TITLE III

BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

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. (28a)
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 corporation of which he is a director shall thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of the directors or trustees of all corporations organized under this
Code must be residents of the Philippines.
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 owners of a majority of the outstanding capital stock, or
if there be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by any
voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in
person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock
books of the corporation, or where the by-laws are silent, at the time of the election; and said stockholder may vote such
number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one
candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he
may distribute them on the same principle among as many candidates as he shall see fit: Provided, That the total number
of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation
multiplied by the whole number of directors to be elected: Provided, however, That no delinquent stock shall be voted.
Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no
capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one
candidate. Candidates receiving the highest number of votes shall be declared elected. Any meeting of the stockholders
or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for
any reason, no election is held, or if there are not present or represented by proxy, at the meeting, the owners of a
majority of the outstanding capital stock, or if there be no capital stock, a majority of the member entitled to vote. (31a)
Section 25. Corporate officers, quorum. Immediately after their election, the directors of a corporation must formally
organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary
who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any
two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and
secretary or as president and treasurer at the same time.
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 fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a
quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all
the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings. (33a)
Section 26. Report of election of directors, trustees and officers. Within thirty (30) days after the election of the
directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the
Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees, and officers
elected. Should a director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of his
death, the secretary, or any other officer of the corporation, or the director, trustee or officer himself, shall immediately
report such fact to the Securities and Exchange Commission. (n)
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 or appointment, shall qualify as a director, trustee or officer of any corporation. (n)
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 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 secretary on order of the president or on the
written demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or, if it be a
non-stock corporation, on the written demand of a majority of the members entitled to vote. Should the secretary fail or
refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call
for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the
corporation signing the demand. Notice of the time and place of such meeting, as well as of the intention to propose such
removal, must be given by publication or by written notice prescribed in this Code. Removal may be with or without cause:
Provided, That removal without cause may not be used to deprive minority stockholders or members of the right of
representation to which they may be entitled under Section 24 of this Code. (n)
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 or the unexpired term of his predecessor in office.
Any directorship or trusteeship to be filled by reason of an increase in the number of directors or trustees shall be filled
only by an election at a regular or at a special meeting of stockholders or members duly called for the purpose, or in the
same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting. (n)
Section 30. Compensation of directors. In the absence of any provision in the by-laws fixing their compensation, the
directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however,
That any such compensation other than per diems may be granted to directors by the vote of the stockholders
representing at least a majority of the outstanding capital stock at a regular or special stockholders meeting. In no case
shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year. (n)
Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members
and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability
upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation. (n)

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. (n)
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. (n)
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 has been ratified by a vote of the stockholders owning
or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding
the fact that the director risked his own funds in the venture. (n)
Section 35. Executive committee. The by-laws of a corporation may create an executive committee, composed of not
less than three members of the board, to be appointed by the board. Said committee may act, by majority vote of all its
members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on a
majority vote of the board, except with respect to: (1) approval of any action for which shareholders approval is also
required; (2) the filing of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of new by-laws;
(4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable;
and (5) a distribution of cash dividends to the shareholders.

JOHN GOKONGWEI, JR., petitioner, vs.

SECURITIES AND EXCHANGE COMMISSION, et al., respondents.
SYNOPSIS
Petitioner (a) seeks to declare null and void the amended by-laws of respondent corporation
which disqualifies any stockholder engaged in any business that competes with or is antagonistic
to that of the corporation from being nominated or elected to the Board of Directors; (b) assails

the order of the Securities and Exchange Commission denying his right to inspect the books of a
wholly-owned subsidiary of respondent corporation; (c) assails the act of the Securities and
Exchange Commission in allowing the stockholders of respondent corporation to ratify the
investment of corporate funds in a foreign corporation.
The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to
examine the books and records of the wholly-owned subsidiary of respondent corporation.
For lack of necessary votes the Court denied the petition insofar as it assails the validity of the bylaws and ratification of the foreign investment of respondent corporation.
On the validity of the amended By-laws, six justices (Barredo, Makasiar, Antonio, Santos, Abad
Santos and De Castro, JJ.) voted to sustain the validity per se of the amended by-laws and to
dismiss the petition without prejudice to the question of petitioner's actual disqualification from
running if elected from sitting as director of respondent corporation being decided, after a new
and proper hearing by the Board of Directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission and ultimately to the
Supreme Court.
The aforementioned six justices, together with Fernando, J., voted to declare the issue on the
validity of the foreign investment of respondent corporation as moot.
Fred Ruiz Castro, C.J., reserved his vote on the validity of the amended by-laws pending hearing
by this Court on the applicability of section 13(5) of the Corporation law to petitioner.
Fernando, J., reserved his vote on the validity of subject amendment to the by-laws but otherwise
concurs in the result.
Four Justices (Teehankee, Conception Jr., Fernandez and Guerrero, JJ.) in a separate opinion
voted against the validity of the questioned amended by-laws and held that this question should
properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the
result that petitioner may be allowed to run for and sit as director in the scheduled election and
subsequent elections until disqualified after proper hearing by the respondent's Board of Directors
and petitioner's disqualification shall have been sustained by respondent SEC en banc and
ultimately by final judgment of this Court.

SYLLABUS
3.
ID.; VALIDITY OF BY-LAW OF CORPORATION IS A QUESTION OF LAW. The
validity of reasonableness of a by-laws of a corporation, whether the by-law is in conflict with the
law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and
therefore unlawful is purely a question of law. This rule is subject, however, to the limitation that
where the reasonableness of a by-law is a mere matter of judgment, and one upon which
reasonable minds must necessarily differ, a court would not be warranted in substituting its
judgment instead of the judgment of those who are authorized to make by-laws and who have
exercised their authority.

