Centralized Management Authority

Philippine Airlines v. FASAP

Peoples Aircargo v. CA
Facts: Peoples Aircargo is a domestic
corporation organized to operate a customs
bonded warehouse. To obtain a license for
the corporation from the Bureau of Customs,
Punsalan, its President, solicited a proposal
from Sano for the preparation of a feasibility
study. Sano submitted a letter proposal to
Punsalan of the terms and conditions of the
contract, amounting to P350,000.00.
Punsalan sent a letter to Sano confirming to
their agreement. Accordingly, Sano prepared
the feasibility study. Sano was paid in full.
Thereafter, a 2nd contract was entered into
for consultancy services. Hence, the Bureau
of Customs issued a license to Peoples
Aircargo. Sano was not paid for this 2nd
contract. Hence, he filed a collection case
against the corporation. Meanwhile,
Punsalan sold his shares in Peoples Aircargo
andresigned as president.

Peoples Aircargo denied that there were

consultancy services rendered by Sano. It
alleged that the 2nd contract entered into
between him and Punsalan was without
authority. RTC adjudged in favor of Sano. CA
affirmed. Hence, this petition.

Issue: Whether or not the Punsalan had

apparent authority to bind Peoples Aircargo
to the 2nd contract.

Held: Yes. The general rule is that, in the

absence of authority from the BoD, 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 authrized

by law or incident to its existence. Being a
juridical entity, a corporation may act
through its BoD, which exercises almost all
corporate powers, lays down all corporate
business policies and is responsible for the
efficiency of management as is under Sec.
23 of the Corporation Code.

The power and responsibility to decide

whether the corporation should enter into a
contract that will bind the corporation is
lodged in the board, subject to AoI, by laws,
or relevant provisions of law. However, just
as a natural person may authorize another to
do certain acts for and on his behalf, the BoD
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 by laws or authorization
from the board, either expressly or impliedly
by habit, custom or acquiescence in the
general course of business.
In the case at bar, since the corporation had
previously allowed Punsalan to enter into the
first contract with Sano without a board
resolution expressly authorizing him, thus, it
had clothed its president with apparent
authority to execute the subject 2nd
contract.

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 agents authority.

San Juan Structural v. CA

Facts: In 1989, San Juan Structural and Steel
Fabricators, Inc. (San Juan) alleged that it
entered into a contract of sale with Motorich

Sales Corporation (Motorich) through the

latters treasurer, Nenita Gruenberg. The
subject of the sale was a parcel of land
owned by Motorich. San Juan advanced
P100k to Nenita as earnest money.

On the day agreed upon on which Nenita was

supposed to deliver the title of the land to
Motorich, Nenita did not show up. Nenita and
Motorich did not heed the subsequent
demand of San Juan to comply with the
contract hence San Juan sued Motorich.
Motorich, in its defense, argued that it is not
bound by the acts of its treasurer, Nenita,
since her act in contracting with San Juan
was not authorized by the corporate board.

it is true that Nenita and her husband own

98% of the capital stocks of Motorich. The
corporate veil can only be pierced if the
corporate fiction is merely used by the
incorporators to shield themselves against
liability for fraud, illegality or inequity
committed on third persons. It is incumbent
upon San Juan to prove that Nenita or her
husband is merely using Motorich to defraud
San Juan. In this case however, San Juan
utterly failed to establish that Motorich was
formed, or that it is operated, for the purpose
of shielding any alleged fraudulent or illegal
activities of its officers or stockholders; or
that the said veil was used to conceal fraud,
illegality or inequity at the expense of third
persons like San Juan.

Yasuma v. Heirs of De Villa

San Juan raised the issue that Nenita was
actually the wife of the President of Motorich;
that Nenita and her husband owns 98% of
the corporations capital stocks; that as such,
it is a close corporation and that makes
Nenita and the President as principal
stockholders who do not need any
authorization from the corporate board; that
in this case, the corporate veil may be
properly pierced.

ISSUE: Whether or not San Juan is correct.

