Gokongwei vs.
SEC, 89 SCRA 336 (1979) The Court held that a corporation has authority
Facts:
Petitioner, stockholder of San Miguel
Corp. filed a petition with the SEC for the
declaration of nullity of the by-laws etc. against
the majority members of the BOD and San
Miguel. It is stated in the by-laws that the
amendment or modification of the by-laws may
only be delegated to the BODs upon an
affirmative vote of stockholders representing not
less than 2/3 of the subscribed and paid uo
capital stock of the corporation, which 2/3 could
have been computed on the basis of the
capitalization at the time of the amendment.
Petitioner contends that the amendment was
based on the 1961 authorization, the Board acted
without authority and in usurpation of the power
of the stockholders n amending the by-laws in
1976. He also contends that the 1961
authorization was already used in 1962 and
1963. He also contends that the amendment
deprived him of his right to vote and be voted
upon as a stockholder (because it disqualified
competitors from nomination and election in the
BOD of SMC), thus the amended by-laws were
null and void. While this was pending, the
corporation called for a stockholder’s meeting
for the ratification of the amendment to the by-
laws. This prompted petitioner to seek for
summary judgment. This was denied by the
SEC. In another case filed by petitioner, he
alleged that the corporation had been using
corporate funds in other corps and businesses
outside the primary purpose clause of the
corporation in violation of the Corporation
Code.
Issue: Are amendments valid?
Held:
The validity and reasonableness of a by-
law is purely a question of law. Whether the by-
law is in conflict with the law of the land, or
with the charter of the corporation or is in legal
sense unreasonable and therefore unlawful is a
question of law. However, this is limited where
the reasonableness of a by-law is a mere matter
of judgment, and one upon which reasonable
minds must necessarily differ, a court would not
be warranted in substituting its judgment instead
of the judgment of those who are authorized to
make by-laws and who have exercised authority.
prescribed by law to prescribe the qualifications
of directors. It has the inherent power to adopt
by-laws for its internal government, and to
regulate the conduct and prescribe the rights and
duties of its members towards itself and among
themselves in reference to the management of its
affairs. A corporation, under the Corporation
law, may prescribe in its by-laws the
qualifications, duties and compensation of
directors, officers, and employees. Any person
who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a
majority of the stockholders and he impliedly
contracts that the will of the majority shall
govern in all matters within the limits of the acts
of incorporation and lawfully enacted by-laws
and not forbidden by law. Any corporation may
amend its by-laws by the owners of the majority
of the subscribed stock. It cannot thus be said
that petitioners has the vested right, as a stock
holder, to be elected director, in the face of the
fact that the law at the time such stockholder's
right was acquired contained the prescription
that the corporate charter and the by-laws shall
be subject to amendment, alteration and
modification. A Director stands in a fiduciary
relation to the corporation and its shareholders,
which is characterized as a trust relationship. An
amendment to the corporate by-laws which
renders a stockholder ineligible to be director, if
he be also director in a corporation whose
business is in competition with that of the other
corporation, has been sustained as valid. This is
based upon the principle that where the director
is employed in the service of a rival company, he
cannot serve both, but must betray one or the
other. The amendment in this case serves to
advance the benefit of the corporation and is
good. Corporate officers are also not permitted
to use their position of trust and confidence to
further their private needs, and the act done in
furtherance of private needs is deemed to be for
the benefit of the corporation. This is called the
doctrine of corporate opportunity.
People's Aircargo and Warehousing Co. Inc.
vs. Court of Appeals
[GR 117847, 7 October 1998]
Facts: People's Aircargo and Warehousing Co.