4.
CORPORATIONS; POWER TO ADOPT BY-LAWS. Every corporation has the
inherent power to adopt by-laws for its internal government, and to regulate the conduct and
prescribe the rights and duties of its members towards itself and among themselves in reference
to the management of it affairs. In the absence of positive legislative provisions limiting it, every
private corporation has this inherent power as one of its necessary and inseparable legal
incidents, independent of any specific enabling provision in its character or in general law, such
power of self-government being essential to enable the corporation to accomplish the purposes of
its creation.
5.
ID.; ID.; QUALIFICATIONS OF OFFICERS AND EMPLOYEES. The term
"qualifications" under section 21 of the Corporation Law which expressly empowers a corporation
to prescribed in its by-laws the qualifications of directors must necessarily refer to qualifications in
addition to that specified by section 30 of the Corporation law, which provides that "every director
must own in his own right at least one share of the capital stock of the stock corporation of which
he is a director."
6.
ID.; STOCKHOLDERS MUST ABIDE BY RULE OF THE MAJORITY. Any person
"who buys stock in a corporation does so with the knowledge that its affairs are dominated by a
majority of the stockholders and that he impliedly contracts that the will of the majority shall
govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and
not forbidden by law. To this extent the stockholder may be considered to have parted with his
personal right or privilege to regulate the disposition of his property which he has invested in the
capital stock of the corporation, and surrendered it to the will of majority of his fellow
incorporators. It cannot, therefore, be justly said that the contract, express or implied, between
the corporation and the stockholders is infringed by any act of the former which is authorized by a
majority.
7.
ID.; ID.; AMENDMENT OF BY-LAWS; RIGHT OF DISSENTING MINORITY
STOCKHOLDER. Where the articles of the incorporation or the by-laws of a corporation has
been amended by the required number of votes as provided for in the Corporation Law, and the
amendment changes, diminishes or restricts the rights of the existing stockholders, the dissenting
minority has only one right, viz.; to object thereto in writing and demand payment of his share.
8.
ID.; STOCKHOLDER HAS NO VESTED RIGHT TO BE ELECTED DIRECTOR. A
stockholder has no vested right to be elected director, where the law at the time such right as
stockholder was acquired contained the prescription that the corporate charter and the by-law will
be subject to amendment, alteration and modification.
9.
ID.; DIRECTOR STANDS IN A FIDUCIARY RELATION TO CORPORATION AND
STOCKHOLDER. Although in the strict and technical sense, directors of a private corporation
are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary
insofar as the corporation and the stockholders as a body are concerned. As agents entrusted
with the management of the corporation for the collective benefit of the stockholders, "they
occupy a fiduciary relation, and in this sense the relation is one of trust." The ordinary trust
relationship of directors of a corporation and stockholders is not a matter of statutory or technical
law. It springs from the fact that directors have the control and guidance of corporate affairs and
property and hence of the property interests of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate interests and are ultimately the only
beneficiaries thereof.
10.
ID.; BY-LAWS; QUALIFICATION OF DIRECTORS. Corporations have the power to
make by-laws declaring a person employed in the service of a rival company to be ineligible for
the corporation's Board of Directors.
11.
ID.; ID.; ID.; CONFLICT OF INTERESTS. An amendment which renders ineligible, or
if elected, subjects to removal, a director if he be also 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. This is based upon the principle that were the director also employed in the service of a
rival company, he cannot serve both, but must betray one or the other. Thus, an officer of a
corporation cannot engage in a business in direct competition with that of the corporation where
he is a director by utilizing information he has received as such officer, under "the established law
that a director or officer of a corporation may not enter into a competing enterprise which cripples
or injuries the business of the corporation of which he is an officer or director."
12.
ID.; ID.; DOCTRINE OF "CORPORATE OPPORTUNITY". Corporate officers are not
permitted to the use their position of trust and confidence to further their interests. The doctrine of
"corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could
not be upheld where the fiduciary was acting for two entities with competing interests. This
doctrine rests fundamentally of the unfairness, in particular circumstances, of an officer or director
taking advantage of an opportunity for his own personal profit when the interest of the corporation
justly calls for protection.
16.
ID.; BY-LAW; QUALIFICATION IF MEMBERS OF THE BOARD; EQUAL
PROTECTION. If the by-law were to be applied in the case of one stockholder but waived in
the case of another, then it could be reasonably claimed that the by-law was being applied in a
discriminatory manner, but not if the by-law, by its terms, applies to all stockholders. The equal
protection clause of the Constitution requires only that the by-law operate equally upon all
persons of a class. Sound principles of public policy and management support the view that a bylaw which disqualifies a competitor from election to the Board of Directors of another corporation
is valid and reasonable.
17.
ID.; ID.; PROTECTION OF LEGITIMATE CORPORATE INTERESTS. In the absence
of any legal prohibition or overriding public policy, wide latitude may be accorded to the
corporation in adopting measures to protect legitimate corporate interests.
19.
ID.; ID.; EXERCISE OF POWER TO DISQUALIFY A STOCKHOLDER FROM BEING
MEMBER OF THE BOARD. The amended by-laws which grants the Board the power by 3/4
votes to bar a stockholder from his right to be elected as director where such stockholder is found
to be engaged in a "competitive or antagonistic business" is valid. However, consonant with the
requirement of due process, there must be due hearing at which the stockholder must be given
the fullest opportunity to show that he is not covered by the disqualification. As trustees of the
corporation and of the stockholders, it is the responsibility of directors to act with fairness to the
stockholders. Pursuant to this obligation and to remove any suspicion that this power may be
utilized by the incumbent members of the Board to perpetuate themselves in power, any decision
of the Board to disqualify a candidate for the Board of Directors should be reviewed by the
Securities and Exchange Commission en banc and its decision shall be final unless reversed by
the Supreme Court on certiorari.
20.
ID.; REVIEW OF ACTION OF THE BOARD OF DIRECTORS. Where the action of a
Board of Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or
is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste,
dissipation or misapplication of the corporate assets, a court of equity has the power to grant
appropriate relief.
21.
ID.; STOCKHOLDER'S RIGHT; INSPECTION OF BOOKS. The stockholders' right of
inspection of the corporation's books and records is based upon their ownership of the assets
and property of the corporation. It is an incident of ownership of the corporate property, whether
this ownership or interest be termed an equitable ownership, a beneficial ownership, or quasiownership. It is predicated upon the necessity of self-protection.

