Aquila Riosa v.

Tabaco La Suerte
GR. No. 203786, Oct. 23, 2013

Doctrine: It is the board of directors or trustees which exercises among all the corporate powers in a corporation, as provided
under Sec. 23 of the Corporation Code. Sec. 36 also provides that the power to purchase the real property is vested in the board
of directors of trustees. While a corporation may appoint agents to negotiate, the final say will have to be with the board, whose
approval will finalize the transactions. A corporation can only exercise its powers and transact its business through its board of
directors and through its officers and agents when authorized by a board resolution or its by-laws. As held in AF Realty &
Development v. Dieselman Freight Services, Co., absent any valid delegation/authorization, the rule is that the declarations of
an individual director relating to the affairs of the corporation, but not in the course of or connected with the performance of
the authorized duties of such director, are held not binding on the corporation.
Recit-Ready Summary: Aquiles filed a Complaint for Annulment of a Deed and Absolute Sale against a TCT that was also
transferred in Tabaco La Suerte’s name. He alleged that there was merely a loan transaction between him and Sia Ko Pio, and
not a sale transaction between him and Aquiles and La Suerte, which La Suerte insists was what took place. Aquiles was made
to sign a document that he thought was a mere acknowledgement of the loan transaction between him and Sia Ko Pio. La Suerte
insists that there was a sale transaction of the said lot with Sia Ko Pio being its representative/agent. The Court ruled in this
case that there was no evidence that the company allowed Sia Ko Pio to be its agent or representative, even if he were the
company’s CEO. There was no board resolution showing such delegation of authority.
Facts:
On Feb. 26, 2002, Aquiles Riosa filed his Complaint for Annulment/Declaration of Nullity of Deed and Absolute Sale
and Transfer Certificate of Title, Reconveyance and Damages against Tabaco La Suerte. Aquiles alleged that he was the owner
and in actual possession of a 52-square meter commercial lot situated in Tabaco City. He acquired the said property through a
deed of cession and quitclaim from his parents. Since then, he had declared the property in his name and has been paying the
realty tax on the said property. His daughter even renovated the commercial building.
He obtained loans from Sia Ko Pio in the amount of Php50,000.00. Sia Ko Pio then asked for a photocopy of the deed
of cession and quitclaim as a security for the payment of loans. Sia Ko Pio presented to him a document which was said to be a
receipt, but Aquiles failed to read the document. Still, he signed the said document. Later on, he received a letter from La Suerte
that the subject lot was already registered in its name.
Aquiles claims that the transfer of the property was done through fraud, misrepresentation, and deed. Meanwhile, La
Suerte claims to have obtained the property from Aquiles on Dec. 7, 1990 and that they simply allowed Aquiles to remain in
possession of the property.
RTC ruled in favor of Aquiles, citing the lack of consent upon his signing of the instrument of sale.
CA reversed the RTC decision, holding that the tax declarations and realty tax payments made by Aquiles were not
conclusive evidence of ownership.
Issue: W/N there was a perfected and valid contract of sale for the subject property between Aquiles and La Suerte
through its CEO, Sia Ko Pio? NO.
Held:
The elements of a contract of sale are: consent, determine subject matter, and a price certain in moey or its equivalent.
There is no clear and convincing evidence that Aquiles definitely sold the subject property to La Suerte, nor was there evidence
that La Suerte authorized its CEO, Sia Ko Pio, to negotiate and conclude a purchase of the property. His narration in open court
is clear that he did not intend to transfer ownership of his property.
The transactions involving the loan were between Aquiles and Sia Ko Pio, and not between the parties. It was a
transaction where Aquiles was the borrower, while Siao Ko Pio was the lender. It was not one where Aquiles was a vendor and
La Suerte was the vendee. There is also no basis for holding that the persona lloan of Aquiles from Sia Ko Pio was the
consideration for the sale of his property in favor of La Suerte.

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 The alleged deed of sale bearing his signature bears no evidentiary value as there was no consent from him. He was not
aware that the said document was an instrument of sale.
His daughter had also spent Php300,000.00 for the renovation of the improvements, which is higher than the loan. La
Suerte also did not ask him to transfer the possession earlier.
CA should not have favorably considered the validity of the deed of absolute sale absent any written authority from La
Suerte’s board of drectors for Sia Ko Pio to negotiate and purchase Aquiles property on its behalf and to use its money to pay
the purchase price. When Siao Ko Pio’s son was presented as an officer of La Suerte, he admitted that he could not find the
records of the corporation of any board resolution authorizing his father to purchase the disputed property.
It is the board of directors or trustees which exercises among all the corporate powers in a corporation, as provided
under Sec. 23 of the Corporation Code. Sec. 36 also provides that the power to purchase the real property is vested in the board
of directors of trustees. While a corporation may appoint agents to negotiate, the final say will have to be with the board, whose
approval will finalize the transactions. A corporation can only exercise its powers and transact its business through its board of
directors and through its officers and agents when authorized by a board resolution or its by-laws. As held in AF Realty &
Development v. Dieselman Freight Services, Co., absent any valid delegation/authorization, the rule is that the declarations of
an individual director relating to the affairs of the corporation, but not in the course of or connected with the performance of
the authorized duties of such director, are held not binding on the corporation.
In the present case, Sia Ko Pio has no authority from its Board of Directors to enter into a contract of sale of Aquiles’
property. IT is clear that the loan was a personal loan from Sia Ko Pio, and not a transaction between Aquiles and La Suerte.
There is no evidence that Sia Ko Pio was clothed with authority to use his personal fund for the benefit of La Suerte.

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 Atrium Management Corp v. CA
GR. No. 109491, Feb. 28, 2001

Doctrine: An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its
organization and therefore beyond the power conferred upon it by law. he term “ultra vires” is “distinguished from an illegal act
for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and
cannot be validated.”
Personal liability of a corporate director, trustee or officer along with the corporation may so validly attach only when:
1. He assents:
a. to a patently unlawful act of the corporation
b. for bad faith or gross negligence in directing its affairs
c. for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.
Recit-Ready Summary: <I don’t think I still need one given that the case is really short haha>
Facts:
Atrium Management Corporation filed an action for collection of the proceeds of the proceeds of four postdated checks
in the total amount of Php2M. Hi-Cement through its corporate signatories issued checks in favor of E.t. Henry and Co as
payee. E.T. Henry and Co endorsed the 4 checks to Atrium Management for valuable consideration. However, the said checks
were dishonored for “payment stopped”.
It was said that Enrique Tan of E.T. Henry approached Atrium for financial assistance, offering to discount 4 RCBC
checks in the amount of Php2M, which were issued by Hi-Cement in favor of E.T. Henry. Atrium agreed, provided that it be
allowed to confirm with Hi-Cement the fact that the two checks were confirmed by Hi-Cement. Carlos Syquia identified two
letters issued by Hi-Cement and confirmed the issuance of the four checks.
Trial Court ordered the Spouses De Leon, E.T. Henry, and Hi-Cement to jointly and severally pay the amount of
Php2M.
CA modified the decision absolving Hi-Cement Corporation from liability and dismissed the complaint against them.
Lourdes de Leon was not authorized to issue the check in favor of E.T. Henry, and that the issuance of the checks by de Leon
and de las Alas were ultra vires acts, and that the said checks were not issued for valuable consideration.
Issues:
1. W/N the issuance of the checks was an ultra vires act? NO.
2. W/N de Leon is personally liable for the checks issued as corporate officers and authorized signatories of the
checks? YES.
Held:
1. Hi-Cement issued the 4 checks to extend financial assistance to E.T. Henry, and not as payment of the balance of the
Php30M cost of hydro oil delivered by E.T. Henry to Hi-Cement. Hi-Cement, however, maintains that the checks were
not issued for consideration, and that the Lourdes and E.T. Henry were engaged in a “kiting operation” to raise funds
for E.T. Henry. However, the Court finds that there was not enough evidence to show this. Lourdes de Leon was the
treasurer of the corporation and was authorized to sign the checks for the corporations. In fact, at the time it was issued,
there were sufficient funds in the bank to cover payment.
The Court rules that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate
act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act.

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 An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its
organization and therefore beyond the power conferred upon it by law. he term “ultra vires” is “distinguished from an
illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the
latter is void and cannot be validated.”
2. Personal liability of a corporate director, trustee or officer along with the corporation may so validly attach only when:
a. He assents:
i. to a patently unlawful act of the corporation
ii. for bad faith or gross negligence in directing its affairs
iii. for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;
b. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection thereto;
c. He agrees to hold himself personally and solidarily liable with the corporation; or
d. He is made, by a specific provision of law, to personally answer for his corporate action.

In the current case, Lourdes de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized
to issue the checks. However, de Leon was negligent when she signed the confirmation letter requested by Yap of
Atrium and Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. They were
strictly endorsed for deposit only to the payee’s account, and not to be further negotiated. The confirmation letter also
contained that the checks were in payment of the hydro oil. Hence, she may be held personally liable.

