Corpo Digests 10

Premium Marble Resources v CA (1996)

Petitioners: Premium Marble Resources Inc / Printline Corporation
Respondents: International Corporate Bank
Torres
SV: Ayala issued checks to Premium Marble. These checks were deposited by Belen, Jr, et al. (former officers) into their
account in ICB. Premium filed a case claiming such act to be without authority since a new set of officers had already
been elected. RTC and CA ruled that no new officers had yet to be elected as seen in the General Information Sheet with
the SEC.
SC ruled that Premium had no authority to sue from the Board of Directors since Belen, et al were still the officers of the
Corporation. Even though minutes of the board meeting show newly elect officers, the Corporation Code requires such
election to be reported within 30 days with the SEC. Since such was not complied with, the action must be dismissed.

Sometime in 1982, Ayala Investment and Development Corp issued 3 checks amounting to P31,663 payable to
Premium Marble, drawn against Citibank.
Former officers of Premium Marble headed by Saturnino Belen, Jr., without any authority from the corporation
deposited the checks to the current account of his conduit corporation, Intervest Merchant Finance, in International
Corporate Bank (ICB)
Premium Marble, assisted by Atty Dumadag as counsel, then filled a action for damages against ICB, to restitute
amounts representing checks payable to them, alleging that the checks were crossed on their face and it was illegal
and irregular acts of the bank to allow the checks to be cleared and deposited to Intervests account.
ICB argues that Premium has no capacity to sue and that the complaint should be dismissed for failure to state a
cause of action.
o Later Printline, a sister company of Premium filed an action for damages. These actions were consolidated.
Premium, this time represented by Siguion Reyna law Office, filed a motion to dismiss on the ground that the filing of
the earlier case was without authority from the board of directors as shown in the minutes of Premiums BOD
meeting.

IN SHORT: naging away ng same company represented by different counsels. So there are now 2 factions. 1) Atty
Dumadag, representing the alleged new set of officers, who replaced Belen, et al and 2) Siguion Reyna representing the
old officers, Belen, et al.

In its opposition to the motion to dismiss, Atty Dumadag contends that the persons who signed the Board Resolution
namely the Saturnino Belen, who were former directors who were dismissed for various irregularities and fraudulent
acts. And that Siguion Reyna is the lawyer of Belen and not of Premium.
o Siguion Reyna assert that the general information sheet filed with the SEC, which is the best evidence of
showing who the stockholders of a corporation are and not the Articles of Incorporation, since such AOI does
not keep track of changes that take place.
Si ICB naman, of course joined the Siguion Reyna group in its MTD action on the ground of lack of authority of Atty
Dumadags group to file an action for its lack of authority from its BOD.
RTC ruled in favor the Siguion Reyna group.
o The Articles of Incorporation says, officers and directors are to serve until their successors are elected and
qualified.
o Since the officers of the Corporation are still Belen, et al, and Atty Dumadag group do not have legal
capacity to sue in behalf of Premium.
Ca affirmed the RTC decision, dismissing the petitions.

ISSUE: W/N the filing of the case for damages against ICB was authorized by the duly constituted Board of Directors of
Premium NO. Siguion Reyna group wins
RATIO:
ARTICLES OF INCORPORATION presented Atty Dumadag group, showing that Belens group were not the Directors
anymore
GENERAL INFORMATION SHEET presented by the Siguion Reyna group showing Belens group to be the existing
board.

Corpo Digests 10

While the minutes of the Board on April 1982 states that the newly elected officers were Gan, Zavalla, Yujico, and
Millare, replacing Belen, et al, they failed to show proof that the election was reported to the SEC. In fact the General
Information Sheet with the SEC still show that Belen, et al are still the directors.
In the absence of any board resolution from its board of directors the authority to act for and in behalf of the
corporation, the present action must necessarily fail. The power of the corporation to sue and be sued in any court is
lodged with the board of directors that exercises its corporate powers.
By Sec. 26 of the Corpo Code,All corporations duly organized are required to submit within 30 days to the SEC the
names, nationalities and residences of the directors, trustees and officers elected. Evidently, the objective sought to
be achieved is to give the public information, under sanction of oath of responsible officers, of the nature of business,
financial condition and operational status of the company together with information on its key officers or managers so
that those dealing with it and those who intend to do business with it may know or have the means of knowing facts
concerning the corporations financial resources and business responsibility.
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers
of Premium has not been fully substantiated. In the absence of an authority from the board of directors, no person,
not even the officers of the corporation, can validly bind the corporation.

Monfort Hermanos v Monfort (2004)

Petitioner: Monfort Hermanos Agricultural Development Corp/Antonia Salvatierra
Respondents: Antonio Monfort III, Luisa Monfort Ascalon, Ildefonso Monfort et al
Ynares-Santiago
Salvatierra, president of the corporation, filed complaints (for replevin and for forcible entry) against the group of Antonio
Monfort III. The group contested her legal capacity to sue on behalf of the corporation, saying that the board resolution
authorizing her to represent the corporation was void because the purported members of the board who passed it were
not validly elected officers.
SC ruled that some of those who signed the board resolution authorizing Salvatierra to represent the corporation were
not named in the General Information Sheet (which contains the names of the elected directors and officers). Thus, it was
not established that Salvatierra was authorized to file the complaints on behalf of the corporation. The fact that 4 out of
the 6 members of the board listed in the General Information Sheet are already dead at the time the board resolution was
issued DOES NOT automatically make the 4 signatories to the said board resolution (whose names do not appear in the
General Information Sheet) as among the incumbent members of the board. They were not established to be duly elected
to replace the deceased board members.
Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered owner of
haciendas in Cadiz City. It owns one motor vehicle and two tractors. Ramon Monfort (its executive VP) bred and
maintained fighting cocks in one of the haciendas.
CASE 1:
April 10 1997: the corporation, represented by its President Antonia Salvatierra, and Ramon Monfort, in his personal
capacity, filed against the children, nephews, and nieces of the original incorporators, collectively known as the group of
Antonio Monfort III (respondents) a complaint for delivery of motor vehicle, tractors and 378 fighting cocks.
The group of Antonio Monfort III filed a motion to dismiss contending that Salvatierra has no capacity to sue on behalf of
the corporation because the March 31, 1997 Board Resolution authorizing her and/or Ramon Monfort to represent the
corporation is void as the purported Members of the Board who passed the same were not validly elected officers. TC
and CA ruled in favor of the corporation.
CASE 2:
April 21 1997: Salvatierra filed on behalf of the corporation a complaint for forcible entry against the group of Antonio
Monfort III. It contended that the latter through force and intimidation, unlawfully took possession of the 4 haciendas and
deprived the Corporation of the produce thereon.
The group of Antonio Monfort III alleged that they are possessing and controlling the haciendas and harvesting the
produce therein on behalf of the corporation and not for themselves. They also raised the affirmative defense of lack of
legal capacity of Salvatierra to sue on behalf of the corporation.
MTC of Cadiz City dismissed the complaint. RTC reversed and remanded the case for further proceedings. The CA set
aside the RTC decision and dismissed the complaint for forcible entry for lack of capacity of Salvatierra to represent the
Corporation
2

