1. Aquila Riosa v.
Tabaco La Suerte Aquiles claims that the transfer of the property was done through fraud,
GR. No. 203786, Oct. 23, 2013
Doctrine: It is the board of directors or trustees which exercises among all the
corporate powers in a corporation, as provided under Sec. 23 of the Corporation
Code. Sec. 36 also provides that the power to purchase the real property is vested in
the board of directors of trustees. While a corporation may appoint agents to
negotiate, the final say will have to be with the board, whose approval will finalize
the transactions. A corporation can only exercise its powers and transact its business
through its board of directors and through its officers and agents when authorized by
a board resolution or its by-laws. As held in AF Realty & Development v. Dieselman
Freight Services, Co., absent any valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not
in the course of or connected with the performance of the authorized duties of such
director, are held not binding on the corporation.
Recit-Ready Summary: Aquiles filed a Complaint for Annulment of a Deed and
Absolute Sale against a TCT that was also transferred in Tabaco La Suerte’s name.
He alleged that there was merely a loan transaction between him and Sia Ko Pio, and
not a sale transaction between him and Aquiles and La Suerte, which La Suerte
insists was what took place. Aquiles was made to sign a document that he thought
was a mere acknowledgement of the loan transaction between him and Sia Ko Pio.
La Suerte insists that there was a sale transaction of the said lot with Sia Ko Pio
being its representative/agent. The Court ruled in this case that there was no evidence
that the company allowed Sia Ko Pio to be its agent or representative, even if he
were the company’s CEO. There was no board resolution showing such delegation of
authority.
Facts:
On Feb. 26, 2002, Aquiles Riosa filed his Complaint for
Annulment/Declaration of Nullity of Deed and Absolute Sale and Transfer
Certificate of Title, Reconveyance and Damages against Tabaco La Suerte. Aquiles
alleged that he was the owner and in actual possession of a 52-square meter
commercial lot situated in Tabaco City. He acquired the said property through a deed
of cession and quitclaim from his parents. Since then, he had declared the property in
his name and has been paying the realty tax on the said property. His daughter even
renovated the commercial building.
He obtained loans from Sia Ko Pio in the amount of Php50,000.00. Sia Ko
Pio then asked for a photocopy of the deed of cession and quitclaim as a security for
the payment of loans. Sia Ko Pio presented to him a document which was said to be
a receipt, but Aquiles failed to read the document. Still, he signed the said document.
Later on, he received a letter from La Suerte that the subject lot was already
registered in its name.
misrepresentation, and deed. Meanwhile, La Suerte claims to have obtained the
property from Aquiles on Dec. 7, 1990 and that they simply allowed Aquiles to
remain in possession of the property.
RTC ruled in favor of Aquiles, citing the lack of consent upon his signing of
the instrument of sale.
CA reversed the RTC decision, holding that the tax declarations and realty
tax payments made by Aquiles were not conclusive evidence of ownership.
Issue: W/N there was a perfected and valid contract of sale for the subject
property between Aquiles and La Suerte through its CEO, Sia Ko Pio? NO.
Held:
The elements of a contract of sale are: consent, determine subject matter,
and a price certain in moey or its equivalent. There is no clear and convincing
evidence that Aquiles definitely sold the subject property to La Suerte, nor was there
evidence that La Suerte authorized its CEO, Sia Ko Pio, to negotiate and conclude a
purchase of the property. His narration in open court is clear that he did not intend to
transfer ownership of his property.
The transactions involving the loan were between Aquiles and Sia Ko Pio,
and not between the parties. It was a transaction where Aquiles was the borrower,
while Siao Ko Pio was the lender. It was not one where Aquiles was a vendor and La
Suerte was the vendee. There is also no basis for holding that the persona lloan of
Aquiles from Sia Ko Pio was the consideration for the sale of his property in favor of
La Suerte.
The alleged deed of sale bearing his signature bears no evidentiary value as
there was no consent from him. He was not aware that the said document was an
instrument of sale.
His daughter had also spent Php300,000.00 for the renovation of the
improvements, which is higher than the loan. La Suerte also did not ask him to
transfer the possession earlier.
CA should not have favorably considered the validity of the deed of
absolute sale absent any written authority from La Suerte’s board of drectors for Sia
Ko Pio to negotiate and purchase Aquiles property on its behalf and to use its money
to pay the purchase price. When Siao Ko Pio’s son was presented as an officer of La
Suerte, he admitted that he could not find the records of the corporation of any board
resolution authorizing his father to purchase the disputed property.
It is the board of directors or trustees which exercises among all the
corporate powers in a corporation, as provided under Sec. 23 of the Corporation
Code. Sec. 36 also provides that the power to purchase the real property is vested in
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the board of directors of trustees. While a corporation may appoint agents to
negotiate, the final say will have to be with the board, whose approval will finalize
the transactions. A corporation can only exercise its powers and transact its business
through its board of directors and through its officers and agents when authorized by
a board resolution or its by-laws. As held in AF Realty & Development v. Dieselman
Freight Services, Co., absent any valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not
in the course of or connected with the performance of the authorized duties of such
director, are held not binding on the corporation.
In the present case, Sia Ko Pio has no authority from its Board of Directors
to enter into a contract of sale of Aquiles’ property. IT is clear that the loan was a
personal loan from Sia Ko Pio, and not a transaction between Aquiles and La Suerte.
There is no evidence that Sia Ko Pio was clothed with authority to use his personal
fund for the benefit of La Suerte.
2. Atrium Management Corp v. CA
GR. No. 109491, Feb. 28, 2001
Doctrine: An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and therefore beyond
the power conferred upon it by law. he term “ultra vires” is “distinguished from an
illegal act for the former is merely voidable which may be enforced by performance,
ratification, or estoppel, while the latter is void and cannot be validated.”
Personal liability of a corporate director, trustee or officer along with the corporation
may so validly attach only when:
1. He assents:
a. to a patently unlawful act of the corporation
b. for bad faith or gross negligence in directing its affairs
c. for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the
corporation; or
4. He is made, by a specific provision of law, to personally answer for his
corporate action.
Recit-Ready Summary: <I don’t think I still need one given that the case is really
short haha>
Facts:
Atrium Management Corporation filed an action for collection of the
proceeds of the proceeds of four postdated checks in the total amount of Php2M. Hi-
Cement through its corporate signatories issued checks in favor of E.t. Henry and Co
as payee. E.T. Henry and Co endorsed the 4 checks to Atrium Management for
valuable consideration. However, the said checks were dishonored for “payment
stopped”.
It was said that Enrique Tan of E.T. Henry approached Atrium for financial
assistance, offering to discount 4 RCBC checks in the amount of Php2M, which were
issued by Hi-Cement in favor of E.T. Henry. Atrium agreed, provided that it be
allowed to confirm with Hi-Cement the fact that the two checks were confirmed by
Hi-Cement. Carlos Syquia identified two letters issued by Hi-Cement and confirmed
the issuance of the four checks.
Trial Court ordered the Spouses De Leon, E.T. Henry, and Hi-Cement to
jointly and severally pay the amount of Php2M.
CA modified the decision absolving Hi-Cement Corporation from liability
and dismissed the complaint against them. Lourdes de Leon was not authorized to
issue the check in favor of E.T. Henry, and that the issuance of the checks by de
Leon and de las Alas were ultra vires acts, and that the said checks were not issued
for valuable consideration.
Issues:
1. W/N the issuance of the checks was an ultra vires act? NO.
2. W/N de Leon is personally liable for the checks issued as corporate
officers and authorized signatories of the checks? YES.
Held:
1. Hi-Cement issued the 4 checks to extend financial assistance to E.T. Henry, and
not as payment of the balance of the Php30M cost of hydro oil delivered by E.T.
Henry to Hi-Cement. Hi-Cement, however, maintains that the checks were not
issued for consideration, and that the Lourdes and E.T. Henry were engaged in a
“kiting operation” to raise funds for E.T. Henry. However, the Court finds that
there was not enough evidence to show this. Lourdes de Leon was the treasurer
of the corporation and was authorized to sign the checks for the corporations. In
fact, at the time it was issued, there were sufficient funds in the bank to cover
payment.
The Court rules that there is basis to rule that the act of issuing the checks was well
within the ambit of a valid corporate act, for it was for securing a loan to finance the
activities of the corporation, hence, not an ultra vires act.
An ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the power
conferred upon it by law. he term “ultra vires” is “distinguished from an illegal act
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 for the former is merely voidable which may be enforced by performance,
ratification, or estoppel, while the latter is void and cannot be validated.”
2. Personal liability of a corporate director, trustee or officer along with the
corporation may so validly attach only when:
a. He assents:
i.to a patently unlawful act of the corporation
ii.for bad faith or gross negligence in directing its affairs
iii.for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
b. He consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written
objection thereto;
c. He agrees to hold himself personally and solidarily liable with the corporation;
or
d. He is made, by a specific provision of law, to personally answer for his
corporate action.
In he current case, Lourdes de Leon and Antonio de las Alas as treasurer and Chairman
of Hi-Cement were authorized to issue the checks. However, de Leon was negligent
when she signed the confirmation letter requested by Yap of Atrium and Henry of
E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry.
They were strictly endorsed for deposit only to the payee’s account, and not to be
further negotiated. The confirmation letter also contained that the checks were in
payment of the hydro oil. Hence, she may be held personally liable.
3. Cagayan Valley Drug Corp v. CIR
GR. No. 151413, Feb. 13, 2008
Doctrine: For juridical persons, the authorized signatory can be someone who has
been authorized by the corporation through a board resolution. It can also be any
officer provide that the person is in a position where he can verify the truthfulness
and correctness of the allegations in the petition.
Recit-Ready Summary: Cagayan Valley Corp filed a claim for tax refund/tax credit
after it erroneously treated the 20% sales discounts as deductions from gross sales
and not as tax credit, which is in contrast with what was provided by law. The CTA
dismissed the petition, prompting petitioner to file with the CA for an appeal. CA
dismissed the petition to review as it was the President who signed the certification
of absence of forum shopping without any board resolution. The Supreme Court
ruled that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the 1997
Revised Rules on Civil Procedure. The requisite board resolution has been
submitted, albeit belatedly by petitioner. The Court also applied the ruling in Lepanto
with the rationale that the President is in a position to verify the truthfulness and
correctness of the allegations in the petition. The President also signed the complaint
before the CTA at the inception of the judicial claim for refund or tax credit.
Facts:
Cagayan Valley Corp is a duly-licensed retailer of medicine and other
pharmaceutical products. It granted 20% sales discounts to qualified senior citizens
on purchases of medicine, pursuant to RA 7432. It also treated the 20% sales
discounts granted to qualified senior citizens as deductions from the gross sales in
order to arrive at the net sales, instead of treating them as tax credit as provided
under Sec. 4 of RA 7432.
Petitioner filed with the BIR a claim for tax refund/tax credit of the full
amount of the 20% sales discount it granted to senior citizens. BIR’s inaction
prompted petitioner to file a petition for review before the CTA.
CTA dismissed the petition, sustaining that the 20% sales discount should
be treated as tax credit, and not as deductions from the gross sales. The CTA
ratiocinated that on matters of tax credit claim, the government applies the amount
determined to be reimbursable after proper verification against any sum that may be
due and collectible from the taxpayer. However, if no tax has been paid or if no
amount is due and collectible from the taxpayer, then a tax credit is unavailing.
Moreover, it held that before allowing recovery for claims for a refund or tax credit,
it must first be established that there was an actual collection and receipt by the
government of the tax sought to be recovered. In the instant case, the CTA found that
petitioner did not pay any tax by virtue of its net loss position in 1995.
CA dismissed the petition on procedural grounds as the person who signed
the verification and certification of absence of forum shopping failed to adduce proof
that he was duly authorized by the board of directors to do so. CA found no
sufficient proof to show that Concepcion was duly authorized by the Board of
Directors of petitioner.
Issue: W/N petitioner’s president can sign the subject verification and
certification sans the approval of its Board of Directors?
Held:
With respect to a juridical person, Sec. 4, Rule 7 on verification and Sec. 5, Rule 7
on certification against forum shopping are silent as to who the authorized signatory
should be. Said rules do not indicate if the submission of a board resolution
authorizing the officer or representative is necessary.
It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code,
clearly enunciates that all corporate powers are exercised, all business conducted,
and all properties controlled by the board of directors. A corporation has a separate
and distinct personality from its directors and officers and can only exercise its
corporate powers through the board of directors. Thus, it is clear that an individual
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corporate officer cannot solely exercise any corporate power pertaining to the
corporation without authority from the board of directors.
In a slew of cases, however, the Court has recognized the authority of some
corporate officers to sign the verification and certification against forum shopping. In
sum, the Court has held that the following officials or employees of the company can
sign the verification and certification without need of a board resolution: (1) the
Chairperson of the Board of Directors, (2) the President of a corporation, (3) the
General Manager or Acting General Manager, (4) Personnel Officer, and (5) an
Employment Specialist in a labor case.
While the above cases do not provide a complete listing of authorized signatories to
the verification and certification required by the rules, the determination of the
sufficiency of the authority was done on a case to case basis. The rationale applied in
the foregoing cases is to justify the authority of corporate officers or representatives
of the corporation to sign the verification or certificate against forum shopping, being
“in a position to verify the truthfulness and correctness of the allegations in the
petition.”
In Philippine Airlines v. Flight Attendants and Stewards Association of the
Philippines, we ruled that only individuals vested with authority by a valid board
resolution may sign the certificate of non- forum shopping on behalf of a
corporation. The action can be dismissed if the certification was submitted
unaccompanied by proof of the signatory’s authority. We believe that appending the
board resolution to the complaint or petition is the better procedure to obviate any
question on the authority of the signatory to the verification and certification. The
required submission of the board resolution is grounded on the basic precept that
corporate powers are exercised by the board of directors, and not solely by an officer
of the corporation. Hence, the power to sue and be sued in any court or quasi-judicial
tribunal is necessarily lodged with the said board.
In the current case, the Court ruled that petitioner substantially complied with Secs. 4
and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure. The requisite board
resolution has been submitted, albeit belatedly by petitioner. The Court also applied
the ruling in Lepanto with the rationale that the President is in a position to verify the
truthfulness and correctness of the allegations in the petition. The President also
signed the complaint before the CTA at the inception of the judicial claim for refund
or tax credit.
4. Carlos v. Mindoro Sugar Co.
GR. No. 36207, Oct. 26, 1932
Doctrine: When a contract is not on its face necessarily beyond the scope of the
power of the corporation by which it was made, it will, in the absence of proof to the
contrary, be presumed to be valid. Corporations are presumed to contract within their
powers. The doctrine of ultra vires, when invoked for or against a corporation,
should not be allowed to prevail where it would defeat the ends of justice or work a
legal wrong.
Recit-Ready Summary: <the case is short enough I think>
Facts:
Mindoro Sugar Company is a corporation on July 30, 1917. One of its
principal purposes was to acquire and exercise the franchise granted by Act. No.
2720 to George Fairchild, to substitute the organized corporation, Mindoro
Company, and to acquire all its rights.
The Philippine Trust Company is another domestic corporation engaged in
the business of acquiring by purchasing, subscribing and to invest, hold, sell or
dispose of stocks, bonds, mortgages and other securities or any interest in either of
any obligation or evidence of indebtedness of any other corporation.
On Nov. 17, 1917, the Board of Directors of Philippine Trust Company
adopted a resolution authorizing its president to purchase at par of the bonds in the
value of Php3M that the Mindoro Sugar Company was about to issue and to resell
them at a price not less than par, and to guarantee to the PNB the payment of the
indebtedness to said bank by the Mindoro Sugar Company or Charles Wench and
Horace Havemeyer up to Php2M.
The Mindoro Sugar Company executed in favor of the PTC the deed of
trust, transferring all of its property to it in consideration of the bonds it had issued
for Php3M. PTC then sold thirteen bonds to Ramon Diaz. The 4 bond which are the
subject of the litigation are included in those 13 sold.
Philippine Trust Company paid the appellant, upon presentation of the
coupons, the stipulated interest from date of maturity until July 1, 1928, when it
stopped payments. It alleged that it did not deem itself bound to pay such interest or
to redeem the obligation because the guarantee given for the bonds was illegal and
void.
Issue: W/N the Philippine Trust Company acquired the bonds in question and
whether it bound itself legally and acted within its corporate powers in
guaranteeing them? YES.
Held:
The Philippine Trust Company was organized as a trust corporation with
full power to acquire personal property, such as the bonds in question. It was given
implied power to guarantee them in order to place them upon the market. It is not
ultra vires for a corporation to enter into contracts of guaranty or suretyship when it
does so in the legitimate furtherance of its purposes and business. And it is well
settled that where a corporation acquires commercial paper or bonds in the legitimate
transaction of its business it may sell them, and in furtherance of such a sale it may,
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in order to make them the more readily marketable, indorse or guarantee their
payment.
The President of PTC was expressly authorized to purchase all or some of
the bonds and to guarantee them. Thus, it may be inferred that the subsequent
purchasers of the bonds relied on the belief that they were acquiring securities from
PTC.
The doctrine of ultra vires has been declared to be entirely the creation of
the courts and is of comparatively modern origin. The defense is by some courts
regarded as an ungracious and odious one, to be sustained only where the most
persuasive considerations of public policy are involved, and there are numerous
decisions and dicta to the effect that the plea should not as a general rule prevail
whether interposed for or against the corporation, where it will not advance justice
but on the contrary will accomplish a legal wrong.
When a contract is not on its face necessarily beyond the scope of the power
