Lapu-Lapu Foundation vs.

Court of Appeals
[GR 126006, 29 January 2004]

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.
Case #7 – ZOSA, G.R. No. L-18805, Aug 14, 1967
PETITIONERS: The Board of Liquidators, representing the Gov’t of the Republic of the Philippines
RESPONDENTS: Heirs of Maximo M. Kalaw, Juan Bocar, Estate of the Deceased Casimiro Garcia, and Leonor
Moll.

FACTS:

National Coconut Corporation (NACOCO) was chartered as a non-profit governmental organization on May 7, 1940
by Commonwealth Act 518, avowedly for the protection, preservation and development of the coconut industry in
the Philippines. NACOCO was granted express power “to buy, sell, barter, export, and in any other manner deal in
coconut x x x, to act as agent, broker, dealer, merchant,” aimed to eliminate the margin of middlemen, mostly aliens.

The General Manager and Board Chairman was Maximo M. Kalaw; Juan Bocar and CAsimiro Garcia were
members of the board and Leonor Moll became director only on Dec. 22 1947.

NACOCO embarked on copra trading activities. Among the disputed contracts for the delivery of copra are the
following:

(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00 per ton, f.o.b., delivery: August and
September, 1947. This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(b) August 14, 1947: Alexander Adamson & Co., for 3,000 long tons, $145.00 per long ton, f.o.b., Philippine ports,
to be shipped: September/October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(c) August 22, 1947: Paci c Vegetable Co, for 3,000 tons, $137.50 per ton, delivery: September, 1947.

(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California
delivery: November, 1947.
(e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164.00 per ton,
c.i.f., New York, to be shipped in November, 1947.

(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3
Philippine ports, delivery: November, 1947.

(g) September 13, 1947: Juan Cojuangco, for 2,000 tons $175.00 per ton, delivery: November and December, 1947.
This contract was assigned to Pacific Vegetable Co.

(h) October 27, 1947: Fairwood & Co., for 1,000 tons $210.00 per short ton, c.i.f., Paci c ports, delivery: December,
1947 and January, 1948. This contract was assigned to Pacific Vegetable Co.

(i) October 28, 1947: Fairwood & Co., for 1,000 tons $210.00 per short ton, c.i.f., Pacific ports, delivery: January,
1948. This contract was assigned to Pacific Vegetable Co.

Four devastating typhoons visited the Philippines in 1947. Coconut trees throughout the county suffered extensive
damage. Copra production decreased. Warehouses were destroyed. Cash requirements doubles. Quick turnovers
became impossible, financing a problem. No action was taken on the contracts.

On Jan 11, 1948, President Roxas stated that NACOCOC was recouping from its losses and that Kalaw was to
remain in his post. On Jan 30, 1948 the board met and the respondents unanimously approved the contracts
enumerated.

The contracts were partially performed with 9,408.55 tons still to be delivered. The buyers threatened damage suits.
But buyer Louis Dreyfus & Co. did in fact sue before the CFI of Manila. NACOCO put up the defense that (1) Louis
Dreyfus did not have the license to do business here and (2) failure to deliver was due to force majeure, the
typhoons.

The respondents also question why they should be held liable for Dreyfus’ claim when the Board of Liquidators
disposed of the NACOCO funds. NACOCO seeks to recover P1,343,274.52 from respondents. It charges Kalaw
with negligence under Art 21761.

The lower court came out with a decision on Board of Liquidators vs Kalaw et al, dismissing the complaint with the
Board being ordered to pay the heirs of Kalaw the sum of P2, 601 for unpaid salaries and cash deposit due the
deceased Kalaw.

The Board appealed directly to this Court. Thus this case.

1 Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of
this Chapter. (1902a)
ISSUE#1: Whether or not the Board of Liquidators has lost its legal personality to continue with this suit,
since it’s already past 3 years after the dissolution of the corporation.

