BOARD OF DIRECTORS CASE DIGEST

FILIPINAS PORT SERVICES INC v GO, ET AL

G.R. NO. 161886, MARCH 16 2007, FIRST
DIVISION (GARCIA, J)
The determination of the necessity for
additional offices and/or positions in a corporation,
if authorized under the by-laws is a management
prerogative which the courts are wont to review in
the absence of any proof that such prerogative was
exercised in bad faith or with malice. Similarly, the
Board of Directors may create an executive
committee or other board committees as part of its
management prerogative provided that such board
committees do not function as an executive
committee as contemplated by Section 35 of the
Corporation Code, in which case authority in the
by-laws is required. Questions of policy or of
management are left solely to the honest decision
of the board as the business manager of the
corporation, and the court is without authority to
substitute its judgment for that of the board, and as
long as it acts in good faith and in the exercise of
honest judgment in the interest of the corporation,
its orders are not reviewable by the courts.
Eliodoro C. Cruz (Cruz) was president of
Filipinas Port Services, Inc. (Filport) since 1968. He
lost his bid for re-election in 1991. A year
thereafter, Cruz wrote a letter to the corporations
Board of Directors questioning the creation of six

CORPORATION LAW

(6) positions and the election of certain members of

the board thereto. It would seem that Cruz was
unhappy with the Boards action or actions on the
matter, for a year later he filed a petition with the
Securities and Exchange Commission (SEC), joined
by Mindanao Terminal and Brokerage Services, Inc.
(Minterbro) as co-petitioner, what he calls a
derivative suit supposedly in representation of
Filport and its stockholders.
It is Cruzs contention that the creation of an
executive committee is not provided for in the bylaws and the increase in the emoluments of several
members of the board is greatly disproportionate to
the volume and character of work of said directors.
Further, he questions the re-creation of the
positions of Assistant Vice President for corporate
planning, operations, finance and administration
and additional positions where those holding said
offices are not doing any work but earning
compensation. These acts of mismanagement
according to Cruz are detrimental to the
corporation and its stockholders and so the board
must account for the amounts incurred in creating
these positions and made to pay damages.
This intra-corporate case was in hibernation
until the enactment on July 19, 2000 of the
Securities Regulation Code. And so it was
transferred from the SEC to the Manila Regional
Trial Court (RTC) (sitting as a corporate court) and

BOARD OF DIRECTORS CASE DIGEST

eventually landing in the Davao RTC. Though the

RTC found that Filports Board of Directors had the
power to create positions not provided for in the bylaws and the increases in salaries are reasonable,
nevertheless it ordered the directors holding the
positions of Assistant Vice President for Corporate
Planning, Special Assistant to the President and
Special Assistant to the Board Chairman to refund
to the corporation the salaries they have received
as such officers considering that Filipinas Port
Services is not a big corporation requiring multiple
executive positions and that said positions were
just created for accommodation.
Upon appeal to the Court of Appeals (CA),
the RTC decision was reversed and set aside and
thus the so called derivative suit was dismissed.
ISSUE:
Whether the creation of an executive
committee and other offices in the corporation with
corresponding remunerations are within the powers
of the Board of Directors.
HELD:
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

CORPORATION LAW

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. Verily, 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.
The raison detre behind the conferment of
corporate powers on the board of directors is not
lost on the Court. Indeed, 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. And so
the plan of corporate organization is for the
stockholders to choose the directors who shall
control and supervise the conduct of corporate
business.