Inc. (PAWCI) is a domestic corporation, which
was organized in the middle of 1986 to operate a
customs bonded warehouse at the old Manila
International Airport in Pasay City. To obtain a
license for the corporation from the Bureau of
Customs, Antonio Punsalan Jr., the corporation
president, solicited a proposal from Stefani Saño
for the preparation of a feasibility study. Saño
submitted a letter-proposal dated 17 October
1986 ("First Contract") to Punsalan, for the
project feasibility study (market, technical, and
financial feasibility) and preparation of pertinent
documentation requirements for the application,
worth P350,000. Initially, Cheng Yong, the
majority stockholder of PAWCI, objected to
Saño's offer, as another company priced a
similar proposal at only P15,000. However,
Punsalan preferred Saño's services because of
the latter's membership in the task force, which
was supervising the transition of the Bureau of
Customs from the Marcos government to the
Aquino Administration. On 17 October 1986,
PAWCI, through Punsalan, sent Saño a letter
confirming their agreement.
Accordingly, Saño prepared a feasibility study
for PAWCI which eventually paid him the
balance of the contract price, although not
according to the schedule agreed upon. On 4
December 1986, upon Punsalan's request, Saño
sent PAWCI another letter-proposal ("Second
Contract") formalizing its proposal for
consultancy services in the amount of P400,000.
On 10 January 1987, Andy Villaceren, vice
president of PAWCI, received the operations
manual prepared by Saño. PAWCI submitted
said operations manual to the Bureau of
Customs in connection with the former's
application to operate a bonded warehouse;
thereafter, in May 1987, the Bureau issued to it a
license to operate, enabling it to become one of
the three public customs bonded warehouses at
the international airport. Saño also conducted, in
the third week of January 1987 in the warehouse
of PAWCI, a three-day training seminar for the
latter's employees. On 25 March 1987, Saño
joined the Bureau of Customs as special
assistant to then Commissioner Alex Padilla, a
position he held until he became technical
assistant to then Commissioner Miriam
Defensor-Santiago on 7 March 1988.
Meanwhile, Punsalan sold his shares in PAWCI
and resigned as its president in 1987. On 9
February 1988, Saño filed a collection suit
against PAWCI. He alleged that he had prepared
an operations manual for PAWCI, conducted a
seminar-workshop for its employees and
delivered to it a computer program; but that,
despite demand, PAWCI refused to pay him for
his services. PAWCI, in its answer, denied that
Saño had prepared an operations manual and a
computer program or conducted a seminar-
workshop for its employees. It further alleged
that the letter-agreement was signed by Punsalan
without authority, in collusion with Saño in
order to unlawfully get some money from
PAWCI, and despite his knowledge that a group
of employees of the company had been
commissioned by the board of directors to
prepare an operations manual. The Regional
Trial Court (RTC) of Pasay City, Branch 110,
rendered a Decision dated 26 October 1990
declared the Second Contract unenforceable or
simulated. However, since Saño had actually
prepared the operations manual and conducted a
training seminar for PAWCI and its employees,
the trial court awarded P60,000 to the former, on
the ground that no one should be unjustly
enriched at the expense of another (Article 2142,
Civil Code). The trial Court determined the
amount "in light of the evidence presented by
defendant on the usual charges made by a
leading consultancy firm on similar services."
Upon appeal, and on 28 February 1994, the
appellate court modified the decision of the trial
court, and declared the Second Contract valid
and binding on PAWCI, which was held liable to
Saño in the full amount of P400,000,
representing payment of Saño services in
preparing the manual of operations and in the
conduct of a seminar for PAWCI. As no new
ground was raised by PAWCI, reconsideration of
the decision was denied in the Resolution
promulgated on 28 October 1994. PAWCI filed
the Petition for Review.
Issue: Whether a single instance where the
corporation had previously allowed its president
to enter into a contract with another without a
board resolution expressly authorizing him, has
clothed its president with apparent authority to binding, nonetheless. The enforceability of
execute the subject contract. contracts under Article 1403(2) is ratified "by
the acceptance of benefits under them" under
Held: Apparent authority is derived not merely Article 1405.