Corpo Digests 10

ISSUE: Did Salvatierra have legal capacity to sue on behalf of the corporation? NO
Case 1 petition GRANTED, CA REVERSED. Case 2 CA decision AFFIRMED.
RATIO:
A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly
authorized officers and agents. Thus, the power of a corporation to sue and be sued in any court is lodged with the board
of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents,
can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the
board of directors.
Corollary thereto, corporations are required under Sec. 26 of the Corporation Code to submit to the SEC within 30 days
after the election: the names, nationalities and residences of the elected directors, trustees and officers of the
corporation. In order to keep stockholders and the public transacting business with domestic corporations properly
informed of their organizational operational status, the SEC issued the following rules:
2. A General Information Sheet shall be filed with this Commission within 30 days following the date of the annual
stockholders meeting. No extension of said period shall be allowed, except for very justifiable reasons stated in writing by
the President, Secretary, Treasurer or other officers, upon which the Commission may grant an extension for not more
than ten (10) days.
2. Should a director, trustee or officer die, resign or in any manner, cease to hold office, the corporation shall report such
fact to the Commission with 15 days after such death, resignation or cessation of office.
3.If for any justifiable reason, the annual meeting has to be postponed, the company should notify the Commission in
writing of such postponement.
The General Information Sheet shall state, among others, the names of the elected directors and officers, together with
their corresponding position title (Emphasis supplied)
Here, the six signatories to the March 31, 1997 Board Resolution authorizing Salvatierra and/or Ramon Monfort to
represent the corporation, were: Antonia Salvatierra, President; Ramon Monfort, Executive Vice President; Directors Paul
Monfort, Yvete Benedicto and Jaqueline Yusay; and Ester Monfort, Secretary. HOWEVER, the names of the last 4
signatories do not appear in the 1996 General Information Sheet it submitted to the SEC!!! Under the General Information
Sheet the composition of the Board is: Ma. Antonia M. Salvatierra (Chairman), Ramon H. Monfort (Member), Antonio H.
Monfort, Jr., (Member), Joaquin H. Monfort (Member), Francisco H. Monfort (Member) and Jesus Antonio H. Monfort
(Member).
Thus, there is a doubt as to whether Paul Monfort, Yvete Benedicto, Jacqueline Yusay, and Ester Monfort were indeed
duly elected members of the board legally constituted to bring suit in behalf of the corporation.
In the case of Premium Marble Resources v CA, there was a similar issue of capacity to sue of the officers of the
corporation who filed a complaint. There, the court dismissed the complaint because it was not established that the
members of the board who authorized the filing of the complaint were the lawfully elected officers of the corporation.
(Ynares-Santiago then wrote an entire digest for the case of Premium Marble Resources v CA. BV. Here is my
superdigest of her digest)
Petitioner, through the first set of officers, presented the minutes of the meeting of its directors as proof that the
filing of the case against the respondent was authorized by the board. On the other hand, the second set of
officers presented a resolution showing that the corporation did not authorize the filing of any suit
While the minutes of the meeting stated the names of the allegedly newly elected officers, petitioner failed to
show proof that this election was reported to the SEC. In fact, the last entry in their General Information Sheet
with the SEC shows a different set of officers.
In the absence of any board resolution from its board of directors granting the authority to act for and in behalf of
the corporation, the action must necessarily fail.

Corpo Digests 10

Section 261 of the Corporation Code mandates: all corporations duly organized pursuant thereto are required to
submit within 30 days to the SEC names, nationalities and residences of the directors, trustees and officers
elected.
The objective of Sec. 26 is to give the public information, under sanction of oath of responsible officers, of the
nature of business, financial condition and operational status of the company together with information on its key
officers or managers so that those dealing with it and those who intend to do business with it may know or have
the means of knowing facts concerning the corporations financial resources and business responsibility.

BACK TO THE CASE! The fact that 4 out of the 6 members of the board listed in the 1996 General Information Sheet are
already dead at the time the March 31 1997 board resolution was issued DOES NOT automatically make the 4
signatories to the said board resolution (whose names do not appear in the 1996 General Information Sheet) as among
the incumbent members of the board. They were not established to be duly elected to replace the deceased board
members.
To correct the alleged error in the General Information Sheet, the retained accountant of the corporation informed the
SEC on November 11 1998 that the non-inclusion of the lawfully elected directors in the 1996 General Information Sheet
was attributable to its oversight and not the fault of the corporation. This belated attempt, however, did not erase the
doubt as to whether an election was indeed held. A corporation is mandated to inform the SEC of the names and the
change in the composition of its officers and board of directors within 30 days after election if one was held, or 15 days
after the death, resignation or cessation of office of any of its director, trustee or officer if any of them died, resigned or in
any manner, ceased to hold office. This, the corporation failed to do!!!
The alleged election of the directors and officers who signed the March 31 1997 Board Resolution was held on
October 16 1996, but the SEC was informed thereof more than two years later, on November 11 1998!!! The
records also do not show if the deaths of the 4 directors were reported to the SEC.
What further militates against the purported election of those who signed the March 31, 1997 Board Resolution was the
belated submission of the alleged Minutes of the October 16, 1996 meeting where the questioned officers were elected.
The issue of legal capacity of Salvatierra was raised before the lower court by the group of Antonio Monfort III as early as
1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation only in its September 29,
1999 Comment before the CA. Moreover, the Corporation failed to prove that the Minutes was submitted to the SEC. In
fact, their 1997 General Information Sheet does not reflect the names of the 4 Directors claimed to be elected on October
16, 1996.
Thus, Salvatierra failed to prove that four of those who authorized her to represent the Corporation were the lawfully
elected Members of the Board of the Corporation. As such, they cannot confer valid authority for her to sue on behalf of
the corporation.
(Not important!) The Court notes that the complaint for replevin has 2 causes of action (unlawful detention of the motor
vehicle and tractors, and the unlawful detention of the of 387 fighting cocks of Ramon Monfort). Since Ramon sought
redress of the latter cause of action in his personal capacity, the dismissal of the complaint for lack of capacity to sue on
behalf of the corporation should be limited only to the corporations cause of action for delivery of motor vehicle and
tractors. In view, however, of the demise of Ramon substitution by his heirs is proper.

