Ramirez v. Orientalist Co. and Fernandez (1918) Street, J.

Concept: Control and Management of Corporation

FACTS: Orientalist Company was engaged in the business of maintaining and conducting a theatre in the city of
Manila for the exhibition of cinematographic films. Later on it accepted an offer from Jose Ramirez, the son of herein
petitioner that the latter will supply films that will be managed by the respondent. However, when the films arrived,
Orientalist was without fund to pay the cost and expenses incident to each shipment. In effect the companys president
B. Hernandez paid said obligations and treated the films by him as his own property; and they in fact never came into
the actual possession of the Orientalist Company as owner at all, though it is true Hernandez rented the films to the
Orientalist Company and they were exhibited by it in the Oriental Theater under an arrangement which was made
between him and the theater's manager. However, subsequent deliveries were no longer paid by any of the concerned
party.

ISSUE: Whether or not the contract was entered into with the authorization of its Board

RULING: YES. Although there were no evidence as to the authority of Ramon Fernandez to enter into said contract,
the Court had observed that when the defendant corporation failed to question the validity of the contract, it resulted
to eliminating the question of his authority from the case. This is a case where an officer of a corporation has made a
contract in its name, that the corporation should be required, if it denies his authority, to state such defense in its
answer. By this means the plaintiff is apprised of the fact that the agent's authority is contested; and he is given an
opportunity to adduce evidence showing either that the authority existed or that the contract was ratified and approved.
Failure to question such timely and appropriately question such authority results to the admission of such fact.

FACTS: Orientalist Company (Orientalist for brevity) exhibited films in a theatre in Manila. Plaintiff JF Ramirez, a
resident of Paris and represented in Manila by his son Jose Ramirez, was engaged in business of marketing films for
manufacturers and in the production or distribution of cinematographic material. In 1913, there were negotiations
between the officials of Orientalist and Jose Ramirez, as agent of JF Ramirez, for the exclusive agency of two films
in the hands of Orientalist. Jose Ramirez placed a formal offer stating in detail the terms upon which Ramirez would
undertake to supply from Paris the films. The board of directors approved and accepted the offer. The most important
portion of the two letters of acceptance written by Fernandez to Ramirez is in the following terms: These
communications were signed in the following form, in which it will be noted the separate signature of RJ Fernandez,
as an individual, is placed somewhat below and to the left of the signature of the Orientalist Company, as signed by
RJ Fernandez, in the capacity of treasurer:

THE ORIENTALIST COMPANY,

By RJ Fernandez

Treasurer.

RJ Fernandez

The record showed that JF Ramirez himself procured the films upon his own responsibility. Thus, the only contracting
parties in this case are JF Ramirez (first party), and Orientalist with RJ Fernandez (second party). The films arrived in
Manila but Orientalist had no funds to meet its obligations. Hence, the first few drafts were accepted in the name of
Orientalist by its president B Hernandez, and were taken up by him with his own funds. As the drafts had been paid
by Hernandez, he treated the films as his own property, and they never came into the actual possession of Orientalist
as owner at all. Hernandez rented the films to Orientalist and they were exhibited by it in the Oriental Theater under
an arrangement made between him and the theaters manager. Several remittances of films from Paris arrived. All of
the drafts accompanying these films were drawn upon the Orientalist Company; and all were accepted in the name of
Orientalist by its president, B Hernandez, except the last which was accepted by Hernandez individually. None of the
drafts thus accepted were taken up by the drawee or by Hernandez when they fell due; and it was finally necessary
for Ramirez to take them up as dishonoured by non-payment.

Ramirez instituted an action against Orientalist and RJ Fernandez. Upon application of Ramirez, the films were sold
and the amount realized from the sale was applied to the satisfaction of the plaintiffs claim. Judgment was given for
the balance due to Ramiez. Orientalist was declared to be a principal debtor and Fernandez was declared to be
subsidiarily liable as guarantor. Defendants appealed. The Court noted that the action is primarily founded upon the
liability created by the two acceptance letters.
ISSUES:
1. WON Fernandezs actions bound the company
2. WON the company is still liable, assuming that the company was able to deny the authority of Fernandez
3. What is the character of liability assumed by Fernandez?

HELD:
1. YES. The corporation was not able to deny the genuineness and due execution of the contracts in question and
the authority of Fernandez to bind the Orientalist Company. Sec. 103 of the Code of Civil Procedure requires that
the Answer setting up the defense of lack of authority of an officer of a corporation to bind it by a contract should
be verified and the denial contemplated must be specific. In this case, the failure of the corporation to make any
issue in its answer with regard to the authority of Fernandez to bind it, and particularly its failure to deny specifically
under oath the genuineness and due execution of the contracts sued upon, have the effect of eliminating the
question of his authority from the case.

Whether a particular officer actually possesses the authority which he assumes to exercise is frequently known to
very, very few and the proof of it usually is not readily accessible to the stranger who deals with the corporation
on the faith of the ostensible authority exercised by some of the corporate officers.

2. YES. 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.

The stockholders adopted a resolution to the effect that the agencies of the two films should be accepted if the
corporation could obtain the money with which to meet the expenditure involved, and to this end appointed a
committee to apply to the bank for a credit. An attempt to obtain credit was made, but failed. Another special
meeting of stockholders was held and a resolution was passed to the effect that the company should pay to
Hernandez, Fernandez, Monroy and Papa an amount equal to 10% of their outlay in importing the films, said
payment to be made in shares of the company. At the time this meeting was held three shipments of the film had
already been received in Manila. Therefore, the body was then cognizant that the offer had already been accepted
in the name of Orientalist Company and that the films which were then expected to arrive were being imported by
virtue of such acceptance.

3. In affixing his signature to the contracts, Fernandez was a guarantor. From the testimony of both Ramirez and
Fernandez, the Court was convinced that the responsibility of the later was that of a guarantor. Fernandez said
that his name was signed as a guaranty that the contract would be approved by the corporation, while Ramirez
said that the name was put on the contract for the purpose of guaranteeing its performance. The Court believed
that the latter was the real intention of the parties.

FACTS: Orientalist Co. engaged in the theatre business, desired to be the exclusive agent of Ramirez, who is based
in Paris, for two film outfitsclair Films and Milano films. Through the active involvement and negotiations of Ramon
El Presidente Fernandez, a director of Orientalist and also its treasurer, Orientalist was able to secure an offer, the
terms of which were acceptable to the Board as well as to the stockholders. It appears that this acceptance of the
terms of the offer was decided during an informal meeting of the board, and conveyed to Ramirez in two letters signed
only by Fernandez, both in his individual and his capacity as treasurer of Orientalist. It turns out that the company was
not financially capable to comply with the obligations set forth in the agency contract, and about this time films had
already been delivered to the company. Two stockholders meetings were organized, the first adopted a resolution
approving the action of the board on the offer, the second raising the contingency of the lack of funds and the proviso
that the four officers involved, including Fernandez would continue importing the films using their own funds. Ramirez
sues Orientalist and Fernandez for what is due on the contract. RTC ruled Oriental as the principal debtor while
Fernandez is subsidiarily liable.

ISSUE:
 (1) WON the treasurer has an independent authority to bind the respondent company by signing its name to
the letters in questioned.
(2) Can stockholders ratify the abovementioned contract?

HELD:
(1) NO. It is declared in section 28 of the Corporation Law that corporate power shall be exercised, and all
corporate business conducted by the board of directors; and this principle is recognized in the by-laws of the
corporation in question which contain a provision declaring that the power to make contracts shall be vested in the
board of directors. It is true that it is also declared in the same by-laws that the president shall have the power, and it
shall be his duty, to sign contract; but this has reference rather to the formality of reducing to proper form the contract
which are authorized by the board and is not intended to confer an independent power to make contract binding on
the corporation.
(2) NO. The subsequent action by the stockholders in not ratifying the contract must be ignored. The functions
of the stockholders are limited of nature. The theory of a corporation is that the stockholders may have all the profits
but shall return over the complete management of the enterprise to their representatives and agents, called directors.
Accordingly, there is little for the stockholders to do beyond electing directors, making by-laws, and exercising certain
other special powers defined by law. In conformity with this idea, it is settled that contracts between a corporation and
a third person must be made by directors and not stockholders. It results that where a meeting of the stockholders is
called for the purpose of passing on the propriety of making a corporate contract, its resolutions are at most advisory
and not in any wise binding on the board.

BARRETTO v. LA PREVISORA
TOPIC: Fixing Compensation of Directors and Officers

The power granted to corporations to grant salaries to their board of directors refers only to providing compensation
for the future services of directors, officers, and employees thereof after the adoption of its by-laws.

