1. RAMIREZ V ORIENTALIST CO.

& FERNANDEZ

Concept: Control and Management of Corporation

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

THE ORIENTALIST COMPANY,

By RJ Fernandez
Treasurer.
RJ Fernandez”

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

Ramirez instituted an action against Orientalist and RJ Fernandez. Upon application of Ramirez,
the films were sold and the amount realized from the sale was applied to the satisfaction of the
plaintiff’s claim. Judgment was given for the balance due to Ramiez. Orientalist was declared to
be a principal debtor and Fernandez was declared to be subsidiarily liable as guarantor.
Defendants appealed. The Court noted that the action is primarily founded upon the liability
created by the two acceptance letters.

ISSUES:
1. WON Fernandez’s actions bound the company .
2. WON the company is still liable, assuming that the company was able to deny the
authority of Fernandez.
3. What is the character of liability assumed by Fernandez?

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

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

2. YES. If a corporation knowingly permits one of its officers, or any other agent, to do acts
within the scope of an apparent authority and thus holds him out to the public as possessing
power to do those acts, the corporation will, as against anyone who has in good faith dealt
with the corporation through such agent, be estopped from denying his authority; and where
it is said “if the corporation permits” this means the same as “if the thing is permitted by the
directing power of the corporation.”

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

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

2. LOPEZ V ERICTA

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

DOCTRINE: [A]n abstention is counted as an affirmative vote insofar as it may be construed as

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

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

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

RATIO:
 Blanco: The abstentions should be deemed affirmative votes because refusal to vote
indicates acquiescence in the action of those who vote [and eventually win]
 Lopez et.al.: If Blanco’s view is adopted, an absurdity may arise such that a proposal
may be approved with only one vote if the other 11 BOR members abstain.
 SC: A good case can be made for either proposition and American courts have been
divided on the matter. However, the case can be resolved without choosing from the
competing legal theories.
 “It should be noted that an abstention, according to the citations of Lopez et.al., is
counted as an affirmative vote insofar as it may be construed as an acquiescence in the
action of those who vote affirmatively. This manner of counting is obviously based on what
is deemed to be a presumption as to the intent of the one abstaining, namely, to
acquiesce in the action of those who vote affirmatively, but which presumption, being
merely prima facie, would not hold in the face of clear evidence to the contrary. It is
pertinent, therefore, to inquire into the facts and circumstances which attended the voting
by the members of the BOR on the ad interim appointment of Blanco in order to
determine whether or not such a construction would govern.”
 Applicable provisions
o UP Charter, Sec. 7. A quorum of the Board of Regents shall consist of a majority of
all the members holding office at the time the meeting of the Board is called. All
processes against the Board of Regents shall be served on the president or
secretary thereof.
o UP Charter, Sec. 10. The body of instructors of each college shall constitute its
faculty, and as presiding officer of each faculty, there shall be a dean elected from
the members of such faculty by the Board of Regents on nomination by the
President of the University.
 o Article 78 of the Revised Code of UP: For each college or school there shall be a
Dean or Director who shall be elected by the Board of Regents from the members of
the faculty of the University unit concerned, on nomination by the President of the
University.
MINUTES OF THE MEETING SHOW THAT BOR INTENDED TO REJECT BLANCO’S APPOINTMENT
 The Chairman of the Personnel Committee, Regent Tangco, manifested during the July 9
meeting that “the nomination of Professor Blanco cannot be accepted by the [BOR], but it
was felt that it should be presented in a more diplomatic way to avoid any embarrassment
on the part of both the appointee and the President. And so means were studied as to how
it could be done and it was felt that it could be done in such a way that the appointee
could request relief from the appointment, that it would be the best to save
embarrassment all around. And so the final decision was to ask the President to review
this matter”
 They intended to do this by asking Pres. Lopez to persuade Blanco to withdraw her
appointment or resign.
 Regent Pedrosa, another member of the Personnel Committee, suggested that the
Committee members inhibit from voting on the matter; and they did.
 Sec. Corpuz stated that if the Board accepts the Committee recommendation, it would also
mean the non-confirmation of Blanco’s ad interim appointment.
 Sec. Corpuz further said: “Regent Tangco, the chairman of [the Personnel Committee],
says that this is merely a polite cover, diplomatic cover, according to Regent Kalaw, for the
reaction of the Committee, and Regent Tangco requests that we act not on the Committee
recommendation in this form as presented in the Agenda but in terms [of the]
gentlemen's agreement.”
 But Sec. Corpuz said that they cannot act on the recommendation in the way Regent
Tangco wanted because the BOR cannot act on an unwritten “gentleman’s agreement”. [in
effect ayaw ni O.D. Corpuz na utusan ng BOR si Pres. Lopez na pakiusapan si Dr. Blanco na
mag-resign, as Tangco would have it]
 He therefore asked the BOR to vote ONLY on the action to be taken on the Personnel
Committee’s recommendation, unless the Committee agrees to withdraw the
recommendation [not on the Blanco appointment itself; seems that O.D. Corpuz wants the
Personnel Committee to make up its mind and do away with their “face-saving” maneuver.
Kung ayaw nyo kay Blanco eh di i-reject natin]
 Regent Tangco agreed and withdrew the recommendation. As a clarification, Regent Silva
then stated that as it stood, the Committee had withdrawn its earlier recommendation and
now puts forward a recommendation of non-confirmation, to which Regent Kalaw agreed.
The BOR then voted on the matter with the above-quoted result of 5-3-4.
 Before casting his vote of abstention, Regent Virata, stated that he was lost [haha] and
that he was being asked to make a decision he was not ready to make.
 Sec. Corpuz declared that the vote was not a majority and that there was no ruling on the
counting of votes and the treatment of the abstention.
 After a 1-minute recess. Sec Corpuz stated that: “There is a motion to suspend action; that
is to say, to suspend the voting of the Board on this matter with the effect, first, to return
the case to its original status to render the case subject to further thinking and second,
that the Board has not confirmed the appointment. The appointment, in other words,
will be good from May 26 up to today (July 9).”
 The BOR wanted more time to consider Blanco’s appointment but deemed her ad interim
designation terminated as of July 9. Sec. Corpuz also manifested that the result of the
voting should be expunged from the record. Nobody objected.
 As summarized by the Court: “The Personnel Committee, to which the matter of Dr.
Blanco's appointment had been referred for study, was for recommending that it be
rejected; that, however, the rejection should be done in a diplomatic way "to avoid any
embarrassment on the part of both the appointee and the President;" and that the "final
decision" of the committee was to ask the President of the University to talk to
Dr. Blanco "for the appointment to be withdrawn." That decision, as announced by
 Regent Tangco, Chairman of the Personnel Committee, was restated and clarified by
Regent Kalaw, and then reiterated first by Regent Tangco and then by the Chairman. On
that note Regent Pedrosa suggested that the members of the Personnel Committee, as
well as the President, should inhibit themselves from voting. When the matter was
actually submitted to a vote, however, the definition of the issue became somewhat
equivocal. Regent Tangco announced that the committee was withdrawing its
recommendation, whereupon the Chairman stated that the issue was "to confirm or
not to confirm the ad interim appointment issued to Dr. Blanco." This was then
followed by a remark from Regent Silva that the withdrawal by the committee referred to
the recommendation "per se, as it is written," but that the committee, he thought, was
"actually putting a recommendation for nonconfirmation." Regent Kalaw thereupon
expressed her concurrence with Regent Silva's opinion ”.
 It is clear from the foregoing that the abstentions cannot be construed as votes for
confirmation of Blanco’s appointment. The Personnel Committee undoubtedly
recommended rejection of Blanco’s appointment. It cannot be said that the members of
the Committee abstained because they intended to acquiesce with the Yes votes. Neither
did Regent Virata, who said that he was not ready to make a decision.
 In the same meeting, the BOR finally decided to cancel the actions taken, including the 5-
3-4 vote, and to return the matter to the status quo, with the understanding that the ad
interim appointment had been terminated.
 “[I]t cannot be seriously argued that the Board had no authority to do what it did: the
meeting had not yet been adjourned; the subject of the deliberations had not yet been
closed, and as in the case of any deliberative body the Board had the right to reconsider
its action.” No title to the office of Dean of UP Educ had yet vested in Blanco at the time of
reconsideration.
 Since Blanco did not pray for her ad interim appointment to be upheld up Apr. 30, 1971;
and considering that she was not entitled to the 3-year term provided for by law, she could
no longer be reinstated to the Deanship.
 “Aside from the fact that the point has become moot, since the tenure has expired, it is
seriously to be doubted whether such an appointment is authorized under the law and
regulations. It should be noted that both under the Charter (Sec. 10) and under the
Revised Code of the University (Art. 78) the Dean of a college is elected by the [BOR] on
nomination by the [UP President]. In other words the President's function is only to
nominate, not to extend an appointment, even if only ad interim; and the power of the
Board of Regents is not merely to confirm, but to elect or appoint. At any rate the ad
interim appointment extended to Blanco on May 26, 1970, although made effective until
April 30, 1971, was subject to the following condition: "unless sooner terminated and
subject to the approval of the Board of Regents." The Board, as has been shown, not only
did not elect Blanco in its meeting of July 9, 1970, but declared the appointment
terminated as of that day.”