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 Cagayan Valley Drug Corp v. CIR
GR. No. 151413, Feb. 13, 2008

Doctrine: For juridical persons, the authorized signatory can be someone who has been authorized by the corporation through
a board resolution. It can also be any officer provide that the person is in a position where he can verify the truthfulness and
correctness of the allegations in the petition.
Recit-Ready Summary: Cagayan Valley Corp filed a claim for tax refund/tax credit after it erroneously treated the 20% sales
discounts as deductions from gross sales and not as tax credit, which is in contrast with what was provided by law. The CTA
dismissed the petition, prompting petitioner to file with the CA for an appeal. CA dismissed the petition to review as it was the
President who signed the certification of absence of forum shopping without any board resolution. The Supreme Court ruled
that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure. The requisite
board resolution has been submitted, albeit belatedly by petitioner. The Court also applied the ruling in Lepanto with the rationale
that the President is in a position to verify the truthfulness and correctness of the allegations in the petition. The President also
signed the complaint before the CTA at the inception of the judicial claim for refund or tax credit.
Facts:
Cagayan Valley Corp is a duly-licensed retailer of medicine and other pharmaceutical products. It granted 20% sales
discounts to qualified senior citizens on purchases of medicine, pursuant to RA 7432. It also treated the 20% sales discounts
granted to qualified senior citizens as deductions from the gross sales in order to arrive at the net sales, instead of treating them
as tax credit as provided under Sec. 4 of RA 7432.
Petitioner filed with the BIR a claim for tax refund/tax credit of the full amount of the 20% sales discount it granted to
senior citizens. BIR’s inaction prompted petitioner to file a petition for review before the CTA.
CTA dismissed the petition, sustaining that the 20% sales discount should be treated as tax credit, and not as deductions
from the gross sales. The CTA ratiocinated that on matters of tax credit claim, the government applies the amount determined
to be reimbursable after proper verification against any sum that may be due and collectible from the taxpayer. However, if no
tax has been paid or if no amount is due and collectible from the taxpayer, then a tax credit is unavailing. Moreover, it held that
before allowing recovery for claims for a refund or tax credit, it must first be established that there was an actual collection and
receipt by the government of the tax sought to be recovered. In the instant case, the CTA found that petitioner did not pay any
tax by virtue of its net loss position in 1995.
CA dismissed the petition on procedural grounds as the person who signed the verification and certification of absence
of forum shopping failed to adduce proof that he was duly authorized by the board of directors to do so. CA found no sufficient
proof to show that Concepcion was duly authorized by the Board of Directors of petitioner.
Issue: W/N petitioner’s president can sign the subject verification and certification sans the approval of its Board of
Directors?
Held:
With respect to a juridical person, Sec. 4, Rule 7 on verification and Sec. 5, Rule 7 on certification against forum shopping are
silent as to who the authorized signatory should be. Said rules do not indicate if the submission of a board resolution authorizing
the officer or representative is necessary.
It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all corporate powers
are exercised, all business conducted, and all properties controlled by the board of directors. A corporation has a separate and
distinct personality from its directors and officers and can only exercise its corporate powers through the board of directors.
Thus, it is clear that an individual corporate officer cannot solely exercise any corporate power pertaining to the corporation
without authority from the board of directors.
In a slew of cases, however, the Court has recognized the authority of some corporate officers to sign the verification and
certification against forum shopping. In sum, the Court has held that the following officials or employees of the company can
sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the

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President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment
Specialist in a labor case.
While the above cases do not provide a complete listing of authorized signatories to the verification and certification required
by the rules, the determination of the sufficiency of the authority was done on a case to case basis. The rationale applied in the
foregoing cases is to justify the authority of corporate officers or representatives of the corporation to sign the verification or
certificate against forum shopping, being “in a position to verify the truthfulness and correctness of the allegations in the
petition.”
In Philippine Airlines v. Flight Attendants and Stewards Association of the Philippines, we ruled that only individuals vested
with authority by a valid board resolution may sign the certificate of non- forum shopping on behalf of a corporation. The action
can be dismissed if the certification was submitted unaccompanied by proof of the signatory’s authority. We believe that
appending the board resolution to the complaint or petition is the better procedure to obviate any question on the authority of
the signatory to the verification and certification. The required submission of the board resolution is grounded on the basic
precept that corporate powers are exercised by the board of directors, and not solely by an officer of the corporation. Hence,
the power to sue and be sued in any court or quasi-judicial tribunal is necessarily lodged with the said board.
In the current case, the Court ruled that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the 1997 Revised Rules
on Civil Procedure. The requisite board resolution has been submitted, albeit belatedly by petitioner. The Court also applied the
ruling in Lepanto with the rationale that the President is in a position to verify the truthfulness and correctness of the allegations
in the petition. The President also signed the complaint before the CTA at the inception of the judicial claim for refund or tax
credit.

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 Carlos v. Mindoro Sugar Co.
GR. No. 36207, Oct. 26, 1932

Doctrine: When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was
made, it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within
their powers. The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it
would defeat the ends of justice or work a legal wrong.
Facts:
Mindoro Sugar Company is a corporation on July 30, 1917. One of its principal purposes was to acquire and exercise
the franchise granted by Act. No. 2720 to George Fairchild, to substitute the organized corporation, Mindoro Company, and to
acquire all its rights.

The Philippine Trust Company is another domestic corporation engaged in the business of acquiring by purchasing,
subscribing and to invest, hold, sell or dispose of stocks, bonds, mortgages and other securities or any interest in either of any
obligation or evidence of indebtedness of any other corporation.
On Nov. 17, 1917, the Board of Directors of Philippine Trust Company adopted a resolution authorizing its president
to purchase at par of the bonds in the value of Php3M that the Mindoro Sugar Company was about to issue and to resell them
at a price not less than par, and to guarantee to the PNB the payment of the indebtedness to said bank by the Mindoro Sugar
Company or Charles Wench and Horace Havemeyer up to Php2M.
The Mindoro Sugar Company executed in favor of the PTC the deed of trust, transferring all of its property to it in
consideration of the bonds it had issued for Php3M. PTC then sold thirteen bonds to Ramon Diaz. The 4 bond which are the
subject of the litigation are included in those 13 sold.
Philippine Trust Company paid the appellant, upon presentation of the coupons, the stipulated interest from date of
maturity until July 1, 1928, when it stopped payments. It alleged that it did not deem itself bound to pay such interest or to
redeem the obligation because the guarantee given for the bonds was illegal and void.
Issue: W/N the Philippine Trust Company acquired the bonds in question and whether it bound itself legally and
acted within its corporate powers in guaranteeing them? YES.
Held:
The Philippine Trust Company was organized as a trust corporation with full power to acquire personal property, such
as the bonds in question. It was given implied power to guarantee them in order to place them upon the market. It is not ultra
vires for a corporation to enter into contracts of guaranty or suretyship when it does so in the legitimate furtherance of its
purposes and business. And it is well settled that where a corporation acquires commercial paper or bonds in the legitimate
transaction of its business it may sell them, and in furtherance of such a sale it may, in order to make them the more readily
marketable, indorse or guarantee their payment.
The President of PTC was expressly authorized to purchase all or some of the bonds and to guarantee them. Thus, it
may be inferred that the subsequent purchasers of the bonds relied on the belief that they were acquiring securities from PTC.
The doctrine of ultra vires has been declared to be entirely the creation of the courts and is of comparatively modern
origin. The defense is by some courts regarded as an ungracious and odious one, to be sustained only where the most persuasive
considerations of public policy are involved, and there are numerous decisions and dicta to the effect that the plea should not
as a general rule prevail whether interposed for or against the corporation, where it will not advance justice but on the contrary
will accomplish a legal wrong.
When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made,
it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within their
powers. The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would
defeat the ends of justice or work a legal wrong.
Guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its business, made in
connection with their sale, are not ultra vires, and are binding.
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 Firme v. Bukal Enterprises and Development Corp.
GR. No. 146608, Oct. 23, 2003