Lopez Realty v Fontecha (1995)

Petitioners: Lopez Realty, Asuncion Lopez Gonzales
Respondents: Florentina Fontecha et al
Puno
A proposal for reduction of employees and provision for gratuity pay was approved in a special meeting of the board of
directors of Lopez Realty. While Asuncion, a member of the Board, was abroad, the remaining members passed a
resolution setting aside a gratuity fund. Some retained employees of Lopez Realty requested for full payment of their
gratuity pay. This was granted in another special meeting. Asuncion contends that the board resolutions were ultra vires
on the ground that Asuncion was not notified of the said special meetings.
SC: The general rule is that a corporation, through its board of directors, should act in the manner and within the
formalities, if any, prescribed by its charter or by the general law. But, an action of the board of directors during a meeting,

1 Sec. 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. xxx

Corpo Digests 10

which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal
meeting, or impliedly, by the corporation's subsequent course of conduct.
Lopez Realty did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private
respondents. Instead, they paid 2 installments thereof.
Despite the alleged lack of notice to Asuncion, it can be gleaned from the records that she was aware of the corporations
obligations under the said resolutions. More importantly, she acquiesced thereto.
Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of
its majority shareholders. There were 5 other stockholders, and except for Arturo Lopez, the rest of them also sit as
members of the Board of Directors.
Sometime in 1978, Arturo submitted a proposal relative to the distribution of certain assets of Lopez Realty among its 3
main shareholders.
The proposal had 3 aspects: 1. Sale of assets to pay for obligations; 2 transfer of assets; 3. reduction of
employees with provision for their gratuity pay.
The proposal was deliberated upon and approved in a special meeting of the board of directors held on
April 17, 1978.
It appears that Lopez Realty approved 2 resolutions providing for the gratuity pay of its employees:
1. Resolution no. 6, series of 1980, passed by stockholders in a special meeting held on Sept 8, 1980 resolving to
set aside twice a year a certain sum of money for the gratuity pay of its retiring employees and to create a
gratuity fund for said contingency.
2. Resolution no. 10, series of 1980 setting aside P157k as Gratuity Fund covering 1950-1980.
On August 17, 1981, except for Asuncion who was then abroad, the remaining members of the Board of Directors
convened a special meeting and passed a resolution which reads:
Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows:
(a)Those who will be laid off be given the full amount of gratuity;
(b)
Those who will be retained will receive 25% of their gratuity pay due on September 1, 1981, and another
25% on January 1, 1982, and 50% to be retained by the office in the meantime.
Private respondents were the retained employees of Lopez Realty. In a letter, dated August 31, 1981, private
respondents requested for the full payment of their gratuity pay. Their request was granted in a special meeting held
on September 1, 1981.
At that, time, however, Asuncion was still abroad.
Allegedly, while she was still out of the country, she sent a cablegram to the corporation, objecting to certain
matters taken up by the board in her absence, such as the sale of some of the assets of the corporation.
Upon her return, she filed a derivative suit with the SEC against majority shareholder Arturo F. Lopez.
Notwithstanding the corporate squabble between Asuncion and Arturo, the first 2 installments of the gratuity pay of some
of the private respondents were paid.
Cash vouchers for the 3rd installment which was already prepared were cancelled by Asuncion, as well as those for the 1 st
and 2nd instalments for other private respondents. Despite repeated demands from the private respondents, Lopez Realty
failed to pay.
LABOR ARBITER: Rendered judgment in favour of private respondents.
Petitioners appeal to the NLRC focused on the alleged non-ratification and non-approval of the assailed Aug. 17, 1981
and Sept. 1, 1981 Board resolutions. They alleged that the payment of the gratuity fund was a mere mistake on the part
of the corporation since pursuant to Resolution 6, said gratuity pay should be given only upon employees retirement.
NLRC: Dismissed the appeal
The resolutions were legitimate creation of the Board of Directors. Resolutions dated Aug 17 1981 and Sept 1 1981
disclosed that there were periods mentioned for the payment of the private respondents gratuities. This disproves the
argument allowing gratuities upon retirement of employees. Also, the private respondents resignation was not voluntary
but was pressurized due to the power struggle between Arturo and Asuncion.
5

Corpo Digests 10

MR with the NLRC: Petitioners assailed the validity of the board resolutions, saying that Asuncion was not notified of the
Special Board meetings held on those dates.
Petitioners contend that the board resolutions passed on August 17, 1981 and September 1, 1981, granting gratuity pay
to their retained employees, are ultra vires on the ground that Asuncion was not duly notified of the said special meetings.
They also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of the retained
employees or those who voluntarily resigned from their posts.
The SC said that the alleged lack of notice to Asuncion was only raised for the first time in their MR with the NIRC. It
would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which was not passed
upon by the Labor Arbiter and NLRC. Questions not raised in the lower courts cannot be raised for the first time on
appeal. Hence they may not use this ground to impugn the subject resolutions.
ISSUE: W/N the resolutions passed by the board of directors during the special meetings on August 1, 1981, and
September 1, 1981, were ultra vires for lack of notice.
RATIO:
The general rule is that a corporation, through its board of directors, should act in the manner and within the formalities, if
any, prescribed by its charter or by the general law.
Thus, directors must act as a body in a meeting called pursuant to the law or the corporation's by-laws,
otherwise, any action taken therein may be questioned by any objecting director or shareholder.
But, an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either
expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course
of conduct.
Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption
of the act, acceptance or acquiescence. Ratification may be effected by a resolution or vote of the board of
directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily,
to show a meeting and formal action by the board of directors in order to establish a ratification.
Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by conduct
implying approval and adoption of the act in question. Such ratification may be express or may be inferred from
silence and inaction.
Lopez Realty did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private
respondents. Instead, they paid the gratuity pay, particularly, the first 2 installments thereof to some of them.
Despite the alleged lack of notice to Asuncion, it can be gleaned from the records that she was aware of the corporations
obligations under the said resolutions. More importantly, she acquiesced thereto.
As pointed out by private respondents, she affixed her signature on cash vouchers evidencing the 2 nd instalment
of the private respondents gratuity pay.
WON the resolutions were ultra vires acts. NO
Assuming, arguendo, that there was no notice given during the special meetings, it is erroneous to state that the
resolutions passed by the board during the said meetings were ultra vires.
An ultra vires act refers act refers to one which is not within the corporate powers conferred by the Corporation Code or
articles of incorporation or not necessary or incidental in the exercise of the powers
so conferred.
The assailed resolutions cover a subject which concerns the benefit and welfare of the company's employees. Providing
gratuity pay to the employees is one of the express powers of the corporation under the Corporation Code, hence,
petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions.
WON the subject resolutions had no force and effect in view of its non-approval during the Annual Stockholders Meeting
held on March 1, 1982. NO.
Petitioners cited Sec. 28 of the Corporation Law (Sec. 40 of the Corporation Code).

