privatization
of
PNCC
at
the
time,
was
responsible
for
recommending
to
the
PNCC
Board
the
admission
of
PNCCs
liability
for
the
Marubeni
loans.
Atty.
Francisco
based
his
recommendation
solely
on
a
mere
alleged
opinion
of
the
Feria
Law
Office
-
which
he
did
not
show
to
the
board.
The
PNCC
Board
admitted
liability
for
the
P10.743
billion
Marubeni
loans
without
seeing,
reading
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
charter
or
by
the
general
law.
Lopez
Realty,
Inc.
v.
Fontecha,
247
SCRA
183
(1995)
or
discussing
the
Feria
opinion
which
was
the
sole
basis
for
its
admission
of
liability.
Such
act
surely
goes
against
ordinary
human
nature,
and
amounts
to
gross
negligence
and
utter
bad
faith,
even
bordering
on
fraud,
on
the
part
of
the
PNCC
Board
in
directing
the
affairs
of
the
corporation.
Owing
loyalty
to
PNCC
and
its
stockholders,
C.
Duty
of
Diligence
(Section
31)
the
PNCC
Board
should
have
exercised
utmost
care
and
diligence
in
admitting
a
gargantuan
debt
that
would
certainly
force
PNCC
into
insolvency,
a
debt
that
previous
PNCC
Boards
in
the
last
two
decades
consistently
refused
to
admit.
The
PNCC
Board
knew
that
PNCC,
as
a
government
owned
and
controlled
corporation
(GOCC),
must
rely
exclusively
on
the
opinion
of
the
Office
of
the
Government
Corporate
Counsel
(OGCC),
which
they
did
not
abide
by.
The
act
of
the
PNCC
Board
in
issuing
Board
Resolution
No.
BD-092-2000
expressly
admitting
liability
for
the
Marubeni
loans
demonstrates
the
PNCC
Boards
gross
and
willful
disregard
of
the
requisite
care
and
diligence
in
managing
the
affairs
of
PNCC,
amounting
to
bad
faith
and
resulting
in
grave
and
irreparable
injury
to
PNCC
and
its
stockholders.
This
reckless
and
treacherous
move
on
the
part
of
the
PNCC
Board
clearly
constitutes
a
serious
breach
of
its
fiduciary
duty
to
PNCC
and
its
stockholders,
rendering
the
members
of
the
PNCC
Board
liable
under
Section
31
of
the
Corporation
Code.
Doctrine:
See
above.
B.
Duty
of
Obedience
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
However,
where
a
person
with
reasonable
sense
is
supposed
to
know
that
the
act
is
unlawful,
the
directors
wont
be
protected.
Steinberg
v.
Velasco
Facts:
Steinberg
(plaintiff)
was
the
receiver
of
Sibugey
Trading
Company,
while
Velasco
et.
al
(defendants)
were
the
members
of
the
Board
of
Directors.
In
1922,
the
Board
of
Directors
of
Sibugey
authorized
the
purchase
of,
and
purchased,
330
shares
of
the
capital
stock
of
the
corporation
at
the
price
of
P3,300,
and
that
at
the
time
the
purchase,
the
corporation
was
indebted
in
the
sum
of
P13,807.50,
and
that,
it
had
accounts
receivable
in
the
sum
of
P19,126.02.
In
the
same
year,
a
resolution
to
distribute
dividends
amounting
to
P3,000
was
approved
by
the
board.
In
1923,
the
petition
was
filed
for
its
dissolution
upon
the
ground
that
it
was
insolvent,
its
accounts
payable
amounted
to
and
grossly
ignorant,
and
therefore
should
pay
for
the
losses
Held:
YES.
It
appears
that
the
dividends
were
made
in
installments
so
as
not
to
affect
the
financial
condition
of
the
corporation.
In
other
words,
that
the
corporation
did
not
then
have
an
actual
bona
fide
surplus
from
which
the
dividends
could
be
paid.
As
stated,
the
authorized
capital
stock
was
P20,000
divided
into
2,000
shares
of
the
par
value
of
P10
each,
which
only
P10,030
was
subscribed
and
paid.
Deducting
the
P3,300
paid
for
the
purchase
of
the
stock,
there
would
be
left
P7,000
of
paid
up
stock,
from
which
deduct
P3,000
paid
in
dividends,
there
would
be
left
P4,000
only.
In
this
situation,
it
is
apparent
the
directors
did
not
act
in
good
faith
or
that
they
were
grossly
ignorant
of
their
duties.