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

3. BOYER-ROXAS V CA

FACTS: When Eugenia V. Roxas died, her heirs formed a corporation under the name and style of
Heirs of Eugenia V. Roxas, Inc. using her estate as the capital of the corporation, the private
respondent herein. It was primarily engaged in agriculture business, however it amended its
purpose to enable it to engage in resort and restaurant business. Petitioners are stockholders of
the corporation and two of the heirs of Eugenia. By tolerance, they were allowed to occupy some
of the properties of the corporation as their residence. However, the board of directors of the
corporation passed a resolution evicting the petitioners from the property of the corporation
because the same will be needed for expansion.

At the RTC, private respondent presented its evidence averring that the subject premises are
owned by the corporation. Petitioners failed to present their evidence due to alleged negligence
of their counsel. RTC handed a decision in favor of private respondent.

Petitioners appealed to the Court of Appeals but the latter denied the petition and affirmed the
ruling of the RTC. Hence, they appealed to the Supreme Court. In their appeal, petitioners argues
that the CA made a mistake in upholding the decision of the RTC, and that their occupancy of the
subject premises should be respected because they own an aliquot part of the corporation as
stockholders, and that the veil of corporate fiction must be pierced by virtue thereof.

ISSUE:
1. Whether petitioner’s contention were correct as regards the piercing of the corporate veil.
2. Whether petitioners were correct in their contention that they should be respected as
regards their occupancy since they own an aliquot part of the corporation.

RULING:

1. Petitioner’s contention to pierce the veil of corporate fiction is untenable. As aptly held by
the court: “..The separate personality of a corporation may ONLY be disregarded when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or when
necessary to achieve equity or when necessary for the protection of creditors.”
2. As regards petitioners contention that they should be respected on their occupancy by
virtue of an aliquot part they own on the corporation as stockholders, it also fails to hold
water. The court held that “properties owned by a corporation are owned by it as an entity
separate and distinct from its members. While shares of stocks are personal property, they
do not represent property of the corporation. A share of stock only typifies an aliquot part
of the corporation’s 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 holder is not a co-owner or a tenant in common of the corporate
property.”

4. WOODCHILD HOLDINGS, INC. V ROXAS ELECTRIC AND CONSTRUCTION COMPANY,

INC.

FACTS:
 - -Roxas Electric and Construction Company, Inc. (RECCI) authorized its President Roberto B.
Roxas through a resolution to sell a parcel of land owned by the corporation, and to
execute, sign and deliver for and on behalf of the company.
- Petitioner Woodchild Holdings, Inc. (WHI) through its President Jonathan Y. Dy, offered to
buy the land from RECCI.
- The offer to purchase stated that it is made on the representation and warranty of the
OWNER/SELLER, that he holds a good and registrable title to the property, which shall be
conveyed CLEAR and FREE of all liens and encumbrances, and that in the event that the
right of way is insufficient for the buyer’s purpose, the seller agrees to sell additional
square meter from his current adjacent property to allow the buyer full access and full use
of the property.
- Roxas accepted the offer and indicated his acceptance on Page 2 of the Deed.
- The sale was consummated.
- WHI subsequently entered into a construction agreement with Wimbeco Builder’s Inc.
(WBI) for the construction of a warehouse, and a lease agreement with Poderosa Leather
Goods Company, Inc. with a condition that the warehouse be ready by April 1, 1992.
- The building was finished and Poderosa became the lessee.
- WHI complained to Roberto Roxas that the vehicles of RECCI were parked on a portion of
the property over which WHI had been granted a right of way. Roxas promised to look into
the matter. Dy and Roxas discussed the need of the WHI to buy a 500-square-meter
portion the adjacent lot as provided for in the deed of absolute sale. However, Roxas died
soon thereafter.
- WHI wrote the RECCI, reiterating its verbal requests to purchase a portion of the said lot as
provided for in the deed of absolute sale, and complained about the latter’s failure to eject
the squatters within the three-month period agreed upon in the said deed.
- RECCI rejected the demand of WHI, so WHI filed a case for Specific Performance and
Damages in the RTC of Makati.

RTC - in favor of WHI.

CA - reversed the RTC decision and dismissed the complaint. The CA ruled that, under the
resolution of the Board of Directors of the RECCI, Roxas was merely authorized to sell the first lot,
but not to grant right of way in favor of the WHI over a portion of the second lot, or to grant an
option to the petitioner to buy a portion thereof.

ISSUE: WON respondent is bound by the provisions of the deed of sale granting to the petitioner
the beneficial use and right of way over the adjacent lot of the lot they previously bought. WON
such provision is enforceable.

HELD:
- We agree with respondent. Judgment of CA affirmed with modification.
- A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, 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.
- Indubitably, a corporation may act only through its board of directors or, when authorized
either by its by-laws or by its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, by-laws, or
relevant provisions of law.
- 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.
- In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell
a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or burden
 thereon. The petitioner was thus burdened to prove that the respondent so authorized
Roxas to sell the same and to create a lien thereon.
- 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 the second lot or to agree to sell to the
petitioner a portion thereof.
- For the principle of apparent authority to apply, the petitioner was burdened to prove the
following: (a) the acts of the respondent justifying belief in the agency by the petitioner;
(b) knowledge thereof by the respondent which is sought to be held; and, (c) reliance
thereon by the petitioner consistent with ordinary care and prudence.[34] In this case,
there is no evidence on record of specific acts made by the respondent[35] showing or
indicating that it had full knowledge of any representations made by Roxas to the
petitioner that the respondent had authorized him to grant to the respondent an option to
buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a burden or
lien thereon, or that the respondent allowed him to do so.

