BENEDICTO HORNILLA and ATTY. FEDERICO D. RICAFORT, vs. ATTY. ERNESTO S.

SALUNAT,

FACTS:

 Complainants filed an intra-corporate case against its members of the Board of Directors before the SEC, and a
complaint before the Office of the Ombudsman for unlawful spending and the undervalued sale of real property of
the PPSTA.
 Respondent entered his appearance as counsel for the PPSTA Board members in the said cases. Complainants
contend that respondent was guilty of conflict of interest because he was engaged by the PPSTA, of which
complainants were members, and was being paid out of its corporate funds where complainants have contributed.
Despite being told by PPSTA members of the said conflict of interest, respondent refused to withdraw his
appearance in the said cases.
 Respondent stressed that he entered his appearance as counsel for the PPSTA Board Members for and in behalf
of the ASSA Law and Associates. As a partner in the said law firm, he only filed a "Manifestation of Extreme
Urgency". On the other hand, SEC Case was handled by another partner of the firm, Atty. Agustin V. Agustin.
Respondent claims that it was complainant Atty. Ricafort who instigated, orchestrated and indiscriminately filed
the said cases against members of the PPSTA and its Board.
 The complainant was docketed and referred to the IBP Commission on Bar Discipline. After investigation,
Commission recommended that respondent be suspended from the practice of law for six (6) months.
 Respondent filed with this Court a Motion for Reconsideration of the above Resolution of the IBP Board of
Governors.

ISSUE:
 Whether or not a lawyer engaged by a corporation can defend members of the board of the same corporation in a
derivative suit.

HELD:
 A corporation’s board of directors is understood to be that body which
o exercises all powers provided for under the Corporation Code;
o conducts all business of the corporation; and
o controls and holds all property of the corporation.
 Its members have been characterized as trustees or directors clothed with a fiduciary character. It is clearly
separate and distinct from the corporate entity itself.
 Where corporate directors have committed a breach of trust either by their frauds, ultra vires acts, or negligence,
and the corporation is unable or unwilling to institute suit to remedy the wrong, a stockholder may sue on behalf of
himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong done
directly to the corporation and indirectly to the stockholders.
 This is what is known as a derivative suit, and settled is the doctrine that in a derivative suit, the corporation is the
real party in interest while the stockholder filing suit for the corporation’s behalf is only nominal party. The
corporation should be included as a party in the suit.
 The possibility for conflict of interest here is universally recognized. Although early cases found joint
representation permissible where no conflict of interest was obvious, the emerging rule is against dual
representation in all derivative actions.
 In other jurisdictions, the prevailing rule is that a situation wherein a lawyer represents both the corporation and its
assailed directors unavoidably gives rise to a conflict of interest.
 The interest of the corporate client is paramount and should not be influenced by any interest of the individual
corporate officials.
 After due deliberation on the wisdom of this doctrine, we are sufficiently convinced that a lawyer engaged as
counsel for a corporation cannot represent members of the same corporation’s board of directors in a derivative
suit brought against them. To do so would be tantamount to representing conflicting interests, which is prohibited
by the Code of Professional Responsibility.

SAFIC ALCAN & CIE, vs. IMPERIAL VEGETABLE OIL CO., INC.

FACTS:
 Safic filed a complaint with the RTC-Manila against IVO. Safic alleged that it placed purchase orders with IVO for
crude coconut oil. Private respondent, however, failed to deliver and, instead, offered a "wash out" settlement,
 whereby the coconut oil were to be "sold back" to IVO at the prevailing price in the international market at the time
of wash out. IVO failed to pay this amount despite repeated oral and written demands.
 Respondent IVO alleged that
o Safic had no legal capacity to sue because it was doing business in the Philippines without the requisite
license or authority;
o the subject contracts were speculative contracts entered by IVO's then President, Dominador
Monteverde, in contravention of the prohibition by the Board of Directors against engaging in speculative
paper trading, and IVO's lack of the necessary license to engage in such kind of trading activity.
 The Trial Court ruled that the subject contracts were ultra vires and were entered into by Dominador Monteverde
without authority from the Board of Directors. It distinguished between the 1985 contracts, where Safic likewise
dealt with Dominador Monteverde, who was presumably authorized to bind IVO, and the 1986 contracts, which
were highly speculative in character. Safic cannot invoke the 1985 contracts as an implied corporate sanction for
the high-risk 1986 contracts, which were evidently entered into by Monteverde for his personal benefit.
 CA affirmed the decision of the RTC

ISSUES:
 Whether IVO'S President, Dominador Monteverde entered into contracts which were ultra vires and which did not
bind or make IVO liable

