HARDEN v. BENGUET MINING CONSOLIDATED CO. (1933) UNIVERSITY OF MINDANAO, INC., v. BANGKO SENTRAL PILIPINAS, ET AL.
Petitioner: Fred Harden
Respondents: Benguet Mining Consolidated
Author: Mercado
Doctrine: Although arrangements between the two mining companies was prohibited under the terms
of the Corporation Law, the Supreme Court did not declare the nullity of the agreements on the ground
that only private rights and interests, not public interests, were involved in the case.
Facts:
Benguet Consolidated Mining Company, registered as a sociedad anonima under the Spanish Law,
agreed to invest and build capital equipments in favor of Balatoc Mining Company, a corporation
registered under the then relatively new Corporation Law of 1925.
In exchange, Balatoc Mining agreed to give Benguet Mining 600,000 shares.
The venture proved to be profitable and Balatoc Mining earned and so did its stockholders, and of
course, Benguet Mining was earning big too because it now owns 600k shares.
This prompted, Fred Harden a stockholder of Balatoc Mining who also owns thousands of shares to sue
Benguet Mining to fileon the ground that under the Corporation Law a corporation insttute an action
in the CFI against Benguet Mining which is engaged in the mining industry is prohibited from being
interested in other corporations which are also engaged in the mining industry like Balatoc Mining.
Trial Court dismissed the complaint. Appeal was denied. Hence, this petition.
ISSUE: W/N the agreement should be nullified as it is violative of the Corporation Code – NO.
Ruling + Ratio:
The Corporation Law of 1925 subjects sociedades anonimas to its provisions “so far as such provisions
may be applicable”. In 1929, the Corporation Law was amended and the prohibition cited by Harden
was so modified as merely to prohibit any such corporation from holding more than fifteen per centum
of the outstanding capital stock of another such corporation.
Further and more importantly, the Corporation Law of 1925 provides that if the person who allegedly
violated the provisions of said law is a corporation, the proper action is a quo warranto which should
be initiated by the Attorney-General or its deputized provincial fiscal and not a private action as the one
filed by Harden.
1
G.R. No. 194964-65, January 11, 2016
TOPIC: 3rd type ultra vires
DOCTRINE: A corporation may exercise its powers only within those definitions. Corporate acts that are
outside those express definitions under the law or articles of incorporation or those "committed outside
the object for which a corporation is created" are ultra vires.
FACTS:
For the year 1982, its Board of Trustees was chaired by Guillermo B. Torres. His wife, Dolores P. Torres,
sat as University of Mindanao's Assistant Treasurer.
Before 1982, Guillermo B. Torres and Dolores P. Torres incorporated and operated 2 thrift banks- FISLAI
and DSLAI.
Upon Guillermo B. Torres' request, Bangko Sentral ng Pilipinas issued a P1.9 million standby emergency
credit to FISLAI. All these promissory notes were signed by Guillermo B. Torres, and were co-signed by
either his wife, Dolores P. Torres, or FISLAI's Special Assistant to the President, Edmundo G. Ramos, Jr
University of Mindanao's Vice President for Finance, Saturnino Petalcorin, executed a deed of real
estate mortgage over University of Mindanao's property in favor of Bangko Sentral ng Pilipinas. It was
allegedly executed on University of Mindanao's behalf.
As proof of his authority to execute a real estate mortgage for University of Mindanao, Saturnino
Petalcorin showed a Secretary's Certificate signed by University of Mindanao's Corporate Secretary,
Aurora de Leon.
The Secretary's Certificate was supported by an excerpt from the minutes of the January 19, 1982
alleged meeting of University of Mindanao's Board of Trustees.
The mortgage deed executed by Saturnino Petalcorin in favor of Bangko Sentral ng Pilipinas was
annotated on the certificate of title of the Cagayan de Oro City property (Transfer Certificate of Title
No. 14345) on June 25, 1982. Aurora de Leon's'certification was also annotated on the Cagayan de Oro
City property's certificate of title (Transfer Certificate of Title No. 14345).15
On October 21, 1982, Bangko Sentral ng Pilipinas granted FISLAI an additional loan of P620,700.00.
Guillermo B. Torres and Edmundo Ramos executed a promissory note on October 21, 1982 to cover
that amount.
On November 5, 1982, Saturnino Petalcorin executed another deed of real estate mortgage, allegedly
on behalf of University of Mindanao, over its two properties in Iligan City. This mortgage served as
additional security for FISLAI's loans.
On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter to University of Mindanao, informing it that
the bank would foreclose its properties.
In its reply University of Mindanao, through its Vice President for Accounting, Gloria E. Detoya, denied
that University of Mindanao's properties were mortgaged. It also denied having received any loan
proceeds from Bangko Sentral ng Pilipinas.
On July 16, 1999, University of Mindanao filed two Complaints for nullification and cancellation of
mortgage.
University of Mindanao alleged in its Complaints that it did not obtain any loan from Bangko Sentral ng
Pilipinas. It also did not receive any loan proceeds from the bank.
University of Mindanao also alleged that Aurora de Leon's certification was anomalous. It never
authorized Saturnino Petalcorin to execute real estate mortgage contracts involving its properties to
secure FISLAI's debts. It never ratified the execution of the mortgage contracts. Moreover, as an
educational institution, it cannot mortgage its properties to secure another person's debts.
RTC: rendered a Decision in favor of University of Mindanao. Saturnino Petalcorin testified that he had
no authority to execute a mortgage contract on University ofMindanao's behalf. He merely executed
the contract because of Guillermo B. Torres' request.
CA: ruled that "[although BSP failed to prove that the UM Board of Trustees actually passed a Board
Resolution authorizing Petalcorin to mortgage the subject real properties," Aurora de Leon's Secretary's
Certificate "clothed Petalcorin with apparent and ostensible authority to execute the mortgage deed
on its behalf[.]" Bangko Sentral ng Pilipinas merely relied in good faith on the Secretary's Certificate.
University of Mindanao is estopped from denying Saturnino Petalcorin's authority.
Moreover, the Secretary's Certificate was notarized. This meant that it enjoyed the presumption of
regularity as to the truth of its statements and authenticity of the signatures. Thus, "BSP cannot be
faulted for relying on the [Secretary's Certificate.]"
Petitioner argues that the execution of the mortgage contract was ultra vires. As an educational
institution, it may not secure the loans of third persons. Securing loans of third persons is not among
the purposes for which petitioner was established
Respondent argues that petitioner's act of mortgaging its properties to guarantee FISLAI's loans was
consistent with petitioner's business interests, since petitioner was presumably a FISLAI shareholder
whose officers and shareholders interlock with FISLAI.
2
ISSUE:
W/N the mortgage contract executed by Guillermo was ultra vires
RULING: YES.
Corporations are artificial entities granted legal personalities upon their creation by their incorporators
in accordance with law. Unlike natural persons, they have no inherent powers. Third persons dealing
with corporations cannot assume that corporations have powers. It is up to those persons dealing with
corporations to determine their competence as expressly defined by the law and their articles of
incorporation.
A corporation may exercise its powers only within those definitions. Corporate acts that are outside
those express definitions under the law or articles of incorporation or those "committed outside the
object for which a corporation is created" are ultra vires.
The only exception to this, rule is when acts are necessary and incidental to carry out a corporation's
purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation's
articles of incorporation. This exception is specifically included in the general powers of a corporation.
Petitioner does not have the power to mortgage its properties in order to secure loans of other persons.
As an educational institution, it is limited to developing human capital thrpugh formal instruction. It is
not a corporation engaged in the business of securing loans of others.
Hiring professors, instructors, and personnel; acquiring equipment and real estate; establishing housing
facilities for personnel and students; hiring a concessionaire; and other activities that can be directly
connected to the operations and conduct of the education business may constitute the necessary and
incidental acts of an educational institution.
Securing FISLAI's loans by mortgaging petitioner's properties does not appear to have even the
remotest connection to the operations of petitioner as an educational institution. Securing loans is not
an adjunct of the educational institution's conduct of business. It does not appear that securing third-
party loans was necessary to maintain petitioner's business of providing instruction to individuals.
This court upheld the validity of corporate acts when those acts were shown to be clearly within the
corporation's powers or were connected to the corporation's purposes.
Parties dealing with corporations cannot simply assume that their transaction is within the corporate
powers. The acts of a corporation are still limited by its powers and purposes as provided in the law and
its articles of incorporation.
 PIROVANO V. DELA RAMA STEAMSHIP CO
Topic: Ratification of Ultra Vires Act
FACTS:
Enrico Pirovano is the husband of Estefania Dela Rama. Estefania is the daughter of Don Esteban Dela
Rama who owned and controlled the stock of the defendant corporation. Enrico managed the company
until it became a multi-million Corporation however, he was executed by the Japanese during their
occupation in the country.
The BOD of the defendant company approved a resolution granting to the Pirovano children (children
of Enrico and Estefania) the proceeds of the insurance policies of Enrico. However, this resolution was
ratified. The BOD adopted another resolution renouncing the donation of the insurance proceeds to
the children. Hence, the children instituted the complaint.
ISSUE:
W/N a defendant corporation can give by way of donation the proceeds of insurance policies under the
law or its articles of corporation, or is that donation an ultra vires act?
HELD: Donation Is valid and binding and not an ultra vires act
The donation was a corporate act carried out by the corporation not only with the sanction of its BOD
but also of its stockholders. Donation has reached the stage of perfection which is valid and binding
upon the corporation and as such cannot be rescinded unless there is exists legal grounds for doing so.
Donation was embodied in a resolution duly approved by the BOD.
It may perhaps be argued that the donation given to the children of the late Enrico Pirovano is so large
and disproportionate that it can hardly be considered a pension of gratuity that can be placed on a par
with the instances above mentioned, but this argument overlooks one consideration: the gratuity here
given was not merely motivated by pure liberality or act of generosity, but by a deep sense of
recognition of the valuable services rendered by the late Enrico Pirovano which had immensely
contributed to the growth of the corporation to the extent that from its humble capitalization it
blossomed into a multi-million corporation that it is today. In other words of the very resolutions
granting the donation or gratuity, said donation was given not only because the company was so
indebted to him that it saw fit and proper to make provisions for his children, but it did so out of a sense
of gratitude. Another factor that we should bear in mind is that Enrico Pirovano was not only a high
official of the company but was at the same time a member of the De la Rama family, and the recipient
of the donation are the grandchildren of Don Esteban de la Rama. This we, may say, is the motivating
root cause behind the grant of this bounty.
Since it is not contended that the donation under consideration is illegal, or contrary to any of the
express provision of the articles of incorporation, nor prejudicial to the creditors of the defendant
3
corporation, we cannot but logically conclude, on the strength of the authorities we have quoted above,
that said donation, even if ultra vires in the supposition we have adverted to, is not void, and if voidable
its infirmity has been cured by ratification and subsequent acts of the defendant corporation. The
defendant corporation, therefore, is now prevented or estopped from contesting the validity of the
donation.
Granting arguendo that the donation given by Pirovano children is outside the scope of the powers of
the defendant corporation, or the scope of the powers that it may exercise under the law, or it is an
ultra vires act, still it may said that the same cannot be invalidated, or declared legally ineffective for
the reason alone, it appearing that the donation represents not only the act of the Board of Directors
but of the stockholders themselves as shown by the fact that the same has been expressly ratified in a
resolution duly approved by the latter. By this ratification, the infirmity of the corporate act, has been
obliterated thereby making the act perfectly valid and enforceable. This is specially so if the donation is
not merely executory but executed and consummated and no creditors are prejudiced, or if there are
creditors affected, the latter has expressly given their confirmity.
Other notes:
Distinction should be made between corporate acts or contracts which are illegal and those which are
merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals, or
public policy or public duty, and are, like similar transactions between the individuals void. They cannot
serve as basis of a court action, nor require validity ultra vires acts on the other hand, or those which
are not illegal and void ab initio, but are merely within are not illegal and void ab initio, but are not
merely within the scope of the articles of incorporation, are merely voidable and may become binding
and enforceable when ratified by the stockholders.
An ultra vires act is one outside the scope of the power conferred by the legislature, and although the
term has been used indiscriminately, it is properly distinguishable from acts which are illegal, in excess
or abuse of power, or executed in an unauthorized manner, or acts within corporate powers but outside
the authority of particular officers or agents
Strictly speaking, an act of a corporation outside of its character powers is just as such ultra vires where
all the stockholders consent thereto as in a case where none of the stockholders expressly or cannot be
ratified so as to make it valid, even though all the stockholders consent thereto; but inasmuch as the
stockholders in reality constitute the corporation, it should , it would seem, be estopped to allege ultra
vires, and it is generally so held where there are no creditors, or the creditors are not injured thereby,
and where the rights of the state or the public are not involved, unless the act is not only ultra vires but
in addition illegal and void. of course, such consent of all the stockholders cannot adversely affect
creditors of the corporation nor preclude a proper attack by the state because of such ultra vires act.
 FILIPINAS PORT SERVICES V GO
Author: Palattao
Doctrine: 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.
FACTS: On 4 September 1992, petitioner Eliodoro C. Cruz, Filports president from 1968 until he lost his
bid for reelection 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 following positions with
a monthly remuneration of P13,050.00 each, and the election thereto of certain members of the board.
creation of an executive committee not provided for in the by-laws of the corporation
disproportionate increase in the salary of officials
re-creation of already existing positions
creation of additional positions with holders not doing any work to deserve any monthly remuneration.
Cruz requested the board to take necessary action/actions to recover from those elected to the
aforementioned positions the salaries they have received.
ISSUE: WON the creation of the executive committee is unlawful because it was not written in the by –
laws of the corporation?
WON there was mismanagement?
HELD: 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.
Unfortunately, the bylaws of the corporation are silent as to the creation by its board of directors of
an executive committee. Under Section 35of the Corporation Code, the creation of an executive
committee must be provided for in the bylaws of the corporation.
4
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.
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.
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.
But even assuming there was mismanagement resulting to corporate damages and/or business losses,
respondents may not be held liable in the absence of a showing of bad faith in doing the acts complained
of. ("dishonest purpose","some moral obliquity","conscious doing of a wrong", "partakes of the nature
of fraud")
 ANGELES VS. SANTOS ( 64 Phil 697, 1937)
Petitioner: HIGINIO ANGELES, JOSE E. LARA and AGUEDO BERNABE, as stockholders for an in behalf and
for the benefit of the corporation, Parañaque Rice Mill, Inc. and the other stockholders who may desire
to join
Respondent: TEODORICO B. SANTOS, ESTANISLAO MAYUGA, APOLONIO PASCUAL, and BASILISA
RODRIGUEZ
TOPIC: Delegated Powers coming from the Stockholders (under Theories on Source of Board Power)
Author: Pasion
Doctrine: The board of directors of a corporation is a creation of the stockholders and controls and
directs the affairs of the corporation by allegation of the stockholers. But the board of directors, or the
majority thereof, in drawing to themselves the power of the corporation, occupies a position of
trusteeship in relation to the minority of the stock in the sense that the board should exercise good
faith, care and diligence in the administration of the affairs of the corporation and should protect not
only the interest of the majority but also those of the minority of the stock.
FACTS:
Petitioners and Respondents are all stockholders of Paranaque Rice Mill Inc. constituting the minority
and majority of the board of directors respectively.
They held an extraordinary board meeting on February 21, 1932 to which they appointed an
investigation committee to investigate and determine the properties, operations, and losses of the
corporation as shown in the auditor's report corresponding to the year 1932.
Plaintiff Jose de Lara was chairman and the stockholders Dionisio Tomas and Aguedo Bernabe were
appointed members of the said investigation committee.
But the defendants, particularly Teodorico B. Santos, who was the president of the corporation, denied
access to the properties, books and record of the corporation which were in their possession. Santos
had taken possession of the books, vouchers, and corporate records as well as of the funds and income
of the Parañaque Rice Mill, Inc., which is in violation of the corporation’s by-laws because, according to
the by-laws, such documents should be under the exclusive control and possession of the secretary-
treasurer, the plaintiff Aguedo Bernabe.
Teodorico B. Santos also allegedly committed the following:
Appropriated to his own benefit properties, funds, and income of the corporation in the sum of P10,000;
Refuse to sign and issue the corresponding certificate of stock for the 600 fully paid-up share of the
plaintiff, Higinio Angeles, of the total value of P15,000;
5
Refuse to call a meeting of the board of directors and of the stockholers notwithstanding written
requests made by 3 stockholders which comprise 2/3 of the shares
Refused to hold ordinary monthly meetings of the board since March, 1932;
He connivance with his co-defendants, he was disposing of the properties and records of the
corporation without authority from the board of directors or the stockholders of the corporation and
without making any report of his acts to the said board of directors or to any other officer of the
corporation, and that, to prevent any interferrence with or examination of his arbitrary acts, he
arbitrarily suspended plaintiff Jose de Lara from the office of general manager to which office the latter
had been lawfully elected by the stockholders;
The company’s income for the first half of year 1932 amounting to PhP 4,000.00 might disappear due
to the illegal acts of Santos.
The court issue an order of receivership appointing Melchor de Lara then later on appointed Emilio
Figueroa, as receiver of the corporation.
Defendants assert that the Parañaque Rice Mill, Inc., is a necessary party in this case, and that not having
been made a party, the trial court was without jurisdiction to appoint a receiver and should have
dismissed the case.
ISSUE:
Whether or not the Paranaque Rice Mill Inc is a necessary party of the case.
HELD:
No.
There is ample evidence in the present case to show that the defendants have been guilty of breach of
trust as directors of the corporation and the lower court so found. It is well settled in this jurisdiction
that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse
of discretion — and intracorporate remedy is futile or useless, a stockholder may institute a suit in
behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress
of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. Where a
majority of the board of directors wastes or dissipates the funds of the corporation or fraudulently
disposes of its properties, or performs ultra vires acts, the court, in the exercise of its equity jurisdiction,
and upon showing that intracorporate remedy is unavailing, will entertain a suit filed by the minority
members of the board of directors, for and in behalf of the corporation, to prevent waste and
dissipation and the commission of illegal acts and otherwise redress the injuries of the minority
stockholders against the wrongdoing of the majority. The action in such a case is said to be brought
derivatively in behalf of the corporation to protect the rights of the minority stockholers thereof.
 TOM v. RODRIGUEZ (2015)
Petitioner: Richard K. Tom
Respondents: Samuel N. Rodriguez
Author: Plan
Topic: Doctrine of Centralized Management: Powers of Board of Directors; Theories on Source of Board
Power; Delegated Powers coming from the Stockholders
Doctrines: A corporation exercises its powers through its board of directors and/or its duly authorized
officers and agents, except in instances where the Corporation Code requires stockholders' approval
for certain specific acts.
Facts:
Golden Dragon International Terminals, Inc. (GDITI) is the exclusive Shore Reception Facility (SRF)
Service Provider of the Philippine Ports Authority (PPA) tasked to collect, treat, and dispose of all ship-
generated oil wastes in all bases and private ports under the PPA's jurisdiction.
December 2008, through a conditional deed of sale, Fidel Cu sold his 17,237 shares of stock in GDITI to
Ramos and Basalo, Jr. The latter failed to pay the purchase price. Thereafter, Cu sold 15,233 of the same
shares through a Deed of Sale in favor of Lim, Ong, and Gunnacao, who also did not pay.
11 Sept 2009, the following were elected officers of GDITI: President and Chairman – Lim; VP for Visayas
– Basalo; Treasurer and VP for Luzon – Ong; Director: Gunnacao. However, a group led by Ramos
(including petitioner Tom) forcibly took over the GDITI offices and performed the functions of its
officers. This prompted GDITI, through its duly-elected Chairman and President, Lim, to file an action
for injunction and damages against Ramos, et al., before the RTC-Manila
While pending, Cu resold his shares of stock in GDITI to Basalo. As such, Cu intervened in the injunction
case claiming that, as an unpaid seller, he was still the legal owner of the shares of stock subject of the
previous contracts he entered into with Ramos, Lim, Ong, and Gunnacao.
RTC-Manila issued an order to cease and desist from performing or causing the performance of any and
all acts of management and control over GDITI, and to give Cu, as intervenor, the authority to put in
order GDITI's business operations.
6
Cu executed a SPA in favor of Mancao and granted him the power to perform all acts of management
and control over GDITI. Thereafter, Cu expressly revoked the authority that he had previously granted
to Mancao.
Mancao and Basalo filed the present Complaint for Specific Performance with Prayer for the Issuance
of a TRO and a Writ of Preliminary Injunction before the RTC-Nabunturan.
The complaint impleaded petitioner Tom on the allegation that Cu had authorized him to exercise
control and management over GDITI and, on the strength thereof, had made representations before
the PPA.
Respondent Samuel Rodriguez filed a complaint-in-intervention alleging that Basalo, through a
Memorandum of Agreement, authorized him to take over, manage, and control the operations of GDITI
in the Luzon area, and, in such regard, effectively revoked whatever powers Basalo had previously given
to Mancao.
Respondent: Basalo -> MOA -> Rodriguez
Petitioner: Cu -> Mancao(revoked) -> Cu -> Tom
RTC ruled in favour of Respondent Rodriguez. Only Petitioner Tom appealed to the CA for TRO and writ
of preliminary injunction but was denied finding no extreme urgency on the matter and that there was
no possible irreparable injury. Hence, this petition.
Issue: W/N CA committed grave abuse of discretion in denying Tom’s prayer for TRO and writ of
preliminary injunction – YES.
Ruling + Ratio: YES.
SC ruled that by denying Tom's prayer for the issuance of a TRO and/or writ of preliminary injunction,
the CA effectively affirmed the RTC's Order placing the management and control of GDITI to Rodriguez,
a mere intervenor, on the basis of a MOA between the latter and Basalo, in violation of the well-
entrenched rule that a corporation exercises its powers through its board of directors and/or its duly
authorized officers and agents, except in instances where the Corporation Code requires stockholders'
approval for certain specific acts.
SEC. 23. The board of directors or trustees. — Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold oEce for one (1) year until their successors are elected and qualified.
xxx
Accordingly, it cannot be doubted that the management and control of GDITI, being a stock corporation,
are vested in its duly elected Board of Directors, the body that: (1) exercises all powers provided for
under the Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds all
property of the corporation. Its members have been characterized as trustees or directors clothed with
fiduciary character
Disposition: Petition granted
Other Notes: SC also noted that Tom has legal standing to seek the issuance of an injunctive writ,
considering that he is the original party-defendant in the specific performance case pending before the
RTC-Nabunturan from which this petition arose, and in which Rodriguez merely intervened. It likewise
appears from the records that pending these proceedings, Tom has been elected as a member of the
current Board of Directors of GDITI, hence, the injunctive writ must issue in line with the above
disquisition, without prejudice to the resolution on the merits of the specific performance case pending
before the RTC-Nabunturan of which the instant petition is but a mere incident.
7
TOM v. RODRIGUEZ
Petioner: Richard Tom
Respondent: Samuel Rodriguez
Author: Daniela
Facts:
July 6, 2015 Court’s Decision, found that the TRO and writ of Preliminary Injunction was warranted to
enjoin the RTC of Nabunturan, Compestela Valley from implementing its order in the specific
performance case, which, inter alia, placed the Management and control of Golden Dragon
International to Rodriguez.
In granting the injunctive writ, the court upheld the established rule that a corporation exercises its
power through its board of directors and/ or its duly authorized officers and agents, except in instances
where the Corporation Code requires stockholders’ approval for certain specific acts.
In Rodriguez Motion to Dissolve the Injunction asserts that the court order is moot and academic with
the execution of a MOA, signed by himself and petitioner tom and Manacao.
MOA states that the port in General Santos will be managed by Rodriguez, Davao and Panabo City to
Tom and for Manila, Batangas and Bataan to Mancao.
Issue: Whether or not the MOA is renders the injunctive writ as moot?
Ruling + Ratio: NO.
The Court granted the writ of preliminary injunction on the ground that a corporation can only exercise
its powers and transact its business through its board of directors and through its officers and agents
when authorized by a board resolution or its bylaws. As held in AF Realty & Development, Inc. v.
Dieselman Freight Services, Co., 373 SCRA 385 (2002): Section 23 of the Corporation Code expressly
provides that the corporate powers of all corporations shall be exercised by the board of directors. Just
as a natural person may authorize another to do certain acts in his behalf, so may the board of directors
of a corporation validly delegate some of its functions to individual officers or agents appointed by it.
Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate
agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the course of,
or connected with, the performance of authorized duties of such director, are held not binding on the
corporation. As the provisions of the MOA are in direct contravention of the foregoing precepts, which
the Court had earlier espoused in the July 6, 2015 Decision, its execution cannot in any way affect,
change, or render the Court’s previous disquisitions moot and academic. In fact, the MOA is, clearly and
in all respects, contrary to law. Therefore, the writ of preliminary injunction must stand.
THE BOARD OF LIQUIDATORS, representing the GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, In the case at bar, the practice of the corporation has been to allow its general manager to negotiate
Plaintiff-Appellant, v. HEIRS OF MAXIMO KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO and execute contracts in its copra trading activities for and in NACOCO’s behalf without prior board
GARCIA, and LEONOR MOLI, Defendants-Appellees approval.