5. YU CHUK V KONG LI PO

FACTS:

 The defendant is a domestic corporation organized in accordance with the laws of the
Philippine Islands and engaged in the publication of a Chinese newspaper styled Kong Li
Po. Its articles of incorporation and by-laws are in the usual form and provide for a board of
directors and for other officers among them a president whose duty it is to "sign all
contracts and other instruments of writing." No special provision is made for a business or
general manager.
 Sometime in 1919, C. C./T. C. Chen was appointed general business manager of the
newspaper.
 Dec 1919, Chen entered into an agreement with the plaintiffs by which the latter bound
themselves to do the necessary printing for the newspaper for the sum of P580 per month.
 Under this agreement the plaintiffs worked for the defendant from January 1, 1920, until
January 31, 1921, when they were discharged by the new manager, Tan Tian Hong, who
had been appointed in the meantime, C. C. Chen having left for China. The letter of
dismissal stated no special reasons for the discharge of the plaintiffs.
 The plaintiffs thereupon brought the present action alleging, among other things, in the
complaint that their contract of employment was for a term of three years from the first
day of January, 1920; that in the case of their discharge by the defendant without just
cause before the expiration of the term of the contract, they were to receive full pay for
the remaining portion of the term; that they had been so discharged without just cause
and therefore asked judgment for damages in the sum of P20,880.
 Included in its 5 special defenses , Kong Li Po states that C. C. Chen, the person whose
name appears to have been signed to the contract of employment was not authorized by
the defendant to execute such a contract in its behalf. Other defenses include delayed
printing, failure to correct errors, neglect and refusal to print.
 At the trial of the case the plaintiffs presented in evidence Exhibit A which purports to be
a contract between Chen and the plaintiffs and which provides that in the event the
plaintiffs should be discharged without cause before the expirations of the term of three
years from January 1, 1920, they would be given full pay for the unexpired portion of the
term "even if the said paper has to fall into bankruptcy." The contract is signed by the
plaintiffs and also bears the signature "C. C. Chen, manager of Kong Li Po." The
authenticity of the latter signature is questioned by the defendant, but the court below
found that the evidence upon this point preponderate in favor of the plaintiffs and there
appears to be no sufficient reason to disturb this finding.
 Trial Court found in favour of petitioners saying contract had been impliedly ratified by the
defendant. Kong Li Po appeals saying that contract was not signed by C.C. Chen and in any
 event C. C. Chen had no power or authority to bind the defendant corporation by such
contract; and that there was no ratification of the contract by the corporation.

ISSUE: WON Chen [the general manger] had the power to bind the corporation by a contract of
the character indicated – NO. Only valid by a reasonable and usual contract of employment

RATIO:

Procedure/Evidence
The contract supposedly attached with the complaint was a translation. As this translation may
be considered a copy and as the defendant failed to deny its authenticity under oath, it will
perhaps be said that under section 103 of the Code of Civil Procedure the omission to
so deny it constitutes an admission of the genuineness and due execution of the
document as well as of the agent's authority to bind the defendant.
(Merchant vs. International Banking Corporation, 6 Phil., 314.) However the court ruled that this
case was an exception since evidence was presented by plaintiff on the execution of the
document. [Plaintiff waived]

Chen’s Authority
It is conceded that Chen had no express authority to do so, but the evidence is conclusive that
he, at the time the contract was entered into, was in effect the general business manager of the
newspaper Kong Li Po and that he, as such, had charge of the printing of the paper, and the
plaintiff maintain that he, as such general business manager, had implied authority to employ
them on the terms stated and that the defendant corporation is bound by his action.

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.

Chen, as general manager of the Kong Li Po, had implied authority to bind the defendant
corporation by a reasonable and usual contract of employment with the plaintiffs, but we do not
think that the contract here in question can be so considered. Not only is the term of
employment unusually long, but the conditions are otherwise so onerous to the defendant that
the possibility of the corporation being thrown into insolvency thereby is expressly contemplated
in the same contract.

Neither do we think that the contention that the corporation impliedly ratified the contract is
supported by the evidence. The contention is based principally on the fact that Te Kim Hua, the
president of the corporation for the year 1920, admitted on the witness stand that he saw the
plaintiffs work as printers in the office of the newspaper. He denied, however, any knowledge of
the existence of the contract and asserted that it was never presented neither to him nor to the
board of directors. Before a contract can be ratified knowledge of its existence must, of course,
be brought home to the parties who have authority to ratify it or circumstances must be shown
from which such knowledge may be presumed. No such knowledge or circumstances have been
shown here. That the president of the corporation saw the plaintiffs working in its office is of little
significance; there were other printers working there at that time and as the president had
nothing to do with their employment, it was hardly to be expected that be would inquire into the
terms of their contracts. Moreover, a ratification by him would have been of no avail; in order to
validate a contract, a ratification by the board of directors was necessary. The fact that
the president was required by the by-laws to sign the documents evidencing contracts of the
corporation, does not mean that he had power to make the contracts.

In his decision his Honor, the learned judge of the court below appears to have placed some
weight on a notice inserted in the January 14th issue of the Kong Li Po by T. C. Chen and which,
in translation, reads as follows: To Whom It May Concern: Announcement is hereby given that
thereafter all contracts, agreements and receipts are considered to be null and void unless duly
signed by T. C. Chen, General Manager of this paper. This is signed by Chen. This notice led the
plaintiffs to think that Chen had authority to make the contract. It may further be observed that
the notice confers no special powers, but is, in effect, only an assertion by Chen that he would
recognize no contracts, agreements, and receipts not duty signed by him. It may be presumed
that the contracts, agreements, and receipts were such as were ordinarily made in the course of
the business of managing the newspaper. There is no evidence to show that the notice was ever
brought to the attention of the officers of the defendant corporation.

HELD: The judgment appealed from is reversed and the defendant corporation is absolved from
the complaint.

Concurring (Street)
There must be a limit somewhat upon the authority of a manager with respect to the duration of
contracts which he makes for the corporation, and my eye has fallen upon no decision in which
contract for the period of three years, or longer, has been upheld on the bare fact that the
contract was made by a manager, though there are case in which contracts for the period of only
one year have been sustained.

But no presumption of law can be indulged in that, because as person acts as such a manager,
he has the power to bind his principal to contracts of an extraordinary nature, and of such a
character as would involved the corporation in enormous obligations and for long periods of time.

Dissenting (Malcolm)
Defendant corporation held T. C. Chen out to the public as the business manager of the
newspaper Kong Li Po and clothes him with apparent authority to bind the corporation. The
president of the corporation admitted as much on the witness stand, while public announcement
was made [Notice].

The action of the business manager was thus ratified by his superior officers and they are now in
estoppel to deny such ratification. As held in the case of Macke vs. Camps ([1907], 7 Phil.,
553), one who clothes another with apparent authority as his agent and holds him out to the
public as such, cannot be permitted to deny the authority of such person to act as his agent in
good faith and in the honest belief that he is what he appears to be. Unless the contrary appears,
the authority of an agent must be presumed to include all the necessary and usual means of
carrying his agency into effect.

Dealing with corporations the public at large is bound to rely to a large extent upon outward
appearances. If a man is found acting for a corporation with the external indicia of authority, any
person, not having notice of want of authority, may usually rely upon those appearances; and if it
be found that the directors had permitted the agent to exercise that authority and thereby held
him out as a person competent to bind the corporation, or had acquiesced in a contract and
retained the benefit supposed to have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been granted. The public is not supposed
nor required to know the transactions which happen around the table where the corporate board
of directors or the stockholders are from time to time convoked. Whether as particular officer
actually possesses the authority which he assumes to exercise is frequently known to very few,
and the proof of it usually is not readily accessible to the stranger who deals with the corporation
on the faith of the ostensible authority exercised by some of the corporate officers. It is therefore
reasonable, in a case where an officer of a corporation has made a contract in its name, that the
corporation should be required, if it denies his authority, to state such defense in its answer.
[Merchant vs. International Banking Corporation, supra, and other cases]

6. LAPULAPU FOUNDATION, INC. V CA

Facts: Sometime in 1977, Elias Q. Tan, then President of Lapulapu Foundation, Inc., obtained four
loans from Allied Banking Corporation covered by four promissory notes in the amounts of
P100,000 each. As of 23 January 1979, the entire obligation amounted to P493,566.61 and
despite demands made on them by the Bank, Tan and the foundation failed to pay the same. The
Bank was constrained to file with the Regional Trial Court of Cebu City, Branch 15, a complaint
seeking payment by Tan and the foundation, jointly and solidarily, of the sum of P493,566.61
representing their loan obligation, exclusive of interests, penalty charges, attorney’s fees and
costs. In its answer to the complaint, the Foundation denied incurring indebtedness from the
Bank alleging that the loans were obtained by Tan in his personal capacity, for his own use and
benefit and on the strength of the personal information he furnished the Bank. The Foundation
maintained that it never authorized Tan to co-sign in his capacity as its President any promissory
note and that the Bank fully knew that the loans contracted were made in Tan’s personal
capacity and for his own use and that the Foundation never benefited, directly or indirectly,
therefrom.