WOLFGANG AURBACH, et al., petitioners,

vs. SANITARY WARES MANUFACTURING CORPORATION, et al., respondents.
[G.R. No. 75875. December 15, 1989.]

SYLLABUS
1.
COMMERCIAL LAW; JOINT VENTURE; WHETHER THERE EXISTS A JOINT
VENTURE DEPENDS UPON THE PARTIES' ACTUAL INTENTION WHICH IS DETERMINED
IN ACCORDANCE WITH THE RULES COVERING THE INTERPRETATION AND
CONSTRUCTION OF CONTRACTS. The rule is that whether the parties to a particular
contract have thereby established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance with the rules governing
the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R.
Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751,
128 P 2nd 668)
2.
ID.; ID.; ESTABLISHED IN CASE AT BAR. In the instant cases, our examination of
important provisions of the Agreement as well as the testimonial evidence presented by the

Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a
corporation. The history of the organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint venture and not with an ordinary
corporation. Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is assured of a
fixed number of directors in the board. Moreover, ASI in its communications referred to the
enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the Agreement that
"Nothing herein contained shall be construed to constitute any of the parties hereto partners or
joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of
the enterprise being treated as partnership for tax purposes and liabilities to third parties.
3.
ID.; ID.; CONCEPT OF JOINT VENTURE; DISTINGUISHED FROM PARTNERSHIP.
The point of query, however, is whether or not that provision is applicable to a joint venture with
clearly defined agreements: "The legal concept of a joint venture is of common law origin. It has
no precise legal definition, but it has been generally understood to mean an organization formed
for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott,
176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45
Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single transaction,
and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a
joint venture is a form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business forms, and has
held that although a corporation cannot enter into a partnership contract, it may however engage
in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and
Lopez Campos Comments, Notes and Selected Cases, Corporation Code 1981). Moreover,
the usual rules as regards the construction and operations of contracts generally apply to a
contract of joint venture. (O'Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
4.
ID.; ID.; RIGHT OF STOCKHOLDERS TO CUMULATE VOTES IN ELECTING
DIRECTORS LIES IN THE AGREEMENT OF PARTIES. Bearing these principles in mind, the
correct view would be that the resolution of the question of whether or not the ASI Group may
vote their additional equity lies in the agreement of the parties. The appellate court was correct in
upholding the agreement of the parties as regards the allocation of director seats under Section 5
(a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the
process of determining who the group's nominees would be under Section 3(a) (1) of the
"Agreement." As pointed out by SEC, Section 5(a) of the Agreement relates to the manner of
nominating the members of the board of directors while Section 3 (a) (1) relates to the manner of
voting for these nominees.
5.
ID.; ANTI-DUMMY; LIMITS THE ELECTION OF ALIENS AS MEMBERS OF THE
BOARD OF DIRECTORS IN PROPORTION TO THEIR ALLOWANCE PARTICIPATION OF
THE ENTITY. Equally important as the consideration of the contractual intent of the parties is
the consideration as regards the possible domination by the foreign investors of the enterprise in
violation of the nationalization requirements enshrined in the Constitution and circumvention of
the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act
allows the ASI group to elect board directors in proportion to their share in the capital of the entity.
It is to be noted, however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity.

PEOPLE'S AIRCARGO AND WAREHOUSING CO. INC., petitioner,

vs. COURT OF APPEALS AND STEFANI SAO, respondents.
[G.R. No. 117847. October 7, 1998.]
SYLLABUS
1.
COMMERCIAL LAW; CORPORATION; BOARD OF DIRECTORS; ABSENCE OF ITS
AUTHORITY, NO PERSON, NOT EVEN ITS OFFICERS CAN VALIDLY BIND A
CORPORATION. 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. A corporation is a
juridical person, separate and distinct from its stockholders and members, "having . . . powers,
attributes and properties expressly authorized by law or incident to its existence." Being a juridical
entity, a corporation may act through its board of directors, which exercises almost all corporate
powers, lays down all corporate business policies and is responsible for the efficiency of
management, as provided in Section 23 of the Corporation Code of the Philippines. cdasia
2.
ID.; ID.; ID.; WHEN MAY VALIDLY DELEGATE SOME OF ITS FUNCTIONS AND
POWERS TO OFFICERS, COMMITTEES OR AGENTS. Under this provision, the power and
the responsibility to decide whether the corporation should enter into a contract that will bind the
corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant
provisions of law. However, just as a natural person may authorize another to do certain acts for
and on his behalf, the board of directors may validly delegate some of its functions and powers to
officers, committees or agents. The authority of such individuals to bind the corporation is
generally derived from law, corporate bylaws or authorization from the board, either expressly or
impliedly by habit, custom or acquiescence in the general course of business, viz.: "A corporate
officer or agent may represent and bind the corporation in transactions with third persons to the
extent that [the] authority to do so has been conferred upon him, and this includes powers which

