CORPORATION

LAW CASE DIGESTS

3C & 3S ATTY. CARLO BUSMENTE

WESTERN INSTITUTE OF TECHNOLOGY vs. SALAS

G.R. No. 113032 August 21, 1997

FACTS:
Ricardo, Salvador, Soledad, Antonio, and Richard Salas were the
controlling members of the Board of Trustees of WIT, a non-stock
corporation engaged in the operation of an educational institution.
According to Villasis et al. (petitioners and minority stockholders), a
special board meeting was held on June 1, 1986, wherein Resolution
No. 48 series of 1986 was passed. The resolution granted monthly
compensation (9T/mo for the Chairman; 3.5T Vice Chairman; 3.5T
Corporate Sec; 3.5T Corporate Treasurer) to the Salas[es] as corporate
officers, retroactive June 1, 1985. Allegedly, the resolution was dated
March 30, 1986, not June 1, 1986.

In 1991, Villasis et al. consequently filed a criminal complaint against
the Salas[es] for falsification of public document and for estafa. The first
charge was anchored on the WITs income statement for 1985-1986
with SEC reflecting the disbursement for the officers compensation
based on the resolution, making it appear that it was passed on March
30, when it truth it was passed on June 1, a date not covered by the
corporations fiscal year (May 1, 1985-April 30, 1986). Meanwhile, the
estafa was based on the officers disbursement of funds albeit
unauthorized, and despite objections made in annual stockholders
meeting, they refused to rectify the same.

RTC Iloilo: Acquitted the Salas[es]. (NB: WIT filed motion to intervene,
stating that Villasis et al.s lawyer was not the corporations counsel;
thus, they did not represent the corporation and that WIT sought the
dismissal of the petition. But this is weird, dont you think? Bakit
petitioner pa din ang WIT dito, ganyan?)

ISSUE:
WON the resolution was valid, i.e. it did not violate Section 30 of the
Code.

HELD:
Yes.

Sec. 30.Compensation of directors. In the absence of any provision in
the by-laws fixing their compensation, the directors shall not receive
any compensation, as such directors, except for reasonable per
diems: Provided, however, That any such compensation (other than per
diems) may be granted to directors by the vote of the stockholders
representing at least a majority of the outstanding capital stock at a
regular or special stockholders' meeting. In no case shall the total
yearly compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation during
the preceding year.

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.

Under the foregoing section, there are only two (2) ways by which
members of the board can be granted compensation apart from
reasonable per diems: (1) when there is a provision in the by-laws
fixing their compensation; and (2) when the stockholders representing
a majority of the outstanding capital stock at a regular or special
stockholders' meeting agree to give it to them.

The proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule. Worthy of
note is the clear phraseology of Section 30 which states: . . . [T]he
directors shall not receive any compensation, as such directors . . . The
phrase as such directors is not without significance for it delimits the
scope of the prohibition to compensation given to them for services
performed purely in their capacity as directors or trustees. The
unambiguous implication is that members of the board may receive

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compensation, in addition to reasonable per diems; when they render

services to the corporation in a capacity other than as directors/
trustees. In the case at bench, Resolution No. 48, s. 1986 granted
monthly compensation to private respondents not in their capacity as
members of the board, but rather as officers of the corporation, more
particularly as Chairman, Vice Chairman, Treasurer and Secretary of
Western Institute of Technology. Thus, the prohibition with respect to
granting compensation to corporate directors/trustees as such under
Section 30 is not violated in this particular case.

Additional Matters:
Re March 30 vs June 1: The Court held that prosecution failed to
present the whole minutes of the BoTs regular meeting. Had it
included the complete minutes, it can be seen that Resolution No. 48
was actually passed on March 30. And even though the compensation
was not expressly mentioned in the Agenda, the minutes disclosed that
the Resolution was passed on March 30.

Re Petitioners claim that it is a derivative suit: SC held in the negative.
It was merely an appeal on the civil aspect of Criminal Cases filed with
the RTC. Among the basic requirements for a derivative suit to prosper
is that the minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper forum that
he is suing on a derivative cause of action on behalf of the corporation
and all other shareholders similarly situated who wish to join. This is
necessary to vest jurisdiction upon the tribunal in line with the rule
that it is the allegations in the complaint that vests jurisdiction upon
the court or quasi-judicial body concerned over the subject matter and
nature of the action. This was not complied with by the petitioners
either in their complaint before the court a quo nor in the instant
petition.