BOARD OF DIRECTORS CASE DIGEST

In the present case, the boards 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
corporations by-laws, pursuant to the Corporation
Code.
The election of officers of a corporation is
provided for under Section 25 of the Code which
reads:
Sec. 25. Corporate officers, quorum.
Immediately after their election, the directors of a
corporation must formally organize by the election
of a president, who shall be a director, a treasurer
who may or may not be a director, a secretary who
shall be a resident and citizen of the Philippines,
and such other officers as may be provided for
in the by-laws.
In turn, the amended Bylaws of Filport
provides the following:
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. xxx

CORPORATION LAW

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.
Likewise, the fixing of the corresponding
remuneration for the positions in question is
provided for in the same by-laws of the corporation,
viz:
xxx
The Board of Directors shall fix the
compensation of the officers and agents of the
corporation.
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 Filports
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

BOARD OF DIRECTORS CASE DIGEST

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, ratiocinated
by both the two (2) courts below, the Board of
Directors has the power to create positions not
provided for in Filports bylaws since the board is
the corporations governing body, clearly upholding
the power of its board to exercise its prerogatives
in managing the business affairs of the corporation.
As well, it may not be amiss to point out that,
as testified to and admitted by petitioner Cruz
himself, it was during his incumbency as Filport
president that the executive committee in question
was created, and that he was even the one who
moved for the creation of the positions of the AVPs
for Operations, Finance and Administration. By his
acquiescence and/or ratification of the creation of
the aforesaid offices, Cruz is virtually precluded
from suing to declare such acts of the board as
invalid or illegal. And it makes no difference that he
sues in behalf of himself and of the other
stockholders. Indeed, as his voice was not heard in
protest when he was still Filports president, raising
a hue and cry only now leads to the inevitable
conclusion that he did so out of spite and

CORPORATION LAW

resentment for his non-re-election as president of

the corporation.
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.,
petitioner,vs. COURT OF APPEALS, MOTORICH SALES
CORPORATION,
NENITA
LEE
GRUENBERG,
ACL
DEVELOPMENT
CORP.
and
JNM
REALTY
AND
DEVELOPMENT CORP., respondents.
May corporate treasurer, by herself and without any authorization
from he board of directors, validly sell a parcel of land owned by
the corporation?. May the veil of corporate fiction be pierced on
the mere ground that almost all of the shares of stock of the
corporation are owned by said treasurer and her husband?
G.R. No. 129459 September 29, 1998
Lessons Applicable: Definition of a Close Corporation
(Corporate Law)

FACTS:

February 14 1989: San Juan Structural and Steel

Fabricators,

Inc.'s

(San

Juan) entered

agreement

with

Motorich

Sales

into

an

Corporation

(Motorich) for the transfer to it of a parcel of land

containing an area of 414 square meters

San Juan paid the down payment of P100,000, the

balance to be paid on or before March 2, 1989

BOARD OF DIRECTORS CASE DIGEST

CORPORATION LAW

March 1, 1989: Mr. Andres T. Co, president of San

the fact that it is the transferor of right in favor of

Motorich

Juan, wrote a letter course through Motorich's broker

requesting for a computation of the balance to be
paid

April 6, 1989: ACL and Motorich

entered into a Deed of Absolute Sale

Linda Aduca, who wrote the computation of the

balance

the

Registry

of

Deeds

of

Quezon City issued a new title in the name of

March 2, 1989: San Juan was ready with the

Motorich Sales Corporation, represented by Nenita

amount corresponding to the balance, covered by

Lee Gruenberg and Reynaldo L. Gruenberg, under

Metrobank Cashier's Check, payable to Motorich

Transfer Certificate of Title No. 3571

they were supposed to meet in the office of

San

Juan

but

Motorich's

treasurer, Nenita

as a result of Nenita Lee

Lee

Gruenberg and Motorich's bad faith in refusing to

Gruenberg, did not appear

execute

formal

Transfer

of

Rights/Deed

of

Assignment, San Juan suffered moral and nominal

Motorich refused to execute the Transfer of

damages of P500,000 and exemplary damages of

Rights/Deed of Assignment which is necessary to

P100,000.00 and P100,000 attorneys fees

transfer the certificate of title

San Juan lost the opportunity

impleaded

as

ACL Development Corp. (ACL) is

to construct a residential building in the sum of

P100,000.00 Pesos

necessary

party

since

Transfer

Certificate of Title No. (362909) 2876 is still in its

name

JNM Realty & Development Corp.

