TITLES III-IV 1.
It is the corporate secretary’s duty and obligation to register valid transfers of stocks and
1 – YAO KA SIN VS. CA (19xx)
GR NO. 53820
TOPIC: The board must act as one to bind he corporation
DOCTRINE: Since a corporation can act only through its officers and agents, "all acts within the
powers of said corporation may be performed by agents of its selection; and, except so far as
limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the
same general principles of law which govern the relation of agency for a natural person govern the
officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the
corporation; and agents when once appointed, or members acting in their stead, are subject to the
same rules, liabilities and incapacities as are agents of individuals and private persons."
EMERGENCY RECIT: Constancio Maglana, president of Prime White Cement Corporation, sent a
letter offering 45,000 bags of cement at P24.30/bag to Yao Ka Sin Trading (YKS). Letter was
received by YKS’s manager Henry Yao which was later accepted by him. Pursuant thereto, he sent
a check in the amount of P243,000.00 equivalent to the value of 10,000 bags of cement. However,
the BOD of Prime White rejected the offer letter sent by Maglana but it considered Yao’s acceptance
letter as a new contract offer hence the Board sent a letter to Yao telling him that Prime White is
instead willing to sell only 10,000 bags to YKS that he has ten days to reply; that if no reply is made
by Yao then they will consider it as an acceptance and that thereafter Prime White shall deposit the
P243k check in its account and then deliver the cements to YKS. Henry Yao never replied. Later,
YKS sued Prime White to compel the latter to comply with what YKS considered as the true contract,
i.e., 45,000 bags at P24.30 per bag. Prime White averred that although Maglana is empowered to
sign contracts in behalf of Prime White, such contracts are subject to approval by Prime White’s
Board, and then it still requires further approval by the National Investment and Development
Corporation (NIDC), being a subsidiary. Yao asserts that the letter from Maglana is a binding
contract because it was made under the apparent authority of Maglana. The trial court ruled in favor
of Yao Ka Sin. The Court of Appeals reversed the trial court. The Court ruled that no contracts can
be signed by the president without first being approved by BOD; such approval may only be given
after the contract passes through, at least the NIDC representative and the legal counsel.
While there can be no question that Mr, Maglana was an officer—the President and Chairman—of
private respondent corporation at the time he signed the offer letter, private respondent's By-Laws
do not in any way confer upon the President the authority to enter into contracts for the corporation
independently of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless,
to expedite or facilitate the execution of the contract, only the President—and not all the members
of the Board, or so much thereof as are required for the act—shall sign it for the corporation. This is
the import of the words through the president: and the clear intent of the power of the chairman "to
execute and sign for and in behalf of the corporation all contracts and agreements which the
corporation may enter into". Both powers presuppose a prior act of the corporation exercised
through the Board of Directors. No greater power can be implied from such express, but limited,
delegated authority. Neither can it be logically claimed that any power greater than that expressly
conferred is inherent in Mr. Maglana's position as president and chairman of the corporation.
2 – Torres v. CA (1997)
GR NO. 120138
TOPIC: The Board must act as one body to bind corporation
DOCTRINE/S:
if said corporate officer refuses to comply, the transferor-stockholder may rightfully bring
suit to compel performance. In the absence of any provision to the contrary, the corporate
secretary is the custodian of corporate records. Corollarily, he keeps the stock and
transfer book and makes proper and necessary entries therein.
a. Any entry made by one who is not the corporate secretary cannot be given any
valid effect.
2. To be elected as director, one must be a stockholder of the corporation.
EMERGENCY RECIT
Tormil Realty & Development Corp. is a family corporation, majority of its shares belonging to
petitioner Torres and the minority to private respondents, his nephews and nieces. Pursuant to the
upcoming election of directors, Torres assigned from his own shares, 1 share each to petitioners
Tobias, Jocson, Jurisprudencia, Azura and Pabalan (Tobias and Co.) as “qualifying shares,” for the
sole purpose of meeting the requirement of owning at least 1 share to be able to elect them to the
Board of Directors as Torres’ nominees. Torres himself made the entries of the assignment in the
stock and transfer book. Thereafter, Torres and his 5 nominees were elected. Private respondents
filed a complaint with the SEC praying that the election of the petitioners be annulled since Tobias
and Co. were not legitimate stockholders of Tormil, considering that the entries made by Torres in
the stock and transfer book pertaining to their shares were not valid as Torres was not the corporate
secretary. Tobias and Co. insist that the assignment of their shares was valid because, as president,
chairman and majority stockholder, Torres could make the disputed entries, especially considering
that the elected corporate secretary was part of the group ranged against him. The SC held that,
since Torres is not the corporate secretary, any entries he made in the stock and transfer book of
an alleged transfer of shares to Tobias and Co. cannot therefore be given any valid effect. Where
the entries made are not valid, Tobias and Co. cannot therefore be considered stockholders of
record of TORMIL. Because they are not stockholders, they cannot therefore be elected as directors
of Tormil.
3 – Homilla v. Salunat (1992)
AC NO. 5804
TOPIC: The Board must act as one body to bind corporation
DOCTRINE: A lawyer engaged as counsel for a corporation cannot represent members of the same
corporation’s Board of directors in a derivative suit brought against them. To do so would be
tantamount to representing conflicting interests, which is prohibited by the Code of Professional
Responsibility.
EMERGENCY RECIT
Plaintiffs filed an administrative complaint with the Integrated Bar of the Philippines (IBP) against
respondent Atty. Salunat for illegal and unethical practice and conflict of interest. Respondent Atty.
Salunat was allegedly a member of the ASSA Law and Associates, which was the retained counsel
of the Philippine Public School Teachers Association (PPSTA). Moreover, Respondent Atty. Salunat
allegedly represented PPSTA’s Board of Directors in an intra-corporate case before the SEC
involving said Board of Directors and PPSTA. The issue to be resolved was WON a lawyer engaged
by a corporation can defend members of the Board of the same corporation in a derivative suit? The
Court held that a lawyer engaged as counsel for a corporation cannot represent members of the
same corporation’s Board of directors in a derivative suit brought against them. To do so would be
tantamount to representing conflicting interests, which is prohibited by the Code of Professional
Responsibility.
4 – Manila Metal Container Corp. v. PNB (2006)
GR NO. 166862
TOPIC: The Board must act as one body to bind corporation
DOCTRINE: A corporation can only execute 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.
EMERGENCY RECIT
Manila Metal mortgaged a parcel of land to PNB. When Manila Metal defaulted, PNB foreclosed and
bought the land. Manila Metal made offers to repurchase the land, but PNB did not act upon them.
The Special Assets Management Department (SAMD) of PNB prepared a statement of account,
including the bid price for the land. It also recommended to the management of PNB that Manila
Metal be allowed to repurchase the land. PNB, however, did not approve of the proposal. Manila
Metal filed an action, seeking to compel PNB to deliver the land to it. It argues that PNB had already
accepted its offer to repurchase through the SAMD. The Supreme Court, however, ruled in favor of
PNB. Jurisprudence provides that a corporation can only execute 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. In this case, there was no evidence that the SAMD was authorized
by PNB's Board of Directors to accept the offer. Any acceptance by the SAMD of Manila Metal’s
offer would thus not bind PNB.
5 – San Juan Structural and Steel Fabricators, Inc. V. CA (1998)
GR NO. 129459
TOPIC: Board delegation in favor of officers
DOCTRINE: 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 which have been intentionally conferred, and also such 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 persons dealing with the officer or
agent to believe that it has conferred.
EMERGENCY RECIT:
A corporate treasurer, by herself and without any authorization from the board of directors, cannot
sell a parcel of land owned by the corporation. The primary purpose of private respondent
MOTORICH is marketing, distribution, export and import in relation to a general merchandising
business. Its treasurer is not cloaked with actual or apparent authority to buy or sell real property,
an activity which falls way beyond the scope of her general authority. As a general rule, the acts of
corporate officers within the scope of their authority are binding on the corporation. But when these
officers exceed their authority, their actions cannot bind the corporation, unless it has ratified such
acts or is estopped from disclaiming them. In this case, petitioner was unable to show proof that
MOTORICH authorized or ratified the sale made by its corporate treasurer.
6 – Montelibano v. Bacolod-Murcia Milling (1962)
GR NO. L-15092
TOPIC: Business judgment rule
DOCTRINE: 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."
EMERGENCY RECIT:
Montelibano et. Al, are the sugar planters of the defendant Milling Company. Contracts were entered
into to increase the planter’s share from 60% to 62.33%. Bacolod Milling Company and its Board of
Directors has adopted a Resolution granting concessions to the planters over and above the
Amended Milling contract. However, when the plaintiffs demanded the increase of their share, the
defendant milling company resisted, thus this petition.
Issue: WON appellants (Montelibanos) are entitled to the increase of share as stipulated in the
Amended Milling Contract.
Held: Yes. It appears that other sugar plantation in the area have granted progressively increasing
participations to their adhered planters, the Bacolod Milling Company is under the terms, of its
Resolution duty bound to grant similar increases to the appellants herein.
7 – Filipinas Port Services Inc., v. Go
GR NO. 161886
TOPIC - Business Judgment Rule
DOCTRINE -
 The governing body of a corporation is its board of directors. Section 23 of the Corporation
Code explicitly provides that unless otherwise provided therein, the corporate powers of
all corporations formed under the Code shall be exercised, all business conducted, and
all property of the corporation shall be controlled and held by a board of directors.
 Ratio: The concentration in the board of the powers of control of corporate business and
of appointment of corporate officers and managers is necessary for efficiency in any large
organization. Stockholders are too numerous, scattered and unfamiliar with the business
of a corporation to conduct its business directly. So the plan of corporate organization is
for the stockholders to choose the directors who shall control and supervise the conduct
of corporate business.
EMERGENCY RECIT
Filports President, Cruz, lost his bid for re-election as President. He questioned the creation of the
board of several positions. (AVP positions, Special Asst., to President, and Special Asst., to
Chairman) He sent a letter to the board asking to remove those created positions. But the actions
taken by the current Filports board did not sit well with him. This prompted him to file a derivative
suit against Go et al., (Current board officers) Supreme Court ruled in favor of Go et al., stating that
it is within the power and authority of the corporation to create their own executive committee. The
creation of such is part of the business. (See Doctrine) Although the Filports’ by-laws are silent as
to the creation of an executive committee, the Court nonetheless ruled that the creation of such is
legal and lawful. Another reason is that the Board of Directors has the power to create positions not
provided for in Filports by-laws since the board is the corporations governing body with the power
to exercise its prerogatives in managing the business affairs of the corporation. As to the claim of
business losses, the Court ruled that absent any proof of bad faith or negligence, the directors or
officers are not liable. Mismanagement resulting to losses must be proven as well as such acts must
be done with malice and bad faith.
8 – PSE v. CA (1997)
GR NO. 125469
TOPIC: Business judgment rule
DOCTRINE: As a rule, a corporation’s corporate and management decisions must not be interfered
with by the state. Questions of policy and of management are left to the honest decision of the
officers and directors of a corporation, and the courts are without authority to substitute their
judgment for the 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.
EMERGENCY RECIT
Note: Repeated case but the focus is on a different topic.
Puerto Azul Land, Inc. (PALI) seeking to offer its shares to the public, filed an application with the
PSE in order to facilitate the trading of its shares among investors. The PSE denied PALI’s
application due to the existence of various claims, issues and circumstances surrounding PALI’s
ownership over its assets (such as the claim that the properties of PALI were owned by the
Marcoses). The SEC reversed the PSE’s decision. The SC held that SEC has jurisdiction and
authority over the PSE, HOWEVER, the decision of the PSE in denying PALI’s application was a
valid exercise of its business judgment. (See doctrine.)
9 – PRIME WHITE CEMENT vs. Alejandro Te (1993)
GR NO. 68555
TOPIC PRIMARY DUTY OF THE BOARD
DOCTRINE: A director of a corporation holds a position of trust and as such, he owes a duty of
loyalty to his corporation. 9 In case his interests conflict with those of the corporation, he cannot
sacrifice the latter to his own advantage and benefit. As corporate managers, directors are
committed to seek the maximum amount of profits for the corporation. This trust relationship "is not
a matter of statutory or technical law. It springs from the fact that directors have the control and
guidance of corporate affairs and property and hence of the property interests of the stockholders.
As director, specially since he was the other party in interest, respondent Te's bounden duty was to
act in such manner as not to unduly prejudice the corporation
EMERGENCY RECIT
Zosimo Falcon and Justo Trazo entered into an agreement with Alejandro Te, who is also a member
of the board, whereby it was agreed that from 1970 to 1976, Te shall be the sole dealer of 20,000
bags Prime White cement in Mindanao. Falcon was the president of Prime White Cement
Corporation (PWCC) and Trazo was a board member thereof. It was agreed that the selling price
for a bag of cement shall be P9.70.
But then apparently, Falcon and Trazo were not authorized by the Board of PWCC to enter into
such contract. Nevertheless, the Board wished to retain the contract but they wanted some
amendment which includes the increase of the selling price per bag to P13.30 and the decrease of
the total amount of cement bags from 20k to 8k only plus the contract shall only be effective for a
period of three months and not 6 years.
Te refused the counter-offer. PWCC then awarded the contract to someone else.
Te then sued PWCC for damages. PWCC filed a counterclaim and in said counterclaim, it is claiming
for moral damages the basis of which is the claim that Te’s filing of a civil case against PWCC
destroyed the company’s goodwill. The lower court ruled in favor Te.
In this particular case, the Supreme Court focused on the fact that the contract between PWCC and
Te through Falcon and Trazo was not reasonable. Hence, PWCC has all the rights to void the
contract and look for someone else, which it did. The contract is unreasonable because of the very
low selling price. The Price at that time was at least P13.00 per bag and the original contract only
stipulates P9.70. Also, the original contract was for 6 years and there’s no clause in the contract
which protects PWCC from inflation. As a director, Te in this transaction should protect the
corporation’s interest more than his personal interest. His failure to do so is disloyalty to the
corporation.
10 - Grace Christian High School v CA 281 SCR 133 (1997)
DOCTRINE:
These provisions of the former and present corporation law leave no room for doubt as to their
meaning: the board of directors of corporations must be elected from among the stockholders or
members. There may be corporations in which there are unelected members in the board but it is
clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e.,
by virtue of and for as long as they hold a particular office.
ER:
Petitioner Grace Christian High School is an educational institution located in Grace Village. The
village is being managed by Grace Village Association Inc. From 1975 to 1989 GCHS’s
representative had been recognized as a “permanent director” of the association. They were never
elected to the board. The president of the Corp. proposed amendments to the by-laws and look into
the membership of GCHS. GCHS opposed the move and claim that they have a vested right with
the seat in the board. The issue is WON GCHS should be given a seat in the board even without
election. SC ruled in the negative. Corp. law is clear that BOD must be elected from among the
stockholders or members. And also, the mere fact that for 15 years GCHS enjoyed a seat in the
board did not gave them vested rights to it. Tolerance cannot be considered as ratification.
11 – Rev. Luis Ao-as v. Court of Appeals (June 20, 2006)
GR NO. 128464
TOPIC: Sec. 24 Election of Directors or Trustees
DOCTRINE: Sec 24 of the Corp Code provides that all elections of directors or trustees, there must
be present, either in person or by representative to act by written proxy. It is clear from Sec. 24 that
in the election of the trustees of a non-stock corporation, it is necessary that at least a majority of
the members entitled to vote must be present at the meeting held for the purpose. The stipulation
in the By-Laws providing for the election of the Board of Directors by districts is a form of limitation
on the voting rights of the members of a non-stock corporation.
EMERGENCY RECIT: Lutheran Church in the Phils. Is a religious organization registered with the
SEC. At the time of incorporation, it was divided into three districts: North Luzon, South Luzon, and
Mindanao district. During the 1976 LCP national convention, a resolution was passed dividing the
North Luzon District into 2 districts: NLD Highland and NLD Lowland District increasing the number
of directors from 7 to 9. In the 1984 LCP convention, a resolution was passed creating another
district, the Visayan District thereby increasing further the number of directors to 11. The legality of
the 11-member Board was put issue as being in excess of directors provided in the Articles of
Incorporation since no amendments were made thereto to reflect the increase. Several cases were
filed against the two groups namely the Ao-as group and the Batong group regarding issues on the
election of the Board of Directors.