have been intentionally conferred, and also such powers as, in- the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused persons dealing with the officer or agent to
believe that it has conferred."
3.
ID.; ID.; ID.; APPARENT AUTHORITY; DEFINED AND CONSTRUED. Apparent
authority is derived not merely from practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as having the power to act
or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof,
whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of
similar act(s) executed either in its favor or in favor of other parties. It is not the quantity of similar
acts which establishes apparent authority, but the vesting of a corporate officer with the power to
bind the corporation. It is familiar doctrine that if a corporation knowingly permits one of its
officers, or any other agent, to act within the scope of an apparent authority, it holds him out to
the public as possessing the power to do those 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
agent's authority.
4.
ID.; ID.; PRESIDENT; DUTIES AND FUNCTIONS; CASE AT BAR. Inasmuch as a
corporate president is often given general supervision and control over corporate operations, the
strict rule that said officer has no inherent power to act for the corporation is slowly giving way to
the realization that such officer has certain limited powers in the transaction of the usual and
ordinary business of the corporation. In the absence of a charter or by-law provision to the
contrary, the president is presumed to have the authority to act within the domain of the general
objectives of its business and within the scope of his or her usual duties. Hence, it has been held
in other jurisdictions that the president of a corporation possesses the power to enter into a
contract for the corporation, when the "conduct on the part of both the president and the
corporation [shows] that he had been in the habit of acting in similar matters on behalf of the
company and that the company had authorized him so to act and had recognized, approved and
ratified his former and similar actions." Furthermore, a party dealing with the president of a
corporation is entitled to assume that he has the authority to enter, on behalf of the corporation,
into contracts that are within the scope of the powers of said corporation and that do not violate
any statute or rule on public policy.

DILY DANY NACPIL, petitioner,

vs. INTERNATIONAL BROADCASTING CORPORATION, respondent.
[G.R. No. 144767. March 21, 2002.]
SYNOPSIS
Petitioner was the Assistant General Manager for Finance/Administration and Comptroller of
private respondent Intercontinental Broadcasting Corporation (IBC). Upon his assumption of the
IBC Presidency, Emiliano Templo allegedly harassed and pressured petitioner into resigning until
the latter was forced to retire. However, Templo refused to pay him his retirement benefits and
refused to recognize petitioner's employment. Hence, petitioner filed with the Labor Arbiter a
complaint for illegal dismissal and non-payment of benefits. The Labor Arbiter ruled in favor of
petitioner. IBC appealed to the NLRC, but the same was dismissed. IBC then filed with the Court
of Appeals a petition for certiorari under Rule 65, which petition was granted by the appellate
court and the decisions of the Labor Arbiter and the NLRC were reversed and set aside.
Petitioner then filed this instant petition.
In affirming the decision of the Court of Appeals, the Supreme Court ruled that the Labor Arbiter
had no jurisdiction over the case for illegal dismissal and non-payment of benefits filed by
petitioner. As petitioner's appointment as comptroller required the approval and formal action of
the IBC's Board of Directors to become valid, it is clear, therefore, that petitioner is a corporate
officer whose dismissal may be the subject of a controversy cognizable by the SEC under Section
5(c) of P.D. 902-A which includes controversies involving both election and appointment of
corporate directors, trustees, officers, and managers. Had petitioner been an ordinary employee,
such board action would not have been required. The Court has consistently held that where
there is a finding that any decision was rendered without jurisdiction, the action shall be
dismissed. Such defense can be interposed at any time, during appeal or even after final
judgment.
It must be noted that under Section 5.2 of the Securities Regulation Code (Republic Act No.
8799) which was signed into law on July 19, 2002, the SEC's jurisdiction over all cases
enumerated in Section 5 of P.D. 902-A has been transferred to the Regional Trial Courts.

SYLLABUS
1.
COMMERCIAL LAW; CORPORATION LAW; SECURITIES AND EXCHANGE
COMMISSION; JURISDICTION; HOW DETERMINED. The Court has consistently held that
there are two elements to be considered in determining whether the SEC has jurisdiction over the
controversy, to wit: (1) the status or relationship of the parties; and (2) the nature of the question
that is the subject of their controversy.
2.
ID.; ID.; PRIVATE CORPORATIONS; BY-LAWS; MAY AUTHORIZE THE BOARD OF
DIRECTORS TO APPOINT SUCH OTHER OFFICERS AS MAY BE NECESSARY. The Court
has held that in most cases the "by-laws may and usually do provide for such other officers," and
that where a corporate office is not specifically indicated in the roster of corporate offices in the
by-laws of a corporation, the board of directors may also be empowered under the by-laws to
create additional officers as may be necessary.
3.
ID.; ID.; SECURITIES AND EXCHANGE COMMISSION; HAS JURISDICTION OVER
CONTROVERSIES INVOLVING BOTH THE ELECTION AND APPOINTMENT OF
CORPORATE DIRECTORS, TRUSTEES, OFFICERS, AND MANAGERS; CASE AT BAR.
As petitioner's appointment as comptroller required the approval and formal action of the IBC's
Board of Directors to become valid, it is clear therefore holds that petitioner is a corporate officer
whose dismissal may be the subject of a controversy cognizable by the SEC under Section 5(c)
of P.D. 902-A which includes controversies involving both election and appointment of corporate
directors, trustees, officers, and managers. Had petitioner been an ordinary employee, such
board action would not have been required.

