XII.

CORPORATE POWERS
Republic of the Philippines vs. Acoje Mining Co.
G.R. No. L-18062; February 28, 1963
FACTS:
Acoje Mining requested to the Director of Posts for opening of a post, telegraph and money order offices
at its mining camp. The latter signify its willingness but requested that a board resolution be passed upon regarding
assumption of direct responsibility in case of pecuniary loss. The board resolution was approved and thereafter a post
office branch was opened.
A postmaster was hired to conduct the operations of post office. The postmaster that was hired went on a
leave but never returned. The company immediately informed the officials of the Manila Post Office and the provincial
auditor of Zambales of postmasters disappearance with the result that the accounts of the postmaster were checked
and a shortage was found. Several demands were made upon the company for the payment of the shortage, having
failed; the petitioner commenced the present action. The company in its answer denied liability contending that the
resolution of the board of directors wherein it assumed responsibility for the act of the postmaster is ultra vires, and in
any event its liability under said resolution is only that of a guarantor who answers only after the exhaustion of the
properties of the principal, aside from the fact that the loss claimed by the plaintiff is not supported by the office
record.
ISSUE:
Is the board resolution for the approval of post office branch ultra vires?
HELD:
Resolution adopted by the company to open a post office branch at the mining camp and to assume sole
and direct responsibility for any dishonest, careless or negligent act of its appointed postmaster is NOT ULTRA
VIRES because the act covers a subject which concerns the benefit, convenience, and welfare of the companys
employees and their families.
While as a rule an ultra vires act is one committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the powers conferred upon it by law, there are however
certain corporate acts that may be performed outside of the scope of the powers expressly conferred if they are
necessary to promote the interest or welfare of the corporation.
National Power Corp. vs. Vera
.R. No. 83558; February 27, 1989
FACTS:
Sea Lion International Port Services, private respondent, filed a complaint for prohibition and mandamus
against petitioner NPC alleging that it had acted in bad faith in not renewing its contract for stevedoring services for its
plant and in taking over its stevedoring services. Respondent judge issued a restraining order against NPC enjoining
the latter from undertaking stevedoring services at its pier. Consequently, NPC filed an "Urgent Motion" to dissolve
the restraining order, asserting that respondent judge had no jurisdiction to issue the order and private respondent,
whose contract with NPC had expired prior to the commencement of the suit, failed to establish a cause of action for
a writ of preliminary injunction. The respondent judge denied the NPCs motion and issued a TRO after finding that
NPC was not empowered by its Charter to engage in stevedoring and arrastre services.
ISSUE:
WON the undertaking of stevedoring services is empowered by the NPCs charter powers.
HELD:
YES. To carry out the national policy of total electrification of the country, the NPC was created and
empowered not only to construct, operate and maintain power plants, reservoirs, transmission lines, and other works,
but also to exercise such powers and do such things as may be reasonably necessary to carry out the business and
purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary,
useful, incidental or auxiliary to accomplish said purpose.
In determining whether or not an NPC act falls within the purview of the above provision, the Court must
decide whether or not a logical and necessary relation exists between the act questioned and the corporate purpose
expressed in the NPC charter. For if that act is one which is lawful in itself and not otherwise prohibited, and is done
for the purpose of serving corporate ends, and reasonably contributes to the promotion of those ends in a substantial
and not in a remote and fanciful sense, it may be fairly considered within the corporation's charter powers.
Government of Phil. Islands vs. El Hogar Filipino (supra)
G.R. No. L-26649; July 13, 1927
NOTE: This case is an example of how the implied powers concept may be used to justify certain acts of a
corporation.
A quo warranto proceeding instituted by the Government against El Hogar, a building and loan
association, to deprive it of its corporate franchise.
1. El Hogar held title to real property for a period in excess of 5 years in good faith; hence this cause will not
prosper.
2. El Hogar owned a lot and bldg. at a business district in Manila allegedly in excess of its reasonable
requirements, held valid because, it was found to be necessary and legally acquired and developed.
3. El Hogar leased some office space in its bldg.; it administered and managed properties belonging to
delinquent stockholders; and managed properties of its stockholders even if such were not mortgaged to
them.
Held: first two valid, but the third is ultra vires because the administration of property in that
manner is more befitting of the business of a real estate agent or trust company and not of a building and
loan association.
4. Compensation to the promoter and organizer allegedly excessive and unconscionable.
Held: Court cannot dwell on the issue since the promoter is not a party in the proceeding
and it is the corp. or its stockholders who may bring a complaint on such.