Corpo Digests 10

The Court said that the cited provision is not applicable to this case as it refers to the sale, lease, exchange or disposition
of all or substantially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of
directors requires the authorization of the stockholders on record.
Except for Arturo Lopez, the stockholders of Lopez Realty also sit as members of the board of directors. Under the
circumstances in field, it will be illogical and superfluous to require the stockholders' approval of the subject resolutions.
Thus, even without the stockholders' approval of the subject resolutions, petitioners are still liable to pay private
respondents' gratuity pay.
Petition dismissed

Tan v Sycip (2006)

Petitioner: Paul Lee Tan, Andre Liuson et al, Grace Christian High School
Respondents: Paul Sycip and Merritto Lim
Panganiban
Facts: During its annual members meeting, there were only 11 members who were present as the other four had already
died. Out of the 11, only 7 attended the meeting through their respective proxies. The replacements for the four deceased
members were decided in that meeting. The issue is WON dead members of the Board of Trustees should still be
counted in the determination of the quorum, for purposes of conducting the annual members meeting.
SC: NO. The majority of the members representing the actual number of voting rights constitutes quorum. In this case,
with 11 remaining members, the quorum in the present case should be 6. Therefore, there being a quorum, the annual
members meeting, conducted with six members present, was valid. However, the law provides that corporations 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. GCHSs by-laws
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. The filling up of the positions therefore is not valid as the election was held in an annual
meeting of the members, not of the board of trustees. There is a well-defined distinction between a corporate act to be
done by the board and that by the constituent members of the corporation. The board of trustees must act, not
individually or separately, but as a body in a lawful meeting. On the other hand, in their annual meeting, the members
may be represented by their respective proxies, as in the contested annual members meeting of GCHS.

Grace Christian High School is a non-stock, non-profit educational corporation with 15 regular members who also
constitute the board of trustees.
During the annual members meeting in 1998, there were only 11 members who were present as the other four had
already died. Out of the 11, only 7 attended the meeting through their respective proxies.
o The meeting was chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio Pacis, who
argued that there was no quorum.
During the meeting, Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four
deceased member-trustees.
The case went up to the SEC which ruled that the meeting was null and void for lack of quorum. It held that the basis
for determining quorum in a meeting of members should be their number as specified in the articles of incorporation
and not simply the number of living members.
The CA dismissed petitioners appeal on the ground that the Verification and Certification of Non-Forum Shopping
had been signed only by Atty. Sabino Padilla Jr. No Special Power of Attorney had been attached to show his
authority to sign for the rest of the petitioners.
Hence present petition.

ISSUES:
1. [Procedural Issue] WON the CA erred in denying the petition on the basis of a defective verification and
certification YES.
2. [Corpo Issue] WON dead members of the Board of Trustees should still be counted in the determination of the
quorum, for purposes of conducting the annual members meeting. NO
ISSUE 1

The petitioners subsequently submitted a Special Power of Attorney, attesting that Atty. Padilla was authorized to file
the action on their behalf.
7

Corpo Digests 10

In the interest of substantial justice the Court found that the initial procedural lapse should be excused as there
appears to be no intention to circumvent the need for proper verification and certification.
More importantly, the substantial merits of the case and the purely legal questions involved should be considered
special circumstances or compelling reasons that justify an exception to the requirements of the verification and the
certification of non-forum shopping.

ISSUE 2: Dead members should not be counted

Purpose of Stockholders or Members meetings:
They 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.
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.
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.
On the Right to Vote:
Thus one of the most important rights of a qualified shareholder or member is the right to vote for the directors or
trustees who are to manage the corporate affairs. This 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.
The general rule is that, absent any express charter or statutory provision, 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.
o 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.
Quorum is defined in Sec, 52 of the Corporation Code to consist of the stockholders representing a majority of the
outstanding capital stock2 or a majority of the members in the case of non-stock corporations.
Right to Vote in Stock Corporations
The right to vote is inherent in and incidental to the ownership of corporate stocks. However, unissued stocks may
not be voted or considered in determining whether a quorum is present in a stockholders meeting, or whether a
requisite proportion of the stock of the corporation is voted to adopt a certain measure or act. Only stock actually
issued and outstanding may be voted. Under Section 6 of the Corporation Code, each share of stock is entitled to
vote, unless otherwise provided in the articles of incorporation or declared delinquent under Section 67 of the Code.
Neither the stockholders nor the corporation can vote or represent shares that have never passed to the ownership
of stockholders; or, having so passed, have again been purchased by the corporation. These shares are not to be
taken into consideration in determining majorities. When the law speaks of a given proportion of the stock, it
must be construed to mean the shares that have passed from the corporation, and that may be voted.

2 SECTION 137. Outstanding capital stock defined. The term outstanding capital stock as used in this Code, means the total shares of stock
issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares

Corpo Digests 10

Sec. 63, taken in conjunction with Sec. 137 of the Corporation Code would show that the intention of the lawmakers
was to base the quorum mentioned in Section 52 on the number of outstanding voting stocks.

Right to Vote in Nonstock Corporations

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. Only actual members with voting rights should be counted as constituting a quorum.
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).
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 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.
Effect of the Death of a Member of Shareholder
In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the
executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it.
Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or
executor.
On the other hand, membership in and all rights arising from a nonstock corporation are personal and nontransferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise.
In this case, the by-laws of GCHS provide that the corporation shall, among others, be terminated by the
death of the member. Section 91 of the Corporation Code further provides that termination extinguishes all the
rights of a member of the corporation, unless otherwise provided in the articles of incorporation or the bylaws.
Hence dead members who are dropped from the membership roster in the manner and for the cause provided for in
the By-Laws of GCHS are not to be counted in determining the requisite vote in corporate matters or the requisite
quorum for the annual members meeting.
With 11 remaining members, the quorum in the present case should be 6. Therefore, there being a quorum, the
annual members meeting, conducted with six members present, was valid.
On the Vacancy in the Board of Trustees:
The relevant provision is Sec. 29 which provides that vacancies which are not by reason of the 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.
Thus, trustees may fill vacancies in the board, provided that those remaining still constitute a quorum. Emphasis on
may. Corporations 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.
GCHSs by-laws 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.

3 Section 6. Classification of shares. The shares of stock of stock corporations may be divided into classes or series of shares, or both, any
of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided,
That no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise
provided in this Code: Provided, further, that there shall always be a class or series of shares which have complete voting rights.x x x x x x x x x
"Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporation property;
4. Incurring, creating or increasing bonded indebtedness
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
"Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code
shall be deemed to refer only to stocks with voting rights."