Doctrine: Sec. 23 provides that it is the board of directors or trustees which exercises almost all the corporate powers in a
corporation. Sec. 36 provides that the power to purchase real property is listed as a corporate power. Hence, the power to
purchase real property is vested in the board of directors or trustees. While a corporation may appoint agents to negotiate for
the purchase of real property needed. by the corporation, the final say will have to be with the board, whose approval will finalize
the transaction. A corporation can only exercise its powers and transact its business through its board of directors and through
its officers and agents when authorized by a board resolution or its by-law.
Recit-Ready Summary: Bukal Enterprises filed a Complaint against Spouses Firme after the latter did not sell their property.
The VP of Bukal had authorized Aviles, a real estate agent, to negotiate with the spouses over a parcel of property which the
spouses owned in Quezon City. Spouses Firme denied having agreed to selling their property to Aviles or to Bukal Enterprises.
Trial Court dismissed the complaint due to the lack of consent and that Aviles did not have the proper authority from the Board
of Directors to buy a property in their stead as there was no Board Resolution. The CA reversed. The Court overturned the
decision of the CA, affirming the decision of the trial court that by virtue of Sec. 23 and Sec. 36 of the Corporation Code, the
Board Resolution allowing Aviles to transact and buy the property in the stead of Bukal Enterprises is needed. Absent such
board resolution, the said transaction cannot take place.
Facts:
Spouses Firme are the registered owners of a parcel land located in Quezon City. De Castro, the Vice-President of Bukal
Enterprises, authorized his friend, Teodoro Aviles to negotiate the purchase of the property.
On March 28, 1995, Bukal Enterprises field a complaint for specific performance and damages as the spouses Firme
reneged on their agreement to sell the property. Aviles testified that De Castro authorized him to negotiate on behalf of Bukal
Entprise for the purchase of the Property. The first draft was rejected by the spouses, the second was almost approved, except
that some stipulations had to be revised. The corporation settled with the informal settlers on the property for them to leave the
property, and later on, constructed a fence around the area. However, later on, the spouses Firme did not accept the offer to
pay the purchase price, and had even requested that Bukal Enterprises vacate their property.
Dr. Firme, the witness of the spouses, testified that Aviles offered to buy the property of the spouses Firme, but they
did not accept as they were reserving the property for their six children. They were surprised when they found out the squatters
voluntarily demolished their shanties. Still, they sent a letter to Bukal demanding the removal of the bunkers and their employees.
Two days later, they received the letter from Bukal demanding that they sell the property.
Trial Court dismissed the complaint made by Bukal Enterprises, ruling that there was no perfected contract of sale.
Furthermore, Aviles had no valid authority to bind Bukal Enterprises in the sale transaction. Under Secs. 23 and 36, the corporate
power to purchase a specific property is exercised by the Board of Directors of the corporation. Without an authorization from
the Board of Directors, Aviles could not validly finalize the purchase of the Property on behalf of Bukal Enterprises.
CA reversed the decision of the trial court. The CA held that the lack of a board resolution was cured when Bukal
Enterprises filed the complaint for the enforcement of the sale.
Issue: W/N CA erred in finding that there was a perfected contract of sale between the Spouses Firme and Bukal
Enterprises? YES.
Held:
There was no consent on the part of the Spouses firme. Aviles merely showed one draft of the deed of sale, which was
the Third Draft. Dr. Firme was firm on his testimonies. On the other hand, Aviles gave conflicting testimonies. The first and
second drafts contained the same stipulations, which was in contrast to what he said.
There was also no approval from the Board of Directors of Bukal as would finalize any transaction with the Spouses
Firme. Aviles did not have the proper authority to negotiate for Bukal Enterprises. There was no Board Resolution authorizing
Aviles to negotiate and purchase the Property on behalf of Bukal Enterprises.

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 Sec. 23 provides that it is the board of directors or trustees which exercises almost all the corporate powers in a
corporation. Sec. 36 provides that the power to purchase real property is listed as a corporate power. Hence, the power to
purchase real property is vested in the board of directors or trustees. While a corporation may appoint agents to negotiate for
the purchase of real property needed. by the corporation, the final say will have to be with the board, whose approval will finalize
the transaction. A corporation can only exercise its powers and transact its business through its board of directors and through
its officers and agents when authorized by a board resolution or its by-law.
In this case, Aviles, who negotiated the purchase of the Property, is neither an officer of Bukal Enterprises nor a member
of the Board of Directors of Bukal Enterprises. There is no Board Resolution authorizing Aviles to negotiate and purchase the
Property for Bukal Enterprises. There is also no evidence to prove that Bukal Enterprises approved whatever transaction Aviles
made with the Spouses Firme. In fact, the president of Bukal Enterprises did not sign any of the deeds of sale presented to the
Spouses Firme. Even De Castro admitted that he had never met the Spouses Firme. Considering all these circumstances, it is
highly improbable for Aviles to finalize any contract of sale with the Spouses Firme.
Furthermore, in the Complaint filed by Bukal, it was Aviles who signed the verification and certification of non-forum
shoping, which was not accompanied by any proof that Bukal Enterprises authorized Aviles to file the complaint on behalf of
Bukal Enterprises. The power of a corporation to sue and be sued is exercised by the board of directors. The purpose of
verification is to secure an assurance that the allegations in the pleading are true and correct and that it is filed in good faith.
True, this requirement is procedural and not jurisdictional. However, the trial court should have ordered the correction of the
complaint since Aviles was neither an officer of Bukal Enterprises nor authorized by its Board of Directors to act on behalf of
Bukal Enterprises.

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 MONTELIBANO ET AL vs.BACOLOD-MURCIA MILLING CO., INC.
GR. No. L-15092 May 18, 1962

Doctrine: Questions of policy or 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 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.
Facts:
Montelibano et al. are sugar planters adhered to the Bacolod-Murcia Milling Co., Inc’s sugar central mill under identical milling
contracts originally executed in 1919. In the 1919 original contract, it was stipulated to be in force for 30 years starting with the
1920-21 crop, and provided that the resulting product should be divided in the ratio of 45% for the mill and 55% for the
planters.
In 1936, it was proposed to execute amended milling contracts, increasing the planters’ share to 60% of the manufactured sugar
and resulting molasses, besides other concessions, but extending the operation of the milling contract from the original 30 years
to 45 years. To this effect, a printed Amended Milling Contract form was drawn up.
The Board of Directors of Bacolod-Murcia Milling Co., Inc. adopted a resolution granting further concessions to the planters
over and above those contained in the printed Amended Milling Contract on August 10, 1936.
The printed Amended Milling Contract was signed by the Appellants on September 10, 1936, but a copy of the resolution was
not attached to the printed contract until April 17, 1937.
In 1953, The appellants initiated the present action, contending that three Negros sugar centrals with a total annual production
exceeding one-third of the production of all the sugar central mills in the province, had already granted increased participation
(of 62.5%)to their planters, and that under the resolution the appellee had become obligated to grant similar concessions to the
plaintiffs.
The Bacolod-Murcia Milling Co., inc., resisted the claim, urging that the resolution in question was null and void ab initio, being
in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt.
Issue: Was the act of the BOD ultra vires? NO
Held:
NO (The Bacolod-Murcia Milling Co., Inc. is ordered to pay appellants the increase of participation in the milled sugar in
accordance with paragraph 9 of the Resolution of August 20, 1936.)
As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it
will cause losses or decrease the profits of the central, the court has no authority to review them.
Xx It is a well-known rule of law that questions of policy or 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 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.
__
It must be remembered that the controverted resolution was adopted by appellee corporation as a supplement to, or further
amendment of, the proposed milling contract, and that it was approved on August 20, 1936, twenty-one days prior to the signing
by appellants on September 10, of the Amended Milling Contract itself; so that when the Milling Contract was executed, the
concessions granted by the disputed resolution had been already incorporated into its terms.

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 Valle Verde Country Club, Inc. v. Africa
G.R. No. 151969, September 4, 2009, (Brion, J.)

Doctrine: The term of office is not affected by the holdover. It is fixed by statute and it does not change simply because the
office may have become vacant, nor because the incumbent holds over in office beyond the end of the term due to the fact that
a successor has not been elected and has failed to qualify.
Facts:
In 1996, during the Annual Stockholders’ Meeting of Valle Verde Country Club, Inc. (VVCC), Villaluna, Dinglasan, Makalintal,
Ortigas III, Salta, Santiago, Jr., Dee, Sunico, and Gamboa were elected as members of the VVCC Board of Directors. From
1997 to 2001, the requisite quorum for the holding of the stockholders’ meeting could not be obtained. Consequently, the
above-named directors continued to serve in the VVCC Board in a hold-over capacity.
In 1998, Dinglasan resigned from his position. He was replaced by Roxas who was elected by the board still constituting a
quorum. A year later, Makalintal also resigned and was replaced by Jose Ramirez in 2001. Ramirez was elected by the remaining
members of the Board.
Africa, a member of VVCC, questioned the election of Roxas and Ramirez with the SEC and the RTC, respectively. Before the
RTC, Africa alleged that a year after Makalintal’s election as member of the VVCC Board in 1996, his term – as well as those of
the other members of the VVCC Board – should be considered to have already expired. According to him, for the members to
exercise the authority to fill in vacancies in the board of directors, that there should be an unexpired term during which the
successor-member shall serve. Further, that the resulting vacancy should have been filled by the stockholders in a regular or
special meeting called for that purpose, and not by the remaining members of the VVCC Board, as was done in this case.
The RTC and the SEC ruled in favor of Africa. VVCC filed a petition for review on certiorari.
Issue: Whether or not the remaining directors of the corporation’s Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director. NO
Held:
Petition DENIED. Under Section 29 of the Corporation Code, a vacancy occurring in the board of directors caused by the
expiration of a member’s term shall be filled by the corporation’s stockholders. As the vacancy in this case was caused by
Makalintal’s resignation, not by the expiration of his term, VVCC insists that the board rightfully appointed Ramirez to fill in
the vacancy.
The holdover period is not part of the term of office of a member of the board of directors. In several cases, we have defined
"term" as the time during which the officer may claim to hold the office as of right, and fixes the interval after which the several
incumbents shall succeed one another. The term of office is not affected by the holdover. It is fixed by statute and it does not
change simply because the office may have become vacant, nor because the incumbent holds over in office beyond the end of
the term due to the fact that a successor has not been elected and has failed to qualify. “Tenure” is the term during which the
incumbent actualy holds office.
Section 23 of the Corporation Code declares that the term of the members of the board of directors shall be only for one year;
their term expires one year after election to the office. After the lapse of one year from his election, Makalintal’s term of office
is deemed to have already expired. With the expiration of Makalintal’s term of office, a vacancy resulted which, by the terms of
Section 29, must be filled by the stockholders of VVCC in a regular or special meeting called for the purpose. His resignation as
a holdover director did not change the nature of the vacancy; the vacancy due to the expiration of Makalintal’s term had been
created long before his resignation. The underlying policy of the Corporation Code is that the business and affairs of a
corporation must be governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. Only in that way can the directors' continued accountability to shareholders, and
the legitimacy of their decisions that bind the corporation's stockholders, be assured. The shareholder vote is critical to the
theory that legitimizes the exercise of power by the directors or officers over properties that they do not own. (Delegated power
of the board of directors). The vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining
members of its board of directors