from practice. Its existence may be ascertained
through (1) the general manner in which the
corporation holds out an officer or agent as
having the power to act or, in other words, the
apparent authority to act in general, with which
it clothes him; or (2) the acquiescence in his acts
of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond
the scope of his ordinary powers. It requires
presentation of evidence of similar act(s)
executed either in its favor or in favor of other
parties. It is not the quantity of similar acts
which establishes apparent authority, but the
vesting of a corporate officer with the power to
bind the corporation. Herein, PAWCI, through
its president Antonio Punsalan Jr., entered into
the First Contract without first securing board
approval. Despite such lack of board approval,
PAWCI did not object to or repudiate said
contract, thus "clothing" its president with the
power to bind the corporation. The grant of
apparent authority to Punsalan is evident in the
testimony of Yong — senior vice president,
treasurer and major stockholder of PAWCI. The
First Contract was consummated, implemented
and paid without a hitch. Hence, Sano should
not be faulted for believing that Punsalan's
conformity to the contract in dispute was also
binding on petitioner. It is familiar doctrine that
if a corporation knowingly permits one of its
officers, or any other agent, to act within the
scope of an apparent authority, it holds him out
to the public as possessing the power to do those
acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it
through such agent, be estopped from denying
the agent's authority. Furthermore, Saño
prepared an operations manual and conducted a
seminar for the employees of PAWCI in
accordance with their contract. PAWCI accepted
the operations manual, submitted it to the
Bureau of Customs and allowed the seminar for
its employees. As a result of its aforementioned
actions, PAWCI was given by the Bureau of
Customs a license to operate a bonded
warehouse. Granting arguendo then that the
Second Contract was outside the usual powers
of the president, PAWCI's ratification of said
contract and acceptance of benefits have made it
Cebu Country Club, Inc. (CCCI) et al., v.
Elizagaque, G.R. No. 160273, January
18, 2008.
FACTS:
Cebu Country Club, Inc. (CCCI),
petitioner, is a domestic corporation operating as
a non-profit and non-stock private membership
club, having its principal place of business in
Banilad, Cebu City. Petitioners herein are
members of its Board of Directors. In 1996,
respondent filed with CCCI an application for
proprietary membership. The application was
indorsed by CCCI’s two (2) proprietary
members, namely: Edmundo T. Misa and
Silvano Ludo. As the price of a proprietary share
was around the P5 million range, Benito
Unchuan, then president of CCCI, offered to sell
respondent a share for only P3.5 million.
Respondent, however, purchased the share of a
certain Dr. Butalid for only P3 million.
Consequently, on September 6, 1996, CCCI
issued Proprietary Ownership Certificate No.
1446 to respondent.
During the meetings dated April 4, 1997 and
May 30, 1997 of the CCCI Board of Directors,
action on respondent’s application for
proprietary membership was deferred. In another
Board meeting held on July 30, 1997,
respondent’s application was voted upon. As
shown by the records, the Board adopted a secret
balloting known as the “black ball system” of
voting wherein each member will drop a ball in
the ballot box. A white ball represents
conformity to the admission of an applicant,
while a black ball means disapproval. Pursuant
to Section 3(c), as amended, cited above, a
unanimous vote of the directors is required.
When respondent’s application for proprietary
membership was voted upon during the Board
meeting on July 30, 1997, the ballot box
contained one (1) black ball. Thus, for lack of
unanimity, his application was disapproved.
On August 6, 1997, Edmundo T. Misa, on behalf
of respondent, wrote CCCI a letter of
reconsideration. As CCCI did not answer,
respondent, on October 7, 1997, wrote another
letter of reconsideration. Still, CCCI kept silent.
On November 5, 1997, respondent again sent
CCCI a letter inquiring whether any member of
the Board objected to his application. Again,
CCCI did not reply. Consequently, on December
23, 1998, respondent filed with the Regional
Trial Court (RTC), Branch 71, Pasig City a
complaint for damages against petitioners
ISSUE
Whether in disapproving respondent’s
application for proprietary membership with
CCCI, petitioners are liable to respondent for
damages, and if so, whether their liability is joint
and several.
RULING
YES.
In rejecting respondent’s application for
proprietary membership, we find that petitioners
violated the rules governing human relations, the
basic principles to be observed for the rightful
relationship between human beings and for the
stability of social order. The trial court and the
Court of Appeals aptly held that petitioners
committed fraud and evident bad faith in
disapproving respondent’s applications. This is
contrary to morals, good custom or public
policy. Hence, petitioners are liable for damages
pursuant to Article 19 in relation to Article 21 of
the same Code.