FACTS:
La Previsora is a mutual building & loan association, being sued in this action by Barreto et al who were
directors since its incorporation up to 1929.
By virtue of an amendment to the associations by-laws, the directors were to each receive 1% of the net
profits of the association as annual gratuity as long as they lived, upon ceasing to be its directors. Per Google
Translate:

In consideration of the valuable services for several years so far have been providing free favor of the Company,
Messrs. Alberto Barretto, Ariston de Guzman, Miguel Romualdez, Pedro Mata, Vicente L. Legarda, Alexander
Bachrach, Jose M. of Amusategui and Jose A. Barreto and Moratinos, agrees and hereby grants to each and every
one of these gentlemen, an amount equal to one percent (1%) of all net profits of the Company in the year and years
in which they stop be a director of it. Provided, however, that this special remuneration remain for as long such director
alive, and ceased during the time when the said gentleman again be director of the Company. It is stated by this, that
this article of this Constitution is a formal contract between the Company and each of the above directors gentlemen,
and this agreement may not be modified or amended, but by agreement between the parties.

ISSUE: WON said by-law provision is valid

HELD/RATIO:
The assailed by-law provision was beyond the lawful powers of the B&L association and, thus, does not create
an obligation owing to the plaintiffs of a life gratuity or pension out of the associations profits.
The authority conferred upon corporations under the Corporation Law refers only to providing compensation
for the future services of directors, officers, and employees after the adoption of the by-law or other provisions in
relation thereto, and cannot in any sense be held to authorize the giving of continuous compensation to particular
directors after their employment has terminated for past services rendered gratuitously by them to the corporation.
The underlying principle of the founding of B&L associations is the equal participation of its members in its
profits (and the losses). The use/diversion of funds which are foreign to its purpose therefore is violative of its character
of mutuality and equality.
Moreover, if such obligation be alleged to be based on contract, still it is shown that no mutual consent by the
parties was had and that no valid consideration for the same was made.
 The Court debunked the contention of plaintiffs who relied in the ruling of Govt v El Hogar, saying the facts
were different and did not apply squarely to this case.
Complaint dismissed.

FACTS
1.Plaintiffs Alberto Barretto, Jose de Amusategui, and Jose Barretto, had been directors of the defendant corporation
La Previsora Filipina, a mutual building and loan association.
2. They filed a case against La Previsora for each of them to recover 1% of the net profits of said corporation for the
year 1929, which amounted to P50,727.53. The said amount was in accordance with the amendment of the by-
laws(Article 68-A) of the defendant corporation, which was made at a general meeting of the stockholders.
3. Defendant filed a motion to dismiss on the ground that the plaintiffs had not shown a cause of action but this was
denied by the court.
4. The court then rendered its decision holding that the defendant, by presenting its motion to dismiss the complaint,
had impliedly waived its right to present its evidence, and rendering judgment in favor of each of the plaintiffs and
against the defendant.
5. Defendants motion for reconsideration was denied and so it moved for a new trial on the ground that the decision
was contrary to law and the weight of evidence. Again, the trial court denied the motion.
6. The defendant filed its exception to said order and gave notice of its intention to appeal from said decision and
orders, and the case has been brought to this court by way of bill of exceptions.

ISSUE: Whether or not the plaintiffs are entitled to recover the said amount from the net profits of defendant La
Previsora, in accordance with the corporations amended by-laws.

HELD: No. Article 68-A of the amended by-laws of the defendant corporation upon which the action is based, does
not under the law, as applied to the express provisions thereof, create any legal obligation on its part to pay to the
persons named therein, including the plaintiffs, such a life gratuity or pension out of its net profits. A by-law provision
of this nature must be regarded as clearly beyond the lawful powers of a mutual building and loan association, such
as the defendant corporation.

RATIO:
1. While such associations are expressly authorized by the Corporation Law to adopt by-laws for their government,
section 20, of that Act, as construed by this court in the case of Fleischer vs. Botica Nolasco Co. (47 Phil., 583),
expressly limits such authority to the adoption of by-laws, which are not inconsistent with the provisions of the law.
The appellees contend that the article in question is merely a provision for the compensation of directors, which is not
only consistent with but also expressly authorized by section 21 of the Corporation Law. We cannot agree with this
contention. The authority conferred upon corporations in that section refers only to providing compensation for the
future services of directors, officers, and employees thereof after the adoption of the by-law or other provisions in
relation thereto, and cannot in any sense be held to authorize the giving, as in this case, of continuous compensation
to particular directors after their employment has terminated for past services rendered gratuitously by them to the
corporation.To permit the transaction involved in this case would be to create an obligation unknown to the law, and
to countenance a misapplication of the funds of the defendant building and loan association to the prejudice of the
substantial right of its shareholders.

2. The said by-law cannot be held to establish a contractual relation between the parties to this action, because the
essential elements of a contract are lacking. The article, which the appellees rely upon, is merely a by-law provision
adopted by the stockholders of the defendant corporation, without any action having been taken in relation thereto by
its board of directors. The law is settled that contracts between a corporation and third persons must be made by or
under the authority of its board of directors and not by its stockholders. Hence, the action of the stockholders in such
matters is only advisory and not in any wise binding on the corporation.

3. There could not be a contract without mutual consent, and it appears that the plaintiffs did not consent to the
provisions of the by-law in question, but, on the contrary, they objected to and voted against it in the stockholders'
meeting in which it was adopted. Furthermore, the said by-laws shown on its face that there was no valid consideration
for the supposed obligation mentioned therein. It is clearly an attempt to give in the future to certain directors
compensation for past services gratuitously rendered by them to the corporation. Such a provision is without
consideration, and imposes no obligation on the corporation, which can be enforced by action at law.

CASE LAW/ DOCTRINE: An amendment to the by-laws of a loan and building association which provides for the
payment of life pension to the persons named therein for past services they have gratuitously rendered to the
association cannot be held to be in consonance with the power granted to corporations to grant salaries to their board
of directors. The authority conferred upon corporations refers only to providing compensation for the futu re services
of directors, officers, and employees thereof after the adoption of the by-law or other provision in relation thereto, and
cannot in any sense be held to authorize the giving of continuous compensation to particular directors after their
employment has terminated for past services rendered gratuitously by them to the corporation.

Note: Building and loan associations are peculiar and special corporations. They are founded upon principles of strict
mutuality and equality of benefits and obligations, and the trend of the more recent decisions is that any contract made
or by-law provision adopted by such an association in contravention of the statute is ultra vires and void.

Article 68 of the amended by-laws of the corporation, as translated, reads as follows:

Beginning January 1,1929, and during the existence of "La Previsora Filipina", Mutual Building and Loan Association,
a sum equivalent to four per cent (4%) of the net profits of the corporation during the year shall be paid to Mr. Antonio
Ma. Barretto or his heirs at the end of every fiscal year. The payment of such remuneration shall be deemed a just
compensation agreed upon by the corporation and Mr. Antonio Ma. Barretto (1) for the services rendered by him in
founding and organizing the association (2) for disbursements and neither financial sacrifices made by him for the
benefit of the association during the first two years of its existence, that is, during the period from February 25, 1926,
to December 31, 1927; (3) for the assignment and transfer to the association by Mr. Antonio Ma. Barretto, of the
"Combined Tables of Triple Transaction", invented and perfected by him, which are actually serving as a basis for the
business operations of the corporation. xxx xxx xxx It is hereby understood that this article of the by-laws constitutes
a formal contract between the corporation and Mr. Antonio Ma. Barretto, which contract shall not be susceptible of
modification except by mutual agreement of the parties.

Detective & Protective Bureau v Cloribel

FACTS: Fausto Alberto (respondent) was the managing director of Detective Protective Bureau Inc. (petitioner) from
1952-1964. Petitioner filed a complaint with the CFI against Alberto alleging that on 1963, he had illegally seized and
took control of all the assets as well as the books, records, vouchers and receipts of the corporation from the
accountant-cashier, concealed them illegally and refused to allow any member of the corporation to see and examine
the same. They claimed that on January 1964, the stockholders, in a meeting, removed defendant as managing
director and elected Jose de la Rosa in his stead, but not only did Alberto refuse to vacate his office and deliver the
assets to de la Rosa, but he also continued to perform unauthorized acts for and in behalf of the petitioner corporation.
Alberto was also required to submit a financial statement and to render an accounting of his administration from 1952
but he failed to do so. Alberto has been, contrary to the resolution adopted by the Board of Directors, illegally disposing
of corporate funds.

Respondent Judge Cloribel issued a writ of preliminary injuction as prayed for by the petitioner, however, when Alberto
filed a motion to admit a counter-bond for the purpose of lifting said writ, Judge Cloribel issued an order admitting the
counter-bond and setting aside the writ of preliminary injuction. Thus this petition for certiorari.

ISSUE: Whether Judge Cloribel gravely abused his discretion

HELD: NO. One of the reasons petitioners allege Judge Cloribel gravely abused his discretion is that Alberto had
arrogated to himself the powers of the Board of Directors of the corporation because he refused to vacate the office
and surrender the same to Jose de la Rosa who had been elected managing director by the Board to succeed him.
This assertion, however, was disputed by respondent Alberto who stated that Jose de la Rosa could not be elected
managing director because he did not own any stock in the corporation.