(JNM) is impleaded as a necessary party in view of

CA affirmed RTC for dismissing

San Juan argues that the veil of corporate fiction

of Motorich should be pierced because it is a close
corporation.

BOARD OF DIRECTORS CASE DIGEST

CORPORATION LAW
The document is a hand-written one,

Since "Spouses Reynaldo L. Gruenberg and

not a corporate receipt, and it bears only Nenita

Nenita R. Gruenberg owned all or almost all or

Gruenberg's signature

99.866% to be accurate, of the subscribed capital

stock" of Motorich, San Juan argues that Gruenberg

GR: acts of corporate officers within the scope of

needed no authorization from the board to enter into

their authority are binding on the corporation. But

the subject contract.

when these officers exceed their authority, their

actions "cannot bind the corporation, unless it has

being

solely

owned

by

the

Spouses

ratified such acts or is estopped from disclaiming

Gruenberg, the company can treated as a close

them.

corporation which can be bound by the acts of its

principal stockholder who needs no specific authority

statutorily granted privilege of a corporate veil

may be used only for legitimate purposes

ISSUE: W/N Motorich is a close corp. which does not

need to be bound by its principal SH

utilized

as

illegality or inequity;

shield

to

commit

defeat public

fraud,

convenience;

confuse legitimate issues; or serve as a mere alter

HELD: NO. petition is hereby DENIED

Gruenberg, treasurer of Motorich, and Andres Co

signed the contract but that cannot bind Motorich,

ego

or

business

instrumentality,

conduit

agency

or

of

person

adjunct

of

or

an

another

corporation - none here

because it never authorized or ratified such sale or

even the receipt of the earnest money
Sec. 96. Definition and Applicability of Title. A close

A corporation is a juridical person separate

and distinct from its stockholders or members

corporation, within the meaning of this Code, is one

whose articles of incorporation provide that: (1) All of the
corporation's issued stock of all classes, exclusive of

San Juan failed to prove otherwise

treasury shares, shall be held of record by not more than

a specified number of persons, not exceeding twenty

BOARD OF DIRECTORS CASE DIGEST

CORPORATION LAW

(20); (2) All of the issued stock of all classes shall be

the former specifically indicating that she was signing

subject to one or more specified restrictions on transfer

on behalf of Motorich

permitted by this Title; and (3) The corporation shall not

list in any stock exchange or make any public offering of

The amount paid as "earnest money" was not

any of its stock of any class. Notwithstanding the

proven to have redounded to the benefit of Motorich

foregoing, a corporation shall be deemed not a close

corporation when at least two-thirds (2/3) of its voting

it was deposited with the account of Aren

stock or voting rights is owned or controlled by another

Commercial c/o Motorich

corporation which is not a close corporation within the

meaning of this Code. . . . .

The articles of incorporation of Motorich Sales

Andres Co being a President of San Juan for more

than 10 years cannot feign ignorance of the scope of

Corporation does not contain any provision stated in

the authority of a corporate treasurer

Sec. 96
However, Nenita Gruenberg should be ordered to

mere ownership by a single stockholder or by

return to petitioner the amount she received as

another corporation of all or capital stock of a

earnest money, as "no one shall enrich himself at the

corporation is not of itself sufficient ground for

expense of another.

disregarding the separate corporate personalities

Montelibano, et.al. vs. Bacolod Murcia Milling Co. Inc. [G.R. No.

A narrow distribution of ownership does not, by

L-15092 May 18, 1962]

itself, make a close corporation

Facts:

Plaintiffs-appellants,

Montelibano,

Alejandro

Even if veil is peice it will then be a sale of

Montelibano, and the Limited co-partnership Gonzaga and

conjugal property which Nenita alone could not have

Company, had been and are sugar planters adhered to the

effected

defendant-appellee's sugar central mill under identical milling

contracts.