of the corporation by which it was made, it will, in the absence of proof to the
contrary, be presumed to be valid. Corporations are presumed to contract within their
powers. The doctrine of ultra vires, when invoked for or against a corporation,
should not be allowed to prevail where it would defeat the ends of justice or work a
legal wrong.
Guaranties of payment of bonds taken by a loan and trust company in the
ordinary course of its business, made in connection with their sale, are not ultra vires,
and are binding.
5. Firme v. Bukal Enterprises and Development Corp.
GR. No. 146608, Oct. 23, 2003
Doctrine: Sec. 23 provides that it is the board of directors or trustees which
exercises almost all the corporate powers in a corporation. Sec. 36 provides that the
power to purchase real property is listed as a corporate power. Hence, the power to
purchase real property is vested in the board of directors or trustees. While a
corporation may appoint agents to negotiate for the purchase of real property needed.
by the corporation, the final say will have to be with the board, whose approval will
finalize the transaction. A corporation can only exercise its powers and transact its
business through its board of directors and through its officers and agents when
authorized by a board resolution or its by-law.
Recit-Ready Summary: Bukal Enterprises filed a Complaint against Spouses Firme
after the latter did not sell their property. The VP of Bukal had authorized Aviles, a
real estate agent, to negotiate with the spouses over a parcel of property which the
spouses owned in Quezon City. Spouses Firme denied having agreed to selling their
property to Aviles or to Bukal Enterprises. Trial Court dismissed the complaint due
to the lack of consent and that Aviles did not have the proper authority from the
Board of Directors to buy a property in their stead as there was no Board Resolution.
The CA reversed. The Court overturned the decision of the CA, affirming the
decision of the trial court that by virtue of Sec. 23 and Sec. 36 of the Corporation
Code, the Board Resolution allowing Aviles to transact and buy the property in the
stead of Bukal Enterprises is needed. Absent such board resolution, the said
transaction cannot take place.
Facts:
Spouses Firme are the registered owners of a parcel land located in Quezon
City. De Castro, the Vice-President of Bukal Enterprises, authorized his friend,
Teodoro Aviles to negotiate the purchase of the property.
On March 28, 1995, Bukal Enterprises field a complaint for specific
performance and damages as the spouses Firme reneged on their agreement to sell
the property. Aviles testified that De Castro authorized him to negotiate on behalf of
Bukal Entprise for the purchase of the Property. The first draft was rejected by the
spouses, the second was almost approved, except that some stipulations had to be
revised. The corporation settled with the informal settlers on the property for them to
leave the property, and later on, constructed a fence around the area. However, later
on, the spouses Firme did not accept the offer to pay the purchase price, and had
even requested that Bukal Enterprises vacate their property.
Dr. Firme, the witness of the spouses, testified that Aviles offered to buy the
property of the spouses Firme, but they did not accept as they were reserving the
property for their six children. They were surprised when they found out the
squatters voluntarily demolished their shanties. Still, they sent a letter to
Bukal demanding the removal of the bunkers and their employees. Two days later,
they received the letter from Bukal demanding that they sell the property.
Trial Court dismissed the complaint made by Bukal Enterprises, ruling that
there was no perfected contract of sale. Furthermore, Aviles had no valid authority to
bind Bukal Enterprises in the sale transaction. Under Secs. 23 and 36, the corporate
power to purchase a specific property is exercised by the Board of Directors of the
corporation. Without an authorization from the Board of Directors, Aviles could not
validly finalize the purchase of the Property on behalf of Bukal Enterprises.
CA reversed the decision of the trial court. The CA held that the lack of a
board resolution was cured when Bukal Enterprises filed the complaint for the
enforcement of the sale.
Issue: W/N CA erred in finding that there was a perfected contract of sale
between the Spouses Firme and Bukal Enterprises? YES.
Held:
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 There was no consent on the part of the Spouses firme. Aviles merely
showed one draft of the deed of sale, which was the Third Draft. Dr. Firme was firm
on his testimonies. On the other hand, Aviles gave conflicting testimonies. The first
and second drafts contained the same stipulations, which was in contrast to what he
said.
There was also no approval from the Board of Directors of Bukal as would
finalize any transaction with the Spouses Firme. Aviles did not have the proper
authority to negotiate for Bukal Enterprises. There was no Board Resolution
authorizing Aviles to negotiate and purchase the Property on behalf of Bukal
Enterprises.
Sec. 23 provides that it is the board of directors or trustees which exercises
almost all the corporate powers in a corporation. Sec. 36 provides that the power to
purchase real property is listed as a corporate power. Hence, the power to purchase
real property is vested in the board of directors or trustees. While a corporation may
appoint agents to negotiate for the purchase of real property needed. by the
corporation, the final say will have to be with the board, whose approval will finalize
the transaction. A corporation can only exercise its powers and transact its business
through its board of directors and through its officers and agents when authorized by
a board resolution or its by-law.
In this case, Aviles, who negotiated the purchase of the Property, is neither
an officer of Bukal Enterprises nor a member of the Board of Directors of Bukal
Enterprises. There is no Board Resolution authorizing Aviles to negotiate and
purchase the Property for Bukal Enterprises. There is also no evidence to prove that
Bukal Enterprises approved whatever transaction Aviles made with the Spouses
Firme. In fact, the president of Bukal Enterprises did not sign any of the deeds of sale
presented to the Spouses Firme. Even De Castro admitted that he had never met the
Spouses Firme. Considering all these circumstances, it is highly improbable for
Aviles to finalize any contract of sale with the Spouses Firme.
Furthermore, in the Complaint filed by Bukal, it was Aviles who signed the
verification and certification of non-forum shoping, which was not accompanied by
any proof that Bukal Enterprises authorized Aviles to file the complaint on behalf of
Bukal Enterprises. The power of a corporation to sue and be sued is exercised by the
board of directors. The purpose of verification is to secure an assurance that the
allegations in the pleading are true and correct and that it is filed in good faith. True,
this requirement is procedural and not jurisdictional. However, the trial court should
have ordered the correction of the complaint since Aviles was neither an officer of
Bukal Enterprises nor authorized by its Board of Directors to act on behalf of Bukal
Enterprises.
6. MONTELIBANO ET AL vs.BACOLOD-MURCIA MILLING
CO., INC.
GR. No. L-15092 May 18, 1962
Doctrine: 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.
Facts:
Montelibano et al. are sugar planters adhered to the Bacolod-Murcia Milling Co.,
Inc’s sugar central mill under identical milling contracts originally executed in 1919.
In the 1919 original contract, it was stipulated to be in force for 30 years starting
with the 1920-21 crop, and provided that the resulting product should be divided in
the ratio of 45% for the mill and 55% for the planters.
In 1936, it was 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. To this effect, a printed Amended Milling Contract
form was drawn up.
The Board of Directors of 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 on August 10, 1936.
The printed Amended Milling Contract was signed by the Appellants on September
10, 1936, but a copy of the resolution was not attached to the printed contract until
April 17, 1937.
In 1953, The appellants initiated the present action, contending that three Negros
sugar centrals with a total annual production exceeding one-third of the production of
all the sugar central mills in the province, had already granted increased participation
(of 62.5%)to their planters, and that under the resolution the appellee had become
obligated to grant similar concessions to the plaintiffs.
The Bacolod-Murcia Milling Co., inc., resisted the claim, urging that
the resolution in question was null and void ab initio, being in effect a donation that
was ultra vires and beyond the powers of the corporate directors to adopt.
Issue: Was the act of the BOD ultra vires? NO
Held:
NO (The Bacolod-Murcia Milling Co., Inc. is ordered to pay appellants the increase
of participation in the milled sugar in accordance with paragraph 9 of the Resolution
of August 20, 1936.)
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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.
Xx 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.
__
It must be remembered that the controverted resolution was adopted by appellee
corporation as a supplement to, or further amendment of, the proposed milling
contract, and that it was approved on August 20, 1936, twenty-one days prior to the
signing by appellants on September 10, of the Amended Milling Contract itself; so
that when the Milling Contract was executed, the concessions granted by the
disputed resolution had been already incorporated into its terms.
7. Valle Verde Country Club, Inc. v. Africa
G.R. No. 151969, September 4, 2009, (Brion, J.)
Doctrine: The term of office is not affected by the holdover. It is 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.
Facts:
In 1996, during the Annual Stockholders’ Meeting of Valle Verde Country Club, Inc.
(VVCC), Villaluna, Dinglasan, Makalintal, Ortigas III, Salta, Santiago, Jr., Dee,
Sunico, and Gamboa were elected as members of the VVCC Board of Directors.
From 1997 to 2001, the requisite quorum for the holding of the stockholders’
meeting could not be obtained. Consequently, the above-named directors continued
to serve in the VVCC Board in a hold-over capacity.
In 1998, Dinglasan resigned from his position. He was replaced by Roxas who was
elected by the board still constituting a quorum. A year later, Makalintal also
resigned and was replaced by Jose Ramirez in 2001. Ramirez was elected by the
remaining members of the Board.
Africa, a member of VVCC, questioned the election of Roxas and Ramirez with the
SEC and the RTC, respectively. Before the RTC, Africa alleged that a year after
Makalintal’s election as member of the VVCC Board in 1996, his term – as well as
those of the other members of the VVCC Board – should be considered to have
already expired. According to him, for the members to exercise the authority to fill in
vacancies in the board of directors, that there should be an unexpired term during
which the successor-member shall serve. Further, that 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 and the SEC ruled in favor of Africa. VVCC filed a petition for review
on certiorari.
Issue: Whether or not the remaining directors of the 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. Under Section 29 of the Corporation Code, a vacancy occurring in
the board of directors caused by the expiration of a member’s term shall be filled by
the corporation’s stockholders. As the vacancy in this case was caused by
Makalintal’s resignation, not by the expiration of his term, VVCC insists that the
board rightfully appointed Ramirez to fill in the vacancy.
The holdover period is not part of the term of office of a member of the board of
directors. In several cases, we have defined "term" as the time during which the
officer may claim to hold the office as of right, and fixes the interval after which the
several incumbents shall succeed one another. The term of office is not affected by
the holdover. It is 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” is the term during which the incumbent actualy holds office.
Section 23 of the Corporation Code declares 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. After the lapse of one year from his election, Makalintal’s term
of office is deemed to have already expired. With the expiration of Makalintal’s term
of office, a vacancy resulted which, by the terms of Section 29, must be filled by the
stockholders of VVCC in a regular or special meeting called for the purpose. His
resignation as a holdover director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintal’s term had been created long before his
resignation. The 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. (Delegated power of the board of directors). The vacancy caused by
Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members
of its board of directors
7
 8. NECTARINA S. RANIEL and MA. VICTORIA R. PAG-ONG vs.
PAUL JOCHICO, JOHN STEFFENS and SURYA VIRIYA
G.R. No. 153413 March 1, 2007
Doctrine: A corporation exercises its powers through its board of directors and/or its
duly authorized officers and agents, except in instances where the Corporation Code
requires stockholders approval for certain specific acts.
Facts:
Nectarina Raniel and Victoria Pag-ong, are 2 out of the 5 directors of Nephro
Systems Dialysis Center. Raniel was Corporate Secretary, Treasurer, and
Administrator of the Dialysis Clinic. Petitioners questioned respondents’ plan to
enter into a joint venture with the Butuan Doctors’ Hospital and College.
Respondents allegedly tried to compel them to waive and assign their shares with
Nephro but petitioners refused.
Raniel sought an indefinite leave of absence. Paul Jochico disapproved the request,
but Raniel nonetheless stopped reporting for work. When asked for an explanation
for her absence, Raniel expressed her sentiments over the disapproval of leave, and
the joint venture with Butuan. (Note: Without Raniel, holding three important
positions, the company’s operations were disrupted. Such also warranted loss of
the Board’s confidence in her. – SC)
Jochico issued a Notice of Special Board Meeting. Petitioners were notified, but
they did not attend. The board passed several resolutions ratifying the disapproval
of Raniel’s request for leave, dismissing her as Administrator of Nephro,
declaring the position of Corporate Secretary vacant.
Otelio Jochico was appointed as the new Corporate Secretary, and a Special
Stockholders’ Meeting was held. Again, petitioners did not attend. The
stockholders that were present removed the petitioners as directors of Nephro.
(Raniel could have explained herself during these meetings, but she chose not to
attend. – SC)
Side-note: the ownership of the outstanding capital stock is distributed in this
manner;
Jochico – 200 Shares
Steffens – 100 Shares
Viriya – 100 Shares
Raniel – 25 Shares
Pag-ong – 75 Shares
= 500 Shares
2/3 of OCS is 333.33 Shares
400 Shares voted for petitioners’ removal
Petitioners filed a case with the SEC, which held that the removal of petitioners was
valid. Appeal made to the CA, which affirmed the SEC decision.
Issue: Whether or not the removal of Pag-Ong and Raniel by the Board of Directors
is proper? YES.
Held: The SC ruled in favor of Jochico.
A corporation exercises its powers through its board of directors and/or its duly
authorized officers and agents, except in instances where the Corporation Code
requires stockholders approval for certain specific acts.
Based on Section 23 of the Corporation Code which provides:
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 x x x.
A corporations board of directors is understood to be that body which (1) exercises
all powers provided for under the Corporation Code; (2) conducts all business of the
corporation; and (3) controls and holds all property of the corporation. Its members
have been characterized as trustees or directors clothed with a fiduciary character.
Moreover, the directors may appoint officers and agents and as incident to this power
of appointment, they may discharge those appointed.
In this case, petitioner Raniel was removed as a corporate officer through the
resolution of Nephro's Board of Directors adopted in a special meeting on February
2, 1998. As correctly ruled by the SEC, petitioners' removal was a valid exercise of
the powers of Nephro's Board of Directors, viz.:
In the instant complaint, do respondents have sufficient grounds to cause the removal
of Raniel from her positions as Corporate Secretary, Treasurer and Administrator of
the Dialysis Clinic? Based on the facts proven during the hearing of this case, the
answer is in the affirmative.
Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite
leave, immediately effective yet without prior notice, reveals a disregard of the
critical responsibilities pertaining to the sensitive positions she held in the
corporation. Prior to her hasty departure, Raniel did not make a proper turn-over of
her duties and had to be expressly requested to hand over documents and records,
including keys to the office and the cabinets.
xxxx
Since Raniel occupied all three positions in Nephro, it is not difficult to foresee the
disruption that her immediate and indefinite absence can inflict on the operations of
the company. By leaving abruptly, Raniel abandoned the positions she is now trying
8
to reclaim. Raniel's actuation has been sufficiently proven to warrant loss of the
Board's confidence.
The SEC also correctly concluded that petitioner Raniel was removed as an officer of
Nephro in compliance with established procedure, thus:
The resolutions of the Board dismissing complainant Raniel from her various
positions in Nephro are valid. Notwithstanding the absence of complainants from the
meeting, a quorum was validly constituted. x x x.
xxxx
Based on its articles of incorporation, Nephro has five directors two of the positions
were occupied by complainants and the remaining three are held by respondents.
This being the case, the presence of all three respondents in the Special Meeting of
the Board on February 2, 1998 established a quorum for the conduct of business. The
unanimous resolutions carried by the Board during such meeting are therefore valid
and binding against complainants.
Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors
was likewise valid.
Only stockholders or members have the power to remove the directors or trustees
elected by them, as laid down in Section 28 of the Corporation Code, which provides
in part:
SEC. 28. Removal of directors or trustees. -- Any director or trustee of a
corporation may be removed from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of
the members entitled to vote: Provided, that such removal shall take place either
at a regular meeting of the corporation or at a special meeting called for the
purpose, and in either case, after previous notice to stockholders or members of
the corporation of the intention to propose such removal at the meeting. A special
meeting of the stockholders or members of a corporation for the purpose of
removal of directors or trustees or any of them, must be called by the secretary on
order of the president or on the written demand of the stockholders representing
or holding at least a majority of the outstanding capital stock, or if it be a non-
stock corporation, on the written demand of a majority of the members entitled to
vote. x x x Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by publication or by written
notice as prescribed in this Code. x x x Removal may be with or without cause:
Provided, That removal without cause may not be used to deprive minority
stockholders or members of the right of representation to which they may be
entitled under Section 24 of this Code. (Emphasis supplied)
Petitioners do not dispute that the stockholders' meeting was held in accordance with
Nephro's By-Laws. The ownership of Nephro's outstanding capital stock is
distributed as follows (see above). A two-thirds vote of Nephro's outstanding capital
stock would be 333.33 shares, and during the Stockholders' Special Meeting held on
February 16, 1998, 400 shares voted for petitioners' removal. Said number of votes is
more than enough to oust petitioners from their respective positions as members of
the board, with or without cause.
9. PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG,
STEPHEN CO, JAMES TAN, JUDITH TAN, ERNESTO TANCHI
JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR.,
EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH
SCHOOL vs. PAUL SYCIP and MERRITTO LIM
G.R. No. 153468 August 17, 2006
Doctrine: For stock corporations, the “quorum” referred to in Section 52 of the
Corporation Code is based on the number of outstanding voting stocks. For nonstock
corporations, only those who are actual, living members with voting rights shall be
counted in determining the existence of a quorum during members’ meetings. Dead
members shall not be counted.
Facts:
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with fifteen (15) regular members, who also constitute the board of
trustees. During the annual members’ meeting held on April 6, 1998, there were
only eleven (11) living member-trustees, as four (4) had already died. Out of the
eleven, seven (7) attended the meeting through their respective proxies. The meeting
was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty.
Antonio C. Pacis, who argued that there was no quorum. In the meeting,
Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted
to replace the four deceased member-trustees. 