There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he did not own
any share of stock, certainly he could not be a director pursuant to the mandatory provision of Section 30 of the
Corporation Law, which in part provides: "Sec. 30. Every director must own in his own right at least one share of the
capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the
corporation .." If he could not be a director, he could also not be a managing director of the corporation, pursuant to
Article V, Section 3 of the By-Laws of the Corporation.

If the managing director-elect was not qualified to become managing director, respondent Fausto Alberto could not
be compelled to vacate his office and cede the same to the managing director-elect because the by-laws of the
corporation provides in Article IV, Section 1 that "Directors shall serve until the election and qualification of their duly
qualified successor."

[there were four other grounds alleged namely: (1) the motion to admit respondent's counter- bond for the dissolution
of the writ was not supported by affidavits as required by Section 6 of Rule 58 of the Rules of Court; (2 & 3) The
second and third reasons alleged by petitioner in its petition for certiorari assume that a preliminary injunction issued
after hearing and in accordance with Rule 58 cannot be set aside; (4) the counter-bond could not compensate for the
irreparable damage that the corporation would suffer by reason of the continuance of respondent Fausto Alberto as
managing director of the corporation. All of these were set aside by the court]

Lee v. CA

FACTS: A complainant for sum of money was filed by the International Corporate Bank, Inc. against Sacoba
Manufacturing Corp., Pablo Gonzales Jr., and Tomas Gonzales who, in turn, filed a third party complaint against Alfa
Integrated Textile Mills (ALFA), Ramon C. Lee (ALFA's president) and Antonio DM. Lacdao (ALFA's vice president).

Petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati, Branch 58
denied. Meanwhile, the trial issued an order requiring the issuance of an alias summons upon ALFA through the DBP
as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served
upon them considering that the management of ALFA had been transferred to the DBP.

The private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which
the trial court granted. On motion for reconsideration, petitioners contend that Rule 14, section 13 of the Revised
Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should
have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e., through publication to effect
proper service upon ALFA.

In their Comment to the Motion for Reconsideration, the private respondents argued that the voting trust agreement
dated did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service
of summons upon ALFA through the petitioners as corporate officers was proper. The trial court upheld the validity of
the service of summons on ALFA through petitioners. On second motion for reconsideration, petitioners reiterate their
stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could
no longer receive summons or any court processes for or on behalf of ALFA.

The trial court reversed itself by setting aside its previous Order and declared that service upon the petitioners who
were no longer corporate officers of ALFA cannot be considered as proper service of summons of ALFA. The private
respondents moved for a reconsideration of the above Order which was affirmed by the court in its Order denying the
private respondent's motion for reconsideration. A petition for certiorari was belatedly submitted by the private
respondent before the public respondent. Meanwhile, the trial court, not having been notified of the pending petition
for certiorari with public respondent issued an Order declaring as final the Order. The filed petition for certiorari before
the CA was given due course setting aside the orders of respondent judge. Motion for reconsideration was likewise
denied.

ISSUE/S:
1. Whether the execution of the voting trust agreement by Lee and Lacdao whereby all their shares to the corporation
have been transferred to the trustee deprives the stockholder of their positions as directors of the corporation.
2. Whether the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to
the stocks covered by the said voting trust agreement ipso facto reverted to Lee and Lacdao as beneficial owners
pursuant to the 6th paragraph of section 59 of the new Corporation Code.

HELD:
1. Lee and Lacdao, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through
assignment and delivery in favor of the DBP, as trustee. Consequently, Lee and Lacdao ceased to own at least one
share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They
also ceased to have anything to do with the management of the enterprise. Lee and Lacdao ceased to be directors.
Hence, the transfer of their shares to the DBP created vacancies in their respective positions as directors of ALFA.
The transfer of shares from the stockholders of ALFA to the DBP is the essence of the subject voting trust agreement.
Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stocks
covered by the agreement to the DBP as trustee, the latter because the stockholder of record with respect to the said
shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of
stock for the purpose of qualifying as directors of ALFA, Lee and Lacdao can no longer be deemed to have retained
their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There
is no dispute from the records that DBP has taken over full control and management of the firm.

2. The 6th paragraph of section 59 of the new Corporation Code reads that "Unless expressly renewed, all rights
granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust
certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled
and new certificates of stock shall be reissued in the name of the transferors." However, it is manifestly clear from the
terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon
the fulfillment of certain obligations of ALFA with the DBP. Had the five-year period of the voting trust agreement
expired in 1986, the DBP would not have transferred an its rights, titles and interests in ALFA "effective June 30, 1986"
to the national government through the Asset Privatization Trust (APT) as attested to in a Certification dated 24
January 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated
that the DBP, from 1987 until 1989, had handled s account which included ALFA's assets pursuant to a management
agreement by and between the DBP and APT. Hence, there is evidence on record that at the time of the service of
summons on ALFA through Lee and Lacdao on 21 August 1987, the voting trust agreement in question was not yet
terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP.

FACTS: On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc.
against the private respondents SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS
GONZALES who, in turn, filed a third party complaint against ALFA and the petitioners RAMON C. LEE and ANTONIO
DM. LACDAO on March 17, 1986. On September 17, 1987, the petitioners filed a motion to dismiss the third party
complaint which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988. Meanwhile,
on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the
DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously
served upon them considering that the management of ALFA had been transferred to the DBP. On August 16, 1988,
the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the
trial court granted. On motion for reconsideration, petitioners contend that Rule 14, section 13 of the Revised Rules
of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have
availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e.,through publication to effect proper
service upon ALFA. In their Comment to the Motion for Reconsideration dated September 27, 1988, the private
respondents argued that the voting trust agreement dated March 11, 1981 did not divest the petitioners of their
positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the
petitioners as corporate officers was proper. On January 2, 1989, the trial court upheld the validity of the service of
summons on ALFA through the petitioners. On second motion for reconsideration, petitioners reiterate their stand that
by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer
receive summons or any court processes for or on behalf of ALFA. On April 25, 1989, the trial court reversed itself by
setting aside its previous Order and declared that service upon the petitioners who were no longer corporate officers
of ALFA cannot be considered as proper service of summons on ALFA. On May 15, 1989, the private respondents
moved for a reconsideration of the above Order which was affirmed by the court in its Order dated August 14, 1989
denying the private respondent's motion for reconsideration. On September 18, 1989, a petition for certiorari was
belatedly submitted by the private respondent before the public respondent. Meanwhile, the trial court, not having
been notified of the pending petition for certiorari with public respondent issued an Order declaring as final the Order
dated April 25, 1989. The filed petition for certiorari before the CA was given due course setting aside the orders of
respondent judge dated April 25, 1989 and August 14, 1989. Motion for reconsideration was likewise denied. Hence,
this petition for certiorari.

ISSUE: Whether or not the creation of voting trust agreement divests the petitioners of their positions as president
and executive vice-president of ALFA

RULING: A voting trust agreement results in the separation of the voting rights of a stockholder from his other rights
such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests
in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the
corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and
agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the
other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of
time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation.
Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting
trust agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the
shares subject of the voting trust agreement, he becomes the equitable or beneficial owner.

Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the
simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although
beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the
stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification
arises by virtue of the phrase "in his own right" provided under the old Corporation Code.

With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not
beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized.
Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not
beneficial ownership of, the stock as appearing on the books of the corporation.

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed
of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners
ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the
new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The
petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their
respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the
essence of the subject voting trust agreement.

Roxas v. de la Rosa

DOCTRINE: CONTROL AND MANAGEMENT OF CORPORATION

Removal of Directors: Under the law the directors of a corporation can only be removed from office by a vote of the
stockholders representing at least two-thirds of the subscribed capital stock entitled to vote (Act No. 1459, sec. 34);
while vacancies in the board, when they exist, can be filled by mere majority vote, (Act No. 1459, sec. 25).

Moreover, the law requires that when action is to be taken at a special meeting to remove the directors, such purpose
shall be indicated in the call (Act No. 1459, sec. 34)

SUMMARY: Representatives of the voting trust, holding majority of the shares, calls for a shareholders meeting with
the purpose of electing the members of the board of directors notwithstanding the fact that all the positions in the
board are occupied by the members elected in a previous shareholders meeting. A civil action was filed to enjoin such
meeting and the petitioners filed a certiorari proceeding for the issuance of the CFI judge of a restraining order to
enjoin the meeting. SC held that the restraining order was valid because in order to remove the current members of
the BOD, a vote of at least 2/3 of the shareholders is necessary.

FACTS: Binalbagan Estate, Inc. (BEI), is a corporation having its principal plant in Occidental Negros where it is
engaged in the manufacture of raw sugar from canes grown upon farms accessible to its central.

In July, 1924, the possessors of a majority of the shares of the Binalbagan Estate, Inc., formed a voting trust composed
of three members, namely, Salvador Laguna, Segunda Monteblanco, and Arthur F. Fisher, as trustee.