The Foundation then interposed a cross-claim against Tan alleging that he, having exceeded his
authority, should be solely liable for said loans, and a counterclaim against the Bank for damages
and attorney’s fees. For his part, Tan admitted that he contracted the loans from the Bank in his
personal capacity. The parties, however, agreed that the loans were to be paid from the proceeds
of Tan’s shares of common stocks in the Lapulapu Industries Corporation, a real estate firm. The
loans were covered by promissory notes which were automatically renewable (“rolled-over”)
every year at an amount including unpaid interests, until such time as Tan was able to pay the
same from the proceeds of his aforesaid shares. According to Tan, the Bank’s employee required
him to affix two signatures on every promissory note, assuring him that the loan documents
would be filled out in accordance with their agreement. However, after he signed and delivered
the loan documents to the Bank, these were filled out in a manner not in accord with their
agreement, such that the Foundation was included as party thereto. Further, prior to its filing of
the complaint, the Bank made no demand on him.

After due trial, the court rendered judgment (1) requiring Tan and the Foundation to pay jointly
and solidarily to the Bank the amount of P493,566.61 as principal obligation for the four
promissory notes, including all other charges included in the same, with interest at 14% per
annum, computed from 24 January 1979, until the same are fully paid, plus 2% service charges
and 1% monthly penalty charges; (2) requiring Tan and the Foundation to pay jointly and
solidarily, attorney’s fees in the equivalent amount of 25% of the total amount due from them on
the promissory notes, including all charges; and (3) requiring Tan and the Foundation to pay
jointly and solidarily litigation expenses of P1,000.00 plus costs of the suit. On appeal, the CA
affirmed with modification the judgment of the court a quo by deleting the award of attorney’s
fees in favor of the Bank for being without basis. Tan and the foundation filed the petition for
review on certiorari.

Issue:
1. Whether Tan and the foundation should be held jointly and solidarily liable.
2. Whether the foundation gave Tan an apparent authority to deal with the Bank.
Held:

1. The appellate court did not err in holding Tan and the foundation jointly and solidarily
liable as it applied the doctrine of piercing the veil of corporate entity. Tan and the
foundation cannot hide behind the corporate veil under the following circumstances: "The
evidence shows that Tan has been representing himself as the President of Lapulapu
Foundation, Inc. He opened a savings account and a current account in the names of the
corporation, and signed the application form as well as the necessary specimen signature
cards twice, for himself and for the foundation. He submitted a notarized Secretary’s
Certificate from the corporation, attesting that he has been authorized, inter alia, to sign
for and in behalf of the Lapulapu Foundation any and all checks, drafts or other orders with
respect to the bank; to transact business with the Bank, negotiate loans, agreements,
obligations, promissory notes and other commercial documents; and to initially obtain a
loan for P100,000.00 from any bank. Under these circumstances, the foundation is liable
for the transactions entered into by Tan on its behalf.

2. Per its Secretary’s Certificate, the Foundation had given its President, Tan, ostensible and
apparent authority to inter alia deal with the Bank. Accordingly, the Foundation is
estopped from questioning Tan’s authority to obtain the subject loans from the respondent
Bank. 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; and 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.

7. BOARD OF LIQUIDATORS V HEIRS OF KALAW

FACTS: The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit
governmental organization avowedly for the protection, preservation and development of the
coconut industry in the Philippines. General manager and board chairman was Maximo M. Kalaw;
defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll
became director only on December 22, 1947.

An unhappy chain of events conspired to deter NACOCO from fulfilling some contracts entered.
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.

The buyers threatened damage suits. All the settlements sum up to P1,343,274.52.

NACOCO, represented by the Board of Liquidators, seeks to recover the above sum of
P1,343,274.52 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 without prior
approval of the Board.

The lower court came out with a judgment dismissing the complaint. Hence, plaintiff appealed
direct to this Court. Plaintiff levelled a major attack on the lower court's holding that Kalaw
justifiedly entered into the controverted contracts without the prior approval of the corporation's
directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III
thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or
execute on behalf of the Corporation upon prior approval of the Board, all contracts necessary
and essential to the proper accomplishment for which the Corporation was organized.”

ISSUE: Whether or not the acts of the respondent as General Manager without prior approval of
the Board are valid corporate acts.

HELD: Not of de minimis importance in a proper approach to the problem at hand, is the nature
of a general manager's position in the corporate structure. A rule that has gained acceptance
through the years is that a corporate officer "intrusted with the general management and control
of its business, has implied authority to make any contract or do any other act which is
necessary or appropriate to the conduct of the ordinary business of the corporation. As such
officer, "he may, without any special authority from the Board of Directors perform all acts of an
ordinary nature, which by usage or necessity are incident to his office, and may bind the
corporation by contracts in matters arising in the usual course of business.

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 be presumed to have,
of acts and doings of its subordinates in and about the affairs of the corporation.

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.

Under the given circumstances, the Kalaw contracts are valid corporate acts.

Viewed in the light of the entire record, the judgment under review must be, as it is hereby,
affirmed.

8. ADVANCE PAPERS V ARMA TRADERS CORP.

ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as President of Advance Paper
Corporation, Petitioners,vs.ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and
BENJAMIN NG, Respondents.

ANTONIO TAN and UY SENG KEE WILLY, Respondents.

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 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:Whether 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 party’s detriment.

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.

[A]pparent 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
powers. Because of its own laxity in its business dealings, Arma Traders is now estopped from
denying Tan and Uy’s authority to obtain loan from Advance Paper.
 9. COSARE V BROADCOM ASIA, INC.

FACTS: Complainant Raul C. Cosare instituted a labor complaint primarily for constructive
dismissal against his employer defendant Broadcom Asia, Inc., and its president defendant Dante
Arevalo.

Complainant “claimed that sometime in April 1993, he was employed as a salesman by Arevalo,
who was then in the business of selling broadcast equipment needed by television networks and
production houses. In December 2000, Arevalo set up the company Broadcom, still to continue
the business of trading communication and broadcast equipment. Cosare was named an
incorporator of Broadcom… In October 2001, Cosare was promoted to the position of Assistant
Vice President for Sales (AVP for Sales) and Head of the Technical Coordination, having a monthly
basic net salary and average commissions of P18,000.00 and P37,000.00, respectively.”

Thereafter, sometime in 2003, “Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President
for Sales and thus, became Cosare’s immediate superior. On March 23, 2009, Cosare sent a
confidential memo to Arevalo to inform him of the following anomalies which were allegedly
being committed by Abiog against the company: (a) he failed to report to work on time, and
would immediately leave the office on the pretext of client visits; (b) he advised the clients of
Broadcom to purchase camera units from its competitors, and received commissions therefor; (c)
he shared in the ‘under the-table dealings’ or ‘confidential commissions’ which Broadcom
extended to its clients’ personnel and engineers; and (d) he expressed his complaints and
disgust over Broadcom’s uncompetitive salaries and wages and delay in the payment of other
benefits, even in the presence of office staff. Cosare ended his memo by clarifying that he was
not interested in Abiog’s position, but only wanted Arevalo to know of the irregularities for the
corporation’s sake.”

There appears to be no response from Defendant Arevalo regarding the above accusations.
“Cosare claimed that he was instead called for a meeting by Arevalo on March 25, 2009, wherein
he was asked to tender his resignation in exchange for ‘financial assistance’ in the amount of
P300,000.00. Cosare refused to comply with the directive, as signified in a letter dated March 26,
2009 which he sent to Arevalo.”

Thereafter, on 30 March 2009, Complainant received a memo charging him with serious
misconduct and willful breach of trust and required him to respond within forty-eight (48) hours.
The memo was signed by Defendant Arevalo. Complainant was also “suspended from having
access to any and all company files/records and use of company assets effective immediately.”
Thus, on the following day, he was refused entry. On the 4th day from receipt of the memo,
Complainant furnished his employer his reply but it was refused to be received on the ground of
late filing. Thus, Complainant sent it via registered mail. As a result, Complainant instituted this
labor complaint for constructive dismissal.