EDWARD C. ONG, petitioner,

vs. THE COURT OF APPEALS AND THE PEOPLE OF THE PHILIPPINES, respondents.
[G.R. No. 119858. April 29, 2003.]
SYNOPSIS
Petitioner was convicted of estafa for violation of the Trust Receipts Law by the Regional Trial
Court of Manila. He appealed his conviction to the Court of Appeals which affirmed the trial
court's decision in toto. Petitioner filed a motion for reconsideration, but the same was denied.
The Court of Appeals held that although petitioner is neither a director nor an officer of ARMAGRI
International Corporation, he certainly comes within the term "employees or other . . . persons
therein responsible for the offense" in Section 13 of the Trust Receipts Law. Hence, the present
petition. Petitioner contended that the Court of Appeals erred in finding him liable for the default of
ARMAGRI, arguing that in signing the trust receipts, he merely acted as an agent of ARMAGRI.
Petitioner asserted that nowhere in the trust receipts did he assume personal responsibility for the
undertakings of ARMAGRI which was the entrustee.
The Supreme Court affirmed petitioner's conviction. The Court ruled that petitioner is the person
responsible for the offense. First, petitioner is the signatory to the trust receipts, the loan
applications and the letters of credit. Second, despite being the signatory to the trust receipts and
the other documents, petitioner did not explain or show why he is not responsible for the failure to
turn over the proceeds of the sale or account for the goods covered by the trust receipts. The
Court also held that there is no need to allege in the Informations in what capacity petitioner
participated to hold him responsible for the offense. Under the Trust Receipts Law, it is sufficient
to allege and establish the failure of ARMAGRI, whom petitioner represented, to remit the
proceeds or to return the goods to the Bank.
SYLLABUS
1.
MERCANTILE LAW; TRUST RECEIPTS LAW; WHEN VIOLATED; PERSONS LIABLE
FOR THE OFFENSE. The Trust Receipts Law is violated whenever the entrustee fails to: (1)
turn over the proceeds of the sale of the goods, or (2) return the goods covered by the trust
receipts if the goods are not sold. The mere failure to account or return gives rise to the crime
which is malum prohibitum. There is no requirement to prove intent to defraud. The Trust
Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a
corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees or
other persons responsible for the offense liable to suffer the penalty of imprisonment. The reason
is obvious: corporations, partnerships, associations and other juridical entities cannot be put to

jail. Hence, the criminal liability falls on the human agent responsible for the violation of the Trust
Receipts Law.
2.
ID.; ID.; PETITIONER, WHO ADMITTED BEING THE AGENT OF THE ENTRUSTER, IS
THE PERSON RESPONSIBLE FOR THE OFFENSE; REASONS. In the instant case, the
Bank was the entruster while ARMAGRI was the entrustee. Being the entrustee, ARMAGRI was
the one responsible to account for the goods or its proceeds in case of sale. However, the
criminal liability for violation of the Trust Receipts Law falls on the human agent responsible for
the violation. Petitioner, who admits being the agent of ARMAGRI, is the person responsible for
the offense for two reasons. First, petitioner is the signatory to the trust receipts, the loan
applications and the letters of credit. Second, despite being the signatory to the trust receipts and
the other documents, petitioner did not explain or show why he is not responsible for the failure to
turn over the proceeds of the sale or account for the goods covered by the trust receipts.
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs. SPOUSES FRANCISCO ONG and LETICIA ONG, respondents.
[G.R. Nos. 144661 and 144797. June 15, 2005.]
SYLLABUS
2.
CIVIL LAW; SPECIAL CONTRACTS; SALES; NO PERFECTED CONTRACT OF SALE
ABSENT ANY APPROVAL OF A RESPONSIBLE BANK OFFICER; CASE AT BAR. Judging
from the findings of the two (2) courts below and the testimony of respondent Francisco Ong
himself, it appears clear to us that the transaction between the respondents and the petitioner
was limited to Palasan, one of the clerks of petitioner's branch in Cagayan de Oro City, Lagrito,
the branch manager, had no personal or direct communication with respondents to express his
alleged consent to the sale transaction. Thus, the undisputed evidence showed that it was
Palasan, a mere bank clerk, and not the branch manager himself who assured respondents that
theirs was a closed deal. . . . There is, thus, no legal basis to bind petitioner into any valid
contract of sale with the respondents, given the absolute absence of any approval or consent by
any responsible officer of petitioner bank. And because there is here no perfected contract of sale
between the parties, respondents' action for breach of contract and/or specific performance is
simply without any leg to stand on and must therefore fall.
3.
ID.; ID.; ID.; MERE "NOTING" OF AN OFFER TO PURCHASE DOES NOT MEAN AN
APPROVAL OF THE SUPPOSED SALE; CASE AT BAR. Unlike in Milaor where it was the
branch manager who approved the sale for and in behalf of the bank, here, there is absolutely no
approval whatsoever by any responsible bank officer of the petitioner. True it is that the signature
of branch manager Lagrito appears below the typewritten word "NOTED" at the bottom of
respondents' offer to purchase dated May 25, 1988. By no stretch of imagination, however, can
the mere "NOTING" of such an offer be taken to mean an approval of the supposed sale. Quite
the contrary, the very circumstance that the offer to purchase was merely "NOTED" by the branch
manager and not "approved", is a clear indication that there is no perfected contract of sale to
speak of.