As
such,
they
are
liable
to
pay.
Doctrine:
Creditors
of
a
corporation
have
the
right
to
assume
that
so
long
as
there
are
outstanding
debts
and
liabilities,
the
board
of
directors
will
not
use
the
assets
of
the
corporation
to
purchase
its
own
stock,
and
that
it
will
not
declare
dividends
to
stockholders
when
the
corporation
is
insolvent.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
consequences.
A
director
is
bound
not
only
to
exercise
proper
care
and
diligence,
but
ordinary
skill
and
judgment.
As
he
is
bound
to
exercise
ordinary
skill
and
judgment,
he
cannot
set
up
that
he
did
not
possess
them.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Smith
v.
Van
Gorkam,
488
A.2d
858,
Supreme
Court
of
Delaware,
1985).
Smith
v.
Van
Gorkam
Facts:
Trans
Union
was
suffering
a
tax
credit
problem
prompting
Van
Gorkom
to
sell
his
shares
but
eventually
negotiated
to
involve
all
the
stocks
of
Trans
Union.
A
corporation
called
Marmon
was
attempting
a
leverage
buy-out
of
Trans
Union.
Van
Gorkom
proposed
a
price
of
$55
a
share.
Van
Gorkom
and
his
CFO
didnt
bother
to
do
any
research
to
see
how
much
the
company
was
actually
worth.
He
didnt
even
inform
Trans
Unions
legal
department
about
the
transaction.
Later,
it
was
judgment
rule
was
not
a
defense
because
the
directors
and
Van
Gorkom
didnt
use
any
business
judgment
when
they
came
to
their
decision.
Doctrine:
In
order
to
hide
behind
the
business
judgment
rule,
you
have
to
show
that
you
made
an
informed
decision
based
on
some
principle
of
business.
found
that
the
value
of
$55
was
only
about
60%
of
what
the
company
was
worth.
Van
Gorkom
called
an
emergency
meeting
of
the
board
of
directors,
proposed
the
merger,
and
the
directors
gave
preliminary
approval.
In
the
meeting,
Van
Gorkom
did
not
disclose
that
there
was
no
basis
for
the
$55
price
and
that
there
had
been
objections
by
Trans
Union
management
regarding
the
merger.
Neither
did
he
provide
the
directors
with
copies
of
the
merger
agreement.
The
directors
eventually
Held:
NO.
The
Court
found
that
the
directors
breached
their
fiduciary
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
unlawful
by
law
which
imposes
penalties
for
commission
of
such
unlawful
acts.
There
must
be
a
law
declaring
the
act
unlawful
and
penalizing
the
act.
Carag
v.
NLRC,
520
SCRA
28
(2007);
Dy-
Dumalasa
v.
Fernandez,
593
SCRA
656
(2009).
D.
Duty
of
Loyalty
(Sections
31
to
34)
Section
32.
Dealings
of
directors,
trustees
or
officers
with
the
corporation.
A
contract
of
the
corporation
with
one
or
more
of
its
directors
or
trustees
or
officers
is
voidable,
at
the
option
of
such
corporation,
unless
all
the
following
conditions
are
present:
1.
That
the
presence
of
such
director
or
trustee
in
the
board
meeting
in
which
the
contract
was
approved
was
not
necessary
to
constitute
a
quorum
for
such
meeting;
2.
That
the
vote
of
such
director
or
trustee
was
not
necessary
for
the
approval
of
the
contract;
3.
That
the
contract
is
fair
and
reasonable
under
the
circumstances;
and
4.
That
in
case
of
an
officer,
the
contract
has
been
previously
authorized
by
the
board
of
directors.
Where
any
of
the
first
two
conditions
set
forth
in
the
preceding
paragraph
is
absent,
in
the
case
of
a
contract
with
a
director
or
trustee,
such
contract
may
be
ratified
by
the
vote
of
the
stockholders
representing
at
least
two-thirds
(2/3)
of
the
outstanding
capital
stock
or
of
at
least
two-thirds
(2/3)
of
the
members
in
a
meeting
called
for
the
purpose:
Provided,
That
full
disclosure
of
the
adverse
interest
of
the
directors
or
trustees
involved
is
made
at
such
meeting:
Provided,
however,
That
the
contract
is
fair
and
reasonable
under
the
circumstances.
Section
33.
Contracts
between
corporations
with
interlocking
directors.