SANTOS vs. NLRC

G.R. No. 101699 March 13, 1996

FACTS:
Private respondent Melvin D. Millena was hired to be the project
accountant for MMDC's (Mana Mining and Development Corporation)
mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986,
private respondent sent to Mr. Gil Abao, the MMDC corporate
treasurer, a memorandum calling the latter's attention to the failure of
the company to comply with the withholding tax requirements of, and
to make the corresponding monthly remittances to, the Bureau of
Internal Revenue ("BIR") on account of delayed payments of accrued
salaries to the company's laborers and employees.

In a letter, Abao advised private respondent that the board had
decided that it would be useless to continue operations in Sorsogon
taking into consideration that it was already rainy season and that the
peace and order condition therein had deteriorated. Abao also said
that the company will stop production until the advent of the dry
season, and until the insurgency problem clears. It will undertake only
necessary maintenance and repair work and will keep our overhead
down to the minimum manageable level. Until it resumes full-scale
operations, it will not need a project accountant as there will be very
little paper work at the site, which can be easily handled at Makati.

Private respondent expressed "shock" over the termination of his
employment. He complained that he would not have resigned from the
Sycip, Gorres & Velayo accounting firm, where he was already a senior
staff auditor, had it not been for the assurance of a "continuous job" by
MMDC's Eng. Rodillano E. Velasquez. Private respondent requested that
he be reimbursed the "advances" he had made for the company and be
paid his "accrued salaries/claims." Since the claim was not heeded, he
filed with the NLRC a complaint for illegal dismissal, unpaid salaries,
13th month pay, overtime pay, separation pay and incentive leave pay
against MMDC and its two top officials, namely, herein petitioner

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Benjamin A. Santos (the President) and Rodillano A. Velasquez (the

executive vice-president).

The Labor Arbiter found no valid cause for the dismissal of Millena. The
company and its co-respondents appealed. NLRC affirmed LAs
decision. It held that the reasons relied upon by MMDC and its co-
respondents in the dismissal of Millena, i.e., the rainy season,
deteriorating peace and order situation and little paperwork, were "not
causes mentioned under Article 282 of the Labor Code of the
Philippines" and that Millena, being a regular employee, was "shielded
by the tenurial clause mandated under the law."

A writ of execution correspondingly issued; however, it was returned
unsatisfied for the failure of the sheriff to locate the offices of the
corporation in the address indicated. Another writ of execution and an
order of garnishment was thereupon served on petitioner at his
residence. petitioner filed a motion for reconsideration of the NLRC's
resolution along with a prayer for the quashal of the writ of execution
and order of garnishment. He averred that he had never received any
notice, summons or even a copy of the complaint; hence, he said, the
Labor Arbiter at no time had acquired jurisdiction over him.

Petitioner argues that public respondents have gravely abused their
discretion "in finding petitioner solidarily liable with MMDC even in the
absence of bad faith and malice on his part."

ISSUE:
WON petitioner can be held personally liable.

HELD:
No. A corporation is a juridical entity with legal personality separate
and distinct from those acting for and in its behalf and, in general, from
the people comprising it. The rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are its
sole liabilities. Nevertheless, being a mere fiction of law, peculiar
situations or valid grounds can exist to warrant, albeit done sparingly,

the disregard of its independent being and the lifting of the corporate
veil. As a rule, this situation might arise when a corporation is used to
evade a just and due obligation or to justify a wrong, to shield or
perpetrate fraud, to carry out similar other unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the
law. In Tramat Mercantile, Inc., vs. Court of Appeals, the Court has
collated the settled instances when, without necessarily piercing the
veil of corporate fiction, personal civil liability can also be said to
lawfully attach to a corporate director, trustee or officer; to wit: 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."