Alfredo

Gruenberg did not represent herself as authorized

by Respondent Motorich despite the receipt issued by

BOARD OF DIRECTORS CASE DIGEST

CORPORATION LAW

The contracts were stipulated to be in force for 30 years and that

After trial, the court below rendered judgment upholding the stand

the resulting product should be divided in the ratio of 45% for the

of the defendant Milling company, and dismissed the complaint.

mill and 55% for the planters. It was later proposed to execute

Thereupon, plaintiffs duly appealed to this Court.

amended milling contracts, increasing the planters' share to 60%

of the manufactured sugar and resulting molasses, besides other

Issue: Whether or not the resolution is valid and binding between

concessions, but extending the operation of the milling contract

the corporation and planters.

from the original 30 years to 45 years.

Held: The Supreme Court held in the affirmative. There can be no
The Board of Directors of the appellee Bacolod-Murcia Milling

doubt that the directors of the appellee company had authority to

Co., Inc., adopted a resolution granting further concessions to the

modify the proposed terms of the Amended Milling Contract for

planters over and above those contained in the printed Amended

the purpose of making its terms more acceptable to the other

Milling Contract. Appellants signed and executed the printed

contracting parties. The rule is that

Amended Milling Contract but a copy of the resolution was not

attached to the printed contract.

It is a question, therefore, in each case of the logical relation of

the act to the corporate purpose expressed in the charter. If that

In 1953, the appellants initiated the present action, contending

act is one which is lawful in itself, and not otherwise prohibited, is

that three Negros sugar centrals had already granted increased

done for the purpose of serving corporate ends, and is

participation to their planters, and that under paragraph 9 of the

reasonably tributary to the promotion of those ends, in a

abovementioned resolution, the appellee had become obligated

substantial, and not in a remote and fanciful sense, it may fairly

to grant similar concessions to the plaintiffs (appellants herein).

be considered within charter powers. The test to be applied is

whether the act in question is in direct and immediate furtherance

However, the appellee Bacolod-Murcia Milling Co., inc., resisted

of the corporation's business, fairly incident to the express

the claim, and defended by urging that the stipulations contained

powers and reasonably necessary to their exercise. If so, the

in the resolution were made without consideration; that the

corporation has the power to do it; otherwise, not.

resolution in question was, therefore, null and void ab initio, being

in effect a donation that was ultra vires and beyond the powers of

As the resolution in question was passed in good faith by the

the corporate directors to adopt.

board of directors, it is valid and binding, and whether or not it will

BOARD OF DIRECTORS CASE DIGEST

CORPORATION LAW

cause losses or decrease the profits of the central, the court has

other corporations were claiming assets if not ownership over

no authority to review them.

PALI.

It is a well-known rule of law that questions of policy or of

PALI then wrote a letter to the SEC asking the latter to review

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. Hence, the
appellee Bacolod-Murcia Milling Company is, under the terms of

PSEs decision. The SEC reversed PSEs decisions and ordered

the latter to cause the listing of PALI shares in the Exchange.

ISSUE: Whether or not it is within the power of the SEC to

reverse actions done by the PSE.

its Resolution, duty bound to grant similar increases to plaintiffsappellants herein.

HELD: Yes. The SEC has both jurisdiction and authority to look
into the decision of PSE pursuant to the Revised Securities Act
and for the purpose of ensuring fair administration of the

Phil. Stock Exchange, Inc., v. CA, 282 SCRA 232 (1997)

exchange. PSE, as a corporation itself and as a stock exchange

is subject to SECs jurisdiction, regulation, and control. In order to

Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real

insure fair dealing of securities and a fair administration of

estate business. PALI was granted permission by the Securities

exchanges in the PSE, the SEC has the authority to look into the

and Exchange Commission (SEC) to sell its shares to the public

rulings issued by the PSE. The SEC is the entity with the primary

in order for PALI to develop its properties.

say as to whether or not securities, including shares of stock of a

corporation, may be traded or not in the stock exchange.