When the controversy reached the Securities and Exchange Commission (SEC), Tan
et al. maintained that the deceased member-trustees should not be counted in the
computation of the quorum because, upon their death, members automatically lost all
their rights (including the right to vote) and interests in the corporation. 

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and
void for lack of quorum. She held that the basis for determining the quorum in a
meeting of members should be their number as specified in the articles of
incorporation, not simply the number of living members.
Issue: Whether or not in NON-STOCK corporations, dead members should still be
counted in determination of quorum for purpose of conducting the Annual Members
Meeting. NO
Held:
The Right to Vote in Nonstock Corporations
9
In nonstock corporations, the voting rights attach to membership. Members vote as
persons, in accordance with the law and the bylaws of the corporation. Each member
shall be entitled to one vote unless so limited, broadened, or denied in the articles of
incorporation or bylaws. We hold that when the principle for determining the
quorum for stock corporations is applied by analogy to nonstock corporations, only
those who are actual members with voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of the members representing
the actual number of voting rights, not the number or numerical constant that may
originally be specified in the articles of incorporation, constitutes the quorum.
Section 25 of the Code specifically provides that a majority of the directors or
trustees, as fixed in the articles of incorporation, shall constitute a quorum for the
transaction of corporate business (unless the articles of incorporation or the bylaws
provide for a greater majority). If the intention of the lawmakers was to base the
quorum in the meetings of stockholders or members on their absolute number as
fixed in the articles of incorporation, it would have expressly specified so.
Otherwise, the only logical conclusion is that the legislature did not have that
intention.
Effect of the Death of a Member or 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 non-transferable, unless the articles of incorporation or the bylaws
of the corporation provide otherwise. In other words, the determination of whether or
not dead members are entitled to exercise their voting rights (through their executor
or administrator), depends on those articles of incorporation or bylaws.
Under the By-Laws of GCHS, membership in 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.
Applying Section 91 to the present case, we hold that 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.
But, 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. We are not unmindful of the fact that the members of GCHS themselves
also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which
specifically prescribes that vacancies in the board must be filled up by the remaining
trustees. In other words, these remaining member-trustees must sit as a board in
order to validly elect the new ones. Thus, petition was partly granted. The assailed
Resolutions of the Court of Appeals are hereby reversed and set aside. The remaining
members of the board of trustees of GCHS may convene and fill up the vacancies in
the board by sitting as a board.
10. PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG,
STEPHEN CO, JAMES TAN, JUDITH TAN, ERNESTO TANCHI
JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR.,
EDUARDO P. LIZARES and GRACE 10. CHRISTIAN HIGH
SCHOOL vs. PAUL SYCIP and MERRITTO LIM
G.R. No. 153468 August 17, 2006
Doctrine: For stock corporations, the “quorum” referred to in Section 52 of the
Corporation Code is based on the number of outstanding voting stocks. For nonstock
corporations, only those who are actual, living members with voting rights shall be
counted in determining the existence of a quorum during members’ meetings. Dead
members shall not be counted.
Facts:
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with fifteen (15) regular members, who also constitute the board of
trustees. During the annual members’ meeting held on April 6, 1998, there were
only eleven (11) living member-trustees, as four (4) had already died. Out of the
eleven, seven (7) attended the meeting through their respective proxies. The meeting
was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty.
Antonio C. Pacis, who argued that there was no quorum. In the meeting,
Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted
to replace the four deceased member-trustees. 

When the controversy reached the Securities and Exchange Commission (SEC), Tan
et al. maintained that the deceased member-trustees should not be counted in the
computation of the quorum because, upon their death, members automatically lost all
their rights (including the right to vote) and interests in the corporation. 