HELD: No. Motorich is right in invoking that

it is not bound by the acts of Nenita because
her act in entering into a contract with San
Juan was not authorized by the board of
directors of Motorich. Nenita is however
ordered to return the P100k.

There is no merit in the contention that the

corporate veil should be pierced even though

Woodchild Holdings v. Roxas Electric

Yao Ka Sin Trading v. CA
Facts: In 1973, Constancio Maglana,
president of Prime White Cement
Corporation, sent an offer letter to Yao Ka Sin
Trading. The offer states that Prime White is
willing to sell 45,000 bags of cement at
P24.30 per bag. The offer letter was received
by Yao Ka Sins manager, Henry Yao. Yao
accepted the letter and pursuant to the
letter, he sent a check in the amount of
P243,000.00 equivalent to the value of
10,000 bags of cement. However, the Board
of Directors of Prime White rejected the offer
letter sent by Maglana but it considered
Yaos acceptance letter as a new contract
offer hence the Board sent a letter to Yao
telling him that Prime White is instead willing
to sell only 10,000 bags to Yao Ka Sin and
that he has ten days to reply; that if no reply
is made by Yao then they will consider it as
an acceptance and that thereafter Prime
White shall deposit the P243k check in its
account and then deliver the cements to Yao
Ka Sin. Henry Yao never replied.

Later, Yao Ka Sin sued Prime White to compel

the latter to comply with what Yao Ka Sin
considered as the true contract, i.e., 45,000
bags at P24.30 per bag. Prime White in its
defense averred that although Maglana is
empowered to sign contracts in behalf of
Prime White, such contracts are still subject
to approval by Prime Whites Board, and then
it still requires further approval by the
National Investment and Development
Corporation (NIDC), a government owned
and controlled corporation because Prime
White is a subsidiary of NIDC.

Henry Yao asserts that the letter from

Maglana is a binding contract because it was
made under the apparent authority of
Maglana. The trial court ruled in favor of Yao
Ka Sin. The Court of Appeals reversed the
trial court.

ISSUE: Whether or not the president of a

corporation is clothed with apparent
authority to enter into binding contracts with
third persons without the authority of the
Board.

HELD: No. The Board may enter into

contracts through the president. The
president may only enter into contracts upon
authority of the Board. Hence, any
agreement signed by the president is subject
to approval by the Board. Unlike a general
manager (like the case of Francisco vs GSIS),
the president has no apparent authority to
enter into binding contracts with third
persons. Further, if indeed the by-laws of
Prime White did provide Maglana with
apparent authority, this was not proven by
Yao Ka Sin.

As a rule, apparent authority may result from

(1) the general manner, by which the
corporation holds out an officer or agent as
having power to act or, in other words, the
apparent authority with which it clothes him
to act in general or (2) acquiescence in his
acts of a particular nature, with actual or
constructive knowledge thereof, whether
within or without the scope of his ordinary
powers. These are not present in this case.

Also, the subsequent letter by Prime White to

Yao Ka Sin is binding because Yao Ka Sins
failure to respond constitutes an acceptance,
per stated in the letter itself which was not
contested by Henry Yao during trial.

Business Judgment/Directors & Officers

Liability
Montelibano v. Bacolod-Murcia
Facts: Plaintiffs-appellants, Alfredo
Montelibano, Alejandro Montelibano, and the
Limited co-partnership Gonzaga and
Company, had been and are sugar planters
adhered to the defendant-appellee's sugar
central mill under identical milling contracts.
The contracts were stipulated to be in force
for 30 years and that the resulting product
should be divided in the ratio of 45% for the
mill and 55% for the planters. It was later
proposed to execute amended milling
contracts, increasing the planters' share to
60% of the manufactured sugar and resulting
molasses, besides other concessions, but
extending the operation of the milling
contract from the original 30 years to 45
years.
The Board of Directors of the appellee
Bacolod-Murcia Milling Co., Inc., adopted a
resolution granting further concessions to
the planters over and above those contained
in the printed Amended Milling Contract.
Appellants signed and executed the printed
Amended Milling Contract but a copy of the
resolution was not attached to the printed
contract.