5. Issuance of special shares did not affect El Hogar's character as a building and loan association nor
make its loans usurious.
6. Corporate policy of using a depreciation rate of 10 % per annum is not excessive, because according to
the SC, the by-laws expressly authorizes the BOD to determine each year the amount to be written down
upon the expenses of installation and the property of the corp.
7. The Corp. Law does not expressly grant the power of maintaining reserve funds but such power is
implied. All business enterprises encounter periods of gains and losses, and its officers would
usually provide for the creation of a reserve to act as a buffer for such circumstances.
8. That loans issued to member borrowers are being used for purposes other than the bldg. of homes not
invalid because there is no statute which expressly declares that loans may be made by these
associations solely for the purpose of bldg. homes.
9. Sec. 173 of the Corp. Law provides that "any person" may become a stockholder on a bldg. and loan
association. The word "person" is used on a broad sense including not only natural persons but also
artificial persons.
Pirovano, et. al. vs. De la Rama
G.R. No. L-5377; December 29, 1954
FACTS:
Enrico Pirovano, president of the defendant company, managed the company until it became a multi-
million corporation by the time Pirovano was executed by the Japanese during the occupation.
BOD Resolution: Out of the proceeds, the sum of P400,000 be set aside for equal division among the 4
minor children, convertible into shares of stock of the De la Rama Steamship Company, at par and, for that purpose,
that the present registered stockholders of the corporation be requested to waive their pre-emptive right to 4,000
shares of the unissued stock of the company in order to enable each of the 4 minor heirs to obtain 1,000 shares at
par.
Plaintiffs herein are the minor children of the late Enrico Pirovano represented by their mother and judicial
guardian Estefania Pirovano. They seek to enforce certain resolutions adopted by the Board of Directors and
stockholders of the defendant company giving to said minor children of the proceeds of the insurance policies taken
on the life of their deceased father Enrico Pirovano with the company as beneficiary. Defendant's main defense is:
that said resolutions and the contract executed pursuant thereto are ultra vires, and, if valid, the obligation to pay the
amount given is not yet due and demandable. RTC ruled that contract or donation is not ultra vires.
ISSUE:
WON corporation donation of the proceeds of the insurance policies is an ultra vires act.
HELD:
NO. The AOI of the corporation provided two relevant items: (1) to invest and deal with moneys of the
company not immediately required, in such manner as from time to time may be determined; and (2) to aid in any
other manner any person, association or corporation of which any obligation or in which any interest is held by this
corporation or in the affairs of prosperity of which this corporation has a lawful interest.
From this, it is obvious that the corporation properly exercised within its chartered powers the act of
availing of insurance proceeds to the heirs of the insured and deceased officer.
NOTE: Ultra vires act vs. Illegal Acts
A 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.
Harden, et. al. vs. Benguet
G.R. No. L-37331; March 18, 1933
FACTS:
A contract between Benguet Consolidated Mining and Balatoc Mining Co. provided that Benguet will
bring in capital, equipment. and technical expertise in exchange for capital shares in Balatoc. Harden was a
stockholder of Balatoc and he contends that this contract violated the Corporation Law which restricts the acquisition
of interest by a mining corporation in another mining corporation.
ISSUE:
WON the plaintiff can maintain an action based upon the violation of the law supposedly committed by
respondent company.
HELD:
NO. The provision was adopted by the lawmakers with a sole view to the public policy that should control
in the granting of mining rights. Furthermore, the penalties imposed in what is now section 190 (A) of the Corporation
Law for the violation of the prohibition in question are of such nature that they can be enforced only by a criminal
prosecution or by an action of quo warranto. but these proceedings can be maintained only by the Attorney-General
in representation of the Government.
Bissell vs. Michigan Southern
22 NY 258; 1860
FACTS:
Two railroad corporations contend that they transcended their own powers and violated their own organic
laws. Hence, they should not be held liable for the injury of the plaintiff who was a passenger in one of their trains.
ISSUE:
WON the contract made between the two railroad corporations is valid and as such can be use a defense
to evade the liability against the passenger.
HELD:
NO. The contract between the two corporations was an ultra vires act. However, it is not one tainted with
illegality, therefore, the accompanying rights and obligations based on the contract of carriage between them and the
plaintiff cannot be avoided by raising such a defense.
XIII. CONTROL AND MANAGEMENT
1.) BOARD OF DIRECTORS/TRUSTEES
Ramirez vs. Orientalist Co.