G.R. No. L-18805, 14 august 1967
Author: Reyes
Doctrine:
Where the practice of the corporation has been to allow its manager to negotiate and execute contracts
in its activities for and in behalf of the corporation without prior board approval, and the board itself,
by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval,
the contracts if the general manager, under the given circumstances, are valid corporate acts.
Facts:
Maximo Kalaw was the General Manager and Board Chairman of the National Coconut Corporation.
During his term, he executed and entered into contracts for the delivery of copra with different buyers.
To which transactions, some are paid partially. However, the copra were not successfully delivered to
the buyers due to four typhoons which resulted to the decrease of copra production.
Some buyers threatened to bring suits for damages against NACOCO, while some were amicably settled.
Further, the board itself, by its acts and through acquiescence, practically laid aside the by-law
requirement of prior approval when it left to the sound discretion of its general manager the adoption
of meet the difficulties of the corporation it its conduct of forwards sales (forward sales= where the
movement of the market requires that sales agreement be entered into, even though the goods are not
yet in the hands of the seller.
Thus, the contracts entered by Kalaw are valid acts and he cannot be made personally liable thereof.
Other Notes:
Authority to bind the Corporation granted by the board of directors to the general manager may be
established by:
proof of the course of business;
usages and practices of the company; and
knowledge which the board of directors has, or must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation.