12 – Marc II Marketing v. Joson (2011)
GR NO. 171993
TOPIC: Sec 25. Corporate Officers must be expressly mentioned in the by-laws
DOCTRINE: Respondent (Alfredo M. Josopn) was not a corporate officer of petitioner corporation
because his position as General Manager was not specifically mentioned in the roster of corporate
officers in its corporate by-laws. The enabling clause in petitioner corporation’s by-laws empowering
its Board of Directors to create additional officers, i.e., General Manager, and the alleged
subsequent passage of a board resolution to that effect cannot make such position a corporate
office
EMERGENCY RECIT: Prior and during the incorporation of petitioner corporation, respondent
Alfredo M. Joson was appointed by its Board of Directors as General Manager (GM). The Board
was able to appoint him because the corporation’s by-laws allow the Board to appoint corporate
officers. When the corporation ceased operations, respondent was apprised of his termination as
GM. Aggrieved, respondent filed an illegal dismissal case and complaint for reinstatement and
money claims before the Labor Arbiter (LA). Petitioner filed an MTD claiming that respondent was
a corporate officer and the issue was an intra-corporate controversy under the jurisdiction of the
RTC and not the LA. The LA held that it had jurisdiction because it was not an intra-corporate
controversy as respondent’s position is not among the corporate officers listed in the by-laws.
Hence, respondent was a mere employee whose complaint arose from an ER-EE relationship. The
NLRC reversed the LA, but the CA upheld the LA. The SC held that respondent was not a corporate
officer.
13 – Matling Industrial and Commercial Corp. v Coros (2010)
GR NO. 157802
TOPIC: Corporate officers must be expressly mentioned in the bylaws
DOCTRINE: Under Section 25, a position must be expressly mentioned in the By-Laws in order to
be considered as a corporate office.
EMERGENCY RECIT
Ricardo Coros filed a complaint for illegal dismissal against Matling Corporation after his dismissal
by Matling as its Vice President for Finance and Administration. The Labor Arbiter and NLRC ruled
that the illegal dismissal case was properly cognizable by the LA, not by the SEC because the
position of Coros was not among the positions listed in Matling’s Constitution and By-Laws.
Petitioners allege that the position of Vice President for Finance and Administration was a corporate
office, since it was created by Matling’s President pursuant to By-Law No. V. They argue that the
power to create corporate offices and to appoint the individuals to assume the offices was delegated
by the Board of Directors to its President. The respondent counters that Matling’s By-Laws did not
list his position as Vice President for Finance and Administration as one of the corporate offices.
The Court ruled that Matling was not a corporate officer. Under Section 25 of the Corporation Code,
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. 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
Corporate 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. The office of Vice President for Finance and
Administration created by Matling’s President pursuant to By Law No. V was an ordinary, not a
corporate office.
14 – Cosare v. Boardcom Asia (2014)
GR NO. 201298
TOPIC: Corporate Officers must be expressly mentioned in the by laws
DOCTRINE: 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.
EMERGENCY RECIT:
Cosare occupied the position of AVP for Sales and Head of the Technical Coordination of
Boardcom. Cosare reported his superior to Arevalo (owner of Boardcom) but instead on acting on
the report, Cosare was called to a meeting to tender his resignation. He refused to comply and he
then received a memo charging him of serious misconduct and willful breach of trust. Cosare was
then prohibited to work. Cosare then filed a labor complaint for constructive dismissal against
Boardcom. The company alleged that Cosare was not illegally dismissed and further contended that
Cosare committed the following acts inimical to the interests of Broadcom: (a) he failed to sell any
broadcast equipment since the year 2007; (b) he attempted to sell a Panasonic HMC 150 Camera
which was to be sourced from a competitor; and (c) he made an unauthorized request in Broadcom’s
name for its principal, Panasonic USA, to issue an invitation for Cosare’s friend, one Alex Paredes,
to attend the National Association of Broadcasters’ Conference in Las Vegas, USA. When the case
reached the CA, Boardcom alleged that the labor courts do not have jurisdiction over the case
because the case involves an intra-corporate dispute. The issue is whether or not the case involves
an intra-corporate dispute.
The SC ruled that the labor courts have jurisdiction over the case. 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. 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. In Real v. Sangu Philippines, Inc., the definition of corporate officers for the purpose
of identifying an intra-corporate controversy. 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.
15 – Francisco v. GSIS (1963)
GR NO. L-18287 & 18155
TOPIC Doctrine of Apparent Authority
DOCTRINE: If a private corporation intentionally or negligently clothes its officers or agents with
apparent power to perform acts for it, the corporation will be estopped to deny that such apparent
authority is real, as to innocent third persons dealing in good faith with such officers or agents. (2
Fletcher's Encyclopedia, Priv. Corp. 255, Perm. Ed.)
EMERGENCY RECIT
In 1956, Trinidad Francisco obtained a P400k loan from the Government Service Insurance System
(GSIS). She secured the loan with a parcel of land. In 1959 however, due to some difficulties,
Trinidad incurred huge arrears. This prompted GSIS to foreclose the property. But then, Trinidad’s
father, Atty. Vicente Francisco, wrote a letter to GSIS offering that he pay P30k off the loan and then
allow GSIS to administer the mortgaged property instead of foreclosing it; that thereafter, GSIS shall
receive rents from the tenants of the land until the arrears are paid and the account is made current
or up to date (because the total of the monthly rents is bigger than the monthly loan payments
supposed to be paid by Trinidad to GSIS). GSIS, through its general manager Rodolfo Andal,
responded with a letter which states that the GSIS Board had accepted Vicente’s offer. But GSIS
for some reason did not take over the property. Nevertheless, the Franciscos collected rents and
turned them over to GSIS. Then in 1960, GSIS demanded Francisco to pay off the loan. Vicente
then reminded GSIS that the agreement in 1959 which is actually a compromise is binding upon
GSIS. GSIS then averred that the letter sent to Vicente in response to his offer was not sent in error
because Andal’s secretary sent the poorly worded response without Andal’s knowledge.
The SC ruled in the affirmative on the issue of WON a corporation like GSIS is bound by the acts of
its officers acting in their apparent authority. A third party transacting with a corporation cannot be
expected to know what occurs within a corporation, its meetings, without any external manifestations
from the corporation. In the case at bar, the response by GSIS to Vicente by way of a telegram, is
within the apparent authority of Andal. If there are any irregularities in the telegraph i.e., the sending
of the secretary without the authority of Andal, Vicente is not expected to know it because the
telegram on its face is clear as to the acceptance. Vicente cannot therefore be faulted for relying on
the telegram; that GSIS accepted his offer. Hence, GSIS cannot now ask Francisco to suddenly pay
off the debt. If a corporation knowingly permits one of its officers, or any other agent, to do acts
within the scope of an apparent authority, and thus holds him out to the public as possessing power
to do those acts, the corporation will, as against anyone who has in good faith dealt with the
corporation through such agent, be estopped from denying his authority; and where it is said “if the
corporation permits” this means the same as “if the thing is permitted by the directing power of the
corporation. GSIS cannot also deny that it has knowledge of the acceptance. A corporation cannot
see, or know, anything except through its officers. Knowledge of facts acquired or possessed by an
officer or agent of a corporation in the course of his employment, and in relation to matters within
the scope of his authority, is notice to the corporation, whether he communicates such knowledge
or not. Andal is presumed to have knowledge of the acceptance because it was his office which sent
it to Vicente. Knowledge of Andal, an officer of GSIS, is deemed knowledge of GSIS. At any rate,
even if the compromise agreement is void because of the “unauthorized” telegram, GSIS’s silence
and acceptance of the subsequent remittances of the Franciscos ratified the compromise
agreement.
16 – Woodchild Holdings Inc v. Roxas Electric Construction (2004)
436 SCRA 235
TOPIC Doctrine of Apparent Authority
DOCTRINE
There can be no apparent authority of an agent without acts or conduct on the part of the principal
and such acts or conduct of the principal must have been known and relied upon in good faith and
as a result of the exercise of reasonable prudence by a third person as claimant and such must
have produced a change of position to its detriment. The apparent power of an agent is to be
determined by the acts of the principal and not by the acts of the agent.
EMERGENCY RECIT
Respondent Roxas Electric and Construction Company, Inc. (RECCI), was the owner of two parcels
of land. A portion of one Lot which abutted the other Lot was a dirt road accessing to the Sumulong
Highway. At a special meeting, the respondent's Board of Directors approved a resolution
authorizing the corporation, through its president, Roberto B. Roxas, to sell the Lots, at a price and
under such terms and conditions which he deemed most reasonable and advantageous to the
corporation; and to execute, sign and deliver the pertinent sales documents. Petitioner Woodchild
Holdings, Inc. (WHI) wanted to buy the Lot on which it planned to construct its warehouse building,
and a portion of the adjoining lot. A Deed of Absolute Sale in favor of WHI was issued, receipt of
which was acknowledged by Roxas under the following terms and conditions: The Vendor agree
(sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a right of way
from Sumulong Highway to the property herein conveyed. The Vendor agrees that in the event that
the right of way is insufficient for the Vendee's use (ex entry of a 45-foot container) the Vendor
agrees to sell additional square meters from its current adjacent property to allow the Vendee full
access and full use of the property. The respondent posits that Roxas was not so authorized under
the May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of way
in favor of the petitioner on the Lot, much less convey a portion thereof to the petitioner. Hence, the
respondent was not bound by such provisions contained in the deed of absolute sale.
The SC ruled that agreement is not enforceable against respondent. Generally, the acts of the
corporate officers within the scope of their authority are binding on the corporation. However, under
Article 1910 of the New Civil Code, acts done by such officers beyond the scope of their authority
cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from
denying them. Thus, contracts entered into by corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the corporation.
Evidently, Roxas was not specifically authorized under the said resolution to sell a portion of the
adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner
"on such terms and conditions which he deems most reasonable and advantageous."
17 – People’s Aircargo and Warehousing Co. Inc. v CA and Stefani Sao 297 SCRA 170 (1998)
GR NO. 117847
TOPIC: Doctrine of apparent authority
DOCTRINE:
General Rule: In the absence of authority from the board of directors, no person, not even its
officers, can validly bind a corporation. The authority of certain 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.
Exception: Contracts entered into by a corporate officer without express prior board approval bind
the corporation, when such officers apparent authority is established and when these contracts are
ratified by the corporation. (Doctrine of Apparent Authority)
Apparent authority is derived not merely from practice. Its existence may be ascertained
through (1) the general manner in which the corporation holds out an officer or agent as having the
power to act or, in other words, the apparent authority to act in general, with which it clothes him; or
(2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof,
whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of
similar act(s) executed either in its favor or in favor of other parties. It is not the quantity of similar
acts which establishes apparent authority, but the vesting of a corporate officer with the power to
bind the corporation.
EMERGENCY RECIT
In order for People's Aircargo and Warehousing Co. Inc. (PAWCI) to obtain a license from the
Bureau of Customs (BOC), Antonio Punsalan Jr., the corporation president, solicited a proposal
from Stefani Saño for the preparation of a feasibility study. Saño submitted a letter-proposal ("First
Contract") to Punsalan, for the project feasibility study worth P350,000. Initially, Cheng Yong
(PAWCI majority stockholder) objected to Saño's offer, as another company priced a similar
proposal at only P15,000. However, Punsalan preferred Saño's services because of the latter's
membership in the task force. PAWCI, through Punsalan, sent Saño a letter confirming their
agreement. Saño prepared a feasibility study for PAWCI which eventually paid him the balance of
the contract price. Upon Punsalan's request, Saño sent PAWCI another letter-proposal ("Second
Contract") formalizing its proposal for consultancy services. Andy Villaceren,vice president of
PAWCI, received the operations manual prepared by Saño. PAWCI submitted said operations
manual to the BOC which was approved and it issued a license to operate. Saño filed a collection
suit against PAWCI. He alleged that he had prepared an operations manual for PAWCI, conducted
a seminar-workshop for its employees and delivered to it a computer program; but that despite
demand, PAWCI refused to pay him for his services. PAWCI, in its answer, alleged that the letter-
agreement was signed by Punsalan without authority, in collusion with Saño in order to unlawfully
get some money from PAWCI, and despite his knowledge that a group of employees of the
company had been commissioned by the board of directors to prepare an operations manual.
The SC held that Punsalan has apparent authority to execute the subject contract even without a
board resolution expressly authorizing him. Herein, PAWCI, through its president Punsalan, entered
into the First Contract without first securing board approval. Despite such lack of board approval,
PAWCI did not object to or repudiate said contract, thus "clothing" its president with the power to
bind the corporation. The grant of apparent authority to Punsalan is evident in the testimony of
Yong —senior vice president, treasurer and major stockholder of PAWCI. The First
Contract was consummated, implemented and paid without a hitch. Hence, Sano should
not be faulted for believing that Punsalan's conformity to the contract in dispute was also binding
on petitioner. It is familiar doctrine that if a corporation knowingly permits one of its officers,
or any other agent, to act within the scope of an apparent authority, it holds him out to the
public as possessing the power to do those acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying
the agent's authority. Furthermore, Saño prepared an operations manual and conducted a
seminar for the employees of PAWCI in accordance with their contract. PAWCI accepted the
operations manual, submitted it to the BOC and allowed the seminar for its employees. As
a result of its aforementioned actions, PAWCI was given by the BOC a license to operate a bonded
warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the
president, PAWCI's ratification of said contract and acceptance of benefits have made it
binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified "by the
acceptance of benefits under them" under Article1405.
18 – Westmont Bank v. Inland Construction (2009)
GR NO. 123650
TOPIC: Doctrine of Apparent Authority
DOCTRINE: If a corporation consciously lets one of its officers, or any other agent, to act within the
scope of an apparent authority, it will be estopped from denying such officer authority.
EMERGENCY RECIT:
Inland Construction obtained various loans from Westmont Bank, all of which were secured by real
estate mortgages over 3 real properties. Inland likewise issued promissory notes in favor of the
bank. When the promissory notes fell due, Inland authorized the bank to debit P350,000 from its
savings account to partially satisfy its obligations. Later, a Deed of Assignment, Conveyance and
Release was executed by Aranda (President of Inland), assigning all his rights and interests at Hanil-
Gonzalez Corporation in favor of Abrantes, EVP and General Manager of Hanil-Gonzales
Corporation. The said Deed of Assignment provided that Abrantes shall assumed the promissory
note earlier executed by Inland. Westmont’s Account Officer, Calo, signed for its conformity to the
deed. Westmont now alleges that it had no knowledge or consent of the alleged Deed of
Assignment. The SC ruled against Westmont. The general rule is that in the absence of authority
from the Board of Directors, no person, not even its officers, can validly bind a corporation. If a
corporation, however, consciously lets one of its officers, or any other agent, to act within the scope
of an apparent authority, it will be estopped from denying such officer authority. Based on the records
of the present case, Calo was the one assigned to transact on Westmont’s behalf respecting the
loan transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes.
Since it conducted business through Calo, who is an Account Officer, it is presumed that he had
authority to sign for the bank in the Deed of Assignment. Furthermore, Westmont received a letter
from Abrantes notifying the bank of the assignment, and the bank in fact sent a letter-reply
acknowledging the said assignment. Lastly, Westmont failed to prove that Calo was not authorized
to bind it, nor did it present any Resolution from its Board of Directors or its Charter or By-laws from
which the Court could reasonably infer that he indeed had no authority to sign the Deed of
Assignment.
19 – Mita Pardo de Tavera v. Phil Tuberculosis Society Inc. Petitioner v. Respondent (1982)
GR NO. L-48928
TOPIC: Election and Appointment
DOCTRINE: An appointment held at the pleasure of the appointing power is in essence temporary
in nature. It is co-extensive with the desire of the Board of Directors. Hence, when the Board opts
to replace the incumbent, technically there is no removal but only an expiration of term and in an
expiration of term, there is no need of prior notice, due hearing or sufficient grounds before the
incumbent can be separated from office.