HELD: Defendant Corporation and Individual Arevalo are jointly and solidarily liable. Constructive
and illegal dismissal were present. Constructive dismissal “occurs when there is cessation of
work because continued employment is rendered impossible, unreasonable, or unlikely as when
there is a demotion in rank or diminution in pay or when a clear discrimination, insensibility, or
disdain by an employer becomes unbearable to the employee leaving the latter with no other
option but to quit.”

Citing jurisprudence, the test of constructive dismissal is “whether a reasonable person in the
employee’s position would have felt compelled to give up his position under the circumstances. It
is an act amounting to dismissal but is made to appear as if it were not. Constructive dismissal is
therefore a dismissal in disguise. The law recognizes and resolves this situation in favor of
employees in order to protect their rights and interests from the coercive acts of the employer.”

Based on the records, “[defendants] already rejected Cosare’s continued involvement with the
company. Even their refusal to accept the explanation which Cosare tried to tender on April 2,
2009 further evidenced the resolve to deny Cosare of the opportunity to be heard prior to any
decision on the termination of his employment. The [defendants] allegedly refused acceptance of
the explanation as it was filed beyond the mere 48-hour period which they granted to Cosare
under the memo dated March 30, 2009. However, even this limitation was a flaw in the memo or
notice to explain which only further signified the [defendants’] discrimination, disdain and
insensibility towards Cosare, apparently resorted to by the [defendants] in order to deny their
employee of the opportunity to fully explain his defenses and ultimately, retain his employment.”

Evidently, defendants “were already resolute on a severance of their working relationship with
Cosare, notwithstanding the facts which could have been established by his explanations and the
respondents’ full investigation on the matter. In addition to this, the fact that no further
investigation and final disposition appeared to have been made by the respondents on Cosare’s
case only negated the claim that they actually intended to first look into the matter before
making a final determination as to the guilt or innocence of their employee. This also manifested
from the fact that even before Cosare was required to present his side on the charges of serious
misconduct and willful breach of trust, he was summoned to Arevalo’s office and was asked to
tender his immediate resignation in exchange for financial assistance.”

As for abandonment, there is no merit to the claim. “Abandonment is the deliberate and
unjustified refusal of an employee to resume his employment. To constitute abandonment of
work, two elements must concur: ‘(1) the employee must have failed to report for work or must
have been absent without valid or justifiable reason; and (2) there must have been a clear
intention on the part of the employee to sever the employer-employee relationship manifested
by some overt act.’”

Here, complainant’s “failure to report to work beginning April 1, 2009 was neither voluntary nor
indicative of an intention to sever his employment with Broadcom. It was illogical to be requiring
him to report for work, and imputing fault when he failed to do so after he was specifically denied
access to all of the company’s assets.”

As there is constructive dismissal in this case, an illegally or constructively dismissed employee

is entitled to: (1) either reinstatement, if viable, or separation pay, if reinstatement is no longer
viable; and (2) backwages. The award of exemplary damages was also justified given the NLRC’s
finding that the respondents acted in bad faith and in a wanton, oppressive and malevolent
manner when they dismissed Cosare. It is also by reason of such bad faith that Arevalo was
correctly declared solidarily liable for the monetary awards.”

10. GRACE CHRISTIAN HIGHSCHOOL V CA

FACTS: Grace Christian High School (GCHS) is an educational institution in Grace Village (QC?).
Grace Village Association, Inc. (GVAI)is the homeowners association in Grace Village. GVAI has an
existing by-laws which was already in effect since 1968. But in 1975, the board of directors made
a draft amending the by-laws whereby the representative of GCHS shall have a permanent seat
in the 15-seat board. The draft however was never presented to the general membership for
approval. But nevertheless, the representative of GCHS held a seat in the board for 15 years until
in 1990 when a proposal was made to the board to reconsider the practice of allowing the GCHS
representative in taking a permanent seat. Thereafter, an election was scheduled for the 15 seat
in the board. GCHS opposed the election as it insists that the election should only be for 14
directors because it has a permanent seat. GVAI argued that GCHS claim has no basis because
the 1975 proposed amendment was never ratified. GCHS averred that it was ratified when it was
allowed to take the seat for 15 years and as such its right has already vested.

ISSUE: Whether or not the representative from Grace Christian High School should be allowed to
have a permanent seat in the board of directors.

HELD: No. The Corporation Code is clear when it provides that members of the board of a
corporation must be elected by the stockholders (stock corporation) or the members (non-
stock corporation). Admittedly, there are corporations who allow some of their directors to sit in
the board without being elected – but such practice cannot prevail over provisions of law.
Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to
law. Further, there is no reason as to why a representative from GCHS should be given an
automatic seat. It should therefore go through the process of election. It cannot also be argued
that the draft of the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15
years without an election. In the first place, the proposal was merely a draft and even if passed
and approved by the general membership, it cannot be given effect because it is void and
contrary to the law. GCHS’ seat in the corporate board is at best merely tolerated by GVAI.

11. ZAMBOANGATRANSPORTATION V BACHRACH MOTOR

FACTS: Zamboanga Transportation Co., Inc. (Zamboanga), is managed by a board of directors

composed of five stockholders; Bachrach Motor Co. is a corporation engaged in selling
automobiles and their parts. For 10 years, the two have been dealing with each other.
Zamboanga buys trucks, automobiles, repair and accessory parts for use in the business of
transportation in which it is engaged. Payments were made by installments, and Zamboanga
executed several chattel mortgages to secure it. Jose Erquiaga (Erquiaga) was appointed as
general manager in 1924, elected president, and acted as an auditor in 1925. He is also one of
the majority stockholders and has been its attorney and legal adviser.

Zamboanga lacked funds and contacted Mons. Jose Clos, Bishop of Zamboanga and a principal
stock holder of the company, for loans of money. Since, he was leaving for Rome in February
1925 and could not continue to loan money to Zamboanga, additional agreements were entered
between Mons. Clos and the Bachrach Motor Co., Inc. A new chattel mortgage was executed on
by Zamboanga represented by President Erquiaga. In this last mortgage the same goods were
pledged that had been hypothecated by the Zamboanga Transporatation Co., Inc., to the
Bachrach Motor Co., by virtue of instruments to Mons. Jose Clos Bishop of Zamboanga, by the
virtue of the deed. President Erquiaga submitted the mortgage deed to the Board of directors.
Upon returning to Zamboanga from Manila, He discussed the mortgage with two board of
directors, who expressed satisfaction. Zamboanga also partially complied with the mortgage
contract. Zamboanga paid Bachrach two times. Bachrach sent a letter cancelling the 2 former
chattel mortgage. Bachrach told Erguiaga to register the cancellation. Erquiaga replied by stating
that the last mortgage was not approved by the Board of Directors. Jose Erquiaga went to E.M.
Bachman, president of Bachrach Motor co., to secure his consent to sell the trucks that were
mortgaged. He said this will be used to pay the unpaid debt. Bachrach denied. Erquiaga and
Zamboaga later on discovered that the last mortgage was registered in the register of deed.
Zamboanga, then filed for annulment of the last mortgage because it was registered without
their consent. Bachrach, filed a complaint for Zamboanga to obtain possession of all the chattels.
Bchrach won and sold the chattel in a public auction where they were held the highest bidder.

ISSUE: W/N the chattel mortgage executed by the president and general manager of the plaintiff
corporation, the Zamboanga Transportation Co., Inc., is valid

RULING: YES.

While it is true that said last chattel mortgage contract was not approved by the board of
directors of the Zamboanga Transportation Co., Inc., whose approval was necessary in order to
validate it according to the by-laws of said corporation, the broad powers vested in Jose Erquiaga
as president, general manager, auditor, attorney or legal adviser, and one of the largest
shareholders; the approval of his act in connection with said chattel mortgage contract in
question, with which two other directors expressed satisfaction, one of which is also one of the
largest shareholders, who together with the president constitute a majority: The payments made
under said contract with the knowledge of said three directors are equivalent to a tacit approval
by the board of directors of said chattel mortgage contract and binds the Zamboanga
Transportation Co., Inc. In truth and in fact Jose Erquiaga, in his multiple capacity, was and is the
factotum of the corporation and may be said to be the corporation itself.