11
 NECTARINA S. RANIEL and MA. VICTORIA R. PAG-ONG vs.
PAUL JOCHICO, JOHN STEFFENS and SURYA VIRIYA
G.R. No. 153413 March 1, 2007
Doctrine: A corporation exercises its powers through its board of directors and/or its duly authorized officers and agents,
except in instances where the Corporation Code requires stockholders approval for certain specific acts.
Facts:
Nectarina Raniel and Victoria Pag-ong, are 2 out of the 5 directors of Nephro Systems Dialysis Center. Raniel was Corporate
Secretary, Treasurer, and Administrator of the Dialysis Clinic. Petitioners questioned respondents’ plan to enter into a joint
venture with the Butuan Doctors’ Hospital and College. Respondents allegedly tried to compel them to waive and assign their
shares with Nephro but petitioners refused.
Raniel sought an indefinite leave of absence. Paul Jochico disapproved the request, but Raniel nonetheless stopped reporting
for work. When asked for an explanation for her absence, Raniel expressed her sentiments over the disapproval of leave, and
the joint venture with Butuan. (Note: Without Raniel, holding three important positions, the company’s operations were
disrupted. Such also warranted loss of the Board’s confidence in her. – SC)
Jochico issued a Notice of Special Board Meeting. Petitioners were notified, but they did not attend. The board passed
several resolutions ratifying the disapproval of Raniel’s request for leave, dismissing her as Administrator of Nephro,
declaring the position of Corporate Secretary vacant.
Otelio Jochico was appointed as the new Corporate Secretary, and a Special Stockholders’ Meeting was held. Again, petitioners
did not attend. The stockholders that were present removed the petitioners as directors of Nephro. (Raniel could have
explained herself during these meetings, but she chose not to attend. – SC)
Side-note: the ownership of the outstanding capital stock is distributed in this manner;
Jochico – 200 Shares
Steffens – 100 Shares
Viriya – 100 Shares
Raniel – 25 Shares
Pag-ong – 75 Shares
= 500 Shares
2/3 of OCS is 333.33 Shares
400 Shares voted for petitioners’ removal
Petitioners filed a case with the SEC, which held that the removal of petitioners was valid. Appeal made to the CA, which
affirmed the SEC decision.
Issue: Whether or not the removal of Pag-Ong and Raniel by the Board of Directors is proper? YES.
Held: The SC ruled in favor of Jochico.
A corporation exercises its powers through its board of directors and/or its duly authorized officers and agents, except in
instances where the Corporation Code requires stockholders approval for certain specific acts.
Based on Section 23 of the Corporation Code which provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees x x x.
A corporations board of directors is understood to be that body which (1) exercises all powers provided for under the
Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds all property of the corporation. Its
members have been characterized as trustees or directors clothed with a fiduciary character. Moreover, the directors may appoint
officers and agents and as incident to this power of appointment, they may discharge those appointed.

12
In this case, petitioner Raniel was removed as a corporate officer through the resolution of Nephro's Board of Directors adopted
in a special meeting on February 2, 1998. As correctly ruled by the SEC, petitioners' removal was a valid exercise of the powers
of Nephro's Board of Directors, viz.:
In the instant complaint, do respondents have sufficient grounds to cause the removal of Raniel from her positions as Corporate
Secretary, Treasurer and Administrator of the Dialysis Clinic? Based on the facts proven during the hearing of this case, the
answer is in the affirmative.
Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite leave, immediately effective yet without prior
notice, reveals a disregard of the critical responsibilities pertaining to the sensitive positions she held in the corporation. Prior to
her hasty departure, Raniel did not make a proper turn-over of her duties and had to be expressly requested to hand over
documents and records, including keys to the office and the cabinets.
xxxx
Since Raniel occupied all three positions in Nephro, it is not difficult to foresee the disruption that her immediate and indefinite
absence can inflict on the operations of the company. By leaving abruptly, Raniel abandoned the positions she is now trying to
reclaim. Raniel's actuation has been sufficiently proven to warrant loss of the Board's confidence.
The SEC also correctly concluded that petitioner Raniel was removed as an officer of Nephro in compliance with established
procedure, thus:
The resolutions of the Board dismissing complainant Raniel from her various positions in Nephro are valid. Notwithstanding
the absence of complainants from the meeting, a quorum was validly constituted. x x x.
xxxx
Based on its articles of incorporation, Nephro has five directors two of the positions were occupied by complainants and the
remaining three are held by respondents. This being the case, the presence of all three respondents in the Special Meeting of the
Board on February 2, 1998 established a quorum for the conduct of business. The unanimous resolutions carried by the Board
during such meeting are therefore valid and binding against complainants.
Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors was likewise valid.
Only stockholders or members have the power to remove the directors or trustees elected by them, as laid down in Section 28
of the Corporation Code, which provides in part:
SEC. 28. Removal of directors or trustees. -- Any director or trustee of a corporation may be removed from office by a
vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided,
that such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the
purpose, and in either case, after previous notice to stockholders or members of the corporation of the intention to
propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for the purpose
of removal of directors or trustees or any of them, must be called by the secretary on order of the president or on the
written demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or if it be
a non-stock corporation, on the written demand of a majority of the members entitled to vote. x x x Notice of the time
and place of such meeting, as well as of the intention to propose such removal, must be given by publication or by written
notice as prescribed in this Code. x x x Removal may be with or without cause: Provided, That removal without cause
may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled
under Section 24 of this Code. (Emphasis supplied)
Petitioners do not dispute that the stockholders' meeting was held in accordance with Nephro's By-Laws. The ownership of
Nephro's outstanding capital stock is distributed as follows (see above). A two-thirds vote of Nephro's outstanding capital stock
would be 333.33 shares, and during the Stockholders' Special Meeting held on February 16, 1998, 400 shares voted for petitioners'
removal. Said number of votes is more than enough to oust petitioners from their respective positions as members of the board,
with or without cause.

13
 PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN,
JUDITH TAN, ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO
PADILLA JR., EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH SCHOOL vs.
PAUL SYCIP and MERRITTO LIM
G.R. No. 153468 August 17, 2006
Doctrine: For stock corporations, the “quorum” referred to in Section 52 of the Corporation Code is based on the number of
outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting rights shall be
counted in determining the existence of a quorum during members’ meetings. Dead members shall not be counted.
Facts:
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15) regular
members, who also constitute the board of trustees. During the annual members’ meeting held on April 6, 1998, there
were only eleven (11) living member-trustees, as four (4) had already died. Out of the eleven, seven (7) attended the
meeting through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection
of Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo,
Virginia Khoo, and Judith Tan were voted to replace the four deceased member-trustees. 


When the controversy reached the Securities and Exchange Commission (SEC), Tan et al. maintained that the deceased member-
trustees should not be counted in the computation of the quorum because, upon their death, members automatically lost all
their rights (including the right to vote) and interests in the corporation. 

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She held that the
basis for determining the quorum in a meeting of members should be their number as specified in the articles of incorporation,
not simply the number of living members.
Issue: Whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum for
purpose of conducting the Annual Members Meeting. NO
Held:
The Right to Vote in Nonstock Corporations
In nonstock corporations, the voting rights attach to membership. Members vote as persons, in accordance with the law and
the bylaws of the corporation. Each member shall be entitled to one vote unless so limited, broadened, or denied in the articles
of incorporation or bylaws. We hold that when the principle for determining the quorum for stock corporations is applied by
analogy to nonstock corporations, only those who are actual members with voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting rights, not
the number or numerical constant that may originally be specified in the articles of incorporation, constitutes the quorum.
Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of incorporation,
shall constitute a quorum for the transaction of corporate business (unless the articles of incorporation or the bylaws provide
for a greater majority). If the intention of the lawmakers was to base the quorum in the meetings of stockholders or members
on their absolute number as fixed in the articles of incorporation, it would have expressly specified so. Otherwise, the only
logical conclusion is that the legislature did not have that intention.
Effect of the Death of a Member or Shareholder
In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or
administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement and
division of the estate is effected, the stocks of the decedent are held by the administrator or executor.
On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-transferable, unless
the articles of incorporation or the bylaws of the corporation provide otherwise. In other words, the determination of whether
or not dead members are entitled to exercise their voting rights (through their executor or administrator), depends on those
articles of incorporation or bylaws.

14
Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the member.
Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member of the corporation,
unless otherwise provided in the articles of incorporation or the bylaws.
Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster in the
manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite vote in
corporate matters or the requisite quorum for the annual members meeting. With 11 remaining members, the quorum in the
present case should be 6. Therefore, there being a quorum, the annual members meeting, conducted with six members present,
was valid.
But, while a majority of the remaining corporate members were present, however, the “election” of the four trustees cannot be
legally upheld for the obvious reason that it was held in an annual meeting of the members, not of the board of trustees.
We are not unmindful of the fact that the members of GCHS themselves also constitute the trustees, but we cannot ignore the
GCHS bylaw provision, which specifically prescribes that vacancies in the board must be filled up by the remaining trustees.
In other words, these remaining member-trustees must sit as a board in order to validly elect the new ones. Thus, petition
was partly granted. The assailed Resolutions of the Court of Appeals are hereby reversed and set aside. The remaining members
of the board of trustees of GCHS may convene and fill up the vacancies in the board by sitting as a board.