It bears stressing that the amendment to Section
3(c) of CCCI’s Amended By-Laws requiring the
unanimous vote of the directors present at a
special or regular meeting was not printed on the
application form respondent filled and submitted
to CCCI. What was printed thereon was the
original provision of Section 3(c) which was
silent on the required number of votes needed
for admission of an applicant as a proprietary
member.
Petitioners explained that the amendment was
not printed on the application form due to
economic reasons. We find this excuse flimsy
and unconvincing. Such amendment, aside from
being extremely significant, was introduced way
back in 1978 or almost twenty (20) years before
respondent filed his application. We cannot
fathom why such a prestigious and exclusive
golf country club, like the CCCI, whose
members are all affluent, did not have enough
money to cause the printing of an updated
application form.
It is thus clear that respondent was left groping
in the dark wondering why his application was
disapproved. He was not even informed that a
unanimous vote of the Board members was
required. When he sent a letter for
reconsideration and an inquiry whether there
was an objection to his application, petitioners
apparently ignored him. Certainly, respondent
did not deserve this kind of treatment. Having
been designated by San Miguel Corporation as a
special non-proprietary member of CCCI, he
should have been treated by petitioners with
courtesy and civility. At the very least, they
should have informed him why his application
was disapproved.
The exercise of a right, though legal by itself,
must nonetheless be in accordance with the
proper norm. When the right is exercised
arbitrarily, unjustly or excessively and results in
damage to another, a legal wrong is committed
for which the wrongdoer must be held
responsible.
Section 31 of the Corporation Code provides:
SEC. 31. Liability of directors, trustees or
officers. — Directors or trustees who willfully
and knowingly vote for or assent to patently
unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in
directing the affairs of the corporation or
acquire any personal or pecuniary interest in
conflict with their duty as such directors, or
trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the
corporation, its stockholders or members and
other persons. (Emphasis ours)
The challenged Decision and Resolution of the
Court of Appeals are AFFIRMED with
modification in the sense that (a) the award of
moral damages is reduced fromP2,000,000.00 to
P50,000.00; (b) the award of exemplary
damages is reduced from P1,000,000.00
toP25,000.00; and (c) the award of attorney’s
fees and litigation expenses is reduced from
P500,000.00 andP50,000.00 to P50,000.00 and
P25,000.00, respectively.
Marc II Marketing, Inc. vs. Alfredo M. Joson
[GR No. 171993, December 12, 2011]
FACTS:
Respondent Alfredo Joson was the
General Manager, incorporator, director and
stockholder of Marc II Marketing (Petitioner
Corporation). Before Petitioner Corporation was
officially incorporated, respondent has already
been engaged by petitioner Lucila Joson, in her
capacity as President of Marc Marketing Inc., to
work as the General Manager of Petitioner
Corporation through a management contract.
However, Petitioner Corporation decided to stop
and cease its operation wherein respondent's
services were then terminated. Feeling
aggrieved, respondent filed a Complaint for
Reinstatement and Money Claim against
petitioners before the Labor Arbiter which ruled
in favor of respondent. The National Labor and
Relations Commission (NLRC) reversed said
decision. The Court of Appeals (CA) however,
upheld the ruling of the Labor Arbiter. Hence,
this petition.
ISSUE:
Whether or not the Labor Arbiter has
jurisdiction over the controversy at bar
RULING:
Yes. While Article 217(a) 229 of the
Labor Code, as amended, provides that it is the
Labor Arbiter who has the original and exclusive
jurisdiction over cases involving termination or
dismissal of workers when the person dismissed
or terminated is a corporate officer, the case
automatically falls within the province of the
Regional Trial Court (RTC). The dismissal of a
corporate officer is always regarded as a
corporate act and/or an intra-corporate
controversy.