"Halley First National Bank vs. G. V. B. Min. Co.": Where the chief officers of a corporation are in
reality its owners, holding nearly all of its stock, and are permitted to manage the business by
the directors, who are only interested nominally or to a small extent, and are controlled entirely
by the officers, the acts of such officers are binding on the corporation, which cannot escape
liability as to third persons dealing with it in good faith on the pretense that such acts were ultra
vires.

When the president of a corporation, who is one of the principal stockholders and at the same
time its general manager, auditor, attorney or legal adviser, is empowered by its by-laws to enter
into chattel mortgage contracts, subject to the approval of the board of directors, and enters into
such contracts with the tacit approval of two other members of the board of directors, one of
whom is also a principal shareholder, both of whom, together with the president, form a majority,
and said corporation takes advantage of the benefits afforded by said contract, such acts are
equivalent to an implied ratification of said contract by the board of directors and binds the
corporation even if not formally approved by said board of directors as required by the by-laws of
the aforesaid corporation.

12. BOARD OF SMB WORKERS V TAN

TOPIC: Requirements of stockholder’s or member’s meeting, and of voting - Notice

FACTS: On 17 Jan. 1957 John de Castillo et al., commenced a suit in the CFI of Manila to declare
null and void the election of the members of the board of directors of the SMB Workers Savings
and Loan Association, Inc, and of the members of the Election Committee for the year 1957 held
on 11 and 12 of January

They also asked to compel the board of directors of the association to call for and hold another
election in accordance with its constitution and by- laws and the Corporation Law. As well as to
restrain the defendants who had been illegally elected as members of the board of directors from
exercising the functions of their office

To order the defendants to pay the plaintiffs attorney's fees and costs of the suit, and to grant
them other just and equitable relief. CFI held that the election held on 11 and 12 of January was
null and void, and ordered the defendants to call and hold another election in accordance with its
constitution, by-laws, and the Corporation Law

On Mar. 26 of the same year, the election committee composed of Quintin Tesalona, Manuel
Dumaup and José Capinio Santos set the meeting of the members of the association for 28 March
at 5:30 o'clock in the afternoon to elect the new members of the board of directors

The following day, the plaintiffs filed an ex-parte motion alleging that the election committee was
composed of the same people who conducted the Jan 11 & 12 election which was declared null
and void
They also alleged that the notice was only sent out 2 days before the date of the
election and this was in violation of their by-laws which provided that notice be sent
out 5 days before the election

On the same day, the Court rendered judgment calling for the election to be cancelled and
appointing Mr. Candido C. Viernes as representative of the Court and to act as Chairman, and one
representative each from the plaintiffs and defendants, as members

ISSUE(S): Did the 2-day notice for the Mar. 28 election violate the by-laws of the corporation

HELD: YES. The 2-day notice did violate the by-laws of the corporation, which requires
notice to be sent out 5 days before the election.

The court held that the notice sent out on Mar. 26 was in violation of the by-laws.Section 3,
article III, of the constitution and by-laws of the association provides: Notice of the time and
place of holding of any annual meeting, or any special meeting, of the members, shall be given
either by posting the same in a postage prepaid envelope, addressed to each member on record
at the address left by such member with the Secretary of the Association, or at his known post-
office address, or by delivering the same in person, at least five (5) days before the date set for
such meeting. * * * In lieu of addressing or serving personal notices to the members, notice of a
regular annual meeting or of a special meeting of the members may be given by posting copies
of said notice at the different departments and plants of the San Miguel Brewery Inc., not less
than five (5) days prior to the date of the meeting. The notice was sent out only 2 days before
the date of the election which was a direct violation of the 5 day notice rule set out in the
corporations by-laws.

NOTES: According to the by-laws of SMB Corporation – 5-day notice is required, 2-day notice is a
clear violation of the by-laws

13. PONCE V ENCARNACION

Facts: This is a petition for a writ of certiorari to annul an order of the respondent court granting
Potenciano Gapol authority, pursuant to section 26, Act No. 1459, otherwise known as the
Corporation Law, to call a meeting of the stockholders of the Dagunoy Enterprises, Inc. and to
preside at such meeting by giving proper notice to the stockholders, as required by law or by
laws of the corporation, until after the majority of the stockholders present and qualified to vote
shall have chosen one of them to act as presiding officer of the meeting; another order denying a
motion of the petitioners to have the previous order set aside; and a third order denying a
motion to the same effect as the one previously filed. Daguhoy Enterprises, Inc., was duly
registered at a meeting duly called, the voluntary dissolution of the corporation and the
appointment of Potenciano Gapol as receiver were agreed upon. The respondent Potenciano
Gapol, who is the largest stockholder, charged his mind and filed a complaint to compel the
petitioners to render an accounting of the funds and assets of the corporation, to reimburse it,
jointly and severally because the contended that Domingo Ponce, the president of the company,
used the company funds for his own benefit. The petitioner filed an action with the TC and
prayed for an order directing him to a call a meeting of the stockholders of the corporation and
to preside at such meeting in accordance with section 26 of the Corporation law. TC granted their
petition.

Issue: WON under the corporation code, the TC can validly call for a stockholder’s meeting? / Are
the officers deprived of due process in the action of the TC?

Held: Yes. On the showing of good cause therefor, the court may authorize a stockholder to call
a meeting and to preside threat until the majority stockholders representing a majority
strockholders representing a majority of the stock present and permitted to be voted shall have
chosen one among them to preside it. And this showing of good cause therefor exists when the
court is apprised of the fact that the by-laws of the corporation require the calling of a general
meeting of the stockholders to elect the board of directors but call for such meeting has not been
done.

With persistency petitioners claim that they have been deprived of their right without due
process of law. They had no right to continue as directors of the corporation unless reflected by
the stockholders in a meeting called for that purpose every even year. They had no right to a
hold-over brought about by the failure to perform the duty incumbent upon one of them. If they
felt that they were sure to be reelected, why did they fail, neglect, or refuse to call the meeting
to elect the members of the board? Or, why did they not seek their reelection at the meeting
called to elect the directors pursuant to the order of the respondent court.

14. DETECTIVE & PROTECTIVE BUREAU V CLORIBEL

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

ISSUE: Whether Judge Cloribel gravely abused his discretion.

HELD: NO, he did not.

One of the reasons petitioners allege Judge Cloribel gravely abused his discretion is that Alberto
had arrogated to himself the powers of the Board of Directors of the corporation because he
refused to vacate the office and surrender the same to Jose de la Rosa who had been elected
managing director by the Board to succeed him. This assertion, however, was disputed by
respondent Alberto who stated that Jose de la Rosa could not be elected managing director
because he did not own any stock in the corporation. There is in the record no showing that Jose
de la Rosa owned a share of stock in the corporation. If he did not own any share of stock,
certainly he could not be a director pursuant to the mandatory provision of Section 30 of the
Corporation Law, which in part provides: "Sec. 30. Every director must own in his own right at
least one share of the capital stock of the stock corporation of which he is a director, which stock
shall stand in his name on the books of the corporation .." If he could not be a director, he could
also not be a managing director of the corporation, pursuant to Article V, Section 3 of the By-
Laws of the Corporation.If the managing director-elect was not qualified to become managing
director, respondent Fausto Alberto could not be compelled to vacate his office and cede the
same to the managing director-elect because the by-laws of the corporation provides in Article
IV, Section 1 that "Directors shall serve until the election and qualification of their duly qualified
successor." [there were four other grounds alleged namely: (1) the motion to admit respondent's
counter- bond for the dissolution of the writ was not supported by affidavits as required by
Section 6 of Rule 58 of the Rules of Court; (2 & 3) The second and third reasons alleged by
petitioner in its petition for certiorari assume that a preliminary injunction issued after hearing
and in accordance with Rule 58 cannot be set aside; (4) the counter-bond could not compensate
for the irreparable damage that the corporation would suffer by reason of the continuance of
respondent Fausto Alberto as managing director of the corporation. All of these were set aside by
the court

15. GOKONGWEI V SEC

DOCTRINE: 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, such as: (a) marketing strategies and pricing
structure; (b) budget for expansion and diversification; (c) research and development; and (d)
sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms.