15
 FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and
MINDANAO TERMINAL AND BROKERAGE SERVICES, INC., vs. VICTORIANO S. GO,
ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO M. TRINIDAD,
JESUS SYBICO, MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO S.
JAYME, and ELIEZER B. DE JESUS
G.R. No. 161886 March 16, 2007
Doctrine: Raison d’etre behind the conferment of corporate powers: The concentration in the board of the powers of
control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large
organization. Stockholders are too numerous, scattered and unfamiliar with the business of a corporation to conduct its
business directly. And so the plan of corporate organization is for the stockholders to choose the directors who shall control
and supervise the conduct of corporate business.
REQUISITES OF A DERIVATIVE SUIT:
1) the party bringing the suit must have been a shareholder as of the time of the act or transaction complained of;
2) he has tried intra-corporate remedies but they have failed or the board refused to hear his plea; and
3) the cause of action devolves around the corporation—the wrongdoing or harm was done to the corporation itself and not
merely to a particular stockholder.

Facts:
Petitioner Filport is represented by its previous Board Director Eliodoro Cruz and stockholder Mindanao Terminal and
Brokerage Services, Inc. (Minderbro). Only these two appealed from the CA decision being assailed in this case. In 1993,
Filport’s Board of Directors (herein respondents) enacted a resolution creating six new positions (AVPs for Corporate
Planning, Operations, Finance, and Administration, as well as Special Assistants to the President and to the
Chairman), and 6 people were elected into said offices, all with a monthly salary of P13,050 each. They also increased
the salaries of the Chairman and other officers. Cruz wrote a letter to the Board questioning these decisions, saying that the
Board was not authorized to do so by the company’s by-laws. The Board did not act upon the matter so Cruz and the other
stockholders filed a derivative suit of damages due to mismanagement with the SEC. After a few years, the Securities
Regulations Code was enacted, which changed the rules on venue, so the case was eventually moved to the Davao RTC.
The RTC ruled in favor of Cruz, et al., even if it decided that the Board had the authority to create positions not found in the
by-laws and the salary increases were reasonable, and declared that the AVP for Corporate Planning and the Special Assts. should
restore whatever salary they received because Filport wasn’t a big corporation that needed multiple executive positions, and that
these positions were just created for accommodation. The CA overturned the RTC decision. Cruz contends that the board
does not have the authority to create an executive committee because it is not provided for in Filport’s by-laws as
required by Sec. 35 of the Corp Code.
Issue:

1. WON the Board had the power to create the assailed positions? (most impt.) 
YES
2. WON the positions were created merely for accommodation?
NO
3. WON the Board is guilty of mismanagement? NO
4. WON Cruz has standing to bring the case?
YES

Held:
1. YES, the governing body of a corporation is its board of directors. As per Sec. 23 of the Corp Code, the corporate
powers of all corporations formed under the code shall be exercised by the board, and all property owned and business
conducted by the corporation shall also be held and controlled by the board. The board is the sole authority to determine
policies, enter into contracts, and conduct the ordinary business of the corporation within the scope of its charter.
However, the authority of the board is restricted to the management of the corp’s regular business affairs, unless more
extensive power is expressly conferred.

In this case, while the by-laws do not expressly provide for the board’s authority to create an executive committee, the Court
cannot deem that the positions created automatically formed an executive committee. The “executive committee” refer red to in
16
Sec. 35 means a committee that has equal powers with the board and must be distinguished from other committees that can be
created and controlled by the board. In this case, the positions created are ordinary positions were created in accordance with
the regular business of Filport; thus, it is entirely within the board’s power to create them and provide remuneration therefor.
Plus, Cruz himself moved to create the positions of AVPS for Finance, Operations, and Administration during his incumbency
as Filport president.
2. NO. There is no evidence to substantiate Cruz’s allegations. He who alleges a fact has the burden of proving his
existence. Mere allegations are not enough. In this case, Cruz only presented his testimony to prove that the positions
were created for mere allegation, but this cannot serve as the proof needed. It only served as an allegation. 


3. NO. Mismanagement connotes the presence of bad faith and malice, not just negligence, error, or bad business
judgment. Bad faith connotes a dishonest purpose or some moral obliquity or conscious doing of a wrong that partakes
of the nature of fraud. 


4. YES. The SC ruled that this suit is indeed a derivative suit, wherein a corporate stockholder may bring an action to
protect or vindicate corporate rights whenever the board refuses to sue, or when the board is the one to be sued.

In order to be considered a derivative suit, the ff. requisites must concur:

1) the party bringing the suit must have been a shareholder as of the time of the act or transaction complained of;
2) he has tried intra-corporate remedies but they have failed or the board refused to hear his plea; and
3) the cause of action devolves around the corporation—the wrongdoing or harm was done to the corporation itself and not
merely to a particular stockholder.

This petition clearly satisfies all three requisites: 1) Cruz was a stockholder at the time of the positions were enacted and the
raises were given; 2) he wrote to the board to do the necessary action about his complaint but the board never acted on it; and
3) in the end, Filport, not Cruz, stands to benefit from the case. 


17
 Rural Bank of Milaor v. Ocfemia
G.R. No. 137686, February 8, 2000

Doctrine: If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent
authority, it holds the agent 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.
Facts: Marife Niño filed this petition to have Rural Bank issue the necessary paperwork for 5 parcels of land in Bombon,
Camarines Sur to be transferred to their family’s name. Her grandparents (Ocfemia’s) mortgaged 7 parcels of their land to
Rural Bank of Milaor. They failed to redeem these properties so it was foreclosed and subsequently owned by Rural Bank. Out
of the 7, 5 were sold to the parents of Marife as evidenced by the Deed of Sale executed in Jan. 1988. Despite possessing these
lands, it was still not transferred in the name of Marife’s parents as the Assessor’s Office stated that the document of sale must
be registered with the Registry of Deeds of Camarines Sur.
Marife Niño then went to the bank, showed to if the Deed of Sale, the tax declaration and receipt of tax payments and requested
the Bank for a board resolution so that the property can be transferred to the Ocfemia’s. She was told that the bank had a new
manager and it had no record of the sale. The bank asked her to bring a copy of the deed of sale, receipt of payment, and to get
an authority from her parents and other respondents. Despite compliance, the bank still decided that the board resolution would
still not be given to her as the bank had no records from the old manager.
Because of this, Marife brought the matter to her lawyer and the latter wrote a demand letter to Rural Bank. The Bank still
refused saying that they had no records of the sale. Hence, this petition. RTC and CA sided with Marife.
Issue: May the board of directors of the bank be compelled to confirm the deed of absolute sale executed by a bank manager
without prior authority of their board of directors? (YES)
Held:
The bank is estopped from questioning the authority of the bank manager to enter into the contract of sale. If a corporation
knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds the agent 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.
The bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena (the old bank manager) to enter into
binding contracts. After the execution of the Deed of Sale, the Ocfemia’s occupied the properties in dispute and paid the real
estate taxes due thereon. If the bank management believed that it had title to the property, it should have taken some measures
to prevent the infringement or invasion of its title thereto and possession thereof. When Marife went to the bank to ask for
the board resolution, she was merely told to bring the receipts. The bank failed to categorically declare that Tena had no
authority.
Tena had previously transacted business on behalf of the bank, and the latter had acknowledged her authority. A bank is liable
to innocent third persons where representation is made in the course of its normal business by an agent like Manager Tena, even
though such agent is abusing her authority. Clearly, persons dealing with her could not be blamed for believing that she was
authorized to transact business for and on behalf of the bank.
Jurisprudence provides 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. Authority to act for
and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised.
When, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs,
his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to
manage its business.
Ratio
Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to
disbelieve every act of its responsible officers, no matter how regular they should appear on their face.

18
In the case of Ramirez vs. Orientalist Co, the Court stated that in passing upon the liability of a corporation in cases of this kind it
is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he
can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external
manifestation of corporate consent.
Court act
The Deed named Fe S. Tena as the representative of the bank. The bank however, failed to specifically deny under oath the
allegations in that contract. In fact, it filed no answer at all, for which reason it was declared in default.

Basis: Sec. 8 of the Rules of Court → the genuineness and due execution of the instrument shall be deemed
admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be
the facts.
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear legal duty to issue the
board resolution sought by respondent's.
Extra Notes (in case sir asks)
The Ocfemia’s are interested in having the properties transferred to their names because their mother and co-petitioner,
Francisca Ocfemia, is very sickly and they want to mortgage the property for the medical expenses of Francisca Ocfemia.
The illness of Francisca Ocfemia began after her husband died and her suffering from arthritis and pulmonary disease. Marife
O. Niño declared that her mother is now in serious condition and they could not have her hospitalized for treatment as they do
not have any money and this is causing the family sleepless nights and mental anguish, thinking that their mother may die because
they could not submit her for medication as they do not have money.

