Corporation as an Artificial Personality 1. Liability for Acts/ Contracts GR: Obligations incurred by a corporation, acting through its authorized agents, are its sole liabilities. May not, generally be made to answer for acts of its stockholders/members/legal entities to which it may be connected. o Suit against certain SHs cannot ipso facto be a suit against the unpleaded corporation. Corporate officer not personally & solidarily liable w/ the corporation for the money claims of discharged employees unless he acted with evident BF and malice in terminating their employment. ( Business Day v. NLRC, 1993) All contracts entered into in its name by its regular appointed officers/agents are contracts of corporation and not the SHs or members. Cannot be held liable for the personal indebtedness of a SH even if he should be its president. In the absence of stipulation, officers cannot be made liable in their individual capacity for contracts entered into in their official capacity. Distinct Personality: o Manager, acting in GF and within scope of authority in terminating employees cannot be held liable for damages o In cases of illegal dismissal, directors and officers are solidarily liable with the corporation. Veil may be pierced. Property of corporation is not property of the stockholders and may not be sold by them w/o express authorization of BOD or trustees. 2. Liability when exceptional circumstances warrant: o When D/T/O acted maliciously, in BF, or with gross negligence; o Agreed to personal liability; o Specific provision of the law; o Used fiction of separate personality to defraud 3 rd persons 3. Right to Bring Actions: May incur obligations and bring civil and criminal actions. ( Art. 46, NCC) Cannot perform certain actions that can only be done by natural persons ( practice of law/ medicine) No personality to bring an action for and in behalf of its SH/ members to recover property belonging to said SH/members in their personal capacity In cases of slander/libel, corporations whose good reputation has been besmirched may have ground for moral damages. (2217, NCC) 4. Right to Acquire and Possess Property: May acquire & possess all kinds of property. (46, NCC) Its property and not that of SH and members and vice-versa. SH/members are in no legal sense the owners of corporate property or credits, which is owned by the corporation as a distinct person. (Traders Royal Bank v. CA, 1989) Shares of stock represent a proportionate interest in the property of the corporation; does not vest the owner thereof with any legal right/title to any of the properties of the corporation owned by the latter as a distinct juridical person. ( Saw v. CA, 1991) Interest of SH in corporate property is purely inchoate; doesnt entitle them to intervene in a litigation involving corporate property. Right of refusal over shares pertains to the SHs whereas the capacity to own the land pertains to the corporation. ( JG Summit v. CA, 2005) 5. Acquisition by Court of Jurisdiction: Participation by GM of corporation in an action involving the corporation cannot equate to participation by another corporation in the same proceedings, merely because said GM is also the Chairman of the second corporation. ( Padilla v. CA, 2001) 6. Changes in Individual Membership: Corporation identity remains unchanged and unaffected by changes in its individual membership. DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY: 1. When legal fiction to be disregarded: a. Where the fiction of corporate entity is being used to cloak or cover for fraud/ illegality, or to defeat public convenience, justify wrong, protect fraud or defend crime (Yutivo v. CTA, 1961) b. Requires the court to see through the protective shroud which exempts its SH from liabilities that ordinarily they could be subject to, or distinguishes one corporation from a separate one, were it not for the existing corporate fiction. ( Lim v. CA, 2000) ( Marubeni v. Lirag, 2001) c. For the corporate legal entity to be disregarded the wrongdoing must be clearly and convincingly established; it cannot be presumed. ( Del Rosario v. NLRC, 1990) 2. Effect as to Liability: a. Corporation will be treated merely as an association of persons and the SH/ members will be considered as the corporation. Liability attaches personally or directly to them. b. Where there are 2 corporations, they will be merged into one. The other merely regarded as the instrumentality, agency, or conduit of the other. (Cease v. CA, 1979) c. Transactions of the real parties shall be dealt with as if no corporation had been formed. (Republic v. Sandiganbayan, 1997) d. But corporation continues existence for other legitimate objectives. ( Pamplona Plantation v. Tingkil, 2005) 3. Application of Doctrine in 3 areas: a. Defeat of public convenience; when used as vehicle to evade an existing obligation; b. Fraud cases; when used to justify a wrong, protect fraud or defend a crime; c. Alter Ego cases: where a corporation is merely a farce since it is a mere alter ego or business conduit of a person; So organized and controlled so as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 4. Test of Applicability of Doctrine: a. Control or complete dominion not only of finances but of policy and business in respect to the transaction attacked so that the corporate entity at the time had no separate mind, will or existence of its own; b. Such control must have been used to commit fraud or wrong; and c. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. PNB v. Andrada, 2002: The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues (Jacinto vs. CA, 198 SCRA 211). The theory of corporate entity was not meant to promote unfair objectives or otherwise, to shield them (Villanueva vs. Adre, 172 SCRA 876). Likewise, where it appears that two business enterprises are owned, conducted, and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that two corporations are distinct entities, and treat them as identical (Phil. Veterans Investment Development Corp. vs. CA, 181 SCRA 669).