It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking advantage
of the information which he acquires as director to promote his individual or corporate interests
to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment
of the by-laws was made. 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.

Facts: [SEC Case 1375] On 22 October 1976, 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 by bylaws of the corporation, basing their authority to do so on a resolution of
the stockholders adopted on 13 March 1961, when the outstanding capital stock of the
corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per
share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the
outstanding and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00.

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, Gokongwei 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. As additional causes of action, it
was alleged that corporations have no inherent power to disqualify a stockholder from being
elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M.
Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts
(specifically a management contract) with the corporation, which was avowed because the
questioned amendment gave the Board itself the prerogative of determining whether they or
other persons are engaged in competitive or antagonistic business; that the portion of the
amended by-laws which states that in determining whether or not a person is engaged in
competitive business, the Board may consider such factors as business and family relationship, is
unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws
which requires that "all nominations for election of directors shall be submitted in writing to the
Board of Directors at least five (5) working days before the date of the Annual Meeting" is
likewise unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be
declared null and void and the certificate of filing thereof be cancelled, and that Soriano, et. al.
be made to pay damages, in specified amounts, to Gokongwei. On 28 October 1976, in
connection with the same case, Gokongwei filed with the Securities and Exchange Commission
an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of
the corporation refused to allow him to inspect its records despite request made by Gokongwei
for production of certain documents enumerated in the request, and that the corporation had
been attempting to suppress information from its stockholders despite a negative reply by the
SEC to its query regarding their authority to do so.

The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer,
and their opposition to the petition, respectively. Meanwhile, on 10 December 1976, while the
petition was yet to be heard, the corporation issued a notice of special stockholders' meeting for
the purpose of "ratification and confirmation of the amendment to the By-laws", setting such
meeting for 10 February 1977. This prompted Gokongwei to ask the SEC for a summary
judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a
special stockholders' meeting for the aforesaid purpose, Soriano, et. al. admitted the invalidity of
the amendments of 18 September 1976. The motion for summary judgment was opposed by
Soriano, et. al. Pending action on the motion, Gokongwei filed an "Urgent Motion for the Issuance
of a Temporary Restraining Order", praying that pending the determination of Gokongwei's
application for the issuance of a preliminary injunction and or Gokongwei's motion for summary
judgment, a temporary restraining order be issued, restraining Soriano, et. al. from holding the
special stockholders' meeting as scheduled. This motion was duly opposed by Soriano, et. al. On
10 February 1977, Cremation issued an order denying the motion for issuance of temporary
restraining order. After receipt of the order of denial, Soriano, et. al. conducted the special
stockholders' meeting wherein the amendments to the by-laws were ratified. On 14 February
1977, Gokongwei filed a consolidated motion for contempt and for nullification of the special
stockholders' meeting. A motion for reconsideration of the order denying Gokongwei's motion for
summary judgment was filed by Gokongwei before the SEC on 10 March 1977.

[SEC Case 1423] 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 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. On 4 February 1977, motions to dismiss were filed by Soriano, et.
al., to which a consolidated motion to strike and to declare Soriano, et. al. in default and an
opposition ad abundantiorem cautelam were filed by Gokongwei. Despite the fact that said
motions were filed as early as 4 February 1977, the Commission acted thereon only on 25 April
1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days within
which to file their answer, and set the case for hearing on April 29 and May 3, 1977. Soriano, et.
al. issued notices of the annual stockholders' meeting, including in the Agenda thereof, the
"reaffirmation of the authorization to the Board of Directors by the stockholders at the meeting
on 20 March 1972 to invest corporate funds in other companies or businesses or for purposes
other than the main purpose for which the Corporation has been organized, and ratification of
the investments thereafter made pursuant thereto." By reason of the foregoing, on 28 April 1977,
Gokongwei filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction
to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the annual stockholders'
meeting, requesting that the same be set for hearing on 3 May 1977, the date set for the second
hearing of the case on the merits. The SEC, however, cancelled the dates of hearing originally
scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual
stockholders' meeting. For the purpose of urging the Commission to act, Gokongwei filed an
urgent manifestation on 3 May 1977, but this notwithstanding, no action has been taken up to
the date of the filing of the instant petition.

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:
1. Whether the corporation has the power to provide for the (additional) qualifications of its
directors.
2. Whether the disqualification of a competitor from being elected to the Board of Directors is
a reasonable exercise of corporate authority.
3. 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.
4. 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.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may
prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and
employees." This must necessarily refer to a qualification in addition to that specified by
section 30 of the Corporation Law, which provides that "every director must own in his right at
least one share of the capital stock of the stock corporation of which he is a director." Any
person "who buys stock in a corporation does so with the knowledge that its affairs are
dominated by a majority of the stockholders and that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of incorporation and lawfully
enacted by-laws and not forbidden by law." 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." A director is a fiduciary. Their powers are powers in trust. He who is in
such fiduciary position cannot serve himself first and his cestuis second. He cannot manipulate
the affairs of his corporation to their detriment and in disregard of the standards of common
decency. He cannot by the intervention of a corporate entity violate the ancient precept
against serving two masters. He cannot utilize his inside information and strategic position for
his own preferment. He cannot violate rules of fair play by doing indirectly through the
corporation what he could not do so directly. He cannot violate rules of fair play by doing
indirectly through the corporation what he could not do so directly. He cannot use his power
for his personal advantage and to the detriment of the stockholders and creditors no matter
how absolute in terms that power may be and no matter how meticulous he is to satisfy
technical requirements. For that power is at all times subject to the equitable limitation that it
may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the
exclusion or detriment of the cestuis. 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, such as: (a) marketing
strategies and pricing structure; (b) budget for expansion and diversification; (c) research and
development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-
ups with other firms. It is obviously to prevent the creation of an opportunity for an officer or
director of San Miguel Corporation, who is also the officer or owner of a competing
corporation, from taking advantage of the information which he acquires as director to
promote his individual or corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made. 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.
3. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all
business transactions of the corporation and minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the corporation at reasonable hours." The
stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of
ownership of the corporate property, whether this ownership or interest be termed an
equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated
upon the necessity of self-protection. It is generally held by majority of the courts that where
the right is granted by statute to the stockholder, it is given to him as such and must be
exercised by him with respect to his interest as a stockholder and for some purpose germane
thereto or in the interest of the corporation. In other words, the inspection has to be germane
to the petitioner's interest as a stockholder, and has to be proper and lawful in character and
not inimical to the interest of the corporation. The "general rule that stockholders are entitled
to full information as to the management of the corporation and the manner of expenditure of
its funds, and to inspection to obtain such information, especially where it appears that the
company is being mismanaged or that it is being managed for the personal benefit of officers
or directors or certain of the stockholders to the exclusion of others." 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.

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. This is true because the
questioned investment is neither contrary to law, morals, public order or public policy. It is a
corporate transaction or contract which is within the corporate powers, but which is defective
from a purported failure to observe in its execution the requirement of the law that the
investment must be authorized by the affirmative vote of the stockholders holding two-thirds
of the voting power. This requirement is for the benefit of the stockholders. The stockholders
for whose benefit the requirement was enacted may, therefore, ratify the investment and its
ratification by said stockholders obliterates any defect which it may have had at the outset.
Besides, the investment was for the purchase of beer manufacturing and marketing facilities
which is apparently relevant to the corporate purpose. The mere fact that the corporation
 submitted the assailed investment to the stockholders for ratification at the annual meeting of
10 May 1977 cannot be construed as an admission that the corporation had committed an
ultra vires act, considering the common practice of corporations of periodically submitting for
the ratification of their stockholders the acts of their directors, officers and managers.