In 1953, the appellants initiated the present

action, contending that three Negros sugar
centrals had already granted increased
participation to their planters, and that under
paragraph 9 of the abovementioned
resolution, the appellee had become
obligated to grant similar concessions to the
plaintiffs (appellants herein).
However, the appellee Bacolod-Murcia Milling
Co., inc., resisted the claim, and defended by
urging that the stipulations contained in the
resolution were made without consideration;
that the resolution in question was,
therefore, null and void ab initio, being in
effect a donation that was ultra vires and
beyond the powers of the corporate directors
to adopt.
After trial, the court below rendered
judgment upholding the stand of the
defendant Milling company, and dismissed
the complaint. Thereupon, plaintiffs duly
appealed to this Court.

As the resolution in question was passed in

good faith by the board of directors, it is
valid and binding, and whether or not it will
cause losses or decrease the profits of the
central, the court has no authority to review
them.
It is a well-known rule of law that questions
of policy or of management are left solely to
the honest decision of officers and directors
of a corporation, and the court is without
authority to substitute its judgment of the
board of directors; the board is the business
manager of the corporation, and so long as it
acts in good faith its orders are not
reviewable by the courts. Hence, the
appellee Bacolod-Murcia Milling Company is,
under the terms of its Resolution, duty bound
to grant similar increases to plaintiffsappellants herein.
Tramat v. CA
Sanchez v. Republic
Premium Marble v. CA

Issue: Whether or not the resolution is valid

and binding between the corporation and
planters.
Held: The Supreme Court held in the
affirmative. There can be no doubt that the
directors of the appellee company had
authority to modify the proposed terms of
the Amended Milling Contract for the
purpose of making its terms more acceptable
to the other contracting parties. The rule is
that
It is a question, therefore, in each case of the
logical relation of the act to the corporate
purpose expressed in the charter. If that act
is one which is lawful in itself, and not
otherwise prohibited, is done for the purpose
of serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a
substantial, and not in a remote and fanciful
sense, it may fairly be considered within
charter powers. The test to be applied is
whether the act in question is in direct and
immediate furtherance of the corporation's
business, fairly incident to the express
powers and reasonably necessary to their
exercise. If so, the corporation has the power
to do it; otherwise, not.

Miscellaneous Topics
Filipinas Port v. Go
Facts:
Sept 4 1992: Eliodoro C. Cruz, Filports
president from 1968-1991, wrote a letter to
the corporations BOD questioning the
creation and election of the following
positions with a monthly remuneration of
P13,050.00 each. Cruz requested the board
to take necessary action/actions to recover
from those elected to the aforementioned
positions the salaries they have received.
Jun 4 1993: Cruz, purportedly in
representation of Filport and its stockholders,
among which is herein co-petitioner
Mindanao Terminal and Brokerage Services,
Inc. (Minterbro), filed with the SEC a
derivative suit against Filport's BOD for acts
of mismanagement detrimental to the
interest of the corporation and its
shareholders at large.
Cruz prayed that the BOD be made to pay
Filport, jointly and severally, the sums of
money variedly representing the damages
incurred as a result of the creation of the
offices/positions complained of and the

aggregate amount of the questioned

increased salaries.

proof that such prerogative was exercised in

bad faith or with malice

RTC: BOD have the power to create positions

not in the by-laws and can increase salaries.
But Edgar C. Trinidad under the third and
fourth causes of action to restore to the
corporation the total amount of salaries he
received as assistant vice president for
corporate planning; and likewise ordering
Fortunato V. de Castro and Arsenio Lopez
Chua under the fourth cause of action to
restore to the corporation the salaries they
each received as special assistants
respectively to the president and board
chairman. In case of insolvency of any or all
of them, the members of the board who
created their positions are subsidiarily liable.