EMERGENCY RECIT
Plaintiff Mita Pardo de Tavera filed a complaint against the Philippine Tuberculosis Society, Inc.
(Society), and some members of the old and new Board of Director of the Society. Plaintiff alleged
that she was a member of the Board of Directors of the defendant Society, and that she was
appointed as Executive Secretary of the Society. That the past Board of Directors removed her
summarily from her position, the lawful cause of which she was not informed. The issue before the
Court was WON Plaintiff’s removal was proper despite her appointment. The Court held that,
according to the Society’s Code of By-Laws (Sec. 7.02), “The Executive Secretary, x x x and all
other officers and employees of the Society shall hold office at the pleasure of the Board of
Directors, unless their term of employment shall have been fixed in their contract of
employment.” Unfortunately, Plaintiff did not have a contract of employment definitely fixing her
term. This could have no other implication than that Plaintiff held an appointment at the pleasure of
the appointing power.
20 – Nectarina Raniel v Paul Jochico (2007)
GR NO. 153413
TOPIC Removal of a corporate officer for cause is a power to be exercised by board
DOCTRINE The directors may appoint officers and agents and as incidentto this power of
appointment, they may discharge those appointed.
EMERGENCY RECIT
Respondents had a plan to enter to a Joint Venture with Butuan Doctors' Hospital and College, Inc.,
petitioners questioned it. Due to that incident, Raniel and Pag-ong claims: respondents tried to
compel them to waive and assign their shares with Nephro but they refused.
Raniel sought an indefinite leave of absence due to stress = denied by Jochico --- Raniel still did
not report for work. Jochico demanded an explanation from Raniel why she shouldn’t be removed
from her position. Jochico issued a Notice of Special Board Meeting scheduled on February 2, 1998
(petitioners received notice but did not attend). In said meeting, Board ratified: (a) disapproval of
Raniel's request for leave, (b) dismissing Raniel as Corporate Secretary and Administrator of
Nephro, (c) declaring the position of Corporate Secretary vacant, (d) appointing Otelio Jochico as
the new Corporate Secretary and (e) authorizing the call of a Special Stockholders' Meeting on
February 16, 1998 for the removal of petitioners as directors of Nephro. Petitioners filed SEC case.
SEC said - cannot reinstate Raniel (Board can validly remove officers of the corp.),
SC held: 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.A corporation’s 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.
21 – People’s Aircargo and Warehousing v. CA (1998)
TOPIC: MANDATORY CORPORATE OFFICERS
DOCTRINE 1: ...the board of directors may validly delegate some of its functions and powers to
officers, committees or agents.
DOCTRINE 2: Apparent authority is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds out an officer or agent
as having the power to act or, in other words, the apparent authority to act in general, with which it
clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary powers. It requires
presentation of evidence of similar act(s) executed either in its favor or in favor of other parties.
EMERGENCY RECIT: Private respondent Sao (a natural person) submitted a letter-proposal to
petitioner’s Corporate President, offering its engineering consultancy services. Said Corporate
President replied with a letter saying that petitioner accepted the offer. Sao then submitted an
operations manual to petitioner’s VP, then, later, conducted a three day seminar for Petitioner’s
personnel. He also delivered to petitioner a computer program. Sao remained unpaid despite
demands and initiated a collection suit against petitioner. By this time, the Corporate President of
petitioner had already resigned and sold his shares. In the suit, petitioner assails the letter-
agreement between Sao and its then Corporate President, saying that the latter had no authority to
act for the corporation. Petitioner faulted Sao for thinking that the Corporate President had authority
to act for it, arguing that the fact that the Corporate President represented it in one other transaction
does not equate to corporate practice. As seen in DOCTRINE 2, SC held that apparent authority
may also be derived from the corporation’s acquiescence in its Corporate President’s actions. In
this case, this was seen in its acts of accepting the operations manual prepared by Sao and of
allowing and benefitting from the seminar conducted by Sao for its personnel.
22 – Safic Alcan v Imperial Vegetable(2001)
355 SCRA 559
TOPIC: MANDATORY CORPORATE OFFICERS
DOCTRINE
It is the Board of Directors, not the President, that exercises corporate powers. There was no such
ratification in this case. When Monteverde entered into the speculative contracts with Safic, he did
not secure the Board’s approval. He also did not submit the contracts to the Board after their
consummation so there was, in fact, no occasion at all for ratification. The contracts were not
reported in IVO’s export sales book and turn-out book. Neither were they reflected in other books
and records of the corporation. It must be pointed out that the Board of Directors, not Monteverde,
exercises corporate power. Clearly, Monteverde’s speculative contracts with Safic never bound IVO
and Safic cannot therefore enforce those contracts against IVO.
EMERGENCY RECIT
Petitioner Safic Alcan & Cie (hereinafter, “Safic”) is a French corporation engaged in the international
purchase, sale and trading of coconut oil. A contract of purchase was entered into by Petitioner
Safic through its President Moteverde with Respondent Imperial Vegetable Oil, where it placed
purchase orders with IVO for 2,000 long tons of crude coconut oil, valued at US$222.50 per ton.
Private respondent, however, failed to deliver the said coconut oil and, instead, offered a “wash out”
settlement, whereby the coconut oil subject of the purchase contracts were to be “sold back” to IVO
at the prevailing price in the international market at the time of wash out.
As a defense, respondent IVO claims that the subject contracts were speculative entered into by
IVO’s then President, Dominador Monteverde, in contravention of the prohibition by the Board of
Directors against engaging in speculative paper trading, and despite IVO’s lack of the necessary
license from Central Bank to engage in such kind of trading activity.
SC held that the contracts were not ratified, hence, an ultra vires act by the President. The Court
found that was no such ratification in this case. When Monteverde entered into the speculative
contracts with Safic, he did not secure the Board’s approval.14 He also did not submit the contracts
to the Board after their consummation so there was, in fact, no occasion at all for ratification. The
contracts were not reported in IVO’s export sales book and turn-out book.15 Neither were they
reflected in other books and records of the corporation.16 It must be pointed out that the Board of
Directors, not Monteverde, exercises corporate power. Clearly, Monteverde’s speculative contracts
with Safic never bound IVO and Safic cannot therefore enforce those contracts against IVO.
23 – San Juan Structural v CA
GR NO. 129459
TOPIC: Mandatory Corporate Officers
DOCTRINE: Unless duly authorized, a treasurer, whose powers are limited, cannot bind the
corporation in a sale of its assets
EMERGENCY RECIT
San Juan entered into a contract of sale with Motorich Sales Corporation through the latter’s
treasurer, Nenita Gruenberg. The subject of the sale was a parcel of land owned by Motorich. San
Juan advanced P100k to Nenita as earnest money.
On the day agreed upon on which Nenita was supposed to deliver the title of the land to Motorich,
Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of San Juan to
comply with the contract hence San Juan sued Motorich. Motorich, in its defense, argued that it is
not bound by the acts of its treasurer, Nenita, since her act in contracting with San Juan was not
authorized by the corporate board.
San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that Nenita
and her husband owns 98% of the corporation’s capital stocks; that as such, it is a close corporation
and that makes Nenita and the President as principal stockholders who do not need any
authorization from the corporate board; that in this case, the corporate veil may be properly pierced.
SC: A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of its stockholders or members and
may not be sold by the stockholders or members without express authorization from the
corporation's board of directors.
The general principles of agency govern the relation between the corporation and its officers or
agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. (Section 23)
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 which have been intentionally conferred, and also such 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 persons dealing with the officer or agent to
believe that it has conferred.
Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale
of its assets. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the
property of the corporation. Selling is obviously foreign to a corporate treasurer's function, which
generally has been described as "to receive and keep the funds of the corporation and to disburse
them in accordance with the authority given him by the board or the properly authorized officers."
Neither was such real estate sale shown to be a normal business activity of Motorich.
The primary purpose of Motorich is marketing, distribution, export and import in relation to a general
merchandising business. Unmistakably, its treasurer is not cloaked with actual or apparent authority
to buy or sell real property, an activity which falls way beyond the scope of her general authority.
24 – Petitioner v. Respondent (19xx)
25 – Pampalona Plantation Company v. Ramon Acosta
GR NO. 153193
TOPIC: Mandatory Corporate Officers
DOCTRINE Under Section 25 of the Corporatio Code, three officers are specficially provided for
which a corporation must have: president, secretary adn streasurer. The law, however, does not
limit corporate officers to these three. Section 25 gives corporations the widest latitude to provide
for such other offices, as they may deem necessary. The by-laws may and usually do provide for
such other offices, as they may deem necessary. The by-laws may and usually do provide for such
other offices, e.g., vice-president, cashier, auditor, and general manager.
EMERGENCY RECIT
Wage differentials were awarded to the employees of Pampalona Plantation Company. The
manager, Joese Luis Bondoc, was held solidarily liable. The company is now arguing that he should
not be held solidarily libale because Bondoc is a mere employee and not a corporate officer. The
SC held that Bondoc could not be held solidarily liable because it cannot be deduced that Bondoc,
as manager of Pampalona, is also a corporate officer that may be held liable for the money claims
awarded in favor of the employees. Even assuming that Bondoc is a corporate office, there is no
showing that he acted with evident malice and bad faith and therefore should not also be held liable
with Pampalona
26. BANK OF THE PHILIPPINE ISLANDS (BPI) V. CASA MONTESSORI INTERNATIONALE (CMI)
G.R. NO. 149454, MAY 28, 2004
PANGANIBAN, J.
Topic: Mandatory Corporate Officers – Independent Auditor
Doctrine: The major purpose of an independent audit is to investigate and determine objectively if
the financial statements submitted for audit by a corporation have been prepared in accordance with
the appropriate financial reporting practices of private entities.
Nothing could be more horrible to a client than to discover later on that the person tasked to detect
fraud was the same one who perpetrated it.
It is a non sequitur to say that the person who receives the monthly bank statements, together with
the cancelled checks and other debit/credit memoranda, shall examine the contents and give notice
of any discrepancies within a reasonable time. Awareness is not equipollent with discernment.
EMERGENCY RECIT: CMI has an account with BPI. Later on, CMI discovered that 9 of its checks
were encashed by a fictitious person created by Yabut who worked for CMI as an external auditor.
Alleging forgery, CMI filed a complaint for collection with damages against BPI to reinstate the
amount encashed by Yabut. The issue before the court is whether CMI was negligent and therefore
precluded from setting up forgery as a real defense. The SC ruled that CMI could not be blamed for
negligence because the forgery was solely committed by its auditor Yabut, who, after all, has full
control over the financial records and can easily manipulate thereof. [See Doctrine]
27 – EB Villarosa & Partner vs. Benito (1999)
GR NO. 136426
TOPIC: Service of summons on corporation
DOCTRINE: A strict compliance with the mode of service is necessary to confer jurisdiction of the
court over a corporation. The officer upon whom service is made must be one who is named in the
statute; otherwise the service is insufficient.
EMERGENCY RECIT: : E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal
office address in Davao City and with branch offices in Paranaque and Cagayan de Oro. Petitioner
and Imperial Development Corporation executed a Deed of Sale with Development Agreement
wherein the former agreed to develop certain parcels of land in CDO owned by the latter into a
housing subdivision for the construction of low cost housing units. They further agreed that in case
of litigation regarding any dispute arising therefrom, the venue shall be in the proper courts of Makati.
Benito filed a complaint against petitioner for breach of contract before RTC Makati on the ground
that other than a few unfinished low cost houses, there were no substantial developments therein.
Summons, together with the complaint, were served upon Villarosa, through its Branch Manager
Engr. Wendell Sabulbero at the stated address at Kolambog, Lapasan, Cagayan de Oro City but
the Sheriff's Return of Service stated that the summons was duly served "upon defendant E.B.
Villarosa & Partner Co., Ltd. thru its Branch Manager Engr. WENDELL SALBULBERO on May 5,
1998 at their new office Villa Gonzalo, Nazareth, Cagayan de Oro City, and evidenced by the
signature on the face of the original copy of the summons. Petitioner and Villarosa filed a MTD on
the ground of improper service of summons and for lack of jurisdiction over the person of the
defendant, as the summons was imporperty served its employee in CDO, who is not one of those
persons named in Sec11, Rule 14 of the 1997 Rules of Civil Procedure upon whom service of
summons may be made. The Court ruled that the persons to whom summons may be served is
"restricted, limited and exclusive” and that if the Rules of Court Revision Committee intended to
liberalize the rule on service of summons, it could have easily done so by clear and concise
language.
The designation of persons or officers who are authorized to accept summons for a domestic
corporation or partnership is now limited and more clearly specified in Section11, Rule 14. The rule
now states "general manager" instead of only "manager"; "corporate secretary" instead of
"secretary"; and "treasurer" instead of "cashier." The phrase “agent, or any of its directors" is
conspicuously deleted in the new rule.
28 – Premium Marble Resources, Inc. v. CA (1996)
GR NO. 120138
TOPIC: Report of election of directors, trustees and officers
DOCTRINE: By the express mandate of the Corporation Code (Section 26), all corporations duly
organized pursuant thereto are required to submit within the period therein stated (30 days) to the
SEC the names, nationalities and residences of the directors, trustees and officers elected. The
objective sought to be achieved by Section 26 is to give the public information, under sanction of
oath of responsible officers, of the nature of business, financial condition and operational status of
the company together with information on its key officers or managers so that those dealing with it
and those who intend to do business with it may know or have the means of knowing facts
concerning the corporation’s financial resources and business responsibility.
EMERGENCY RECIT
A group of officers (Zavalla group) of the Premium Marble Resources, Inc. (Premium) filed an action
for damages against International Corporate Bank. Later, another group of officers (Belen group) of
the same corporation filed a motion to dismiss on the ground that the Zavalla group was without
authority from its board of directors. Zavalla group, however, claimed that they are the incumbent
officers of Premium. The only issue in this case is whether or not the filing of the case for damages
was authorized by a duly constituted Board of Directors of the corporation. SC held that it appears
from the general information sheet and the Certification issued by the SEC that the officers and
members of the board were the Belen group. Further, while the Minutes of the Meeting of the Board
states that the newly elected officers were the Zavalla group, the Zavalla group failed to show proof
that this election was reported to the SEC. The claim, therefore, of Zavalla group that they are the
incumbent officers of Premium has not been fully substantiated. In the absence of an authority from
the board of directors, no person, not even the officers of the corporation, can validly bind the
corporation.
29 – Monfort Hermanos v. Monfort III (2004)
TOPIC: Report of election of directors, trustees, and officers
DOCTRINE: Corporations are required under Section 26 of the Corporation Code to submit to the
SEC within thirty (30) days after the election the names, nationalities and residences of the elected
directors, trustees and officers
EMERGENCY RECIT
Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the
registered owner of a farm, fishpond and sugar cane plantation. The group of Antonio Monfort III,
through force and intimidation, allegedly took possession of the 4 Haciendas. Ma. Antonia M.
Salvatierra filed on behalf of the Corporation a complaint for forcible entry, preliminary mandatory
injunction with temporary restraining order and damages against the group of Antonio Monfort III.
The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that Ma. Antonia M.
Salvatierra has no capacity to sue on behalf of the Corporation because the Board Resolution
authorizing Ma. Antonia M. Salvatierra to represent the Corporation is void as the purported
Members of the Board who passed the same were not validly elected officers of the Corporation.
The issue before the Court was WON Ma. Antonia M. Salvatierra has the legal capacity to sue on
behalf of the Corporation. The Court held that she does not have the legal capacity to sue on behalf
of the Corporation since the names of the last four (4) signatories to the said Board Resolution do
not appear in the 1996 General Information Sheet submitted by the Corporation with the SEC.
Consequently, Ma. Antonia M. Salvatierra failed to prove that four of those who authorized her to
represent the Corporation were the lawfully elected Members of the Board of the Corporation. As
such, they cannot confer valid authority for her to sue on behalf of the corporation.
30 – Lee v. CA (1992)
GR NO. 93695
TOPIC: Disqualifications of directors, trustees and officers
DOCTRINE: A director who ceases to be the owner of at least one share of the capital stock of a
stock corporation of which is a director shall thereby cease to be a director.