Except
in
cases
of
fraud,
and
provided
the
contract
is
fair
and
reasonable
under
the
circumstances,
a
contract
between
two
or
more
corporations
having
interlocking
directors
shall
not
be
invalidated
on
that
ground
alone:
Provided,
That
if
the
interest
of
the
interlocking
director
in
one
corporation
is
substantial
and
his
interest
in
the
other
corporation
or
corporations
is
merely
nominal,
he
shall
be
subject
to
the
provisions
of
the
preceding
section
insofar
as
the
latter
corporation
or
corporations
are
concerned.
Stockholdings
exceeding
twenty
(20%)
percent
of
the
outstanding
capital
stock
shall
be
considered
substantial
for
purposes
of
interlocking
directors.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Section
34.
Disloyalty
of
a
director.
Where
a
director,
by
virtue
of
his
office,
acquires
for
himself
a
business
opportunity
which
should
belong
to
the
corporation,
thereby
obtaining
profits
to
the
prejudice
of
such
corporation,
he
must
account
to
the
latter
for
all
such
profits
by
refunding
the
same,
unless
his
act
Gokongwei
v.
SEC
corporation
Issue:
Whether
or
not
the
corporation
has
the
power
to
disqualify
a
competitor
from
being
elected
to
the
board
of
directors
as
a
reasonable
exercise
of
corporate
authority
Held:
YES.
It
is
well
established
that
corporate
officers
"are
not
permitted
to
use
their
position
of
trust
and
confidence
to
further
their
private
interests."
It
is
not
denied
that
a
member
of
the
Board
of
Directors
of
the
San
Miguel
Corporation
has
access
to
sensitive
and
highly
confidential
information,
such
as:
(a)
marketing
strategies
and
pricing
structure;
(b)
budget
for
expansion
and
diversification;
(c)
research
and
development;
and
(d)
sources
of
funding,
availability
of
personnel,
proposals
of
mergers
or
tie-ups
with
other
firms.
It
is
obviously
to
prevent
the
creation
of
an
opportunity
for
an
officer
or
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
director
of
San
Miguel
Corporation,
who
is
also
the
officer
or
owner
of
a
competing
corporation,
from
taking
advantage
of
the
information
which
he
acquires
as
director
to
promote
his
individual
or
corporate
interests
to
the
prejudice
of
San
Miguel
Corporation
and
its
stockholders,
that
the
questioned
amendment
of
the
by-laws
was
made.
Certainly,
where
two
corporations
are
competitive
in
a
substantial
sense,
it
would
seem
improbable,
if
not
impossible,
for
the
director,
if
he
were
to
discharge
effectively
his
duty,
to
satisfy
his
loyalty
to
both
corporations
and
place
the
performance
of
his
corporation
duties
above
his
personal
concerns.
Doctrine:
See
above.
E.
Duty
to
Creditors
and
Outsiders
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
sell
and
dispose
of
all
of
its
property.
A
transaction
done
in
good
faith
which
achieves
substantial
justice
cannot
be
disturbed
based
on
mere
suspicions.
Doctrine:
Generally
speaking,
the
voice
of
a
majority
of
the
stockholders
is
the
law
of
the
corporation,
but
there
are
exceptions
to
this
rule.
There
must
necessarily
be
a
limit
upon
the
power
of
the
majority.
Without
such
a
limit
the
will
of
the
majority
would
be
absolute
and
irresistible
and
might
easily
degenerate
into
an
arbitrary
tyranny.
Notwithstanding
these
limitations
upon
the
power
of
the
majority
of
the
stockholders,
their
(the
majoritys)
resolutions,
when
passed
in
good
faith
and
for
a
just
cause,
deserve
careful
consideration
and
are
generally
binding
upon
the minority.
F.
Corporate
Dealings
with
Directors
and
Officers
(Section
32)
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
cannot
bind
it.
Yasuma
v.
Heirs
of
Cecilio
S.
De
Villa,
499
SCRA
466
(2006);
Litonjua
v.
Eternit
Corp.,
490
SCRA
204
(2006).
A.
Powers
of
Corporate
Officers:
Yu
Chuck
v.
Kong
Li
Po,
46
Phil.
608,
614
(1924);
Cebu
Mactan
Members
Center
Inc.
v.
Tsukahara,
593
SCRA
172
(2009).
and
the
foreclosure
sale.
Pending
its
resolution
in
the
Supreme
Court,
Associated
Bank
negotiated
with
the
Spouses
Pronstroller
through
Atty.