DECISION#1:
Corporation Law, Sec 77: A corporation whose corporate existence is terminated, shall nevertheless be continued as
a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting
and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and
convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was
established.

Executive Order 372 (Nov 24, 1950): NACOCO, together with other government owned corporations, was
abolished, and the Board of Liquidators was entrusted with the function of settling and closing its affairs.

Given this EO, the Board of Liquidators cannot come within Sec 77 of the Corporation Law, because precisely why
the President of the Philippines created a Board of Liquidators is to continue the management of the corporation as
to matters still pending upon expiration of the period of 3 years.

Furthermore, By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its
assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the
government. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case
to its final conclusion.

We, accordingly, rule that the Board of Liquidators has personality to proceed as party-plaintiff in this case.

ISSUE#2: Whether or not the action is unenforceable against the heirs of Kalaw, as the action is personal to
the deceased Maximo Kalaw.

DECISION#2: The present case is not a mere action for the recovery of money nor a claim for money arising from
contract. The suit involves alleged tortious acts. And the action is embraced in suits led "to recover damages for an
injury to person or property, real or personal," which survive.

Actions that survive against a decedent executors or administrators:

1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions
to recover damages for an injury to person or property. The present suit is one for damages under the last class, it
having been held that 'injury to property' is not limited to injuries to specific property, but extends to other wrongs
by which personal estate is injured or diminished.

ISSUE#3 Kalaw entered into the controverted contracts without the prior approval of the corporation’s
directorate. By-laws, Article IV(b), Chapter III 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.”

DECISION #3: 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."

The peculiar nature of copra trading, at this point, deserves express articulation. The movement of the market
requires that sales agreements be entered into, even though the goods are not yet in the hands of the seller. Known in
business parlance as forward sales, it is concededly the practice of the trade. To NACOCO, forward sales were a
necessity. Copra could not stay long in its hands; it would lose weight, its value decrease. Above all, NACOCO'S
limited funds necessitated a quick turnover. Copra contracts then had to be executed on short notice — at times
within twenty-four hours. To be appreciated then is the difficulty of calling a formal meeting of the board. Such
were the environmental circumstances when Kalaw went into copra trading.

Lifting the following excerpts from the minutes of the board meeting of July 29, 1947:

"521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the
Management to close contracts of sale first before buying. The General Manager replied that this practice is
generally followed but that it is not always possible to do so for two reasons:

(1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does
not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking
advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers.

(2) The movement of the market is such that it may not be practical always to wait for the consummation of
contracts of sale before beginning to buy copra.

The General Manager explained that in this connection a certain amount of speculation is unavoidable. However, he
said that the Nacoco is much more conservative than the other big exporters in this respect."

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

In 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.

ISSUE #4: Whether or not the acts of Kalaw were ratified by the board.

DECISION #4: Authorities, great in number, are one in the idea that "ratification by a corporation of an
unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is
equivalent to original authority;" and that "[t]he corporation and the other party to the transaction are in precisely the
same position as if the act or contract had been authorized at the time."

Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was
constituted." By corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect
they may have.

ISSUE #5: Whether or not the officers of NACOCO were in bad faith.

DECISION #5: Bad faith contemplates a “state of mind affirmatively operating with furtive design or with some
motive of self-interest or ill will that partakes of the nature of fraud.

Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral
obliquity," or "conscious doing of wrong," or "breach of a known duty," or "some motive or interest or ill will" that
"partakes of the nature of fraud."

As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval.
Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only
when the contracts turned out to be unprofitable for NACOCO.

Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did
not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation.
By the same token, fair dealing disagrees with the idea that similar contracts, when unprofitable, should not merit
the same treatment. Pro t or loss resulting from business ventures is no justification for turning one's back on
contracts entered into. The truth, then, of the matter is that — in the words of the trial court — the ratification of the
contracts was "an act of simple justice and fairness to the general manager and in the best interest of the corporation
whose prestige would have been seriously impaired by a rejection by the board of those contracts which proved
disadvantageous."