Arcilla v. CA, 1992: By its clear and unequivocal language, it is the petitioner who was declared liable therefor and consequently made to pay. That he was ordered to do so as President would not free him from the responsibility of paying the due amount simply because according to him, he had ceased to be corporate president. Such conclusion stems from the fact that the public respondent, in resolving his motion for clarificatory judgment, pierced the veil of corporate fictional and cast aside the contention that both he and the corporation have separate and distinct personalities. In short, even if We are to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and alter ego. Cease v. CA, 1979: Tiaong Milling and Plantation Company, Inc. as registered owner asserted ownership of the assets and properties involved in the litigation, which theory must necessarily be based on the assumption that said assets and properties of Tiaong Milling and Plantation Company, Inc. now appearing under the name of F. L. Cease Plantation Company as Trustee are distinct and separate from the estate of Forrest L. Cease to which petitioners and respondents as legal heirs of said Forrest L. Cease are equally entitled share and share alike, then that legal fiction of separate corporate personality shall have been used to delay and ultimately deprive and defraud the respondents of their successional rights to the estate of their deceased father. Villanueva v. Adre, 1989: Accordingly, Velayo cannot be excused from payment of SCIPSI's liability by mere reason of SCIPSI's separate corporate existence. The theory of corporate entity, in the first place, was not meant to promote unfair objectives or otherwise, to shield them. This Court has not hesitated in penetrating the veil of corporate fiction when it would defeat the ends envisaged by law, not to mention the clear decree of the Labor Code. Incorporation and Organization Commencement 1. Promoter: a person who, acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor.(Sec. 3.10, Securities Regulation Code [R.A. 8799]) a. Liability of Promoter Fiduciary or quasi-trust relation toward the corporation when it comes into existence and to the subscribers prior to its organization, as long as they are acting as promoters b. Liability of Corporation for Promoters Contracts Before incorporation & organization- not liable for any contracts attempted by promoter unless contract is expressly/impliedly ratified after organization is completed After incorporation & organization- Deemed suspended and enforceable unless ratified since promoter contract was not made by corporation itself; may ratify it. Pioneer Surety v. CA, 1989: No de facto partnership was created among the parties which would entitle Lim to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. 2. Number & Qualifications of Incorporators (Sec.10) a. Not less than 5, not more than 15; b. Natural persons ;all of legal age; c. Residency Requirement: Majority are residents of the Philippines; d. Each must subscribe to at least one share of the capital stock General practice is for incorporators to serve as first directors of the corporation. Residency Requirement: Hyatt Elevators v. Goldstar,2005: For practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation. Even before this ruling, it has already been established that the residence of a corporation is the place where its principal office is established. 3. Limitations on Use of Corporate Name: a. A corporation may change its name by the amendment of its articles of incorporation, but the same is not effective until approved by the SEC.( Philippine First Insurance Co. v. Hartigan, 34 SCRA 252 (1970)) b. A change in the corporate name does not make a new corporation, and whether affected by special act or under a general law, has no effect on the identity of the corporation, or on its property, rights, or liabilities. (Republic Planters Bank v. CA, 216 SCRA 738, 1992). c. Similarity in corporate names between two corporations would cause confusion to the public especially when the purposes stated in their charter are also the same type of business. (Universal Mills Corp. v. Universal Textile Mills Inc., 78 SCRA 62, 1977). d. A corporation has not right to intervene in a suit using a name other than its registered name; if a corporation legally and truly wants to intervene, it should have used its corporate name as the law requires and not another name which it had not registered. (Laureano Investment and Development Corporation v. CA, 1997). e. There would be no denial of due process when a corporation is sued and judgment is rendered against it under its unregistered trade name, holding that a corporation may be sued under the name by which it makes itself known to its workers. (Pison-Arceo Agricultural Development Corp. v. NLRC, 279 SCRA 312,1997)