G.R. No. 11897; September 24, 1918
FACTS:
Orientalist Co. engaged in the theatre business, desired to be the exclusive agent of Ramirez, who is
based in Paris, for two film outfitsclair Films and Milano films. Through the active involvement and negotiations of
Ramon El Presidente Fernandez, a director of Orientalist and also its treasurer, Orientalist was able to secure an
offer, the terms of which were acceptable to the Board as well as to the stockholders. It appears that this acceptance
of the terms of the offer was decided during an informal meeting of the board, and conveyed to Ramirez in two letters
signed only by Fernandez, both in his individual and his capacity as treasurer of Orientalist. It turns out that the
company was not financially capable to comply with the obligations set forth in the agency contract, and about this
time films had already been delivered to the company. Two stockholders meetings were organized, the first adopted a
resolution approving the action of the board on the offer, the second raising the contingency of the lack of funds and
the proviso that the four officers involved, including Fernandez would continue importing the films using their own
funds. Ramirez sues Orientalist and Fernandez for what is due on the contract. RTC ruled Oriental as the principal
debtor while Fernandez is subsidiarily liable.
ISSUE:
(1) WON the treasurer has an independent authority to bind the respondent company by signing its name
to the letters in questioned.
(2) Can stockholders ratify the abovementioned contract?
HELD:
(1) NO. It is declared in section 28 of the Corporation Law that corporate power shall be exercised, and
all corporate business conducted by the board of directors; and this principle is recognized in the by-laws of the
corporation in question which contain a provision declaring that the power to make contracts shall be vested in the
board of directors. It is true that it is also declared in the same by-laws that the president shall have the power, and it
shall be his duty, to sign contract; but this has reference rather to the formality of reducing to proper form the contract
which are authorized by the board and is not intended to confer an independent power to make contract binding on
the corporation.
(2) NO. The subsequent action by the stockholders in not ratifying the contract must be ignored. The
functions of the stockholders are limited of nature. The theory of a corporation is that the stockholders may have all
the profits but shall return over the complete management of the enterprise to their representatives and agents, called
directors. Accordingly, there is little for the stockholders to do beyond electing directors, making by-laws, and
exercising certain other special powers defined by law. In conformity with this idea, it is settled that contracts between
a corporation and a third person must be made by directors and not stockholders. It results that where a meeting of
the stockholders is called for the purpose of passing on the propriety of making a corporate contract, its resolutions
are at most advisory and not in any wise binding on the board.
Expert Travel & Tours vs. CA
G.R. No. 152392; May 26, 2005
FACTS:
Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and
licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed
counsel was Atty. Mario Aguinaldo and his law firm.
KAL, through appointed counsel, filed a complaint against Expert Travel with the RTC for the collection of
sum of money. The verification and certification against forum shopping was signed by the same appointed counsel,
who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the
complaint. Expert Travel filed a motion to dismiss the complaint on the ground that the appointed counsel was not
authorized to execute the verification and certificate of non-forum shopping as required by the Rules of Court. KAL
opposed the motion, contending that he is a resident agent and was registered as such with the SEC as required by
the Corporation Code. He also claimed that he had been authorized to file the complaint through a resolution of the
KAL Board of Directors approved during a special meeting, wherein the board of directors conducted a special
teleconference which he attended. It was also averred that in the same teleconference, the board of directors
approved a resolution authorizing him to execute the certificate of non-forum shopping and to file the complaint. Suk
Kyoo Kim alleged, however, that the corporation had no written copy of the aforesaid resolution. TC denied motion to
dismiss. CA affirms.
ISSUE:
Can a special teleconference be recognized as legitimate means to approved a board resolution and
authorize an agent to execute an act in favor of the corporation?
HELD:
YES. In this age of modern technology, the courts may take judicial notice that business transactions may
be made by individuals through teleconferencing. teleconferencing and videoconferencing of members of board of
directors of private corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange
Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be
complied with related to such conferences.
HOWEVER, in the case at bar, even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondents Board of Directors, the Court is not convinced that one
was conducted; even if there had been one, the Court is not inclined to believe that a board resolution was duly
passed specifically authorizing Atty. Aguinaldo to file the complaint and execute the required certification against
forum shopping. Facts and circumstances show that there was gross failure on the part of company to prove that
there was indeed a special teleconference such as failure to produce a written copy of the board resolution via
teleconference.
NOTE: Read SEC Memo Circular No. 15-2001, the guidelines for the conduct of teleconferencing and
videoconferencing.