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and
void for lack of quorum. She held that the basis for determining the quorum in a
meeting of members should be their number as specified in the articles of
incorporation, not simply the number of living members.
10
Issue: Whether or not in NON-STOCK corporations, dead members should still be
counted in determination of quorum for purpose of conducting the Annual Members
Meeting. NO
Held:
The Right to Vote in Nonstock Corporations
In nonstock corporations, the voting rights attach to membership. Members vote as
persons, in accordance with the law and the bylaws of the corporation. Each member
shall be entitled to one vote unless so limited, broadened, or denied in the articles of
incorporation or bylaws. We hold that when the principle for determining the
quorum for stock corporations is applied by analogy to nonstock corporations, only
those who are actual members with voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of the members representing
the actual number of voting rights, not the number or numerical constant that may
originally be specified in the articles of incorporation, constitutes the quorum.
Section 25 of the Code specifically provides that a majority of the directors or
trustees, as fixed in the articles of incorporation, shall constitute a quorum for the
transaction of corporate business (unless the articles of incorporation or the bylaws
provide for a greater majority). If the intention of the lawmakers was to base the
quorum in the meetings of stockholders or members on their absolute number as
fixed in the articles of incorporation, it would have expressly specified so.
Otherwise, the only logical conclusion is that the legislature did not have that
intention.
Effect of the Death of a Member or 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 non-transferable, unless the articles of incorporation or the bylaws
of the corporation provide otherwise. In other words, the determination of whether or
not dead members are entitled to exercise their voting rights (through their executor
or administrator), depends on those articles of incorporation or bylaws.
Under the By-Laws of GCHS, membership in 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.
Applying Section 91 to the present case, we hold that 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.
But, 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. We are not unmindful of the fact that the members of GCHS themselves
also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which
specifically prescribes that vacancies in the board must be filled up by the remaining
trustees. In other words, these remaining member-trustees must sit as a board in
order to validly elect the new ones. Thus, petition was partly granted. The assailed
Resolutions of the Court of Appeals are hereby reversed and set aside. The remaining
members of the board of trustees of GCHS may convene and fill up the vacancies in
the board by sitting as a board.
11. Rural Bank of Milaor v. Ocfemia
G.R. No. 137686, February 8, 2000
Doctrine: If a corporation knowingly permits one of its officers or any other agent to
act within the scope of an apparent authority, it holds the agent out to the public as
possessing the power to do those acts; 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.
Facts: Marife Niño filed this petition to have Rural Bank issue the necessary
paperwork for 5 parcels of land in Bombon, Camarines Sur to be transferred to their
family’s name. Her grandparents (Ocfemia’s) mortgaged 7 parcels of their land to
Rural Bank of Milaor. They failed to redeem these properties so it was foreclosed
and subsequently owned by Rural Bank. Out of the 7, 5 were sold to the parents of
Marife as evidenced by the Deed of Sale executed in Jan. 1988. Despite possessing
these lands, it was still not transferred in the name of Marife’s parents as the
Assessor’s Office stated that the document of sale must be registered with the
Registry of Deeds of Camarines Sur.
Marife Niño then went to the bank, showed to if the Deed of Sale, the tax declaration
and receipt of tax payments and requested the Bank for a board resolution so that the
property can be transferred to the Ocfemia’s. She was told that the bank had a new
manager and it had no record of the sale. The bank asked her to bring a copy of the
deed of sale, receipt of payment, and to get an authority from her parents and other
respondents. Despite compliance, the bank still decided that the board resolution
would still not be given to her as the bank had no records from the old manager.
11
Because of this, Marife brought the matter to her lawyer and the latter wrote a
demand letter to Rural Bank. The Bank still refused saying that they had no records
of the sale. Hence, this petition. RTC and CA sided with Marife.
Issue: May the board of directors of the bank be compelled to confirm the deed of
absolute sale executed by a bank manager without prior authority of their board of
directors? (YES)
Held:
The bank is estopped from questioning the authority of the bank manager to enter
into the contract of sale. If a corporation knowingly permits one of its officers or any
other agent to act within the scope of an apparent authority, it holds the agent out to
the public as possessing the power to do those acts; 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.
The bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena
(the old bank manager) to enter into binding contracts. After the execution of the
Deed of Sale, the Ocfemia’s occupied the properties in dispute and paid the real
estate taxes due thereon. If the bank management believed that it had title to the
property, it should have taken some measures to prevent the infringement or invasion
of its title thereto and possession thereof. When Marife went to the bank to ask for
the board resolution, she was merely told to bring the receipts. The bank failed to
categorically declare that Tena had no authority.
Tena had previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons where
representation is made in the course of its normal business by an agent like Manager
Tena, even though such agent is abusing her authority. Clearly, persons dealing with
her could not be blamed for believing that she was authorized to transact business for
and on behalf of the bank.
Jurisprudence provides that where similar acts have been approved by the directors
as a matter of general practice, custom, and policy, the general manager may bind the
company without formal authorization of the board of directors. Authority to act for
and bind a corporation may be presumed from acts of recognition in other instances
where the power was in fact exercised.
When, in the usual course of business of a corporation, an officer has been allowed
in his official capacity to manage its affairs, his authority to represent the corporation
may be implied from the manner in which he has been permitted by the directors to
manage its business.
Ratio
Corporate transactions would speedily come to a standstill were every person dealing
with a corporation held duty-bound to disbelieve every act of its responsible officers,
no matter how regular they should appear on their face.
In the case of Ramirez vs. Orientalist Co, the Court stated that in passing upon the
liability of a corporation in cases of this kind it is always well to keep in mind the
situation as it presents itself to the third party with whom the contract is made.
Naturally he can have little or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the external manifestation of corporate
consent.
Court act
The Deed named Fe S. Tena as the representative of the bank. The bank however,
failed to specifically deny under oath the allegations in that contract. In fact, it filed
no answer at all, for which reason it was declared in default.
Basis: Sec. 8 of the Rules of Court → the genuineness and due execution of
the instrument shall be deemed admitted unless the adverse party, under
oath, specifically denies them, and sets forth what he claims to be the facts.
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale.
Accordingly, it has a clear legal duty to issue the board resolution sought by
respondent's.
Extra Notes (in case sir asks)
The Ocfemia’s are interested in having the properties transferred to their names
because their mother and co-petitioner, Francisca Ocfemia, is very sickly and they
want to mortgage the property for the medical expenses of Francisca Ocfemia.
The illness of Francisca Ocfemia began after her husband died and her suffering
from arthritis and pulmonary disease. Marife O. Niño declared that her mother is
now in serious condition and they could not have her hospitalized for treatment as
they do not have any money and this is causing the family sleepless nights and
mental anguish, thinking that their mother may die because they could not submit her
for medication as they do not have money.
12. Western Institute of Technology v. Salas
G.R. No. 113032, August 21, 1997
Doctrine: 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. 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.
12
The Exception is when 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.
(Basis: the phrase “as such directors” under Sec. 30 of the Corporation Code which
prohibits the compensation of directors)
Facts: Private respondents (Salas people) are the majority and controlling members
of the Board of Trustees of Western Institute of Technology, Inc. (WIT), a stock
corporation engaged in the operation, among others, of an educational institution.
Petitioners are the minority stockholders of WIT. According to them, a Special
Board Meeting was held on June 1, 1986 to discuss the possible implementation of
Art. III, Sec. 6 of the Amended ByLaws of WIT on compensation of all officers of
the corporation.
In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting
monthly compensation to the private respondents as corporate officers retroactive
June 1, 1985. (see other notes for more details)
On March 1991, petitioners filed a complaint against respondents before the Office
of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal
informations were filed: (1) falsification of a public document and (2) estafa under
Article 315, par. 1(b) were filed in the RTC of Iloilo City. (see other notes for more
details)
RTC acquitted the accused. Their motion of recon was denied, hence this petition.
Petitioners maintain that this grant of compensation to respondents is prohibited
under Section 30 of the Corporation Code. Thus, respondents are obliged to return
these amounts to the corporation with interest.
Issue: Are the respondents not allowed to have compensation based on Sec. 30 of the
Corporation Code? (No because it must be qualified – in what capacity do they
receive such compensation)
Held:
We cannot sustain the petitioners. 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 compensation of directors, as such directors,
exceed ten (10%) percent of the net income before income tax of the
corporation during the preceding year.” [Italics ours]
Under the foregoing 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.
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, Resolution No. 48, s. 1986 granted monthly compensation to
private respondents not in their capacity as members of the board, but rather as
officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer
and Secretary of WIT.
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.
The prohibition with respect to granting compensation to corporate directors/trustees
as such under Section 30 is not violated in this particular case.
Regarding the Criminal Case
On Falsification: This Court finds that under the Eleventh Article (Exh. ‘3-D-1’) of
the Articles of Incorporation (Exh. ‘3-B’) of the Panay Educational Institution, Inc.,
now the Western Institute of Technology, Inc., the officers of the corporation shall
receive such compensation as the Board of Directors may provide. These Articles of
Incorporation was adopted on May 17, 1957 (Exh. ‘3-E’). The Officers of the
corporation and their corresponding duties are enumerated and stated in Sections 1,
2, 3 and 4 of Art. III of the Amended By-Laws of the Corporation (Exh. ‘4-A’)
which was adopted on May 31, 1957. According to Sec. 6, Art. III of the same By-
Laws, all officers shall receive such compensation as may be fixed by the Board of
Directors.
On Estafa: it is perceived by this Court that the receipt and the holding of the money
by the accused as salary on basis of the authority granted by the Articles and By-
Laws of the corporation are not tainted with abuse of confidence. The money they
received belongs to them and cannot be said to have been converted and/or
misappropriated by them.
Extra Notes:
13
Resolution → On the motion of Soleded Tubilleja, which was seconded by Richard Section 31 makes a Personal liability of corporate Doctrine of the
Salas, the Officers of the Corporation be granted monthly compensation for services director personally directors, trustees or officers Piercing of the
rendered as follows: liable for attaches only when: Corporate Veil
corporate debts if: applies only when
 Chairman—P9,000.00/month corporate fiction is
 Vice Chairman—P3,500.00/month used to:
 Corporate Treasurer—P3,500.00/month
 Corporate Secretary—P3,500.00/month (1) he willfully and (1) they assent to a patently unlawful (1) defeat public
knowingly votes for act of the corporation, or when they convenience
retroactive June 1, 1985 and 10% of the net profits shall be distributed equally
or assents to are guilty of bad faith or gross (2) justify wrong
among the 10 members of the Board of Trustees. This shall amend and supersede
patently unlawful negligence in directing its affairs, or (3) protect fraud, or
any previous resolution.
acts of the when there is a conflict of interest (4) defend crime
Criminal Case corporation resulting in damages to the
corporation, its stockholders or other
 The charge for falsification of public document was anchored on the private (2) he is guilty of persons;
respondents’ submission of WIT’s income statement for the fiscal year 1985- gross negligence or
1986 with the Securities and Exchange Commission (SEC) reflecting therein the bad faith in (2) they consent to the issuance of
disbursement of corporate funds for the compensation of private respondents directing the affairs watered-down stocks or when,
based on Resolution No. 4, series of 1986, making it appear that the same was of the corporation. having knowledge of such issuance,
passed by the board on March 30, 1986, when in truth, the same was actually do not forthwith file with the
passed on June 1, 1986, a date not covered by the corporation’s fiscal year 1985- corporate secretary their written
1986 (beginning May 1, 1985 and ending April 30, 1986). objection;
 herein accused, knowing fully well that they have no sufficient, lawful authority (3) they agree to hold themselves
to disburse—let alone violate applicable laws and jurisprudence, disbursed the personally and solidarily liable with
funds of the corporation by effecting payment of their retroactive salaries in the the corporation; or
amount of P186,470.00 and subsequently paying themselves every 15th and
30th of the month starting June 15, 1986 until the present, in the amount of (4) they are made by specific
P19,500.00 per month, as if the same were their own, and when herein accused provision of law personally
were informed of the illegality of these disbursements by the minority answerable for their corporate action.
stockholders by way of objections made in an annual stockholders’ meeting held
on June 14, 1986 and every year thereafter, they refused, and still refuse, to
rectify the same to the damage and prejudice of the corporation (and its Facts: The National Federation of Labor Unions (NAFLU) and Mariveles Apparel
stockholders) in the total sum of P1,453,970.79 as of November 15, 1991. Corporation Labor Union (MACLU) (collectively, complainants), on behalf of all of
MAC’s rank and file employees, filed a complaint against MAC for illegal dismissal
brought about by its illegal closure of business.
13. Carag v. NLRC
G.R. No. 147590, April 2, 2007 On July 8, 1993, without notice of any kind filed in accordance with pertinent
provisions of the Labor Code, MAC ceased operations with the intention of
completely closing its shop or factory. MAC alleged that notice was given through a
Doctrine: Article 212(e) of the Labor Code does not state that corporate officers are letter which contained their intent to close operations. At the time of closure,
personally liable for the unpaid salaries or separation pay of employees of the employees who have rendered one to two weeks work were not paid their
corporation. The liability of corporate officers for corporate debts remains governed corresponding salaries/wages as well as other benefits due.
by Section 31 of the Corporation Code.
Complainant’s Argument