PALI then asked the Philippine Stock Exchange (PSE) to list

PALIs stocks/shares to facilitate exchange. The PSE Board of

HOWEVER, in the case at bar, the Supreme Court emphasized

Governors denied PALIs application on the ground that there

that the SEC may only reverse decisions issued by the PSE if

were multiple claims on the assets of PALI. Apparently, the

such are tainted with bad faith. In this case, there was no showing

Marcoses, Rebecco Panlilio (trustee of the Marcoses), and some

that PSE acted with bad faith when it denied the application of
PALI. Based on the multiple adverse claims against the assets of
PALI, PSE deemed that granting PALIs application will only be

BOARD OF DIRECTORS CASE DIGEST

CORPORATION LAW

contrary to the best interest of the general public. It was

LA but modified it so as to absolve the Board Members from

reasonable for the PSE to exercise its judgment in the manner it

liability as it held that the Board Members merely acted in their

deems appropriate for its business identity, as long as no rights

official capacity. BENECO, being the only party adjudged to be

are trampled upon, and public welfare is safeguarded.

liable, then appealed said decision.

Benguet Electric Cooperative, Inc. vs National Labor

Relations Commission

ISSUE: Whether or not the National Labor Relations Commission

is correct.

209 SCRA 55 Business Organization Corporation Law

HELD: No. The act of the Board Members is ultra vires. There

Cooperatives are Treated as Corporations Ultra Vires Acts

was no legal basis for them to suspend Cosalan indefinitely for

of the Board Members

under the Implementing Rules of the Labor Code the maximum

period form preventive suspension should not go beyond 30

In 1982, Peter Cosalan, then general manager of the Benguet

days. Further, it was found that Cosalan was never informed of

Electric Cooperative (BENECO), received an audit report from the

the charges against him nor was he afforded the opportunity to

National Electrification Administration (NEA). The said audit

present his case. He was deprived of due process. Nor was

advised Cosalan of certain irregularities in the management of the

Cosalans suspension approved by the NEA, which is also

funds of BENECO. Cosalan then sought to address the issue by

required for due process purposes.

introducing reforms recommended by the NEA as well as by the

auditing body, Commission on Audit. However, the Board

These acts by the Board Members are tainted with bad faith. A

Members of BENECO reacted to these reforms by issuing a

very strong presumption arises that the Board Members are

series of resolutions which first reduced Cosalans salary and

acting in reprisal against the reforms sought to be introduced by

allowances, then he was excluded from his work, and eventually,

Cosalan in order to address the irregularities within BENECO.

he was suspended indefinitely.

The Board Members are therefore liable for damages under

Section 31 of the Corporation Code. And even though BENECO

Cosalan then filed a complaint for illegal dismissal against the

is a cooperative, it is still covered by the Corporation Code

BENECO Board Members, he later impleaded BENECO itself.

because under PD 269, cooperatives are considered as

The Labor Arbiter (LA) ruled in favor of Cosalan. The National

corporations.

Labor Relations Commission (NLRC) affirmed the decision of the

BOARD OF DIRECTORS CASE DIGEST

CORPORATION LAW

The Supreme Court ruled that BENECO and the BENECO Board

KAL submitted an affidavit executed by its general managerSuk

Members are liable for the damages caused against Cosalan.

Kyoo Kim alleging that the Board of Directors conducted a special

However BENECO can seek reimbursement from the Board

teleconference on June 25, 1995 which he and Atty. Aguinaldo

Members so as not to unduly penalize the innocent members of

attended. He also averred that it is on the same teleconference

BENECO.

where it was approved to authorize Atty. Aguinaldo to execute the

verification and certification of non forum shopping. However, the
corporation had no written copy of the said resolution.