A total amount of P1,343,274.52 was paid by NACOCO for the settlement. Now, NACOCO seeks to
recover this sum from the general manager and board chairman Kalaw and directors Bocar, Garcia and
Moli. It alleges that Kalaw unjustifiably entered into the controverted contracts without the prior
approval of the corporation’s directorate which is provided under the NACOCO’s by-laws.

Issue:

Whether NACOCO may recover the amount it paid for the settlement of the claims of the supposed
buyer of copra in the contracts that were previously entered by Kalaw when he was still the incumbent
General Manager and Board Chairman.

Ruling:

Yes. The petitioner hinges its argument on the NACOCO’s corporate by-laws which requires the general
manager to secure the approval of the Board prior to the performance or execution of contracts entered
on behalf of the Corporation.

However, jurisprudence provides that: where similar acts have been approved by the directors as a
matter of general practice, custom, and policy, the general manager may bind the company without
formal authorization of the board of directors.

8
 Montelibano vs. Bacolod-Murcia Milling Co., Inc. 5 SCRA 36
No. L-15092. May 18, 1962
Petitioners: Alfredo Montelibano, Alejandro Montelibano, and the Limited copartnership Gonzaga and
Company
Respondent: Bacolod-Murcia Milling Co., Inc.
Topic: Ultra Vires; Business Judgement Rule on Transactions Entered Into; Sugar Central Mills
Doctrine: It is a well-known rule of law that questions of policy or of management are left solely to the
honest decision of officers and directors of a corporation, and the court is without authority to
substitute its judgment of the board of directors; the board is the business manager of the corporation,
and so long as it acts in good faith its orders are not reviewable by the courts.
Facts:
Petitioners had been and are sugar planters adhered to the respondent’s sugar central mill
under identical milling contracts. The term of their original contract was for 30 years from 1920-1921
crop and their resulting product sharing is 45-55 ratio in favour of the planters.
Sometime in 1936, an Amended Milling Contract was drawn up. It stipulated that the planters’
production share shall increase to 60% and the contract term shall extend to 45 years.
Moreover, on August 20, 1936, the Board of Director of Bacolod-Murcia Milling adopted a
resolution in granting further concessions to the planters over and above those contained in the printed
Amended Milling Contract. The resolution provided that if during the validity of the amended milling
contract, the sugar mills in Negros Occidental whose annual production of centrifuged sugar is more
than a third of the total production of all the sugar mills of Negros Occidental, shall grant their planters
improve conditions than what is stipulated in the amended contract, then, those better conditions shall
also be granted by Bacolod-Murcia Milling to their planters.
Petitioners signed and executed the Amended Milling Contract on September 10, 1936. But
the copy of the board resolution which was signed by the Central’s General manager was not attached
to the contract until April 17, 1937 in which there was a notation that amendments transcribed are part
of the amended contract.
In 1953, the petitioners invoked the conditions contained in the resolution. Petitioner claims
that respondent became obligated to grant improved concessions similar with to the other planters of
the other sugar centrals when 3 Negros Occidental sugar centrals (La Carlota, Binalbagan-Isabela and
9
San Carlos) with a total annual production exceeding one-third of the production of all the sugar central
mills in the province, had already granted increased participation of 62.5% to their planters.
However, respondent contends that the stipulations contained in the resolution was null and
void ab initio due to want of consideration, being in effect a donation that was ultra vires and beyond
the powers of the corporate directors to adopt.
RTC: In favor of respondent’s claim
Issue: Whether the Resolution was ultra vires and beyond the powers of the corporate directors to
adopt
Held: No
The Court ruled that the concessions granted by the board resolution had been already
incorporated into the term of the Amended Milling Contract because the said resolution was approved
21 days prior to the signing of the Amended Milling Contract by the petitioners. There is no reason for
the respondent to reject the concessions granted by the disputed resolution or consider them as
separate and apart from the main Amended Milling Contract. It follows then that the terms in the
resolution adopts the same consideration of the main amended contract. Even if the copy of the
Resolution was only attached in the printed contract until April 17, 1937, the stipulation remains valid
as it is the assent of the parties and not the setting of terms that constitutes a binding contract.
In addition, there can be no doubt that the directors of the appellee company had authority
to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms
more acceptable to the other contracting parties.
It can be fairly be considered that an act of the Board is within its charter powers if the act is
lawful in itself and not otherwise prohibited. It is done for the purpose of serving corporate ends, and
is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful
sense. The test to be applied is whether the act in question is in direct and immediate furtherance of
the corporation's business, fairly incident to the express powers and reasonably necessary to their
exercise. If so, the corporation has the power to do it; otherwise, not.
As the resolution in question was passed in good faith by the board of directors, it is valid and
binding, and whether or not it will cause losses or decrease the profits of the central, the court has no
authority to review them.
It is a well-known rule of law that questions of policy or of management are left solely to the
honest decision of officers and directors of a corporation, and the court is without authority to
substitute its judgment of the board of directors; the board is the business manager of the corporation,
and so long as it acts in good faith its orders are not reviewable by the courts.
 PHILIPPINE STOCK EXCHANGE VS CA, (1997)
Doctrine: While it is true that SEC is the agency with the primary say as to whether or not securities,
including shares of stock of a corporation may be traded or not in the stock exchange, it does not mean
that PSE’s management prerogative is under the absolute control of SEC. The PSE is, after all, a
corporation authorized by its corporate franchise to engage in its proposed and duly approved business.
One of the PSE's main concerns, as such, is still the generation of profit for its stockholders.
FACTS: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its
shares to the public in order to raise funds allegedly to develop its properties and pay its loans with
several banking institutions. In January, 1995, PALI was issued a permit to sell its shares to the public by
the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors,
PALI sought to course the trading of its shares through the Philippine Stock Exchange Inc. (PSEi), for
which purpose it filed with the said stock exchange an application to list its shares, with supporting
documents attached pending the approval of the PALI’s listing application, a letter was received by PSE
from the heirs of Ferdinand Marcos to which the latter claims to be the legal and beneficial owner of
some of the properties forming part of PALI’s assets. As a result, PSE denied PALI’s application which
caused the latter to file a complaint before the SEC. The SEC issued an order to PSE to grant listing
application of PALI on the ground that PALI have certificate of title over its assets and properties and
that PALI have complied with all the requirements to enlist with PSE.
corporations, partnerships and associations with the end in view that investment in these entities may
be encouraged and protected and their activities for the promotion of economic development.
A corporation is but an association of individuals, allowed to transact under an assumed corporate
name, and with a distinct legal personality. In organizing itself as a collective body, it waives no
constitutional immunities and requisites appropriate to such a body as to its corporate and
management decisions, therefore, the state will generally not interfere with the same. Questions of
policy and management are left to the honest decision of the officers and directors of a corporation,
and the courts are without authority to substitute their judgements for the judgement of the board of
directors. The board is the business manager of the corporation and so long as it acts in good faith, its
orders are not reviewable by the courts.
In matters of application for listing in the market the SEC may exercise such power only if the PSE’s
judgement is attended by bad faith.
The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the
best interest of the general public.

ISSUE: Whether or not the denial of PALI’s application is proper.

HELD: Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and the courts are
barred from intruding into business judgements of corporations, when the same are made in good faith.
The same rule precludes the reversal of the decision of the PSE, to which PALI had previously agreed to
comply, the PSE retains the discretion to accept of reject applications for listing. Thus, even if an issuer
has complied with the PSE listing rules and requirements, PSE retains the discretion to accept or reject
the issuer’s listing application if the PSE determines that the listing shall not serve the interests of the
investing public.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with
the markings of a corporate entity, it functions as the primary channel through which the vessels of
capital trade ply. The PSEi’s relevance to the continued operation and filtration of the securities
transaction in the country gives it a distinct color of importance such that government intervention in
its affairs becomes justified, if not necessarily. Indeed, as the only operational stock exchange in the
country today, the PSE enjoys monopoly of securities transactions, and as such it yields a monopoly of
securities transactions, and as such, it yields an immerse influence upon the country’s economy.

The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SEC’s express power to insure fair
dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange.
It is likewise, observed that the principal function of the SEC is the supervision and control over
10
 ONG YONG V TIU (401 SCRA 1(2003)
Doctrine: No court can, in resolving the issues between squabbling stockholders, order the corporation
to undertake certain corporate acts, since it would be in violation of the business judgment rule
Facts : In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage
and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), by the
Tius, encountered financial difficulties. It was heavily indebted to the Philippine National Bank (PNB)
for P190 million. To stave off foreclosure of the mortgage on the two lots where the mall was being
built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia
Ong Alonzo (the Ongs), to invest in FLADC.
Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain
equal shareholdings in FLADC:
-the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to
subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing
subscription of 450,200 shares.
- that the Tius were entitled to nominate the Vice-President and the Treasurer plus five directors while
the Ongs were entitled to nominate the President, the Secretary and six directors (including the
chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and
operate the mall.
The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because the
Tius, on February 23, 1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of
(1) refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing
David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President
and Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon.
The controversy finally came to a head when this case was commenced by the Tius on February 27,
1996 at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission of the
Pre-Subscription Agreement. After hearing, the SEC, rendered a judgment confirming the rescission of
the Pre-Subscription Agreement, and consequently ordering:
(a) The cancellation of the 1,000,000 shares subscription of the individual defendants in FLADC; xxx
The CA ordered the liquidation of FLADC to enforce the rescission of the contract (restitution of their
initial contributions, then whatever remaining assets would go to the Tius, including the mall which is
already valued at P 1 Billion). The CA also concluded that both the Ongs and the Tius were in pari delicto
so technically they are not entitled to the remedy of rescission. But the rescission was granted only to
prevent “squabbles and numerous litigations” between the parties. The SC upheld the decision of the
CA.
11
The Ongs then filed a Motion for Reconsideration, asserting that the decision would amount to unjust
enrichment on the part of the Tius.
Issue: Whether or not the order of liquidation of FLADC to enforce the rescission of contract is valid?
Held: NO.
The Tius claim that their case for rescission, being a petition to decrease capital stock, does not violate
the liquidation procedures under our laws. All that needs to be done, according to them, is for this Court
to order (1) FLADC to file with the SEC a petition to issue a certificate of decrease of capital stock and
(2) the SEC to approve said decrease. This new argument has no merit
The Tius case for rescission cannot validly be deemed a petition to decrease capital stock because such
action never complied with the formal requirements for decrease of capital stock under Section 33 of
the Corporation Code. No majority vote of the board of directors was ever taken. Neither was there any
stockholders meeting at which the approval of stockholders owning at least two-thirds of the
outstanding capital stock was secured. There was no revised treasurers affidavit and no proof that said
decrease will not prejudice the creditors rights. On the contrary, all their pleadings contained were
alleged acts of violations by the Ongs to justify an order of rescission.
Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation to compel
FLADC to file at the SEC a petition for the issuance of a certificate of decrease of stock. Decreasing a
corporations authorized capital stock is an amendment of the Articles of Incorporation. It is a decision
that only the stockholders and the directors can make, considering that they are the contracting parties
thereto. In this case, the Tius are actually not just asking for a review of the legality and fairness of a
corporate decision. They want this Court to make a corporate decision for FLADC. We decline to
intervene and order corporate structural changes not voluntarily agreed upon by its stockholders and
directors.
Truth to tell, a judicial order to decrease capital stock without the assent of FLADCs directors and
stockholders is a violation of the business judgment rule which states that:
xxx xxx xxx (C)ontracts intra vires entered into by the board of directors are binding upon the
corporation and courts will not interfere unless such contracts are so unconscionable and oppressive
as to amount to wanton destruction to the rights of the minority, as when plaintiffs aver that the
defendants (members of the board), have concluded a transaction among themselves as will result in
serious injury to the plaintiffs stockholders.
The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in
corporate law, thus:
Courts and other tribunals are wont to override the business judgment of the board mainly because,
courts are not in the business of business, and the laissez faire rule or the free enterprise system
prevailing in our social and economic set-up dictates that it is better for the State and its organs to leave
business to the businessmen; especially so, when courts are ill-equipped to make business decisions.
More importantly, the social contract in the corporate family to decide the course of the corporate
business has been vested in the board and not with courts.