19
 Western Institute of Technology v. Salas
G.R. No. 113032, August 21, 1997

Doctrine: Generally, directors or trustees are not entitled to salary or other compensation when they perform nothing more
than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service
gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation.
The Exception is when members of the board may receive compensation, in addition to reasonable per diems, when they render
services to the corporation in a capacity other than as directors/trustees.
(Basis: the phrase “as such directors” under Sec. 30 of the Corporation Code which prohibits the compensation of directors)
Facts: Private respondents (Salas people) are the majority and controlling members of the Board of Trustees of Western
Institute of Technology, Inc. (WIT), a stock corporation engaged in the operation, among others, of an educational institution.
Petitioners are the minority stockholders of WIT. According to them, a Special Board Meeting was held on June 1, 1986 to
discuss the possible implementation of Art. III, Sec. 6 of the Amended ByLaws of WIT on compensation of all officers of the
corporation.
In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private
respondents as corporate officers retroactive June 1, 1985. (see other notes for more details)
On March 1991, petitioners filed a complaint against respondents before the Office of the City Prosecutor of Iloilo, as a result
of which two (2) separate criminal informations were filed: (1) falsification of a public document and (2) estafa under Article
315, par. 1(b) were filed in the RTC of Iloilo City. (see other notes for more details)
RTC acquitted the accused. Their motion of recon was denied, hence this petition. Petitioners maintain that this grant of
compensation to respondents is prohibited under Section 30 of the Corporation Code. Thus, respondents are obliged to return
these amounts to the corporation with interest.
Issue: Are the respondents not allowed to have compensation based on Sec. 30 of the Corporation Code? (No because it
must be qualified – in what capacity do they receive such compensation)
Held:
We cannot sustain the petitioners. The pertinent section of the Corporation Code provides:
“Sec. 30. Compensation of directors.—In the absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any compensation, as such directors, except for reasonable per
diems: Provided, however, That any such compensation (other than per diems) may be granted to directors by
the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special
stockholders’ meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten
(10%) percent of the net income before income tax of the corporation during the preceding year.” [Italics ours]
Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart
from reasonable per diems:
(1) when there is a provision in the by-laws fixing their compensation; and
(2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders’
meeting agree to give it to them.
The phrase “as such directors” is not without significance for it delimits the scope of the prohibition to compensation given
to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members
of the board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a
capacity other than as directors/trustees.
In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as
members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and
Secretary of WIT.
20
There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they
perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service,
without compensation.
The prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated
in this particular case.
Regarding the Criminal Case
On Falsification: This Court finds that under the Eleventh Article (Exh. ‘3-D-1’) of the Articles of Incorporation (Exh. ‘3-B’) of the
Panay Educational Institution, Inc., now the Western Institute of Technology, Inc., the officers of the corporation shall receive such
compensation as the Board of Directors may provide. These Articles of Incorporation was adopted on May 17, 1957 (Exh. ‘3-E’). The
Officers of the corporation and their corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of Art. III of the Amended
By-Laws of the Corporation (Exh. ‘4-A’) which was adopted on May 31, 1957. According to Sec. 6, Art. III of the same By-Laws, all
officers shall receive such compensation as may be fixed by the Board of Directors.

On Estafa: it is perceived by this Court that the receipt and the holding of the money by the accused as salary on basis of the authority
granted by the Articles and By-Laws of the corporation are not tainted with abuse of confidence. The money they received belongs to them
and cannot be said to have been converted and/or misappropriated by them.

Extra Notes:

Resolution → On the motion of Soleded Tubilleja, which was seconded by Richard Salas, the Officers of the Corporation be granted
monthly compensation for services rendered as follows:

• Chairman—P9,000.00/month
• Vice Chairman—P3,500.00/month
• Corporate Treasurer—P3,500.00/month
• Corporate Secretary—P3,500.00/month

retroactive June 1, 1985 and 10% of the net profits shall be distributed equally among the 10 members of the Board of Trustees. This shall
amend and supersede any previous resolution.

Criminal Case

• The charge for falsification of public document was anchored on the private respondents’ submission of WIT’s income statement
for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate
funds for the compensation of private respondents based on Resolution No. 4, series of 1986, making it appear that the same was
passed by the board on March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered by the
corporation’s fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986).

• herein accused, knowing fully well that they have no sufficient, lawful authority to disburse—let alone violate applicable laws and
jurisprudence, disbursed the funds of the corporation by effecting payment of their retroactive salaries in the amount of P186,470.00
and subsequently paying themselves every 15th and 30th of the month starting June 15, 1986 until the present, in the amount of
P19,500.00 per month, as if the same were their own, and when herein accused were informed of the illegality of these disbursements
by the minority stockholders by way of objections made in an annual stockholders’ meeting held on June 14, 1986 and every year
thereafter, they refused, and still refuse, to rectify the same to the damage and prejudice of the corporation (and its stockholders) in
the total sum of P1,453,970.79 as of November 15, 1991.

21
 Carag v. NLRC
G.R. No. 147590, April 2, 2007

Doctrine: Article 212(e) of the Labor Code does not state that corporate officers are personally liable for the unpaid salaries or
separation pay of employees of the corporation. The liability of corporate officers for corporate debts remains governed by
Section 31 of the Corporation Code.
Section 31 makes a director personally Personal liability of corporate directors, trustees Doctrine of the Piercing of the Corporate Veil
liable for corporate debts if: or officers attaches only when: applies only when corporate fiction is used to:

(1) he willfully and knowingly votes for or
assents to patently unlawful acts of the
corporation
(2) he is guilty of gross negligence or bad
faith in directing the affairs of the
corporation.
(1) they assent to a patently unlawful act of the (1) defeat public convenience
corporation, or when they are guilty of bad faith (2) justify wrong
or gross negligence in directing its affairs, or (3) protect fraud, or
when there is a conflict of interest resulting in (4) defend crime
damages to the corporation, its stockholders or
other persons;
(2) they consent to the issuance of watered-down
stocks or when, having knowledge of such
issuance, do not forthwith file with the corporate
secretary their written objection;
(3) they agree to hold themselves personally and
solidarily liable with the corporation; or
(4) they are made by specific provision of law
personally answerable for their corporate action.

Facts: The National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU)
(collectively, complainants), on behalf of all of MAC’s rank and file employees, filed a complaint against MAC for illegal dismissal
brought about by its illegal closure of business.
On July 8, 1993, without notice of any kind filed in accordance with pertinent provisions of the Labor Code, MAC ceased
operations with the intention of completely closing its shop or factory. MAC alleged that notice was given through a letter which
contained their intent to close operations. At the time of closure, employees who have rendered one to two weeks work were
not paid their corresponding salaries/wages as well as other benefits due.
Complainant’s Argument
The complainants pray that they be allowed to implead Atty. Antonio Carag and Mr. Armando David, owners and responsible
officers of respondent company, to assure the satisfaction of the judgment, should a decision favorable to them be rendered.
They say that since the corporation is no longer existing, they will not be able to enforce the reliefs they have prayed for in their
complaint.
Under Art. 212 (c) of the Labor Code, it states that an "Employer includes any person acting in the interest of an employer,
directly or indirectly. It does not, however, include any labor organization or any of its officers or agents except when acting as
employer." In pursuance of their argument, they present several jurisprudence:

● The provision was culled from Section 2, Republic Act 602, the Minimum Wage Act. If the employer is an artificial
person, it must have an officer who can be presumed to be the employer, being "the person acting in the interest of the
employer." The corporation is the employer, only in the technical sense.
● Where the employer-corporation is no longer existing and unable to satisfy the judgment in favor of the employee, the
officer should be held liable for acting on behalf of the corporation.
● This is the policy of the law. If it were otherwise, corporate employers would have devious ways to evade paying
backwages.
● If no definite proof exists as to who is the responsible officer, the president of the corporation who can be deemed to
be its chief operation officer shall be presumed to be the responsible officer. In Republic Act 602, for example, criminal
responsibility is with the "manager" or in his default, the person acting as such.
Respondent’s Argument (MAC)
22
The respondents on the other hand by way of controversion maintain that the present complaint was filed prematurely. The
respondents deny having totally closed and insist that respondent company is only on a temporary shut-down occasioned by the
pending labor unrest. There being no permanent closure any claim for separation pay must not be given due course.
They opposed the impleader of Atty. Antonio C. Carag and Mr. Armando David saying that they are not the owners of Mariveles
Apparel Corporation and they are only minority stockholders holding qualifying shares. MAC is actually owned by a consortium
of banks. Carag and David own shares in MAC only to qualify them to serve as MAC’s officers. Piercing the veil of corporate
fiction cannot be done in the present case for such remedy can only be availed of in case of closed or family owned corporations.
The LA granted the motion to implead Carag and David. NLRC agreed.
The CA found that Carag and David, as the most ranking officers of MAC, had a direct hand at the time in the illegal dismissal
of MAC's employees. The failure of Carag and David to observe the notice requirement in closing the company shows malice
and bad faith, which justifies their solidary liability with MAC.
Issue: Whether they could be held personally liable for the company (NO)
Held:
GR: It is a basic principle in law that corporations have personality distinct and separate from the stockholders. This concept
is known as corporate fiction. Normally, officers acting for and in behalf of a corporation are not held personally liable for the
obligation of the corporation. In instances where corporate officers dismissed employees in bad faith or wantonly violate labor
standard laws or when the company had already ceased operations and there is no way by which a judgment in favor of
employees could be satisfied, corporate officers can be held jointly and severally liable with the company.
EX: when is a director personally liable for the debts of the corporation?
The rule is that a director is not personally liable for the debts of the corporation, which has a separate legal personality of its
own. Section 31 of the Corporation Code lays down the exceptions to the rule, as follows:
Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered
by the corporation, its stockholders or members and other persons.
Section 31 makes a director personally liable for corporate debts if:
(1) he wilfully and knowingly votes for or assents to patently unlawful acts of the corporation
(2) he is guilty of gross negligence or bad faith in directing the affairs of the corporation.
Complainants did not: (1) Allege in their complaint nor did they present evidence that Carag wilfully and knowingly voted for
or assented to any patently unlawful act of MAC or (2) Allege or present evidence that Carag is guilty of gross negligence or bad
faith in directing the affairs of MAC. These were also not present in the Labor Arbiter’s decision.
To hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate fiction, the bad faith or
wrongdoing of the director must be established clearly and convincingly. Bad faith is never presumed. Bad faith does not connote
bad judgment or negligence. Bad faith imports a dishonest purpose. Bad faith means breach of a known duty through some ill
motive or interest. Bad faith partakes of the nature of fraud.
Neither does bad faith arise automatically just because a corporation fails to comply with the notice requirement of labor laws
on company closure or dismissal of employees. The failure to give notice is not an unlawful act because the law does not define
such failure as unlawful. Such failure to give notice is a violation of procedural due process but does not amount to an unlawful
or criminal act. Such procedural defect is called illegal dismissal because it fails to comply with mandatory procedural
requirements, but it is not illegal in the sense that it constitutes an unlawful or criminal act.
On a criminal act