The directors are not liable.

ISSUE #6: Who is liable for the damages suffered by NACOCO?

DECISION #6: The facts yield the answer: Four typhoons. NACOCO was not alone in this misfortune. The record
discloses that private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous
losses. NACOCO was not immune from such usual business risk.

The typhoons were known to plaintiff. In fact, NACOCO resisted the suits led by Louis Dreyfus & Co. by pleading
in its answers force majeure as an affirmative defense.

A high regard for normal judicial admissions made in court pleadings would suffice to deter us from permitting
plaintiff to stray away therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or for
that matter, by reason of the board's ratification of the contracts. Indeed, were it not for the typhoons, NACOCO
could have, with ease, met its contractual obligations.

As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is
here absent. There cannot be an actionable wrong if either one or the other is wanting.

ISSUE #7: Whether or not proofs were presented linking Kalaw’s acts – ratified by the board – to a matrix
for defraudation of the government.

DECISION #7: Kalaw is clear of the stigma of bad faith. Kalaw's acts were not the result of haphazard decisions
either. Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General
Manager. The dailies and quotations from abroad were guideposts to him.
Kalaw could not have been an insurer of pro ts. He could not be expected to predict the coming unpredictable
typhoons. And even as typhoons supervened, Kalaw was not remiss in his duty. He exerted efforts to stave off loses.
He asked the Philippine National Bank to implement its commitment to extend a P400,000.00 loan. The bank did
not release the loan, not even the sum of P200,000.00, which, in October, 1947, was approved by the bank's board of
directors.

That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported
by the fact that even as the contracts were being questioned in Congress and in the NACOCO board itself, President
Roxas defended the actuations of Kalaw.

“It is a well-known rule of law that questions of policy of management are left solely to the honest decision of
officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment
of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its
orders are not reviewable by the courts.' (Fletcher on Corporations, Vol. 2., p. 390)."

Kalaw's good faith, and that of the other directors, clinch the case for defendants. Viewed in the light of the entire
record, the judgment under review must be, as it is hereby, affirmed.Without costs. So ordered.

Advance Paper Corporation and George Haw, in his capacity as President of Advance Paper Corporation
v. Arma Traders Corporation, Manuel Ting, et al. ,G.R. No. 176897, December 11, 2013.

Facts: Petitioner Advance Paper is a domestic corporation engaged in the business of producing, printing,
manufacturing, distributing and selling of various paper products. Petitioner George Haw (Haw) is the
President while his wife, Connie Haw, is the General Manager. Respondent Arma Traders is also a
domestic corporation engaged in the wholesale and distribution of school and office supplies, and
novelty products. Respondent 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. On the other hand, respondents Manuel Ting, Cheng Gui
and Benjamin Ng worked for Arma Traders as Vice-President, General Manager and Corporate Secretary,
respectively. On various dates from September to December 1994, Arma Traders purchased on credit
notebooks and other paper products amounting to P7,533,001.49 from Advance Paper. Upon the
representation of Tan and Uy, Arma Traders also obtained three loans from Advance Paper in November
1994 in the amounts of P3,380,171.82, P1,000,000.00, and P3,408,623.94 or a total
ofP7,788,796.76.Arma Traders needed the loan to settle its obligations to other suppliers because its
own collectibles did not arrive on time.Because of its good business relations with Arma Traders,
Advance Paper extended the loans. As payment for the purchases on credit and the loan transactions,
Arma Traders issued 82 postdated checkspayable to cash or to Advance Paper. Tan and Uy were Arma
Traders’ authorized bank signatories who signed and issued these checks which had the aggregate
amount of P15,130,636.87. Advance Paper presented the checks to the drawee bank but these were
dishonored either for "insufficiency of funds" or "account closed." Despite repeated demands, however,
Arma Traders failed to settle its account with Advance Paper. The petitioners filed a complaintfor
collection of sum of money with application for preliminary attachment against Arma Traders, Tan, Uy,
Ting, Gui, and Ng.