HELD:
 YES. Article III, Section 3 [g] of the By-Laws of IVO provides, among others, that —
o SECTION 3. Powers and Duties of the President. — The President shall be elected by the Board of
Directors from their own number. He shall have the following duties:
xxx xxx xxx
[g] Have direct and active management of the business and operation of the corporation, conducting the
same according to the orders, resolutions and instruction of the Board of Directors xxx
 It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket authority to
bind IVO to any contract. He must act according to the instructions of the Board of Directors. Even in instances
when he was authorized to act according to his discretion, that discretion must not conflict with prior Board orders,
resolutions and instructions.
 The evidence shows that the IVO Board knew nothing of the 1986 contracts and that it did not authorize
Monteverde to enter into speculative contracts.
 The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. There was no such ratification in this case. When Monteverde entered
into the speculative contracts with Safic, he did not secure the Board's approval.

THE BOARD OF LIQUIDATORS vs. HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED
CASIMIRO GARCIA, and LEONOR MOLL,

FACTS:
 National Coconut Corporation (NACOCO) charter was amended [Republic Act 5] to grant the express power "to
buy, sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their
by-products, and to act as agent, broker or commission merchant of the producers, dealers or merchants" thereof.
 o The charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing
advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin of
middlemen, mostly aliens.
 Nature supervened. Four devastating typhoons visited the Philippines: the first in October, the second and third in
November, and the fourth in December, 1947. Coconut trees throughout the country suffered extensive damage.
Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled.
Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers
became impossible, financing a problem.
 When it became clear that pending contracts would be unprofitable, Kalaw still submitted them to the board for
approval. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of the
impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting.
 January 11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the losses,
emphasized that government concerns faced the same risks that confronted private companies, that NACOCO
was recouping its losses, and that Kalaw was to remain in his post.
 Not long thereafter, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously
approved the contracts hereinbefore enumerated. As was to be expected, NACOCO partially performed the
contracts,
 The buyers threatened damage suits. Some of the claims were settled, but one buyer, Louis Dreyfus &
Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila. These cases culminated in an
out-of-court amicable settlement when the Kalaw management was already out.
 With particular reference to the Dreyfus claims, NACOCO put up the defenses that:
o the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business
here; and
o failure to deliver was due to force majeure, the typhoons.
 In this suit, NACOCO seeks to recover from general manager and board chairman Maximo M. Kalaw, and
directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of
the old Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad
faith and/or breach of trust for having approved the contracts.
 The lower court dismissed the complaint without costs as well as defendants' counterclaims, except that plaintiff
was ordered to pay the heirs of Maximo Kalaw for unpaid salaries and cash deposit due the deceased Kalaw from
NACOCO.
 Plaintiff appealed directly to this Court.

ISSUE:
 Whether or not the contracts entered by Kalaw is valid despite not being a member of the board of director but as
a general manager.

HELD:
 Yes, the contracts entered by Kalaw are valid.
 Long before the disputed contracts came into being, Kalaw contracted — by himself alone as general manager —
for forward sales of copra. Kalaw signed some 60 such contracts for the sale of copra to diverse parties. During
that period, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of directors that,
in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by
 him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office,
despite numerous handicaps and difficulties."
 These previous contracts, were signed by Kalaw without prior authority from the board. Said contracts were
known all along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one
thing: Obviously, NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means
to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw.
 On January 15, 1947, the brokerage fee agreements of 1-1/2% on three export contracts, and 2% on three
others, for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a
commission up to the amount of 1-1/2% "without further action by the Board."
 It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the
board, not the sales contracts themselves. And even those fee agreements were submitted only when the
commission exceeded the ceiling fixed by the board.
 Knowledge by the board is also discernible from other recorded instances.
 We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947:
o 521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the
management to close contracts of sale first before buying. The General Manager replied that this practice
is generally followed but that it is not always possible to do so for two reasons:
1. The role of the NACOCO to stabilize the prices of copra requires that it should not cease buying
even when it does not have actual contracts of sale since the suspension of buying by the
Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to
lower the prices to the detriment of the producers.
2. The movement of the market is such that it may not be practical always to wait for the
consummation of contracts of sale before beginning to buy copra.
o The General Manager explained that in this connection a certain amount of speculation is unavoidable.
However, he said that the NACOCO is much more conservative than the other big exporters in this
respect.
 Settled jurisprudence has it 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. In varying language, existence of such authority is established, by proof of the course of
business, the usage and practices of the company and by the knowledge which the board of directors has, or
must bepresumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. So
also,
xxx
authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the
power was in fact exercised.
xxx
Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to
manage its affairs, his authority to represent the corporation may be implied from the manner in which he has
been permitted by the directors to manage its business.
 In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws
were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that
board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval.
LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES vs. FLORENTINA FONTECHA, ET AL., AND THE
NATIONAL LABOR RELATIONS COMMISSION