CEBU COUNTRY CLUB, INC., SABINO R. DAPAT, RUBEN D. ALMENDRAS, JULIUS Z. NERI,
DOUGLAS L. LUYM, CESAR T. LIBI, RAMONTITO * E. GARCIA and JOSE B. SALA, petitioners,
vs. RICARDO F. ELIZAGAQUE, respondent.
[G.R. No. 160273. January 18, 2008.]
FACTS
CCCI is a domestic corporation operating as a non-profit and non-stock private membership club.
(In 1987, San Miguel Corp., a special company proprietary member designated E (for short), its
senir vice president and operations manager for Visayas and Mindanao, as a special nonproprietary member.) In 1996, E filed with CCCI an application for proprietary membership,
endorsed by 2 members of CCCI. Since it was required for a member to have a proprietary share
the price of which was P 5M, the president of CCCI offered respondent a share of only P 3.5M. E
however, purchased the share of a certain Dr. Butalid for P 3M. However, his application was
deferred. Subsequently, his application was disapproved. Three letters for reconsideration were
sent to the BoD, however, no reply was sent by the latter. Hence, E filed with the RTC a
complaint for damages. RTC ruled in favor of E. CA affirmed the RTC ruling. Hence, this petition.
(It should be mentioned that the By-Laws of the Corporation provided that his eligibility as
member required a unanimous vote from the Board of Directors. This provision, however, was not
included in the application form. It was further revealed that among the members of the BoD, only
one voted his disapproval of the application. This, however, was not made known to E.)
ISSUE
Should CCCI be held liable for damages despite the fact that it has the right to choose its
members?
HELD
Obviously, the CCCI Board of Directors, under its Articles of Incorporation, has the right to
approve or disapprove an application for proprietary membership. But such right should not be
exercised arbitrarily. Articles 19 and 21 of the Civil Code on the Chapter on Human Relations
provide restrictions, thus:
Article 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
In GF Equity, Inc. v. Valenzona,5 we expounded Article 19 and correlated it with Article 21, thus:
This article, known to contain what is commonly referred to as the principle of abuse of rights,
sets certain standards which must be observed not only in the exercise of one's rights but also in
the performance of one's duties. These standards are the following: to act with justice; to give
everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a
primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in
Article 19 must be observed. A right, though by itself legal because recognized or granted
by law as such, may nevertheless become the source of some illegality. When a right is
exercised in a manner which does not conform with the norms enshrined in Article 19 and

results in damage to another, a legal wrong is thereby committed for which the wrongdoer
must be held responsible. But while Article 19 lays down a rule of conduct for the government
of human relations and for the maintenance of social order, it does not provide a remedy for its
violation. Generally, an action for damages under either Article 20 or Article 21 would be proper.
(Emphasis in the original)
In rejecting respondents application for proprietary membership, we find that petitioners violated
the rules governing human relations, the basic principles to be observed for the rightful
relationship between human beings and for the stability of social order. The trial court and the
Court of Appeals aptly held that petitioners committed fraud and evident bad faith in disapproving
respondents applications. This is contrary to morals, good custom or public policy. Hence,
petitioners are liable for damages pursuant to Article 19 in relation to Article 21 of the same Code.
It bears stressing that the amendment to Section 3(c) of CCCIs Amended By-Laws requiring the
unanimous vote of the directors present at a special or regular meeting was not printed on the
application form respondent filled and submitted to CCCI. What was printed thereon was the
original provision of Section 3(c) which was silent on the required number of votes needed for
admission of an applicant as a proprietary member.
Petitioners explained that the amendment was not printed on the application form due to
economic reasons. We find this excuse flimsy and unconvincing. Such amendment, aside from
being extremely significant, was introduced way back in 1978 or almost twenty (20) years before
respondent filed his application. We cannot fathom why such a prestigious and exclusive golf
country club, like the CCCI, whose members are all affluent, did not have enough money to
cause the printing of an updated application form.
It is thus clear that respondent was left groping in the dark wondering why his application was
disapproved. He was not even informed that a unanimous vote of the Board members was
required. When he sent a letter for reconsideration and an inquiry whether there was an objection
to his application, petitioners apparently ignored him. Certainly, respondent did not deserve this
kind of treatment. Having been designated by San Miguel Corporation as a special nonproprietary member of CCCI, he should have been treated by petitioners with courtesy and
civility. At the very least, they should have informed him why his application was disapproved.
The exercise of a right, though legal by itself, must nonetheless be in accordance with the proper
norm. When the right is exercised arbitrarily, unjustly or excessively and results in damage to
another, a legal wrong is committed for which the wrongdoer must be held responsible.6 It bears
reiterating that the trial court and the Court of Appeals held that petitioners disapproval of
respondents application is characterized by bad faith.
As to petitioners reliance on the principle of damnum absque injuria or damage without injury,
suffice it to state that the same is misplaced. In Amonoy v. Gutierrez,7 we held that this principle
does not apply when there is an abuse of a persons right, as in this case.

PAUL LEE TAN, et al., EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH SCHOOL,
petitioners,
vs. PAUL SYCIP and MERRITTO LIM, respondents.
[G.R. No. 153468. August 17, 2006.]
SYLLABUS
2.
MERCANTILE LAW; CORPORATIONS; PURPOSE OF STOCKHOLDERS' OR
MEMBERS' MEETINGS. Generally, stockholders' or members' meetings are called for the
purpose of electing directors or trustees and transacting some other business calling for or
requiring the action or consent of the shareholders or members, such as the amendment of the
articles of incorporation and bylaws, sale or disposition of all or substantially all corporate assets,
consolidation and merger and the like, or any other business that may properly come before the
meeting.
3.
ID.; ID.; ACTS OF MANAGEMENT PERTAIN TO THE BOARD OF DIRECTORS, AND
THOSE OF OWNERSHIP, TO THE STOCKHOLDERS OR MEMBERS. Under the
Corporation Code, stockholders or members periodically elect the board of directors or trustees,
who are charged with the management of the corporation. The board, in turn, periodically elects
officers to carry out management functions on a day-to-day basis. As owners, though, the
stockholders or members have residual powers over fundamental and major corporate changes.
While stockholders and members (in some instances) are entitled to receive profits, the
management and direction of the corporation are lodged with their representatives and agents
the board of directors or trustees. In other words, acts of management pertain to the board; and
those of ownership, to the stockholders or members. In the latter case, the board cannot act
alone, but must seek approval of the stockholders or members.
4.
ID.; ID.; RIGHTS OF QUALIFIED SHAREHOLDERS OR MEMBERS; RIGHT TO VOTE.
One of the most important rights of a qualified shareholder or member is the right to vote
either personally or by proxy for the directors or trustees who are to manage the corporate
affairs. The right to choose the persons who will direct, manage and operate the corporation is
significant, because it is the main way in which a stockholder can have a voice in the
management of corporate affairs, or in which a member in a nonstock corporation can have a say
on how the purposes and goals of the corporation may be achieved. Once the directors or
trustees are elected, the stockholders or members relinquish corporate powers to the board in
accordance with law. In the absence of an express charter or statutory provision to the contrary,
the general rule is that every member of a nonstock corporation, and every legal owner of shares
in a stock corporation, has a right to be present and to vote in all corporate meetings. Conversely,
those who are not stockholders or members have no right to vote. Voting may be expressed
personally, or through proxies who vote in their representative capacities. Generally, the right to
be present and to vote in a meeting is determined by the time in which the meeting is held.
5.
ID.; ID.; ID.; RIGHT TO VOTE IN A NONSTOCK CORPORATION, EXPLAINED. In
nonstock corporations, the voting rights attach to membership. Members vote as persons, in
accordance with the law and the bylaws of the corporation. Each member shall be entitled to one
vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. We hold
that when the principle for determining the quorum for stock corporations is applied by analogy to
nonstock corporations, only those who are actual members with voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of 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. The March 3, 1986 SEC Opinion cited by the
hearing officer uses the phrase "majority vote of the members"; likewise Section 48 of the
Corporation Code refers to 50 percent of 94 (the number of registered members of the