14
The complainants pray that they be allowed to implead Atty. Antonio Carag and Mr.
Armando David, owners and responsible officers of respondent company, to assure
the satisfaction of the judgment, should a decision favorable to them be rendered.
They say that since the corporation is no longer existing, they will not be able to
enforce the reliefs they have prayed for in their complaint.
Under Art. 212 (c) of the Labor Code, it states that an "Employer includes any
person acting in the interest of an employer, directly or indirectly. It does not,
however, include any labor organization or any of its officers or agents except when
acting as employer." In pursuance of their argument, they present several
jurisprudence:
 The provision was culled from Section 2, Republic Act 602, the Minimum
Wage Act. If the employer is an artificial person, it must have an officer
who can be presumed to be the employer, being "the person acting in the
interest of the employer." The corporation is the employer, only in the
technical sense.
 Where the employer-corporation is no longer existing and unable to satisfy
the judgment in favor of the employee, the officer should be held liable for
acting on behalf of the corporation.
 This is the policy of the law. If it were otherwise, corporate employers
would have devious ways to evade paying backwages.
 If no definite proof exists as to who is the responsible officer, the president
of the corporation who can be deemed to be its chief operation officer shall
be presumed to be the responsible officer. In Republic Act 602, for
example, criminal responsibility is with the "manager" or in his default, the
person acting as such.
Respondent’s Argument (MAC)
The respondents on the other hand by way of controversion maintain that the present
complaint was filed prematurely. The respondents deny having totally closed and
insist that respondent company is only on a temporary shut-down occasioned by the
pending labor unrest. There being no permanent closure any claim for separation pay
must not be given due course.
They opposed the impleader of Atty. Antonio C. Carag and Mr. Armando David
saying that they are not the owners of Mariveles Apparel Corporation and they are
only minority stockholders holding qualifying shares. MAC is actually owned by a
consortium of banks. Carag and David own shares in MAC only to qualify them to
serve as MAC’s officers. Piercing the veil of corporate fiction cannot be done in the
present case for such remedy can only be availed of in case of closed or family
owned corporations.
The LA granted the motion to implead Carag and David. NLRC agreed.
The CA found that Carag and David, as the most ranking officers of MAC, had a
direct hand at the time in the illegal dismissal of MAC's employees. The failure of
Carag and David to observe the notice requirement in closing the company shows
malice and bad faith, which justifies their solidary liability with MAC.
Issue: Whether they could be held personally liable for the company (NO)
Held:
GR: It is a basic principle in law that corporations have personality distinct and
separate from the stockholders. This concept is known as corporate fiction.
Normally, officers acting for and in behalf of a corporation are not held personally
liable for the obligation of the corporation. In instances where corporate officers
dismissed employees in bad faith or wantonly violate labor standard laws or when
the company had already ceased operations and there is no way by which a judgment
in favor of employees could be satisfied, corporate officers can be held jointly and
severally liable with the company.
EX: when is a director personally liable for the debts of the corporation?
The rule is that a director is not personally liable for the debts of the corporation,
which has a separate legal personality of its own. Section 31 of the Corporation Code
lays down the exceptions to the rule, as follows:
Liability of directors, trustees or officers. - Directors or trustees who
wilfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.
Section 31 makes a director personally liable for corporate debts if:
(1) he wilfully and knowingly votes for or assents to patently unlawful acts of the
corporation
(2) he is guilty of gross negligence or bad faith in directing the affairs of the
corporation.
Complainants did not: (1) Allege in their complaint nor did they present evidence
that Carag wilfully and knowingly voted for or assented to any patently unlawful act
of MAC or (2) Allege or present evidence that Carag is guilty of gross negligence or
bad faith in directing the affairs of MAC. These were also not present in the Labor
Arbiter’s decision.
To hold a director personally liable for debts of the corporation, and thus pierce the
veil of corporate fiction, the bad faith or wrongdoing of the director must be
established clearly and convincingly. Bad faith is never presumed. Bad faith does not
15
connote bad judgment or negligence. Bad faith imports a dishonest purpose. Bad
faith means breach of a known duty through some ill motive or interest. Bad faith
partakes of the nature of fraud.
Neither does bad faith arise automatically just because a corporation fails to comply
with the notice requirement of labor laws on company closure or dismissal of
employees. The failure to give notice is not an unlawful act because the law does not
define such failure as unlawful. Such failure to give notice is a violation of
procedural due process but does not amount to an unlawful or criminal act. Such
procedural defect is called illegal dismissal because it fails to comply with
mandatory procedural requirements, but it is not illegal in the sense that it constitutes
an unlawful or criminal act.
On a criminal act
For a wrongdoing to make a director personally liable for debts of the corporation,
the wrongdoing approved or assented to by the director must be a patently unlawful
act. Mere failure to comply with the notice requirement of labor laws on company
closure or dismissal of employees does not amount to a patently unlawful act.
Patently unlawful acts are those declared unlawful by law which imposes penalties
for commission of such unlawful acts. There must be a law declaring the act
unlawful and penalizing the act.
Complainants did not allege or prove, and Arbiter Ortiguerra did not make any
finding, that Carag approved or assented to any patently unlawful act to which the
law attaches a penalty for its commission. On this score alone, Carag cannot be held
personally liable for the separation pay of complainants.
Sec. 31 of the Corp. Code prevails over the Labor Code
This leaves us with Arbiter Ortiguerra's assertion that "when the company had
already ceased operations and there is no way by which a judgment in favor of
employees could be satisfied, corporate officers can be held jointly and severally
liable with the company." This assertion echoes the complainants' claim that Carag is
personally liable for MAC's debts to complainants "on the basis of Article 212(e) of
the Labor Code, as amended," which says
'Employer' includes any person acting in the interest of an employer,
directly or indirectly. The term shall not include any labor organization
or any of its officers or agents except when acting as employer. (Emphasis
supplied)
Indeed, complainants seek to hold Carag personally liable for the debts of MAC
based solely on Article 212(e) of the Labor Code. This is the specific legal ground
cited by complainants, and used by Arbiter Ortiguerra, in holding Carag personally
liable for the debts of MAC.
We have already ruled in McLeod v. NLRC and Spouses Santos v. NLRC that Article
212(e) of the Labor Code, by itself, does not make a corporate officer personally
liable for the debts of the corporation. The governing law on personal liability of
directors for debts of the corporation is still Section 31 of the Corporation Code.
Personal liability of corporate directors, trustees or officers attaches only when:
(1) they assent to a patently unlawful act of the corporation, or when they are guilty
of bad faith or gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders or other persons;
(2) they consent to the issuance of watered down stocks or when, having knowledge
of such issuance, do not forthwith file with the corporate secretary their written
objection;
(3) they agree to hold themselves personally and solidarily liable with the
corporation; or
(4) they are made by specific provision of law personally answerable for their
corporate action.
Thus, the rule is still that the doctrine of piercing the corporate veil applies only
when the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime. In the absence of malice, bad faith, or a specific
provision of law making a corporate officer liable, such corporate officer cannot be
made personally liable for corporate liabilities. Neither Article 212[e] nor Article 273
(now 272) of the Labor Code expressly makes any corporate officer personally liable
for the debts of the corporation.
Thus, it was error for Arbiter Ortiguerra (LA), the NLRC, and the Court of Appeals
to hold Carag personally liable for the separation pay owed by MAC to complainants
based alone on Article 212(e) of the Labor Code. Article 212(e) does not state that
corporate officers are personally liable for the unpaid salaries or separation pay of
employees of the corporation. The liability of corporate officers for corporate debts
remains governed by Section 31 of the Corporation Code.
On the closure of business
The respondents described the cessation of operations in its premises as a temporary
shut-down. While such posturing may have been initially true, it is not so anymore.
The cessation of operations has clearly exceeded the six months period fixed in
Article 286 of the Labor Code. The temporary shutdown has ripened into a closure or
cessation of operations for causes not due to serious business losses or financial
reverses.
14. Cosare v. Broadcom Asia, Inc
G.R. No. 201298, February 5, 2014
16