EMERGENCY RECIT:
A complaint was filed against Sacoba Manufacturing, and Pablo, Jr. and Thomas Gonzales, who
then filed a third-party complaint against Alfa Integrated. Summons was served to Ramon Lee and
Antonio Lacdao (directors of Alfa); however, they refused to receive the summons. They alleged
that they were no longer directors of Alfa, pursuant to a voting trust agreement whereby they
transferred all their shares to the Development Bank of the Philippines. The Supreme Court held
that the service of summons was defective. Under Sec. 13, Rule 14 of the Rules of Court, if the
defendant is a corporation organized under Philippine law, service may only be made on the
president, manager, secretary, cashier, agent or any of its directors. In addition, under Sec. 30 of
the old Corporation Code, a director who ceases to be the owner of at least one share of the capital
stock of a stock corporation of which is a director shall thereby cease to be a director. In this case,
since Lee and Lacdao have transferred all their shares in Alfa to DBP, they are no longer the persons
upon which service of summons should be made to acquire jurisdiction over the person of Alfa.
31 – Gokongwei v. SEC (1979)
GR NO. L-45911
TOPIC: Disqualification of Directors, Trustees or Officers (the case is pretty long so I only
included the pertinent issue)
DOCTRINE: The doctrine of Corporate Opportunity is precisely a recognition by the courts that the
fiduciary standards could not be upheld where the fiduciary was action for two entities with
competing interests. This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an opportunity for his own personal profit
when the interest of the corporation justly calls for protection.
EMERGENCY RECIT:
Gokongwei, a stockholder of SMC, questioned the validity of the amended by-laws of San Miguel
Corporation which he alleged was crafted to disqualify him from holding a director position in the
said corporation. The question before the Supreme Court is if the disqualification of a competitor
from being elected to the Board of Directors a reasonable exercise of corporate authority. The court
ruled that a director is a fiduciary. It is not denied that a member of the Board of Directors of SMC
has access to sensitive and highly confidential information. The disqualification in the by-laws is to
prevent the creation of an opportunity for an officer or director of SMC, who is also the officer or
owner of a competing corporation, from taking advantage of the information which he acquires as
director to promote his individual or corporate interests to the prejudice of SMC and its stockholders.
32 – Bernas v. Cinco (2015)
GR NO. 163356-57
TOPIC: Removal of directors or trustees
DOCTRINE: 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.
EMERGENCY RECIT:
Bernas et al, are the board of directors of the Makati Sports club. On the other hand, respondents
are the stockholders of the said sports club. Alarmed with the rumors and anomalies in handling the
corporate funds, the MSC oversight committee called a special stockholder’s meeting for the
purpose of removing the sitting officers and electing new ones. In short the Bernas group were
removed and the Cinco group were the newly elected officers. This ensued actions before the SEC
questioning the validity and nullification of the December 1997 special stockholders meeting on the
ground that it was improperly called citing sec28 of the corporation code.
Issue: WON the December special stockholder’s meeting was validly called by the MSC oversight
committee resulting in removing the incumber officers?
SC: No. Sec. 28 states that removal of officers 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.
Further, it 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.
In fine, 17 December 1997 Special Stockholders' Meeting is null and void and produces no effect; ||
33 – Raniel v. Jochico (2007)
GR NO. 153413
TOPIC - The Board has no power to discipline or remove one of their own
DOCTRINE - Corporation’s 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. The directors may appoint
officers and agents and as incident to this power of appointment, they may discharge those
appointed. (Power to Appoint = Power to Remove)
EMERGENCY RECIT
Jochico et al., (Respondents) are directors and incorporators with Raniel et al., (Petitioners) as
Corporate Secretary of Nephro. Ps questioned Rs’ plan to enter into a JVA (Joint Venture) with
Butuan Doctors’ Hospital and College Inc., Ps claim that Rs tried to compel them to waive and
assign their shares with Nephro which they refused. Raniel filed an indefinite leave which was
denied by Jochico, as President, but nonetheless Raniel did not report for work. Angering Jochico,
Raniel was dismissed as CorSec and Administrator of Nephro. Both the SEC and the CA held that
Pag-ong's removal as director and Raniel's removal as director and officer of Nephro were valid.
SEC ruled that the Board of Directors had sufficient ground to remove Raniel as officer due to loss
of trust and confidence, as her abrupt and unauthorized leave of absence exhibited her disregard
of her responsibilities as an officer of the corporation and disrupted the operations of Nephro.
Supreme Court ruled in favor of the Ps. (See Doctrine) Raniel was removed as officer through a
board resolution hence it is valid. The other Petitioner (Pag-Ong) is in the same boat as Raniel
also validly removed.
34 – Valle Verde Country Club v. Africa (2009)
GR NO. 151969
TOPIC: Replacement of hold-over directors
DOCTRINE: When Section 23 of the Corporation Code declares that “the board of directors…shall
hold office for one (1) year until their successors are elected and qualified,” we construe the provision
to mean that the term of the members of the board of directors shall be only for one year; their term
expires one year after election to the office. The holdover period – that time from the lapse of one
year from a member’s election to the Board and until his successor’s election and qualification – is
not part of the director’s original term of office, nor is it a new term; the holdover period, however,
constitutes part of his tenure. Corollary, when an incumbent member of the board of directors
continues to serve in a holdover capacity, it implies that the office has a fixed term, which has
expired, and the incumbent is holding the succeeding term.
EMERGENCY RECIT
The elected BODs of VVCC during the 1996 Annual Stockholders Meeting continued to serve in the
VVCC Board in a hold-over capacity from 1997-2001 because during those years, the required
quorum to hold a meeting could not be obtained. Makalintal, one of the elected BOD in 1996,
resigned as a member of the VVCC Board and was replaced by Ramirez through the election of the
remaining members of the board. Africa, member of VVCC, questioned the election contending that
a year after Makalintal’s election as member of the VVCC Board in 1996, Makalintal’s term – as well
as those of the other members of the VVCC Board – should be considered to have already expired.
Thus, according to Africa, the resulting vacancy should have been filled by the stockholders in a
regular or special meeting called for that purpose, and not by the remaining members of the VVCC
Board, as was done in this case. The issue in this case is whether the remaining directors of a
corporations Board, still constituting a quorum, can elect another director to fill in a vacancy caused
by the resignation of a hold-over director. The SC ruled in the negative (See doctrine)
35 – Western Institute of Technology v. Salas (19xx)
GR NO. 184556
TOPIC Compensation

Doctrine:
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.
Emergency Recit:
The board of directors (private respondents) amended their by laws giving the members of board of
directors a compensation. Petitioners maintain that this grant of compensation to private
respondents is proscribed under Section 30 of the Corporation Code. Thus, private respondents are
obliged to return these amounts to the corporation with interest. The Supreme court held that In the
case at bench, the amendment which 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 Western Institute of Technology. Clearly,
therefore, the prohibition with respect to granting compensation to corporate directors/trustees as
such under Section 30 is not violated in this particular case.
36 - Virata et al v Alejandro Ng Wee, Westmont Investment Corp., et al, Mar 21, 2018
DOCTRINE:
Ascribing liability to a corporate director, trustee, or officer by invoking Sec. 31 of the Corporation
Code is distinct from the remedial concept of piercing the corporate veil. While Sec. 31 expressly
lays down specific instances wherein the mentioned personalities can be held liable in their personal
capacities, the doctrine of piercing the corporate veil, on the other hand, is an equitable remedy
resorted to only when the corporate fiction is used, among others, to defeat public convenience,
justify wrong, protect fraud or defend a crime.
ER:
Respondent was induced by Petitioner to invest in Wincorp, in which petitioner is the president and
the owner of virtually all its assets. The “scheme” is Respondent will invest and he will be partnered
with borrowers accredited by Wincorp. One such borrower is Power Merge, power merge obtained
loans from Respondent through Wincorp. But unknown to respondent, wincorp and Power Merge
entered into “side agreements” wherein it stated that Power Merge will not be liable for the default
of payments to respondent. The one who signed the “side agreements” was Wincorp’s VP of
Operations, Reyes. Power Merge defaulted in its obligation. Respondent field a case against
petitioners and seek to hold them personally liable. Virata, the president, invokes the separate
personality of Wincorp. Reyes, claims he is not a director but a mere VP of Operations of Wincorp.
Issue is WON they are personally liable. SC held that they are. For Virata, corp. veil should be
pierced because Wincorp is a mere alter ego of him. He owned all except 4 shares in the corp. He
is the president and handle all the dealings of the corporation. With regard to Reyes. He is liable as
provided for in Sec. 31 of the Corp Code. The act of signing the “side agreements” is a clear indicia
of fraud that will make sec. 31 apply to him.
37 – Francisco v. Mallen, Jr. (2010)
GR NO. 173169
TOPIC: Sec 31. Liability of directors and trustees:
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; (2) complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith
EMERGENCY RECIT: Mallen, Jr. Was a waiter for VIPS Coffee Shop. He took several leaves
namely an approved sick leave, paternity leave. Mallen was suffering from tonsillitis forcing him to
take a 3-day sick leave, however, instead of his applied sick leave, he was given 3 months leave,
which was signed by Francisco. Mallen filed before the DOLE-NCR complaint for underpayment of
wages. DOLE-NCR endorsed the same before the NLRC. The Labor Arbiter granted Mallen’s
petition and ordered VIPS and/or Francisco to backwages and etc.
38 – Tramat Mercantile, Inc. v. CA (1994)
GR NO. 111008
TOPIC: Liability arises when knowingly voting for unlawful acts, acting with gross negligence or in
conflict of interest
DOCTRINE: Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
2. He consents to the issuance of watered 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
EMERGENCY RECIT: de la Cuesta (doing business under the name Farmers Machineries) sold an
allegedly brand new tractor to Tramat. Ong, the President and GM of Tramat issued a check (Php
33,500) as payment. Tramat sold the tractor to NAWASA, but NAWASA refused to pay for it because
it was not brand new but reconditioned. Ong thereby caused a “stop payment” for the check. de la
Cuesta filed an action for recovery of the Php33,500 against Tramat and Ong, in his personal
capacity. The SC held that Ong is not solidarily liable with Tramat because Ong was acting, not in
his personal capacity, but as an officer of the corporation (Tramat). As such, it should only be the
corporation, not the person acting for and on its behalf, that properly could be made liable thereon.
39 – MAM Realty Dev’t Corp v NLRC (1995)
GR NO. 114787
TOPIC: When made liable by special law
DOCTRINE: A corporation, being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the
direct accountabilities of the corporation they represent.
EMERGENCY RECIT
Private respondent Celso Balbastro filed a complaint for wage differentials, ECOLA, overtime pay,
incentive leave pay 13th month pay, holiday and rest day pay against petitioners MAM Realty and
its Vice President Manuel Centeno. Balbastro alleged that he was employed by MAM as a pump
operator at Rancho Estate in Marikina. MAM countered that Balbastro had previously been
employed by Francisco Cacho and Co. Inc., the developer of Rancho Estates. Sometime in 1982
his services were contracted by MAM for operation of the Rancho Estates’ water pump. He was
engaged, however not as an employee, but as a service contractor. LA dismissed the claim for lack
of merit. The NLRC rendered a judgment setting aside the decision of the LA. The petitioner
contends that the NLRC erred in holding petitioners and pjointly and severally liable for the money
claims awarded to the private respondent. The NLRC, after considering the report of the labor arbiter
ordered the respondents to pay jointly and severally complainant the sum of P86,000. The Court
ruled that there exist an employer-employee relationship, because of the presence of power of
control. However, the Court ruled that the NLRC erred in holding Centeno jointly and severally liable
with MAM. A corporation, being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the
direct accountabilities of the corporation they represent. True, solidary liabilities may at times be
incurred but only when exceptional circumstances warrant. In labor cases, for instance, the Court
has held corporate directors and officers solidarily liable with the corporation for the termination of
employment of employees done with malice or in bad faith. In the case at bench, there is nothing
substantial on record that can justify, prescinding from the foregoing, petitioner Centeno’s solidary
liability with the corporation.
40 – Board of Liquidators v. Kalaw (1967)
GR NO. L-18805
TOPIC: When made liable by special law?
DOCTRINE: Ratification by a corporation of an unauthorized act or contract by its officers or others
relates back to the time of the act or contract ratified and is equivalent to original authority. The
corporation and the other party to the transaction are in precisely the same position as if the act or
contract had been authorized at the time. The adoption or ratif ication of a contract by a corporation
is nothing more nor less than the making of an original contract. The theory of corporate ratification
is predicated on the right of a corporation to contract, and any ratification or adoption is equivalent
to a grant of prior authority.
EMERGENCY RECIT
National Coconut Corp. (NACOCO) used to be an NGO for the coconut industry. RA 5 was issued
and NACOCO gained the authority to enter into the business of buying-and-selling copra to stabilize
the prices of copra. NACOCO, through its GM Kalaw, entered into 9 contracts of sale of copra. It
must be noted that there was no board approval granted to Kalaw when he entered into this contract.
NACOCO will not be able to comply with the contracts since the Philippines suffered four (4)
typhoons in 1947, adversely affecting our coconut farmers. By Dec 1947, GM Kalaw already foresaw
that NACOCO could not meet its obligations; hence, he approached NACOCO's Board to discuss
with them the 9 contracts of sale of copra. The Board, however, did not immediately act upon said
contracts. It was only in Jan 30, 1948, after President Roxas recognized Kalaw's efforts, that
the Board approved the said contracts. NACOCO then underwent liquidation proceedings
pursuant to EO 372, headed by the Board of Liquidators. This Board, in turn, filed a recovery of
money suit against GM Kalaw and directors Juan Bocar, Casimiro Garcia and Leonor Moll, claiming
that they were guilty of negligence with bad faith and breach of confidence (under then Article 1902,
now article 2176 of the Civil Code, i.e. quasi-delict), having entered into the contracts, to the
detriment of NACOCO. The Board claims that contracts need to be approved by the Board. In
NACOCO's corporate by-laws, Article IV (b), Chapter III thereof, recites, as amongst the duties of
the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon
prior approval of the Board, all contracts necessary and essential to the proper accomplishment for
which the Corporation was organized. The issue is whether or not the previous board of directors
(Kalaw et. Al.) should be liable?
The SC ruled that Kalaw cannot be held liable. A corporate officer "intrusted with the general
management and control of its business, has implied authority to make any contract or do any other
act which is necessary or appropriate to the conduct of the ordinary business of the corporation. As
such officer, "he may, without any special authority from the Board of Directors perform all acts of
an ordinary nature, which by usage or necessity are incident to his office, and may bind the
corporation by contracts in matters arising in the usual course of business. Kalaw was clothed
with Apparent Authority to enter into said contracts this can be seen from these
circumstances:a. From 1946 to 1947, there were 60 other contracts of copra sale entered into by
Kalaw without the Board's approval. In fact, by December 1946, Kalaw even received an award or
special bonus for introducing income to NACOCO. There was even a letter from the Board
requesting Kalaw to deliver "all copra contracts signed by him", meaning said contracts of sale were
already consummated WITHOUT the Board's approval. B.The Brokerage Fee agreements were
passed upon by the Board. These agreements were in payment for the aforementioned copra sales,
wherein Smith Bell and Co. served as the broker. Again, these broker fees were paid AFTER the
consummation of the copra sales. c. Minutes of the Board Meeting, dated July 1947, reveal that it
has become practice within NACOCO to "not cease buying even when it does not have actual
contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking
advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the
producers."
Settled jurisprudence has it 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. In varying language, existence of such authority is
established, by proof of the course of business, the usage and practices of the company and by the
knowledge which the board of directors has, or must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation. The Board also ratified the actions of Kalaw
in the 2nd board meeting.
41 – Cebu Country Club v. Elizagaque (2008)
GR NO. 160273
TOPIC When made liable by special law?
DOCTRINE The Board of Directors, under its Articles of Incorporation, has the right to approve or
disapprove an application for proprietary membership. But such right should not be exercised
arbitrarily. In rejecting respondents application for proprietary membership, we find that petitioners
violated the rules governing human relations, the basic principles to be observed for the rightful
relationship between human beings and for the stability of social order.