The case of petitioner is way off these exceptional instances. It is not
even shown that petitioner has had a direct hand in the dismissal of
private respondent enough to attribute to him (petitioner) a patently
unlawful act while acting for the corporation. Neither can Article 289 of
the Labor Code be applied since this law specifically refers only to the
imposition of penalties under the Code. It is undisputed that the
termination of petitioner's employment has, instead, been due,
collectively, to the need for a further mitigation of losses, the onset of
the rainy season, the insurgency problem in Sorsogon and the lack of
funds to further support the mining operation in Gatbo. There appears
to be no evidence on record that he acted maliciously or in bad faith in
terminating the services of private respondent. His act, therefore, was
within the scope of his authority and was a corporate act. "It is basic
that a corporation is invested by law with a personality separate and

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distinct from those of the persons composing it as well as from that of

any other legal entity to which it may be related. Mere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.

SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP,
INC., vs. CONSTRUCTION INDUSTRY AND ARBITRATION
COMMISSION and SPS. NARCISO & AIDA QUIAMBAO
G.R. No. 159795 - July 30, 2004.

FACTS:
Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged
in the construction business, with petitioner-spouses ROBERTO and
EVELYN DAVID as its President and Treasurer, respectively. The
records reveal that respondent-spouses NARCISO and AIDA QUIAMBAO
engaged the services of petitioner CGI to design and construct a five-
storey concrete office/residential building on their land in Tondo,
Manila. The Design/Build Contract of the parties provided that: (a)
petitioner CGI shall prepare the working drawings for the construction
project; (b) respondents shall pay petitioner CGI the sum of
P7,309,821.51 for the construction of the building, including the costs
of labor, materials and equipment, and P200,000.00 for the cost of the
design; and (c) the construction of the building shall be completed
within 9 months after securing the building permit.

The completion of the construction was initially scheduled on or before
July 16, 1998 but was extended to November 15, 1998 upon agreement
of the parties. It appears, however, that petitioners failed to follow the
specifications and plans as previously agreed upon. Respondents
demanded the correction of the errors but petitioners failed to act on
their complaint. Consequently, respondents rescinded the contract
after paying 74.84% of the cost of construction.

Respondents then engaged the services of another contractor, RRA and
Associates, to inspect the project and assess the actual accomplishment

of petitioners in the construction of the building. It was found that

petitioners revised and deviated from the structural plan of the
building without notice to or approval by the respondents.

Respondents filed a case for breach of contract against petitioners
before the RTC of Manila. At the pre-trial conference, the parties agreed
to submit the case for arbitration to the CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION (CIAC). Respondents filed a request for
arbitration with the CIAC and nominated Atty. Custodio O. Parlade as
arbitrator. (remember PARLADE? ADR? J) Atty. Parlade was
appointed by the CIAC as sole arbitrator to resolve the dispute. With
the agreement of the parties, Atty. Parlade designated Engr. Loreto C.
Aquino to assist him in assessing the technical aspect of the case. The
RTC of Manila then dismissed the case and transmitted its records to
the CIAC.

Arbitration decision: in favor of Quiambaos. After several
computations, the award in the arbitration proceedings were credited
to the payments already made to CGI, the sum was more or less 10M.
and then 10M less the payments due to CGI (that is 80% of work
accomplishment) plus cost of materials, the total award to be paid to
the Quambaos by the respondents jointly and severally was more or
less 4.1M plus 6%/12% per annum until it is paid. (own words ko to
and rounded off, para mas madali.)

CA decision: affirmed but deleted the lost rental.

Petitioners filed a petition for review and contended among others that
I.THERE WAS NO BASIS, IN FACT AND IN LAW, TO ALLOW
RESPONDENTS TO UNILATERALLY RESCIND THE DESIGN/BUILT
CONTRACT, AFTER PETITIONERS HAVE (SIC) SUBSTANTIALLY
PERFORMED THEIR OBLIGATION UNDER THE SAID CONTRACT and II.
IN FINDING PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH
CO-PETITIONER COORDINATED (GROUP, INC.), IN CLEAR VIOLATION
OF THE DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

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ISSUE:

1. WON the rescission of contract was justified
2. WON petitioner-spouses as corporate officers were grossly
negligent in ordering the revisions on the construction plan
without the knowledge and consent of the respondent-spouses.