23
For a wrongdoing to make a director personally liable for debts of the corporation, the wrongdoing approved or assented to by
the director must be a patently unlawful act. Mere failure to comply with the notice requirement of labor laws on company
closure or dismissal of employees does not amount to a patently unlawful act. Patently unlawful acts are those declared unlawful
by law which imposes penalties for commission of such unlawful acts. There must be a law declaring the act unlawful and
penalizing the act.
Complainants did not allege or prove, and Arbiter Ortiguerra did not make any finding, that Carag approved or assented to
any patently unlawful act to which the law attaches a penalty for its commission. On this score alone, Carag cannot be held
personally liable for the separation pay of complainants.
Sec. 31 of the Corp. Code prevails over the Labor Code
This leaves us with Arbiter Ortiguerra's assertion that "when the company had already ceased operations and there is no way
by which a judgment in favor of employees could be satisfied, corporate officers can be held jointly and severally liable with
the company." This assertion echoes the complainants' claim that Carag is personally liable for MAC's debts to complainants
"on the basis of Article 212(e) of the Labor Code, as amended," which says
'Employer' includes any person acting in the interest of an employer, directly or indirectly. The
term shall not include any labor organization or any of its officers or agents except when acting as
employer. (Emphasis supplied)
Indeed, complainants seek to hold Carag personally liable for the debts of MAC based solely on Article 212(e) of the Labor
Code. This is the specific legal ground cited by complainants, and used by Arbiter Ortiguerra, in holding Carag personally
liable for the debts of MAC.
We have already ruled in McLeod v. NLRC and Spouses Santos v. NLRC that Article 212(e) of the Labor Code, by itself, does not
make a corporate officer personally liable for the debts of the corporation. The governing law on personal liability of directors
for debts of the corporation is still Section 31 of the Corporation Code.
Personal liability of corporate directors, trustees or officers attaches only when:
(1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing
its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons;
(2) they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with
the corporate secretary their written objection;
(3) they agree to hold themselves personally and solidarily liable with the corporation; or
(4) they are made by specific provision of law personally answerable for their corporate action.

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or a specific provision of
law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. Neither
Article 212[e] nor Article 273 (now 272) of the Labor Code expressly makes any corporate officer personally liable for the debts
of the corporation.
Thus, it was error for Arbiter Ortiguerra (LA), the NLRC, and the Court of Appeals to hold Carag personally liable for the
separation pay owed by MAC to complainants based alone on Article 212(e) of the Labor Code. Article 212(e) does not state
that corporate officers are personally liable for the unpaid salaries or separation pay of employees of the corporation. The liability
of corporate officers for corporate debts remains governed by Section 31 of the Corporation Code.
On the closure of business
The respondents described the cessation of operations in its premises as a temporary shut-down. While such posturing may
have been initially true, it is not so anymore. The cessation of operations has clearly exceeded the six months period fixed in
Article 286 of the Labor Code. The temporary shutdown has ripened into a closure or cessation of operations for causes not
due to serious business losses or financial reverses.

24
 Cosare v. Broadcom Asia, Inc
G.R. No. 201298, February 5, 2014

Doctrine: Jurisdiction of intra-corporate disputes fall exclusively with the RTC

It is only when the officer claiming to have been illegally dismissed is classified as a corporate officer that the issue is deemed an
intra-corporate dispute which falls within the jurisdiction of the trial courts.
The determination of whether the dismissed officer was a regular employee or corporate officer unravels the conundrum of
whether a complaint for illegal dismissal is cognizable by the LA or by the RTC. In case of the regular employee, the LA has
jurisdiction; otherwise, the RTC exercises the legal authority to adjudicate.
Definition of Corporate Officers
"‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the corporation who are given that
character by the Corporation Code or by the corporation’s by-laws.

• Sec. 25 Corp Code – the president, secretary and the treasurer

• Corporation’s by-laws – There are two circumstances which must concur in order for an individual to be considered
a corporate officer, as against an ordinary employee or officer, namely:
(1) the creation of the position is under the corporation’s charter or by-laws; and
(2) the election of the officer is by the directors or stockholders.
But note that even if the by-laws allow for the creation of new positions, the board of directors has no power to create
other corporate offices without first amending the corporate by-laws so as to include therein the newly created corporate
office.
Facts: Cosare 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, Cosare was named an incorporator of Broadcom, having been
assigned 100 shares of stock with par value of ₱1.00 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 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 anomalies which were allegedly being
committed by Abiog against the company. Arevalo failed to act on Cosare’s accusations. Cosare claimed that he was instead
called for a meeting by Arevalo wherein he was asked to tender his resignation in exchange for "financial assistance" in the
amount of ₱300,000.00. Cosare refused to comply with the directive, as signified in a letter which he sent to Arevalo.
Cosare received from Broadcom’s Manager for Finance and Administration, a memo signed by Arevalo, charging him of serious
misconduct and willful breach of trust.
Cosare 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."
He was totally barred from entering the company premises, and was told to merely wait outside the office building for further
instructions. When no such instructions were given by 8:00 p.m., Cosare was impelled to seek the assistance of the officials of
Barangay San Antonio, Pasig City, and had the incident reported in the barangay blotter.
Cosare filed the subject 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.
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.
25
LA ruled for the company. NLRC reversed finding illegal dismissal. CA dismissed the complaint on the ground of lack of
jurisdiction as it deemed the case as one involving intra-corporate controversy. Such are within the exclusive jurisdiction of the
RTC according to PD 902-A. Motion for Recon was denied, hence this case.
Issue: Whether the case instituted by Cosare was an intra-corporate dispute that was within the original jurisdiction of the RTC.
(NO)
Held: Contrary to the ruling of the CA, it is the LA, and not the regular courts, which has the original jurisdiction over the
subject controversy.
An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been regarded in its broad sense to
pertain to disputes that involve any of the following relationships:
(1) between the corporation, partnership or association and the public;
(2) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is
concerned;
(3) between the corporation, partnership or association and its stockholders, partners, members or officers; and
(4) among the stockholders, partners or associates, themselves
Settled jurisprudence, however, qualifies that when the dispute involves a charge of illegal dismissal, the action may fall under
the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination disputes and claims for damages arising from
employer-employee relations as provided in Article 217 of the Labor Code.
Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and an officer of Broadcom at the time the
subject controversy developed failed to necessarily make the case an intra-corporate dispute. The determination of whether the
dismissed officer was a regular employee or corporate officer unravels the conundrum of whether a complaint for illegal dismissal
is cognizable by the LA or by the RTC. In case of the regular employee, the LA has jurisdiction; otherwise, the RTC exercises
the legal authority to adjudicate.
Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for illegal dismissal because
Cosare, although an officer of Broadcom for being its AVP for Sales, was not a "corporate officer" as the term is defined by
law.
"‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the corporation who are given that
character by the Corporation Code or by the corporation’s by-laws. There are three specific officers whom a corporation must
have under Section 25 of the Corporation Code. These are the president, secretary and the treasurer. The number of officers is
not limited to these three. A corporation may have such other officers as may be provided for by its by-laws like, but not limited
to, the vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law and by the
corporation’s by-laws.
On Corporate Offices
An "office" is created by the charter of the corporation and the officer is elected by the directors and stockholders. An
"employee" usually occupies no office and generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be paid to such employee.
There are two circumstances which must concur in order for an individual to be considered a corporate officer, as against an
ordinary employee or officer, namely: (1) the creation of the position is under the corporation’s charter or by-laws; and (2) the
election of the officer is by the directors or stockholders. It is only when the officer claiming to have been illegally dismissed is
classified as such corporate officer that the issue is deemed an intra-corporate dispute which falls within the jurisdiction of the
trial courts.