association mentioned therein) plus one. The best evidence of who are the present members of
the corporation is the "membership book"; in the case of stock corporations, it is the stock and
transfer book.
6.
ID.; ID.; ID.; A MAJORITY OF THE DIRECTORS OR TRUSTEES, AS FIXED IN THE
ARTICLES OF INCORPORATION, SHALL CONSTITUTE A QUORUM FOR THE
TRANSACTION OF CORPORATE BUSINESS, UNLESS THE ARTICLES OF
INCORPORATION OR THE BYLAWS PROVIDE FOR A GREATER MAJORITY. Section 25
of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles
of incorporation, shall constitute a quorum for the transaction of corporate business (unless the
articles of incorporation or the bylaws provide for a greater majority). If the intention of the
lawmakers was to base the quorum in the meetings of stockholders or members on their absolute
number as fixed in the articles of incorporation, it would have expressly specified so. Otherwise,
the only logical conclusion is that the legislature did not have that intention.
7.
ID.; ID.; ID.; EFFECT OF DEATH OF A MEMBER OR SHAREHOLDER;
DETERMINATION OF WHETHER OR NOT "DEAD MEMBERS" ARE ENTITLED TO
EXERCISE THEIR VOTING RIGHTS DEPENDS ON THE ARTICLES OF INCORPORATION
AND BY-LAWS. Membership in and all rights arising from a nonstock corporation are personal
and non-transferable, unless the articles of incorporation or the bylaws of the corporation provide
otherwise. In other words, the determination of whether or not "dead members" are entitled to
exercise their voting rights (through their executor or administrator), depends on those articles of
incorporation or bylaws.

BOARD OF DIRECTORS

All corporate powers, business conducted and all property of corporations are exercised by the
BOD/T (Sec. 23). BOD/T are selected thru an election and they shall hold office for one year and
until their successors are elected and qualified (ibid). Stockholders cannot interfere with the
boards exercise of its powers and functions except when the law expressly gives them the
authority.
Directors owe their duties to corporation rather than to individual shareholders. The directors or
trustees shall not act individually nor separately but as a body in a lawful meeting. Contracts
entered into without a formal board resolution does not bind the corporation except when majority
of the board has knowledge of the contract and the contract benefited the corporation.
Qualification of Directors/Trustees
Every director must own at least one (1) share of the capital stock of the corporation, 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 corporation of which he is a director shall
thereby cease to be a director. Majority of BOD/T should be resident of the Philippines (ibid).

Disqualifications: grounds
1. Conviction by final judgment of an offense punishable by imprisonment for a period
exceeding six (6) years; or
2. Violation of corporation code committed within five (5) years prior to the date of his
election or appointment (Sec. 27).
Election of BOD/T
1. Notice to the stockholder/members of the election as provided in AOI;
2. Presence of, in person or by proxy, majority of the outstanding capital stock / member
entitled to vote;
3. Election by ballot;
4. Candidate receiving highest number of votes shall be declared elected; and
5. Report to the SEC, within 30 days, the names, nationality and residences of the elected
officers and directors/trustees. Deaths and resignation must likewise be reported.
In a stock corporation, stockholders may exercise cumulative voting or straight voting. Cumulative
voting is done by casting as many votes as he has number of shares multiplied by the number of
directors up for election. This provides the minority an opportunity to elect a representative to the
board of directors.
Straight voting is done by casting votes as he has number of shares multiplied by the number of
directors to a single candidate. The total number of votes cast by a stockholder shall not exceed
the number of shares owned by him as shown in the books of the corporation multiplied by the
whole number of directors to be elected.
Members of a non-stock corporation may cast as many votes as there are trustees to be elected
but may not cast more than one vote for one candidate (Sec. 24 and 89). Cumulative voting is