Jose
Soluta,
the
banks
Vice
President
and
member
of
its
Board
of
Directors.
Letter
agreements
were
executed
whereby
the
Spouses
Pronstrollers
would
give
a
downpayment
(first
letter
agreement),
and
then
given
an
extension
to
pay
the
balance
which
would
be
given
upon
delivery
of
the
property
subsequent
to
the
resolution
of
the
Vaca
case
with
such
property
being
free
from
occupants
(embodied
in
the
second
letter
agreement).
Later,
the
bank
reorganized
its
management
and
Atty.
Dayday
replaced
Atty.
Soluta.
Atty.
Dayday
informed
Spouses
Pronstroller
that
their
deposit
would
be
forfeited
because
the
second
letter
agreement
was
a
mistake
because
Atty.
Soluta
had
no
authority
to
give
an
extension.
Issue:
Whether
or
not
Associated
Bank
is
bound
by
the
Letter-
Agreement
signed
by
Atty.
Soluta
under
the
doctrine
of
apparent
authority.
Held:
YES.
Undoubtedly,
the
Associated
Bank
had
previously
allowed
Atty.
Soluta
to
enter
into
the
first
agreement
without
a
board
resolution
expressly
authorizing
him;
thus,
it
had
clothed
him
with
apparent
authority
to
modify
the
same
via
the
second
letter-agreement.
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.
Doctrine:
The
general
rule
is
that,
in
the
absence
of
authority
from
the
board
of
directors,
no
person,
not
even
its
officers,
can
validly
bind
a
corporation.
The
power
and
responsibility
to
decide
whether
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
bind
the
corporation,
unless
it
has
ratified
such
acts
or
is
estopped
from
disclaiming
them.
Reyes
v.
RCPI
Employees
Credit
Union,
Inc.,
499
SCRA
319
(2006).
corporation
should
enter
into
a
contract
that
will
bind
the
corporation
is
lodged
in
the
board
of
directors.
However,
just
as
a
natural
person
may
authorize
another
to
do
certain
acts
for
and
on
his
behalf,
the
board
may
validly
delegate
some
of
its
functions
and
powers
to
officers,
committees
and
agents.
While
the
Court
agrees
that
those
who
belong
to
the
upper
corporate
echelons
would
have
more
privileges,
it
cannot
be
presume
the
existence
of
such
privileges
or
benefitshe
who
claims
the
same
is
burdened
to
prove
not
only
the
existence
of
such
benefits
but
also
that
he
is
entitled
to
the
same.
Kwok
v.
Philippine
Carpet
Manufacturing
Corp.,
457
SCRA
465
(2005).
Peoples
Aircargo
v.
Court
of
Appeals
Facts:
Peoples
Aircargo
is
a
domestic
corporation,
which
was
organized
in
the
middle
of
1986
to
operate
a
customs
bonded
warehouse.
To
obtain
a
license
for
the
corporation
from
the
Bureau
of
Customs,
Antonio
Punsalan
Jr.,
the
corporation
president,
solicited
a
proposal
from
Stefano
Sano
(who
was
preferred
because
of
his
membership
in
the
task
force
supervising
the
transition
of
the
bureau
from
the
Marcos
to
the
Aquino
Government)
for
a
feasibility
study.
This
constituted
the
First
Contract
for
which
Sano
was
paid
for.
On
December
1086,
a
Second
Contract,
this
time
for
consultancy
services,
was
made
upon
Punsalans
request.
The
consultancy
services
included
an
Operations
Manual
and
Seminar/Workshop
for
the
employees
of
Peoples
Aircargo.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Sano
was
not
paid
for
the
2nd
contract
so
he
filed
a
collection
case.
By
this
time,
Punsalan
had
sold
his
shares
and
resigned
as
president.
Peoples
Aircargo
denied
that
Sano
conducted
Consultancy
services.
It
alleged
that
the
contract
entered
into
between
Sano
and
Punsalan
was
without
authority.
acts,
and
thus,
the
corporation
will,
as
against
anyone
who
has
in
good
faith
dealt
with
it
through
such
agent,
be
estopped
from
denying
the
agents
authority.
Issue:
Whether
or
not
Punsalan,
as
president,
has
apparent
authority
to
enter
into
the
second
contract
that
could
bind
the
corporation
Held:
YES.