Issue: Whether or not Arma Traders is liable to pay the loans on the basis of doctrine of apparent
authority.

Ruling: Yes 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. [emphases and underscores ours] In People’s Aircargo and
Warehousing Co., Inc. v. Court of Appeals,we ruled that the doctrine of apparent authority is applied
when the petitioner, through its president Antonio Punsalan Jr., entered into the First Contract without
first securing board approval. Despite such lack of board approval, petitioner did not object to or
repudiate said contract, thus "clothing" its president with the power to bind the corporation. "Inasmuch
as a corporate president is often given general supervision and control over corporate operations, the
strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the
realization that such officer has certain limited powers in the transaction of the usual and ordinary
business of 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
Incorporationprovides 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 authorized
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 of icers 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. We also reject the respondents’ claim that Advance Paper, through Haw, connived with
Tan and Uy. The records do not contain any evidence to prove that the loan transactions were personal
to Tan and Uy. A different conclusion might have been inferred had the cashier’s checks been issued in
favor of Tan and Uy, and had the postdated checks in favor of Advance Paper been either Tan and/or
Uy’s, or had the respondents presented convincing evidence to show how Tan and Uy conspired with the
petitioners to defraud Arma Traders. We note that the respondents initially intended to present Sharow
Ong, the secretary of Tan and Uy, to testify on how Advance Paper connived with Tan and Uy. As
mentioned, the respondents failed to present her on the witness stand.

CASE DIGEST: RAUL C. COSARE, Petitioner, v. BROADCOM ASIA, INC. and DANTE
AREVALO, Respondents.

FACTS: In 1993, Cosare 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, having been assigned 100 shares of stock
with par value of P1.00 per share. In October 2001, Cosare was promoted to the
position of Assistant Vice President for Sales (AVP for Sales) and Head of the
Technical Coordination.

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcoms Vice President
for Sales and thus, became Cosares immediate superior. Cosare sent a confidential
memo to Arevalo to inform him of the anomalies which were allegedly being
committed by Abiog against the company. Cosare ended his memo by clarifying that
he was not interested in Abiogs position, but only wanted Arevalo to know of the
irregularities for the corporations sake.

Apparently, Arevalo failed to act on Cosares 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
ofP300,000.00.Cosare refused to comply with the directive, as signified in a letter
which he sent to Arevalo.

Cosare received from Roselyn Villareal (Villareal), Broadcoms Manager for Finance
and Administration, a memosigned by Arevalo, charging him of serious misconduct
and willful breach of trust. He was given forty-eight (48) hours from the date of the
memo within which to present his explanation on the charges. He was also
"suspended from having access to any and all company files/records and use of
company assets effective immediately."Thus, Cosare claimed that he was precluded
from reporting for work and was instead instructed to wait at the offices receiving
section. Upon the specific instructions of Arevalo, he was also prevented by Villareal
from retrieving even his personal belongings from the office until he was totally
barred from entering the company premises.

Cosare filed a labor complaint, claiming that he was constructively dismissed from
employment by the respondents. He further argued that he was illegally suspended,
as he placed no serious and imminent threat to the life or property of his employer
and co-employees.

In refuting Cosares complaint, the respondents argued that Cosare was neither
illegally suspended nor dismissed from employment. They also contended that
Cosare committed the following acts inimical to the interests of
Broadcom.Furthermore, they contended that Cosare abandoned his job by
continually failing to report for work beginning April 1, 2009, prompting them to
issue on April 14, 2009 a memorandumaccusing Cosare of absence without leave
beginning April 1, 2009.

The Labor Arbiter dismissed the complaint on the ground of Cosares failure to
establish that he was constructively dismissed.