Corpo Digests 10

While a majority of the remaining corporate members were present, however, the "election" of the four trustees
cannot be legally upheld for the obvious reason that it was held in an annual meeting of the members, not of the
board of trustees. The remaining member-trustees must sit as a board in order to validly elect the new ones.
There is a well-defined distinction between a corporate act to be done by the board and that by the constituent
members of the corporation. The board of trustees must act, not individually or separately, but as a body in a
lawful meeting. On the other hand, in their annual meeting, the members may be represented by their
respective proxies, as in the contested annual members meeting of GCHS.

Petition partly granted

Lopez v Ericta (1972)

Petitioner: Salvador Lopez (President of UP), Oseas del Rosario (OIC, College of Education, UP)
Respondents: Hon. Vicente Ericta (Judge of CFI Rizal) and Dr. Consuelo S. Blanco
Makalintal
Lopez appointed Blanco as ad interim dean, subject to confirmation/rejection of the BOR. The BOR met twiceboth
times they didnt make a clear decision, although both times they agreed that non-action on the appointment meant that it
lapsed. After the first meeting Lopez appointed Blanco again, but he didnt extend a third appointment after the second
meeting. There was a 5-4-4 vote on the second meeting that was eventually disregarded in favor of simply deciding that
Blancos appointment was neither confirmed/not confirmed and had simply lapsed.
SC: BOR was perfectly within its rights to waste 99% of its time only to disregard everything decided in the meeting since
(1) the meeting had not yet been adjourned; (2) the subject of the deliberations had not yet been closed, and (3) as in the
case of any deliberative body the BOR had the right to reconsider its action.
Blanco was appointed as ad interim Dean of the College of Education by Lopez in April 1970, effective 1 May 1970 until
30 April 1971, unless sooner terminated and subject to the approval of the BOR and to pertinent University regulations.
Pursuant thereto, she assumed office in May 1970.
The relevant provisions of the UP Charter (Act No. 1870) are as follows:
SEC. 7. A quorum of the Board of Regents shall consist a majority of all the members holding
office at the time the meeting of the Board is called. All processes against the Board of Regents shall be
served on the president or secretary thereof.
SEC. 10. The body of instructors of each college shall constitute its faculty, and as presiding officer
of each faculty, there shall be a dean elected from the members of such faculty by the Board of
Regents on nomination by the President of the University.
(Article 78 of the Revised Code of the University)
Art. 78. For each college or school, there shall be a Dean or Director who shall
be elected by the Board of Regents from the members of the faculty of the University unit concerned,
on nomination by the President of the University.
The BOR met on 26 May 1970 and President Lopez submitted for consideration Blancos ad interim
appointment. The BOR voted to defer action on the matter in view of the objections cited by Regent Kalaw 4 based on a
petition against Blancos appointment. The petition was addressed to the BOR from a majority of the faculty and from a
number of alumni.
The deferment for further study was approved and the matter was referred to the Committee on Personnel, which was
thereupon reconstituted with three Regents. 5 The Chairman of the BOR then expressed the opinion that in view of its
decision to defer action, Blancos appointment had lapsed. But when Lopez asked if there would be any objections to
another ad interim appointment in favor of Blanco pending final action, there was no objection from the BOR. Hence,
Lopez immediately extended another ad interim appointment to her with the very same conditions as the first.
The next BOR meeting was held on 9 July 1970. The Personnel Committee recommended that the BOR request the
President to review his nomination of Blanco, in light of the testimonies received and discussions held on the matter from
4 11 June 1970. Supposedly the intention behind the recommendation was that Lopez would discuss with Blanco a

4 Senator Eva Estrada Kalaw

5 Tangco, Pedrosa, and Soriano
10

Corpo Digests 10

proposal to withdraw her appointment as Dean. (There was some discussion about the Committee withdrawing its
recommendation because I guess someone got offended? Whatever. The minutes of the meeting are weird.)
Ultimately a roll-call vote on Blancos appointment was carried out and the Chairman ruled that Blanco had not
obtained the necessary number of votes. (Out of 12: 5 in favor, 3 against, and 4 abstentions.) For unexplained reasons,
the BOR agreed to expunge the result of the voting. On motion of Regent Agbayani duly seconded, the BOR suspended
action on the ad interim appointment to give them more time for further thinking on the question of the deanship of the
College of Education, and, since the BOR had not taken action on the appointment of Blanco either adversely or
favorably, her ad interim appointment as Dean terminated as of 9 July 1970.6
The next day, Blanco addressed a letter to the BOR requesting a reconsideration of the interpretation made by the BOR
as to the legal effect of the votes cast. (I think she was trying to argue that 5 votes meant she was elected.) She then
wrote to Lopez protesting Del Rosarios appointment as OIC. When neither communication elicited a reply, she went
before the CFI of Quezon City on a petition for certiorari and prohibition with preliminary injunction. She was basically
questioning how abstentions in a vote can be treated. (On one hand, if you count them as negative votes, then 5/12 =
she didnt win. But if you count the abstentions as positive votes then 9/12 = she won.)
The CFI declared her the duly elected Dean of the College of Education entitled to a three-year term from May
1970 to April 30 1973. The CFI also nullified Del Rosarios appointment and issued a permanent injunction prohibiting him
from further exercising the functions and duties pertaining to the Office of the Dean. Finally, the CFI commanded the BOR
to desist from any further proceedings in the matter of the appointment or election of another person as Dean. 7
ISSUE:Was Dr. Blanco the duly elected Dean of the College of Education in the meeting of the BOR in July 1970? NO.
RATIO:
There were two competing (equally logical, equally AmJur-anchored) theories before the Court
Petitioners: If one counts the abstention as an affirmative vote, then an absurd situation might arise wherein a nominee is
elected by only one affirmative vote with the other eleven members are abstaining.
Respondent: An abstention should be recorded in the affirmative on the theory that refusal to vote indicates acquiescence
in the action of those who vote. The silence of the members present, but abstaining, is construed to be acquiescence so
far as any construction is necessary.
Like the abstainers, the Court wimped out and did not choose one side. Going by the citations of Blanco, the
Court noted that an abstention is counted as an affirmative vote insofar as it may be construed as an acquiescence in the
action of those who vote affirmatively. This manner of counting is based on a presumption as to the intent of the one
abstaining, but this prima facie presumption8 will not hold in the face of clear evidence to the contrary.
Sooo the Court looked into the facts and circumstances attending to the vote and concluded that there was no way the
votes in abstention could be seen as acquiescence in the votes affirming Blancos appointment. In fact, based on the
minutes of the meeting9, the Court made the following observations:
(1) The Personnel Committee was recommending, initially, that Blancos appointment should be rejected;
(2) However, the Committee felt that the rejection should be done in a diplomatic way to avoid any embarrassment
on the part of both the appointee and the President (the whole gentlemans agreement of asking for her
withdrawal as appointee instead of outright rejecting her);
(3) The final decision of the Committee was to ask the President to talk to Blanco for the appointment to be
withdrawn.
(4) When the decision was clarified by Regent Kalaw and then reiterated by both Regent Tangco (head of the
Committee) and the Chairman, Regent Pedrosa suggested that the members of the Personnel Committee and
the President should inhibit themselves from voting;
(5) When the matter was submitted to a vote, everyone got confused as to what was being voted on: was the vote to
confirm the appointment or to accept the Committee recommendation? Regent Tangco announced that the
Committee was withdrawing its recommendation (on the gentlemans agreement that President Lopez would