HELD:

1. YES.

E.O. No. 1008 or the Constructions Industry Arbitration Law vests on
the Construction Industry Arbitration Commission (CIAC) original and
exclusive jurisdiction over disputes arising from or connected with
construction contracts entered into by parties who have agreed to
submit their case to voluntary arbitration. Section 19 of E.O. No. 1008
provides that its arbitral award shall be appealable to the Supreme
Court only on questions of law.

There is a question of law when the doubt or difference in a given case
arises as to what the law is on a certain set of facts, and there is a
question of fact when the doubt arises as to the truth or falsity of the
alleged facts. Thus, for a question to be one of law, it must not involve
an examination of the probative value of the evidence presented by the
parties and there must be no doubt as to the veracity or falsehood of
the facts alleged.

In the case at bar, it is readily apparent that petitioners are raising
questions of fact. In their first assigned error, petitioners claim that at
the time of rescission, they had completed 80% of the construction
work and still have 15 days to finish the project. They likewise insist
that they constructed the building in accordance with the contract and
any modification on the plan was with the consent of the respondents.
However, these claims were refuted by evidences w/c was taken during
the arbitration proceedings and even upheld by the CA (among them
were as follows: there were deviations from the approved plans and

specifications such as the building was not vertically plumbed,

misaligned walls, low head clearances, addl columns at the basement
and the first floor w.c restricted the use of basement as parking area,
construction of cistern tank w/c capacity should be 10000 galloons but
what was constructed was less than the supposed capacity, etc.). The
only defense of the petitioner was that these were only punch-list items
w/c could be corrected prior to completion and the turnover of the
building had the contract was not rescinded. Punch listing means that
the contractor will list all major and minor defects and rectifies them
before the turnover of the project to the owner. After all defects had
been arranged, the project is now turned over to the owner. For this
particular project, no turn over was made by the contractor to the
owner yet.

MAIN POINT: these revisions were not made with the consent of
the Quiambaos. (kaya nga sila nagrescind) The Contract
specifically provided in Article II that "the CONTRACTOR shall
submit to the OWNER all designs for the OWNER'S approval." And
this is a clear breach of the contract.

Granting the arguments of the Respondents (herein petitioners) that
the observed defects in the Building could be corrected before turn-
over and acceptance of the Building if CGI had been allowed to
complete its construction, the construction of additional columns, the
construction of the Building such that part of it is outside the property
line established a sufficient legal and factual basis for the decision of
the Quiambaos to terminate the Contract. The fact that 5 out of 9 of the
concrete samples subjected to a core test, and 8 out of 18 deformed
reinforcing steel bar specifics subjected to physical tests failed the tests
and the under-design of the cistern was established after the Contract
was terminated also served to confirm the justified suspicion of the
Quiambaos that the Building was defective or was not constructed
according to approved plans and specifications. These are technical
findings of fact made by expert witnesses and affirmed by the
arbitrator.

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2.

Yes.

As a general rule, the officers of a corporation are not personally liable
for their official acts unless it is shown that they have exceeded their
authority. However, the personal liability of a corporate director,
trustee or officer, along with corporation, may so validly attach when
he assents to a patently unlawful act of the corporation or for bad faith
or gross negligence in directing its affairs.

Following the findings of public respondent (CIAC) as when
CGI/DAVIDS were asked whether the Building was underdesigned
considering the poor quality of the soil, Engr. Villasenor defended his
structural design as adequate. He admitted that the revision of the
plans which resulted in the construction of additional columns was in
pursuance of the request of Engr.David to revise the structural plans to
provide for a significant reduction of the cost of construction. When
Engr. David was asked for the justification for the revision of the plans,
he confirmed that he wanted to reduce the cost of construction. . . .

Clearly, the case at bar does not raise any genuine issue of law. Hence
the petition was dismissed and ruling of arbitrator was affirmed. Why?
(baka itanong) We reiterate the rule that factual findings of
construction arbitrators are final and conclusive and not reviewable by
this Court on appeal, except when the petitioner proves affirmatively
that: (1) the award was procured by corruption, fraud or other undue
means; (2) there was evident partiality or corruption of the arbitrators
or of any of them; (3) the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the controversy; (4)
one or more of the arbitrators were disqualified to act as such under
section nine of Republic Act No. 876 and willfully refrained from
disclosing such disqualifications or of any other misbehavior by which
the rights of any party have been materially prejudiced; or (5) the
arbitrators exceeded their powers, or so imperfectly executed them,
that a mutual, final and definite award upon the subject matter

submitted to them was not made. Petitioners failed to show that any of
these exceptions applies to the case at bar.

MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD
vs. RAMOS
G.R. No. 113907 - April 20, 2001

FACTS:
Petitioners allege that this Court committed patent and palpable error
in holding that the respondent company officials cannot be held
personally liable for damages on account of employees dismissal
because the employer corporation has a personality separate and
distinct from its officers who merely acted as its agents whereas the
records clearly established that respondent company officers Saul
Tawil, Carlos T. Javelosa and Renato C. Puangco have caused the hasty,
arbitrary and unlawful dismissal of petitioners from work; that as top
officials of the respondent company who handed down the decision
dismissing the petitioners, they are responsible for acts of unfair labor
practice; that these respondent corporate officers should not be
considered as mere agents of the company but the wrongdoers.

Petitioners further contend that while the case was pending before the
public respondents, the respondent company, in the early part of
February 1990, began removing its machineries and equipment from
its plant located at Merville Park, Paranaque and began diverting jobs
intended for the regular employees to its sub-contractor/satellite
branches; that the respondent company officials are also the officers
and incorporators of these satellite companies as shown in their
articles of incorporation and the general information sheet. They
added that during their ocular inspection of the plant site of the
respondent company, they found that the same is being used by other
unnamed business entities also engaged in the manufacture of
garments. Petitioners further claim that the respondent company no
longer operates its plant site as M. Greenfield thus it will be very
difficult for them to fully enforce and implement the courts decision.

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On the other hand, private respondent company officials Carlos

Javelosa and Remedios Caoleng, in their Comment, state that
considering that petitioners admitted having knowledge of the fact that
private respondent officers are also holding key positions in the alleged
satellite companies, they should have presented the pertinent evidence
with the public respondents; thus it is too late for petitioners to require
this Court to admit and evaluate evidence not presented during the
trial; that the supposed proof of satellite companies hardly constitute
newly discovered evidence.

ISSUE:
WON respondent company officials should be made personally liable
for damages

HELD:
Petitioners contention that respondent company officials should be
made personally liable for damages on account of petitioners dismissal
is not impressed with merit. A corporation is a juridical entity with
legal personality separate and distinct from those acting for and in its
behalf and, in general from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities. True, solidary liabilities
may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the following cases:
1. When directors and trustees, or, in appropriate cases, the
officers of a corporation-
a. Vote for or assent to patently unlawful acts of
the corporation;
b. act in bad faith or with gross negligence in directing the
corporate affairs;
c. are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other
persons.
2. When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did

not forthwith file with the corporate secretary his

written objection thereto
3. When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable
with the Corporation.
4. When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate
action.

In labor cases, particularly, the Court has held corporate directors and
officers solidarily liable with the corporation for the termination of
employment of corporate employees done with malice or in bad faith.
Bad faith or negligence is a question of fact and is evidentiary. It has
been held that bad faith does not connote bad judgement or negligence;
it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty thru some motive or
interest or ill will; it partakes of the nature of fraud.

Petitioners claim that the jobs intended for the respondent companys
regular employees were diverted to its satellite companies where the
respondent company officers are holding key positions is not
substantiated and was raised for the first time in this motion for
reconsideration. Even assuming that the respondent company officials
are also officers and incorporators of the satellite companies, such
circumstance does not in itself amount to fraud. The documents
attached to petitioners motion for reconsideration show that these
satellite companies were established prior to the filing of petitioners
complaint against private respondents with the Department of Labor
and Employment on September 6, 1989 and that these corporations
have different sets of incorporators aside from the respondent officers
and are holding their principal offices at different locations. Substantial
identity of incorporators between respondent company and these
satellite companies does not necessarily imply fraud. In such a case,
respondent companys corporate personality remains inviolable.

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Although there were earlier decisions of this Court in labor cases where
corporate officers were held to be personally liable for the payment of
wages and other money claims to its employees, we find those rulings
inapplicable to this case.