Citibank, N.A. vs. Chua
G.R. No. 102300; March 17, 1993
FACTS:
Petitioner is a foreign commercial banking corporation duly licensed to do business in the Philippines.
Private respondents, spouses Cresencio and Zenaida Velez, were good clients of petitioner bank's branch in Cebu
until when they filed a complaint for specific performance and damages against the former for violation of BP 22 and
several count of estafa cases in RTC of Cebu.
On the date of pre-trial conference, counsel for petitioner bank appeared, presenting a special power of
attorney executed by Citibank officer in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to represent
and bind petitioner bank at the pre-trial conference of the case at bar. Inspite of this special power of attorney,
counsel for private respondents orally moved to declare petitioner bank as in default on the ground that the special
power of attorney was not executed by the Board of Directors of Citibank. Respondent judge denied private
respondents' oral motion to declare petitioner bank as in default and set the continuation of the pre-trial conference.
The private respondents filed for reconsideration, and this time the respondent holds the petitioner bank in default for
failure to have a proper representation. CA affirms.
ISSUE:
WON a resolution of the board of directors of a corporation is always necessary for granting authority to
an agent to represent the corporation in court cases.
HELD:
In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is
responsible for corporate policies and the general management of the business affairs of the corporation; (2) the
officers, who in theory execute the policies laid down by the board, but in practice often have wide latitude in
determining the course of business operations; and (3) the stockholders who have the residual power over
fundamental corporate changes, like amendments of the articles of incorporation. However, 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.
Although as a general rule, all corporate powers are to be exercised by the board of directors, exceptions
are made where the Code provides otherwise under Sec. 25 and 47. It is clear that corporate powers may be directly
conferred upon corporate officers or agents by statute, the articles of incorporation, by-laws or by resolution or other
act of the board of directors. In addition, an officer who is not a director may also appoint other agents when so
authorized by the by-laws or by the board of directors. Such are referred to as express powers. There are also
powers incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation
of authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to do all of
those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper to be done in
order to carry into effect the main authority conferred.
Since the by-laws are a source of authority for corporate officers and agents of the corporation, a
resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pre-
trial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and
the Secretary Pro-Tem, to execute a power of attorney to a designated bank officer, clothing him with authority to
direct and manage corporate affairs.
Boyer-Roxas vs. CA
G.R. No. 100866; July 14, 1992
FACTS:
The corporation, Heirs of Eugenia Roxas Inc, was established to engage in agriculture to develop the
properties inherited from Eugenia Roxas and Eufroncio Roxas, which includes the land upon which the Hidden Valley
Springs Resort was put up, including various improvements thereon, using corporate funds. The AOI of Heirs Inc. was
amended for this purpose. Heirs Inc. claims that Boyer-Roxas and Guillermo Roxas had been in possession of the
various properties and improvements in the resort and only upon the tolerance of the corporation. It was alleged that
they committed acts that impeded the corporations expansion and normal operation of the resort. They also did not
comply with court and regulatory orders, and thus the corporation adopted a resolution authorizing the ejectment of
the defendants. TC grants. CA affirms. Boyer and Roxas contend that, being stockholders, their possession of the
properties of the corporation must be respected in view of their ownership of an aliquot portion of all properties of the
corporation.
ISSUE:
WON the possession of the properties in question must be respected in view of being a stockholder.
HELD:
NO. Regarding properties owned by the corporation, under the doctrine of corporate entity properties
registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While
shares of stock constitute personal property, they do not represent property of the corporation. A share of stock only
typifies an aliquot part of the corporations property, or the right to share in its proceeds to that extent when distributed
according to law and equity, but its holder is not the owner of any part of the capital of the corporation, nor is he
entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant
in common of the corporate property.
The corporation has a personality distinct and separate from its members and transacts business only
through its officers or agents. Whatever authority these officers or agents may have is derived from the board or other
governing body, unless conferred by the charter of the corporation itself. An officer's power as an agent of the
corporation must be sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from
the acts of the board of directors, formally expressed or implied from a habit or custom of doing business.
In this case the elder Roxas who then controlled the management of the corporation, being the majority
stockholder, consented to the petitioners use and stay within the properties. The Board did not object and were
allowed to stay until it adopted a resolution to the effect of authorizing to eject them. Since their stay was merely by
tolerance, in deference to the wishes of the majority stockholder who controlled the corporation, when Roxas died his
actions cannot bind the company forever. There is no provision in the by-laws or any other resolution authorizing their
continued stay.