By the document constituting this voting trust, the trustees were authorized to represent and vote the shares pertaining
to their constituents, and to this end the shareholders undertook to assign their shares to the trustees on the books of
the company.

The total number of outstanding shares of the corporation is somewhat over 5,500, while the number of
shares controlled by the voting trust is less than 3,000.

On 26 Feb 1926, BEI held its General Annual Shareholders Meeting at which Mr. J. P. Heilbronn appeared as
representative of the voting trust, his authority being recognized by the holders of all the other shares present at
this meeting.
Heilbronn having the control of the majority of the shares (the case didnt say how that happened maybe he
owned several shares plus the shares of the voting trust he was representing to make up the majority its just an
inference) was able to nominate and elect a board of directors to his own liking, without opposition from the
minority.

After the board of directors had been thus elected and had qualified, they chose a set of officers constituting of Jose
M. Yusay, president, Timoteo Unson, vice-president, Jose G. Montalvo, secretary-treasurer, and H. W. Corp and
Agustin Coruna, as members. Said officials immediately entered upon the discharged of their duties and have
continued in possession of their respective offices until the present time.

Since the creation of the voting trust there have been a number of vacancies caused by resignation or the absence of
members from the Philippine Islands, with the result that various substitutions have been made in the personnel of
the voting trust. At the present time the petitioners Roxas, Echaus, and Lacson presumably constitute its
membership.

The current members of the voting trust (petitioners) wanted to oust the current officers/directors of the corporation,
even though it was the previous representative of the voting trust (Heilbronn) who elected them. Thus, the petitioners
in their character as members of the voting trust, on August 2, 1926, caused the secretary of the Binalbagan Estate,
Inc., to issue to the shareholders a notice calling for a special general meeting of shareholders to be held at 10
a. m., on August 16, 1926, "for the election of the board of directors, for the amendment of the By-Laws, and
for any other business that can be dealt with in said meeting."

Respondents Coruna and Ledesma, as director and shareholder of the corporation respectively, filed a civil action
before CFI to enjoin the meeting to be held on Aug. 16, 1926. Respondent judge De La Rosa issued a restraining
order or preliminary injunction to enjoin the meeting which gave rise to the present certiorari proceeding filed by
petitioners.

ISSUE: Whether or not it was within the judicial powers of Judge De La Rosa to issue the restraining order or
preliminary injunction? (YES)

MAIN ISSUE: W/N the petitioners can hold another shareholders meeting for the election of board of directors even
though no vacancies have occurred to justify such election? (NO)

RULING: Vacancies in the Board of Directors occur either due to death, resignation, removal, or otherwise. The law
requires that for a director to be removed, a vote of at least two-thirds of the subscribed capital stock is necessary. In
this case, the voting trust only has the majority of the shares. Majority is not equivalent to two-thirds.

It must be noted that there are no vacancies in the board of directors. Therefore, a call for an election of the board of
directors made by the petitioners is tantamount to an ousting of the current members of the board. The present board
of directors are de facto incumbents of the office whose acts will be valid until they shall be lawfully removed from the
office or cease from the discharge of their functions. In this case it is not necessary for us to agitate ourselves over
the question whether the respondent judge properly exercised his judicial discretion in granting the order complained
of. If suffices to know that in making the order he was acting within the limits of his judicial powers.

Now, upon examining into the number of shares controlled by the voting trust, it will be seen that, while the trust
controls a majority of the stock, it does not have a clear two-thirds majority. It was therefore impolitic for the petitioners,
in forcing the call for the meeting of August 16, to come out frankly and say in the notice that one of the purpose of
the meeting was to removed the directors of the corporation from office. Instead, the call was limited to the election of
the board of directors, it being the evident intention of the voting trust to elect a new board as if the directorate had
been then vacant.

But the complaint in civil No. 3840 directly asserts that the members of the present directorate were regularly elected
at the general annual meeting held in February, 1926; and if that assertion be true, the proposal to elect, another
directorate, as per the call of August 2, if carried into effect, would result in the election of a rival set of directors, who
would probably need the assistance of judgment of court in an independent action of quo warranto to get them installed
into office, even supposing that their title to the office could be maintained. That the trial judge had jurisdiction to
forestall that step and enjoin the contemplated election is a matter about which there cannot be the slightest doubt.
The law contemplates and intends that there will be one of directors at a time and that new directors shall be elected
only as vacancies occur in the directorate by death, resignation, removal, or otherwise.

Valle Verde Country Club v. Africa

Lessons Applicable: Election of Directors; Vacancy in the Board (Corporate Law)

FACTS: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III,
Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa were elected as BOD during
the Annual Stockholders Meeting of petitioner Valle Verde Country Club, Inc. (VVCC). Requisite quorum could not
be obtained so they continued in a hold-over capacity.
First resignation: Dinglasan, BOD still constituting a quorum elected Eric Roxas (Roxas). Second resignation:
Makalintal, Jose Ramirez (Ramirez) was elected by the remaining BOD.
Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as members
of the petitioners Board with the SEC and the RTC as contrary to Sec. 23 and 29 of the Corporation Code. He claimed
that a year after Makalintals election as member of the petitioners Board in 1996, his term as well as those of the
other members should be considered to have already expired. Thus, according to him, 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 petitioners Board. RTC favored respondent. SEC ruled on the same ground as RTC. Petitioner
appealed in SC for certiorari being partially contrary to law and jurisprudence.

ISSUE: Can the members of a corporations board of directors elect another director to fill in a vacancy caused by the
resignation of a hold-over director?

HELD: NO. The holdover period is not part of the term of office of a member of the board of directors. When Section
23 of the Corporation Code declares that the board of directorsshall 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 members election to the Board and until his successors election and
qualification is not part of the directors 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.
The powers of the corporations board of directors emanate from its stockholders. This theory of delegated
power of the board of directors similarly explains why, under Section 29 of the Corporation Code, in cases where the
vacancy in the corporations board of directors is caused not by the expiration of a members term, the successor so
elected to fill in a vacancy shall be elected only for the unexpired term of the his predecessor in office. The law
has authorized the remaining members of the board to fill in a vacancy only in specified instances, so as not to retard
or impair the corporations operations; yet, in recognition of the stockholders right to elect the members of the board,
it limited the period during which the successor shall serve only to the unexpired term of his predecessor in office.
It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within the
directors term of office. When a vacancy is created by the expiration of a term, logically, there is no more unexpired
term to speak of. Hence, Section 29 declares that it shall be the corporations stockholders who shall possess the
authority to fill in a vacancy caused by the expiration of a members term.

NOTE: The court distinguished term and tenure.

Term is the time during which the officer may claim to hold the office as of right, and fixes the interval after
which the several incumbents shall succeed one another. The term of office is not affected by the holdover. The term
is fixed by statute and it does not change simply because the office may have become vacant, nor because the
incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and
has failed to qualify.
Tenure represents the term during which the incumbent actually holds office. The tenure may be shorter (or,
in case of holdover, longer) than the term for reasons within or beyond the power of the incumbent.

FACTS: On February 27, 1996, during the Annual Stockholders Meeting of petitioner Valle Verde Country Club, Inc.
(VVCC), the VVCC Board of Directors were elected including Eduardo Makalintal (Makalintal) among others. In the
years 1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the stockholders meeting
could not be obtained. Consequently, the directors continued to serve in the VVCC Board in a hold-over capacity.
Later, Makalintal resigned as member of the VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was
elected by the remaining members of the VVCC Board on March 6, 2001. Respondent Africa (Africa), a member of
VVCC, questioned the election of Ramirez as members of the VVCC Board with the Regional Trial Court (RTC),
respectively. Africa claimed that a year after Makalintals election as member of the VVCC Board in 1996, his
[Makalintals] 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 RTC sustained Africas complaint.

ISSUE: Whether the remaining directors of the corporations Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director.

RULING: NO. When Section 23 of the Corporation Code declares that the board of directorsshall 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 members election to the Board and until his
successors election and qualification is not part of the directors 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.

[Here], when remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no more
unexpired term to speak of, as Makalintals one-year term had already expired. Pursuant to law, the authority to fill in
the vacancy caused by Makalintals leaving lies with the VVCCs stockholders, not the remaining members of its board
of directors. To assume as VVCC does that the vacancy is caused by Makalintals resignation in 1998, not by the
expiration of his term in 1997, is both illogical and unreasonable. His resignation as a holdover director did not change
the nature of the vacancy; the vacancy due to the expiration of Makalintals term had been created long before his
resignation.

FACTS: In 1996, during the Annual Stockholders Meeting of Valle Verde Country Club, Inc. (VVCC), Villaluna,
Dinglasan, Makalintal, Ortigas III, Salta, Santiago, Jr., Dee, Sunico, and Gamboa were elected as members of the
VVCC Board of Directors. From 1997 to 2001, the requisite quorum for the holding of the stockholders meeting could
not be obtained. Consequently, the above-named directors continued to serve in the VVCC Board in a hold-over
capacity.