Disposition: The motion for reconsideration is granted.

12
 LIPAT V. PACIFIC BANKING CORPORATION
Author: DE LUNA
DOCTRINE: Unlike in fraud piercing, alter ego piercing does not require that evidence of fraud or
wrongdoing be established, but only that the corporate personality has been used as an instrumentality
for the personal agenda of its controlling stockholder.
FACTS: Spouses Lipat owned Belas Export Trading (BET), engaged in the manufacture of garments. The
Lipats also owned the Mystical Fashions in the United States, which sells goods imported from the
Philippines through BET.
Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of her mother,
Mrs. Lipat and BET, a loan from Pacific Bank to buy fabrics to be manufactured by BET and exported to
Mystical Fashions.
Sometime after, BET was incorporated into a family corporation named Belas Export Corporation
(BEC). Its incorporators and directors included the Lipat spouses, teresita and other close relatives and
friends of the Lipats. Estelita Lipat was named president of BEC, while Teresita became the vice-
president and general manager.Eventually, the loan was later restructured in the name of BEC and
subsequent loans were obtained by BEC with the corresponding promissory notes duly executed by
Teresita on behalf of the corporation.
The promissory notes, export bills, and trust receipt eventually became due and
demandable. Unfortunately, BEC defaulted in its payments. Consequently, the real estate mortgage
was foreclosed and sold at a public auction.
The Lipats file for the annulment of the mortgage and the foreclosure alleging that, that the
promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were
executed without the requisite board resolution of the Board of Directors of BEC. Even assuming that
the said act were valid and binding on BEC, the same were the corporations sole obligation, it having a
personality distinct and separate from spouses Lipat
It was likewise pointed out that Teresitas authority to secure a loan from Pacific Bank was specifically
limited to Mrs. Lipats sole use and benefit and that the real estate mortgage was executed to secure
the Lipats and BETs P583,854.00 loan only.
On the other hand, Pacific Bank alleged that petitioners Lipat cannot evade payments that petitioners
Lipat cannot evade payments because they and the BEC are one and the same, the latter being a family
corporation.
13
ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case.
HELD: YES. IT IS APPLICABLE
The Lipats contend that there should be no application of the doctrine of piercing the veil of
corporate fiction absent any clear showing of fraud on their part, and therefore they should not be
liable for the obligations of BEC.
However, according to the Court, the doctrine shall be applied. The Lipats mortgaged
property are liable for the obligations of BEC, upon the alter ego doctrine or instrumentality rule, rather
than fraud in piercing the veil of corporate fiction.
ALTER EGO DOCTRINE/ INSTRUMENTALITY RULE
When the corporation is the mere alter ego or business conduit of a person, the separate
personality of the corporation may be disregarded. Where one corporation is so organized and
controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the instrumentality may be disregarded.
The control necessary to invoke the rule is not majority or even complete stock control but
such domination of finances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal
BET AND BEC ARE ONE AND THE SAME
Evidence shows that BET and BEC are not separate business entities. Spouses Lipats were the
owners of BET and were two of the incorporators and majority stockholders of BEC. It be noted that
Mr. Lipat executed a SPA in favor of Teresita to obtain loans from Pacific Bank on her behalf.
Incidentally, Teresita was designated as executive-vice president and general manager of both BET and
BEC, respectively.
Mrs. Lipat had full control over the activities of the corporation and used the same to further
her business interests.[9] In fact, she had benefited from the loans obtained by the corporation to
finance her business. It also found unnecessary a board resolution authorizing Teresita Lipat to secure
loans from Pacific Bank on behalf of BEC because the corporations by-laws allowed such conduct even
without a board resolution
 Other observation by the Court:

(1) Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively;

(2) both firms were managed by their daughter, Teresita;

(3) both firms were engaged in the garment business, supplying products to Mystical Fashion, a U.S.
firm established by Estelita Lipat;

(4) both firms held office in the same building owned by the Lipats;

(5) BEC is a family corporation with the Lipats as its majority stockholders;

(6) the business operations of the BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable;

(7) the corporate funds were held by Estelita Lipat and the corporation itself had no visible assets;

(8) the board of directors of BEC was composed of the Burgos and Lipat family members;

(9) Estelita had full control over the activities of and decided business matters of the corporation; and
that

(10) Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business
abroad and from the export bills secured by BEC for the account of Mystical Fashion

BET and BEC are one and the same and the latter is a conduit of and merely succeeded the former. The
Lipats just tried to hide behond the coporate personality of BEC so as to evade their liabilities to Pacific
Bank, thus the application of the doctrine. BEC is a mere continuation and successor of BET, and
petitioners cannot evade their obligations in the mortgage contract secured under the name of BEC.

Thus, the mortgaged property should be liable for original loand and also the subsequent loans.

14
 LIPAT V. PACIFIC BANK
Petitioner/s: ESTELITA BURGOS LIPAT and ALFREDO LIPAT
Respondent/s: PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF
QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD
Topic: Theory of Estoppel or Ratification
Doctrine: It is a familiar doctrine that if a corporation knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, it holds him out to the public as possessing the
power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with
it through such agent, be estopped from denying the agent's authority.
Author Villanueva
Facts:
Petitioners owned "Bela's Export Trading" (BET), a single proprietorship and the "Mystical Fashions" in
the United States. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the
Philippines while she was managing "Mystical Fashions" in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed a SPA appointing Teresita
Lipat as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific
Banking Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on
properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank
including any extension or renewal thereof.
Teresita, by virtue of the SPA was able to secure for and in behalf of her mother, Mrs. Lipat and BET, a
loan from Pacific Bank. As security therefor, the Lipat spouses, as represented by Teresita, executed a
Real Estate Mortgage over their property.
BET was incorporated into a family corporation named Bela's Export Corporation (BEC) in order to
facilitate the management of the business. Eventually, the loan was later restructured in the name of
BEC and subsequent loans were obtained by BEC with the corresponding promissory notes duly
executed by Teresita on behalf of the corporation. The promissory notes, export bills, and trust receipt
eventually became due and demandable. Unfortunately, BEC defaulted in its payments. Consequently,
the real estate mortgage was foreclosed and sold at public auction.
The spouses Lipat filed a complaint for annulment of the real estate mortgage, extrajudicial foreclosure
and the certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad. The
complaint alleged that the promissory notes, trust receipt, and export bills were all ultra vires acts of
Teresita as they were executed without the requisite board resolution of the Board of Directors of BEC.
15
Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade payments of the value
of the promissory notes, trust receipt, and export bills with their property because they and the BEC
are one and the same, the latter being a family corporation. Respondent Trinidad further claimed that
he was a buyer in good faith and for value and that petitioners are estopped from denying BEC's
existence after holding themselves out as a corporation.
Issue: WON the petitioners are estopped from denying the validity of the transactions entered into by
Teresita Lipat with Pacific Bank.
Ruling: YES.
The principle of estoppel precludes petitioners from denying the validity of the transactions entered
into by Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former as
manager to act on behalf of petitioner Estelita Lipat and both BET and BEC. While the power and
responsibility to decide whether the corporation should enter into a contract that will bind the
corporation is lodged in its board of directors, subject to the articles of incorporation, by-laws, or
relevant provisions of law, yet, just as a natural person may authorize another to do certain acts for and
on his behalf, the board of directors may validly delegate some of its functions and powers to officers,
committees, or agents. The authority of such individuals to bind the corporation is generally derived
from law, corporate by-laws, or authorization from the board, either expressly or impliedly by habit,
custom, or acquiescence in the general course of business. Apparent authority, is derived not merely
from practice. Its existence may be ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his
ordinary powers.
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special
power of attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both
BEC and BET and had been deciding business matters in the absence of Estelita Lipat. Further, the export
bills secured by BEC were for the benefit of "Mystical Fashion" owned by Estelita Lipat. Hence, Pacific
Bank cannot be faulted for relying on the same authority granted to Teresita Lipat by Estelita Lipat by
virtue of a special power of attorney. It is a familiar doctrine that if a corporation knowingly permits
one of its officers or any other agent to act within the scope of an apparent authority, it holds him out
to the public as possessing the power to do those acts; thus, the corporation will, as against anyone
who has in good faith dealt with it through such agent, be estopped from denying the agent's authority.
 WOODCHILD HOLDINGS VS. RECCI
Petitioner: Woodchild Holdings Inc. (WHI)
Respondents: Roxas Electric and Construction Company, Inc. (RECCI)
DOCTRINE:
The property of the corporation is not the property of its stockholders or members and may not be sold
by the stockholders or members without express authorization from the corporation’s board of
directors. Acts done by corporate officers beyond the scope of their authority cannot bind the
corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them.
FACTS:
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and
Construction Company, was the owner of two parcels of land. A portion of one Lot which abutted the
other Lot was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution
authorizing the corporation, through its president, Roberto B. Roxas, to sell the Lots, at a price and
under such terms and conditions which he deemed most reasonable and advantageous to the
corporation; and to execute, sign and deliver the pertinent sales documents and receive the proceeds
of the sale for and on behalf of the company.
Petitioner Woodchild Holdings, Inc. (WHI) decided to buy the land with a condition that in the event
that WHI will be needing to buy portion of the adjacent land for their right of way, RECCI will be obliged
to sell them the needed portion. Afterwards, a deed of sale and acceptance of the condition was
acknowledged by both parties.
Roberto Roxas then died. Petitioner then asked for the fulfillment of the conditions of the deed of sale
signed by Roberto Roxas and WHI. However, respondent posits that Roxas was not so authorized under
16
the May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of way in
favor of the petitioner, much less convey a portion thereof to the petitioner. Hence, the respondent
was not bound by such provisions contained in the deed of absolute sale. Thus, this petition.
ISSUE:
Whether or not the respondent is bound by the provisions in the deed of absolute sale granting to the
petitioner a right to buy portion of the adjacent land owned by respondents for their right of way?
RULING:
No.
Generally, the acts of the corporate officers within the scope of their authority are binding on the
corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond the
scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly,
or is estopped from denying them.
Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable
against the corporation unless ratified by the corporation.
Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way in favor
of the petitioner or to agree to sell to the petitioner a portion thereof. The authority of Roxas, under
the resolution, to sell did not include the authority to sell a portion of the adjacent lot, or to create or
convey real rights thereon. Neither may such authority be implied from the authority granted to Roxas.
The consent of the respondent to the assailed provisions in the deed of absolute sale was not obtained;
hence, the assailed provisions are not binding on it.
 FRANCISCO vs GSIS The offer of compromise made by plaintiff in had been validly accepted and was binding on the
defendant.
PETITIONER: TRINIDAD J. FRANCISCO

RESPONDENT: GOVERNMENT SERVICE INSURANCE SYSTEM

FACTS:
The plaintiff, Trinidad J. Francisco, in consideration of a loan mortgaged in favor of the defendant,
Government Service Insurance System a parcel of land known as Vic-Mari Compound, located at Baesa,
Quezon City.
The System extrajudicially foreclosed the mortgage on the ground that up to that date the plaintiff-
mortgagor was in arrears on her monthly installments. The System itself was the buyer of the property
in the foreclosure sale.
The plaintiff’s father, Atty. Vicente J. Francisco, sent a letter to the general manager of the defendant
corporation, Mr. Rodolfo P. Anda, proposing redemption of the property. The latter approved the
request of Francisco to redeem the land through a telegram. Defendant received the payment and it
did not take over the administration of the compound.
According to the doctrine of apparent authority, 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;
In this case, the terms of the offer were clear and the signature of defendant's general manager, Rodolfo
Andal, plaintiff was informed telegraphically that her proposal had been accepted. There was nothing
in the telegram that hinted at any anomaly, or gave ground to suspect its veracity, and the plaintiff,
therefore, cannot be blamed for relying upon it. There is no denying that the telegram was within
Andal's apparent authority. Assuming that it was sent by the Board Secretary in his name but without
his knowledge, third persons are not duty bound to disbelieve the acts of a corporation’s
officers,especially when it appears regular on its face.