In conformity with Section 25 of the
Corporation Code, whoever are the corporate
officers enumerated in the by-laws are the
exclusive officers of the corporation and the
Board has no power to create other officers
without amending first the corporate by-laws.
However, the Board may create appointive
positions other than the positions of the
corporate officers, but the persons occupying
such positions are not considered as corporate
officers within the meaning of Section 25 of the
Corporation Code and are not empowered to
exercise the functions of the corporate officers,
except those functions lawfully delegated to
them. Their functioning and duties are to be
determined by the Board of Directors/Trustees.
In the case at bar, the respondent was not a
corporate officer of Petitioner Corporation
because his position as General Manager was
not specifically mentioned in the roster of
corporate officers in its corporate by-laws. Thus
respondent, can only be regarded as its
employee or subordinate official. Accordingly,
respondent's dismissal as Petitioner
Corporation’s General Manager did not amount
to an intra-corporate controversy. Jurisdiction
therefore properly belongs with the Labor
Arbiter and not with the RTC.
In this Petition for Review on Certiorari under
Rule 45 of the Rules of Court, herein petitioners
Marc II Marketing, Inc. and Lucila V. Joson
assailed the Decision[1] dated 20 June 2005 of
the Court of Appeals in CA-G.R. SP No. 76624
for reversing and setting aside the Resolution[2]
of the National Labor Relations Commission
(NLRC) dated 15 October 2002, thereby
affirming the Labor Arbiters Decision[3] dated 1
October 2001 finding herein respondent Alfredo
M. Josons dismissal from employment as illegal.
In the questioned Decision, the Court of Appeals
upheld the Labor Arbiters jurisdiction over the
case on the basis that respondent was not an
officer but a mere employee of petitioner Marc
II Marketing, Inc., thus, totally disregarding the
latters allegation of intra-corporate controversy.
Nonetheless, the Court of Appeals remanded the
case to the NLRC for further proceedings to
determine the proper amount of monetary
awards that should be given to respondent.
--
Valle Verde Country Club V. Africa
G.R. No. 151969 September 4, 2009
FACTS:
February 27, 1996: Ernesto Villaluna,
Jaime C. Dinglasan (Dinglasan), Eduardo
Makalintal (Makalintal), Francisco Ortigas III,
Victor Salta, Amado M. Santiago, Jr., Fortunato
Dee, Augusto Sunico, and Ray Gamboa were
elected as BOD during the Annual Stockholders’
Meeting of petitioner Valle Verde Country Club,
Inc. (VVCC)
1997 - 2001: Requisite quorum could not be
obtained so they continued in a hold-over
capacity
September 1, 1998: Dinglasan resigned, BOD
still constituting a quorom elected Eric Roxas
(Roxas)
November 10, 1998: Makalintal resigned
on March 6, 2001: Jose Ramirez (Ramirez) was
elected by the remaining BOD
Respondent Africa (Africa), a member of
VVCC, questioned the election of Roxas and
Ramirez as members of the VVCC Board with
the Securities and Exchange Commission (SEC)
and the Regional Trial Court (RTC) as contrary
to:
Sec. 23. The board of directors or trustees. -
Unless otherwise provided in this Code, the
corporate powers of all corporations formed
under this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among
the members of the corporation, who shall hold
office for 1 year until their successors are
elected and qualified.
Sec. 29. Vacancies in the office of director or
trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by
the stockholders or members or by expiration of
term, may be filled by the vote of at least a
majority of the remaining directors or trustees, if
still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a
regular or special meeting called for that
purpose. A director or trustee so elected to fill a
vacancy shall be elected only for the unexpired
term of his predecessor in office. xxx.
Makalintal's term should have expired after 1996
there being no unexpired term. The vacancy
should have been filled by the stockholders in a
regular or special meeting called for that purpose
RTC: Favored Africa - Ramirez as Makalintal's
replacement = null and void
SEC: Roxas as Vice hold-pver director of
Dinglasan = null and void
VVCC appealed in SC for certiorari being
partially contrary to law and jurisprudence
ISSUES:
1. W/N there is an unexpired term - NO
2. W/N the remaining directors of a
corporation’s Board, still constituting a quorum,
can elect another director to fill in a vacancy
caused by the resignation of a hold-over director.