16. ROXAS V DELAROSA

FACTS:

 September 20, 1991 - Frivaldo filed a petition for naturalization under the Commonwealth
Act No. 63 before the RTC Manila.
 October 7, 1991 - Judge dela Rosa set the petition for hearing on March 16, 1992, and
directed the publication of the said order and petition in the Official Gazette and a
newspaper of general circulation, for 3 consecutive weeks, the last publication of which
should be at least 6 months before the date of the said hearing.
 January 14, 1992 - Frivaldo asked the Judge to cancel the March 16 hearing and move it to
January 24, 1992, citing his intention to run for public office in the May 1992 elections.
Judge granted the motion and the hearing was moved to February 21. No publication or
copy was issued about the order.
 February 21, 1992 - the hearing proceeded.
 February 27, 1992 - Judge rendered the assailed Decision and held that Frivaldo is
readmitted as a citizen of the Republic of the Philippines by naturalization.
 Republic of the Philippines filed a petition for Certiorari under Rule 45 of the Revised Rules
of Court in relation to R.A. No. 5440 and Section 25 of the Interim Rules, to annul the
decision made on February 27, 1992 and to nullify the oath of allegiance taken by Frivaldo
on same date.
ISSUE: Whether or not Frivaldo was duly re-admitted to his citizenship as a Filipino.

RULING: No. The supreme court ruled that Private respondent is declared NOT a citizen of the
Philippines and therefore disqualified from continuing to serve as governor of the Province of
Sorsogon. He is ordered to vacate his office and to surrender the same to the Vice-Governor of
the Province of Sorsogon once this decision becomes final and executory. The proceedings of the
trial court was marred by the following irregularities:
a. the hearing of the petition was set ahead of the scheduled date of hearing, without a
publication of the order advancing the date of hearing, and the petition itself;
b. the petition was heard within six months from the last publication of the petition;
c. petitioner was allowed to take his oath of allegiance before the finality of the judgment;
and
d. petitioner took his oath of allegiance without observing the two-year waiting period.

17. ANGELES V SANTOS

Facts: The plaintiff and the defenant are all stockholders and member of the board of directors
of the "Parañaque Rice Mill, Inc., "a corporation organized for the purpose of operating a rice mill
in the municipality of Parañaque, Province of Rizal. The plaintiffs are stockholders and constitute
the minority and the defendants are also stockholers and constitute the majority of the board of
directors of the Parañaque Rice Mill, Inc.;
On February 21, 1932, the stockholders appointed an investigation committee of which the
plaintiff Jose de Lara was chairman and the stockholers Dionisio Tomas and Aguedo Bernabe
were members, to investigate and determine the properties, operations, and losses of the
corporation as shown in the auditor's report corresponding to the year 1931.
That the defendant Teodorico B. Santos, in violation of the by-laws of the corporation, had taken
possession of the books, vouchers, and corporate records as well as of the funds and income of
the Parañaque Rice Mill, Inc., all of which, according to the by-laws, should be under the
exclusive control and possession of the secretary-treasurer.He was also accused of appropriating
to his own benefit properties, funds and income of the corporation in the sum of P10,000.

The trial court ruled in favor of the plaintiffs-appellees and appointed Emilio Figueroa, as receiver
of the corporation, after giving a bond in the amount of P2,000

Issue: W/N minority stockholders may file a suit for and in behalf of the corporation

Ruling: Yes. 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 stockholders. 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.

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 vire sacts, the court, in the exercise of
its equity jurisdiction, and upon showing that intra-corporate 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.

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.

18. ALEJANDRINO V. DE LEON

FACTS: Quo warranto to annul the election of all or any one of the respondents as directors of
Pampanga Sugar Development Co. or Pasudeco and to declare petitioner as director. P and R
are stockholders of Pasudeco. A meeting was held to elect a new board and 9 Rs were voted,
each with more than 19K votes, with R Jose de Leon getting 19,907 votes, while P got only 14K votes. However,
6k shares held by P given to him by 18 SHs were not accepted by the chairman and the secretary for
registration and election, reasoning that the 18 SHs previously executed pledges in favor of Pambul Inc.,
whereby they granted the pledgee the right to vote the shares. P alleged that Pambul was an alter ego of
Pasudeco and its principal SH de Leon, that Pambul was organized pursuant to a resolution of
Pasudeco SHs as a financing corporation, that the SHs of Pasudeco automatically became SHs
of Pambul, that Pambul offered Pasudeco SHs loans with lenient terms, and that as a result of the
irrevocable proxies in the pledge agreements, only 2 families with only 30% of Pasudeco outstanding
capital stock have monopolized the directorship .P alleges that irrevocable proxies are contrary to good
morals and public policy and thus void Irrevocable.

HELD:
1. P did not adduce evidence to prove that irrevocable proxies were contrary to good morals or public
policy. The right of an SH to vote is inherent in ownership, and if the owner can dispose of
the propertyitself, it is apparent that he can dispose the right to manage it.
 2. No allegation that the proxies were procured thru error, deceit, fraud or intimidation. The
circumstances of the case are not sufficient in law to vitiate or invalidate the proxies. The
desire and design of a majority of stockholders of a private corporation to control
management and operation is legitimate per se. The monopoly of corporations is
not actionable per se. Also, the organization of Pambul was accomplished by a vote of the
majority of Pasudeco SHs. Stockholders of Pambul are free to vote their shares.

3. P alleged that terms of loans were way of bribing SHs to vote for management. But to vote at SHs
meeting is not a political franchise and involves no public interest. It can no more be called bribery than
the payment by the purchaser of the price of goods he bought.

4. If proxies were given in consideration of pledge, in good faith without fraudulent intent, it cannot be
deemed immoral just because it offers a temptation to abuse power and to oppress minority SHs.5. No
SH is compelled to borrow money from and pledge his shares to Pambul. The benefits are mutual. So
long as management acts honestly, no one can question their acts, which are purely intra
vires.

19. TORRES V CA

FACTS: Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty &
Development Corporation (TRDC). TRDC is a small family owned corporation and other
stockholders thereof include Judge Torres’ nieces and nephews. However, even though Judge
Torres owns the majority of TRDC and was also the president thereof, he is only entitled to one
vote among the 9-seat Board of Directors, hence, his vote can be easily overridden by minority
stockholders. So in 1987, before the regular election of TRDC officers, Judge Torres assigned one
share (qualifying share) each to 5 “outsiders” for the purpose of qualifying them to be elected as
directors in the board and thereby strengthen Judge Torres’ power over other family members.
However, the said assignment of shares were not recorded by the corporate secretary, Ma.
Christina Carlos (niece) in the stock and transfer book of TRDC. When the validity of said
assignments were questioned, Judge Torres ratiocinated that it is impractical for him to order
Carlos to make the entries because Carlos is one of his opposition. So what Judge Torres did was
to make the entries himself because he was keeping the stock and transfer book. He further
ratiocinated that he can do what a mere secretary can do because in the first place, he is the
president.
Since the other family members were against the inclusion of the five outsiders, they refused to
take part in the election. Judge Torres and his five assignees then decided to conduct the election
among themselves considering that the 6 of them constitute a quorum.
ISSUE: Whether the inclusion of the five outsiders are valid. Whether or not the subsequent
election is valid.
HELD: No. The assignment of the shares of stocks did not comply with procedural requirements.
It did not comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation
Code. Section 74 provides that the stock and transfer book should be kept at the principal office
of the corporation. Here, it was Judge Torres who was keeping it and was bringing it with him.
Further, his excuse of not ordering the secretary to make the entries is flimsy. The proper
procedure is to order the secretary to make the entry of said assignment in the book, and if she
refuses, Judge Torres can come to court and compel her to make the entry. There are judicial
remedies for this. Needless to say, the subsequent election is invalid because the assignment of
shares is invalid by reason of procedural infirmity. The Supreme Court also emphasized: all
corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple
family corporation is not an exemption. Such corporations cannot have rules and practices other
than those established by law.