The System sent three letters which was signed by its assistant general manager asking the plaintiff for
a proposal for the payment of her indebtedness, since according to the System the one-year period for
redemption had expired.

Atty. Francisco sent a letter protesting against the System's request for proposal of payment.

Nevertheless, GSIS continued to demand foreclosure. They claimed that the telegram should be
disregarded in view of its failure to express the contents of the board resolution due to the error of its
minor employees in couching the correct wording of the telegram and also the remittances previously
made by Atty. Francisco were allegedly not sufficient to pay off her daughter's arrears.

Hence, this recourse.

ISSUE: Whether or not the offer by Atty. Vicente Francisco was accepted by the corporation.

RULING:

17
 ADVANCE PAPER CORP. VS. ARMA TRADERS CORP.
Petitioners: Advance Paper Corporation and George Haw
Respondents: Arma Traders Corporation, Manuel Ting, Cheng Gui and Benjamin Ng
Doctrine: The doctrine of apparent authority provides that a corporation will be estopped from denying
the agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those
acts. The doctrine of apparent authority does not apply if the principal did not commit any acts or
conduct which a third party knew and relied upon in good faith as a result of the exercise of reasonable
prudence. Moreover, the agent’s acts or conduct must have produced a change of position to the third
party’s detriment.
FACTS:
Advance Paper is a domestic corporation engaged in the business of producing, printing,
manufacturing, distributing and selling of various paper products where George Haw is President and
his wife, Connie Haw is the General Manager. Arma Traders is also a domestic corporation engaged in
the wholesale and distribution of school and office supplies, and novelty products where Antonio Tan
(Tan) was formerly the President while respondent Uy Seng Kee Willy (Uy) is the Treasurer of Arma
Traders. They represented Arma Traders when dealing with its supplier, Advance Paper, for about 14
years. Manuel Ting, Cheng Gui and Benjamin Ng worked for Arma Traders as Vice-President, General
Manager and Corporate Secretary, respectively.
From September to December 1994, Arma traders purchased, on credit, notebooks and other
paper products amounting to 7.5 million from Advance Paper. Because of Arma Trader’s good relations
with Advanced Paper, Uy and Tan were able to obtain loans from Advanced Paper amounting to 7.7
million in order to pay their obligation to other suppliers. Tan and Uy issued 82 postdated checks
payable to cash or to Advance Paper with an aggregate amount of 15. 1 million pesos.
Advance Paper presented the checks to drawee bank but were dishonoured either because
"insufficiency of funds" or "account closed”. Arma Traders failed to settle its account with Advance
Paper. On December 29, 1994, the petitioners filed a complaint for collection of sum of money with
application for preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and Ng.
Claims of the Petitioner: The petitioners claimed that the respondents fraudulently issued the
postdated checks as payment for the purchases and loan transactions knowing that they did not have
sufficient funds with the drawee banks. Arma Traders led the petitioners to believe that Tan and Uy had
the authority to obtain loans since the respondents left the active and sole management of the
company to Tan and Uy since 1984. In fact, Ng testified that Arma Traders’ stockholders and board of
directors never conducted a meeting from 1984 to 1995. Therefore, if the respondents’ position will be
18
sustained, they will have the absurd power to question all the business transactions of Arma Traders.
Citing Lipat v. Pacific Banking Corporation, the petitioners said that if a corporation knowingly permits
one of its officers or any other agent to act within the scope of an apparent authority, it holds him out
to the public as possessing the power to do those acts; thus, the corporation will, as against anyone
who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority.
Claims of the Respondent: the loan transactions were ultra vires because the board of directors of Arma
Traders did not issue a board resolution authorising Tan and Uy to obtain the loans from Advance Paper.
They claimed that the borrowing of money must be done only with the prior approval of the board of
directors because without the approval, the corporate officers are acting in excess of their authority of
ultra vires. When the acts of the corporate officers are ultra vires, the corporation is not liable for
whatever acts that these officers committed in excess of their authority. Further, the respondents
claimed that Advance Paper failed to verify Tan and Uy’s authority to transact business with them.
Hence, Advance Paper should suffer the consequences.
RTC Ruling: The RTC ruled that the purchases on credit and loans were sufficiently proven by the
petitioners. Hence, the RTC ordered Arma Traders to pay Advance Paper the sum of P15,321,798.25
with interest, and P1,500,000.00 for attorney’s fees, plus the cost of the suit. RTC dismissed the
complaint against Tan, Uy, Ting, Gui and Ng due to the lack of evidence showing that they bound
themselves, either jointly or solidarily, with Arma Traders for the payment of its account.
CA Ruling: RTC ruling was set aside. The CA held that the petitioners failed to prove by preponderance
of evidence the existence of the purchases on credit and loans based on the following:
1. Arma Traders was not liable for the loan in the absence of a board resolution authorizing Tan and Uy
to obtain the loan from Advance Paper. The authority to sign the checks is different from the required
authority to contract a loan.
2. The CA also held that the petitioners presented incompetent and inadmissible evidence to prove the
purchases on credit since the sales invoices were hearsay. identification of the sales invoices was not
an exception to the hearsay rule.
3. Petitioners failed to satisfactorily rebut the badges of fraud.
ISSUE: W/N Arma Traders is liable to pay the loans applying the doctrine of apparent authority?
RULING: Arma Traders is liable to pay the loans on the basis of the doctrine of apparent authority.
The doctrine of apparent authority provides that a corporation will be estopped from denying
the agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those acts.
The doctrine of apparent authority does not apply if the principal did not commit any acts or conduct
which a third party knew and relied upon in good faith as a result of the exercise of reasonable
prudence. Moreover, the agent’s acts or conduct must have produced a change of position to the third powers. Because of its own laxity in its business dealings, Arma Traders is now estopped from denying
party’s detriment. Tan and Uy’s authority to obtain loan from Advance Paper.

A corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that [the] authority to do so has been conferred upon him, and this includes
powers as, in the usual course of the particular business, are incidental to, or may be implied from, the
powers intentionally conferred, powers added by custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers as the corporation has caused person dealing
with the officer or agent to believe that it has conferred.

Apparent authority is derived not merely from practice. Its existence may be ascertained
through:

(1) the general manner in which the corporation holds out an officer or agent as having the power to
act or, in other words the apparent authority to act in general, with which it clothes him; or

(2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof,
within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s)
executed either in its favor or in favor of other parties. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a corporate officer with the power to bind the
corporation.

In the absence of a charter or bylaw provision to the contrary, the president is presumed to
have the authority to act within the domain of the general objectives of its business and within the
scope of his or her usual duties.

In the present petition, we do not agree with the CA’s findings that Arma Traders is not liable
to pay the loans due to the lack of board resolution authorizing Tan and Uy to obtain the loans. To begin
with, Arma Traders’ Articles of Incorporation provides that the corporation may borrow or raise money
to meet the financial requirements of its business by the issuance of bonds, promissory notes and other
evidence of indebtedness. Likewise, it states that Tan and Uy are not just ordinary corporate officers
and authorised bank signatories because they are also Arma Traders’ incorporators along with
respondents Ng and Ting, and Pedro Chao. Furthermore, the respondents, through Ng who is Arma
Traders’ corporate secretary, incorporator, stockholder and director, testified that the sole
management of Arma Traders was left to Tan and Uy and that he and the other officers never dealt
with the business and management of Arma Traders for 14 years. He also confirmed that since 1984 up
to the filing of the complaint against Arma Traders, its stockholders and board of directors never had
its meeting.

Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact
with third persons without the necessary written authority from its non performing board of directors.
Arma Traders failed to take precautions to prevent its own corporate officers from abusing their

19
 WESTMONT BANK VS INLAND CONSTRUCTION AND DEVELOPMENT CORP.
Petitioner: Westmont Bank and Provincial Sheriff of Rizal
Respondent: Inland Construction and Development Corp. and Court Of Appeals
Author: Susan
Doctrine: The general rule remains that, in the absence of authority from the board of directors, no
person, not even its officers, can validly bind a corporation. If a corporation, however, consciously lets
one of its officers, or any other agent, to act within the scope of an apparent authority, it will be
estopped from denying such officers authority.
The records show that Calo was the one assigned to transact on petitioners behalf respecting the loan
transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes. Since it
conducted business through Calo, who is an Account Officer, it is presumed that he had authority to
sign for the bank in the Deed of Assignment. Petitioner-bank failed to discharge its primary burden of
proving that Calo was not authorized to bind it, as it did not present proof that Calo was unauthorized. It
did not present, much less cite, any Resolution from its Board of Directors or its Charter or By-laws from
which the Court could reasonably infer that he indeed had no authority to sign in its behalf or bind it in
the Deed of Assignment. The assertion that the petitioner cannot be faulted for its delay in repudiating
the apparent authority of Calo is similarly flawed, there being no evidence on record that it had actually
repudiated such apparent authority. It should be noted that it was the bank which pleaded that defense
in the first place. What is extant in the records is a reasonable certainty that the bank had ratified the
Deed of Assignment.

Facts: Disposition: The case is Dismissed.

Inland Construction and Development Corp. obtained various loans and other credit accommodations
from petitioner, to secure the payment of its obligations, Inland executed real estate mortgages over
three real properties and promissory notes. When the first and second promissory notes fell due, Inland
defaulted in its payments. It, however, authorized the bank to debit P350,000 from its savings account
to partially satisfy its obligations. Felix Aranda, President of Inland, assigned and conveyed all his rights
and interests at Hanil-Gonzales Construction & Development Corporation favor of Horacio Abrantes
Executive Vice-President and General Manager of Hanil-Gonzales Corporation. Under the same Deed of
Assignment, it appears that Abrantes assumed, among other obligations of Inland and
Aranda, Promissory Note No. BD-2884-77 in the amount of P800,000 in the Deed of Assignment of
Obligation in which Aranda and Inland, on one hand, and Abrantes and Hanil-Gonzales Corporation, on
the other, forged the deed of assignment. The banks Account Officer, Lionel Calo Jr. (Calo), signed for
its conformity to the deed. Afterwards, Inland was served a Notice of Sheriffs Sale foreclosing the real
estate mortgages over its real properties. The bank underscored that it had no knowledge, much less
did it give its conformity to the alleged assignment of the obligation. The trial court found that the
bank ratified the act of its account officer Calo.