not specifically allowed in a non stock corporation; however, its by-laws or AOI may be
broadened as to give that right to the members (Sec. 89). Take note that delinquent stock has no
voting rights (Sec. 24 &71).
Corporate officers
The officers execute polices laid down by the board and perform the duties enjoined by them by
the AOI and by-laws. Immediately after the election of BOD/T, the directors of a corporation must
formally organize the election of:
1. A president, who shall be a director;
2. A treasurer who may or may not be a director;
3. A secretary who shall be a resident and citizen of the Philippines, and
4. Such other officers as may be provided for in the by-laws (Sec. 25)
Any two or more positions may be held concurrently by the same person, except that no one shall
act as president and secretary or as president and treasurer at the same time. Directors and
trustees cannot attend or vote by proxy in a board meeting (ibid) compared to stockholders which
can attend and vote by proxy in a stockholders meeting( Sec. 58).
The Corporation Code does not require that one elected or appointed as vice-president of a
corporation should be the owner of shares of stock of the corporation (Baguio vs. CA, 226 SCRA
366, 1993)
Executive Committee
The by-laws of a corporation may create an executive committee, composed of not less than
three members of the board, to be appointed by the board (Sec. 35). Such committee may act on
specific matter within the competence of the board as may be delegated by the by-laws or
majority vote of the board, except the following:
1. Approval of any action for which shareholders' approval is also required;
2. Filing of vacancies in the board;
3. Amendment, repeal or adoption of by-laws;
4. Amendment or repeal of any resolution of the board which by its express terms is
not so amendable or repealable; and
5. Distribution of cash dividends to the shareholders.
Quorum
Majority of the number of director/trustees shall constitute the quorum for the transaction of the
business unless the AOI or by-provide otherwise. Majority of the directors/trustees constituting
the quorum shall be valid as corporate act except the election of officer which requires majority of
all the members of the board (Sec. 23).
Compensation of Directors
1. Reasonable per diem;
2. Provision in the by-laws fixing their compensation; and
3. Compensation granted by majority of the stockholders.

In no case shall the total yearly compensation of directors, as such directors, exceed 10% of the
net income before income tax of the corporation during the preceding year (Sec. 30). The said
compensation is applicable only to directors; thus, when the director is an officer as well, the
BOD/T may grant compensation to them because the prohibition in Sec. 30 does not apply
[Western Institute of Technology v Salas].
Liability of Board of Directors
BOD/Ts are jointly and severally liable in the following instances:
1. If they willfully/ knowingly vote for or assent to patently unlawful acts of the corporation;
2. They are guilty of gross negligence or bad faith in directing the affairs of the corporation;
3. They acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees (Sec. 31);
4. Issuance of watered stock (Sec. 65);
5. Disloyalty of directors (sec. 34);
6. He agrees to hold himself personally and solidarily liable with the corporation; and
7. He is made, by a specific provision of law, to personally answer for his corporate action
(Tramat Mercantile, Inc. vs. CA).
The director is liable when he takes advantage of information by virtue of his office to the
disadvantage of the corporation (Special Fact Doctrine).
BOD/T has authority to modify the proposed terms of the contracts of the corporation for the
purpose of making the terms more acceptable to the other contracting parties. The test to be
applied is whether the act in question is the direct and immediate furtherance of the corporations
business, fairly incidental to the express powers and reasonably necessary to their exercise. If
so, the corporation has the power to do it; otherwise it is not [Business Judgment Rule]
[Montelibano v. Bacolod Murcia Milling Co.].
Self-Dealing Directors
Directors/Trustees and officer may enter into contract with the corporation in which he is a
directors. However, this agreement is being frown upon by law because there can be no real
bargaining where the same is acting on both sides of the trade. In fact, all contracts entered into
by directors/trustees and officer is considered voidable unless the following requisites are
present:
1. The presence of the director/trustee in the board meeting approving the contract was not
necessary for constituting a quorum for such meeting;
2. The vote of such director/trustee in the board meeting approving the contract was not
necessary for the approval of the contract;
3. The contract is fair and reasonable under the circumstances; and
4. In the case of an officer, there was previous authorization by the board of directors (Sec.
32).
Although the following requisite was not followed, such contract may be ratified by 2/3 affirmative
vote of the outstanding capital stock/members, provided that there is full disclosure of the adverse
interest of the director/ trustee involved is made at such meeting, and that the contract is fair and
reasonable (ibid)
Interlocking Directors

Interlocking directors are those who sit in the boards of two or more corporations that contract
with one other, whether on isolated or regular basis. Contracts between two or more corporations
having interlocking directors cannot be invalidated on that ground alone, except cases of [1] fraud
and [2] the contract is fair and reasonable(Sec. 33). If the interest of the interlocking director in
one corporation is merely nominal, the condition set in self-dealing directors will be imposed,
thus, the contract voidable.
Stockholdings exceeding 20 percent of the outstanding capital stock shall be considered
substantial for purposes of interlocking directors (ibid). Hence, nominal interest means
stockholdings of not exceeding 20 percent of the outstanding capital stock.
Disloyalty of Directors
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 (Sec. 34). However, the same act
may be ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of
the outstanding capital stock. The same is true notwithstanding the fact that the director risked his
own funds in the venture (ibid).
Doctrine of Corporate Opportunity
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a liability upon him to deal in his own behalf, he shall be
liable as a trustee for the corporation and must account for the profits which otherwise would
have accrued to the corporation (Sec. 31 and 34).
Special Facts Doctrine
Granting the absence of a fiduciary relationship with the stockholders, when special
circumstances or facts are present which make it inequitable for the director to withhold
information from the stockholder, the duty to disclose arises and concealment is fraud.
Removal of BOD/T
Procedure
1. Call for meeting for the purpose of removing the BOD, by BOD or majority of
stockholders;
2. Notice, by publication or registered mail, to the stockholder by the officer or by majority of
the outstanding stock;
3. Election; and
4. Affirmative vote of 2/3 of the outstanding capital stock/members;
Removal of BOD may be with cause or without cause, however, removal without cause may not
be used to deprive minority stockholder of the right of representation (sec. 28.) The board cannot
remove a director or trustee as member of the board.

Vacancy
Any vacancy occurring in the BOD or BOT terms may be filled by the vote of at least majority of
the remaining directors or trustees, if still constituting quorum.
If quorum cannot be obtained, vacancies must be filled by the stockholders/members in a regular
or special meeting for that purpose. Same rule applies if the vacancy is due to removal by the
stockholder or by expiration of the directors term, or there is increase of number of directors in a
corporation. A director or trustee filling the vacancy shall serve only for the unexpired term of his
predecessor (Sec. 29).