Valle Verde Country Club vs. Africa
G.R. No. 151969; September 4, 2009
FACTS:
Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III,
Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa were elected as BOD during
the Annual Stockholders Meeting of petitioner Valle Verde Country Club, Inc. (VVCC). Requisite quorum could not
be obtained so they continued in a hold-over capacity.
First resignation: Dinglasan, BOD still constituting a quorum elected Eric Roxas (Roxas). Second
resignation: Makalintal, Jose Ramirez (Ramirez) was elected by the remaining BOD.
Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as
members of the petitioners Board with the SEC and the RTC as contrary to Sec. 23 and 29 of the Corporation Code.
He claimed that a year after Makalintals election as member of the petitioners Board in 1996, his term as well as
those of the other members should be considered to have already expired. Thus, according to him, the resulting
vacancy should have been filled by the stockholders in a regular or special meeting called for that purpose, and not
by the remaining members of the petitioners Board. RTC favored respondent. SEC ruled on the same ground as
RTC. Petitioner appealed in SC for certiorari being partially contrary to law and jurisprudence.
ISSUE:
Can the members of a corporations board of directors elect another director to fill in a vacancy caused by
the resignation of a hold-over director?
HELD:
NO. The holdover period is not part of the term of office of a member of the board of directors. When
Section 23 of the Corporation Code declares that the board of directorsshall hold office for one (1) year until their
successors are elected and qualified, we construe the provision to mean that the term of the members of the
board of directors shall be only for one year; their term expires one year after election to the office. The holdover
period that time from the lapse of one year from a members election to the Board and until his successors election
and qualification is not part of the directors original term of office, nor is it a new term; the holdover period,
however, constitutes part of his tenure. Corollary, when an incumbent member of the board of directors continues to
serve in a holdover capacity, it implies that the office has a fixed term, which has expired, and the incumbent is
holding the succeeding term.
The powers of the corporations board of directors emanate from its stockholders. This theory of
delegated power of the board of directors similarly explains why, under Section 29 of the Corporation Code, in cases
where the vacancy in the corporations board of directors is caused not by the expiration of a members term, the
successor so elected to fill in a vacancy shall be elected only for the unexpired term of the his predecessor in
office. The law has authorized the remaining members of the board to fill in a vacancy only in specified instances, so
as not to retard or impair the corporations operations; yet, in recognition of the stockholders right to elect the
members of the board, it limited the period during which the successor shall serve only to the unexpired term of his
predecessor in office.
It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within
the directors term of office. When a vacancy is created by the expiration of a term, logically, there is no more
unexpired term to speak of. Hence, Section 29 declares that it shall be the corporations stockholders who shall
possess the authority to fill in a vacancy caused by the expiration of a members term.

NOTE: The court distinguished term and tenure.
Term is the time during which the officer may claim to hold the office as of right, and fixes the interval
after which the several incumbents shall succeed one another. The term of office is not affected by the holdover. The
term is fixed by statute and it does not change simply because the office may have become vacant, nor because the
incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and
has failed to qualify.
Tenure represents the term during which the incumbent actually holds office. The tenure may be shorter
(or, in case of holdover, longer) than the term for reasons within or beyond the power of the incumbent.
2.) OFFICERS
Yu Chuck vs. Kong Li Po
G.R. No. L-22450; December 3, 1924

FACTS:
Kong Li Po is a corporation engaged in the publication of a Chinese newspaper. Its AOI provide for a
president who shall sign all contracts and other instruments of writing, but does not provide for a business or general
manager. CC Chen or TC Chen was appointed general business manager of the paper. He then entered into an
agreement with Yu Chuck for the printing of the newspaper for P580 per month. Yu Chuck worked for a year until they
were discharged by the new manager Tan Tian Hong because CC Chen had left for China. Yu Chuck sues the paper,
claiming the contract was for a period of 3 years, and that discharge without just cause before the expiration of this
term entitles them to receive full pay for the remainder of the term. Kong Li Po counters that CC Chen was not
authorized to enter into the contract with Yu Chuck. TC ruled in favor of Yu Chuck, concluding that the contract had
been impliedly ratified by Kong Li Po and that although he had no express authority to enter into the contract; since
he was general business manager in charge of the printing of the paper he had implied authority to employ the
petitioners.
ISSUE:
WON CC Chen had the power to bind the corporation through the contract mentioned.