Since
the
corporation
had
previously
allowed
Punsalan
to
enter
into
the
first
contract
with
Sano
without
a
board
resolution
expressly
authorizing
him,
thus,
it
had
clothed
its
president
with
apparent
authority
to
execute
the
Second
Contract.
Furthermore,
private
respondent
prepared
an
operations
manual
and
conducted
a
seminar
for
the
employees
of
petitioner
in
accordance
with
their
contract.
Petitioner
accepted
the
operations
manual,
submitted
it
to
the
Bureau
of
Customs
and
allowed
the
seminar
for
its
employees.
As
a
result
of
this,
petitioner
was
given
by
the
Bureau
of
Customs
a
license
to
operate
a
bonded
warehouse.
Even
if
the
Second
Contract
was
outside
the
usual
powers
of
the
president,
petitioners
ratification
of
said
contract
and
acceptance
of
benefits
have
made
it
binding,
nonetheless.
Doctrine:
Contracts
entered
into
by
a
corporate
president
without
express
prior
board
approval
bind
the
corporation,
when
such
officers
apparent
authority
is
established
and
when
these
contracts
are
ratified
by
the
corporation.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
4. Corporate Treasurer
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
B.
POWER
OF
THE
BOARD
TO
APPOINT
AND
TERMINATE
CORPORATE
OFFICERS
The law does not expressly indicate a limit over the term of the
Gurrea
v.
Lezama
Facts:
Gurrea
sought
to
have
Resolution
No.
65
of
the
Board
of
Directors
of
the
La
Paz
Ice
Plant
and
Cold
Storage
Co.,
Inc.,
removing
him
from
his
position
of
manager
of
said
corporation
declared
null
and
void
and
to
recover
damages
incident
thereto.
The
action
is
predicated
on
the
ground
that
said
resolution
was
adopted
in
contravention
of
the
provisions
of
the
by-laws
of
the
corporation,
of
the
Corporation
Law
and
of
the
understanding,
intention
and
agreement
reached
among
its
stockholders.
Issue:
Whether
or
not
Gurrea
was
properly
removed
from
his
position
as
manager
of
La
Paz
Ice
Plant
by
a
mere
resolution.
Held:
YES.
Guerras
position
was
only
created
by
the
officers.
The
by
laws
did
not
provide
for
the
creation
of
his
position.
Therefore,
he
may
not
be
considered
as
an
officer
and
the
manner
of
removal
provided
for
in
the
by
laws
shall
not
be
made
applicable
to
him.
He
may
thus
be
removed
by
a
mere
resolution
by
the
officers
of
the
corporation.
The
by-laws
of
the
instant
corporation
in
turn
provide
that
in
the
board
of
directors
there
shall
be
a
president,
a
vice-president,
a
secretary
and
a
treasurer.
These
are
the
only
ones
mentioned
therein
as
officers
of
the
corporation.
The
manager
is
not
included.
The
by-laws
provide
that
the
officers
of
the
corporation
may
be
removed
or
suspended
by
the
affirmative
vote
of
2/3
of
the
corporation.
The
conclusion
is
inescapable
that
Guerra
can
be
suspended
or
removed
by
said
board
of
directors
under
such
terms
as
it
may
see
fit
and
not
as
provided
for
in
the
by-
laws,
without
the
2/3
vote
of
the
stockholders,
as
required
when
an
officer
is
to
be
removed.
Doctrine:
One
distinction
between
officers
and
agents
of
a
corporation
lies
in
the
manner
of
their
creation.
An
officer
is
created
by
the
charter
of
the
corporation,
and
the
officer
is
elected
by
the
directors
or
the
stockholders.
An
agency
is
usually
created
by
the
officers,
or
one
or
more
of
them,
and
the
agent
is
appointed
by
the
same
authority.
It
is
clear
that
the
two
terms
officers
and
agents
are
by
no
means
interchangeable.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
was
that
the
appointee
held
the
appointment
at
the
pleasure
of
the
Board
of
Directors,
such
that
when
the
Board
opted
to
replace
the
incumbent,
technically
there
was
no
removal
but
only
an
expiration
of
the
term
and
there
was
no
need
of
prior
notice,
due
hearing
or
sufficient
grounds
before
the
incumbent
could
be
separated
from
office.
Mita
Pardo
de
Tavera
v.
1
Held:
NO.
