CORPORATION

 LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    

 
DIRECTORS,  TRUSTEES  AND  OFFICERS   corporation   of   which   he   is   a   director   shall   thereby   cease   to   be   a  
  director.   Trustees   of   non-­‐stock   corporations   must   be   members  
“Board  of  Directors”  is  the  body  which:     thereof.   A   majority   of   the   directors   or   trustees   of   all   corporations  
organized  under  this  Code  must  be  residents  of  the  Philippines.  
1. Exercises  all  powers  provided  for  under  the  Corporation  Code;    
2. Conducts  all  business  of  the  corporation;      
3. Controls  and  holds  all  property  of  the  corporation.     • Doctrine  of  Centralized  Management1  
Its   members   have   been   characterized   as   trustees   or   directors   clothed   o General   Rule:   The   corporation’s   consent   is   that   of   its  
with   a   fiduciary   character.   It   is   clearly   separate   and   distinct   from   the   Board  of  Directors.  
corporate  entity  itself.  Hornilla  v.  Salunat,  405  SCRA  220  (2003).   o Exception:   Specified   instances   in   the   Corporation   Code  
• Atty.  Hofileña  à  There  must  be  a  minimum  of  five  (5)  directors   where  the  particular  exercise  of  the  corporate  power  by  
and  a  maximum  of  fifteen  (15).   the   Board,   in   order   to   be   binding   and   effective,   requires  
  the   consent   or   ratification   of   the   stockholders   or  
I.   DOCTRINE   OF   CENTRALIZED   MANAGEMENT:   Powers   of   Board   of   members,  and  also  on  the  part  of  the  State.  
Directors  (Section  23)   o Right  of  Appraisal:  It  should  be  noted  that  although  for  
  efficiency   of   running   of   corporate   affairs   the   “rule   of  
majority”  has  been  adopted  in  the  case  of  stockholders  
Section  23.  The  board  of  directors  or  trustees.  
Unless   otherwise   provided   in   this   Code,   the   corporate   powers   of   all   and   members,   the   Corporation   Code   still   recognizes  
corporations   formed   under   this   Code   shall   be   exercised,   all   business   that   in   certain   instances   a   dissenting   stockholder   whose  
conducted   and   all   property   of   such   corporations   controlled   and   held   contractual   expectation   has   either   been   frustrated   or  
by   the   board   of   directors   or   trustees   to   be   elected   from   among   the   altered  by  the  decision  of  the  majority,  should  be  given  
the   right   not   have   to   stay   within   the   confines   of   the  
holders   of   stocks,   or   where   there   is   no   stock,   from   among   the  
corporate   contractual   relationship.   In   such   instances,  
members   of   the   corporation,   who   shall   hold   office   for   one   (1)   year  
the   dissenting   stockholder   is   granted   an   option   to  
until  their  successors  are  elected  and  qualified.  
  withdraw  from  such  relationship,  by  the  exercise  of  the  
Every  director  must  own  at  least  one  (1)  share  of  the  capital  stock  of   right  of  appraisal.  
the  corporation  of  which  he  is  a  director,  which  share  shall  stand  in  his   o Court’s   Attitude   Towards   the   Board’s   Exercise   of  
name  on  the  books  of  the  corporation.  Any  director  who  ceases  to  be   Power:  The   Board   of   a   corporation   has   sole   authority   to  
the   owner   of   at   least   one   (1)   share   of   the   capital   stock   of   the                                                                                                                  
1
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
determine   policy   and   conduct   the   ordinary   business   of   o Thus,   contracts   or   acts   of   a   corporation   must   be   made  
the  corporation  within  the  scope  of  its  charter.  As  long   either   by   the   Board   of   Directors   or   by   a   corporate   agent  
as   the   board   acts   honestly   and   the   contract   does   not   duly  authorized  by  the  board.    
defraud   or   abuse   the   rights   of   the   minority,   the   courts   o Absent   such   valid   delegation/authorization,   the   rule   is  
will   not   interfere   in   their   judgments   and   transactions.   that  the  declarations  of  an  individual  director  relating  to  
The   minority   members   of   the   board   and   the   minority   the  affairs  of  the  corporation,  but  not  in  the  course  of,  
stockholders   cannot   come   to   court   upon   allegations   of   or  connected  with  the  performance  of  authorized  duties  
want  of  judgment  or  lack  of  efficiency  on  the  part  of  the   of   such   director,   are   held   not   binding   on   the  
majority   and   change   the   course   of   the   administration   of   corporation.    
corporate  affairs.   • Atty.  Hofileña  à  The  one  share  required  to  be  held  by  a  director  
• Section   23   expressly   provides   that   the   corporate   powers   of   all   is  a  qualifying  share  and  in  practice  is  ignorable.  
corporations   shall   be   exercised   by   the   Board   of   Directors.    