HELD:
The general rule is that the power to bind a corporation by contract lies with its board of directors or
trustees, but this power may either expressly or impliedly be delegated to other officers or agents of the corporation,
and it is well settled that except where the authority of employing servants and agent is expressly vested in the board
of directors or trustees, an officer or agent who has general control and management of the corporation's business, or
a specific part thereof, may bind the corporation by the employment of such agent and employees as are usual and
necessary in the conduct of such business. But the contracts of employment must be reasonable.
In the case at bar, although the court affirmed the power to bind the corporation may be made by an
officer or agent, the contract of employment in the printing business is not reasonable for it was too long and onerous
to the business.
Woodchild Holdings vs. Roxas Electric
G.R. No. 140667; August 12, 2004
FACTS:
The respondent was the owner of two parcels of land located along the Sumulong Highway. Petitioner
wanted to buy the one parcel on which it planned to construct its warehouse building. Roxas, as the president of
respondent company, accepted the offer through the BOD resolution issued by the latter. However, the respondent
posits that Roxas was not so authorized under 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 on Lot No.491-A-3-B-1, 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.
ISSUE:
WON whether the respondent is bound by the provisions in the deed of absolute sale granting to the
petitioner beneficial use and a right of way over a portion of Lot No. 491-A-3-B-1 accessing to the Sumulong Highway.
HELD:
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 on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion thereof. The authority
of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to
sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner on such terms
and conditions which he deems most reasonable and advantageous. The general rule is that the power of attorney
must be pursued within legal strictures, and the agent can neither go beyond it; nor beside it. The act done must be
legally identical with that authorized to be done. In sum, then, 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.
The doctrine of apparent authority was not applicable in this case because the president of the company
was given a specific authority by virtue of a board resolution to sell a particular land. Any actions of the president
outside such vested authority shall not bind the corporation with third party. The apparent power of an agent is to be
determined by the acts of the principal and not by the acts of the agent.
Board of Liquidators vs. Heirs of Kalaw
G.R. No. L-18805; August 14, 1967

FACTS:
Maximo Kalaw is chairman of the board and general manager of the National Coconut Corporation
(NACOCO), a non-profit GOCC empowered by its charter to buy sell barter export and deal in coconut, copra, and
desiccated coconut. Bocar, Garcia and Moll were directors. It entered into contracts for the trading and delivery of
copra. Nature intervened4 typhoons devastated agriculture and copra production. NACOCO was on the verge of
sustaining losses and could not be able to make good on the contracts. Sensing this, Kalaw submitted the contracts
to the board for approval and made a full disclosure of the situation. No action was taken, and no vote was taken on
the matter. On 20 Jan 1947 the board met again with Kalaw, Bocar, Garcia, and Moll in attendance, and approved the
contracts. NACOCO however only partially performed the contracts. One of the contracts concerns the Louis Drayfus
& Co., which sued NACOCO. NACOCO settled out-of-court and paid Drayfus P567,024.52 representing 70% of total
claims. The total settlements sum up to P1.3M. NACOCO sues Kalaw, and his directors Bocar, Moll and Garcia to
recover this sum, alleging negligence, bad faith and breach of trust in approving the contracts, by not having them
approved by the board. TC dismisses complaint. NACOCO claims that the by-laws provide that prior board approval
is required before the GM can perform or execute in behalf of NACOCO all contracts necessary to accomplish its
purpose.
ISSUE:
WON the Kalaw contracts are valid despite its lack of prior board approval as required by the NACOCO
by-laws.
HELD:
The contracts in question are forward sales contractsa sales agreement entered into, even though the
goods are not yet in the hands of the seller. Given the peculiar nature of copra trading, i.e. copra must be disposed of
as soon as possible else it would lose weight and would decrease its value, it necessitates a quick turnover and
execution of the contract on short notice (w/in 24 hours). It would be difficult if not impractical to call a formal meeting
of the board each time a contract is to be executed.
Kalaw was a corporate officer entrusted with general management and control of NACOCO. He had
implied authority to make any contract or do any act which is necessary for the conduct of the business. He
may, without authority from the board, perform acts of ordinary nature for as long as these redound to the interest of
the corporation. Particularly, he contracted forward sales with business entities. Long before some of these contracts
were disputed, he contracted by himself alone, without board approval. All of the members of the board knew about
this practice and have entrusted fully such decisions with Kalaw. He was never questioned nor reprimanded nor
prevented from this practice. In fact, the board itself, through its acts and by acquiescence, have laid aside the by-law
requirement of prior board approval. Thus, it cannot now declare that these contracts (failures) are not binding on
NACOCO.