6 How many kinds of rejection do you need before you get it? WOW.
7 Thats what you get for being pussies.
8 Di ko alam na nadagdagan na pala yung disputable presumptions.
9 I invite you to take a look at the actual case and enjoy the length and breadth yourself.
11

Corpo Digests 10

convince Blanco to withdraw as appointee), so the Chairman clarified that the question was whether they would
confirm or not confirm the appointment; and
(6) Everyone clarified that what the Committee was withdrawing was the recommendation for non-confirmation.
The Court noted that the four abstentions were those who, during the meeting, agreed that it would be best if they were to
inhibit themselves from voting. These abstentions were the three members of the Personnel Committee (Tangco,
Soriano, and Pedrosa) and one Regent (Virata) who explained that he was abstaining because he was at sea in this
and was not ready to decide.
Viewed in the setting laid out above, there was no way the votes could be construed as acquiescing in the votes
for appointment. In fact, based on the minutes it was clear that the three members of the Personnel Committee, had they
voted, would have voted resoundingly for the rejection of the appointment. Indeed, the only reason the Committee
withdrew the recommendation was on the gentlemans agreement that Lopez would convince Blanco to withdraw as
appointee.
All arguments on the legal question of how an abstention should be treated, all authorities cited in support of one
or the other position, become academic and purposeless in the face of the fact that respondent Blanco was clearly not
the choice of a majority of the members of the BOR, as unequivocally demonstrated by the transcript of the proceedings.
This fact cannot be ignored simply because the Chairman, in submitting the question to the actual vote, did not frame it
as accurately as the preceding discussion called for, such that two of the Regents present (Silva and Kalaw) had to make
some kind of clarification.
In any event, at the very same meeting, before it adjourned, the BOR resolved unanimously to cancel the action
that had been taken, including the result of the voting, and to return the case to its original status. In effect, as they all
agreed, they did not act on the appointment but the ad interim appointment was terminated. The BOR had the authority to
do this because the meeting had not yet been adjourned, the subject of the deliberations had not yet been closed, and as
in the case of any deliberative body the BOR had the right to reconsider its action. No title to the office of Dean of the
College of Education had yet vested in Blanco at the time of such reconsideration.
The Court explained that since Blanco was never elected, she could not claim recognition as Dean on that basis
which is actually the only correct basis for her claim. She could not ask that she be recognized as Dean by virtue of her
ad interim appointment, which the Court found to be technically unauthorized. According to the law and regulations, the
Dean of a college is elected by the BOR on nomination of the President of the University. The President can only
nominate, not extend an appointment, even if ad interim. On the other hand, the BORs power is not merely to confirm,
but to elect or appoint. But since the appointment had already lapsed, the Court found this point moot.
J. Barredo, concurring:
J. Barredo took issue with the fact that the Chairman did not abstain and in fact voted in the negative. He also had a
problem with the fact that Lopez, who proposed Blancos appointment, also did not abstain and in fact voted in the
affirmative. It is indeed regrettable that the action of the board was not as clear and categorical as should be expected of
the Board of Regents of the state university.
If such a simple matter as the election of a dean cannot be decided by the corresponding university authorities in a noncontroversial manner, is there hope that more important and complicated matters requiring deeper study and
consideration and affecting the fundamental policies of the institution and the various curricula to be adopted can be
settled and decided forthrightly and without equivocation? I am frankly disappointed, being an alumnus of the University,
that a thing that should have been dealt with no other consideration in mind than the fitness of the candidate had to be
treated with diplomacy and halfway propositions, as if there was fear that the outcome would not be considered by all
concerned as fully just and fair.
I realize I am not supposed to render judgment here on how the University should be run or how its officials should
conduct themselves, but I feel that it is within the scope of my authority to express myself on a matter of public interest
that had to reach this Court only because simple things have not been done the simple way.
Petition granted. Blancos case is dismissed and the preliminary injunction issued by the SC is made permanent.

Lopez Realty Inc v Sps Tanjangco (2014)

Petitioners: Lopez Realty Inc, Asuncion Lopez-Gonzales
Respondents: Sps. Reynaldo Tanjangco and Maria Luisa Arguelles-Tanjangco
Reyes
12

Corpo Digests 10

Lopez Realty, Inc. (LRI) and Asuncion Lopez-Gonzalez initiated a Complaint for annulment of sale, cancellation of
title, reconveyance and damages with prayer for the issuance of temporary restraining order (TRO) and/or writ of
preliminary injunction against the spouses Tanjangco, Arturo and the Registrar of Deeds of Manila.

Previously, LRI and Dr. Jose Tanjangco (Jose) were the registered co-owners of three parcels of land and the
building erected thereon known as the Trade Center Building Joses one-half share in the subject properties were
later transferred and registered in the name of his son Reynaldo Tanjangco and daughter-in-law, Maria Luisa
Arguelles (spouses Tanjangco).

These were the stockholders of record of LRI at the time material to this case:
Asuncion Lopez-Gonzalez (Asuncion, Director & Corporate Secretary) 7,831 shares;
Arturo F. Lopez (Arturo) 7,830 shares;
Teresita Lopez-Marquez (Teresita) 7,830 shares;
Rosendo de Leon (Rosendo, Director) 5 shares
Benjamin Bernardino (Benjamin, Director) 1 share;
Augusto de Leon (Augusto, Director) 1 share; and
Leo Rivera (Leo, Director) 1 share

During a special stockholders meeting held on 27 July 1981, the sale of 1/2 share of LRI in the Trade Center
Building was taken up.
While the selling price was at P4 M, the Tanjancos offered P3.8 M. To this, Asuncion countered with P5 M which was
not accepted by the Tanjancos.
Thus, the board agreed to give Asuncion the priority to equal the Tanjanco offer and the same to be exercised within
ten (10) days. Otherwise, the Tanjanco offer will be deemed accepted.
Just a day after, Teresita died (her estates executor Juanito L. Santos represented her afterwards).
As Asuncion failed to exercise her option to purchase the subject properties, and while she was abroad, the
remaining directors: Rosendo, Benjamin and Leo convened in a special meeting passing and approving the 17
August 1981 Resolution authorizing Arturo to negotiate and carry out the complete termination of the sale terms and
conditions as embodied in the Resolution of July 27, 1981, among others.
Subsequently, the sale was perfected with payments subsequently made.
After learning of the sale, Asuncion filed this complaint challenging the validity of the 17 August 1982 Resolution on
the ground that she was not notified of the meeting.