Although
the
minutes
of
the
organizational
meeting
show
that
the
Chairman
mentioned
the
need
of
appointing
a
permanent
Executive
Secretary,
such
statement
alone
cannot
characterize
the
appointment
of
petitioner
without
a
contract
of
employment
definitely
fixing
her
term
because
of
the
specific
provision
of
Section
7.02
of
the
Code
of
By-Laws
that:
The
Executive
Secretary
shall
hold
office
at
the
pleasure
of
the
Board
of
Directors,
unless
their
term
of
employment
shall
have
been
fixed
in
their
contract
of
employment.
Besides
the
word
permanent
could
have
been
used
to
distinguish
the
appointment
from
acting
capacity.
Doctrine:
See
above.
under
the
Societys
by-laws,
said
position
is
held
at
the
pleasure
of
the
Board
of
Directors
and
when
the
pleasure
is
exercised,
it
only
means
that
the
incumbent
has
to
vacate
the
same
because
her
term
has
expired.
Issue:
Whether
or
not
de
Tavera
was
illegally
dismissed
PSBA
v.
Leao,
127
SCRA
778
(1984);
Dy
v.
NLRC,
145
SCRA
211
(1986);
Visayan
v.
NLRC,
196
SCRA
410
(1991);
Easycall
Communications
Phils.,
Inc.
v.
King,
478
SCRA
102
(2005);
Marc
II
Marketing,
Inc.
v.
Joson,
662
SCRA
35
(2011);
Barba
v.
Liceo
de
Cagayan
University,
686
SCRA
648
(2012).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
corporate
officer
position
and
issues
of
reinstatement
would
be
within
the
jurisdiction
of
the
SEC
and
not
the
NLRC.
Ongkingco
v.
NLRC,
270
SCRA
613
(1997).
Matling
Industrial
and
Commercial
Corp.
v.
Coros
Facts:
Ricardo
R.
Coros
is
the
Vice
President
for
Finance
and
Administration
of
Matling
Industrial
and
Commercial
Corporation.
However,
Matling
dismissed
him.
As
a
result,
Coros
filed
a
complaint
for
illegal
suspension
and
illegal
dismissal
against
Matling
and
some
of
its
corporate
officers
before
the
NLRC.
Matling,
et
al.
moved
to
dismiss
the
petition.
They
claimed
that
SEC,
and
not
NLRC,
had
jurisdiction
over
the
case,
the
matter
being
an
intra-corporate
in
nature.
This
is
because
Coros
was
also
a
member
of
the
corporations
Board
of
Directors
prior
to
his
termination.
Issue:
Whether
or
not
Coros,
as
Vice
President
for
Finance
and
Administration,
was
a
corporate
office
of
Matling
Industrial
and
Commercial
Corporation.
Held:
NO.
The
position
of
Vice
President
for
Finance
and
Administration
was
not
explicitly
written
in
the
by-laws.
Coros
was
appointed
Vice
President
by
Matlings
general
manager
and
not
by
the
Board
of
Directors.
It
was
also
the
general
manager
who
determined
the
amount
of
compensation
he
received.
Therefore,
Coros
is
merely
an
employee
and
not
a
corporate
officer.
This
being
the
case,
NLRC
and
not
SEC
has
jurisdiction
over
his
complaint
for
illegal
dismissal.
In
addition,
there
is
no
relation
between
his
acquisition
of
his
status
as
stockholder
or
Director
and
his
position
as
Vice
President
of
Finance
and
Administration.
His
position
as
stockholder
or
Director
remained
unaffected
by
his
dismissal
as
Vice
President.
This
is
not
an
intra-
corporate
controversy,
because
an
intra-corporate
controversy
is
one,
which
arises
between
a
stockholder
and
a
corporation.
Doctrine:
A
position
must
be
expressly
mentioned
in
the
By-laws
in
order
to
be
considered
as
a
corporate
office.
The
creation
of
an
office
under
a
by-law
enabling
provision
is
not
enough
to
make
a
position
a
corporate
office.
A
different
interpretation
can
easily
allow
the
Board
to
circumvent
the
constitutional
guarantee
of
security
of
tenure
by
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
including
an
enabling
clause
on
the
creation
of
any
corporate
office
in
the
by-laws.
The
Board
may
create
appointive
positions
other
than
those
expressly
mentioned
in
the
by-laws.
However,
persons
occupying
such
positions
are
not
considered
as
corporate
officers
within
the
meaning
of
Section
25.
officer
position.
Doctrine:
The
SEC
has
the
jurisdiction
over
removal
of
corporate
officers
as
well
as
intra-corporate
affairs
regarding
election
and
appointment
of
corporate
officers.
(2009).