In 1998, Dinglasan resigned from his position. He was replaced by Roxas who was elected by the board still
constituting a quorum. A year later, Makalintal also resigned and was replaced by Jose Ramirez in 2001. Ramirez
was elected by the remaining members of the Board.

Africa, a member of VVCC, questioned the election of Roxas and Ramirez with the SEC and the RTC, respectively.
Before the RTC, Africa alleged that a year after Makalintals election as member of the VVCC Board in 1996, his term
as well as those of the other members of the VVCC Board should be considered to have already expired. According
to him, for the members to exercise the authority to fill in vacancies in the board of directors, that there should be an
unexpired term during which the successor-member shall serve. Further, that the resulting vacancy should have been
filled by the stockholders in a regular or special meeting called for that purpose, and not by the remaining members
of the VVCC Board, as was done in this case.

The RTC and the SEC ruled in favor of Africa. VVCC filed a petition for review on certiorari.

ISSUE: Whether or not the remaining directors of the corporations Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director

RULING: Petition DENIED. Under Section 29 of the Corporation Code, a vacancy occurring in the board of directors
caused by the expiration of a members term shall be filled by the corporations stockholders. As the vacancy in this
case was caused by Makalintals resignation, not by the expiration of his term, VVCC insists that the board rightfully
appointed Ramirez to fill in the vacancy.
The holdover period is not part of the term of office of a member of the board of directors. In several cases, we have
defined "term" as the time during which the officer may claim to hold the office as of right, and fixes the interval after
which the several incumbents shall succeed one another. The term of office is not affected by the holdover.
Section 23 of the Corporation Code declares that the term of the members of the board of directors shall be only for
one year; their term expires one year after election to the office. After the lapse of one year from his election,
Makalintals term of office is deemed to have already expired. With the expiration of Makalintals term of office, a
vacancy resulted which, by the terms of Section 29, must be filled by the stockholders of VVCC in a regular or special
meeting called for the purpose. His resignation as a holdover director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintals term had been created long before his resignation.

Tan v. Sycip

For stock corporations, the quorum referred to in Section 52 of the Corporation Code is based on the number of
outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting rights
shall be counted in determining the existence of a quorum during members meetings. Dead members shall not be
counted.

FACTS: Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with 15 regular
members, who also constitute the board of trustees. During the annual members meeting, there were only 11 living
member-trustees, as 4 have already died. Out of the 11, 7 attended the meeting through their respective proxies. The
meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued
that there was no quorum. In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were
voted to replace the four deceased member-trustees. The controversy reached SEC and the petitioners maintained
that the deceased member-trustees should not be counted in the computation of the quorum because, upon their
death, members automatically lost all their rights (including the right to vote) and interests in the corporation. SEC
declared the meeting null and void and ruled that the phrase entitled to vote under Sec 24 should be read with Sec
89 of Corpo Code.

ISSUE: In a non-stock corporation, should dead members still be counted in determination of quorum for purposed of
conducting the Annual Members Meeting?

HELD: No. For stock corporations, the "quorum" referred to in Section 52 of the Corporation Code is based on the
number of outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting
rights shall be counted in determining the existence of a quorum during members meetings. Dead members shall not
be counted.

One of the most important rights of a qualified shareholder or member is the right
to vote -- either personally or by proxy -- for the directors or trustees who are to manage the corporate affairs. The
right to vote is inherent in and incidental to the ownership of corporate stocks. In nonstock corporations, the voting
rights attach to membership. The principle for determining the quorum for stock corporations is applied by analogy to
nonstock corporations, only those who are actual members with voting rights should be counted. Under Section 52,
the majority of the members representing the actual number of voting rights, not the number or numerical constant
that may originally be specified in the articles of incorporation, constitutes the quorum.

Having thus determined that the quorum in a members meeting is to be reckoned as the actual number of members
of the corporation, the next question to resolve is what happens in the event of the death of one of them. In stock
corporations, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and
entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the
administrator or executor. On the other hand, membership in and all rights arising from a nonstock corporation are
personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise.
In other words, the determination of whether or not "dead members" are entitled to exercise their voting rights (through
their executor or administrator), depends on those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the
member. Applying Section 91, dead members who are dropped from the membership roster in the manner and for
the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite vote in corporate
matters or the requisite quorum for the annual members meeting. With 11 remaining members, the quorum in the
present case should be 6. Therefore, there being a quorum, the annual members meeting was valid.
FACTS:
Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation w/ 15 regular members,
who also constitute the board of trustees.
April 6, 1998: During the annual members meeting only 11 living member-trustees, as 4 had 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. Antonio C. Pacis,
who argued that there was no quorum.
In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the
4 deceased member-trustees.
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

ISSUE: W/N dead members should still be counted in the quorum - NO based on by-laws

HELD: NO. remaining members of the board of trustees of GCHS may convene and fill up the vacancies in the
board
Except as provided, the vote necessary to approve a particular corporate act as provided in this Code shall be
deemed to refer only to stocks with voting rights:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge 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 corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
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 or administrator duly appointed by the Court is vested with the legal
title to the stock and entitled to vote it
Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator
or executor
nonstock corporation - personal and non-transferable unless the articles of incorporation or the bylaws of the
corporation provide otherwise
Section 91 of the Corporation Code: termination extinguishes all the rights of a member of the corporation,
unless otherwise provided in the 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 shall be terminated by the death of the member
With 11 remaining members, the quorum = 6.
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 member-trustees must sit as a board (as a body in a lawful meeting)
in order to validly elect the new ones

Facts: Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen
(15) regular members, who also constitute the board of trustees. During the annual members meeting held on April 6,
1998, there were only eleven (11) living member-trustees, as four (4) had already died. Out of the eleven, seven (7)
attended the meeting through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla
Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting, Petitioners
Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased member-trustees.

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

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She held
that the basis for determining the quorum in a meeting of members should be their number as specified in the articles
of incorporation, not simply the number of living members.

Issue: Whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum
for purpose of conducting the Annual Members Meeting

Ruling: The Right to Vote in Nonstock Corporations

In nonstock corporations, the voting rights attach to membership. Members vote as persons, in accordance with the
law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited, broadened, or
denied in the articles of incorporation or bylaws. We hold that when the principle for determining the quorum for stock
corporations is applied by analogy to nonstock corporations, only those who are actual members with voting rights
should be counted.

Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting
rights, not the number or numerical constant that may originally be specified in the articles of incorporation, constitutes
the quorum.

Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of
incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of incorporation
or the bylaws provide for a greater majority). If the intention of the lawmakers was to base the quorum in the meetings
of stockholders or members on their absolute number as fixed in the articles of incorporation, it would have expressly
specified so. Otherwise, the only logical conclusion is that the legislature did not have that intention.

Effect of the Death of a Member or Shareholder

In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, th e
executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it.
Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or
executor.

On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-
transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. In other words,
the determination of whether or not dead members are entitled to exercise their voting rights (through their executor
or administrator), depends on those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the
member. Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member
of the corporation, unless otherwise provided in the articles of incorporation or the bylaws.

Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster
in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite
vote in corporate matters or the requisite quorum for the annual members meeting. With 11 remaining members, the
quorum in the present case should be 6. Therefore, there being a quorum, the annual members meeting, conducted
with six members present, was valid.

Lopez v. Ericta
SUMMARY: UP President appointed Blanco as dean ad interim of the College of Education. The BOR did not want
to approve her appointment, so a committee studied the proposal. The committee wanted to reject her appointment
in a face-saving manner; so it recommended that the BOR ask the UP President to convince Blanco to withdraw.
However, when the matter was submitted for approval via voting, the committee withdrew such recommendation. The
final result was that the matter of appointment was left undecided, but the votes showed 5 in favor, 3, against, and 4
abstentions [not enough for a majority of the 12-member BOR]. Blanco filed a petition for certiorari to compel the BOR
and the President to appoint her, on the ground that the 4 abstentions should be deemed YES votes. CFI sided with
her. On appeal by the UP officials, SC reversed, finding that the circumstances of the voting do not support Blancos
assertion. In fact the abstaining Regents wanted to reject her appointment but merely wanted to do it with delicadeza.

DOCTRINE: [A]n abstention is counted as an affirmative vote insofar as it may be construed as an acquiescence in
the action of those who vote affirmatively. This manner of counting is based on what is deemed to be a presumption
as to the intent of the one abstaining, to acquiesce in the action of those who vote affirmatively. However, this is only
a prima facie presumption, which can be overturned by clear evidence to the contrary. It is pertinent, therefore, to
inquire into the facts and circumstances which attended the voting in order to determine whether or not such a
construction would govern. [From Karichi notes: Abstentions should now be counted separately. They are votes in
themselves. DLC: Court has no business construing the intent or effect of abstentions, i.e., the case is wrong.]

NATURE: Petition for certiorari.