Ratification by a corporation of an unauthorized act or contract by its officers relates back to the time of
the act or contract ratified and is equivalent to original authority. The theory of corporate ratification is predicated upon
the right of a corporation to contract, and any ratification or adoption is equivalent to a grant of prior authority.
Ratification cleanses the contract from all its defects from the moment it was constituted. Thus, even in the face of an
express by-law requirement of prior approval, the law on corporations is not to be held too rigid and inflexible as to fail
to recognize equitable considerations.
3.) BOARD COMMITTEES
Hayes vs. Canada Atlantic & Plant Steamship Co.
181 F. 289; 1910
FACTS:
Petitioner is one of the executive committee of respondent company. In this case, the Executive
Committee: (a) removed the Treasurer and appointed a new one; (b) fixed the annual salary of the members of the
Executive Committee; (c) amended the by-laws by giving the President the sole authority to call a stockholder's
meeting and a board of directors meeting; and (d) amended the composition of the Executive Committee by limiting it
to just 2 persons.
ISSUE:
Were these actions valid?
HELD:
No, because the Executive Committee usurped the powers vested in the board and the stockholders. If
their actions were valid, it would put the corporation in a situation wherein only two men, acting in their own pecuniary
interests, would have absorbed the powers of the entire corporation.
"Full powers" should be interpreted only in the ordinary conduct of business and not total abdication of
board and stockholders' powers to the Executive Committee. "FULL POWERS" does not mean unlimited or absolute
power.

XIV. DUTIES OF DIRECTORS AND CONTROLLING STOCKHOLDERS
Benguet Electric Cooperative vs. NLRC
G.R. No. 89070; May 18, 1992
FACTS:
Cosalan, GM of the Benguet Electric Cooperative, was informed by COA that cash advances received by
officers and employees of Benguet Electric had been virtually written off the books, that per diems and allowances
showed substantial inconsistencies with the directives of the National Electrification Administration, and that several
irregularities in the utilization of funds released by NEA to Benguet. Cosalan then implemented the remedial
measures recommended by COA. Board members of Benguet responded by abolishing the housing allowance of
Cosalan, reduced his salary, representation and other allowances, and directed him to hold in abeyance all
disciplinary actions, and struck his name out as principal signatory of Benguet Electric. The Board adopted another
series of resolutions which resulted in the ouster of Cosalan as GM. Cosalan nonetheless continued to work as GM,
contending that only the NEA can suspend and remove him. The Board then refused to act on Cosalan request to
release compensation due him. Cosalan files a complaint with the NLRC against the Board of Benguet Electric, and
impleaded Benguet Electric itself as well as the individual members of the board in their official and private capacities.
Labor Arbiter rules in favor of Cosalan, holding both the company and the board solidarily liable to Cosalan. NLRC
modifies award to Cosalan by declaring Benguet alone, and not the Board members, was liable to Cosalan. Benguet
appeals.
ISSUE:
WON both the corporation and board members are liable to Cosalan.
HELD:
YES. The Board members and officers of a corporation who purport to act for and in behalf of the
corporation, keep within the lawful scope of their authority in so acting, and act in good faith, do not become liable,
civilly or otherwise, for the consequences of their acts. Those acts are properly attributed to the corporation alone and
no personal liability is incurred. In this case, the board members obviously wanted to get rid of Cosalan and acted
with indecent haste in removing him from his GM position. This shows strong indications that the members of the
board had illegally suspended and dismissed him precisely because he was trying to rectify the financial
irregularities.
The Board members are also liable for damages under Sec. 31 of the Corporation Code, which by virtue
of Sec. 4 thereof, makes it applicable in a supplementary manner to all corporations, including those with special or
individual charters so long as these are not inconsistent therewith.
The Board members are also guilty of gross negligence and bad faith in directing the affairs of the
corporation in enacting the said resolutions, and in doing so, acted beyond the scope of their authority.
Prime White Cement vs. IAC
G.R. No. L-68555; March 19, 1993
FACTS:
Prime White Cement entered into a dealership agreement with one of its directors, Alejandro Te, for the
latter to be the exclusive distributor of 20,000 bags of Prime White cement per month @ P9.70 per bag for the entire
Mindanao area for 5 years, and that a letter of credit be opened to secure payment. Te advertised his dealership and
was able to obtain possible clients, and entered into agreements with several hardware stores for the purchase of the
cement. Te then informed Prime White of the orders, but the latter imposed additional conditions, which effectively
delayed the delivery of the cement, lowered the number of bags to be delivered, and increased the price per bag. It
also made the prices subject to change unilaterally and additional conditions on the manner of payment. Te refused to
comply and Prime White cancelled the dealership agreement. Te sued for specific performance and damages. TC
ruled in favor of Te.