4. Corporate Term (Sec.11) Shall exist for a period not exceeding 50 years, unless sooner dissolved or revoked upon any grounds provided by law; Amendment to extend is effected before expiration of existence; Amendment cannot be made earlier than 5 years prior to the expiration date unless there are justifiable reasons as determined by the SEC. Alhambra Cigar v. CA, 1989: The steps necessary to effect the extension must be taken during the life of the corporation, and before the expiration of the term of existence as original fixed by its charter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. NHA v. CA, 2005: The law clearly limits any usufruct constituted in favor of a corporation or association to 50 years. A usufruct is meant only as a lifetime grant. Unlike a natural person, a corporation or associations lifetime may be extended indefinitely. 5. Minimum Capital Stock and Subscription Requirements (Sec.12): The Code does not set a minimum authorized capital stock requirement except as otherwise provided by special law as long as the paid up capital as required by Sec. 13 is not less than P5,000. Special laws may require a higher paid-up capital, as in the case of commercial banks, insurance companies and investment houses. PLDT v. NTC, 2007: The capital subscribed is the total amount of the capital that persons (subscribers or shareholders) have agreed to take and pay for, which need not necessarily by, and can be more than, the par value of the shares. In fine, it is the amount that the corporation receives, inclusive of the premiums if any, in consideration of the original issuance of the shares. In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to its capital account. Lanuza v. CA, 2005: Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be the founders shares or common shares. In the instant case, two figures are being pitted against each other those contained in the articles of incorporation, and those listed in the stock and transfer book. 6. Articles of Incorporation a. Nature & Functions of Articles One that defines the charter of the corporation and the contractual relationships between the: (1) State and the corporation; (2) Stockholders and the State; (3) Corporation and the stockholders. Copy of AOI returned with the certificate of incorporation becomes its corporate charter enabling the corporation to exist and function as such. A corporation created by special law has no AOI. b. Contents ( Sec.14) (1) Name of the corporation (2) Specific purpose/purposes; if more than one purpose stated, specify primary and secondary purpose; (3) Place of principal office, must be in Phil.; (4) Term of existence; (5) Names, nationalities, and residences of the incorporators; (6) Number of directors/trustees ( no less than 5, no more than 15); (7) Names, nationalities & residences of acting D/T until the first regular D/T are elected (8) If stock: (a) Amount of authorized capital stock (b) Number of shares divided to (c) Par value: (i) Par value of each, (ii) Names, nationalities & residence of each subscriber (iii) Amount subscribed and paid by each on his subscription (d) If some/all are without par value, such fact must be stated. (9) If non-stock: (a) Amount of capital (b) Names, nationality and residences of the contributors (c) Amount contributed by each (10) Such other matters not inconsistent with the law. SEC will not accept AOI unless accompanied by sworn statement of Treasurer that at least 25% of the ACS has been subscribed, and at least 25% of the total subscription has been fully paid to him in actual cash or property Such paid-up capital being not less than P5000. c. Amendment Reserved Power of State to amend corporate charter (1) Constitutional authority: Sec.11, Art.12, when the common good requires. (2) Statutory authority: Impliedly reserved in Sec.145 of Code, subject to limitation provided with respect to vested rights that have accrued, and prohibition against impairment of obligation of contracts. Power of Stockholders/Members to Amend (1) Expressly conferred by: (a) Sec.16- amendments in general; (b) Sec.37- Extension/Shortening of corporate term; (c) Sec. 38-Increasing/decreasing capital stock (d) Also expressly granted in Sec. 36
d. Non-Amendable Items Portion stating names of incorporators and the 1 st set of director/trustees Names, etc. of subscribers, the treasurer of the corporation elected by the subscribers and the witnesses Except to correct mistakes 7. Registration and Issuance of Certificate of Incorporation 8. Adoption of By-laws a. Nature and Functions of By-laws b. Requisite of Valid By-laws c. Binding Effects d. Amendment or Revision Loyola Grand Villas v. CA, 1997: By-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation. CBC v. CA, 1997: The general rule really is that third persons are not bound by the by-laws of a corporation since they are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third persons have actual or constructive knowledge of the same. In the case at bar, petitioner had actual knowledge of the by-laws of private respondent when petitioner foreclosed the pledge made by Calapatia and when petitioner purchased the share foreclosed on September 17, 1985. This is proven by the fact that prior thereto, i.e., on May 14, 1985 petitioner even quoted a portion of private respondent's by-laws which is material to the issue herein in a letter it wrote to private respondent. Because of this actual knowledge of such by-laws then the same bound the petitioner as of the time when petitioner purchased the share. 