FACTS
The case arose from a dispute over the appointment of the Dean of the UP College of Education (UP Educ).
CHARACTERS:
o UP President Salvador Lopez (PRES. LOPEZ), also a member of the Board of Regents
o The Board of Regents (BOR) 12 members
Education Secretary Onofre D. CORPUZ, Ex Officio Chairman
Sen. Eva Estrada KALAW
Rep. Aguedo AGBAYANI [also Transpo book author]
Director of Public Schools Liceria SORIANO
Regent Eduardo ESCOBAR
Regent Pio PEDROSA
Regent Tomas FONACIER
Regent Ambrosio TANGCO
Regent Leonides VIRATA [not the VSB guy]
Regent Abel SILVA
Regent Fernando BARICAN
o Dr. Consuelo BLANCO faculty member of UP Educ
o Oseas DEL ROSARIO another faculty member of UP Educ
o JUDGE Vicente ERICTA of the Rizal CFI (QC) [future SC Justice].
Apr. 27, 1970 Pres. Lopez appointed Blanco as dean ad interim of UP Educ, effective May 1, 1970 until April
30, 1971, unless sooner terminated and subject to the approval of the Board of Regents (BOR) and to pertinent
University regulations.
May 1, 1970 Blanco assumed office pursuant to the appointment.
May 26, 1970 The BOR met and Pres. Lopez submitted for its reconsideration the ad interim appointment
of Blanco.
o The BOR voted to defer action on the matter, in view of a petition addressed to the BOR by UP Educ
faculty and alumni, opposing the appointment of Blanco, as noted by Regent Kalaw.
o The matter was referred for further study to the Committee on Personnel, composed of Regents
Tangco (Chairman), Pedrosa, and Soriano.
o On the same day, Lopez extended another ad interim appointment to Blanco, subject to the same
conditions as the first appointment.
July 9, 1970 On the next BOR meeting, the matter of Dr. Blancos appointment was discussed again.
o The Personnel Committee recommended that the BOR ask Lopez to review Blancos appointment to
the Deanship of UP Educ in light of the testimonies received and discussions held during the
Committee meetings on June 4 and 11, 1970.
o The documents received by the Personnel Committee were entered into the official record.
o There was uncertainty as to the action that the BOR will take.
 o The Personnel Committees recommendation was itself ambiguously worded, because the consensus
of the committee was for the BOR to ask Pres. Lopez to discuss with Blanco a proposal to withdraw
her appointment as Dean.
o IN OTHER WORDS: The Committee wanted to reject the appointment but did not want the record to
reflect that Blanco was rejected [more on this later] so nobody is embarrassed.
o Sec. Corpuz took a roll call vote on the appointment of Blanco.
RESULTS: Regents Fonacier, Escobar, Barican, and Agbayani, plus Pres. Lopez (5) in favor;
Regents Kalaw and Silva, plus Sec. Corpuz against (3); and Regents Tangco, Leocadio [in
substitution of Regent Soriano], Pedrosa, and Virata, abstaining (4). 5 YES; 3 NO; 4
ABSTAIN.
o Based on this voting, and on motion of Regent Agbayani duly seconded, Sec. Corpuz suspended
action on the matter in order to give the BOR more time to consider the appointment.
o No action having been taken on Blancos appointment, the same was deemed terminated.
July 10, 1970 Blanco wrote the BOR requesting a reconsideration of the interpretation of the 5-3-4 vote on
her appointment [in effect she wanted the abstentions to be counted in her favor]
Aug. 18, 1970 Blanco wrote Pres. Lopez to protest Del Rosarios appointment as OIC of UP Educ.
Receiving no reply, Blanco filed a petition for certiorari and prohibition w/ preliminary injunction with the Rizal
CFI (QC Branch).
Dec. 3, 1970 CFI DECISION
o declared Blanco the duly elected dean of UP Educ, entitled to occupy the position from May 1, 1970
to Apr. 30, 1973
o declared the appointment of Del Rosario as OIC null and void
o permanently enjoined Del Rosario from acting as UP Educ Dean and the BOR from appointing another
person to the Deanship of UP Educ
Jan. 5, 1971 Lopez, the BOR, and del Rosario filed a petition for review on certiorari to the SC.
Jan. 11, 1971 SC issued a writ of preliminary injunction to stop the execution of the CFI decision.

ISSUE (HELD): W/N the 4 abstentions should be taken as affirmative votes so as to constitute a majority for the
approval of Blancos appointment as Dean of UP Educ (NO)

RATIO
Blanco: The abstentions should be deemed affirmative votes because refusal to vote indicates acquiescence
in the action of those who vote [and eventually win]
Lopez et.al.: If Blancos view is adopted, an absurdity may arise such that a proposal may be approved with
only one vote if the other 11 BOR members abstain.
SC: A good case can be made for either proposition and American courts have been divided on the matter.
However, the case can be resolved without choosing from the competing legal theories.
It should be noted that an abstention, according to the citations of Lopez et.al., is counted as an affirmative
vote insofar as it may be construed as an acquiescence in the action of those who vote affirmatively. This
manner of counting is obviously based on what is deemed to be a presumption as to the intent of the one
abstaining, namely, to acquiesce in the action of those who vote affirmatively, but which presumption, being
merely prima facie, would not hold in the face of clear evidence to the contrary. It is pertinent, therefore, to
inquire into the facts and circumstances which attended the voting by the members of the BOR on the ad
interim appointment of Blanco in order to determine whether or not such a construction would govern.
Applicable provisions
o UP Charter, Sec. 7. A quorum of the Board of Regents shall consist of a majority of all the members
holding office at the time the meeting of the Board is called. All processes against the Board of Regents
shall be served on the president or secretary thereof.
o UP Charter, Sec. 10. The body of instructors of each college shall constitute its faculty, and as
presiding officer of each faculty, there shall be a dean elected from the members of such faculty by
the Board of Regents on nomination by the President of the University.
o Article 78 of the Revised Code of UP: For each college or school there shall be a Dean or Director
who shall be elected by the Board of Regents from the members of the faculty of the University unit
concerned, on nomination by the President of the University.