Doctrine: Jurisdiction of intra-corporate disputes fall exclusively with the RTC
It is only when the officer claiming to have been illegally dismissed is classified as a
corporate officer that the issue is deemed an intra-corporate dispute which falls
within the jurisdiction of the trial courts.
The determination of whether the dismissed officer was a regular employee or
corporate officer unravels the conundrum of whether a complaint for illegal
dismissal is cognizable by the LA or by the RTC. In case of the regular employee,
the LA has jurisdiction; otherwise, the RTC exercises the legal authority to
adjudicate.
Definition of Corporate Officers
"‘Corporate officers’ in the context of Presidential Decree No. 902-A are those
officers of the corporation who are given that character by the Corporation Code or
by the corporation’s by-laws.
 Sec. 25 Corp Code – the president, secretary and the treasurer
 Corporation’s by-laws – There are two circumstances which must concur
in order for an individual to be considered a corporate officer, as against an
ordinary employee or officer, namely:
(1) the creation of the position is under the corporation’s charter or by-laws; and
(2) the election of the officer is by the directors or stockholders.
But note that even if the by-laws allow for the creation of new positions, the board
of directors has no power to create other corporate offices without first amending the
corporate by-laws so as to include therein the newly created corporate office.
Facts: Cosare claimed that sometime in April 1993, he was employed as a salesman
by Arevalo, who was then in the business of selling broadcast equipment needed by
television networks and production houses.
In December 2000, Arevalo set up the company Broadcom, Cosare was named an
incorporator of Broadcom, having been assigned 100 shares of stock with par value
of ₱1.00 per share. In October 2001, Cosare was promoted to the position of
Assistant Vice President for Sales (AVP for Sales) and Head of the Technical
Coordination.
Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice
President for Sales and thus, became Cosare’s immediate superior.
On March 23, 2009, Cosare sent a confidential memo to Arevalo to inform him of
anomalies which were allegedly being committed by Abiog against the company.
Arevalo failed to act on Cosare’s accusations. Cosare claimed that he was instead
called for a meeting by Arevalo wherein he was asked to tender his resignation in
exchange for "financial assistance" in the amount of ₱300,000.00. Cosare refused to
comply with the directive, as signified in a letter which he sent to Arevalo.
Cosare received from Broadcom’s Manager for Finance and Administration, a memo
signed by Arevalo, charging him of serious misconduct and willful breach of trust.
Cosare was given forty-eight (48) hours from the date of the memo within which to
present his explanation on the charges. He was also "suspended from having access
to any and all company files/records and use of company assets effective
immediately." He was totally barred from entering the company premises, and was
told to merely wait outside the office building for further instructions. When no such
instructions were given by 8:00 p.m., Cosare was impelled to seek the assistance of
the officials of Barangay San Antonio, Pasig City, and had the incident reported in
the barangay blotter.
Cosare filed the subject labor complaint, claiming that he was constructively
dismissed from employment by the respondents. He further argued that he was
illegally suspended, as he placed no serious and imminent threat to the life or
property of his employer and co-employees.
The respondents argued that Cosare was neither illegally suspended nor dismissed
from employment. They also contended that Cosare committed the following acts
inimical to the interests of Broadcom.
LA ruled for the company. NLRC reversed finding illegal dismissal. CA dismissed
the complaint on the ground of lack of jurisdiction as it deemed the case as one
involving intra-corporate controversy. Such are within the exclusive jurisdiction of
the RTC according to PD 902-A. Motion for Recon was denied, hence this case.
Issue: Whether the case instituted by Cosare was an intra-corporate dispute that was
within the original jurisdiction of the RTC. (NO)
Held: Contrary to the ruling of the CA, it is the LA, and not the regular courts, which
has the original jurisdiction over the subject controversy.
An intra-corporate controversy, which falls within the jurisdiction of regular courts,
has been regarded in its broad sense to pertain to disputes that involve any of the
following relationships:
(1) between the corporation, partnership or association and the public;
(2) between the corporation, partnership or association and the state in so far as its
franchise, permit or license to operate is concerned;
(3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and
(4) among the stockholders, partners or associates, themselves
17
Settled jurisprudence, however, qualifies that when the dispute involves a charge of
illegal dismissal, the action may fall under the jurisdiction of the LAs upon whose
jurisdiction, as a rule, falls termination disputes and claims for damages arising from
employer-employee relations as provided in Article 217 of the Labor Code.
Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and
an officer of Broadcom at the time the subject controversy developed failed to
necessarily make the case an intra-corporate dispute. The determination of whether
the dismissed officer was a regular employee or corporate officer unravels the
conundrum of whether a complaint for illegal dismissal is cognizable by the LA or
by the RTC. In case of the regular employee, the LA has jurisdiction; otherwise, the
RTC exercises the legal authority to adjudicate.
Applying the foregoing to the present case, the LA had the original jurisdiction over
the complaint for illegal dismissal because Cosare, although an officer of Broadcom
for being its AVP for Sales, was not a "corporate officer" as the term is defined by
law.
"‘Corporate officers’ in the context of Presidential Decree No. 902-A are those
officers of the corporation who are given that character by the Corporation Code or
by the corporation’s by-laws. There are three specific officers whom a corporation
must have under Section 25 of the Corporation Code. These are the president,
secretary and the treasurer. The number of officers is not limited to these three. A
corporation may have such other officers as may be provided for by its by-laws like,
but not limited to, the vice-president, cashier, auditor or general manager. The
number of corporate officers is thus limited by law and by the corporation’s by-laws.
On Corporate Offices
An "office" is created by the charter of the corporation and the officer is elected by
the directors and stockholders. An "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be paid
to such employee.
There are two circumstances which must concur in order for an individual to be
considered a corporate officer, as against an ordinary employee or officer, namely:
(1) the creation of the position is under the corporation’s charter or by-laws; and (2)
the election of the officer is by the directors or stockholders. It is only when the
officer claiming to have been illegally dismissed is classified as such corporate
officer that the issue is deemed an intra-corporate dispute which falls within the
jurisdiction of the trial courts.
Basis by CA for ruling that there was intra-corporate dispute→ Under Article IV
of Broadcom’s by-laws, it states that:
Section 1. Election / Appointment – Immediately after their election, the
Board of Directors shall formally organize by electing the President, the Vice-
President, the Treasurer, and the Secretary at said meeting.
The Board may, from time to time, appoint such other officers as it may
determine to be necessary or proper.
What SC says → Although a blanket authority provides for the Board’s
appointment of such other officers as it may deem necessary and proper, the
respondents failed to sufficiently establish that the position of AVP for Sales was
created by virtue of an act of Broadcom’s board, and that Cosare was specifically
elected or appointed to such position by the directors. No board resolutions to
establish such facts form part of the case records.
 Case law states that: an enabling clause in a corporation’s by-laws empowering
its board of directors to create additional officers, even with the subsequent
passage of a board resolution to that effect, cannot make such position a
corporate office. The board of directors has no power to create other corporate
offices without first amending the corporate by-laws so as to include therein the
newly created corporate office.
To allow the creation of a corporate officer position by a simple inclusion in the
corporate by-laws of an enabling clause empowering the board of directors to do so
can result in the circumvention of that constitutionally well-protected right of every
employee to security of tenure.
 In this case: The CA’s heavy reliance on the contents of the General
Information Sheets41, which were submitted by the respondents during the
appeal proceedings and which plainly provided that Cosare was an "officer" of
Broadcom, was clearly misplaced. The said documents could neither govern nor
establish the nature of the office held by Cosare and his appointment thereto.
The mere fact that Cosare was a stockholder of Broadcom at the time of the case’s
filing did not necessarily make the action an intra- corporate controversy. "Not all
conflicts between the stockholders and the corporation are classified as intra-
corporate controversies.
Illegal Dismissal
It is clear from the cited circumstances that the respondents already rejected Cosare’s
continued involvement with the company. Even their refusal to accept the
explanation which Cosare tried to tender on April 2, 2009 further evidenced the
resolve to deny Cosare of the opportunity to be heard prior to any decision on the
termination of his employment.
15. Advanced Paper Corporation v. Arma Traders Corporation
18
 G.R. No.176897, December 11, 2013
Doctrine: Authority
A corporate officer or agent may represent and bind the corporation in transactions
with third persons to the extent that the authority to do so has been conferred upon
him; powers added by custom and usage, as usually pertaining to the particular
officer or agent, and such apparent powers as the corporation has caused person
dealing with the officer or agent to believe that it has conferred.
Doctrine of Apparent Authority
The doctrine of apparent authority provides that a corporation will be estopped from
denying the agent’s authority if it knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, and it holds him out to the
public as possessing the power to do those acts.
The doctrine of apparent authority does not apply if the principal did not commit
any acts or conduct which a third party knew and relied upon in good faith as a result
of the exercise of reasonable prudence.
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, within or beyond the scope of his ordinary
powers.
It requires presentation of evidence of similar acts 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.
Facts: Arma Traders is is a domestic corporation engaged in the wholesale and
distribution of school and office supplies, and novelty products. Respondent Antonio
Tan (Tan) was formerly the President while respondent Uy Seng Kee Willy (Uy) is
the Treasurer of Arma Traders. Petitioner Advance Paper is a domestic corporation
engaged in the business of producing, printing, manufacturing, distributing and
selling of various paper products.
Upon the representation of Tan and Uy, Arma Traders also obtained three loans from
Advance Paper in a total of ₱7,788,796.76. The current president of Arma Trader
stated that their company needed the loan to settle its obligations to other suppliers
because its own collectibles did not arrive on time.
Because of its good business relations with Arma Traders, Advance Paper extended
the loans. As payment for the purchases on credit and the loan transactions, Arma
Traders issued 82 postdated checks payable to cash or to Advance Paper. Tan and Uy
were Arma Traders’ authorized bank signatories who signed and issued these checks
which had the aggregate amount of ₱15,130,636.87.
Advance Paper presented the checks to the drawee bank but these were dishonored
either for "insufficiency of funds" or "account closed." Despite repeated demands,
however, Arma Traders failed to settle its account with Advance Paper.
Advance Paper filed a complaint for collection of sum of money with application for
preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and Ng. RTC
ordered Arma Traders to pay Advance Paper. CA reversed saying that the petitioners
failed to prove by preponderance of evidence the existence of the purchases on credit
and loans.
Advance Paper claimed that the respondents fraudulently issued the postdated checks
as payment for the purchases and loan transactions knowing that they did not have
sufficient funds with the drawee banks. Arma Traders claimed that the loan
transactions were ultra vires because the board of directors of Arma Traders did not
issue a board resolution authorizing Tan and Uy to obtain the loans from Advance
Paper.
When the acts of the corporate officers are ultra vires, the corporation is not liable for
whatever acts that these officers committed in excess of their authority. Further, the
respondents claimed that Advance Paper failed to verify Tan and Uy’s authority to
transact business with them. Hence, Advance Paper should suffer the consequences.
Uy and Tan
Tan did not file his Answer and was eventually declared in default. Uy claimed that
he and Tan have been authorized by the board of directors for the past 13 years to
issue checks in behalf of Arma Traders to pay its obligations with Advance Paper.
Furthermore, he admitted that Arma Traders’ checks were issued to pay its
contractual obligations with Advance Paper.
Advance Paper states that Arma Traders led the petitioners to believe that Tan and
Uy had the authority to obtain loans since the respondents left the active and sole
management of the company to Tan and Uy since 1984. Citing Lipat v. Pacific
Banking Corporation, Advance Paper states 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; 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.
19
Issue: Whether Arma Traders is liable to pay the loans applying the doctrine of
apparent authority. (YES)
Held: The doctrine of apparent authority provides that a corporation will be estopped
from denying the agent’s authority if it knowingly permits one of its officers or any
other agent to act within the scope of an apparent authority, and it holds him out to
the public as possessing the power to do those acts.
The doctrine of apparent authority does not apply if the principal did not commit any
acts or conduct which a third party knew and relied upon in good faith as a result of
the exercise of reasonable prudence. Moreover, the agent’s acts or conduct must have
produced a change of position to the third party’s detriment.
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 the articles of incorporation, bylaws, or relevant
provisions of law. However, just as a natural person who may authorize another to do
certain acts for and on his behalf, the board of directors may validly delegate some of
its functions and powers to officers, committees or agents.
The authority of such individuals to bind the corporation is generally derived from
law, corporate bylaws or authorization from the board, either expressly or impliedly
by habit, custom or acquiescence in the general course of business:
A corporate officer or agent may represent and bind the corporation in transactions
with third persons to the extent that the authority to do so has been conferred upon
him, and this includes powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused person dealing with the
officer or agent to believe that it has conferred.
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, within or beyond the scope of his ordinary
powers.
It requires presentation of evidence of similar acts 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.
Example: "Inasmuch as a corporate president is often given general
supervision and control over corporate operations, the strict rule that said
officer has no inherent power to act for the corporation is slowly giving way to
the realization that such officer has certain limited powers in the transaction of
the usual and ordinary business of the corporation."
"In the absence of a charter or bylaw provision to the contrary, the president is
presumed to have the authority to act within the domain of the general
objectives of its business and within the scope of his or her usual duties."
Application in this case
SC does not agree with the CA’s findings that Arma Traders is not liable to pay the
loans due to the lack of board resolution authorizing Tan and Uy to obtain the loans.
(1) Arma Traders’ Articles of Incorporation provides that the corporation may borrow
or raise money to meet the financial requirements of its business by the issuance of
bonds, promissory notes and other evidence of indebtedness. It states that Tan and Uy
are not just ordinary corporate officers and authorized bank signatories because they
are also Arma Traders’ incorporators along with respondents Ng and Ting, and Pedro
Chao.
(2) the respondents, through Ng who is Arma Traders’ corporate secretary,
incorporator, stockholder and director, testified that the sole management of Arma
Traders was left to Tan and Uy and that he and the other officers never dealt with the
business and management of Arma Traders for 14 years. He also confirmed that since
1984 up to the filing of the complaint against Arma Traders, its stockholders and
board of directors never had its meeting.
Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to
transact with 3rd persons without the necessary written authority from its non-
performing board of directors. Arma Traders failed to take precautions to stop its
own corporate officers from abusing their powers. Because of its own laxity, Arma
Traders is now estopped from denying Tan and Uy’s authority to obtain loan from
Advance Paper.
17. THE BOARD OF LIQUIDATORS vs. HEIRS OF MAXIMO M. KALAW
G.R. No. L-18805 August 14, 1967
Doctrine: Accepted in this jurisdiction are three methods by which a corporation may
wind up its affairs: (1) under Section 3, Rule 104, of the Rules of Court (which
superseded Section 66 of the Corporation Law), whereby, upon voluntary dissolution of
a corporation, the court may direct "such disposi- tion of its assets as justice requires,
and may appoint a receiver to collect such assets and pay the debts of the corporation";
(2) under Section 77 of the Corporation Law, whereby a corporation whose corporate
existence is terminated, "shall nevertheless be continued as a body corporate for three
20
years after the time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of enabling it gradually to settle and
close its affairs, to dispose of and convey its property and to divide its capital stock, but
not for the purpose of continuing the business for which it was established"; and (3)
under Section 78 of the Corporation Law, by virtue of which the corporation, within the
three-year period just mentioned, "is authorized and empowered to convey all of its
property to trustees for the benefit of members, stockholders, creditors, and others
interested,"
Facts: The National Coconut Corporation (NACOCO, for short) was chartered as a
non-profit governmental organization on avowedly for the protection, preservation and
development of the coconut industry in the Philippines. On August 1, 1946,
NACOCO's charter was amended [Republic Act 5] to grant that corporation the
express power to buy and sell copra. The charter amendment was enacted to stabilize
copra prices, to serve coconut producers by securing advantageous prices for them, to
cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly
aliens. General manager and board chairman was Maximo M. Kalaw; defendants Juan
Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll
became director only on December 22, 1947. NACOCO, after the passage of Republic
Act 5, embarked on copra trading activities.
An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts
it entered into. Nature supervened. Four devastating typhoons visited the Philippines in
1947. When it became clear that the contracts would be unprofitable, Kalaw submitted
them to the board for approval. It was not until December 22, 1947 when the
membership was completed. Defendant Moll took her oath on that date. A meeting was
then held. Kalaw made a full disclosure of the situation, apprised the board of the
impending heavy losses. No action was first taken on the contracts but not long
thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia
and Moll in attendance. They unanimously approved the contracts hereinbefore
enumerated.
As was to be expected, NACOCO but partially performed the contracts. The buyers
threatened damage suits, some of which were settled. But one buyer, Louis Dreyfus &
Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila. The
cases culminated in an out-of- court amicable settlement when the Kalaw management
was already out.
With particular reference to the Dreyfus claims, NACOCO put up the defenses that:
(1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have
license to do business here; and
(2) failure to deliver was due to force majeure, the typhoons. All the settlements sum up to
P1,343,274.52.
In this suit started in February, 1949, NACOCO seeks to recover the above sum of
P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and
directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with
negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code);
and defendant board members, including Kalaw, with bad faith and/or breach of trust
for having approved the contracts. By Executive Order 372, dated November 24, 1950,
NACOCO, together with other government-owned corporations, was abolished, and
the Board of Liquidators was entrusted with the function of settling and closing its
affairs.
CFI-Manila: dismissed the complaint. Plaintiff was ordered to pay the heirs of Maximo
Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased
Kalaw from NACOCO.
Issue: Whether plaintiff Board of Liquidators has lost its legal personality to continue
with this suit since the three year period has elapsed, the Board of Liquidators may not
now continue with, and prosecute, the present case to its conclusion
Held: No, the provision should be read not as an isolated provision but in conjunction
with the whole. So reading, it will be readily observed that no time limit has been tacked
to the existence of the Board of Liquidators and its function of closing the affairs of the
various government owned corporations, including NACOCO.
The President thought it best to do away with the boards of directors of the defunct
corporations; at the same time, however, the President had chosen to see to it that the
Board of Liquidators step into the vacuum. And nowhere in the executive order was
there any mention of the lifespan of the Board of Liquidators.
Three methods by which corporation may wind up it its affairs:
1. Voluntary dissolution, "such disposition of its assets as justice requires, and may
appoint a receiver to collect such assets and pay the debts of the corporation;
2. Corporate existence is terminated - "shall nevertheless be continued as a body
corporate for three years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and of enabling it gradually
to settle and close its affairs, to dispose of and convey its property and to divide its
capital stock, but not for the purpose of continuing the business for which it was
established;"
3. Corporation, within the three year period just mentioned, "is authorized and
empowered to convey all of its property to trustees for the benefit of members,
stockholders, creditors, and others interested
Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of
a corporation ends its existence so that there must be statutory authority for
prolongation of its life even for purposes of pending litigation
Board of Liquidators escapes from the operation thereof for the reason that
"[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of
21
the period of three (3) years for the settlement of its affairs is what impelled the
President to create a Board of Liquidators, to continue the management of such matters
as may then be pending."
The Board of Liquidators thus became the trustee on behalf of the government. It was
an express trust. The legal interest became vested in the trustee — the Board of
Liquidators. The beneficial interest remained with the sole stockholder — the
government. At no time had the government withdrawn the property, or the authority
to continue the present suit, from the Board of Liquidators. If for this reason alone, we
cannot stay the hand of the Board of Liquidators from prosecuting this case to its final
conclusion. The provisions of Section 78 of the Corporation Law — the third method
of winding up corporate affairs — find application.
18. IRENE MARTEL FRANCISCO vs. NUMERIANO MALLEN, JR.
G.R. No. 173169 September 22, 2010
Doctrine: The rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. To hold a director or officer
personally liable for corporate obligations, two requisites must concur: (1) complainant
must allege in the complaint that the director or officer assented to patently unlawful
acts of the corporation, or that the officer was guilty of gross negligence or bad faith;
and (2) complainant must clearly and convincingly prove such unlawful acts, negligence
or bad faith.
Facts: On 5 April 1994, respondent Numeriano Mallen, Jr. was hired as a waiter for
VIPS Coffee Shop and Restaurant, a fine dining restaurant which used to operate at the
Harrison Plaza Commercial Complex in Manila.
On 30 January 1998 to 1 February 1998, respondent took an approved sick leave.
On 15 February 1998, respondent took a vacation leave. Thereafter, he availed of his
paternity leave.
On 18 April 1998, respondent suffered from tonsillitis, forcing him to take a three-
day sick leave from 18 April 1998 to 20 April 1998. However, instead of his applied
three-day sick leave, respondent was given three months leave.
On 5 May 1998, respondent filed before the Department of Labor and
Employment-National Capital Region (DOLE-NCR) a complaint for underpayment of
wages and non-payment of holiday pay. Sometime in June 1998, respondent reported
back to work with a medical certificate stating he was fit to work but he was refused
work.
Labor Arbiter Madjayran H. Ajan rendered a decision in favor of respondent
declaring the dismissal of the complainant illegal.
NLRC modified the Labor Arbiter’s ruling stating that respondent’s filing of a
complaint for illegal dismissal was premature. The memorandum directing him to avail
of his sick/vacation leave was to last from April 30, 1998 to August 1, 1998. The
complaint therefore filed on May 5, 1998 has no legal basis to support itself. When he
filed his complaint on May 5, 1998, his cause of action based on illegal dismissal has not
yet accrued.
CA set aside the NLRC ruling and reinstated the Labor Arbiter’s decision.
Issue: Whether petitioner is personally liable for the monetary awards granted in favor
of respondent arising from his alleged illegal termination.
Held: No. Petitioner Irene Martel Francisco was not liable for the monetary awards
specified in the reinstated Labor Arbiter’s Decision.
A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. The rule is
that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities.
To hold a director or officer personally liable for corporate obligations, two requisites
must concur: (1) complainant must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was guilty of
gross negligence or bad faith; and (2) complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.
Respondent failed to allege either in his complaint or position paper that petitioner, as
Vice-President of VIPS Coffee Shop and Restaurant, acted in bad faith. Neither did
respondent clearly and convincingly prove that petitioner, as Vice-President of VIPS
Coffee Shop and Restaurant, acted in bad faith. In fact, there was no evidence
whatsoever to show petitioner’s participation in respondent’s alleged illegal dismissal.
Clearly, the twin requisites of allegation and proof of bad faith, necessary to hold
petitioner personally liable for the monetary awards to respondent, are lacking.
19. MATLING INDUSTRIAL AND COMMERCIAL CORPORATION vs.
RICARDO R. COROS
G.R. No. 157802 October 13, 2010
Doctrine: Conformably with Section 25, a position must be expressly mentioned in the
By-Laws in order to be considered as a corporate office. Thus, the creation of an office
pursuant to or under a By-Law enabling provision is not enough to make a position a
corporate office. Guerrea v. Lezama, 103 Phil. 553 (1958), the first ruling on the matter,
held that the only officers of a corporation were those given that character either by the
Corporation Code or by the By-Laws; the rest of the corporate officers could be
considered only as employees or subordinate officials.
Facts: Ricardo R. Coros filed a complaint for illegal suspension and illegal dismissal
against Matling and some of its corporate officers in the NLRC after he was dismissed
as the latter’s Vice President for Finance and Administration.
Matling moved to dismiss the complaint, raising the ground, among others, that
the complaint pertained to the jurisdiction of the Securities and Exchange Commission
(SEC) due to the controversy being intra-corporate inasmuch as the respondent was a
corporate officer, the office of Vice President for Finance and Administration being
22
created by Matlings President pursuant to By Law No. V. The Labor Arbiter dismissed
the complaint.
On appeal, the NLRC set aside the dismissal, concluding that the respondents
complaint for illegal dismissal was properly cognizable by the LA, not by the SEC,
because he was not a corporate officer by virtue of his position in Matling, albeit high
ranking and managerial, not being among the positions listed in Matlings Constitution
and By-Laws.
The petitioners then elevated the issue to the CA by petition for certiorari
contending that the NLRC committed grave abuse of discretion amounting to lack of
jurisdiction in reversing the correct decision of the LA. The CA dismissed the petition
for certiorari, hence, this petition.
Issue: Whether or not the respondent is a corporate officer of Matling.
Ruling: The respondent is not a corporate officer of Matling.
Section 25 of the Corporation Code provides:
Section 25. Corporate officers, quorum.--Immediately after their
election, the directors of a corporation must formally organize by the
election of a president, who shall be a director, a treasurer who may
or may not be a director, a secretary who shall be a resident and
citizen of the Philippines, and such other officers as may be
provided for in the by-laws. Any two (2) or more positions may be
held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same
time…
Conformably with Section 25, a position must be expressly mentioned in the
By-Laws in order to be considered as a corporate office. Thus, the creation of an office
pursuant to or under a By-Law enabling provision is not enough to make a position a
corporate office. Guerrea v. Lezama, the first ruling on the matter, held that the only
officers of a corporation were those given that character either by the Corporation Code or
by the By-Laws; the rest of the corporate officers could be considered only as
employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc.
v. King:
An office is created by the charter of the corporation and the
officer is elected by the directors or stockholders. On the other hand,
an employee occupies no office and generally is employed not by the
action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to
such employee.
In this case, respondent was appointed vice president for
nationwide expansion by Malonzo, petitioner's general manager, not
by the board of directors of petitioner. It was also Malonzo who
determined the compensation package of respondent. Thus,
respondent was an employee, not a corporate officer. The CA was therefore
correct in ruling that jurisdiction over the case was properly with the
NLRC, not the SEC (now the RTC).
This interpretation is the correct application of Section 25 of the Corporation
Code, which plainly states that the corporate officers are the President, Secretary,
Treasurer and such other officers as may be provided for in the By-Laws. Accordingly,
the corporate officers in the context of PD No. 902-A are exclusively those who are
given that character either by the Corporation Code or by the corporations By-Laws.
A different interpretation can easily leave the way open for the Board of
Directors to circumvent the constitutionally guaranteed security of tenure of the
employee by the expedient inclusion in the By-Laws of an enabling clause on the
creation of just any corporate officer position.
Moreover, the Board of Directors of Matling could not validly delegate the
power to create a corporate office to the President, in light of Section 25 of the Corporation
Code requiring the Board of Directors itself to elect the corporate officers. Verily, the
power to elect the corporate officers was a discretionary power that the law exclusively
vested in the Board of Directors, and could not be delegated to subordinate officers or
agents. The office of Vice President for Finance and Administration created by Matlings
President pursuant to By Law No. V was an ordinary, not a corporate, office.
To emphasize, the power to create new offices and the power to appoint the
officers to occupy them vested by By-Law No. V merely allowed Matlings President to
create non-corporate offices to be occupied by ordinary employees of Matling. Such
powers were incidental to the Presidents duties as the executive head of Matling to
assist him in the daily operations of the business.
20. ABS-CBN Broadcasting Corporation vs. Honorable
Court of Appeals
G.R. No. 128690. January 21, 1999
Doctrine: Under the Corporation Code, unless otherwise provided by said Code,
corporate powers, such as the power to enter into contracts, are exercised by the Board
of Directors. However, the Board may delegate such powers to either an executive
23
committee or officials or contracted managers. The delegation, except for the executive
committee, must be for specific purposes.
Recit-Ready Summary: Viva Films offered ABS-CBN the right of first refusal to some
Viva films. Vicente Del Rosario offered to Charo Santos-Concio a list of original
movies and reruns for P60M (30M in cash, 30M worth of TV spots). Del Rosario
approached Eugenio Lopez III to have lunch and offer the proposal but this was also
turned down. Del Rosario then offered the same proposal to RBS through Gozon and
they agreed to the proposal. The next day, Santos-Concio sent a draft to Viva offering a
counterproposal which Viva did not accept. This was, however, signed by RBS. ABS-
CBN now files a complaint for specific performance against RBS, Viva and Del Rosario.
ABS-CBN said that there was an agreement between Del Rosario and Lopez during
lunch of the acceptance written on a piece of napkin. This was not presented in court.
The issue is now whether or not there was a perfected contract between Viva and ABS-
CBN. The Court held that no, After Del Rosario met Lopez to discuss the package
films, ABS-CBN, sent through Santos-Concio, counter-proposal in the form of a draft
contract. This counter-proposal could be nothing less than the counter-offer of Lopez
during his meeting with Del Rosario. Clearly, there was no acceptance of the offer, for it
was met by a counter-offer which is substantially varied the terms of the offer. Del
Rosario did not have the authority to accept ABS-CBN’s counter-offer was best
evidenced by his submission of the draft contract to VIVA’s Board of Directors for the
latter’s approval. In any event, there was between Del Rosario and Lopez III no meeting
of minds.
Facts: In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement which gave
ABS-CBN an exclusive right to exhibit some Viva films. The agreement states that
ABS-CBN shall have the right of first refusal to the next 24 Viva films for TV telecast
under such terms as may be agreed upon by the parties but this right shall only be
exercised by ABS-CBN from the actual offer in writing.
In 1991, Vicente Del Rosario, the executive producer of Viva offered ABS-CBN’s Vice
President Charo Santos-Concio a list of 3 film packages whereby ABS-CBN may
exercise its right of first refusal. Through a letter written by Santos-Concio, ABS-CBN
has ticked off only 10 titles they can purchase and one of them is “Maging Sino Ka
Man”. This is the subject film of this case. ABS-CBN did not accept the said list as per
the rejection letter.
Thereafter, Del Rosario offered Santos-Concio with another list of 52 original movie
titles and 104 reruns, proposing to sell to ABS-CBN the airing rights of these movies
for P60M which will be P30M in cash and another P30M worth of television spots. Del
Rosario met up with Eugenio Lopez III, the General Manager of ABS-CBN to discuss
this package proposal but this was unsuccessful.
A few days later, Del Rosario and Graciano Gozon, Senior VP of Finance of Republic
Broadcasting Corporation (RBS) discussed the terms and conditions of VIVA’s offer. A
day after that, Santos-Concio sent the draft of the contract between ABS-CBN and
VIVA which contained a counter-proposal covering 53 films for P35M. Viva’s Board of
Director rejected the counter-proposal because it is very firm is only wanting to sell the
package of 104 films for P60M. After the rejection of ABS-CBN and following several
negotiations and meetings Del Rosario and Viva’s President Teresita Cruz, in
consideration of P60 million, signed a letter of agreement dated granting RBS the
exclusive right to air 104 Viva-produced and/or acquired films including the fourteen
(14) films subject of the present case.
ABS-CBN filed a complaint for specific performance with prayer for a writ of
preliminary injunction and/or TRO against RBS, Viva and Del Rosario. RTC then
ordered the prohibition of airing the films. RBS posted a P30M counterbond to dissolve
the injunction. Later on, the trial court as well as the CA dismissed the complained
saying that there was no meeting of the minds between ABS-CBN and Viva, hence,
there was no basis for the former’s demand. The right of first refusal has been exercised
properly.
ABS-CBN argued that an agreement was made during the meeting of Lopez and Del
Rosario jotted down on a napkin, which was never produced in court. Moreover, it had
yet to fully exercise its right of first refusal since only 10 titles were chosen from the first
list.
Issue/s:
1) W/N a contract was perfected between ABS-CBN and Viva. – NO.
2) W/N moral damages maybe awarded to a corporation. – NO.
Held:
1) Contracts that are consensual in nature are perfected upon mere meeting of
the minds. Once there is concurrence between the offer and the acceptance
upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional, and without variance of any sort
from the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original offer.
Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the
offer. After Del Rosario met Lopez to discuss the package films, ABS-CBN,
sent through Santos-Concio, counter-proposal in the form of a draft contract.
This counter-proposal could be nothing less than the counter-offer of Lopez
during his meeting with Del Rosario. Clearly, there was no acceptance of the
offer, for it was met by a counter-offer which is substantially varied the terms
of the offer.
Under the Corporation Code, unless otherwise provided by said Code,
corporate powers, such as the power to enter into contracts, are exercised by
the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers. The
24
 delegation, except for the executive committee, must be for specific purposes.
Delegation to officers makes the latter agents of the corporation; accordingly,
the general rules of agency as to the binding effects of their acts would apply.
For such officers to be deemed fully clothed by the corporation to exercise a
power of the Board, the latter must specially authorize them to do so. That
Del Rosario did not have the authority to accept ABS-CBN’s counter-offer
was best evidenced by his submission of the draft contract to VIVA’s Board of
Directors for the latter’s approval. In any event, there was between Del
Rosario and Lopez III no meeting of minds.