9. Corporate Powers Capacity or right under its charter and laws to do certain things. Exercised by BOD/Trustees Corporation can act only through its BOD/ or BOT b. General Powers, Theory of General Capacity c. Specific Powers, Theory of Specific Capacity Montelibano v. Bacolod Murcia, 1962: Whether the business of a corporation should be operated at a loss during depression, or close down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation and not by the court. It is a well-known rule of law 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 of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts. Power to Extend/ Shorten Corporate Term Power to Increase/Decrease Capital Stock or Incur, Create, Increase Bonded Indebtedness Power to Deny Pre-Emptive Rights Power to Sell/Dispose of Corporate Assets AF Realty v. Dieselman, 2002: Contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director are held not binding on the corporation. Power to Acquire Own Shares Power to Invest Corporate Funds in Another Corporation/Business Power to Declare Dividends Power to Enter into Management Contracts Ultra Vires Acts (1) Applicability of Ultra Vires Doctrine (2) Consequences of Ultra Vires Acts
d. How Corporate Power is Exercised By Shareholders By the Board of Directors Tramat Mercantile v. CA, 1994: Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; He agrees to hold himself personally and solidarily liable with the corporation; or He is made, by a specific provision of law, to personally answer for his corporate action. Hornilla v. Salunat, 2003: Where corporate directors have committed a breach of trust either by their frauds, ultra vires acts, or negligence, and the corporation is unable or unwilling to institute suit to remedy the wrong, a stockholder may sue on behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong done directly to the corporation and indirectly to the stockholders. This is what is known as a derivative suit, and settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporations behalf is only nominal party. The corporation should be included as a party in the suit. Valle Verde v. Africa, 2009: The holdover period is not part of the term of office of a member of the board of directors. The word "term" has acquired a definite meaning in jurisprudence. In several cases, we have defined "term" as the time during which the officer may claim to hold the office as of right, and fixes the interval after which the several incumbents shall succeed one another.7 The term of office is not affected by the holdover.8 The term is fixed by statute and it does not change simply because the office may have become vacant, nor because the incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and has failed to qualify. ABS-CBN v. CA, 1999: Corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the film package for 140 films be maintained. By the Officers San Juan v. CA, 1998: That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation. Selling is obviously foreign to a corporate treasurer's function, which generally has been described as "to receive and keep the funds of the corporation, and to disburse them in accordance with the authority given him by the board or the properly authorized officers. e. Trust Fund Doctrine: The subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits, and which the corporation may not dissipate. The creditors may sue the stockholders directly for the latters unpaid subscription. If solvent: TFD extends to the capital stock represented by the corporations legal capital If insolvent: extends to capital stock as well as its properties and asstes CIR v. CA, 1999: The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine wherein the capital stock, property and other assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. Once capital, it is always capital. That doctrine was intended for the protection of corporate creditors. Boman Environmental v. CA, 1988: The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which means that the capital stock, property and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void. "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. Steinberg v. Velasco, 1929: The directors of a corporation are bound to care for its property and manage its affairs in good faith, and for a violation of these duties resulting in waste of its assets or injury to the property they are liable to account the same as other trustees. As there can be no doubt that if they do acts clearly beyond their power, whereby loss ensues to the corporation, or dispose of its property or pay away its money without authority, they will be required to make good the loss out of their private estates. This is the rule where the disposition made of money or property of the corporation is one either not within the lawful power of the corporation, or, if within the authority of the particular officer or officers. 