MINUTES OF THE MEETING SHOW THAT BOR INTENDED TO REJECT BLANCOS APPOINTMENT
The Chairman of the Personnel Committee, Regent Tangco, manifested during the July 9 meeting that the
nomination of Professor Blanco cannot be accepted by the [BOR], but it was felt that it should be presented
 in a more diplomatic way to avoid any embarrassment on the part of both the appointee and the President.
And so means were studied as to how it could be done and it was felt that it could be done in such a way that
the appointee could request relief from the appointment, that it would be the best to save embarrassment all
around. And so the final decision was to ask the President to review this matter
They intended to do this by asking Pres. Lopez to persuade Blanco to withdraw her appointment or resign.
Regent Pedrosa, another member of the Personnel Committee, suggested that the Committee members
inhibit from voting on the matter; and they did.
Sec. Corpuz stated that if the Board accepts the Committee recommendation, it would also mean the non-
confirmation of Blancos ad interim appointment.
Sec. Corpuz further said: Regent Tangco, the chairman of [the Personnel Committee], says that this is merely
a polite cover, diplomatic cover, according to Regent Kalaw, for the reaction of the Committee, and Regent
Tangco requests that we act not on the Committee recommendation in this form as presented in the Agenda
but in terms [of the] gentlemen's agreement.
But Sec. Corpuz said that they cannot act on the recommendation in the way Regent Tangco wanted because
the BOR cannot act on an unwritten gentlemans agreement. [in effect ayaw ni O.D. Corpuz na utusan ng
BOR si Pres. Lopez na pakiusapan si Dr. Blanco na mag-resign, as Tangco would have it]
He therefore asked the BOR to vote ONLY on the action to be taken on the Personnel Committees
recommendation, unless the Committee agrees to withdraw the recommendation [not on the Blanco
appointment itself; seems that O.D. Corpuz wants the Personnel Committee to make up its mind and do away
with their face-saving maneuver. Kung ayaw nyo kay Blanco eh di i-reject natin]
Regent Tangco agreed and withdrew the recommendation. As a clarification, Regent Silva then stated that as
it stood, the Committee had withdrawn its earlier recommendation and now puts forward a recommendation
of non-confirmation, to which Regent Kalaw agreed. The BOR then voted on the matter with the above-quoted
result of 5-3-4.
Before casting his vote of abstention, Regent Virata, stated that he was lost [haha] and that he was being
asked to make a decision he was not ready to make.
Sec. Corpuz declared that the vote was not a majority and that there was no ruling on the counting of votes
and the treatment of the abstention.
After a 1-minute recess. Sec Corpuz stated that: There is a motion to suspend action that is to say, to
suspend the voting of the Board on this matter with the effect, first, to return the case to its original status to
render the case subject to further thinking and second, that the Board has not confirmed the appointment.
The appointment, in other words, will be good from May 26 up to today (July 9).
The BOR wanted more time to consider Blancos appointment but deemed her ad interim designation
terminated as of July 9. Sec. Corpuz also manifested that the result of the voting should be expunged from
the record. Nobody objected.
As summarized by the Court: The Personnel Committee, to which the matter of Dr. Blanco's appointment had
been referred for study, was for recommending that it be rejected that, however, the rejection should be done
in a diplomatic way "to avoid any embarrassment on the part of both the appointee and the President" and
that the "final decision" of the committee was to ask the President of the University to talk to Dr. Blanco
"for the appointment to be withdrawn." That decision, as announced by Regent Tangco, Chairman of the
Personnel Committee, was restated and clarified by Regent Kalaw, and then reiterated first by Regent Tangco
and then by the Chairman. On that note Regent Pedrosa suggested that the members of the Personnel
Committee, as well as the President, should inhibit themselves from voting. When the matter was actually
submitted to a vote, however, the definition of the issue became somewhat equivocal. Regent Tangco
announced that the committee was withdrawing its recommendation, whereupon the Chairman stated that
the issue was "to confirm or not to confirm the ad interim appointment issued to Dr. Blanco." This was
then followed by a remark from Regent Silva that the withdrawal by the committee referred to the
recommendation "per se, as it is written," but that the committee, he thought, was "actually putting a
recommendation for nonconfirmation." Regent Kalaw thereupon expressed her concurrence with Regent
Silva's opinion.
It is clear from the foregoing that the abstentions cannot be construed as votes for confirmation of Blancos
appointment. The Personnel Committee undoubtedly recommended rejection of Blancos appointment. It
cannot be said that the members of the Committee abstained because they intended to acquiesce with the
Yes votes. Neither did Regent Virata, who said that he was not ready to make a decision.
In the same meeting, the BOR finally decided to cancel the actions taken, including the 5-3-4 vote, and to
return the matter to the status quo, with the understanding that the ad interim appointment had been
terminated.
 [I]t cannot be seriously argued that the Board had no authority to do what it did: the meeting had not yet been
adjourned the subject of the deliberations had not yet been closed, and as in the case of any deliberative
body the Board had the right to reconsider its action. No title to the office of Dean of UP Educ had yet vested
in Blanco at the time of reconsideration.
Since Blanco did not pray for her ad interim appointment to be upheld up Apr. 30, 1971; and considering that
she was not entitled to the 3-year term provided for by law, she could no longer be reinstated to the Deanship.
Aside from the fact that the point has become moot, since the tenure has expired, it is seriously to be doubted
whether such an appointment is authorized under the law and regulations. It should be noted that both under
the Charter (Sec. 10) and under the Revised Code of the University (Art. 78) the Dean of a college is elected
by the [BOR] on nomination by the [UP President]. In other words the President's function is only to nominate,
not to extend an appointment, even if only ad interim and the power of the Board of Regents is not merely to
confirm, but to elect or appoint. At any rate the ad interim appointment extended to Blanco on May 26, 1970,
although made effective until April 30, 1971, was subject to the following condition: "unless sooner terminated
and subject to the approval of the Board of Regents." The Board, as has been shown, not only did not elect
Blanco in its meeting of July 9, 1970, but declared the appointment terminated as of that day.

Barredo, J., concurring: Pres. Lopez should not have voted, unless there was a tie. Concurs with the deciding principle
of the ponencia but not with its conclusion as to the remarks of Regents Pedrosa and Virata. It is indeed regrettable
that the action of the board was not as clear and categorical as should be expected of the Board of Regents of the
state university. If such a simple matter as the election of a dean cannot be decided by the corresponding university
authorities in a noncontroversial manner, is there hope that more important and complicated matters requiring deeper
study and consideration and affecting the fundamental policies of the institution and the various curricula to be adopted
can be settled and decided forthrightly and without equivocation? I am frankly disappointed, being an alumnus of
the University, that a thing that should have been dealt with with no under consideration in mind than the
fitness of the candidate had to be treated with "diplomacy" and halfway propositions, as if there was fear that
the outcome would not be considered by all concerned as fully just and fair. I realize I am not supposed to
render judgment here on how the University should be run or how its officials should conduct themselves, but I feel
that it is within the scope of my authority to express myself on a matter of public interest that had to reach this Court
only because simple things have not been done the simple way. Concurs in the result in view of the action taken by
the Board to deem Blancos appointment terminated as of July 9, 1970.

DISPOSITION: Decision reversed, case dismissed.

Facts: The case is about the ad interim appointment of the Dean of the College of Education in the UP. Pursuant
thereto Dr. Blanco assumed office as ad interim Dean on May 1, 1970. The Board of Regents met and President
Lopez submitted to it the ad interim appointment of Dr. Blanco for reconsideration. The Board voted to defer action
on the matter in view of the objections cited by Regent Kalaw based on the petition against the appointment,
addressed to the Board, from a majority of the faculty and from a number of alumni. President Lopez extended
another ad interim appointment to her with the same conditions as the first, namely, unless sooner terminated, and
subject to the approval of the Board of Regents and to pertinent University regulations. Then, the election was held.
The roll-call voting on which the Chairman of the Board of Regents based his ruling aforesaid gave the following
results: five (5) votes in favor of Dr. Blancos ad interim appointment, three (3) votes against, and four (4) abstentions
all the twelve constituting the total membership of the Board of the time. The next day Dr. Blanco addressed a letter
to the Board requesting a reconsideration of the interpretation made by the Board as to the legal effect of the vote of
five in favor, three against and four abstentions on my ad interim appointment. Dr. Blanco wrote the President of the
University, protesting the appointment of Oseas A. del Rosario as Officer-in-Charge of the College of Education.
Neither communication having elicited any official reply, Dr. Blanco went to the Court of First Instance of Quezon City.

Issue: What is the legal effect of abstention in the board meetings?

Held: In case of abstention in board meeting on vote taken on any issue, the general rule is that the abstention is
counted in favour of the issue that won a majority vote; since their act of abstention, the abstaining directors are
deemed to abide the rule of majority.

Western Institute of Technology Inc. v. Salas

Facts: Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas,
belonging to the same family, are the majority and controlling members of the Board of Trustees of Western Institute
of Technology, Inc. (WIT), a stock corporation engaged in the operation, among others, of an educational institution.
According to Homero L. Villasis, Dimas Enriquez, peston F. Villasis, and Reginald F. Villasis, the minority stockholders
of WIT, sometime on 1 June 1986 in the principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was
held. In attendance were other members of the Board including Reginald Villasis. Prior to said Special Board Meeting,
copies of notice thereof, dated 24 May 1986, were distributed to all Board Members.The notice allegedly indicated
that the meeting to be held on 1 June 1986 included Item 6 which states that "Possible implementation of Art. III, Sec.
6 of the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all officers of the corporation."
In said meeting, the Board of Trustees passed Resolution 48, series 1986, granting monthly compensation to Salas,
et. al. as corporate officers retroactive 1 June 1985, in the following amounts: Chairman 9,000.00/month, Vice
Chairman P3,500.00/month, Corporate Treasurer P3,500.00/month and Corporate Secretary P3,500.00/month,
retroactive June 1, 1985 and the ten percentum of the net profits shall be distributed equally among the ten members
of the Board of Trustees. This shall amend and supercede any previous resolution.

A few years later, or on 13 March 1991, Homero Villasis, Preston Villasis, Reginald Villasis and Dimas Enriquez filed
an affidavit-complaint against Salas, et. al. before the Office of the City Prosecutor of Iloilo, as a result of which 2
separate criminal informations, one for falsification of a public document under Article 171 of the Revised Penal Code
and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of the Regional Trial
Court of Iloilo City. The charge for falsification of public document was anchored on Salas, et. al.'s submission of
WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting
therein the disbursement of corporate funds for the compensation of Salas, et. al. based on Resolution 4, series of
1986, making it appear that the same was passed by the board on 30 March 1986, when in truth, the same was
actually passed on 1 June 1986, a date not covered by the corporation's fiscal year 1985-1986 (beginning May 1,
1995 and ending April 30, 1986). Thereafter, trial for the two criminal cases (Criminal Cases 37097 and 37098), was
consolidated. After a full-blown hearing, Judge Porfirio Parian handed down a verdict of acquittal on both counts dated
6 September 1993 without imposing any civil liability against the accused therein. Villasis, et. al. filed a Motion for
Reconsideration of the civil aspect of the RTC Decision which was, however, denied in an Order dated 23 November
1993. Villasis, et. al. filed the petition for review on certiorari. Significantly on 8 December 1994, a Motion for
Intervention, dated 2 December 1994, was filed before this Court by Western Institute of Technology, Inc., disowning
its inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for Villasis, et. al., had no authorit y
whatsoever to represent the corporation in filing the petition. Intervenor likewise prayed for the dismissal of the petition
for being utterly without merit. The Motion for Intervention was granted on 16 January 1995.

Issue: Whether the grant of compensation to Salas, et. al. is proscribed under Section 30 of the Corporation Code.