EMERGENCY RECIT
Cebu Country Club is a domestic corporation operating as a non-profit and non-stock private
membership club. Sometime in 1987, San Miguel Corporation, a special company proprietary of
CCCI, designated Ricardo Elizagaque, its senior vice-president and operations manager for the
Visayas and Mindanao, as a special non-proprietary member. In 1996, Elizagaque filed an
application for proprietary membership. He purchased a share for Php3 million. Unknown to
Elizagaque, however, was that the club had amended their by-laws in which a unanimous vote of
the directors is required before an applicant may be admitted. This amendment was not reflected in
the application form Elizagaque filled up. The Board adopted a black ball system in which the
directors would drop a white ball when they approve of the applicant and a black one if they do not.
During the voting, there was one black ball, which means the unanimous decision was not satisfied.
Elizagaque received a letter from CCCI’s corporate secretary, informing him that the board
disapproved his application for proprietary membership. Elizagaque, through Edmundo Misa, wrote
a letter of reconsideration, but no reply came. They wrote two more times, but CCCI still did not
reply. On December 1998, Elizagaque filed a complaint for damages against CCCI.
The SC ruled that respondent Elizaque is liable for damages. The Court cited Articles 19 and 21 of
the Civil Code in its decision. A right, though by itself legal because recognized or granted by law
as such, may nevertheless become the source of some illegality. When a right is exercised in a
manner which does not conform with the norms enshrined in Article 19 and results in damage to
another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. It
bears stressing that the amendment to Section 3(c) of CCCIs Amended By-Laws requiring the
unanimous vote of the directors present at a special or regular meeting was not printed on the
application form respondent filled and submitted to CCCI. What was printed thereon was the original
provision of Section 3(c) which was silent on the required number of votes needed for admission of
an applicant as a proprietary member. It was shown that Elizagaque’s letters remained unanswered
and he was not even made aware of the club’s new rules. In defense of the failure to print a new
application form with the amendments added, CCCI said that it was not able to print the updated
form because of economic reasons. Being an exclusive golf club, it is unbelievable that the club
would not be able to pay for printing costs of the updated application forms.
The Court found that CCCI violated the rules governing human relations and is thus liable for
damages pursuant to Article 19 in relation to Article 21 of the Civil Code.
42 – Espiritu v Petron Corp et al (2009)
GR 170891
TOPIC Criminal Liability
DOCTRINE Before a stockholder may be held criminally liable for acts committed by the
corporation, therefore, it must be shown that he had knowledge of the criminal act committed in
the name of the corporation and that he took part in the same or gave his consent to its
commission, whether by action or inaction.
EMERGENCY RECIT
Petron Corporation sold and distributed LPG in cylinder tanks that carried its trademark “GASUL”
and Carmen Dolorias owned and operated Kristina Patricia Enterprises (KPE), the exclusive
distributor of Gasul LPG in the whole Sorsogon. On the hand, Bicol Gas was also in the business
of selling and distributing LPG in Sorsogon but theirs carried the trademark “Bicol Savers Gas”.
In the course of trade and competition, any given distributor of LPGs at times acquired possession
of LPG cylinder tanks belonging to other distributors operating in the same area. They called these
“captured cylinders.” What KPE is doing is that they swap the cylinder tanks with Bicol Gas with the
permission of the Bicol Gas owners. However, during the day to day delivery of Bicol Gas in the
town, KPE’s Manager noticed that the truck carrying mostly of Bicol Savers LPG tanks has one
unsealed 50-kg Gasul and one 50-kg Shellane tank. When Jose, KPE’s Manager, inquired, the
driver said that it was empty but when it was checked, it was not. As a result, Petron and KPE filed
a complaint for violation of RA 623 (illegally filing up registered cylinder tanks), Section 155
(infringement of trademarks) and section 169.1 (unfair competition) of the Intellectual Property Code.
The court ruled that Bicol Gas is guilty of trademark infringement. Lastly, Bicol Gas is a
Corporation. It is an entity separate and distinct from persons of its officer, directors and
stockholders. It has been held however, that corporate officers and employees through whose act,
default or omission of the crime, they will be held answerable for the crime but respondents failed
to show that Bicol Gas officers and stockholders participated in the crime.
43 – Palay Inc v Jacobo Clave 124 SCRA 638 (1983)
GR NO. L-56076
TOPIC: Duties and liabilities of corporate officers
DOCTRINE:
A corporation, as a juridical entity, may act only through its directors, officers and employees.
Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their
personal liability but the direct responsibility of the corporation they represent.
To hold a director or officer personally liable for corporate obligations, two requisites must concur:
(1) it must be alleged 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) there must
be proof that the officer acted in bad faith.
EMERGENCY RECIT
In 1965, petitioner Palay, Inc., through its President, Albert Onstott sold a parcel of land owned by
the corporation to the private respondent, Nazario Dumpit, by virtue of a Contract to Sell. The sale
price was P23,300.00 with 9% interest per annum, payable with a down payment of P4,660.00 and
monthly installments of P246.42 until fully paid. Paragraph 6 of the contract provided for automatic
extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days
from the expiration of the grace period of one month, without need of notice and with forfeiture of all
installments paid. Respondent Dumpit paid the down payment and several installments amounting
to P13, 722.50. The last payment was made in December 1967. Almost six (6) years later, Dumpit
wrote petitioner offering to update all his overdue accounts and sought consent to the assignment
of his rights to a certain Lourdes Dizon. Petitioners informed respondent that his Contract to Sell
had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been
resold. Dumpit filed a letter complaint with the National Housing Authority (NHA) questioning the
validity of the rescission. The NHA held that the rescission is void in the absence of either judicial
or notarial demand. Palay, Inc. and Onstott in his capacity as President of the corporation, jointly
and severally, was ordered to refund Dumpit the amount paid plus 12% interest from the filing of
the complaint.
The SC held that Onstott cannot be held solidarity liable with petitioner Corporation for the refund
of the installment payments made by respondent Dumpit. Onstott is not personally liable because
there was no sufficient proof that he used the corporation to defraud private respondent and just
because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or
by another corporation is not of itself sufficient ground for disregarding the separate corporate
personality. Finally, there are no badges of fraud on the petitioners' part. They had literally relied,
albeit mistakenly, on paragraph 6 of the contract when it rescinded the contract to sell extrajudicially
and had sold it to a third person. Petitioner Palay, Inc. is liable to refund to respondent Dumpit the
amount of P13,722.50, with interest at twelve (12%) per annum.
44 – Tramat Mercantile v. Court of Appeals (1994)
GR NO. 111008
TOPIC: Duties and liabilities of corporate officers
DOCTRINE: It should only be the corporation, not the person acting for and on its behalf, that
properly could be made liable under the questioned transaction.
EMERGENCY RECIT:
De la Cuesta, doing business under the name and style of “Farmers Machineries,” sold to Tramat 1
unit Hinomoto Tractor. In payment, Ong, Tramat’s president and manager, issued a check worth
P33,500. Subsequently, Tramat sold the tractor to the Metropolitan Waterworks and Sewerage
System (NAWASA). Later, Ong caused a “stop payment” of the check when NAWASA refused to
pay the tractor after discovering that, aside from some stated defects, the engine was a
reconditioned unit. De la Cuesta then filed an action for the recovery of P33,500. Ong argues that
the questioned transaction was between de la Cuesta and Tramat, and not with Ong in his personal
capacity. The SC held that Ong cog could not be held jointly and severally liable with Tramat to de
la Cuesta under the questioned transaction. Ong had there so acted, not in his personal capacity,
but as an officer of a corporation, Tramat, with a distinct and separate personality. As such, it should
only be the corporation, not the person acting for and on its behalf, that properly could be made
liable thereon.
Personal liability of a corporate director, trustee or officer along with the corporation may so validly
attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
2. He consents to the issuance of watered 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.
In the case at bench, there is no indication that petitioner David Ong could be held personally
accountable under any of the abovementioned cases.
45 – Tupaz IV v. CA (2005) (the syllabus says 2006, but I can’t find a case with this name in that
year)
GR NO. 145578
TOPIC: Duties and liabilities of corporate officers
DOCTRINE: Debts incurred by the corporation’s directors, officers, and employees, acting as
corporate agents, are the direct liability of the corporation they represent. Directors or officers are
personally liable only if they so contractually agree.
EMERGENCY RECIT:
Jose Tupaz IV and Petronila Tupaz were Vice-President for Operations and Vice-
President/Treasurer, respectively, of El Oro Engraver Corporation, a supplier of "survival bolos." To
finance the purchase of the raw materials for the survival bolos, they applied with the BPI for
commercial letters of credit. Simultaneous with the issuance of the letters of credit, the Tupaz’s
signed 2 trust receipts in favor of BPI. On the first trust receipt, Jose signed in his personal capacity.
On the second trust receipt, Jose and Petronila signed in their capacities as officers of El Oro.
Subsequently, however, they did not comply with their undertakings in the trust receipts. BPI filed
an action against the Tupaz’s. The Supreme Court held that Jose Tupaz is liable for the first trust
receipt, whereas only El Oro is liable for the second. Jurisprudence provides that debts incurred by
the corporation’s directors, officers, and employees, acting as corporate agents, are the direct
liability of the corporation they represent. Directors or officers are personally liable only if they so
contractually agree. In this case, when Tupaz signed the first trust receipt in his personal capacity,
he held himself personally liable thereto. As for the second trust receipt, however, the signatories
bound themselves only in their official capacities; thus, they are not personally liable thereto.
46 – Mead v McCullough (1911);
GR NO. 6217
TOPIC Dealings of directors, trustees or officers with the corporation
DOCTRINE The trustees-directors hold the company assets in trust for the beneficiaries, which are
the creditors. As trustees, they decided that it is beneficial to sell the company assets to McCullough
to at least recover some cash equivalents in the winding up of the corporate affairs. Besides, there
is no prohibition against the selling of company assets to one of its directors either from law or from
PECC’s articles of incorporation.
EMERGENCY RECIT
Charles Mead, Edwin McCullough and three others organized the corporation called The Philippine
Engineering and Construction Company (PECC). The 4 organizers, except Mead, contributed to the
majority of the capital stock of PECC, the remaining shares were offered to the public. Mead
contributed some personal properties. Mead was assigned as a manager but he resigned as such
when he accepted an engineering job in China. But even so, he remained as one of the five directors
(the organizers).At that time, PECC was already incurring losses. McCullough, the president,
proposed that he shall buy the assets of the corporation. The three other directors then voted in
favor of this proposal hence the assets were transferred to McCullough. Mead learned of this and
so he opposed it because the personal properties he contributed were also transferred to
McCullough. Mead also argued that under the articles of incorporation of PECC, the board of
directors only have ordinary powers; that the authorization made by the three directors to allow the
sale of company assets to McCullough constitutes an act of agency which is invalid at that because
no express commission was made, i.e., no power of attorney was made in favor of the directors.
SC: The trustees-directors hold the company assets in trust for the beneficiaries, which are the
creditors. As trustees, they decided that it is beneficial to sell the company assets to McCullough to
at least recover some cash equivalents in the winding up of the corporate affairs. Besides, there is
no prohibition against the selling of company assets to one of its directors either from law or from
PECC’s articles of incorporation. There is nothing in law and in the articles of incorporation that
prevents a transfer of the company’s assets and rights to another incorporator. And the transfer was
done in good faith and in the interests of the company as well as its stockholders.
47 – Prime White Cement Corporation v. IAC and Te (1903)
GR NO. L-68555
TOPIC: Dealings of directors, trustees or officers with the corporation
DOCTRINE: [Under Sec. 32 of the Corporation Code,] a director's contract with his corporation is
[generally, but] not in all instances[,] void or voidable. If the contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest
is made.
EMERGENCY RECIT: A corporation, through its President (Falcon) and Chairman of the Board of
Directors (Trazo), entered into a dealership agreement with Alejandro Te. Te is one of said
corporation’s directors who also happens to be the corporate auditor. Later on, the corporation found
the agreement too cumbersome and decided to transact, instead, with other persons. Essentially,
the corporation violated the terms of the agreement. Alejandro Te thus sued the corporation. SC
said that the dealership agreement is void. It was entered into by a “self-dealing” director with his
own corporation which must comply with the requisites under Sec. 32 of the Corporation Code. One
such requisite is that the contract must be fair and reasonable under the circumstances. The
dealership agreement was neither fair nor reasonable. It contained a stipulation that sets the price
of white cement at a fixed rate of P 9.70 per bag for five years. SC said that Alejandro Te, with his
expertise, ought to have known that the value would have significantly increased (and this was
reflected in his subsequent dealings with other persons). In fact, a few years later, the value became
P 37.50 per bag. SC said Te entered into the contract in bad faith and thus disallowed Te from
collecting any money from the corporation by virtue of the dealership agreement.
48 – DBP v CA (2001)
363 SCRA 307
TOPIC: CONTRACTS BETWEEN CORPORATIONS WITH INTERLOCKING DIRECTORS
DOCTRINE: Transactions between corporations with interlocking directors resulting in the prejudice
to one of the corporations may be treated as one corporation. The rule pertaining to transactions
between corporations with interlocking directors resulting in the prejudice to one of the corporations
does not apply where the corporation allegedly prejudiced is a third party, not one of the corporations
with interlocking directors.
EMERGENCY RECIT
Marinduque Mining, a corporation engaged in the manufacture of pure and refined nickel, nickel and
cobalt in mixed sulfides, copper ore/concentrates, cement and pyrite cone, obtained from the
Philippine National Bank (PNB) various loan accommodations. To secure the loans, Marinduque
Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor
of PNB. For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted
sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged
properties.
Marinduque Mining purchased and caused to be delivered construction materials and other
merchandise from Remington Industrial Sales Corporation (Remington) worth P921,755.95. The
purchases remained unpaid as of August 1, 1984 when Remington filed a complaint for a sum of
money and damaged against Marinduque Mining. Remington amended the complaint and asserted
that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be
treated in law as one and the same entity by disregarding the veil of corporate fiction.
The SC held that transactions between corporations with interlocking directors resulting in the
prejudice to one of the corporations may be treated as one corporation. This rule does not apply in
this case, since the corporation allegedly prejudiced (Remington) is a third party, not one of the
corporations with interlocking directors (Marinduque Mining and DBP).
49 – Filipinas Port Services vs Cruz
GR NO.117080
TOPIC Executive Committee
DOCTRINE: Under Section 35 of the Corporation Code, the creation of an executive committee
must be provided for in the bylaws of the corporation.
EMERGENCY RECIT
Petitioner Eliodoro C. Cruz, Filport's president until he lost his bid for reelection. He questioned the
board’s creation of certain positions with monthly remuneration. He filed with the SEC a petition
which he describes as a derivative suit against the respondents who were then the incumbent
members of Filport's Board of Directors, for alleged acts of mismanagement detrimental to the
interest of the corporation and its shareholders at large
SC:
The governing body of a corporation is its board of directors. Section 23 of the Corporation Code
provides that unless otherwise provided, the corporate powers of all corporations formed under the
Code shall be exercised, all business conducted and all property of the corporation shall be
controlled and held by a board of directors.
Thus, with the exception only of some powers expressly granted by law to stockholders (or
members, in case of non-stock corporations), the board of directors (or trustees, in case of non-
stock corporations) has the sole authority to determine policies, enter into contracts, and conduct
the ordinary business of the corporation within the scope of its charter, i.e., its articles of
incorporation, by-laws and relevant provisions of law.
the authority of the board of directors is restricted to the management of the regular business affairs
of the corporation, unless more extensive power is expressly conferred.
In the present case, the board's creation of the positions of Assistant Vice Presidents for Corporate
Planning, Operations, Finance and Administration, and those of the Special Assistants to the
President and the Board Chairman, was in accordance with the regular business operations of
Filport as it is authorized to do so by the corporation's by-laws, pursuant to the Corporation Code.
The amended Bylaws of Filport provides that officers of the corporation, as provided for by the by-
laws, shall be elected by the board of directors at their first meeting after the election of Directors.
The officers of the corporation shall be a Chairman of the Board, President, a Vice-President, a
Secretary, a Treasurer, a General Manager and such other officers as the Board of Directors may
from time to time provide, and these officers shall be elected to hold office until their successors are
elected and qualified.