De
Rossi
v.
NLRC
Facts:
Armando
de
Rossi
is
an
Italian
Citizen
and
was
the
Executive
Vice-
President
and
General
Manager
of
Matling
Industrial
and
Commercial
Corp.
(MICC).
He
started
to
work
in
1985
and
was
terminated
in
1988
for
failing
to
secure
his
employment
permit
and
grossly
mismanaged
the
business
affairs
of
the
companyhe
allegedly
diverted
corporate
funds
to
his
personal
use.
Aggrieved,
he
then
filed
a
case
against
MICC
in
the
NLRC
for
illegal
dismissal.
Issue:
Whether
or
not
the
NLRC
has
jurisdiction
over
illegal
dismissal
Palay,
Inc.
v.
Clave
Pabalan
v.
NLRC,
184
SCRA
495
(1990);
Sulo
ng
Bayan,
Inc.
v.
Araneta,
Inc.
Inc.,
72
SCRA
347
(1976);
Mindanao
Motors
Lines,
Inc.
v.
CIR,
6
SCRA
710
(1962).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Facts:
Palay,
Inc.,
through
its
President,
Albert
Onstott
executed
a
Contract
to
Sell
a
parcel
of
land
to
Dumpit.
Paragraph
6
of
the
contract
provided
for
automatic
extrajudicial
rescission
upon
default
in
payment
of
any
monthly
installment
after
the
lapse
of
90
days
from
the
already
been
resold.
Dumpit
filed
a
letter
complaint
with
the
National
Housing
Authority
(NHA)
for
reconveyance.
Issue:
Whether
or
not
petitioners
may
be
held
liable
for
the
refund
of
the
installment
payments
made
by
Dumpit.
Held:
YES.
Rights
to
the
lot
should
be
restored
to
Dumpit
or
the
same
are,
as
a
general
rule,
not
personally
liable
for
their
official
acts,
because
a
corporation,
by
legal
fiction,
has
a
personality
separate
and
distinct
from
its
officers,
stockholders
and
members.
Price
v.
Innodata
Phils.,
Inc.,
567
SCRA
269
(2008).1
A.
GENERAL
RULE:
Corporate
Officers
Not
Liable
for
Corporate
Debts
Republic
Planters
Bank
v.
Court
of
Appeals,
216
SCRA
738
(1992);
Lowe,
Inc.
v.
Court
of
Appeals,
596
SCRA
140
(2009);
Marc
II
Marketing,
Inc.
v.
Joson,
662
SCRA
35
(2011);
St.
Tomas
v.
Salac,
685
SCRA
245
(2012).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
to
that
effect,
due
to
the
personality
of
the
corporation
being
separate
and
distinct
from
the
persons
composing
it.
Western
Agro
Industrial
Corp.
v.
Court
of
Appeals,
188
SCRA
709
(1990).1
Rustan
Pulp
&
Paper
Mills,
Inc.
v.
IAC,
214
SCRA
665
(1992);
Banque
Generale
Belge
v.
Walter
Bull
and
Co.,
84
Phil.
164
(1949).
2
Singian,
Jr.
v.
Sandiganbayan,
478
SCRA
348
(2005)
3
Prisma
Construction
&
Dev.
Corp.
v.
Menchavez,
614
SCRA
590
(2010);
Urban
Ban,
Inc.
v.
Pena,
659
SCRA
418
(2011).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
has
to
be
pierced
to
avoid
injustice
and
inequity.
Paradise
Sauna
Massage
Corporation
v.
Ng,
181
SCRA
719
(1990).
B.
Rundown
on
Officers
Liabilities:
Tramat
Mercantile,
Inc.
v.
Court
of
Appeals,
238
SCRA
14
(1994).1
personal
capacity.
Tramat
has
its
own
distinct
and
separate
personality.
In
the
case
at
bench,
there
is
no
indication
that
petitioner
David
Ong
could
be
held
personally
accountable
under
any
of
the
mentioned
cases
(see
doctrine).
were
hidden
defects.
Ong
then
issued
a
stop
payment
for
the
check
issued
to
de
la
Cuesta
(it
seems
that
Ong
intended
to
pay
de
la
Cuesta
with
the
proceeds
of
the
sale
to
MWSS).
Because
of
this,
de
la
Cuesta
filed
an
action
for
recovery
of
the
P33,500
payment
as
well
as
P10,000
as
attorney's
fees.