Petitioner contended that Calo had no authority to bind it in the Deed of Assignment and that a single,
isolated unauthorized act of its agent is not sufficient to establish that it clothed him with apparent
authority. Petitioner adds that the records fail to disclose evidence of similar acts of Calo executed
either in its favor or in favor of other parties. Moreover, petitioner reasserts that the unauthorized act
of Calo never came to its knowledge, hence, it is not estopped from repudiating the Deed of
Assignment.

Issue: Whether or no Calo had authority to bind the deed if assignment?

Held/Ratio: Yes

20
 ASSOCIATED BANK VS. PRONSTROLLER
Petitioner: Associated Bank
Respondent Spouses Rafael and Monaliza Pronstroller
Topic: Doctrine of Apparent Authority
Doctrine: Naturally, the third person has little or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the external manifestations of corporate consent. The
integrity of commercial transactions can only be maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with law. What transpires in the corporate board room
is entirely an internal matter.
Facts:
There was a pending litigation between Spouses Vaca and petitioner for the nullification of REM and
foreclosure sale of herein subject parcel of land.
During its pendency, petitioner accepted Pronstroller’s offer to purchase the property after petitioner
advertised its sale. Offer was made through Atty. Soluta(petitioner’ VP), Corp. Sec. and a member of its
Board of Directors.
Petitioner, through Atty. Soluta, and respondents, executed a Letter-Agreement setting forth the terms
and conditions of the sale.
Prior to the expiration of the period to make the escrow deposit, respondents requested that the
balance of the purchase price be made payable only upon service on them of a final decision of the
Court affirming petitioner’s right to possess the subject property.
Atty. Soluta referred respondents’ proposal to bank’s Asset Recovery and Remedial Management
Committee (ARRMC) but the latter deferred action.
After the payment deadline had lapsed, respondents and Atty. Soluta, executed another Agreement
allowing the former to pay the balance of the purchase price upon receipt of a final order in the Vaca
case and/or the delivery of the property to them free from occupants.
Thereafter, petitioner reorganized its management. Atty. Dayday became petitioner’s Asst. Vice-Pres.
and Head of the Documentation Section, while Atty. Soluta was relieved of his responsibilities.
Atty. Dayday discovered upon review that respondents failed to deposit the balance of the purchase
price of the subject property and found that respondents requested for an extension of time within
which to pay. The matter was then resubmitted to the ARRMC during its meeting, and it was
disapproved. ARRMC, referred the matter to petitioner’s Legal Department for rescission or
cancellation of the contract due to respondents’ breach.
21
Atty. Dayday informed respondents that their request for extension was disapproved and petitioner
was rescinding the contract and forfeiting their deposit due to respondents’ breach. Petitioner added
that if respondents were still interested in buying the subject property, they had to submit new
proposal.
Respondents showed to Atty. Dayday that they were granted an extension in the Letter-Agreement of
July 14, 1993. However, Atty. Dayday claimed that the letter was a mistake and that Atty. Soluta was
not authorized to give such extension.
Respondents proposed to pay the balance of the purchase price. However, the proposal was
disapproved by the petitioner’s President.
In a letter, petitioner advised respondents that the former would accept the latter’s proposal only if
they would pay interest at the rate of 24.5% per annum on the unpaid balance. Petitioner also allowed
respondents a refund of their deposit if they would not agree to petitioner’s new proposal.
For failure to reach an agreement, respondents informed petitioner that they would be enforcing their
agreement dated July 14, 1993.
Petitioner countered that it was not aware of the July 14 agreement and that Atty. Soluta was not
authorized to sign on behalf of the bank.
On July 1994, Court upheld petitioner’s right to possess the property in Vaca case.
Respondents filed a Complaint for Specific Performance before the RTC. -Resolved in favor of
respondents: bank is ordered to accept plaintiffs’ payment applying doctrine of apparent authority.
On appeal, CA affirmed the RTC decision and upheld Atty. Soluta’s authority to represent the petitioner.
MR was denied. Hence, the present petition.
Issue: Whether the petitioner is bound by the July 14, 1993 Letter-Agreement signed by Atty. Soluta
under the doctrine of apparent authority?
Ruling+Ratio: YES
The general rule is that, in the absence of authority from the board of directors, no person can validly
bind a corporation. The authority of such individuals to bind the corporation is generally derived from
law, corporate bylaws or authorization from the board, either expressly or impliedly, by habit, custom,
or acquiescence, in the general course of business. The authority of a corporate officer or agent in
dealing with third persons may be actual or apparent.
The doctrine of “apparent authority,” with special reference to banks, had long been recognized in this
jurisdiction. Apparent authority is derived not merely from practice. Its existence may be ascertained
through 1) the general manner in which the corporation holds out an officer or agent as having the
power to act, or in other words, the apparent authority to act in general, with which it clothes him; or
2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof,
within or beyond the scope of his ordinary powers.

The authority to act for and to bind a corporation may be presumed from acts of recognition in other
instances, wherein the power was exercised without any objection from its board or shareholders.
Undoubtedly, petitioner had previously allowed Atty. Soluta to enter into the first agreement without
a board resolution expressly authorizing him; thus, it had clothed him with apparent authority to modify
the same via the second letter agreement. It is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate officer with the power to bind the corporation.
Naturally, the third person has little or no information as to what occurs in corporate meetings; and he
must necessarily rely upon the external manifestations of corporate consent. The integrity of
commercial transactions can only be maintained by holding the corporation strictly to the liability fixed
upon it by its agents in accordance with law. What transpires in the corporate board room is entirely an
internal matter. Hence, petitioner may not impute negligence on the part of the respondents in failing
to find out the scope of Atty. Soluta’s authority. Indeed, the public has the right to rely on the
trustworthiness of bank officers and their acts.

As early as June 1993, or prior to the 90-day period within which to make the full payment, respondents
already requested a modification of the earlier agreement such that the full payment should be made
upon receipt of this Court’s decision confirming petitioner’s right to the subject property. The matter
was brought to the petitioner’s attention and was in fact discussed by the members of the Board.
Instead of acting on said request, the board deferred action on the request. It was only after one year
and after the bank’s reorganization that the board rejected respondents’ request. We cannot therefore
blame the respondents in relying on the July 14, 1993 Letter Agreement. Petitioner’s inaction, coupled
with the apparent authority of Atty. Soluta to act on behalf of the corporation, validates the July 14
agreement and thus binds the corporation. All these taken together, lead to no other conclusion than
that the petitioner attempted to defraud the respondents. This is bolstered by the fact that it forged
another contract involving the same property, with another buyer, the spouses Vaca, notwithstanding
the pendency of the instant case. We would like to emphasize that if a corporation knowingly permits
its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him
out to the public as possessing power to do those acts, the corporation will, as against any person who
has dealt in good faith with the corporation through such agent, be estopped from denying such
authority.

Disposition: WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of
Appeals dated February 27, 2001 and its Resolution dated May 31, 2001 in CA-G.R. CV No. 60315 are
AFFIRMED.

22
 GEORG VS HOLY TRINITY COLLEGE
Petitioner: Benjie B. Georg
Private Respondent: Sister Medalle
Topic: Doctrine of Apparent Authority
Doctrine: The doctrine of apparent authority provides that a corporation will be estopped from denying
the agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those acts.
Author: Barba
Facts:
1. Holy Trinity College Grand Chorale and Dance Company (the group) was organized in 1987 by Sister
Teresita Medalle, president of the Holy Trinity College in Puerto Princesa. The group was composed of
students from Holy Trinity College. In 2001, the group was slated to perform in Greece, Italy Spain and
Germany. Petitioner on the other hand is the Filipino wife of a German national, who owns a German
Travel Agency.
2. A certain Enriquez, represented Sr. Medalle and contacted petitioner to seek assistance for payment
of the group’s international airplane tickets.
3. A Memorandum of Agreement with Deed of Assignment was then executed between petitioner,
represented by Atty. Belarmino, as first party assignee and the Group, represented by Sr. Medalle thru
Attorney-in-Fact Enriquez and S.C. Roque Group of Companies Holding Limited Corporation and S.C.
Roque Foundation, Incorporated as second party assignor. Under the said Agreement, petitioner,
through her travel agency, will advance the payment of international airplane tickets in favor of the
Group. In turn, a confirmed financial allocation of P4,624,705 from S.C Roque Foundation will be
assigned to the petitioner. Petitioner paid for the Group’s domestic and international airplane tickets.
petitioner to justify her failure to exercise reasonable diligence in the conduct of her own travel agency
business.
7. Aggrieved, petitioner filed a petition for review.
Issue: Whether or not the doctrine of apparent authority is applicable
Ruling: YES
The existence of apparent authority may be ascertained through (1) the general manner in
which the corporation holds out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope
of his ordinary powers.
In this case, Sr. Medalle formed and organized the Group. She had been giving financial
support to the Group, in her capacity as President of Holy Trinity College. Sr. Navarro admitted that the
Board of Trustees never questioned the existence and activities of the Group. Thus, any agreement or
contract entered into by Sr. Medalle as President of Holy Trinity College relating to the Group bears the
consent and approval of respondent. Hence, petitioners reliance on respondent’s authority to transact
cannot be faulted.
Disposition: Decision is reversed. Petition was GRANTED.

4. Claiming that the second party have not paid and refused to pay their obligation under the MOA,
petitioner filed a claim of damages before the RTC. Petitioner also filed a petition for Issuance of a Writ
of Attachment and was granted.

5. Trial thereafter ensued. Respondent argued that neither it is obligated to pay the European Tour of
the Group nor did it consent to complying with the terms of the MOA. Respondent also asserted that
the thumbmark of Sr. Medalle was secured without her consent. Respondent also maintained that since
it was not a party to the MOA, it is not bound by the provisions stated therein.

6. RTC ruled in favor of the petitioner. CA however reversed the decision and relieved the respondent
from liability. It ruled that there was no showing that Sr. Medalle was duly authorized by respondent to
enter into the subject MOA and that the general affiliation with respondent cannot be used by

23
 GOKONGWEI VS. SECURITIES AND EXCHANGE COMMISSION
[GR L-45911, 11 April 1979]
Facts:
John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate
of filing of amended by-laws, injunction and damages with prayer for a preliminary injunction" against
the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling
petitioner. As a first cause of action, Gokongwei alleged that on 18 September 1976, Andres Soriano,
Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel
Ortigas, and Antonio Prieto amended the bylaws of the corporation, basing their authority to do so on
a resolution of the stockholders adopted on 13 March 1961.
It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of
the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the
Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the
subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the
basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961
authorization, Gokongwei contended that the Board acted without authority and in usurpation of the
power of the stockholders. As a second cause of action, it was alleged that the authority granted in
1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to
exist. As a third cause of action, Gokongwei averred that the membership of the Board of Directors had
changed since the authority was given in 1961, there being 6 new directors. As a fourth cause of action,
it was claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a
director of the corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei
had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the
election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for
Gokongwei's disqualification and deprived him of his vested right as afore-mentioned, hence the
amended by-laws are null and void.
Gokongwei alleged that, having discovered that the corporation has been investing corporate funds in
other corporations and businesses outside of the primary purpose clause of the corporation, in violation
of section 17-1/2 of the Corporation Law, he filed with SEC, on 20 January 1977, a petition seeking to
24
have Andres M. Soriano, Jr. and Jose M. Soriano, as well as the corporation declared guilty of such
violation, and ordered to account for such investments and to answer for damages.
Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for issuance
of writ of preliminary injunction, with the Supreme Court, alleging that there appears a deliberate and
concerted inability on the part of the SEC to act.
Issue:
Whether the corporation has the power to provide for the (additional) qualifications of its directors.
Whether the disqualification of a competitor from being elected to the Board of Directors is a
reasonable exercise of corporate authority.
Whether the SEC gravely abused its discretion in denying Gokongwei's request for an examination of
the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation.
Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel Corporation
to ratify the investment of corporate funds in a foreign corporation.
Held:
1. It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws
'for its internal government, and to regulate the conduct and prescribe the rights and duties of its
members towards itself and among themselves in reference to the management of its affairs. To this
extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege
to regulate the disposition of his property which he has invested in the capital stock of the corporation,
and surrendered it to the will of the majority of his fellow incorporators. It can not therefore be justly
said that the contract, express or implied, between the corporation and the stockholders is infringed by
any act of the former which is authorized by a majority." Pursuant to section 18 of the Corporation Law,
any corporation may amend its articles of incorporation by a vote or written assent of the stockholders
representing at least two-thirds of the subscribed capital stock of the corporation. If the amendment
changes, diminishes or restricts the rights of the existing shareholders, then the dissenting minority has
only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22
of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any
by-law or adopt new by-laws. It cannot be said, therefore, that Gokongwei has a vested right to be
elected director, in the face of the fact that the law at the time such right as stockholder was acquired
contained the prescription that the corporate charter and the by-law shall be subject to amendment,
alteration and modification.
2. Although in the strict and technical sense, directors of a private corporation are not regarded as
trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation
and the stockholders as a body are concerned. As agents entrusted with the management of the
corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this
sense the relation is one of trust." "The ordinary trust relationship of directors of a corporation and
stockholders is not a matter of statutory or technical law. It springs from the fact that directors have
the control and guidance of corporate affairs and property and hence of the property interests of the
stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are
ultimately the only beneficiaries thereof."
The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary
standards could not be upheld where the fiduciary was acting for two entities with competing interests.
This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director
taking advantage of an opportunity for his own personal profit when the interest of the corporation
justly calls for protection. It is not denied that a member of the Board of Directors of the San Miguel
Corporation has access to sensitive and highly confidential information, Certainly, where two
corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for
the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and
place the performance of his corporation duties above his personal concerns. The offer and assurance
of Gokongwei that to avoid any possibility of his taking unfair advantage of his position as director of
San Miguel Corporation, he would absent himself from meetings at which confidential matters would
be discussed, would not detract from the validity and reasonableness of the by-laws involved. Apart
from the impractical results that would ensue from such arrangement, it would be inconsistent with
Gokongwei's primary motive in running for board membership — which is to protect his investments in
San Miguel Corporation. More important, such a proposed norm of conduct would be against all
accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law
is to encourage and enforce responsible corporate management.
4. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other
corporation or business or for any purpose other than the main purpose for which it was organized"
provided that its Board of Directors has been so authorized by the affirmative vote of stockholders
holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is
made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is
only when the purchase of shares is done solely for investment and not to accomplish the purpose of
its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise
at least two-thirds of the voting power is necessary. As stated by the corporation, the purchase of beer
manufacturing facilities by SMC was an investment in the same business stated as its main purpose in
its Articles of Incorporation, which is to manufacture and market beer. It appears that the original
investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer
brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San
Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the organization of
SMI in Bermuda as a tax free reorganization. Assuming arguendo that the Board of Directors of SMC
had no authority to make the assailed investment, there is no question that a corporation, like an
individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers
or other agents.