10. Board of Directors and Trustees a. Doctrine of Centralized Management Islamic Directorate v. CA 1997: For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. These twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to appear to be. Apparently, there are only fifteen (15) official members of the petitioner corporation including the eight (8) members of the Board of Trustees. b. Business Judgment Rule PASTRA v. CA 2007: The regulatory and supervisory powers of the Commission under Section 40 of the then Revised Securities Act, in our view, were broad enough to include the power to regulate petitioners fees. Indeed, Section 47 gave the Commission the power to enjoin motu proprio any act or practice of petitioner which could cause grave or irreparable injury or prejudice to the investing public. The intentional omission in the law of any qualification as to what acts or practices are subject to the control and supervision of the SEC under Section 47 confirms the broad extent of the SECs regulatory powers over the operations of securities-related organizations like petitioner. Gurrea v. Lezama, 1958: As our law provides that only those enumerated in the charter or in the by-laws are considered officers, the manager who has not been so enumerated therein, but only incidentally mentioned in the order of management, cannot be considered an officer of the corporation within their purview. The mere fact that the directors are not mentioned in the by-laws as officers does not deprive them of their category as such for their character as officer is secured in the charter. The same is not true with the manager. Customs and corporate usages cannot prevail over the express provisions of the charter and the by-laws. c. Tenure, Qualifications, & Disqualification of Directors or Trustees Gokongwei v. SEC, 1979. 1980: An amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid." 24 This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the corporation and is good." Valle Verde v. Africa: The underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by a board of directors whose members have stood for election, and who have actually been elected by the stockholders, on an annual basis. Only in that way can the directors' continued accountability to shareholders, and the legitimacy of their decisions that bind the corporation's stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers over properties that they do not own. d. Elections Cumulative Voting/Straight Voting- SH may vote such number of shares for as many persons as there are directors to be elected. Cumulative Voting for One Candidate- SH is allowed to concentrate his votes and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal. SH Share x # of director candidates= total voting share Cumulative Voting by Distribution- SH may also distribute the same among as many candidates as he shall see fit. Quorum- Unless the AOI or by-laws provide for a greater majority, a majority of the number of directors/trustees as fixed in the AOI shall constitute a quorum
e. Removal Grace Christian High v. CA: The board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Raniel v. Jochico 2007: Only stockholders or members have the power to remove the directors or trustees elected by them, as laid down in Section 28 of the Corporation Code, which provides in part: 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, Velarde v. Lopez 2004: The question of remuneration involving a person who is not a mere employee but a stockholder and officer of the corporation is not a simple labor problem but a matter that comes within the area of corporate affairs and management, and is in fact a corporate controversy in contemplation of the Corporation Code. f. Filing of Vacancies Valle Verde: SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office." Tan v. Sycip, 2006: Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a quorum. The phrase "may be filled" in Section 29 shows that the filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive, not mandatory. Corporations, therefore, may choose how vacancies in their respective boards may be filled up -- either by the remaining directors constituting a quorum, or by the stockholders or members in a regular or special meeting called for the purpose. The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of directors; that is, by a majority vote of the remaining members of the board. g. Compensation Singson v. COA, 2010: The directors of a corporation shall not receive any compensation for being members of the board of directors, except for reasonable per diems. The two instances where the directors are to be entitled to compensation shall be when it is fixed by the corporations by-laws or when the stockholders, representing at least a majority of the outstanding capital stock, vote to grant the same at a regular or special stockholders meeting, subject to the qualification that, in any of the two situations, the total yearly compensation of directors, as such directors, shall in no case exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. WIT v Salas, 1997: There is no argument that 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 the foregoing section, 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. CCE v. Enciso, 1988: This Court held that the right of the stockholders to determine the compensation of the Board of Directors was explicitly reserved and even without said reservation, the directors are not entitled to compensation. Moreover, this Court declared that the law is well settled that directors of corporations presumptively serve without compensation so that while the