Ong
answered
that
de
la
Cuesta
had
no
cause
of
action,
and
that
the
transaction
was
between
de
la
Cuesta
and
Tramat
Mercantile,
not
Ong.
Issue:
Whether
or
not
Ong
can
be
held
liable
in
his
personal
capacity.
Held:
NO.
David
Ong
was
acting
as
an
officer
of
Tramat,
not
in
his
MAM
Realty
v.
NLRC,
244
SCRA
797
(1995);
NFA
v.
Court
of
Appeals,
311
SCRA
700
(1999);
Atrium
Management
Corp.
v.
Court
of
Appeals,
353
SCRA
23
(2001);
Malayang
Samahan
ng
mga
Manggawgawa
sa
M.
Greenfield
v.
Ramos,
357
SCRA
77
(2001);
Powton
Conglomerate,
Inc.
v.
Agcolicol,
400
SCRA
523
(2003);
H.L.
Carlos
Construction,
Inc.
v.
Marina
Properties
Corp.,
421
SCRA
428
(2004);
McLeod
v.
NLRC,
512
SCRA
222
(2007).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
personally
the
payment
of
the
corporations
debt
embodied
in
the
trust
receipts.
Debts
incurred
by
directors,
officers
and
employees
acting
as
such
corporate
agents
are
not
theirs
but
the
direct
liability
of
the
corporation
they
represent.
As
an
exception,
directors
or
officers
are
personally
liable
for
the
corporations
debt
if
they
so
contractually
agree
or
stipulate.
Tupaz
IV
v.
Court
of
Appeals,
476
SCRA
398
(2005).
Bad
faith
does
not
arise
just
because
a
corporation
fails
to
pay
its
obligation,
because
the
inability
to
pay
ones
obligation
is
not
synonymous
with
fraudulent
intent
not
to
honor
the
obligations.
In
order
to
piece
the
veil
of
corporate
fiction,
for
reasons
of
negligence
by
the
director,
trustee
or
officer
in
the
conduct
of
the
transactions
of
the
corporation,
such
negligence
must
be
gross.
Magaling
v.
Ong,
562
SCRA
152
(2008).
C.
SPECIAL
PROVISIONS
IN
LABOR
LAWS:
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
and
bad
faith
in
terminating
their
employment.
AHS/Philippines
v.
Court
of
Appeals,
257
SCRA
319
(1996).2
AMA Computer College-East Rizal v. Ignacio, 590 SCRA 633, 659-660 (2009).
Reiterated
in
Nicario
v.
NLRC,
295
SCRA
619
(1998);
Flight
Attendants
and
Stewards
Association
of
the
Philippines
v.
Philippine
Airlines,
559
SCRA
252
(2008);
M+W
Zander
Philippines,
Inc.
v.
Enriquez,
588
SCRA
590
(2009);
AMA
Computer
College-East
Rizal
v.
Ignacio,
590
SCRA
633,
659-660
(2009);
Lowe,
Inc.
v.
Court
of
Appeals,
596
SCRA
140,
155
(2009);
Peaflor
v.
Outdoor
Clothing
Manufacturing
Corp.,
618
SCRA
208
(2010).
3
Reiterated
in
Gudez
v.
NLRC,
183
SCRA
644
(1990);
Chua
v.
NLRC,
182
SCRA
353
(1990);
Reahs
Corp.
v.
NLRC,
271
SCRA
247
(1997)
4
Culili
v.
Eastern
Telecommunications
Philippines,
Inc.,
642
SCRA
338
(2011);
Grandteq
Industrial
Steel
Products,
Inc.
v.
Estrella,
646
SCRA
391
(2011);
Alert
Security
and
Investigation
Agency,
Inc.
v.
Pasawilan,
657
SCRA
655
(2011);
Lynvil
Fishing
Enterprises,
Inc.
v.
Ariola,
664
SCRA
679
(2012);
Blue
Sky
Trading
Co.,
Inc.
v.
Blas,
667
SCRA
727
(2012).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
A.C.
Ransom
will
apply
only
where
the
persons
who
are
made
personally
liable
for
the
employees
claims
are
stockholders-
officers
of
employer-corporation.
In
the
case
at
bar,
a
mere
general
manager
while
admittedly
the
highest
ranking
local
representative
of
the
corporation,
is
nevertheless
not
a
stockholder
and
much
less
a
member
of
the
Board
of
Directors
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
D.
Personal
Liability
of
Trustees
and
Officers
of
Non-Stock
Corporation
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)