FACTS:
 Arturo Lopez submitted a proposal relative to the distribution of certain assets of petitioner corporation among its
(3) main shareholders. The proposal had (3) aspects, one of which is the reduction of employees with provision
for their gratuity pay. The proposal was deliberated upon and approved in a special meeting of the board of
directors.
 It appears that petitioner corporation approved (2) resolutions providing for the gratuity pay of its employees, viz:
o Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting resolving to set aside,
twice a year, a certain sum of money for the gratuity pay of its retiring employees and to create a Gratuity
Fund for the said contingency; and
o Resolution No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering
the period from 1950 up to 1980.
 Meanwhile, board member and majority stockholder Teresita Lopez Marquez died.
 August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the
Board of Directors, convened a special meeting and passed a resolution providing for the manner by which the
gratuity is to paid.
 Private respondents were the retained employees of petitioner corporation. In a letter, private respondents
requested for the full payment of their gratuity pay. Their request was granted in a special meeting held.
 At that time, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country,
she sent a cablegram to the corporation, objecting to certain matters taken up by the board in her absence.
 Notwithstanding the "corporate squabble" between Asuncion Lopez Gonzales and Arturo Lopez, the first two (2)
installments of the gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and
Perfecto Bautista were paid by petitioner corporation.
o Also, Petitioner Corporation had prepared the cash vouchers and checks for the third installments of
gratuity pay of said private respondents. For some reason, said vouchers were cancelled by petitioner
Asuncion Lopez Gonzales.
o Likewise, the first, second and third installments of gratuity pay of the rest of private respondents were
prepared but cancelled by petitioner Asuncion Lopez Gonzales.
 Despite private respondents' repeated demands for their gratuity pay, petitioner corporation refused to pay the
same.
 Subsequently, Labor Arbiter rendered judgment in favor of private respondents.
 Petitioners appealed to the National Labor Relations Commission.
o The appeal focused on the alleged non-ratification and non-approval of the assailed Board Resolutions
during the Annual Stockholders' Meeting. Petitioners further insisted that the payment of the gratuity to
some of the private respondents was a mere "mistake" on the part of petitioner corporation since,
pursuant to Resolution No. 6, said gratuity pay should be given only upon the employees' retirement.
 Public respondent, through its Second Division, dismissed the appeal for lack of merit.
 Petitioners contend that the board resolutions, granting gratuity pay to their retained employees, are ultra vires,
and that petitioner Asuncion Lopez Gonzales was not duly notified of the said special meetings. They aver,
further, that said board resolutions were not ratified by the stockholders of the corporation pursuant to Section 28
1/2 of the Corporation Law (Section 40 of the Corporation Code). They also insist that the gratuity pay must be
 given only to the retiring employees, to the exclusion of the retained employees or those who voluntarily resigned
from their posts.

ISSUE:
 Whether the private respondents are entitled to gratuity pay under the assailed resolutions.

HELD:
 Yes.
 The general rule is that a corporation, through its board of directors, should act in the manner and within the
formalities, if any, prescribed by its charter or by the general law. Thus, directors must act as a body in a meeting
called pursuant to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by
any objecting director or shareholder.
 Be that as it may, jurisprudence tells us that an action of the board of directors during a meeting, which was illegal
for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or
impliedly, by the corporation's subsequent course of conduct.
 Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption
of the act, acceptance or acquiescence. Ratification may be effected by a resolution or vote of the board of
directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily,
to show a meeting and formal action by the board of directors in order to establish a ratification.
 Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by conduct
implying approval and adoption of the act in question. Such ratification may be express or may be inferred from
silence and inaction.
 In the case at, bench, it was established that petitioner corporation did not issue any resolution revoking nor
nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay,
particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo,
Marcial Mamaril and Perfecto Bautista.
 Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions
were passed, we can glean from the records that she was aware of the corporation's obligation under the said
resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion
Lopez Gonzales affixed her signature on Cash Voucher, both dated October 15, 1981, evidencing the 2nd
installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha.
 Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzales during the special meetings, it
is erroneous to state that the resolutions passed by the board during the said meetings were ultra vires. In legal
parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation
Code or articles of incorporation or not necessary or incidental in the exercise of the powers so conferred.
 The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's
employees. To stress, providing gratuity pay for its employees is one of the express powers of the corporation
under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any liability
arising from the issuance the subject resolutions.