Unfortunately, the bylaws of the corporation are silent as to the creation by its board of directors of
an executive committee. Under Section 35 of the Corporation Code, the creation of an executive
committee must be provided for in the bylaws of the corporation.
Notwithstanding the silence of Filport's bylaws on the matter, we cannot rule that the creation of the
executive committee by the board of directors is illegal or unlawful. One reason is the absence of a
showing as to the true nature and functions of said executive committee considering that the
"executive committee," referred to in Section 35 of the Corporation Code which is as powerful as
the board of directors and in effect acting for the board itself, should be distinguished from other
committees which are within the competency of the board to create at anytime and whose actions
require ratification and confirmation by the board.
Another reason is that the Board of Directors has the power to create positions not provided for in
Filport's bylaws since the board is the corporation's governing body, clearly upholding the power of
its board to exercise its prerogatives in managing the business affairs of the corporation. A
50 – Cagayan Valley Drug Corporation v. CIR

DOCTRINE: All coporate powers are exercised, all business conducted, and all properties controlled
by the board of directors. A corporation has a spearate adn distinct personality from its directors
adn fofficers adn canl only exercise its corporate pwoers through the board of directors. However,
we have recognized the authority of some corporate officers to signthe verification and certification
against non-forum shopipng.. In sum we have held that the following officials or employees can sign
the verification and certification without need of a board resolution: (1) Chairperson of the board of
directors (@) President o fthe corp (3) general manager (4) Personnel officer (5) employment
specialist in a labor case.
EMERGENCY RECIT
Cagayan Valley Drug Corporation applied for a claim for a tax refund before the CTA. The CTA,
however, dismissed the petition which prompted the corporation to appeal to the CA. THe verfication
and certification for non-forum shopping, however, was signed by Jacinto J. Concepcion the
President of the Corporation without including the authorization of the board of directors. The SC
upheld the signature of Concepcion on the ground that the requisete board resolution was
subsequently submitted by Cagayan Valley and tha the President is in a position to verify the
truthfullness and correctness of the allegations in the petition.
51 – Umale v. ASB Realty Corporation
GR NO. 181126
TOPIC Sue and Be Sued
DOCTRINE As a creature of law, the powers and attributes of a corporation are those set out in the
law. Among the powers granted by law to a corporation is the power to sue in its own name. Being
placed under corporate rehabilitation and having receiver appointed to carry out the rehabilitation
plan do not ipso deprive a corporation and its corporate officers of the power to recover its unlawfully
detained property.
EMERGENCY RECIT
Umale refused to vacate the leased premises even after the expiration of the lease contract. This
prompted the owner of the property, ASB Realty Corporation to file an unlawful detainer case against
Umale. Umale is now claiming that ASB realtys has no personality to file the suit because ASB was
placed under receivership. The Court ruled that ASB has the personality to sue and being placed
under corporate rehabilitatio do not ipso facto dervie a corproation and its corporate officers of the
power to sue. To be sure, corporate rehabilitation imposes several restrictions on the corporation
but none of which touch on the corporatoins’s right to sue.
52. ALLIANCE OF QC HOMEOWNERS’ ASSOCIATION (ALLIANCE) V. THE QUEZON CITY GOVERNMENT
(QC)
G.R. No. 230651, 18 September 2018
Perlas-Bernabe, J.
Topic: Corporate Power and Capacity – Sue and be Sued
Doctrine: The Rules of Court mandates that only natural or juridical persons, or entities authorized
by law may be parties in a civil action. Non-compliance with this requirement renders a case
dismissible on the ground of lack of legal capacity to sue, which refers to "a plaintiff's general
disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality
or any other general disqualifications of a party.
Jurisprudence provides that an unregistered association, having no separate juridical personality,
lacks the capacity to sue in its own name.
Emergency Recit: Alliance filed a petition praying for a TRO against the ordinance and that the
said ordinance be declared unconstitutional and invalid, among others. QC countered the petition
and alleged that Alliance has no legal capacity to sue since its Certificate of Registration as a
corporation was revoked by the SEC and it has no separate juridical personality as a homeowners’
association due to its non-registation with the HLURB. The SC ruled that Alliance has no capacity.
Jurisprudence provides that an unregistered association, having no separate juridical personality,
has no capacity to sue in its own name. In this case, Alliance admitted that it has no juridical
personality, considering that its SEC Cert. of Registration was revoked and that it failed to register
with the HLURB as a homeowners’ association.
53 – Association of Flood Victims and Jaime Hernandez vs. COMELEC (2014)
GR NO. 203775
TOPIC: Sue and be sued
DOCTRINE: An unincorporated association, in the absence of an enabling law, has no juridical
personality and thus, cannot sue in the name of the association
EMERGENCY RECIT: SC affirmed COMELEC Resolution cancelling the certificate of registration
of Alliance of Barangay Converns (ABC) Party-list which won in the party-list elections in the 2010
national elections. The disqualification resulted in the party list allocation in the House of
Representatives and proclamation of Alay Buhay Community Development Foundation Inc. Party-
list, through the minute resolution issued by COMELEC. Petitioner Association of Flood Victims
(AFV) and Jaime Hernandez filed a petition for certiorari under Rule 65 asserting that COMELEC
committed GADALEJ when it issued the minute resolution. The Court ruled that petitioners do not
have legal capacity to sue. Under sections 1 and 2 of Rule 3, only natural or juridical persons, or
entities authorized by law may be parties in a civil action, which must be prosecuted or defended in
the name of the real party-in-interest. Art 44 of Civil code lists juridical person with capacity to sue,
thus: xxx (2) other corporations, institutions and entities for public interest or purpose, created by
law; their personality begins as soon as they be been constituted according to law Party which is
still in the process of incorporation, cannot be considered a juridical person or an entity authorized
by law to be a party to a civil action AFV is an unincorporated association not endowed with a distinct
personality of its own. An unincorporated association, in the absence of an enabling law, has no
juridical personality and thus, cannot sue in the name of the association. Neither does such party
have locus standi as it is not even a party-list candidate and could not have been directly affected
by the COMELEC Resolution.
54 – Yu v. Yukayguan (2009)
GR NO. 177549
TOPIC: Sue and be sued
DOCTRINE/S:
 The general rule is that where a corporation is an injured party, its power to sue is lodged
with its board of directors or trustees. Nonetheless, an individual stockholder is permitted
to institute a derivative suit on behalf of the corporation wherein he holds stocks in order
to protect or vindicate corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued, or hold the control of the corporation. Similarly, if a
corporation has a defense to an action against it and is not asserting it, a stockholder may
intervene and defend on behalf of the corporation.
  Sec. 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies
Sec. 1. Derivative action.—A stockholder or member may bring an action in the name of
a corporation or association, as the case may be, provided, that:
1. He was a stockholder or member at the time the acts or transactions subject of
the action occurred and at the time the action was filed;
2. He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or partnership to obtain the
relief he desires;
3. No appraisal rights are available for the act or acts complained of; and
4. The suit is not a nuisance or harassment suit.
EMERGENCY RECIT
The Yu family and the Yukayguan family were all stockholders of Winchester Industrial Supply, Inc.
(Winchester). The Yukayguans filed against the Yus a Complaint for Accounting, Inspection of
Corporate Books and Damages through Embezzlement and Falsification of Corporate Records and
Accounts before the RTC. This was filed in their own behalf and as a derivative suit on behalf of
Winchester in order to compel the Yus to account for and reimburse to the said corporation the
corporate assets and funds which the latter allegedly misappropriated for their personal benefit.
RTC dismissed the Complaint for failure to comply with the requisites of a derivative suit. The SC
also held that the Yukayguans failed to comply with the said requirements for a derivative action;
particularly, the 2nd, 3rd, and 4th requisites. As to the 2nd requisite, the Yukayguans did not allege with
particularity that they exerted all reasonable efforts to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules governing Winchester to obtain the relief they desire.
Their allegation of repeated attempts to talk to the Yus regarding their dispute is not enough. With
respect to the 3rd and 4th requirements, the Yukayguans likewise failed to allege that there were no
appraisal rights available for the acts of the Yus complained of, as well as a categorical statement
that the suit was not a nuisance or a harassment suit.
55 – BPI Leasing v CA (2003)
GR NO.
TOPIC: Sue and be sued
DOCTRINE: The certificate of non-forum shopping may be signed, for and on behalf of a
corporation, by a specifically authorized lawyer who has personal knowledge of the facts required
to be disclosed in such document. The lawyer must be specifically authorized in order validly to sign
the certification.
EMERGENCY RECIT
BLC is a corporation engaged in the business of leasing properties. BLC filed a claim for a refund
with the CIR. Respondents argue that the petition should be dismissed on the ground that the
Verification/Certification of Non-Forum Shopping was signed by the counsel of record and not by
BLC, through a duly authorized representative, in violation of Supreme Court Circular 28-91. The
issue before the Court was WON BLC violated said SC Circular. The Court held that The records
are bereft of the authority of BLCs counsel to institute the present petition and to sign the certification
of non-forum shopping. While said counsel may be the counsel of record for BLC, the representation
does not vest upon him the authority to execute the certification on behalf of his client. There must
be a resolution issued by the board of directors that specifically authorizes him to institute the petition
and execute the certification, for it is only then that his actions can be legally binding upon BLC.
56 – Firme v. Bukal Enterprises and Dev. Corp. (2003)
GR NO. 146608
TOPIC: Exercise rights of ownership over properties for lawful business
DOCTRINE: A corporation has the power to purchase real property as the transaction of a lawful
business of the corporation may reasonably and necessarily require. The corporate powers of all
corporations formed under the Corporation Code shall be exercised by the board of directors.
EMERGENCY RECIT:
Spouses Constante and Azucena Firme own a parcel of land. Renato de Castro (Vice President,
Bukal Enterprises) authorized his friend, Teodoro Aviles, a broker, to negotiate with the Spouses
Firme for the purchase of the land. When Spouses Firme refused to sell the land, Bukal
Enterprises filed a complaint for specific performance. The Supreme Court, however, dismissed
the complaint. Under Sec. 36 in relation to Sec. 23 of the Corporation Code, the power of the
corporation to purchase real property shall be exercised by the board of directors. A corporation
can also exercise such power through its officers and agents when authorized by a board
resolution or its by-laws. In this case, however, there was no approval from the Board of Directors
of Bukal Enterprises as would finalize any transaction with the Spouses Firme. Aviles did not have
the proper authority to negotiate for Bukal Enterprises. He was neither an officer of Bukal
Enterprises nor a member of its Board of Directors. Furthermore, there is no Board Resolution
authorizing Aviles to negotiate and purchase the land on behalf of Bukal Enterprises. There is no
Board Resolution authorizing Aviles to negotiate and purchase the Property for Bukal Enterprises.
57 – Lopez v. Fontecha (1995)
GR NO. 76801
TOPIC: Establish pension, retirement and other benefits for officers and employees
DOCTRINE: Providing gratuity pay for its employees is one of the express powers of the corporation
under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any
liability arising from the issuance of the subject resolutions.
EMERGENCY RECIT
Petitioner corporation approved two resolutions providing for the gratuity pay of its employees. While
Gonzales (one of the board members) was abroad, the remaining members held a special meeting
and passed a resolution that outlines the payment scheme of the gratuity pay of those who were
either laid off from the company or the ones that were retained. While still abroad, Gonzales sent a
cablegram objecting to the terms of the resolution. The first two installments of the gratuity were
paid to the employees. The third voucher was not given because payment was stopped by
Gonzales. Private respondents filed a case against petitioner corporation with the labor arbiter which
ruled in favor of respondents. Petitioner corporation went to the Supreme Court arguing that the
board resolution was passed without notice to Gonzales. However, it was ruled that the she was
aware of the corporation’s obligation under the said resolutions. More importantly, she acquiesced
to it by affixing her signature on the cash vouchers. The conduct of petitioners after the passage of
resolutions had estopped them from assailing the validity of said board resolutions. It cannot also
be said that the acts were ultra vires because the resolutions cover a subject which concerns the
benefit and welfare of the employees. Providing gratuity pay for its employees is one of the express
powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine
of ultra vires to avoid any liability arising from the issuance of the subject resolutions.
58 – Petitioner v. Respondent (19xx)

59 – Inter-Asia Investments Industries v. CA (2003)
GR NO. 125778
TOPIC - Perform other acts pertinent to purchase shares of another corporation
DOCTRINE
 The general rule is that, in the absence of authority from the board of directors, no person,
not even its officers, can validly bind a corporation. A corporation is a juridical person,
separate and distinct from its stockholders and members, having powers, attributes and
properties expressly authorized by law or incident to its existence. Being a juridical entity,
a corporation may act through its board of directors, which exercises almost all corporate
powers, lays down all corporate business policies and is responsible for the efficiency of
management.
 Just as a natural person 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 act(s) executed
either in its favor or in favor of other parties. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a corporate officer with power to bind
the corporation. (Exception)
EMERGENCY RECIT
Inter-Asia sold to Asia Industries Inc., shares of stock of Farmacor signed by Gonzales (Pres. Of
Inter-Asia) and Vergara. (Private Respondent) Stipulated purchase price amounted to
P19,500,000.00. Par. 7 of the Agreement provides for a warranty that the Minimum Guaranteed Net
Worth of Farmacor shall be P12,000,000.00. Part of the Agreement stipulates that while SGV is
auditing the financial statements of Farmacor, Vergara may retain the amount of P7,500,000.00 of
the P19,500,000.00 purchase price. The Agreement stipulated that Vergara may deduct any
shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; and that if the amount retained
is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth, Inter-Asia shall
pay the difference within 5 days from date of receipt of the audited financial statements. This
culminated with Vergara paying Inter-Asia the total amount of P 12,000,000.00. After the audit of
SGV, it appears that Farmacor had a deficit. Therefore, the adjusted contract price allows Vergara
a refund. Gonzales, through a letter, proposed to Vergara to lessen the liability to which he
accepted. However, despite such Gonzales reneged on the agreement. Inter-Asia (Company) now
claims that the letter-proposal is not valid and binding. Supreme Court denies the petition.
(See Doctrine) Although Gonzales, President of Inter-Asia, had no authority from the Board of Inter-
Asia by allowing him to sign the Agreement on Inter-Asia's behalf, Inter-Asia clothed him with
apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein.
60 – Central Textile Mills v. NWPC (1996)
GR NO. 104102
TOPIC: Power to increase/decrease capital stock
DOCTRINE: As a trust fund, this money (the subscriptions and payment to the proposed increase
in capital stock) is still withdrawable by any of the subscribers at any time before the issuance of the
corresponding shares of stock, unless there is a pre-subscription agreement to the contrary, which
apparently is not present in the instant case. Consequently, if a certificate of increase has not yet
been issued by the SEC, the subscribers to the unauthorized issuance are not to be deemed as
stockholders possessed of such legal rights as the rights to vote and dividends.
EMERGENCY RECIT
Central Textile filed an application for exemption of a wage order issued by NWPC due to financial
losses. NWPC denied the application on the ground that it did not met the requirement of
accumulated losses should have impaired 25% of the paid up capital at the end of the last full
accounting period preceding the application. NWPC ruled that the total paid up capital of Central
Textile is 305.7M and not 128M being insisted by the latter. SC ruled in favor of Central Textile
stating that although there was a boad resolution by Central Textile as to its proposed increase in
capital stock and started receiving payments and subscription for such, these payments cannot as
yet be deemed part of petitioners paid-up capital, technically speaking, because its capital stock has
not yet been legally increased. Thus, its authorized capital stock in the year when exemption from
the wage order was sought stood at P128M, which was impaired by losses of nearly 50%. Such
payments constitute deposits on future subscriptions, money which the corporation will hold in trust
for the subscribers until it files a petition to increase its capitalization and a certificate of filing of
increase of capital stock is approved and issued by the SEC. (See doctrine)
61 – China Banking v QBRO Fishing (2012)
GR NO. 184556
TOPIC Sale or disposition of assets
Doctrine: It has been held that third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property.The fact that the loans were solely
for the benefit of TFRC would not invalidate the mortgage with respect to respondents property as
long as valid consent was given. Thus, when respondent executed the real estate mortgage over its
properties, such properties thereby secured the performance of the principal obligation
notwithstanding the fact that respondent itself had not assumed any liability for the debt of TFRC.