ISSUES: W/N the sale was valid YES

RATIO:

The 17 August 1981 Board Resolution did not give Arturo the authority to act as LRIs representative in the sale as
the meeting of the board of directors where such was passed was conducted without giving any notice to Asuncion.
This is in violation of Section 53 of the Corporation Code which requires sending of notices for regular or special
meetings to every director.

As a result, a meeting of the board of directors is legally infirm if there is failure to comply with the requirements or
formalities of the law or the corporations by laws and any action taken on such meeting may be challenged as a
consequence.

Notwithstanding, the actions taken in such a meeting by the directors or trustees may be ratified expressly or
impliedly. In the case of ratification, it means that the principal voluntarily adopts, confirms and gives sanction to
some unauthorized act of its agent on its behalf.
13

Corpo Digests 10

IN THIS CASE:

the ratification was expressed through the July 30, 1982 Board Resolution. Regarding Asuncions claims that the 30
July 1982 Board Resolution did not ratify the 17 August 1981 Resolution due to Juanitos disqualification and Leos
negative vote.
Asuncion assails the authority of Juanito to vote because he was not a director and he did not own any share of
stock which would qualify him to be one. On the contrary, Juanito defends his right to vote as the representative of
Teresitas estate. Upon examination of the July 30, 1982 minutes of the meeting, it can be deduced that the meeting
is a joint stockholders and directors meeting.
The Court takes into account that majority of the board of directors except for Asuncion, had already approved of the
sale to the spouses Tanjangco prior to this meeting. As a consequence, the power to ratify the previous resolutions
and actions of the board of directors in this case lies in the stockholders, not in the board of directors.
It would be absurd to require the board of directors to ratify their own actsacts which the same director s already
approved of beforehand. Hence, Juanito, as the administrator of Teresitas estate even though not a director, is
entitled to vote on behalf of Teresitas estate as the administrator thereof.
Citing jurisprudence, in stock corporations, shareholders may generally transfer their shares.
Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the
legal title to the stock and entitled to vote it.
Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or
executor.
As there exists no corporate secretarys certification of the minutes of the meeting, only Juanito, Benjamin and
Roseno, whose signature appeared on the minutes, could be considered as to have ratified the sale to the spouses
Tanjangco.
As Leo owns only 1 share, the results are the same against the overwhelming shares who voted in favor of
ratification.

In sum, whatever defect there was on the sale to the spouses Tanjangco pursuant to the August 17, 1981 Board
Resolution, the same was cured through its ratification in the July 30, 1982 Board Resolution.

It is of no moment whether Arturo was authorized to merely negotiate or to enter into a contract of sale on behalf of
LRI as all his actions in connection to the sale were expressly ratified by the stockholders holding 67% of the
outstanding capital stock.

Citing jurisprudence, the Court held that by virtue of ratification, the acts of the board of directors become the acts of
the stockholders themselves, even if those acts were, at the outset, unauthorized.

Strategic Alliance Devt Corp v Radstock Securities (2009) supra

Republic v Sandiganbayan (2011)
Cojuangco was known as the coconut king as Marcos placed him in prime positions in the Philippine Coconut Authority,
the United Coconut Mills, Inc., United Coconut Planters Bank, United Coconut Planters Life Assurance Corporation, and
United Coconut Chemicals, Inc. When Marcos fell, PCGG went after his ill-gotten wealth. What is involved here is the
block of shares representing 20% of the outstanding capital stock of SMC. These shares were in the name of Cojuangco
et al and PCGG claimed that the funds used to obtain these shares were coco levy funds or public funds in the
corporations where Cojuangco had control. Thus, the shares should be reconveyed to government.
Republic claimed that Cojuangco breached his fiduciary duty as member of the board of directors of the public
corporations from where the money used to buy the shares came.
SC held that there was no fiduciary duty breached and that Cojuangco was not holding the shares in trust for the coconut
farmers. He was the owner of the shares.

The Republic commenced Civil Case No. 0033 in the Sandiganbayan by complaint, impleading as defendants
respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59 individual defendants.
14

Corpo Digests 10

Cojuangco allegedly purchased a block of 33,000,000 shares of SMC stock through the 14 holding companies
owned by the CIIF Oil Mills. For this reason, the block of 33,133,266 shares of SMC stock shall be referred to as the
CIIF block of shares.

REPUBLIC SAYS:
That Cojuangco is the undisputed "coconut king" with unlimited powers to deal with the coconut levy funds, who took
undue advantage of his association, influence and connection, acting in unlawful concert with Defendants Ferdinand
E. Marcos, misused coconut levy funds to buy out majority of the outstanding shares of stock of San Miguel
Corporation.
Defendants Eduardo Cojuangco, Jr., and ACCRA law offices plotted, devised, schemed, conspired and confederated
with each other in setting up, through the use of coconut levy funds, the financial and corporate framework and
structures that led to the establishment of UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty
other coconut levy-funded corporations, including the acquisition of San Miguel Corporation shares and its
institutionalization through presidential directives of the coconut monopoly.
Ruling of the Sandiganbayan:
Amended Complaint in Civil Case No. 0033-F was dismissed for failure of plaintiff to prove by preponderance of
evidence its causes of action against defendants with respect to the twenty percent (20%) outstanding shares of
stock of San Miguel Corporation registered in defendants names

Republic of the Philippines appealed the case to the Supreme Court invoking that coconut levy funds are public
funds.
The SMC shares, which were acquired by respondents Cojuangco, Jr. and the Cojuangco companies with the use of
coconut levy funds in violation of respondent Cojuangco, Jr.s fiduciary obligation are, necessarily, public in
character and should be reconveyed to the government.