G.R. No. 152392. May 26, 2005]

The trial court issued an order dismissing the motion of ETI taking

EXPERTRAVEL & TOURS, INC., petitioner, vs. COURT OF

into account the claims of Atty. Aguinaldo and Suk KyooKim. ETI

APPEALS and KOREAN AIRLINES, respondents.

filed a motion for the reconsideration contending that it was

inappropriate for the court to take judicial notice of the

Facts: Korean Airlines is a corporation established in the Republic

teleconference without prior hearing which the court also denied.

of South Korea and licensed to do business in the Philippines.

ETI filed a petition for certiorari and mandamus and a motion for

On 6 September 1999, Korean Airlines filed a complaint against

reconsideration but was both denied by the Court of Appeals

Expertravel Tours through KALs counsel, Atty. Mario A.

assailing that the challenged documents are well within and in

Aguinaldo, for the collection of Php 260,150.00 plus attorneys

compliance with the requirements of the Rules of Court.

fees

and the

Petitioner filed a petition for review on certiorari assailing that the

certification against non- forum shopping was signed by Atty.

submission that the teleconference and the resolution authorizing

Aguinaldo as the resident agent and legal counsel of KAL who

Atty. Aguinaldo was a mere fabrication; also, petitioner averred

caused the preparation of the complaint.

that there are no rulings on the matter of teleconferencing as a

ETI filed for a motion to dismiss on the ground that Atty.

means of conducting meetings of board of directors for purposes

Aguinaldo was not authorized to sign in the Verification and the

of passing a resolution and that the supposed holding of a special

Certification for Non- Forum Shopping as required by Section 5,

meeting on June 25, 1995 through teleconferencing was not able

Rule 7 of the Rules of Court. KAL opposed ETIs claim saying that

to mention where it was held citing the requirement of a valid

Atty. Aguinaldo was indeed their legal counsel. KAL was given a

board resolution to be submitted the SEC and its record thereof.

and exemplary damages. The

verification

period of 10 days within which to submit a copy of the resolution

of the Board of Directors authorizing Atty. Aguinaldo to execute
the said legal documents.

BOARD OF DIRECTORS CASE DIGEST

CORPORATION LAW

Issue: Whether or not resolutions passed by the Board of

Aurbach v. Sanitary Wares Manufacturing Corp. 189

Directors via teleconference are valid resolutions per the

SCRA

requirements of the Corporation Code?

Held: The Supreme Court found merit on the arguments cited by

130 (1989)

TAN VS SYCIP
G.R. No. 153468 August 17, 2006

the petitioners.
The courts may take judicial notice that business transactions

Lessons Applicable: Release from Subscription Obligation

may be made by individuals through teleconferencing using the

(Corporate Law)

modern technology. In the Philippines, by virtue of the SEC

Memorandum Circular No. 15 issued on November 30, 2001, it
provides the guidelines to be complied with related to such
conferences. Thus, it accepts teleconference as a valid way to
relate with a group of persons relating to business transactions or

FACTS:

non-profit educational corporation w/ 15 regular

corporate governance.
However, in the case, Atty. Aguinaldo and Suk Kyoo Kim alleged
that they participated in a teleconference along with the KALs

Atty. Aguinaldo to file the complaint and execute the required

certification against forum shopping. This is in effect makes the
documents not compliant with the requirement of the Rules of

already died.
7 attended the meeting through their

respective proxies.
The meeting was convened and chaired by
Atty. Sabino Padilla Jr. over the objection of Atty.

Court.

Antonio C. Pacis, who argued that there was no

The Supreme Court granted the petition of the ETI and reversed
the decision of the Court of Appeals.

members, who also constitute the board of trustees.

April 6, 1998: During the annual members
meeting only 11 living member-trustees, as 4 had

Board of Director, this allegation was not supported by a fact that

the board resolution was duly passed specifically to authorize

Grace Christian High School (GCHS) is a nonstock,

quorum.

In the meeting, Petitioners Ernesto Tanchi,

Edwin Ngo, Virginia Khoo, and Judith Tan were voted
to replace the 4 deceased member-trustees.