Manila  Metal  Container  Corp.  v.  PNB,  511  SCRA  444  (2006).1   A.  Rationale  for  “Centralized  Management”  Doctrine:  
o The   source   of   power   of   the   Board   of   Directors   is   • The   raison   d’etre   behind   the   conferment   of   corporate   powers  
primarily   and   directly   vested   by   law;   it   is   not   a   on  the  Board  of  Directors  is  not  lost  on  the  Court  –  indeed,  the  
delegated  power  from  the  stockholders  or  members  of   concentration   in   the   Board   of   the   powers   of   control   of  
the  corporation.2   corporate   business   and   appointment   of   corporate   officers   and  
• Just   as   a   natural   person   may   authorize   another   to   do   certain   managers   is   necessary   for   efficiency   in   any   large   organization.  
acts   in   his   behalf,   so   may  the   Board   of   Directors   validly   delegate   Stockholders   are   too   numerous,   scattered   and   unfamiliar   with  
some  of  its  functions  to  individual  officers  or  agents  appointed   the   business   of   a   corporation   to   conduct   its   business   directly.  
by  it.     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.  Filipinas  Port  Services  v.  Go,  518  
                                                                                                                SCRA  453  (2007).  
1
 Yu  Chuck  v.  “Kong  Li  Po,”  46  Phil.  608,  614  (1924);  Gamboa  v.  Victoriano,  90    
SCRA   40   (1979);   Reyes   v.   RCPI   Employees   Credit   Union,   Inc.,   499   SCRA   319   Filipinas  Port  Services  v.  Go  
(2006);   Yasuma   v.   Heirs   of   Cecilio   S.   De   Villa,   499   SCRA   466   (2006);   Raniel   v.  
Jochico,   517   SCRA   221   (2007);   Republic   v.   Coalbrine   International,   617   SCRA    
491  (2010).   Facts:   Filport’s   Board   of   Directors   (herein   respondents)   enacted   a  
2
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   resolution   creating   six   new   positions.   People   were   elected   into   said   6  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
offices   and   given   a   monthly   salary.   They   also   increased   the   salaries   of   management  of  the  corporation’s  regular  business  affairs,  unless  more  
the  Chairman  and  other  officers.  Eliodoro  Cruz  (previous  board  director)   extensive  power  is  expressly  conferred.  
wrote  a  letter  to  the  Board  questioning  these  decisions,  saying  that  the    
Board   was   not   authorized   to   do   so   by   the   company’s   by-­‐laws   as   • A   corporation   is   an   artificial   being   and   can   only   exercise   its  
required  by  Section  35  of  the  Corporation  Code.   powers   and   transact   its   business   through   the   instrumentalities  
  of   its   Board   of   Directors,   and   through   its   officers   and   agents,  
Issue:   Whether   or   not   the   Board   of   Directors   had   the   power   to   create   when  authorized  by  resolution  or  by  its  by-­‐laws.    
the  assailed  positions   Examples:  
  o Consequently,   when   legal   counsel   was   clothed   with  
Held:   YES.   While   the   by-­‐laws   do   not   expressly   provide   for   the   board’s   authority  through  formal  board  resolution,  his  acts  bind  
authority  to  create  an  executive  committee,  the  Court  cannot  deem  that   the   corporation   which   must   be   held   bound   the  
the   positions   created   automatically   formed   an   executive   committee.   actuations  of  its  counsel  of  record.  De  Liano  v.  Court  of  
The   “executive   committee”   referred   to   in   Sec.   35   means   a   committee   Appeals,  370  SCRA  349  (2001).  
that   has   equal   powers   with   the   board   and   must   be   distinguished   from   o “The  physical  acts  of  the  corporation,  like  the  signing  of  
other   committees   that   can   be   created   and   controlled   by   the   board.   In   documents,   can   be   performed   only   by   natural   persons  
this   case,   the   positions   created   are   ordinary   positions   were   created   in   duly  authorized  for  the  purpose  by  corporate  by-­‐laws  or  
accordance  with  the  regular  business  of  Filport;  thus,  it  is  entirely  within   by   a   special   act   of   the   board   of   directors.”   Firme   v.  
the   board’s   power   to   create   them   and   provide   remuneration   therefor.   Bukal  Enterprises  and  Dev.  Corp.,  414  SCRA  190  (2003);  
Plus,   Cruz   himself   moved   to   create   the   positions   of   AVPS   for   Finance,   Shipside  Inc.  v.  Court  of  Appeals,  352  SCRA  334  (2001).  
Operations,   and   Administration   during   his   incumbency   as   Filport    
president.   B.  Theories  on  Source  of  Board  Power  
  1. Theory   of   Original   Power   à   The   source   of   the   power   of   the  
Doctrine:   As   per   Section   23   of   the   Corporation   Code,   the   corporate   Board   comes   directly   from   the   law,   and   the   Board   is   originally  
powers  of  all  corporations  formed  under  the  code  shall  be  exercised  by   and  directly  granted  corporate  power  as  the  embodiment  of  the  
the   board,   and   all   property   owned   and   business   conducted   by   the   corporation.  This  theory  has  no  democratic  notions  but  actually  
corporation  shall  also  be  held  and  controlled  by  the  board.  The  board  is   is  more  akin  to  the  principles  of  autocracy.  
the   sole   authority   to   determine   policies,   enter   into   contracts,   and   a. Accordingly   there   is   little   for   the   stockholders   to   do  
conduct   the   ordinary   business   of   the   corporation   within   the   scope   of   its   beyond   electing   directors,   making   by-­‐laws   and  
charter.   However,   the   authority   of   the   board   is   restricted   to   the   exercising   certain   other   special   powers   defined   by   law.  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)