Held: 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 Section 30 of the Corporation Code, 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. Also, the proscription, however,
against granting compensation to director/trustees of a corporation is not a sweeping rule. Worthy of note is the clear
phraseology of Section 30 which state: "[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 compensation, in addition to reasonable per diems, when they render services to
the corporation in a capacity other than as directors/trustees. Herein, resolution 48, s. 1986 granted monthly
compensation to Salas, et. al. 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. Consequently, the last sentence of Section 30 which provides that "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" does not likewise find application in this case since the
compensation is being given to Salas, et. al. in their capacity as officers of WIT and not as board members.

FACTS:
Up for review on certiorari are: the Decision and the Order of Branch 33 of the RTC of Iloilo City in Criminal Cases for
estafa and falsification of a public document. The judgment acquitted the private respondents of both charges, but
petitioners seek to hold them civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S.
Salas, belonging to the same family, are the majority and controlling members of the Board of Trustees of Western
Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the operation, among others, of an
educational institution. According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the
principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance were other members of
the Board including one of the petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice
thereof, dated May 24, 1986, were distributed to all Board Members. The notice allegedly indicated that the meeting
to be held on June 1, 1986 included Item No. 6 which was about the possible implementation on monthly
compensation of all officers of the corporation. In said meeting, the Board of Trustees passed Resolution No. 48,
granting monthly compensation to the private respondents as corporate officers retroactive June 1, 1985.

On March 13, 1991, petitioners Homero Villasis, Prestod Villasis, Reginald Villasis and Dimas Enriquez filed an
affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of which
two (2) separate criminal informations, one for falsification of a public document under Article 171 of the Revised
Penal Code and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of the RTC
of Iloilo City. The charge for falsification of public document was anchored on the private respondents' submission of
WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting
therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. 4,
series of 1986, making it appear that the same was passed by the board on March 30, 1986, when in truth, the same
was actually passed on June 1, 1986, a date not covered by the corporation's fiscal year 1985-1986 (beginning May
1, 1985 and ending April 30, 1986).

Thereafter, trial for the two criminal cases were consolidated. After a full-blown hearing, the Judge handed down a
verdict of acquittal on both counts dated September 6, 1993 without imposing any civil liability against the accused
therein.

Petitioners filed a MR of the civil aspect of the RTC Decision which was denied. Hence, the instant petition. On
December 8, 1994, a Motion for Intervention, was filed by WIT, supposedly one of the petitioners herein, disowning
its inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for the other petitioners, had no
authority whatsoever to represent the corporation in filing the petition and likewise prayed for the dismissal of the
petition. This was granted.

ISSUES:
1.) WON private respondents can be held civilly liable despite their acquittal in Criminal Cases.
2.) WON petitioners can file the instant case being a derivative suit as minority shareholders of WIT for and on behalf
of the corporation.

RULE:
1st issue Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases.
They base their claim on the alleged illegal issuance by private respondents of Resolution No. 48, series of 1986
ordering the disbursement of corporate funds in the amount of P186,470.70 representing retroactive compensation
as of June 1, 1985 in favor of private respondents, board members of WIT, plus P1,453,970.79 for the subsequent
collective salaries of private respondents every 15th and 30th of the month until the filing of the criminal complaints
against them on March 1991. 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.

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

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.

Worthy of note is the clear phraseology of Section 30 which states: "[T]he directors shall not receive any
compensation, as such directors, " The unambiguous implication is that members of the board may receive
compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other
than as directors/trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private
respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly
as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology. Clearly, therefore, the
prohibition under Section 30 is not violated in this particular case. Consequently, the last sentence of Section 30 which
provides: 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. does not likewise find application in
this case since the compensation is being given to private respondents in their capacity as officers of WIT and not as
board members.

2nd issue Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of
WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation.

A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs
committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal
defense of the minority shareholders against abuses by the majority. This case is not a derivative suit but is merely
an appeal on the civil aspect of Criminal Cases. In a derivative suit, the minority shareholder 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. By no amount of equity considerations, if at all deserved, can
a mere appeal on the civil aspect of a criminal case be treated as a derivative suit.

Granting that this is a derivative suit as insisted by petitioners, the same is outrightly dismissible for having been
wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The case should have been
filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over
derivative suits, they being intra-corporate disputes, based on Section 5 (b) of P.D. No. 902-A. Once the case is
decided by the SEC, the losing party may file a petition for review before the CA raising questions of fact, of law, or
mixed questions of fact and law. It is only after the case has ran this course, and not earlier, can it be brought to
us via a petition for review on certiorari under Rule 45 raising only pure questions of law. Petitioners, in pleading that
we treat the instant petition as a derivative suit, are trying to short-circuit the entire process which we cannot here
sanction. As an appeal on the civil aspect of Criminal Cases for falsification of public document and estafa, which this
petition truly is, we have to deny the petition just the same.

From the foregoing factual findings, which we find to be amply substantiated by the records, it is evident that there is
simply no basis to hold the accused, private respondents herein, civilly liable. Section 2, Rule 120 reads: In case of
acquittal, unless there is a clear showing that the act from which the civil liability might arise did not exist, the judgment
shall make a finding on the civil liability of the accused in favor of the offended party.

The acquittal in Criminal Cases is not merely based on reasonable doubt but rather on a finding that the accused-
private respondents did not commit the criminal acts complained of. Thus, pursuant to the above rule and settled
jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising
therefrom where the judgment of acquittal holds that the accused did not commit the criminal acts imputed to
them. WHEREFORE, the instant petition is hereby DENIED with costs against petitioners. SO ORDERED.

Facts: Private respondents are the majority and controlling members of the Board of Trustees of Western Institute of
Technology, Inc. a stock corporation engaged in the operation, among others, of an educational institution. Then, the
board of directors amended their by laws giving the members of board of directors a compensation. The ten per
centum of the net profits shall be distributed equally among the ten members of the Board of Trustees. Few years
later, the private respondents were charged of falsification of public documents and estafa. The charge for falsification
of public document was anchored on the private respondents submission of WITs income statement for the fiscal
year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate
funds making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was
actually passed on June 1, 1986, a date not covered by the corporations fiscal year 1985-1986. After a full-blown
hearing TC handed down a verdict of acquittal on both counts without imposing any civil liability against the accused
therein.

Issue: WON the compensation of the board of directors as stated in their by laws violates the corporation code?

Held: NO. 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. 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. 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.

Filipinas Port Services v. Go

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.

FACTS: FilPort is a domestic corporation engaged in stevedoring services with principal office in Davao City. On 4
September 1992, petitioner Eliodoro Cruz, Filports president from 1968 until he lost his bid for re-election as Filports
president during the general stockholders meeting in 1991, wrote a letter to the corporations Board of Directors
questioning the boards creation of the positions of Assistant Vice-Presidents for Corporate Planning, Operations,
Finance and Administration, and the creation of the additional positions of Special Assistants to the President and the
Board Chairman with a monthly remuneration of P13,050.00 each, and the election thereto of certain members of the
board. In his aforesaid letter, Cruz requested the board to take necessary action/s to recover from those elected the
salaries they have received. However, it was not shown on the records that action was taken. On 14 June 1993, Cruz,
purportedly in representation of Filport and its stockholders, among which is herein co-petitioner Mindanao Terminal
and Brokerage Services, Inc., filed with the SEC a petition which he describes as a derivative suit against the herein
respondents who were then the incumbent members of Filports Board of Directors, for alleged acts of
mismanagement detrimental to the interest of the corporation and its shareholders at large. With the enactment of
R.A. No. 8799, the case was first turned over to the RTC of Manila, Branch 14, sitting as a corporate court. Thereafter,
on respondents motion, it was eventually transferred to the RTC of Davao City. On 10 December 2001, RTC-Davao
City rendered its decision in the case. Even as it found that (1) Filports Board of Directors has the power to create
positions not provided for in the by-laws of the corporation since the board is the governing body; and (2) the increases
in the salaries of the board chairman, vice-president, treasurer and assistant general manager are reasonable, the
trial court nonetheless rendered judgment against the respondents by ordering 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." On appeal, the CA taking exceptions to the findings of the trial court that the creation of the positions
of Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant to the
Board Chairman was merely for accommodation purposes, granted the respondents appeal, reversed and set aside
the appealed decision of the trial court and accordingly dismissed the so-called derivative suit filed by Cruz, et al.
Hence this petition for review on certiorari.
ISSUE: Whether or not Filports Board of Directors has the power to create positions not provided for in the by-laws
of the corporation.

RULING: 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. 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.

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.

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

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. (Emphasis
supplied.)

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, the creation of the
executive committee by the board of directors cannot be ruled as 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,
ratiocinated by both the 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 resentment for his non-reelection
as president of the corporation.

Facts: 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 (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 by-laws 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 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 by-laws 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 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.

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

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 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 resentment for his non-re-
election as president of the corporation.