PEOPLE'S AIRCARGO AND
WAREHOUSING CO. INC. VS.
COURT OF APPEALS
FACTS:
People's Aircargo and Warehousing Co. Inc.
(PAWCI) is a domestic
corporation, organized in 1986 to operate a
customs bonded warehouse at the old Manila
International Airport in Pasay City.
Now, 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 of proposal ("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. 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.
Upon Punsalan's request, Saño sent PAWCI
another letter-proposal ("Second Contract")
formalizing its proposal for consultancy
services in the amount of P400,000. 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 where
thereafter, 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 warehouse of PAWCI, a
three-day training seminar for the latter's
employees.
Thereafter, 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.
Meanwhile, Punsalan sold his shares in
PAWCI and resigned as its president in
1987.
Saño thereupon, 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.
RTC of Pasay City rendered a Decision
declaring 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, 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.
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 execute the subject
contract.
RULING:
APPARENT AUTHORITY is derived not
merely from practice. Its existence may be
ascertained through
(1) the general manner in which the
corporation holds out an officer or agent as
having the power to act or, in other words, the
apparent authority to act in general, with
which it clothes him; or
(2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge
thereof, whether within or beyond the scope
of his ordinary powers.
It requires presentation of evidence of similar
act(s) executed either in its favor or in favor
of other parties.
It is not the quantity of similar acts which
establishes apparent authority, but the vesting
of a corporate officer with the power to bind
the corporation.
What happened here is that 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
BINDING, NONETHELESS. The
enforceability of contracts under Article
1403(2) is ratified "by the acceptance of
benefits under them" under Article 1405.
Gokongwei vs. SEC, 89 SCRA 336
(1979)
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. The Court held that a
corporation has 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.
Valle Verde Country Club v. Africa
(2009)
G.R. No. 151969 September 4, 2009
Lessons Applicable: Election of
Directors; Vacancy in the Board
(Corporate Law)
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:
o 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.
o 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.
o Makalintal's term should
have expired after 1996 there
being
no unexpired term. The vac
ancy 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
o not affected by the holdover
o 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”
o 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
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.
CASTILLO vs. BALINGHASAY
G.R. No. 150976 October 18, 2004
FACTS: Petitioners and the respondents are
stockholders of MCPI, with the former holding
Class "B" shares and the latter owning Class "A"
shares. MCPI is a domestic corporation. It was
organized sometime in September 1977. At the
time of its incorporation, Act No. 1459, the old
Corporation Law was still in force and effect. On
September 9, 1992, Article VII was again
amended. It states that “Except when otherwise
provided by law, only holders of Class "A" shares
have the right to vote and the right to be elected
as directors or as corporate officers.” The SEC
approved the foregoing amendment on
September 22, 1993. On February 9, 2001, the
shareholders of MCPI held their annual
stockholders’ meeting and election for directors.
During the course of the proceedings,
respondent Rustico Jimenez, citing Article VII, as
amended, and notwithstanding MCPI’s history,
declared over the objections of herein
petitioners, that no Class "B" shareholder was
qualified to run or be voted upon as a director.
In the past, MCPI had seen holders of Class "B"
shares voted for and serve as members of the
corporate board and some Class "B" share
owners were in fact nominated for election as
board members. Nonetheless, Jimenez went on
to announce that the candidates holding Class
"A" shares were the winners of all seats in the
corporate board. The petitioners protested,
claiming that Article VII was null and void for
depriving them, as Class "B" shareholders, of
their right to vote and to be voted upon, in
violation of the Corporation Code (Batas
Pambansa Blg. 68), as amended. On March 22,
2001, after their protest was given short shrift,
herein petitioners filed a Complaint for
Injunction, Accounting and Damages before the
RTC of Parañaque City, Branch 258. In finding for
the respondents, the trial court ruled that
corporations had the power to classify their
shares of stocks, such as "voting and non-voting"
shares, conformably with Section 67 of the
Corporation Code of the Philippines. It pointed
out that Article VII of both the original and
amended Articles of Incorporation clearly
provided that only Class "A" shareholders could
vote and be voted for to the exclusion of Class
"B" shareholders, the exception being in
instances provided by law, such as those
enumerated in Section 6, paragraph 6 of the
Corporation Code. The RTC found merit in the
respondents’ theory that the Articles of
Incorporation, which defines the rights and
limitations of all its shareholders, is a contract
between MCPI and its shareholders. It is thus the
law between the parties and should be strictly
enforced as to them. Hence this petition.