directors, in assigning themselves additional duties acted within their power, they nonetheless acted in excess of their authority by voting for themselves compensation for such additional duties. h. Fiduciary Duties and Liability Rules Doctrine of Corporate Opportunity- if there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and by embracing the opportunity, the self-interest of the officer or director will be brought into seize the opportunity for himself. And, if, in such circumstances, the interests of the corporation are betrayed, the corporation may elect to claim all of the benefits of the transaction for itself and the law will impress a trust in favor of the corporation upon the property interests and profits so acquired. Santos v. NLRC,1996: Personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: When (1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; (2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) He agrees to hold himself personally and solidarily liable with the corporation; or (4) He is made, by a specific provision of law, to personally answer for his corporate action. AC Ransom v. NLRC: The record does not clearly Identify "the officer or officers" of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is with the "Manager" or in his default, the person acting as such. In RANSOM, the President appears to be the Manager. Carag v. NLRC, 2007: For a wrongdoing to make a director personally liable for debts of the corporation, the wrongdoing approved or assented to by the director must be a patently unlawful act. Mere failure to comply with the notice requirement of labor laws on company closure or dismissal of employees does not amount to a patently unlawful act. Patently unlawful acts are those declared 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. i. Responsibility for Crimes j. Inside Information k. Contracts By Self-Dealing Corporations with the Corporation (1) Generally, contract is voidable at option of corporation (S32): the directors/trustees/officers occupy a fiduciary relation towards it, and cannot be allowed to contract with the corporation, directly/indirectly or to sell or purchase property from it, where they both act for the corp. and themselves, unless: (a) Contract was approved where the contracting director was not needed to constitute a quorum; (b) Vote of that director was not needed to approve the contract; (c) Contract is fair and reasonable; (d) In case of an officer, contract was previously authorized by BOD1 (2) Exceptions: (a) If all conditions in Sec. 32 are present; (b) Not all conditions present, but the corp (through the board) elects not to question the validity of contract w/o prejudice to the liability of the consenting D/T for the damages under S31. (i) In such case, dissenting SH may file a derivative suit in behalf of corporation (c) In case of contract with D/T, only the 3 rd condition is present. Between Corporations and Interlocking Directors: Valid as long as there is no fraud and the contract is fair and reasonable under the circumstances (1) Contract fair and reasonable under the circumstances; (2) If interest of such director in 1 corp is substantial, and nominal in the other, he shall be subject to provisions of Sec.32 insofar as the latter corp is concerned. (3) Substantial- exceeding 20% of OCS for purposes of interlocking directors. Management Contracts: Contract where a corporation undertakes to manage/operate all/substantially all of the business of another corporation (1) With another corporation- Under S44, expressly allowed, w/o need of amending its AOI, to enter into management contracts with another corporation; (2) With parent corporation-Absent finding of fraud or bad faith, may be held legal where purpose is to make operation more efficient and convenient for both (3) Limitations: (a) Must be approved by majority quorum of BOD and SH in special meeting for that purpose; (b) If SHs who own 1/3 of OCS in BOTH corp OR BOD of managing corp are also majority of BOD of managed corp: Must be approved by 2/3 of of OCS/members. (c) No mgt. contract shall be entered into for a period longer than 5 years for any term. (i) If service contract for exploration of natural resources, may use period provided by pertinent laws/regulations.
Yao Ka Sin v. CA, 1992: While there can be no question that Mr. Maglana was an officer, the President and Chairman of private respondent corporation at the time he signed, the above provisions of said private respondent's By-Laws do not in any way confer upon the President the authority to enter into contracts for the corporation independently, of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to expedite or facilitate the execution of the contract, only the President and not all the members of the Board, or so much thereof as are required for the act, shall sign it for the corporation. This is the import of the words through the president in Exhibit "8-A" and the clear intent of the power of the chairman "to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into. Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed that any power greater than that expressly conferred is inherent in Mr. Maglana's position as president and chairman of the corporation.