Emergency Recit:
Trans-Filipinas Realty Corporation (TFRC) obtained a loan from petitioner China Banking. The loan
was secured by a real estate mortgage over two parcels of land. Subsequently, the Board of
Directors of respondent QBRO Fishing Enterprises, Inc. issued a resolution authorizing the
mortgage of its properties to secure the obligations incurred or which may [t]hereafter be incurred
by [TFRC] with [petitioner] irrespective of the amount including any renewals, extensions and/or roll-
overs thereof. Hence, QBRF executed a real estate mortgage over nine parcels of land, inclusive,
as collateral for TFRCs additional loan. TFRC defaulted and the properties were foreclosed.
Respondent sought to annul the foreclosure contending that petitioner unlawfully treated TFRC and
RESPONDENTS as separate loan accounts, which were secured by two different and separate
REM, as a single, inseparable account. The SC held that Here, we find that while there were indeed
two different corporations that executed two separate mortgages, there was in fact only one loan
account, that of TFRC. Respondent failed to offer evidence to prove that it had a separate loan
account with petitioner. What is clear from the records is that respondents Board of Directors
specifically authorized the mortgage of its properties to serve as additional security to accommodate
TFRCs request for the increase in its credit line. This is evidenced by the minutes of the Special
Meeting of respondents Board of Directors dated May 10, 1996
62 - Nell v Pacific Farms Inc, 15 SCRA 415 (1965)
DOCTRINE:
Generally, where one corporation sells or otherwise transfers all of its assets to another corporation,
the latter is not liable for the debts and liabilities of the transferor, except: (1) where the purchaser
expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a
consolidation or merger of the corporations; (3) where the purchasing corporation is merely a
continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in
order to escape liability f or such debts.
ER:
Petitoner sold a pump to Insular Farms, but was not paid. He filed a case and was awarded sum of
money against insular farms. Later on he field a case against Pacific Farms, because the latter
purchased the assets of Insular Farms. Issue is WON Pacific is liable for the debts of Insular. SC
held NO. There is no proof that Insular and Pacific are one and the same. The sale was to the
highest bidder, and the sale took place before the case of petitioner was filed against insular.
63 – Y-I Leisure Philippines, Inc. v. Yu (2015)
GR NO. 207161
TOPIC: Sec. 40 Sale or other disposition of assets
DOCTRINE: Business-Enterprise Transfer: the transferee is liable for the debts and liabilities of his
transferor arising from the business enterprise conveyed. The business-enterprise rule applies when
2 requisites concur: (a) transferor corporation sells all or substantially all ofits assets to another
entity; (2) he transferee corporation continues the business of the transferor corporation.
EMERGENCY RECIT: Mt. Arayat Development Co. Was a real estate development corp. Yu was a
businessman. Mt. Arayat offered for sale shares of golf and country club. Yu bough shares. Upon
full payment, Yu visited the supposed country club but it was nonexistent. Yu filed a complaint for
collection of sum of money against Mt. Arayat. Yu then filed an amended complaint and impleaded
Y-I Leisure, because he discovered that all the assets of Mt. Arayat were sold to Y-I
64 – Peña v. CA (1991)
GR NO. 91478
TOPIC: Sale or other disposition of asset
DOCTRINE: Under Section 28, 1/2 of the said law, the sale or disposition of all and/or substantially
all properties of the corporation requires, in addition to a proper board resolution, the affirmative
votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a
meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a
subsequent stockholders meeting duly called for the purpose by the affirmative votes of the
stockholders holding at least two-thirds (2/3) of the voting power in the corporation. The same
requirement is found in Section 40 of the present Corporation Code.
EMERGENCY RECIT: PAMBUSCO Corp. loaned from DPB and mortgaged parcels of land to
secure it. When PAMBUSCO failed to pay, DBP foreclosed on the parcels of land and Rosita Peña
(petitioner) was the highest bidder. PAMBUSCO resolved to assign its right of redemption so the
Board of Directors had a meeting but only 3 out of the 5 Directors attended. In the said meeting, the
Board issued a resolution authorizing one of the directors, Atty. Briones, to assign the properties
foreclosed and to be redeemed. Pursuant to the resolution, Briones assigned PAMBUSCO’s assets
to Marcelino Enriquez, who exercised the right to redeem and thereafter sold them to Sps. Yap.
Possession of the property was still with Peña so Sps. Yap demanded she vacate. Peña averred
that Yap acquired no legal title over the property because the said board resolution is void due to
the fact that it was issued without a quorum. Under the by-laws of PAMBUSCO, a quorum
constitutes the presence of 4 out of 5 directors yet the meeting was only attended by 3. As such,
the authority granted to Briones and then Enriquez to assign the properties is void meaning Sps.
Yap acquired no title.
65 – Caltex Phil v PNOC Shipping (2006)
GR NO. 15071
TOPIC: Sale or other disposition of assets
DOCTRINE: While Sec. 40 of the Corporation Code allows the transfer of all or substantially all the
properties and assets of a corporation, the transfer should not prejudice the creditors of the assignor.
The only way the transfer can proceed without prejudice to the creditors is to hold the assignee
liable for the obligations of the assignor. The acquisition by the assignee of all or substantially all of
the assets of the assignor necessarily includes the assumption of the assignor’s liabilities, unless
the creditors who did not consent to the transfer choose to rescind the transfer on the ground of
fraud. To allow an assignor to transfer all its business, properties and assets without the consent of
its creditors and without requiring the assignee to assume the assignors obligations will defraud the
creditors. The assignment will place the assignors assets beyond the reach of its creditors.
EMERGENCY RECIT
PNOC Shipping and Transport Corp. assumed Luzon Stevedoring Corp.’s (LUSTEVECO)
obligations, including any obligation that might arise from Caltex’s suit against LUSTEVECO. The
RTC ordered LUSTEVECO to pay Caltex. However, the judgment was not satisfied because of the
prior foreclosure of LUSTEVECO’s properties. When Caltex knew of the agreement between
PNOC and LUSTEVEO, Caltex went after PNOC. Since PNOC refused to pay, Caltex filed a
complaint for sum of money. The RTC ordered PNOC to pay. The CA however ruled that Caltext
may not sue PNC. The Court held that the disposition of all or substantially all of the assets of a
corporation is allowed under Section 40 of the Corporation Code. However, the transfer should not
prejudice creditors of the assignor (LUSTEVECO) and the only way the transfer can proceed
without pejucide to the creditors is to hold the assignee (PNOC) liable for the obligations of the
assignor.
66 – Ong Young et.al. v. David s. Tiu (2003)
GR NO. 144476
TOPIC: Trust Fund Doctrine
DOCTRINE: Trust Fund Doctrine; This doctrine is the underlying principle in the procedure for the
distribution of capital assets.
EMERGENCY RECIT
The Tius invited the Ongs to invest in the First Landlink Asia Development Corporation (FLADC)
and they had a pre-subscription agreement. Furthermore, they agreed that the Tius were entitled to
nominate the Vice-President and the Treasurer plus five directors while the Ongs were entitled to
nominate the President, the Secretary and six directors (including the chairman) to the board of
directors of FLADC. Moreover, the Ongs were given the right to manage and operate the mall. They
had a falling out and alleged that each breached the contract and Tius sought to rescind the pre-
subscription contract with the SEC. The SEC allowed such. There is an issue as to whether or not
the rescission should be granted since it will be violating the trust fund doctrine.
The SC ruled that the Tius cannot seek the rescission of the pre-subscription contract because
rescission will violate the Trust Fund Doctrine and the procedures for the valid distribution of assets
and property under the Corporation Code. The Trust Fund Doctrine provides that subscriptions to
the capital stock of a corporation constitute a fund to which the creditors have a right to look for the
satisfaction of their claims. This doctrine is the underlying principle in the procedure for the
distribution of capital assets, embodied in the Corporation Code, which allows the distribution of
corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce
the authorized capital stock, (2) purchase of redeemable shares by the corporation, regardless of
the existence of unrestricted retained earnings, and (3) dissolution and eventual liquidation. In the
instant case, the rescission of the Pre- Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and property of the corporation, thereby violating the
Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not
one of the instances when distribution of capital assets and property of the corporation is allowed.
67 – Phil Trust Co. v. Rivera (1923)
GR NO. L-19761
TOPIC Trust Fund Doctrine
DOCTRINE It is established doctrine that subscription to the capital of a corporation constitute a
find to which creditors have a right to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for
the payment of its debts. A corporation has no power to release an original subscriber to its capital
stock from the obligation of paying for his shares, without a valuable consideration for such release;
and as against creditors a reduction of the capital stock can take place only in the manner an under
the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover,
strict compliance with the statutory regulations is necessary.
EMERGENCY RECIT
Petitioner Philippine Trust Company is the assignee in insolvency of La Cooperative Naval Filipina.
Respondent Mariano Rivera who is one of the incorporators of the company has subscribed for 450
shares amounting a value of Php 45,000. When La Cooperativa Naval Filipina became insolvent
and went into the hands of the Philippine Trust Company as assignee in bankruptcy, an action for
recovery for one-half of the stock subscription of the defendant was made. The reason for the failure
of Rivera to pay the entire subscription is that after Cooperativa Naval Filipina had been
incorporated, a meeting of its stockholders occurred where the capital should be reduced by 50%
and the subscribers be released from obligation to pay any unpaid balance of their subscription in
excess of 50% of the same. As a result, the supposed to be subscriptions of various shareholders
had been cancelled and fully paid certificate were issued to each shareholders for one-half of his
subscription. The formality required under the Corporation Code was not observed and it does not
appear that any certificate was filed in the Bureau of Commerce and Industry showing such
reduction. The judge in effect ruled that such resolution relied by Rivera was without effect and
should still be liable for the unpaid balance of his subscription.
The SC held on the issue of the liability of Rivera to his unpaid subscription sided with the decision
of the judge. The resolution releasing the shareholders from their obligation to pay 50% of their
respective subscriptions was an attempted withdrawal of so much capital from the fund upon which
the company’s creditors were entitled ultimately to rely and having been effected without compliance
with the statutory requirements.
68 – Lumanlan v. Cura (1934)
59 PHIL 746
TOPIC Trust Fund Doctrine
DOCTRINE
Subscriptions to the capital of a corporation constitute a fund to which the creditors have a right to
look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realize assets for the payment of its debts
EMERGENCY RECIT
Lumanlan subscribed for 300 shares of stock of said corporation at a par value of P50 or a total of
P15K. Julio Valenzuela and the other creditors of the corporation filed a suit against it praying that
a receiver be appointed as it appeared that the corporation had no assets except credits against
those who had subscribed for shares of stick Lumanlan paid only P1,500 of the P15K, so Tayag
(receiver) filed a suit against him for the collection of P15, 109: P13,500 = amount he owed for
unpaid stock and P1,609 = loans & advances by the corporation to Lumanlan The court sentenced
Lumanlan to pay the said amount. Lumanlan was designated to pay the debt of the corporation to
Julio Valenzuela. Lumanlan agreed to assume the obligation and in turn the corporation agreed that
if Lumanlan would dismiss his appeal, the corporation would collect only 50% of the amount
subscribed by him for stock, provided that in case the 50% was insufficient to pay Valenzuela
he should pay an additional amount which should not exceed the amount of the judgment against
him. The corporation asked for the execution of the sentence so the Provincial Sheriff levied upon
2 parcel of land belonging to Lumanlan. Sheriff was enjoined from proceeding w/ the sale. The court
ruled that the corporation has a right to collect all unpaid stock subscriptions and any other
amounts which may be due it.
It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which
the creditors have a right to look for satisfaction of their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in order to realize assets for the payment
of its debts. The Corporation Law clearly recognizes that a stock subscription is a subsisting liability
from the time the subscription is made, since it requires the subscriber to pay interest quarterly from
that date unless he is relieved from such liability by the by- laws of the corporation. The subscriber
is as much bound to pay the amount of the share subscribed by him as he would be to pay any
other debt, and the right of the company to demand payment is no less incontestable. The
corporation has a right to collect the amount of shares subscribed just like an ordinary debt however
in this case, since Lumanlan paid the debt of the corporation amounting to P13,840, the corporation
should credit the said amount against the P15,109 judgment of the court, which Lumanlan was
ordered to pay.
69 – CIR v CA, Soriano Corporation 301 SCRA 152 (1999)
GR NO. 108576
TOPIC: Trust fund doctrine
DOCTRINE: Under the trust fund doctrine, the capital stock, property and other assets of the
corporation are regarded as equity in trust for the payment of the corporate creditors. This doctrine
is the underlying principle in the procedure for the distribution of capital assets which allows the
distribution of corporate capital only in three instances:
(1) amendment of the Articles of Incorporation to reduce the authorized capital stock,
(2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted
retained earnings, and
(3) dissolution and eventual liquidation of the corporation.
Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its
own shares and in Section 122 on the prohibition against the distribution of corporate assets and
property unless the stringent requirements therefor are complied with.
EMERGENCY RECIT
Don Andres Soriano (American), founder of A. Soriano Corp. (ASC) had a total shareholdings of
185,154 shares. Broken down, the shares comprise of 50,495 shares which were of original issue
when the corporation was founded and 134,659 shares as stock dividend declarations. So in 1964
when Soriano died, half of the shares he held went to his wife as her conjugal share (wife’s
“legitime”) and the other half (92,577 shares, which is further broken down to 25,247.5 original issue
shares and 82,752.5 stock dividend shares) went to the estate. For sometime after his death, his
estate still continued to receive stock dividends from ASC until it grew to at least 108,000 shares. In
1968, ASC through its Board issued a resolution for the redemption of shares from Soriano’s estate
purportedly for the planned “Filipinization” of ASC. Eventually, 108,000 shares were redeemed from
the Soriano Estate. In 1973, a tax audit was conducted. Eventually, the Commissioner of Internal
Revenue (CIR) issued an assessment against ASC for deficiency withholding tax-at-source. The
CIR explained that when the redemption was made, the estate profited (because ASC would have
to pay the estate to redeem), and so ASC would have withheld tax payments from the Soriano
Estate yet it remitted no such withheld tax to the government. ASC averred that it is not duty bound
to withhold tax from the estate because it redeemed the said shares for purposes of “Filipinization”
of ASC and also to reduce its remittance abroad.
The SC ruled that the proceeds from a redemption is taxable and ASC is duty bound to withhold the
tax at source. The Soriano Estate definitely profited from the redemption and such profit is taxable,
and again, ASC had the duty to withhold the tax. There was a total of 108,000 shares redeemed
from the estate. 25,247.5 of that was original issue from the capital of ASC. The rest (82,752.5) of
the shares are deemed to have been from stock dividend shares. Sale of stock dividends is taxable.
It is also to be noted that in the absence of evidence to the contrary, the Tax Code presumes that
every distribution of corporate property, in whole or in part, is made out of corporate profits such as
stock dividends. It cannot be argued that all the 108,000 shares were distributed from the capital of
ASC and that the latter is merely redeeming them as such. The capital cannot be distributed in
the form of redemption of stock dividends without violating the trust fund doctrine — wherein
the capital stock, property and other assets of the corporation are regarded as equity in trust
for the payment of the corporate creditors. Once capital, it is always capital. That doctrine
was intended for the protection of corporate creditors.
70 – Central Textile Mills v. NWPC (1996)
GR NO. 104102
TOPIC: Trust fund doctrine
DOCTRINE: To include funds held in trust in the paid-up capital would be prejudicial to the
corporation as an employer.