BOARD OF DIRECTORS CASE DIGEST

SEC: meeting void due to lack of quorum (NOT

living but based on AIC)
Sec 24 read together with Sec 89
CA: Dismissed due to technicalities

CORPORATION LAW

quorum in a members meeting is to be reckoned

as the actual number of members of the corporation

stock corporations - shareholders may generally

transfer their shares

on the death of a shareholder, the executor

ISSUE: W/N dead members should still be counted in the

quorum - NO based on by-laws

or administrator duly appointed by the Court is vested

HELD: NO. remaining members of the board of trustees of

GCHS may convene and fill up the vacancies in the board

a particular corporate act as provided in this Code

1. Amendment of the articles of

incorporation;
2. Adoption and amendment of by-laws;

the corporation, unless otherwise provided in the

or other disposition of all or substantially all of the

corporation property;
4. Incurring, creating or increasing bonded

indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the

bylaws of the corporation provide otherwise

Section 91 of the Corporation Code:
termination extinguishes all the rights of a member of

3. Sale, lease, exchange, mortgage, pledge

administrator or executor
nonstock corporation - personal and nontransferable unless the articles of incorporation or the

rights:

with the legal title to the stock and entitled to vote it

Until a settlement and division of the estate
is effected, the stocks of the decedent are held by the

Except as provided, the vote necessary to approve

shall be deemed to refer only to stocks with voting

8. Dissolution of the corporation.

articles of incorporation or the bylaws.

whether or not "dead members" are
entitled to exercise their voting rights (through their
executor or administrator), depends on those articles

of incorporation or bylaws
By-Laws of GCHS: membership in the

corporation with another corporation or other

corporation shall be terminated by the death of the

corporations;
7. Investment of corporate funds in another

member

corporation or business in accordance with this Code;

and

With 11 remaining members, the

quorum = 6.

BOARD OF DIRECTORS CASE DIGEST

SECTION 29. Vacancies in the office of director or

trustee. -- Any vacancy occurring in the board of
directors or trustees other than by removal by the
stockholders or members or by expiration of term,
may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting
a quorum; otherwise, said vacancies must be filled by
the stockholders in a regular or special meeting called
for that purpose. A director or trustee so elected to fill
a vacancy shall be elected only for the unexpired

term of his predecessor in office.

the filling of vacancies in the board by the
remaining directors or trustees constituting a quorum

is merely permissive, not mandatory

either by the remaining directors
constituting a quorum, or by the stockholders or
members in a regular or special meeting called for the
purpose
By-Laws of GCHS prescribed

the specific mode of filling up existing vacancies in its

board of directors; that is, by a majority vote of the

remaining members of the board

remaining membertrustees must sit as a board (as a body in a lawful
meeting)
in order to validly elect the new ones

CORPORATION LAW

Bitong vs. CA [292 SCRA 503 (July 13 1998)]

Ownership of Corporate Shares/ Stock Certificates:
Valid Issuance
Facts: Bitong was the treasurer and member of the
BoD of Mr. & Mrs. Corporation.
She filed a
complaint with the SEC to hold respondent spouses
Apostol liable for fraud, misrepresentation,
disloyalty, evident bad faith, conflict of interest and
mismanagement in directing the affairs of the
corporation to the prejudice of the stockholders.
She alleges that certain transactions entered into
by the corporation were not supported by any
stockholders resolution.
The complaint sought to enjoin Apostol from further
acting as president-director of the corporation and
from disbursing any money or funds.
Apostol
contends that Bitong was merely a holder-in-trust of
the JAKA shares of the corporation, hence, not
entitled to the relief she prays for. SEC Hearing
Panel issued a writ enjoining Apostol.
After hearing the evidence, SEC Hearing Panel
dissolved the writ and dismissed the complaint filed
by Bitong. Bitong appealed to the SEC en banc.
The latter reversed SEC Hearing Panel decision.
Apostol filed petition for review with the CA. CA
reversed SEC en banc ruling holding that Bitong
was not the owner of any share of stock in the