Westmont v. Inland, 2009: The general rule remains that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.
If a corporation, however, consciously lets one of its officers, or any other agent, to act within the scope of an apparent authority, it will be estopped from denying such officers authority.
DBP v. CA,2001: Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement. As Remington itself concedes, DBP is not authorized by its charter to engage in the mining business. 13 The creation of the three corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In the absence of any entity willing to purchase these assets from the bank, what else would it do with these properties in the meantime? Sound business practice required that they be utilized for the purposes for which they were intended.
l. Executive Committee: Safic Alcan v. Imperial, 2001: It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket authority to bind IVO to any contract. He must act according to the instructions of the Board of Directors. Even in instances when he was authorized to act according to his discretion, it must not conflict with prior Board orders, resolutions and instructions. The evidence shows that the IVO Board knew nothing of the 1986 contracts 6 and that it did not authorize Monteverde to enter into speculative contracts.
CSC v. Javier, 2008: The responsibilities of the corporate secretary are not merely clerical or routinary in nature. The work involves constant exposure to sensitive policy matters and confidential deliberations that are not always open to the public, as unscrupulous persons may use them to harm the corporation. Board members must have the highest confidence in the secretary to ensure that their honest sentiments are always and fully expressed, in the interest of the corporation. In this respect, the nature of the corporate secretary's work is akin to that of a personal secretary of a public official, a position long recognized to be primarily confidential in nature. Rural Bank of Milaor v. Ocfemia, 2000: Where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. So also,. . . authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. m. Meetings Regular or Special (1) When (a) Regular meetings shall be held annually on date fixed by by-laws, if no date fixed, on any date in April of every year as determined by BOD/T; (2) Where (a) Whether regular or special, shall be held in city or municipality where principal office is located. If practicable, in principal office (b) Members of NS Corporations may provide in their by-laws that meeting may be held anyplace, even outside of principal office, provided proper notice is given and that it is within the Phil. (3) Notice (a) Written notice of regular meetings, at least 2 weeks prior, unless a different period stated in by-laws; (b) Written notice of special meetings be given 1 week prior, unless otherwise provided in by-laws; (c) Failure to give notice would render meeting voidable at instance of absent SH who was not notified; (d) Even if meeting improperly held/called, all proceedings had and business transacted shall be valid if all SH/Members are present or duly represented. (4) Quorum (a) Unless otherwise provided for in Code or by-laws, consists of stockholders representing majority of OCS or majority of members of the corporation; (b) By-laws may provide greater or lesser quorum; (5) Who Presides (a) President shall preside at all meetings of SH, unless by-laws provide otherwise; (b) When no person authorized, SEC, upon petition by SH on showing of good cause, may issue order authorizing petitioning SH to call for a meeting; (c) Shall preside until at least a majority of SH present have chosen presiding officer. (6) Rule on Abstention: In case of abstention in board meeting on vote taken on any issue, the general rule is that the abstention is counted in favour of the issue that won a majority vote; since their act of abstention, the abstaining directors are deemed to abide the rule of majority. People v. Dumlao, 2009: A resolution is distinct and different from the minutes of the meeting. A board resolution is a formal action by a corporate board of directors or other corporate body authorizing a particular act, transaction, or appointment. It is ordinarily special and limited in its operation, applying usually to some single specific act or affair of the corporation; or to some specific person, situation or occasion.On the other hand, minutes are a brief statement not only of what transpired at a meeting, usually of stockholders/members or directors/trustees, but also at a meeting of an executive committee. The minutes are usually kept in a book specially designed for that purpose, but they may also be kept in the form of memoranda or in any other manner in which they can be identified as minutes of a meeting. [
In Re Stanley Marshall Ellison Kay Dearing Ellison, Debtors. Airlines Reporting Corporation v. Stanley Marshall Ellison Kay Dearing Ellison, 296 F.3d 266, 4th Cir. (2002)