PRIME WHITE CEMENT CORPORATION vs. IAC
G.R. No. 68555 March 19, 1993

FACTS:
On July 16, 1969, Alejandro Te and Prime White Cement Corp. thru its
President Zosimo Falcon and its Chairman of the Board Justo Trazo
entered into a dealership agreement whereby:
a.
b.
c.
d.

They will act as exclusive dealer of Prime Whites cement

product in the entire Mindanao area for 5 years,
Prime White shall supply and sell to Te 20,000 cement
bags per month,
They shall pay P9.70 per bag, and
They shall open with any bank a letter of credit and upon
the certification of the boat captain on the bill of lading
that the goods were already loaded on board the vessel,
the bank shall release the amount as payment for the
goods to be shipped.

Relying heavily on the dealership agreement, Te entered into a contract
to supply with several hardware stores and sell to them 20,000
allocated cement bags by September 1970. Thereafter, Te informed
Prime Corp. that he is preparing to open another letter of credit to
cover the delivery for September 1970. However, the corporations
board imposed the following conditions:
a.
b.
c.
d.

Delivery shall commence on November 1970,

Only 8,000 bags per month for 3 months will be delivered,
The price per bag is increased to P13.30 and subject to
unilateral readjustment by the corp.
The place of delivery shall be Asturias,

e.
f.

The letter of credit may be opened only with Prudential

Bank-Makati branch,
Payment shall be made in advance.

They made several demands against Prime White Corp. to comply with
the dealership agreement but the latter refused forcing Te to cancel his
contract to supply with the hardwares. Prime white entered into an
exclusive dealership agreement with Napoleon Co. Hence, the suit.

RTC: Ruled in favour of Te.
CA: Affirmed RTCs decision.

ISSUE:
WON the dealership agreement is valid and enforceable contract.

RULING:

NO. Under the Corporation Law, which was then in force at the time
this case arose, as well as under the present Corporation Code, all
corporate powers shall be exercised by the Board of Directors, except
as otherwise provided by law. Although it cannot completely abdicate
its power and responsibility to act for the juridical entity, the Board
may expressly delegate specific powers to its President or any of its
officers. In the absence of such express delegation, a contract entered
into by its President, on behalf of the corporation, may still bind the
corporation if the board should ratify the same expressly or impliedly.
Implied ratification may take various forms - like silence or
acquiescence; by acts showing approval or adoption of the contract; or
by acceptance and retention of benefits flowing therefrom.
Furthermore, even in the absence of express or implied authority by
ratification, the President as such may, as a general rule, bind the
corporation by a contract in the ordinary course of business, provided
the same is reasonable under the circumstances. These rules are basic,
but are all general and thus quite flexible. They apply where the
President or other officer, purportedly acting for the corporation, is
dealing with a third person, i.e., person outside the corporation.

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RULE IN CASE OF CONFLICT OF INTEREST. A director of a

corporation holds a position of trust and as such, he owes a duty of
loyalty to his corporation. 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.

DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS WITH THE
CORPORATION; RULE. A director's contract with his corporation is
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
as provided in Section 32 of the Corporation Code.

however, That the contract is fair and reasonable under the

circumstances."

In the light of the circumstances of this case, it is to Us quite clear that

he was guilty of disloyalty to the corporation; he was attempting in
effect, to enrich himself at the expense of the corporation. There is no
showing that the stockholders ratified the "dealership agreement" or
that they were fully aware of its provisions. The contract was therefore
not valid and this Court cannot allow him to reap the fruits of his
disloyalty.

"SEC. 32.Dealings of directors, trustees or officers with the

corporation. A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are present:

1. 1.That the presence of such director or trustee in the board
meeting in which the contract was approved was
not necessary to constitute a quorum for such
meeting;
2. 2.That the vote of such director or trustee was not necessary
for the approval of the contract;
3. 3.That the contract is fair and reasonable under the
circumstances; and
4. 4.That in the case of an officer, the contract with the officer
has been previously authorized by the Board of
Directors

Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or
trustee, such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
or of two-thirds (2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the adverse interest of the
directors or trustees involved is made at such meeting: Provided,

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