Cosare appealed the LA decision to the NLRC. It reversed the LA decision.

The respondents motion for reconsideration was denied.Dissatisfied, they filed a

petition for certiorari with the CA on the issues of constructive dismissal and intra-
corporate controversy which was within the jurisdiction of the RTC, instead of the LA.
They argued that the case involved a complaint against a corporation filed by a
stockholder, who, at the same time, was a corporate officer.

The CAgranted the respondents petition. It agreed with the respondents contention
that the case involved an intra-corporate controversy which, pursuant to Presidential
Decree No. 902-A, as amended, was within the exclusive jurisdiction of the RTC.
Hence, this petition filed by Cosare.

ISSUES:

Was the case instituted by Cosare an intra-corporate dispute that was within the
original jurisdiction of the RTC, and not of the LAs?
Was Cosare constructively and illegally dismissed from employment by the
respondents?

GRACE CHRISTIAN HIGH SCHOOL, petitioner,vs. THE COURT OF APPEALS, GRACE VILLAGE
ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.

G.R. No. 108905 October 23, 1997

MENDOZA, J.:

Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon
City, while Private respondent Grace Village Association, Inc. ["Association'] is an organization of lot
and/or building owners, lessees and residents at Grace Village.

The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall
serve for one (1) year until their successors are duly elected and have qualified.

On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to the
by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent
Director of the ASSOCIATION."

However, this draft was never presented to the general membership for approval. Nevertheless, from
1975 to 1990, petitioner was given a permanent seat in the board of directors of the association.

On 13 February 1990, the association's committee on election sought to change the by-laws and
informed the Petitioner's school principal "the proposal to make the Grace Christian High School
representative as a permanent director of the association, although previously tolerated in the past
elections should be reexamined."

Following this advice, notices were sent to the members of the association that the provision on election
of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman
of the election committee to change the notice to honor the 1975 by-laws provision, but was denied.

The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation (HIGC) to
compel the board of directors to recognize its right to a permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an opinion to the
effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of
the association and to §92 of the Corporation Code (B.P. Blg. 68). This was adopted by the association in
its Answer in the mandamus filed with the HIGC.

The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC
Appeals Board and the Court of Appeals.

Issue: W/N the 1975 provision giving the petitioner a permanent board seat was valid.

Ruling: No.

Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the Corporation Law)
leaves no room for doubt that the Board of Directors of a Corporation must be elected from among the
stockholders or members.

There may be corporations in which there are unelected members in the board but it is clear that in these
instances, the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold
a particular office (e.g. whoever is the Archbishop of Manila is considered a member of the board of
Cardinal Santos Memorial Hospital, Inc.)

But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board.
Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat
in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that it has gone unchallenged for fifteen years
cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence
because, if it is contrary to law, it is beyond the power of the members of the association to waive its
invalidity.

It is more accurate to say that the members merely tolerated petitioner's representative and tolerance
cannot be considered ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter
how long continued, cannot give rise to any vested right if it is contrary to law.
Posted by P.L.S. at 8:14 PM