YES. Besides, the requisites before a

derivative suit can be filed by a stockholder:
- present
a) the party bringing suit should be a
shareholder as of the time of the act or
transaction complained of, the number of his
shares not being material; - a stockholder of
Filport
b) he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the
board of directors for the appropriate relief
but the latter has failed or refused to heed
his plea; and
- he wrote a letter
c) the cause of action actually devolves on
the corporation, the wrongdoing or harm
having been, or being caused to the
corporation and not to the particular
stockholder bringing the suit. - wrong against
the stockholders of the corporation generally

Appealed: creation of the positions merely

for accommodation purposes - GRANTED
Issues:
Whether or not there was mismanagement NO
Whether or not there is a proper derivative
suit - YES
Held: CA Affirmed
NO. Section 35 of the Corporation Code, the
creation of an executive committee (as
powerful as the BOD) must be provided for in
the bylaws of the corporation
Notwithstanding the silence of Filports
bylaws on the matter, we cannot rule that
the creation of the executive committee by
the board of directors is illegal or unlawful.
One reason is the absence of a showing as to
the true nature and functions of executive
committee
But even assuming there was
mismanagement resulting to corporate
damages and/or business losses,
respondents may not be held liable in the
absence of a showing of bad faith in doing
the acts complained of. ("dishonest
purpose","some moral obliquity","conscious
doing of a wrong", "partakes of the nature of
fraud")
determination of the necessity for additional
offices and/or positions in a corporation is a
management prerogative which courts are
not wont to review in the absence of any

Valle Verde Country Club, Inc. v. Africa

Facts:
On February 27, 1996, during the Annual
Stockholders Meeting of petitioner Valle
Verde Country Club, Inc. (VVCC), the VVCC
Board of Directors were elected including
Eduardo Makalintal (Makalintal) among
others. In the years 1997, 1998, 1999, 2000,
and 2001, however, the requisite quorum for
the holding of the stockholders meeting
could not be obtained. Consequently, the
directors continued to serve in the VVCC
Board in a hold-over capacity. Later,
Makalintal resigned as member of the VVCC
Board. He was replaced by Jose Ramirez
(Ramirez), who was elected by the remaining
members of the VVCC Board on March 6,
2001. Respondent Africa (Africa), a member
of VVCC, questioned the election of Ramirez
as members of the VVCC Board with the
Regional Trial Court (RTC), respectively. Africa
claimed that a year after Makalintals
election as member of the VVCC Board in
1996, his [Makalintals] term as well as
those of the other members of the VVCC

Board should be considered to have already

expired. Thus, according to Africa, the
resulting vacancy should have been filled by
the stockholders in a regular or special
meeting called for that purpose, and not by
the remaining members of the VVCC Board,
as was done in this case. The RTC sustained
Africas complaint.

Issue:
Whether the remaining directors of the
corporations Board, still constituting a
quorum, can elect another director to fill in a
vacancy caused by the resignation of a holdover director.

Ruling: NO. When Section 23 of the

Corporation Code declares that the board of
directorsshall hold office for one (1) year
until their successors are elected and
qualified, we construe the provision to mean
that the term of the members of the board of
directors shall be only for one year; their
term expires one year after election to the
office. The holdover period that time from
the lapse of one year from a members
election to the Board and until his
successors election and qualification is not
part of the directors original term of office,

nor is it a new term; the holdover period,

however, constitutes part of his tenure.
Corollary, when an incumbent member of the
board of directors continues to serve in a
holdover capacity, it implies that the office
has a fixed term, which has expired, and the
incumbent is holding the succeeding term.

Here, when remaining members of the VVCC

Board elected Ramirez to replace Makalintal,
there was no more unexpired term to speak
of, as Makalintals one-year term had already
expired. Pursuant to law, the authority to fill
in the vacancy caused by Makalintals
leaving lies with the VVCCs stockholders,
not the remaining members of its board of
directors. To assume as VVCC does that
the vacancy is caused by Makalintals
resignation in 1998, not by the expiration of
his term in 1997, is both illogical and
unreasonable. His resignation as a holdover
director did not change the nature of the
vacancy; the vacancy due to the expiration
of Makalintals term had been created long
before his resignation.

Western Institute Tech v. Salas

Appraisal Rights
Turner v. Lorenzo Shipping