2) Moral damages are in the category of an award designed to compensate the

claimant for actual injury suffered and not to impose a penalty on the
wrongdoer. The award is not meant to enrich the complainant at the expense
of the defendant, but to enable the injured party to obtain means, diversion, or
amusements that will serve to obviate the moral suffering he has undergone. It
is aimed at the restoration, within the limits of the possible, of the spiritual
status quo ante, and should be proportionate to the suffering inflicted. Trial
courts must then guard against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity to avoid suspicion that it
was due to passion, prejudice, or corruption on the part of the trial court.
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot, therefore,
experience physical suffering and mental anguish, which can be experienced
only by one having a nervous system. The statement in People v. Manero and
Mambulao Lumber Co. v. PNB that a corporation may recover moral damages
if it “has a good reputation that is debased, resulting in social humiliation” is
an obiter dictum. On this score alone the award for damages must be set aside,
since RBS is a corporation.

25
 24. Real v Sangu Phils. Inc.
G.R. No. 168757. January 19, 2011.
DOCTRINES:
 The fact that the parties involved are the stockholders and the corporation does
not necessarily place the dispute within the ambit of the jurisdiction of the
SEC (now the Regional Trial Court); The better policy to be followed in
determining jurisdiction over a case should be to consider concurrent factors
such as the status or relationship of the parties or the nature of the question that
is subject of their controversy.
 See also the concepts of intra-corporate controversy, two-tier test, and
corporate officer
FACTS:
Mr. Real (“Real”) was a Manager of Sangu Phils. Inc. (“Sangu”). Sangu fired Real
for the following reasons:
1. He was absent a lot
2. Loss of trust (because Real created another company that competes with
Sangu. He also started giving our business proposals to the competitors of
Sangu.)
3. To cut down on operational expenses
Real filed a case with the NLRC for illegal dismissal because Sangu did not comply
with procedural due process when they terminated him. NLRC dismissed the petition
of Real for lack of jurisdiction.
The NLRC has jurisdiction over cases involving the employer-employee
relationship, aka labor disputes. Since Real was a stock-holder and director of Sangu,
the NLRC did not consider him an employee, but rather a corporate officer. The
NLRC concluded that the case was intra-corporate in character, so the proper
tribunal that has jurisdiction is the SEC, now the RTC, because it is the court that has
jurisdiction over intra-corporate matters. The CA agreed with the NLRC so Real
brought the case to the SC.
ISSUE: Who among the following should the SC side with?
a. NLRC – since Real was an stockholder and director, he is not an employee,
therefore the case is intra-corporate in nature, not a labor dispute, thus, the case
should be tried by another tribunal, the RTC.
b. Real – The NLRC should not have dismissed my case because it does have
jurisdiction over this. Yes, I am a stock-holder and director, but I was fired as a
MANAGER, which means I was fired as an employee. This means that the case is a
labor dispute cognizable by the NLRC.
ANSWER: B. SC agrees with Real. The petition has merit.
CONCEPTS:
Intra-corporate controversy
 Is one which arises between a stockholder and the corporation
 There is no distinction, qualification, nor any exemption whatsoever
 It is broad and covers all kinds of controversies between stockholders and
corporations
 In determining whether there exists an intra-corporate controversy or not, the
two-tier test is used.
Two-Tier Test = Relationship test + Nature of the controversy test
 The two-tier test determines if there is an intra-corporate controversy or not
 Relationship test – The existence of any of the intra-corporate relations must be
present
1. Between the corporation, partnership or association and the public;
2. Between the corporation, partnership or association and its
stockholders, partners, members or officers;
3. Between the corporation, partnership or association and the State as
far as its franchise, permit or license to operate is concerned; and
4. Among the stockholders, partners or associates themselves.
 Nature of the controversy test
 Under the nature of the controversy test, the incidents of that
relationship must also be considered for the purpose of ascertaining
whether the controversy itself is intra-corporate.
 The controversy must be:
1. Rooted in the existence of an intra-corporate relationship,
2. Pertain to the enforcement of the parties’ correlative
rights and obligations under the corporation code and the
internal and intra-corporate regulatory rules of the
corporation.
 If the relationship and its incidents are merely incidental to the
controversy or if there will still be conflict even if the relationship
does not exist, then no intra-corporate controversy exists.
 The dispute among the parties be intrinsically connected with the
regulation of the corporation. If the nature of the controversy involves
matters that are purely civil in character, necessarily, the case does not
involve an intra-corporate controversy.
Corporate Officer
 Basis - Presidential Decree No. 902-A
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 Those officers of the corporation who are given that character by the
Corporation Code or by the corporation’s by-laws.
 There are three specific officers whom a corporation must have under Section 25
of the Corporation Code. These are the president, secretary and the treasurer.
 The number of officers is not limited to these three. A corporation may have
such other officers as may be provided for by its by-laws like, but not limited to,
the vice-president, cashier, auditor or general manager. The number of corporate
officers is thus limited by law and by the corporation’s by-laws.
RULING:
1. There Is No Intra-Corporate Relationship
This case fails the relationship test. The fact alone that Real is a stockholder and
director of Sangu corporation does NOT automatically classify this case as an intra-
corporate controversy. Not all conflicts between the stockholders and the corporation
are classified as intra-corporate. There are other factors to consider in determining
whether the dispute involves corporate matters as to consider them as intra-corporate
controversies.
Below are examples of intra-corporate cases:
1. A member of the board of directors and at the same time a corporate officer
claims he was illegally dismissed after he was stripped of his corporate
position of Executive Vice-President because of loss of trust and confidence
2. A complaint for illegal dismissal by corporate officers who were not re-
elected to their respective corporate positions.
In the above cases, the Court said that the RTC had jurisdiction over them, because
they were intra-corporate in nature. The Court deemed them to be intra-corporate
because they all relate to corporate officers and their removal or non-reelection to
their respective corporate positions.
The above cases are NOT the same as this case because here, Real is NOT a
corporate officer. There was nothing to prove that Real’s appointment was made
pursuant to the corporation’s By-Laws. Sangu said that they appointed him pursuant
to the corporation’s By-Laws but they did not give any evidence to support that
claim. Thus, the relationship test is not satisfied.
2. Present controversy does not relate to intra-corporate dispute
The reasons (absence, loss of trust, cut down operational expenses) given by Sangu
for dismissing Real have something to do with his being a manager and nothing with
his being a director or stockholder. Thus, when Real sought for reinstatement, he
wanted to recover his position as manager, a position which is not a corporate
position. He is not trying to recover a seat in the board of directors or to any
appointive or elective corporate position which has been declared vacant by the
board. Thus, this is a case of termination of employment which is a labor controversy
and not an intra-corporate dispute. Real’s complaint does not satisfy the nature of
controversy test.
3. The NLRC has jurisdiction over the case, not the RTC
Since the two-tier test was not satisfied, the complaint for illegal dismissal against
Sangu is NOT intra-corporate. Rather, it is a termination dispute and, consequently,
falls under the jurisdiction of the Labor Arbiter/NLRC pursuant to Section 217 of the
Labor Code.
25. AF Realty & Development, Inc. vs. Dieselman Freight Services, Co.
G.R. No. 111448. January 16, 2002.
DOCTRINE:
Contracts or acts of a corporation must be made either by the board of directors or
by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or connected with,
the performance of authorized duties of such director, are held NOT binding on the
corporation.
FACTS:
Dieselman, a corporation, was selling land. Cruz was a board member of Dieselman.
Cruz didn’t have any written authority (like a board resolution) from Dieselman to
designate anyone as an agent of Dieselman in the sale of the subject property.
Despite this, Cruz wrote a letter titled “Authority to Sell Real Estate” to Polintan,
authorizing her to find a buyer and negotiate the sale of the lot. After, Polintan
authorized Noble, through a letter, to sell the same property of Dieselman. Noble
found a buyer, AF Realty. AF Realty gave earnest money, but eventually, Cruz
ended the sale because they could not agree on the terms of payment.
AF Realty instituted a case against Dieselman saying that there was already a
perfected contract of sale. While the case was ongoing, Midas, another corporation,
bought the land. AF Realty believes it is the true owner of the land, and that Midas is
a buyer in bad faith. Midas alleged that it validly bought the property and took
possession of it, thus AF Realty cannot compel Midas to convey the property to AF
Realty.
ISSUE: Is the agency of Cruz, Polintan, and Noble valid, such that their actions led
to a valid contract of sale?
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ANSWER: No. They are not valid agents, thus their actions cannot lead to a valid
sale, even if the seller, Dielselman, may have ratified the acts of the “agents”.
RATIO:
Section 23 of the Corporation Code expressly provides that the corporate powers of
all corporations shall be exercised by the board of directors. Just as a natural person
may authorize another to do certain acts in his behalf, so may the board of directors
of a corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board. Absent such
valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are held not
binding on the corporation.
The board of directors of Dieselman never authorized, verbally and in writing, Cruz,
to sell the property in question or to look for buyers and negotiate the sale of the
subject property, which means he had no power to authorize anyone to sell the
property. While Cristeta Polintan was actually authorized by Cruz, to look for buyers
and negotiate the sale of the property, Cruz could not confer on Polintan any
authority which he himself did not have. Similarly, Noble could not have possessed
authority either, being a mere extension of Polintan’s purported authority, for it is a
legal truism that a spring cannot rise higher than its source. Thus, the alleged sale of
the subject property was effected through persons who were absolutely without any
authority from Dieselman.
The argument that Dieselman ratified the contract by accepting the earnest money is
untenable. The laws on agency provide that the sale of land through an agent without
any written authority is void. Considering that Cruz, Polintan and Noble were not
authorized by respondent Dieselman to sell its lot, the supposed contract is void.
Being a void contract, it is NOT susceptible of ratification.
26. AF Realty & Development, Inc. vs. Dieselman Freight Services, Co.
G.R. No. 111448. January 16, 2002.
DOCTRINE:
Contracts or acts of a corporation must be made either by the board of directors or
by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or connected with,
the performance of authorized duties of such director, are held NOT binding on the
corporation.
FACTS:
Dieselman, a corporation, was selling land. Cruz was a board member of Dieselman.
Cruz didn’t have any written authority (like a board resolution) from Dieselman to
designate anyone as an agent of Dieselman in the sale of the subject property.
Despite this, Cruz wrote a letter titled “Authority to Sell Real Estate” to Polintan,
authorizing her to find a buyer and negotiate the sale of the lot. After, Polintan
authorized Noble, through a letter, to sell the same property of Dieselman. Noble
found a buyer, AF Realty. AF Realty gave earnest money, but eventually, Cruz
ended the sale because they could not agree on the terms of payment.
AF Realty instituted a case against Dieselman saying that there was already a
perfected contract of sale. While the case was ongoing, Midas, another corporation,
bought the land. AF Realty believes it is the true owner of the land, and that Midas is
a buyer in bad faith. Midas alleged that it validly bought the property and took
possession of it, thus AF Realty cannot compel Midas to convey the property to AF
Realty.
ISSUE: Is the agency of Cruz, Polintan, and Noble valid, such that their actions led
to a valid contract of sale?
ANSWER: No. They are not valid agents, thus their actions cannot lead to a valid
sale, even if the seller, Dielselman, may have ratified the acts of the “agents”.
RATIO:
Section 23 of the Corporation Code expressly provides that the corporate powers of
all corporations shall be exercised by the board of directors. Just as a natural person
may authorize another to do certain acts in his behalf, so may the board of directors
of a corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board. Absent such
valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or
28
connected with, the performance of authorized duties of such director, are held not
binding on the corporation.
The board of directors of Dieselman never authorized, verbally and in writing, Cruz,
to sell the property in question or to look for buyers and negotiate the sale of the
subject property, which means he had no power to authorize anyone to sell the
property. While Cristeta Polintan was actually authorized by Cruz, to look for buyers
and negotiate the sale of the property, Cruz could not confer on Polintan any
authority which he himself did not have. Similarly, Noble could not have possessed
authority either, being a mere extension of Polintan’s purported authority, for it is a
legal truism that a spring cannot rise higher than its source. Thus, the alleged sale of
the subject property was effected through persons who were absolutely without any
authority from Dieselman.
The argument that Dieselman ratified the contract by accepting the earnest money is
untenable. The laws on agency provide that the sale of land through an agent without
any written authority is void. Considering that Cruz, Polintan and Noble were not
authorized by respondent Dieselman to sell its lot, the supposed contract is void.
Being a void contract, it is NOT susceptible of ratification.
27. Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
GR. No. 181277 July 3, 2013
DOCTRINE:
 The power of a corporation to sue and be sued is lodged in the board of
directors, which exercises its corporate powers. It necessarily follows that “an
individual corporate officer cannot solely exercise any corporate power
pertaining to the corporation without authority from the board of directors.”
Thus, 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.
 As an exception to the general rule, the following officials or employees of the
company can sign the verification and certification without a board resolution:
(1) the Chairperson of the Board of Directors, (2) the President of a corporation,
(3) the General Manager or Acting General Manager, (4) Personnel Officer, and
(5) an Employment Specialist in a labor case. This is not an exclusive list.
FACTS:
Petitioner is a corporation that got into problems relating to its tax payments so it
filed a case with the court against the Treasurer of Manila. The Petition filed with the
RTC was accompanied by a Verification and Certification of Non-Forum Shopping
signed by Ms. Beleno, although without proof of authority from the board of the
corporation. However, there was a belated submission of the Secretary’s Certificate.
A perusal of the Secretary’s Certificate signed by petitioner’s Corporate Secretary
Rafael Khan and submitted to the RTC shows that not only did the corporation
authorize Ms. Beleno to execute the required Verifications and/or Certifications of
Non-Forum Shopping, but it likewise ratified her act of filing the Petition with the
RTC.
Respondent avers that the required certification of non-forum shopping should have
been valid at the time of the filing of the Petition which means that the belated
submission of the Secretary’s Certificate is immaterial. The Petition, therefore, was
defective due to the flawed Verification and Certification of Non-Forum Shopping,
which were insufficient in form and therefore a clear violation of Section 5, Rule 7 of
the 1997 Rules of Civil Procedure.
Petitioner argued that there can be no dispute that Ms. Beleno was acting within her
authority when she instituted the Petition for Refund before the RTC,
notwithstanding that the Petition was not accompanied by a Secretary’s Certificate.
Her authority was ratified by the Board in a belated Resolution. Thus, even if she
was not authorized to execute the Verification and Certification at the time of the
filing of the Petition, the ratification by the board of directors retroactively applied to
the date of her signing.
ISSUE: Was Ms. Beleno was authorized to file the Petition for Refund of Taxes with
the RTC?
ANSWER: YES. There was substantial compliance on the part of the petitioner.
RATIO:
The power of a corporation to sue and be sued is lodged in the board of directors,
which exercises its corporate powers. It necessarily follows that “an individual
corporate officer cannot solely exercise any corporate power pertaining to the
corporation without authority from the board of directors.” Thus, 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.
Consequently, a verification signed without an authority from the board of directors
is defective. However, the requirement of verification is simply a condition affecting
the form of the pleading and noncompliance does not necessarily render the
pleading fatally defective. In fact, In a slew of cases, we have recognized the
authority of some corporate officers to sign the verification and certification against
forum shopping.
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The general rule is that without authority from the board, the unauthorized person’s
act of signing the certification of no-forum shopping is defective. The exception is
when the Court recognizes some officers to sign the certification.

The Court has held that the following officials or employees of the company can sign
the verification and certification without need of a board resolution:

(1) the Chairperson of the Board of Directors,

(2) the President of a corporation,
(3) the General Manager or Acting General Manager,
(4) Personnel Officer, and
(5) an Employment Specialist in a labor case.

While the above cases do not provide a complete listing of authorized signatories to
the verification and certification required by the rules, the determination of the
sufficiency of the authority was done on a case to case basis. The rationale applied
in the foregoing cases is to justify the authority of corporate officers or
representatives of the corporation to sign the verification or certificate against
forum shopping, being “in a position to verify the truthfulness and correctness
of the allegations in the petition.”

Given the present factual circumstances, we find that the liberal jurisprudential
exception may be applied to this case. A distinction between noncompliance and
substantial compliance with the requirements of a certificate of non-forum shopping
and verification as provided in the Rules of Court must be made.

In this case, it is undisputed that the Petition filed with the RTC was accompanied by
a Verification and Certification of Non-Forum Shopping signed by Ms. Beleno,
although without proof of authority from the board. However, this Court finds that
the belated submission of the Secretary’s Certificate constitutes substantial
compliance with Sections 4 and 5, Rule 7 of the 1997 Revised Rules on Civil
Procedure.

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