Facts: Petitioner Grace Christian High School is an educational

institution offering preparatory, kindergarten and secondary courses
at the Grace Village in Quezon City. Private respondent Grace Village
Association, Inc., is an organization of lot and/or building owners,
lessees and residents at Grace Village, while private respondents
Alejandro G. Beltran and Ernesto L. Go were its president and
chairman of the committee on election. It appears that a committee of
the board of directors prepared a draft of an amendment to the by-
laws which says that Grace Christian High school will have a
permanent director of the association. This draft was never presented
to the general membership for approval. Nevertheless, the petitioner
was given a permanent seat in the board of directors of the
association. The association committee on election informed that the
petitoner’s permanent seat in board is invalid because it was never
approved by the majority of its members. Hence they will have an
election. The petitioner school requested the cancellation of the
election, the association denied. So the petitioner school instituted an
action to the Home Insurance Guaranty Corporation but their action
was denied. The board adopted a resolution declaring the 1975
provision null and void for lack of approval by members of the
association and the 1968 by-laws to be effective. The petitioner school
appealed to the CA but CA ruled that the amended by laws in 1975 is
null and void.
Issue: WON Grace Christian High school can have permanent seat in
board as director?
Held: No. The former and present corporation law leave no room for
doubt as to their meaning: the board of directors of corporations must
be elected from among the stockholders or members. There may be
corporations in which there are unelected members in the board but it
is clear that in the examples cited by petitioner the unelected members
sit as ex officio members, i.e., by virtue of and for as long as they hold
a particular office. Nor can petitioner claim a vested right to sit in the
board on the basis of “practice.” Practice, no matter how long
continued, cannot give rise to any vested right if it is contrary to law.
Even less tenable is petitioner’s claim that its right is “coterminus with
the existence of the association.”
G.R. No. L-27694 October 24, 1928

ZAMBOANGA TRANSPORTATION COMPANY, INC., plaintiff-appellee,

vs. THE BACHRACH MOTOR CO., INC., defendant-appellant.

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.

[G.R. No. L-12282. March 31, 1959.]

THE BOARD OF DIRECTORS and ELECTION COMMITTEE OF THE SMB WORKERS SAVINGS AND
LOAN ASSOCIATION, INC., ET AL., Petitioners, v. HON BIENVENIDO A. TAN, ETC., ET
AL., Respondent.

Panfilo M. Manguera and Restituto L. Opiz, for Petitioners.

Cipriano Cid & Associates for Respondents.

SYLLABUS

1. CORPORATION LAW; LABOR ASSOCIATIONS; PROVISIONS OF CONSTITUTION AND BY-LAWS SHOULD BE

COMPLIED WITH. — The constitution and by-laws of the petitioner association provide that notice of a
special meeting of members should be given at least five days before the date of the meeting. It appears
that the notice was posted on 26 March and the election was set for 28 March. Therefore, the five days
previous notice required would not be complied with.

2. ID.; ID.; AUTHORITY OF COURTS TO APPOINT COMMITTEE TO SUPERVISE ELECTION OF OFFICIALS.

--When it appears that a fair election cannot be had, the court in the exercise of its equity jurisdiction may
appoint a committee with the authority to call, conduct and supervise the election of the directors or the
association.

DECISION

PADILLA, J.:

Petitioners pray for a writ of certiorari with preliminary injunction.

On 17 January 1957 John de Castillo Et. Al., commenced a suit in the Court of First Instance 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 12
January; 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; 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
equitable relief (civil No. 31584, Annex A). The defendants filed an answer (Annex B), and after joinder of
issues the Court set the case for trial. On the day set for trial of the case, neither the defendants nor their
attorney appeared. The Court proceeded to receive the plaintiffs’ evidence. On 11 February, the Court
rendered judgment declaring the election held on 11 and 12 January null and void, ordering the defendants
to call for and hold another election in accordance with the constitution and by-laws of the association and
the Corporation Law, and sentencing the defendants to pay the plaintiffs the sum of P1,500 as attorney’s
fees, and to pay the costs of the suit (Annex C). 1 On 15 February, before the expiration of the time to
appeal, the plaintiffs moved for immediate execution of the judgment (Annex F). On 4 March the Court
granted the plaintiffs motion and issued the writ of execution prayed for (Annex G). On 9 March the
defendants moved for stay of execution of the judgment, for which they offered to file a supersedeas bond
in the amount to be fixed by the Court (Annex H). On 23 March the Court denied the defendants’ motion. In
compliance with the judgment rendered by the Court, on 26 March the election committee composed of
Quintin Tesalona, Manuel Dumaup and Jose Capino 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
(Annex J & 4). On 27 March the plaintiffs filed an ex-parte motion alleging that the election committee that
had called the meeting of members of the association is composed of the same members that had
conducted and supervised the election of the members of the board of directors that was declared null and
void by the Court; that in view thereof it would be inequitable to allow them to conduct and supervise again
the forth-coming election; that the election to be conducted and supervised by the said committee would not
be held in accordance with the constitution and by-laws of the association providing for five days notice to
the members before the election, since the notice was posted and sent out only on 26 March, and the
election would be held on 28 March, or two days after notice; that the notice that beginning 26 March any
member could secure his ballot and proxy from the office of the association is in violation of section 5,
article III of the constitution and by-laws, which prohibits voting by proxy in the election of members of the
board of directors, 2 and that the defendants did not show that arrangement is being made "to guarantee
that the election will be held in accordance with the constitution and by-laws and by the law." They prayed
that the Court appoint its representative or representatives, whose compensation shall be paid out of the
funds of the association, to supervise and conduct the election ordered by it (Annex 4). On the same day, 27
March, the Court entered an order providing as follows: chanrob1es virtual 1aw library