ISSUE:
WON the dealership agreement is a valid and enforceable contract binding on the corporation.
HELD:
NO. It is not valid and enforceable. All corporate powers are exercised by the Board. It may also delegate
specific powers to its President or other officers. In the absence of express delegation, a contract entered into by the
President in behalf of the corporation, may still bind the latter if the board should ratify expressly or impliedly. In the
absence of express or implied ratification, the President may as a general rule bind the corporation through a contract
in the ordinary course of business, provided the same is reasonable under the circumstances. These rules are
applicable where the President or other officer acting for the corporation is dealing with a third person.
The situation is different where a director or officer is dealing with his own corporation. Te was not an
ordinary stockholder; he was a member of the Board and Auditor of the corporation. He is what is often called a self-
dealing director. As a director, he holds a position of trust and owes a duty of loyalty to his corporation. In case his
interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. The
trust relationship springs from the control and guidance of the corporate affairs and property interests of the
stockholders. A directors contract with his corporation is not in all instances void or voidable. If the contract is fair and
reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse
interest is made.
Gokongwei Jr. vs. SEC et. al. (supra)
G.R. No. L-45911; April 11, 1979
ISSUE:
WON the amended by-laws of SMC of disqualifying a competitor (Interlocking director) from nomination
or election to the Board of Directors of SMC are valid and reasonable.
HELD:
Under US corporate law, corporations have the power to make by-laws declaring a person employed in
the service of a rival company to be ineligible for the corporation's Board of Directors. ... An amendment which
renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business
is in competition with or is antagonistic to the other corporation is valid." This is based upon the principle that where
the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other.
Such an amendment "advances the benefit of the corporation and is good." In the Philippines, section 21 of the
Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it
has been held that an officer of a corporation cannot engage in a business in direct competition with that of the
corporation where he is a director by utilizing information he has received as such officer, under "the established law
that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the
business of the corporation of which he is an officer or director.
It is also well established that corporate officers "are not permitted to use their position of trust and
confidence to further their private interests." In a case where directors of a corporation cancelled a contract of the
corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered
into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would
regard the new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a
"faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal.
Strong vs. Repide
G.R. No. L-2101; November 15, 1906
FACTS:
This action was brought to recover 800 shares of the capital stock of the Philippine Sugar Estates
Development Company, Limited, an anonymous society formed to hold the Dominican friar lands.
The shares were the property of one of the plaintiffs, Mrs. Strong, as part of the estate of her first
husband. They were purchased by the defendant through a broker who dealt with her agent, one Jones, who had the
script in her possession and who had made the sale without the knowledge of the plaintiff. The defendant was a
director, was the managing agent, and was in his own right the majority stockholder of the society.
ISSUE:
WON a director and majority stockholder must disclose his information to another stockholder before
buying stock from him.
HELD:
YES. The director and controlling stockholder who purchased the shares of another stockholder through
an agent was held to be guilty of concealing the impending purchase of the friar lands they own by the government, a
significant fact which would affect the price of the shares.
Although ordinarily, the relationship between directors and stockholders of a corporation is not of a
fiduciary character as to oblige the director to disclose to a stockholder the general knowledge which he may possess
regarding the value of the shares of the company before he purchases any form a shareholder, there are cases when
such duty and obligation upon the director is present. Being the chief negotiator for the sale of the lands, the director
was the only person who knew of the advantages and the impending increase in the value of the shares such that he
is precluded from acquiring stocks from other shareholders without first informing them of the pertinent facts affecting
the value of the shares being bought. It is fraudulent for a stockholder to buy from a shareholder without disclosing his
identity.
NOTE: Special Facts Doctrine: a doctrine holding that a corporate officer with superior knowledge gained by virtue of
being an insider owes a limited fiduciary duty to a shareholder in transactions involving transfer of stock.
Steinberg vs. Velasco
G.R. No. L-30460; March 12, 1929
FACTS:
The board of the corporation authorized the purchase of 330shares of capital stock of the corporation and
the declaration of dividends at a time when the corporation was indebted and in such a bad financial condition. The
directors relied on the face value on the books of its A/R, which had little or no value. Furthermore it appears that two
of the directors were permitted to resign so that they could sell their stock to the corporation. The corporation became
insolvent, and the receiver Steinberg sues the directors.
ISSUE:
Duty to creditors.
HELD:
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.