ISSUE: W/N Cojuangco Jr. used the coconut levy funds to acquire SMC shares in violation of the his fiduciary obligation
as a public officer NO violation of fiduciary duties
RATIO:

It does not suffice, as in this case, that the respondent is or was a government official or employee during the
administration of former Pres. Marcos. There must be a prima facie showing that the respondent unlawfully
accumulated wealth by virtue of his close association or relation with former Pres. Marcos and/or his wife
Republics burden to establish by preponderance of evidence that respondents SMC shares had been illegally
acquired with coconut-levy funds was not discharged
The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to
purchase, or a person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a
director or trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation, among
others) require factual foundations to be first laid out in appropriate judicial proceedings.
o Hence, concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of
Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable.
Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any fiduciary duties as an
officer and member of the Board of Directors of the UCPB.
o For one, the Amended Complaint contained no clear factual allegation on which to predicate the application
of Articles 1455 and 1456 of the Civil Code, and Section 31 of the Corporation Code. Although the trust
relationship supposedly arose from Cojuangcos being an officer and member of the Board of Directors of
the UCPB, the link between this alleged fact and the borrowings or advances was not established.
o Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc.
As trial court, the Sandiganbayan could not presume his breach of fiduciary duties without evidence showing so, for
fraud or breach of trust is never presumed, but must be alleged and proved.
The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication
but is more inclined to be a contract of loan.
To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is
reposed by one party in another who exercises dominion and influence.
Absent any special facts and circumstances proving a higher degree of responsibility, any dealings between a lender
and borrower are not fiduciary in nature.

15

Corpo Digests 10

Dismissed. Sandiganbayan decision November 28, 2007 affirmed. The Court declares that the block of shares in San
Miguel Corporation in the names of respondents Cojuangco, et al. subject of Civil Case No. 0033-F is the exclusive
property of Cojuangco, et al. as registered owners.

Western Institute of Technology v Salas (1997)

Petitioners: Western Institute of Technology, Homero Villasis et al
Respondents: Ricardo Salas, Soledad Salas-Tubilleja et al
Hermosisima
The Board of Directors of WIT make a board resolution amending the By-Laws to give compensation to all its officers.
The minority stockholders filed for falsification and estafa against the Board, saying that they made such amendment
without authority. The Board was acquitted. The minority stockholder appeal.
SC says that generally, directors or trustees, are not entitled to salary or other compensation when they perform nothing
more than the usual and ordinary duties of their office. Section 30 of the Corporation Code provides 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. However, the clear
phraseology of Section 30 which states: The directors shall not receive any compensation, as such directors delimits
the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or
trustees. This implies that members of the board may receive compensation, in addition to reasonable per diems, when
they render services to the corporation in a capacity other than as directors/trustees.
The Salas Family (See names in title) are majority and controlling members of the Board of Trustees of Western Institute
of Technology, Inc. [WIT], a corporation engaged in the operation of an educational institution. According to the Villasises
(petitioners, see title), the minority stockholders of WIT, a special Board Meeting was held in June 1986 with the Board
and Reginald Villasis present. On the agenda of this meeting was the item, "possible implementation of Art. III, Sec. 6 of
the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all officers of the corporation." In the
same meeting, the Board passed a resolution granting monthly compensation to the Salases in their different roles as
corporate officers retroactive June 1985.
In 1991, the Villasises filed an affidavit-complaint against the Salases resulting in 2 criminal informations to be filed in
RTC Iloilo for falsification of public document and for estafa. The charge for falsification of public document was anchored
on the private respondents submission of WITs income statement for the fiscal year 1985-1986 with the Securities and
Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private
respondents based on Resolution No. 4, series of 1986, making it appear that the same was passed by the board on
March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered by the corporations
fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986).
The estafa is based on the fact that knowing fully well that they have no sufficient, lawful authority to disburse, disbursed
the funds of the corporation by effecting payment of their retroactive salaries in the amount of P186,470.70 and
subsequently paying themselves every 15th and 30th of the month starting June 15, 1986 until the present.
The 2 cases were consolidated and, after full blown proceedings, the Salases were acquitted on both counts without
imposing any civil liability for them. The Villasises filed an MR with regard to the civil aspect of the RTC decision, which
was denied. The Villasises appeal on the civil aspect.
WIT filed a motion for intervention, disowning its inclusion in the petition and submitting that Atty. Tranquilino R. Gale,
counsel for the Villasises, had no authority whatsoever to represent the corporation in filing the petition. It prayed for the
dismissal of the petition for being utterly without merit. The Motion for Intervention was granted.
ISSUE: W/N the compensation of the board of directors as stated in their by-laws violates the corporation code NO
RATIO:
The pertinent section of the Corporation Code provides:
Sec. 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
16

Corpo Digests 10

compensation of directors, as such directors, exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year.
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 this 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.
This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule.
Worthy of note is the clear phraseology of Section 30 which states: The directors shall not receive any compensation, as
such directors The phrase as such directors is not without significance for it delimits the scope of the prohibition to
compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous
implication is that members of the board may receive compensation, in addition to reasonable per diems, when they
render services to the corporation in a capacity other than as directors/trustees. In the case at bench, the resolution of the
Board granted monthly compensation to the Salases not in their capacity as members of the board, but rather as officers
of the corporation.
The acquittal in the criminal cases is not merely based on reasonable doubt but rather on a finding that the accused
Salases did not commit the criminal acts complained of. Thus, any civil action ex delicto cannot prosper. Acquittal in a
criminal action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not
commit the criminal acts imputed to them.
Petition DENIED.

Gokongwei v SEC (1979) - supra

Corporate officers are also not permitted to use their position of trust and confidence to further private interests. The
doctrine of corporate opportunity is a recognition by the courts that fiduciary standards could not be upheld where the
fiduciary was acting for 2 entities with competing interests. This rests on 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 corp justly calls
for protection.
It is not denied that a member of the SMC Board has access to sensitive and highly confidential information 10. It is
obviously to prevent the creation of an opportunity for an officer or director of SMC, who is also the officer or owner of a
competing corporation, from taking advantage of the information he acquires as director to promote his interests to the
detriment of SMC and it stockholders that the amendment was made. Where 2 corporations are competitive in a
substantial sense, it would seem improbable, if not possible, for the director to satisfy his loyalty to both and place his
performance of corporate duties above his personal concerns.
Gokongwei's assurance that he would absent himself from meetings at which confidential matters would be discussed
would not detract from the validity and reasonableness of the by-laws. Apart from the impractical results, it would be
inconsistent with his primary motive in running for board membership, which is to protect his investments in SMC. This
would also be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the
law is to encourage and enforce responsible corporate management. The law will not tolerate the passive attitude of
directors; it is their duty to control and supervise the day to day business activities or promulgate definite policies and
rules of guidance toward seeing to it that the policies are carried out.
Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary
duty of loyalty may well require that he disclose this information to a competitive arrival. These dangers are enhanced
where the common director is a controlling stockholder of both competing corporations. The director has an economic
incentive to appropriate the benefit of his own corporation the corporate plans and policies of the corporation where he
sits as director. SMC would be subjected to a competitive disadvantage and the competitor would be unjustly enriched,
for advance knowledge by the latter of vital knowledge could give it a leg up.

10Marketing strategies and pricing structure, budget for expansion and diversification, research and development, sources of funding,
availability of personnel, proposals of mergers or tie-ups with other firms.

17

Corpo Digests 10

Filipinas Port Services v Go (2007) - supra

18