. . . the Court hereby orders that the election scheduled for March 28, 1957 be, as it hereby is, cancelled,
and a committee of three is hereby constituted and appointed to call, conduct and supervise the election of
the members of the board of directors of the association for 1957, said committee to be composed of: 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, as members. The committee is vested with the sole and
exclusive power and authority to call conduct and supervise the election of the members of the board of
directors of the association for the year 1957.

The chairman of the committee shall receive a compensation of P50.00 per day and the members thereof
P30.00 each per day, said compensation to be paid by the association.

SO ORDERED. (Annex E & 3.)

On 28 March the defendants moved for reconsideration of the foregoing order (Annex L). On 30 March the
Court denied the motion for reconsideration.

Claiming that in issuing the order of 27 March 1957 (Annexes E & 3) and in denying their motion for
reconsideration, the Court acted without or in excess of jurisdiction or with grave abuse of discretion; and
that there being no appeal or any plain, speedy and adequate remedy in the ordinary course of law, the
petitioners pray for a writ of certiorari to annul and set aside the order assailed, and a writ of preliminary
injunction to restrain the respondent court from enforcing its order of 27 March 1957 (Annexes E & 3) after
the filing of a bond in the amount to be fixed by this Court; for costs to be taxed against the respondents,
and for such other just and equitable relief as may be granted to them. On 14 May 1957, after the
petitioners had filed a bond in the sum of P200, this Court issued the writ of preliminary injunction prayed
for.

Section 3, article III, of the constitution and by-laws of the association provides: chanrob1es virtual 1aw library
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. (Annex
K.)

Notice of a special meeting of members should be given at least five days before the date of the meeting. It
appears that the notice was posted on 26 March and the election was set for 28 March. Therefore, the five
days previous notice required would not be complied with.

As regards the creation of a committee of three vested with the authority to call, conduct and supervise the
election, and the appointment thereto of Candido C. Viernes as chairman and representative of the court
and one representative each from the parties, the Court in the exercise of its equity jurisdiction may appoint
such committee, it having been shown that the Election Committee provided for in section 7 of the by-laws
of the association that conducted the election annulled by the respondent court if allowed to act as such may
jeopardize the rights of the respondents.

In a proper proceeding a court of equity may direct the holding of a stockholders’ meeting under the control
of a special master, and the action taken at such a meeting will not be set aside because of a wrongful use
of the court’s interlocutory decree, where not brought to the attention of the court prior to the meeting. (18
C. J. S. 1270.)

A court equity may, on showing of good reason, appoint a master to conduct and supervise an election of
directors when it appears that a fair election cannot otherwise be had. Such a court cannot make directions
contrary to statute and public policy with respect to the conduct of such election. (19 C. J. S. 41)

The writ prayed for is denied and the writ of preliminary injunction heretofore issued dissolved, with costs
against the petitioners.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and
Endencia, JJ., concur.