3. While the right of a stockholder to examine the books and records of a corporation for a lawful
purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-
owned subsidiary of the corporation in which he is a stockholder is a different thing. Stockholders are
entitled to inspect the books and records of a corporation in order to investigate the conduct of the
management, determine the financial condition of the corporation, and generally take an account of
the stewardship of the officers and directors. herein, considering that the foreign subsidiary is wholly
owned by San Miguel Corporation and, therefore, under Its control, it would be more in accord with
equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect
the books and records of the corporation as extending to books and records of such wholly owned
subsidiary which are in the corporation's possession and control.

25
 LEE V CA 1992
FACTS: The petitioners maintain that with the execution of the voting trust agreement between them
and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned
and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting
trust agreement the petitioners can no longer be considered directors of ALFA. In support of their
contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that:
“Every director must own at least one (1) share of the capital stock of the corporation of which he is a
director which share shall stand in his name on the books of the corporation. Any director who ceases
to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director
shall thereby cease to be director”
The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the
DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA
inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of
a corporation.
Petitioner argues that the execution of the voting trust agreement by a stockholders whereby all his
shares to the corporation have been transferred to the trustee deprives the stockholders of his position
as director of the corporation; to rule otherwise, as the respondent Court of Appeals did, would be
violative of section 23 of the Corporation Code.
ISSUE: WON the voting trust agreement is valid?
RULING: Yes.
Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a
more definitive meaning may be gathered. The said provision partly reads:
Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting trust for the purpose
of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights
pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a
voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding
(5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing
and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed
with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and
unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and
new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said
agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees
is made pursuant to said voting trust agreement.
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
26
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.
Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee
not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting
trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal
combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the
Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single
out a stockholder's right to vote from his other rights as such and made irrevocable for a limited
duration may in practice become a legal device whereby a transfer of the stockholder's shares is
effected subject to the specific provision of the voting trust agreement.
The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable
or beneficial ownership of the corporate shares of a stockholders, on the one hand, and the legal title
thereto on the other hand.
The law simply provides that a voting trust agreement is an agreement in writing whereby one or more
stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the
latter voting or other rights pertaining to said shares for a period not exceeding five years upon the
fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The
five year-period may be extended in cases where the voting trust is executed pursuant to a loan
agreement whereby the period is made contingent upon full payment of the loan.
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.
Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of
the stock covered by the agreement to the DBP as trustee, the latter became 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, the
petitioners 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 appears to be no dispute from
the records that DBP has taken over full control and management of the firm.
 VALLE VERDE COUNTRY CLUB, INC. vs. VICTOR AFRICA
Author: Jay Dedicatoria
Facts:
On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club,
Inc. (VVCC), the following were elected as members of the VVCC Board of Directors: Ernesto Villaluna,
Jaime C. Dinglasan, Eduardo Makalintal, Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr.,
Fortunato Dee, Augusto Sunico, and Ray Gamboa. 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 above-named directors continued to serve in the VVCC Board in a hold-over capacity.
On September 1, 1998, Dinglasan resigned from his position as member of the VVCC Board. In a meeting
held on October 6, 1998, the remaining directors, still constituting a quorum of VVCC’s nine-member
board, elected Eric Roxasto fill in the vacancy created by the resignation of Dinglasan.
A year later, or on November 10, 1998, Makalintal also resigned as member of the VVCC Board. He was
replaced by Jose Ramirez who was elected by the remaining members of the VVCC Board on March 6,
2001.
Respondent Africa, a member of VVCC, questioned the election of Roxas and Ramirez as members of
the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court (RTC),
respectively.
In his nullification complaint before the RTC, Africa alleged that the election of Roxas was contrary to
Section 29, in relation to Section 23, of the Corporation Code of the Philippines (Corporation Code).
These provisions read:
Sec. 23. The board of directors or trustees. Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year until their successors are elected and qualified.
Sec. 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.
Africa additionally contends that for the members to exercise the authority to fill in vacancies in the
board of directors, Section 29 requires, among others, that there should be an unexpired term during
27
which the successor-member shall serve. Since Makalintal’s term had already expired with the lapse of
the one-year term provided in Section 23, there is no more "unexpired term" during which Ramirez
could serve.
Through a partial decision promulgated on January 23, 2002, the RTC ruled in favor of Africa and
declared the election of Ramirez, as Makalintal’s replacement, to the VVCC Board as null and void.
Issue:
Whether the remaining directors of the corporation’s Board, still constituting a quorum, can elect
another director to fill in a vacancy caused by the resignation of a hold-over director. No.
Ruling:
The issue for the Court to resolve is whether the remaining directors of a corporation’s Board, still
constituting a quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-
over director. The resolution of this legal issue is significantly hinged on the determination of what
constitutes a director’s term of office. No.
The holdover period is not part of the term of office of a member of the board of directors
The word "term" has acquired a definite meaning in jurisprudence. 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. 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.
Term is distinguished from tenure in that an officer’s "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.
Based on the above discussion, when Section 23 of the Corporation Code declares that "the board of
directors…shall hold office for one (1) year until their successors are elected and qualified," we construe
the provision to mean that the term of the members of the board of directors shall be only for one year;
their term expires one year after election to the office. The holdover period – that time from the lapse
of one year from a member’s election to the Board and until his successor’s election and qualification
– is not part of the director’s original term of office, nor is it a new term; the holdover period, however,
constitutes part of his tenure. Corollary, when an incumbent member of the board of directors
continues to serve in a holdover capacity, it implies that the office has a fixed term, which has expired,
and the incumbent is holding the succeeding term.
After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal’s term
of office is deemed to have already expired. That he continued to serve in the VVCC Board in a holdover
capacity cannot be considered as extending his term. This holdover period, however, is not to be
considered as part of his term, which, as declared, had already expired.

The underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. Only in that way can the directors' continued
accountability to shareholders, and the legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties that they do not own.

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 corporation’s board of directors is caused not by
the expiration of a member’s 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 corporation’s
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."

28
 AGDAO LANDLESS RESIDENTS ASSOCIATION, INC. VS. MARAMION
Petitioner: Agdao Landless Residents Association, Inc.
Respondents: Maramion
Author: Felix
Doctrine: It is well settled that directors of corporations presumptively serve without compensation; so
that while the directors, in assigning themselves additional duties, act within their power, they
nonetheless act in excess of their authority by voting for themselves compensation for such additional
duties.
Facts:
Dakudao & Sons, Inc. (Dakudao) executed six Deeds of Donation in favor of ALRAI covering 46 titled lots
(donated lots).
One of deed of donation was subject to a condition that prohibits ALRAI as donee from partitioning or
distributing individual certificate of title to its member within five years and violation of which will
nullify the donation unless authorized by Dakudao.
property to it, or purchase property from it, where they act both for the corporation and for themselves.
One situation where a director may gain undue advantage over his corporation is when he enters into
a contract with the latter.
Petitioners cannot argue that the properties transferred to them will serve as reimbursements of the
amounts they advanced for ALRAI. There is no evidence to show that they indeed paid the realty tax on
the donated lands. Neither did petitioners present any proof of actual disbursements they incurred
whenever Javonillo and Armentano allegedly helped Atty. Pedro Alcantara in handling the cases
involving ALRAI.
Like in the cases of Dela Cruz and Alcantara, absent proof, there was no basis by which it could have
been determined whether the transfer of properties to Javonillo and Armentano was reasonable under
the circumstances at that time. Second, petitioners cannot argue that the properties are transferred as
compensation for Javonillo.
It is well-settled that directors of corporations presumptively serve without compensation; so that while
the directors, in assigning themselves additional duties, act within their power, they nonetheless act in
excess of their authority by voting for themselves compensation for such additional duties. Even then,
aside from the claim of

The other five deeds do not provide for the five years restriction

In a board and stockholders meeting, held on January 5, 2000 and January 9, 2000, respectively,
members of ALRAI resolved to directly transfer 10 of the donated lots to individual members and
nonmembers of ALRAI.

Lots were transferred to Javonillo, the president of ALRAI and to Armentano, the secretary of ALRAI due
to their efforts for the company and particularly as a reimbursements of the amount they advanced for
ALRAI.

Respondents contend the said donation was anomanlous and in violation of the Deed of Donation

Issue/s: W/N the board resolution transferring the donated lot to the President and Secretary of ALRAI
as compensation is valid – No.

Ruling+Ratio:

The court held that, Being the corporation’s agents and therefore, entrusted with the management of
its affairs, the directors or trustees and other officers of a corporation occupy a fiduciary relation
towards it, and cannot be allowed to contract with the corporation, directly or indirectly, or to sell
29
 PLATING VS SANJOSE CORP
Madamba
Facts:
San Jose Petroleum a corporation organized and existing in the Republic of Panama, PETROLEUM filed
with the Philippine Securities and Exchange Commission a sworn registration statement, for the
registration and licensing for sale in the Philippines Voting Trust Certificates.
It was alleged that the entire proceeds of the sale of said securities will be devoted or used exclusively
to finance the operations of San Jose Oil Company, Inc. which is a domestic mining corporation. Pedro
R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with
the Securities and Exchange Commission an opposition to registration and licensing of the securities on
the grounds that the tie-up between SAN JOSE PETROLEUM, and SAN JOSE OIL, violates the Constitution
of the Philippines, the Corporation Law and the Petroleum Act of 1949.
SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be
limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the
capital of which is owned by such citizens, subject to any existing right, grant, lease or concession at the
time of the inauguration of this Government established under this Constitution. .’
Although it was claimed that the corporation has stockholders residing in United States, there was no
indication if they are all citizens of America, how much percentage do they occupy as stockholders, and
if they have the same rules that apply to the conditions mentioned. In the circumstances, the court
ruled that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise
that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley
Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.