EMERGENCY RECIT:
The RTWPB issued a wage order which increased the minimum daily wage of employees and
workers in the private sector in the NCR, but exempted from its application distressed employers
whose capital has been impaired by at least 25% in the preceding year. Central Textile filed its
application for exemption due to financial losses. However, the same was disapproved after it was
concluded by the Board that based on the documents submitted by Central Textile, it sustained an
impairment of only 22.41%. Furthermore, that according to the audited financial statements of
Central Textile, it had a total paid-up capital of P305k which amount should be the basis for
determining the capital impairment of petitioner, instead of the authorized capital stock of P128k
which Central Textile insists should be the basis of computation. Lastly, it was noted by the Board
that Central did not file with the SEC the company’s board resolution approving an increase in its
authorized capital stock from P128k to P640k. The SC ruled in favor of Central Textile. The basis of
the exemption should be the paid-up capital, and not the authorized capital stock. However, it was
noted by the Court that at the time the Board resolution increasing the capital stock was issued and
despite no petition having been submitted to the SEC for its approval, petitioner already started
receiving subscriptions and payments on the proposed increase and which resulted to its paid-up
capital being P305k. Such payments cannot be deemed part of petitioner’s paid-up capital because
its capital stock has not yet been legally increased. Thus, petitioner’s authorized capital stock in the
year when the exemption was sought stood at P128k which was impaired by losses of nearly 50%.
Such payments constitute deposits on future subscriptions, money which the corporation will hold
in trust for the subscribers until it files a petition to increase its capitalization and a certificate of filing
of increase of capital stock is approved and issued by the SEC.
As a trust fund, this money is still withdrawable by any of the subscribers at any time before the
issuance of the corresponding shares of stock, unless there is a pre-subscription agreement to the
contrary, which apparently is not present in the instant case. Consequently, if a certificate of increase
has not yet been issued by the SEC, the subscribers to the unauthorized issuance are not to be
deemed as stockholders possessed of such legal rights as the rights to vote and dividends.
To reiterate, petitioner’s capital held answerable for the additional wages would include funds it only
holds in trust, which to reiterate may not be deemed part of its paid-up capital, the losses of which
shall be the basis of the 25% referred to above. To include such funds in the paid-up capital would
be prejudicial to the corporation
71 – Petitioner v. Respondent (19xx)
72 – Republic Planters Bank v Agana (1997)
GR NO. 51765
TOPIC Power to declare dividends
DOCTRINE Corporation Code prohibit the issuance of any stock dividend without the approval of
stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular
or special meeting duly called for the purpose. These provisions underscore the fact that payment
of dividends to a stockholder is not a matter of right but a matter of consensus.
EMERGENCY RECIT
Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from the Republic
Planters Bank in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares
of stocks were issued to RFRDC through its officersthen Adalia F. Robes and one Carlos F. Robes.
In other words, instead of giving the legal tender totaling to the full amount of the loan, which is
P120,000.00, the Bank lent such amount partially in the form of money and partially in the form of
stock certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per
share. Said stock certificates were in the name of Adalia F. Robes and Carlos F. Robes, who
subsequently, however, endorsed his shares in favor of Adalia F. Robes. RFRDC and Robes
proceeded against the Bank and filed a complaint anchored on their alleged rights to collect
dividends under the preferred shares in question and to have the bank redeem the same under the
terms and conditions of the stock certificates.
SC: Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit
the issuance of any stock dividend without the approval of stockholders, representing not less than
two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the
purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a
matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the
corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is
legal only when construed as requiring payment of interest as dividends from net earnings or surplus
only.
73 – Montelibano v. Bacolod-Murcia Milling Co., Inc. (1962)
GR NO. L-15092
TOPIC: Ultra vires acts of corporations
DOCTRINE: The test to be applied [in determining whether an act by the directors is ultra
vires] is whether the act in question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers and reasonably necessary
to their exercise. If so, the corporation has the power to do it; otherwise, not.
EMERGENCY RECIT: The Board of Directors of the respondent milling corporation adopted a
resolution that will first, increase the planters’ share in their product from 55% to 60% and, second,
extend the term of operations for another fifteen years. This will only take place, however, if planting
conditions improve. 21 days later, a written agreement embodying this resolution was signed by the
corporation. Later, the conditions did improve, as contemplated. When enforcement of the
agreement was sought, the milling corporation assailed the same on the ground that the agreement
arising from the resolution was an ultra vires act of the Board of Directors. The corporation argues
that the consideration is lacking and the agreement was essentially a donation. SC disagreed and
held it was not ultra vires. The consideration was the extension of the term of operations. Further,
the corporation only signed the printed agreement 21 days after adoption of the resolution. It had
much time to review the same and had the discretion to reject or deny the proposal. More
significantly, the agreement was made in good faith and furthered the corporation’s business (see
DOCTRINE). Thus, there was no ultra vires act of corporate officers and the agreement stands.
74 – Twin Towers Condo v CA (2003)
398 SCRA 203
TOPIC: ULTRA VIRES ACTS OF CORPORATIONS
DOCTRINE
The term ultra vires refers to an act outside or beyond corporate powers, including those that may
ostensibly be within such powers but are, by general or special laws, prohibited or declared illegal.33
The Corporation Code defines an ultra vires act as one outside the powers conferred by the Code
or by the Articles of Incorporation, or beyond what is necessary or incidental to the exercise of the
powers so conferred. Moreover, special laws governing certain classes of corporations, like the
Condominium Act, also grant specific corporate powers to corporations falling under such special
laws.
EMERGENCY RECIT
Petitioner Twin Towers, a non-stock corporation, is organized for the sole purpose of holding title to
and managing the common areas of the condomiunium. Membership in petitioner corporation is
compulsory and limited to all registered owners of units in the Condominium. ALS, as registered
owner of Unit No. 4-A (“Unit” for brevity) of the Condominium, is a member of petitioner. Litonjua,
who is the corporate president of ALS, occupies the Unit. Petitioner collects from all its members
assessment dues, and claimed that both ALS and Litonjua failed to pay their assessment dues.
ALS and Litonjua assail the validity of House Rule 26.3 alleging that it is ultra vires. ALS and Litonjua
maintain that neither the Master Deed nor the By-Laws of petitioner expressly authorizes petitioner
to prohibit delinquent members from using the Condominium facilities. Being ultra vires, House Rule
26.3 binds no one.
The SC held that the House Rule is valid. The Condominium Act, petitioner’s By-Laws and the
Master Deed expressly empower petitioner to promulgate House Rule 26.3. Furthermore, The
Condominium Act clearly provides that the Master Deed may expressly empower the management
body, petitioner in the instant case, to enforce all provisions in the Master Deed and Declaration of
Restrictions. Thus, the Master Deed clearly empowers petitioner to enforce the provisions of the
Master Deed in accordance with petitioner’s ByLaws. Moreover, Petitioner’s By-Laws expressly
authorize petitioner’s Board of Directors to promulgate rules and regulations on the use and
enjoyment of the common areas.
Evidently, the Condominium Act, the Master Deed and petitioner’s By-Laws grant petitioner the
express power to promulgate rules and regulations concerning the use, enjoyment and occupancy
of the common areas.
75 – China Banking Corp vs CA
GR NO. 117604
TOPIC Ultra Vires Act of the Corporation
DOCTRINE: The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription,
and not to any indebtedness which a subscriber or stockholder may owe the corporation arising
from any other transaction."
EMERGENCY RECIT
Calapatia, a stockholder of private respondent Valley Golf & Country Club, Inc. (VGCCI), pledged
his Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC)
Calapatia obtained a loan of P20,000.00 from petitioner, the payment of which was secured by the
pledge agreement still existing between Calapatia and petitioner. Due to Calapatia's failure to pay
his obligation, petitioner, led a petition for extrajudicial foreclosure before Notary Public Antonio T.
de Vera of Manila, that the pledged stock be transferred to its (petitioner's) name and the same be
recorded in the corporate books.
Petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate by virtue of being
the highest bidder in the auction and requested that a new certificate of stock be issued in its name.
VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction.
petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a case with
the RTC for the nullification of the auction and for the issuance of a new stock certificate in its name.
The purchase of the share or membership certificate at public auction by petitioner transferred
ownership of the same to the latter and thus entitled petitioner to have the said share registered in
its name as a member of VGCCI. VGCCI did not assail the transfer directly and has expressly
recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner
and has even noted said agreement in its corporate books.
In addition, Calapatia, the original owner of the subject share, has not contested the said transfer.
By virtue of the sale, petitioner became a bona fide stockholder of VGCCI
Sec. 63 of the Corporation Code which provides that "no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be
utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid
subscription, and not to any indebtedness which a subscriber or stockholder may owe the
corporation arising from any other transaction." In the case at bar, the subscription for the share in
question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219.
What Calapatia owed the corporation were merely the monthly dues.
76 – Atrium Management Corporation v. CA
TOPIC Ultra vires act
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.
The 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.
EMERGENCY RECIT
Hi Cement Corporation, through its treasurer De Leon, issued 4 post dated checks to E.T. Henry.
The checks are crossed and are made payable to E.T. Henry’s Account. Henry, however,
endorsed the same to Atrium Management Corporation. Atrium then sought confirmation from Hi
Cement on the checks. De Leon confirmed the checks and advised that the checks are ok for
rediscounting. When Atrium encashed the check, it was dishonored because the same were
crossed. This prompted Atrium to sue Hi-Cement. Hi-Cement is now arguing that De Leon’s act of
signing the check is ultra vires and therefore she should be held personally liable. The Supreme
Court ruled that the act was not ultra vires because the act of issuing the checks was within the
powers of the corporation. Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (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.
In this case, De Leon was negligent when she confirmed the checks even though she knew that
the same were crossed checks. Therefore, De Leon is personally liable for the checks.
77 – Pirovana v. De la Rama Steamship
GR NO. L - 5377
TOPIC Ultra vires Act of the Corporation
DOCTRINE A distinction should be made between corporate acts or contracts which are illegal and
those which are merely ultra vires. The former contemplates the doing of an act which is contrary to
law, morals, or public policy or public duty, and are, like similar transactions between the individuals
void. They cannot serve as basis of a court action, nor require validity. Ultra vires acts, on the other
had, or those which are not illegal and void ab initio, but are merely not within the scope of the
articles of incorporation are merely voidable and may become binding and enforceable when ratified
by the stockholders.
EMERGENCY RECIT
Pirvoana was the President of De la rama Steamship adn the company insured the life of Pirovana
in various insurance companies. Upon his death, de la rama opted to set aside P 400,000 to the
minor children of Pirovana and a resolution was adopted and approved by the stockholders. This
donation, however, was later revoked saying that such act was ultra vires and beyond the scope of
the company’s corporate powers. The SC, however, ruled that the act was not ultra vires because
under the articles of incorporation of the company, it is given almost unlimited powers to carry out
the purposes for which it was organized among them including the power to dispose its assets via
donation. Even assuming arguendo that the act is ultra vires, it cannot be invalidated or declared
legally ineffective because such donation represents not only the act of the Board of Directors but
of the stockholders themselves. By this ratification, the infirmity of the corporate act has been
obliterated making it valid and enforceable.
78. REPUBLIC V. ACOJE MINING COMPANY, INC. (AMC)
GR. NO. L-18062, 28 FEBRUARY 1963
BAUTISTA-ANGELO, J.
TOPIC: ULTRA VIRES ACTS
DOCTRINE: While as a rule an ultra vires act is one committed out-side the object for which a
corporation is created as defined by the law of its organization and therefore beyond the powers
conferred upon it by law, there are however certain corporate acts that may be performed out-side
of the scope of the powers expressly conferred if they are necessary to promote the interest or
welfare of the corporation, such as the establishment, in the case at bar, of a local post office in a
mining camp which is far removed from the postal facilities or means of communications accorded
to- people living in a city or municipality.
An illegal act is void and cannot be validated, while an ultra vires act is merely voidable and can be
enforced by performance, ratifi-cation or estoppel, or on equitable grounds. In the present case the
validity of the resolution of the Board of Directors of the corporation accepting full responsibility in
connection with funds to be received by its postmaster, should be upheld on the ground of estoppel.
EMERGENCY RECIT: AMC opened a post office in its mining camp with Sanchez as its postmaster.
Afterwards, Sanchez went on a 3-day leave and never returned. It was then found out that the said
postmaster’s account has a shortage. The government then demanded for such shortage, which
AMC countered on the ground that its assumption of responsibility over the postmaster’s acts is ultra
vires. The SC ruled it’s not ultra vires. While as a rule an ultra vires act is one committed out-side
the object for which a corporation is created, there are however certain corporate acts that may be 2. Acts that are void cannot be ratified.
performed out-side of its scope of powers if they are necessary to promote the interest or welfare of
the corporation, such as the establishment, in the case at bar, of a local post office in a mining camp EMERGENCY RECIT
which is far removed from the postal facilities or means of communications accorded to- people
De Villa obtained from Yasuma a loan (P1.3 million), secured by real estate mortgage that deed of
living in a city or municipality. which was signed by De Villa as president of respondent East Cordillera Mining Corp. For failure of
De Villa to pay, Yasuma filed a collection suit against De Villa and the corporation, since the amount
was allegedly transferred to the corporation as investment. RTC ruled in favor of Yasuma, but CA
79 – Lipat vs. Pacific Banking Corporation (2003)
reversed the decision and held that the loan was personal to De Villa and that the mortgage was
GR NO. 142435
null and void for lack of authority from the corporation. Yasuma contends that the corporation’s
TOPIC: Ultra Vires of Corporation
admission that it received the P1.3 million was effectively a ratification of De Villa’s act and that the
DOCTRINE: A corporation knowingly permits one of its officers or any other agent to act within the
mortgage executed by De Villa, as president of the corporation, was ratified by the corporation since
scope of an apparent authority, it holds him out of the public as possessing the power to do acts; the mortgage was an accessory contract of the loan. The SC held that there was no valid ratification
this, the corporation will, as against anyone who has in good faith dealt with it through such agent, of the loan. The corporation could not have ratified the act of De Villa considering that it had no idea
be estopped from denying the agent’s authority. that he took out a loan on its behalf. Ratification is a voluntary choice that is knowingly made. The
corporation could not have ratified an act it had no knowledge of. Likewise, there was no valid
EMERGENCY RECIT: Petitioner spouses Lipat owned Bela’s Export Trading (BET) a single
ratification of the mortgage. A special power of attorney, appearing in a public instrument, is
proprietorship engaged in the manufacture of garments for domestic and foreign consumption. The necessary to create or convey real rights over immovable property. In the absence of a special
spouses by virtue of an SPA appointed and authorized their daughter to obtain loan from respondent power of attorney in favor of De Villa as president, no valid mortgage could have been executed by
Pacific Bank. A loan was secured and as security therefore a REM was executed over the property him. Since the mortgage was void, it could not be ratified.
of the spouses. Sometime after, BET was incorporated into a family corporation named Bela’s
Export Corporation (BEC) and the loan was restructured in its name. Subsequent loans were
obtained in behalf of BEC all secured by the previous REM. BEC defaulted in its payments which
led to the foreclosure and sale of the mortgaged property. The spouses moved to annul the sale
alleging that BEC is a distinct and separate personality from them and that the REM was executed
only to secure BET’s loan. Both trial court and CA ruled to pierce the corporate veil to hold petitioner
spouses liable for BEC’s obligations. The Court ruled that BEC merely succeded BET as petitioner’s
alter ego; hence, their mortgaged property must be held liable for the subsequent loans and credit
lines of BEC.

Principle of estoppel precludes petitioners from denying the validity of transactions with Pacific Bank.
While the power and responsibility to decide whether the corporation should enter a contract that
will bind the corporation is lodged in its BOD, subject to AOI, by-laws, or relevant provisions of law,
yet, as natural persons may authorize another to do certain acts and fir and on his behalf, the BOD
may validly delegate some of its functions and powers to officers, committees, or agents. Apparent
authority may be ascertained through: (1) the general manner in which the corporation holds out an
officer or agents as havin ght epower 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, whether beyond the scope of ordinary powers. In this case,
Teresita Lipat dealt with Pacific Bank on the mortgage contract by virtue of SPA executed by Estelita.
Recall that Teresita Lipat acted as manager of both BEC and BET and had been deciding business
matters in the absence of Estelita.it is a familiar doctrine that if

80 – Yasuma v. Heirs of De Villa and East Cordillera Mining Corp. (2006)

GR NO. 150350
TOPIC: Business judgment rule - ultra vires acts may be subject to estoppel or ratification
DOCTRINE/S:
1. Corporation may ratify the unauthorized act of its corporate officer. Ratification means
that the principal voluntarily and knowingly adopts, confirms and gives sanction to some
unauthorized act of its agent on its behalf.