BOARD OF DIRECTORS CASE DIGEST

corporation and therefore, not a real party in

interest to prosecute the complaint. Hence, this
petition with the SC.
Issue: Whether or not Bitong was the real party in
interest.
Held: Based on the evidence presented, it could be
gleaned that Bitong was not a bona fide stockholder
of the corporation. Several corporate documents
disclose that the true party in interest was JAKA.
Although her buying of the shares were recorded in
the Stock and Transfer Book of the corporation, and
as provided by Sec. 63 of the Corp Code that no
transfer shall be valid except as between the
parties until the transfer is recorded in the books of
the corporation, and upon its recording the
corporation is bound by it and is estopped to deny
the fact of transfer of said shares, this provision is
not conclusive even against the corporation but are
prima facie evidence only. Parol evidence may be
admitted to supply the omissions in the records,
explain ambiguities, or show what transpired where
no records were kept, or in some cases where such
records were contradicted. Besides, the provision
envisions a formal certificate of stock which can be
issued only upon compliance with certain
requisites: (1) certificates must be signed by the
president or vice president, countersigned by the
secretary or assistant secretary, and sealed with the

CORPORATION LAW

seal of the corporation, (2)

delivery of the
certificate; (3) the par value, as to par value shares,
or the full subscription as to no par value shares,
must be first fully paid; (4) the original certificate
must be surrendered where the person requesting
the issuance of a certificate is a transferee from a
stockholder.
These considerations are founded on the basic
principle that stock issued without authority and in
violation of the law is void and confers no rights on
the person to whom it is issued and subjects him to
no liabilities. Where there is an inherent lack of
power in the corporation to issue the stock, neither
the corporation nor the person to whom the stock is
issued is estopped to question its validity since an
estoppel cannot operate to create stock which
under the law cannot have existence.
Republic Bank vs. Cuaderno 19 SCRA 671

Damasp Perez, a stockholder of Republic

Bank, instituted a derivative suit for and in behalf
of the bank against Cuaderno. Dizon and the BOD
of the Bank.
Perez complained to the Monetary Board of
the Central Bank of frauds allegedly committed by
Roman, chairman of the BOD, and the executive
board committee for granting loans to fictitious

BOARD OF DIRECTORS CASE DIGEST

persons and to there close friends, who in reality

were their dummies.
An investigation by the bank examiners
revealed that certain mortgage loans amounting to
P2,303,400 were granted in violation of the General
Banking Act. As such, the Monetary Board of whom
Cuaderno was a member, ordered a new BOD to be
elected.
Perez alleged that the new BOD composed of
individuals personally selected by Roman, connived
in approving the appointment and selection of
Cuaderno as technical consultant and Dizon as
chairman of the BOD in order to protect Roman
from criminal prosecution because both Cuaderno
and Dizon are mere alter egos of Roman.
Hence this petition to enjoin the monetary
board from approving the appointment of Cuaderno
and Dizon.
ISSUE:
Whether or not there is a valid cause of action and whether
Perez has Capacity to sue.

RULING:

CORPORATION LAW

A stockholder has a cause of action to annul

certain action of the BOD of a bank, which actions
were considered anomalous and a breach of trust
prejudicial to the bank.
An individual stockholder may institute a
derivative suit on behalf of the corporation, wherein
he holds stock, 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 control of the corporation. In such
action, the suing stockholder is regarded as a
nominal party, with the corporation as thee real
party in interest.
Such a suit need not be authorized by the
corporation where its objective is to nullify the
actions of the BOD, in which case any demand of
intra-corporate remedy would be futile.
The fact that no other stockholder ha made
common cause with the plaintiff is irrelevant since
the smallness of plaintiffs holding is no ground for
denying him relief.
Also, in such a suit, whether the corporation
is named as plaintiff or defendant is irrelevant, as
long as the corporation is made a party therein so
as to make the courts judgment binding thereon.