Issue:
Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and
SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the
Laurel-Langley Agreement, the Petroleum Act of 1949, and the Corporation Law.
The parity rights agreement is not applicable to SJP. The parity rights are only granted to American
business enterprises or enterprises directly or indirectly controlled by US citizens. SJP is a Panamanian
corporate citizen. The other owners of SJO are Venezuelan corporations, not Americans. SJP was not
able to show contrary evidence. Further, the Supreme Court emphasized that the stocks of these
corporations are being traded in stocks exchanges abroad which renders their foreign ownership
subject to change from time to time. This fact renders a practical impossibility to meet the requirements
under the parity rights. Hence, the tie up between SJP and SJO is illegal, SJP not being a domestic
corporation or an American business enterprise contemplated under the Laurel-Langley Agreement.

Ruling:

Yes. In the 1946 Ordinance Appended to the Constitution, this right was extended to citizens of the
United States; states that to all forms of business enterprises owned or controlled, directly or indirectly,
by citizens of the United States in the same manner as to, and under the same conditions imposed
upon, citizens of the Philippines or corporations or associations owned or controlled by citizens of the
Philippines, would have the privilege of disposition, exploitation, development, and utilization of all
Philippine natural resources. However, respondent is owned, controlled, directly and indirectly by
Panamanian Corporation.

‘Article XIII, Section 1 of the Philippine Constitution provides:

30
 WESTERN INSTITUTE OF TECHNOLOGY INC. VS. SALAS
Doctrine: 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.
Facts:
Respondents, 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 of an educational institution.
According to the minority stockholders of WIT, in a Special Board Meeting, the Board of Trustees passed
Resolution 48 granting monthly compensation to Respondents 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 10% of the net profits shall
be distributed equally among the ten members of the Board of Trustees. This shall amend and
supersede any previous resolution.”
A few years later, minority stockholders (Villasis et al) filed an affidavit-complaint against respondents
before the Office of the City Prosecutor of Iloilo, as a result of which 2 separate criminal information,
one for falsification of a public document and the other for estafa, were filed in the RTC.
The charge for falsification of public document was anchored on respondent’s submission of WIT's
income statement for the fiscal year 1985-1986 with SEC reflecting therein the disbursement of
corporate funds for the compensation of respondents based Resolution 48.
Thereafter, trial for the two criminal cases was consolidated. After a full-blown hearing, a verdict of
acquittal on both counts without imposing any civil liability against the accused were held.
Villasis, et. al. filed a Motion for Reconsideration of the civil aspect of the RTC Decision which was denied
in an Order. Villasis, et. al. filed the petition for review on certiorari.
A Motion for Intervention was filed before SC 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
authority 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.
Issue: Whether the grant of compensation to Respondents is proscribed under Section 30 of the
Corporation Code.
31
Held: Yes.
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: "The 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.
In this case, resolution 48, 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.
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.
 STRATEGIC ALLIANCE VS. RADSTOCK SECURITIES
TOPIC: Directors as Fiduciaries
DOCTRINE: In this jurisdiction, the members of the board of directors have a three- fold duty: duty of
obedience, duty of diligence, and duty of loyalty. Accordingly, the members of the board of directors:
1) shall direct the affairs of the corporation only in accordance with the purposes for which it was
organized; 2) shall not wilfully and knowingly vote for or assent to patently unlawful acts of the
corporation or act in bad faith or gross negligence in directing the affairs of the corporation; 3) shall not
acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees.
FACTS: Construction Development Corporation of the Philippines (CDCP) was incorporated in1966. It
was granted a franchise to construct, operate and maintain toll facilities in the North and South Luzon
Tollways and Metro Manila Expressway. CDCP Mining Corporation, an affiliate of CDCP, obtained loans
from Marubeni Corporation of Japan. A CDCP official issued letters of guarantee for the loans although
there was no CDCP Board Resolution authorizing the issuance of such letters of guarantee. CDCP Mining
secured the Marubeni loans when CDCP and CDCP Mining were still privately owned and managed.
Later on, CDCP’s name was changed to Philippine National Construction Corporation (PNCC)
in order to reflect that the Government already owned 90.3% of PNCC and only9.70% is under private
ownership. Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. NCC Board passed Board
Resolutions admitting PNCC’s liability to Marubeni. Previously, for two decades the PNCC Board
consistently refused to admit any liability for the Marubeni loans. Later, Marubeni assigned its entire
credit to Radstock Securities Limited (Radstock), a foreign corporation. Radstock immediately sent
a notice and demand letter to PNCC.
PNCC and Radstock entered into a Compromise Agreement. Under this agreement, PNCC shall pay
Radstock the reduced amount of P6,185,000,000.00 fromP17,040,843,968.00. To satisfy its reduced
obligation, PNCC undertakes to: (1) "assign to a third party assignee to be designated by Radstock all its
rights and interests" to the listed real properties of PNCC; (2) issue to Radstock or its assignee common
shares of the capital stock of PNCC; and (3) assign to Radstock or its assignee 50% of PNCC’s 6% share,
for the next 27 years, in the gross toll revenues of the Manila North Tollways Corporation.
Strategic Alliance Development Corporation (STRADEC) moved for reconsideration. STRADEC
alleged that it has a claim against PNCC as a bidder of the National Government’s shares, receivables,
securities and interests in PNCC.
Issue: Whether or not the Compromise Agreement between PNCC and Radstock is valid.
HELD: NO.
Radstock is a private corporation incorporated in the British Virgin Islands. As a foreigncorporation, with
unknown owners whose nationalities are also unknown, Radstock is notqualified to own land in the
Philippines. In addition, Radstock cannot transfer the rights to ownership of land in the Philippines if it
32
cannot own the land itself. It is basic that an assignor or seller cannot assign or sell something he does
not own at the time the ownership, or the rights to the ownership, are to be transferred to the assignee
or buyer.
NOTE: The PNCC Board Acted in Bad Faith and with Gross Negligence in Directing the Affairs of PNCC.
In the present case, the PNCC Board blatantly violated its duty of diligence as it miserably failed to act
in good faith in handling the affairs of PNCC.
First. For almost two decades, the PNCC Board had consistently refused to admit liability for the
Marubeni loans because of the absence of a PNCC Board resolution authorizing the issuance of the
letters of guarantee.
Second. The PNCC Board admitted liability for the Marubeni loans despite PNCCs total liabilities far
exceeding its assets. There is no dispute that the Marubeni loans, once recognized, would wipe out the
assets of PNCC, virtually emptying the coffers of the PNCC.
Third. In a debilitating self-inflicted injury, the PNCC Board revived what appeared to have been a dead
claim by abandoning one of PNCCs strong defenses, which is the prescription of the action to collect
the Marubeni loans.
The PNCC Board admitted liability for the P10.743 billion Marubeni loans without seeing, reading or
discussing the Feria opinion which was the sole basis for its admission of liability. Such act surely goes
against ordinary human nature, and amounts to gross negligence and utter bad faith, even bordering
on fraud, on the part of the PNCC Board in directing the affairs of the corporation. Owing loyalty to
PNCC and its stockholders, the PNCC Board should have exercised utmost care and diligence in
admitting a gargantuan debt of P10.743 billion that would certainly force PNCC into insolvency, a debt
that previous PNCC Boards in the last two decades consistently refused to admit.
Not content with forcing PNCC to commit corporate suicide with the admission of liability for the
Marubeni loans under Board Resolution Nos. BD-092-2000 and BD-099-2000, the PNCC Board drove
the last nail on PNCCs coffin when the PNCC Board entered into the manifestly and grossly
disadvantageous Compromise Agreement with Radstock..
 STEINBERG vs. VELASCO
Petitioner: C. H. STEINBERG
Respondents: GREGORIO VELASCO ET AL
Author: Marayan
Topic: Fiduciary Duties of Directors and Officers – Duty of Diligence
Doctrine: The directors shall be personally liable to reimburse the corporation for the amounts of
dividends wrongfully declared and paid to stockholders, when they failed to consider that the recorded
retained earnings in the books of the corporation was illusory considering the various accounts
receivables that had to be written off as uncollectible.
Facts:
Plaintiff is the receiver of the Sibuguey Trading Company, a domestic corporation. It is alleged
that defendants Velasco, as president, del Castillo, as vice-president, Navallo, as secretary-treasurer,
and Manuel, as director of the Trading Company, approved and authorized various unlawful purchases
already made of a large portion of the capital stock of the company from its various stockholders,
thereby diverting its funds to the injury, damage, and in fraud of the creditors of the corporation.
Steinberg contends that the defendants authorized the purchase of 330 shares of stock of the
corporation and declared payment dividends to stockholders. The directors from whom 300 of the
stocks were bought resigned before the board approved the purchase and declared the dividends. At
the time of purchase of stock sand declaration of dividends, the corporation had accounts payable
amounting to P9,241 and accounts receivable amounting to P12,512, despite diligent efforts made by
Steeinberg to collect the amounts receivable, he was unable to do so. It has been alleged that the
payment of cash dividends to the stockholders was wrongfully done and in bad faith, and to the injury
and fraud of the creditors of the corporation. The directors are sought to be made personally liable in
their capacity as directors.
Issue:
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Whether or not the defendant-officers of the corporation acted with gross negligence, hence, liable.
Ruling and Ratio:
Yes.
The Court held that creditors of a corporation have the right to assume that so long as there
are outstanding debts and liabilities, the BOD will not use the assets of the corporation to buy its own
stock, and will not declare dividends to stockholders when the corporation is insolvent. In this case, it
was found that the corporation did not have an actual bona fide surplus from which dividends could be
paid. Moreover, the Court noted that the Board of Directors purchased the stock from the corporation
and declared the dividends on the stock at the same Board meeting, and that the directors were
permitted to resign so that they could sell their stock to the corporation. Given all of this, it was
apparent that the directors did not act in good faith or were grossly ignorant of their duties. Either way,
they are liable for their actions which affected the financial condition of the corporation and prejudiced
creditors.
Disposition:
The judgment is reversed.
Notes:
General Duty to Exercise Reasonable Care. — The directors of a corporation are bound to care
for its property and manage its affairs in good faith, and for a violation of these duties resulting in waste
of its assets or injury to the property they are liable to account the same as other trustees. Are there
can be no doubt that if they do acts clearly beyond their power, whereby loss ensues to the corporation,
or dispose of its property or pay away its money without authority, they will be required to make good
the loss out of their private estates. This is the rule where the disposition made of money or property
of the corporation is one either not within the lawful power of the corporation, or, if within the
authority of the particular officer or officers.
 SMITH V. VAN GORKAM 488 A.2D 858, SUPREME COURT OF DELAWARE (1985)

Masangkay

FACTS:

Jerome Van Gorkom, the CEO of Trans Union Corporation (Trans Union), engaged in his own
negotiations with a third party for a buyout/merger with Trans Union.

Prior to negotiations, Van Gorkom determined the value of Trans Union to be $55 per share and during
negotiations agreed in principle on a merger. There is no evidence showing how Van Gorkom came up
with this value other than Trans Union’s market price at the time of $38 per share.

Subsequently, Van Gorkom called a meeting of Trans Union’s senior management, followed by a
meeting of the board of directors (defendants). Senior management reacted very negatively to the idea
of the buyout. However, the board of directors approved the buyout at the next meeting, based mostly
on an oral presentation by Van Gorkom.

The meeting lasted two hours and the board of directors did not have an opportunity to review the
merger agreement before or during the meeting.

The directors had no documents summarizing the merger, nor did they have justification for the sale
price of $55 per share.

Smith et al. (plaintiffs) brought a class action suit against the Trans Union board of directors, alleging
that the directors’ decision to approve the merger was uninformed. The Delaware Court of Chancery
ruled in favor of the defendants. The plaintiffs appealed.

Issue. Whether or not the Board has liability on the merger.

RULING:

YES. The Court held that the Board has a duty to give an informed decision on an important decision
such as a merger and cannot escape the responsibility by claiming that the shareholders also approved
the merger. The directors are protected if they relied in good faith on reports submitted by officers, but
there was no report that would qualify as a report under the statute. The directors cannot rely upon
the share price as it contrasted with the market value. Thus, when the Board did not disclose a lack of
valuation information to the shareholders, the Board breached their fiduciary duty to disclose all
germane facts. Therefore, the Board should also be held liable for the merger as they cannot put all
the blame to the shareholders only.
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