ISSUE: Whether or not holders of Class "B"
shares of the MCPI may be deprived of the right
to vote and be voted for as directors in MCPI.
RULING: The law referred to in the amendment
to Article VII refers to the Corporation Code and
no other law. At the time of the incorporation of
MCPI in 1977, the right of a corporation to
classify its shares of stock was sanctioned by
Section 5 of Act No. 1459. The law repealing Act
No. 1459, B.P. Blg. 68, retained the same grant of
right of classification of stock shares to
corporations, but with a significant change.
Under Section 6 of B.P. Blg. 68, the requirements
and restrictions on voting rights were explicitly
provided for, such 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"
and that "there shall always be a class or series
of shares which have complete voting rights."
Section 6 of the Corporation Code being deemed
written into Article VII of the Articles of
Incorporation of MCPI, it necessarily follows that
unless Class "B" shares of MCPI stocks are clearly
categorized to be "preferred" or "redeemable"
shares, the holders of said Class "B" shares may
not be deprived of their voting rights. Note that
there is nothing in the Articles of Incorporation
nor an iota of evidence on record to show that
Class "B" shares were categorized as either
"preferred" or "redeemable" shares. The only
possible conclusion is that Class "B" shares fall
under neither category and thus, under the law,
are allowed to exercise voting rights.
There is no merit in respondents’ position that
Section 6 of the Corporation Code cannot apply
to MCPI without running afoul of the non-
impairment clause of the Bill of Rights. Section
148 of the Corporation Code expressly provides
that it shall apply to corporations in existence at
the time of the effectivity of the Code. 
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.
Aurbach vs. Sanitary Wares
(Partnership; Joint Venture; Foreign and
Domestic Corp)
FACTS:
This consolidated petition assailed the decision
of the CA directing a certain MANNER OF
ELECTION OF OFFICERS IN THE BOARD OF
DIRECTORS
*There are two groups in this case, the
Lagdameo group composed of Filipino investors
and the American Standard Inc. (ASI) composed
of foreign investors.
The ASI Group and petitioner Salazar (G.R. Nos.
75975-76) contend that the actual intention of
the parties should be viewed strictly on the
"Agreement" dated August 15,1962 wherein it is
clearly stated that the parties' intention was to
form a corporation and not a joint venture.
ISSUE:
The main issue hinges on who were the duly
elected directors of Saniwares for the year 1983
during its annual stockholders' meeting held on
March 8, 1983. To answer this question the
following factors should be determined:
*(1) the nature of the business established by
the parties whether it was a joint venture or a
corporation and
in fact hardly distinguishable from the
partnership, since their elements are
similar community of interest in the
business, sharing of profits and losses,
and a mutual right of control.
 The main distinction cited by most opinions
in common law jurisdictions is that the
partnership contemplates a general
business with some degree of continuity,
while the joint venture is formed for the
execution of a single transaction, and is
thus of a temporary nature.

HELD:
 While certain provisions of the
Agreement would make it appear that
the parties thereto disclaim being
partners or joint venturers such
disclaimer is directed at third parties and
is not inconsistent with, and does not
preclude, the existence of two distinct
groups of stockholders in Saniwares one
of which (the Philippine Investors) shall
constitute the majority, and the other
ASI shall constitute the minority
stockholder. In any event, the evident
intention of the Philippine Investors and
ASI in entering into the Agreement is to
enter into a joint venture enterprise
 An examination of the Agreement
shows that certain provisions were
inccuded to protect the interests of ASI
as the minority. For example, the vote
of 7 out of 9 directors is required in
certain enumerated corporate acts. ASI
is contractually entitled to designate a
member of the Executive Committee
and the vote of this member is required
for certain transactions
 The Agreement also requires a 75%
super-majority vote for the amendment
of the articles and by-laws of Saniwares.
ASI is also given the right to designate
the president and plant manager .The
Agreement further provides that the
sales policy of Saniwares shall be that
which is normally followed by ASI and
that Saniwares should not export
"Standard" products otherwise than
through ASI's Export Marketing
Services. Under the Agreement, ASI
agreed to provide technology and
know-how to Saniwares and the latter
paid royalties for the same.
 The legal concept of a joint venture is of
common law origin. It has no precise
legal definition but it has been generally
understood to mean an organization
formed for some temporary purpose. It is