- NO
HELD:
Petition Denied. RTC Affirmed.
1. NO
“term” time during which the officer may claim
to hold the office as of right
not affected by the holdover
fixed by statute and it does not change simply
because the office may have become vacant, nor
because the incumbent holds over in office
beyond the end of the term due to the fact that a
successor has not been elected and has failed to
qualify.
“tenure”
term during which the incumbent actually holds
office.
Section 23 of the Corporation Code: term of
BOD only 1 year - fixed and has expired (1 yr
after 1996)
2. NO
underlying policy of the Corporation Code is
that the business and affairs of a corporation
must be governed by a board of directors whose
members have stood for election, and who have
actually been elected by the stockholders, on an
annual basis. Only in that way can the directors'
continued accountability to shareholders, and the
legitimacy of their decisions that bind the
corporation's stockholders, be assured. The
shareholder vote is critical to the theory that
legitimizes the exercise of power by the
directors or officers over properties that they do
not own.
theory of delegated power of the board of
directors
Section 29 contemplates a vacancy occurring
within the director’s term of office (unexpired)
vacancy caused by Makalintal’s leaving lies with
the VVCC’s stockholders, not the remaining
members of its board of directors
COURTS ARE BARRED FROM to annul the MOA, the same should be
INTRUDING INTO THE BUSINESS considered as having been ratified.
JUDGMENTS OF THE CORPORATION,
WHEN THE SAME ARE MADE IN GOOD ISSUE:
FAITH Is the MOA void for being prejudicial to MCPI’s
BALINGHASAY v. CASTILLO interest?
G.R. No. 185664 April 8, 2015
REYES, J. HELD:
Yes, the MOA is void. Under the "business
FACTS: judgment rule", the courts are barred from
This is a petition for review on certiorari intruding into the business judgments of the
assailing the CA decision which reversed the corporation, when the same are made in good
RTC’ judgment upholding the validity of the faith.
MOA entered into between respondents and
petitioners. Medical Center Paranaque, Inc. However, in this case, the petitioners, MCPI
(MCPI), one of the respondents, is a domestic directors, who are ultrasound investors, in
corporation operating the Medical Center violation of their duty as such directors, acquired
Paranaque. The other respondents are its an interest adverse to the corporation when they
stockholders holding Class B shares. Some entered into the ultrasound contract. By doing
petitioners are holders of Class A shares and are so, they have unjustly profited from the
members of the Board of Directors, while others transaction which otherwise would have accrued
are also holders of Class B shares. to MCPI. The directors/ultrasound investors
failed to inhibit themselves from participating in
In 1997, the MCPI’s Board of Directors awarded the meeting and from voting with respect to the
the operation of the ultrasound unit to a group of decision to proceed with the signing of the
investors (ultrasound investors). Subsequently, MOA. Certainly, said petitioners have dealt in
12 Board Directors attended the Board meeting their behalf and took an interest adverse to
and eight of them were among the ultrasound MCPI. Thus, the MOA is void.
investors. A Memorandum of Agreement (MOA)
was entered into by and between MCPI,
represented by its President then, Bernabe, and
the ultrasound investors, represented by
Oblepias. Per MOA, the gross income to be
derived from the operation of the ultrasound
unit, minus the sonologists’ professional fees,
shall be divided between the ultrasound
investors and MCPI, in the proportion of 60%
and 40%, respectively. It provided further that
on a certain date, MCPI’s share would be 45%,
while the ultrasound investors would receive
55% and that the ownership of the ultrasound
machine would eventually be transferred to
MCPI.

Flores, one of the respondents, wrote MCPI’s

counsel a letter challenging the Board of
Directors’ approval of the MOA for being
prejudicial to MCPI’s interest and claimed that
the MOA was void The petitioners, on the other
hand claimed that under Section 32 of the
Corporation Code, the MOA was merely
voidable. Since there was no proof that the
subsequent Board of Directors of MCPI moved