Basis by CA for ruling that there was intra-corporate dispute→ Under Article IV of Broadcom’s by-laws, it states that:
Section 1. Election / Appointment – Immediately after their election, the Board of Directors shall formally
organize by electing the President, the Vice-President, the Treasurer, and the Secretary at said meeting.
26
 The Board may, from time to time, appoint such other officers as it may determine to be necessary or proper.
What SC says → Although a blanket authority provides for the Board’s appointment of such other officers as it may deem
necessary and proper, the respondents failed to sufficiently establish that the position of AVP for Sales was created by virtue of
an act of Broadcom’s board, and that Cosare was specifically elected or appointed to such position by the directors. No board
resolutions to establish such facts form part of the case records.

• Case law states that: an enabling clause in a corporation’s by-laws empowering its board of directors to create
additional officers, even with the subsequent passage of a board resolution to that effect, cannot make such position a
corporate office. The board of directors has no power to create other corporate offices without first amending the
corporate by-laws so as to include therein the newly created corporate office.

To allow the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause
empowering the board of directors to do so can result in the circumvention of that constitutionally well-protected right
of every employee to security of tenure.

• In this case: The CA’s heavy reliance on the contents of the General Information Sheets41, which were submitted by
the respondents during the appeal proceedings and which plainly provided that Cosare was an "officer" of Broadcom,
was clearly misplaced. The said documents could neither govern nor establish the nature of the office held by Cosare
and his appointment thereto.
The mere fact that Cosare was a stockholder of Broadcom at the time of the case’s filing did not necessarily make the action an
intra- corporate controversy. "Not all conflicts between the stockholders and the corporation are classified as intra-corporate
controversies.
Illegal Dismissal
It is clear from the cited circumstances that the respondents 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.

27
 Advanced Paper Corporation v. Arma Traders Corporation
G.R. No.176897, December 11, 2013

Doctrine: Authority
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; 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.
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.
Apparent 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 acts 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.
Facts: Arma Traders is is 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. Petitioner Advance Paper is a domestic corporation engaged in the business of producing,
printing, manufacturing, distributing and selling of various paper products.

Upon the representation of Tan and Uy, Arma Traders also obtained three loans from Advance Paper in a total of ₱7,788,796.76.
The current president of Arma Trader stated that their company 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 checks payable 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
₱15,130,636.87.
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.
Advance Paper filed a complaint for collection of sum of money with application for preliminary attachment against Arma
Traders, Tan, Uy, Ting, Gui, and Ng. RTC ordered Arma Traders to pay Advance Paper. CA reversed saying that the petitioners
failed to prove by preponderance of evidence the existence of the purchases on credit and loans.
Advance Paper 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 claimed that the loan
transactions were ultra vires because the board of directors of Arma Traders did not issue a board resolution authorizing Tan
and Uy to obtain the loans from Advance Paper.
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.
28
Uy and Tan
Tan did not file his Answer and was eventually declared in default. Uy claimed that he and Tan have been authorized by the
board of directors for the past 13 years to issue checks in behalf of Arma Traders to pay its obligations with Advance Paper.
Furthermore, he admitted that Arma Traders’ checks were issued to pay its contractual obligations with Advance Paper.
Advance Paper states that 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. Citing Lipat v. Pacific Banking
Corporation, Advance Paper states 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.
Issue: Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority. (YES)
Held: 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.
Under Sec. 23 of the Corporation Code, the power and responsibility to decide whether the corporation should enter into a
contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant
provisions of law. However, just as a natural person who may authorize another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its functions and powers to officers, committees or agents.
The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from
the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business:
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.
Apparent 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 acts 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.
Example: "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."
Application in this case
SC does 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.
29
 (1) 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.
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.
(2) 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.

30
 THE BOARD OF LIQUIDATORS vs. HEIRS OF MAXIMO M. KALAW
G.R. No. L-18805 August 14, 1967

Doctrine: Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3,
Rule 104, of the Rules of Court (which superseded Section 66 of the Corporation Law), whereby, upon voluntary dissolution of
a corporation, the court may direct "such disposi- tion of its assets as justice requires, and may appoint a receiver to collect such
assets and pay the debts of the corporation"; (2) under Section 77 of the Corporation Law, whereby 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"; and (3) under Section 78 of the Corporation Law, by virtue of which the
corporation, within the three-year period just mentioned, "is authorized and empowered to convey all of its property to trustees
for the benefit of members, stockholders, creditors, and others interested,"

Facts:
The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on
avowedly for the protection, preservation and development of the coconut industry in the Philippines. On August 1, 1946,
NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power to buy and sell copra. The
charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing advantageous prices for
them, to cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly aliens. 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. NACOCO, after the passage of Republic Act 5, embarked on
copra trading activities.

An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts it entered into. Nature supervened.
Four devastating typhoons visited the Philippines in 1947. When it became clear that the contracts would be unprofitable,
Kalaw submitted them to the board for approval. It was not until December 22, 1947 when the membership was completed.
Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised
the board of the impending heavy losses. No action was first taken on the contracts but not long thereafter, that is, on January
30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts
hereinbefore enumerated.

As was to be expected, NACOCO but partially performed the contracts. The buyers threatened damage suits, some of which
were settled. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila.
The cases culminated in an out-of- court amicable settlement when the Kalaw management was already out.
With particular reference to the Dreyfus claims, NACOCO put up the defenses that:

(1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and
(2) failure to deliver was due to force majeure, the typhoons. All the settlements sum up to P1,343,274.52.
In this suit started in February, 1949, NACOCO 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. By Executive Order 372, dated
November 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.

CFI-Manila: dismissed the complaint. Plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid
salaries and cash deposit due the deceased Kalaw from NACOCO.

Issue: Whether plaintiff Board of Liquidators has lost its legal personality to continue with this suit since the three year period
has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion

Held: No, the provision should be read not as an isolated provision but in conjunction with the whole. So reading, it will be
readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the
affairs of the various government owned corporations, including NACOCO.

31
The President thought it best to do away with the boards of directors of the defunct corporations; at the same time, however,
the President had chosen to see to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order
was there any mention of the lifespan of the Board of Liquidators.

Three methods by which corporation may wind up it its affairs:

1. Voluntary dissolution, "such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and
pay the debts of the corporation;

2. 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;"

3. Corporation, within the three year period just mentioned, "is authorized and empowered to convey all of its property to
trustees for the benefit of members, stockholders, creditors, and others interested
Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that
there must be statutory authority for prolongation of its life even for purposes of pending litigation

Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete loss of plaintiff's
corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the
President to create a Board of Liquidators, to continue the management of such matters as may then be pending."

The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest
became vested in the trustee — the Board of Liquidators. The beneficial interest remained with the sole stockholder — the
government. At no time had the government withdrawn the property, or the authority to continue the present suit, from the
Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case
to its final conclusion. The provisions of Section 78 of the Corporation Law — the third method of winding up corporate
affairs — find application.

32
 IRENE MARTEL FRANCISCO vs. NUMERIANO MALLEN, JR.
G.R. No. 173169 September 22, 2010

Doctrine: The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its
sole liabilities. To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1)
complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or
that the officer was guilty of gross negligence or bad faith; and (2) complainant must clearly and convincingly prove such unlawful
acts, negligence or bad faith.
Facts: On 5 April 1994, respondent Numeriano Mallen, Jr. was hired as a waiter for VIPS Coffee Shop and Restaurant, a fine
dining restaurant which used to operate at the Harrison Plaza Commercial Complex in Manila.
On 30 January 1998 to 1 February 1998, respondent took an approved sick leave. On 15 February 1998, respondent took a
vacation leave. Thereafter, he availed of his paternity leave.
On 18 April 1998, respondent suffered from tonsillitis, forcing him to take a three-day sick leave from 18 April 1998 to 20
April 1998. However, instead of his applied three-day sick leave, respondent was given three months leave.
On 5 May 1998, respondent filed before the Department of Labor and Employment-National Capital Region (DOLE-
NCR) a complaint for underpayment of wages and non-payment of holiday pay. Sometime in June 1998, respondent reported
back to work with a medical certificate stating he was fit to work but he was refused work.
Labor Arbiter Madjayran H. Ajan rendered a decision in favor of respondent declaring the dismissal of the complainant
illegal.
NLRC modified the Labor Arbiter’s ruling stating that respondent’s filing of a complaint for illegal dismissal was premature.
The memorandum directing him to avail of his sick/vacation leave was to last from April 30, 1998 to August 1, 1998. The
complaint therefore filed on May 5, 1998 has no legal basis to support itself. When he filed his complaint on May 5, 1998, his
cause of action based on illegal dismissal has not yet accrued.
CA set aside the NLRC ruling and reinstated the Labor Arbiter’s decision.

Issue: Whether petitioner is personally liable for the monetary awards granted in favor of respondent arising from his alleged
illegal termination.

Held: No. Petitioner Irene Martel Francisco was not liable for the monetary awards specified in the reinstated Labor Arbiter’s
Decision.

A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in
general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities.
To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) complainant must allege
in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty
of gross negligence or bad faith; and (2) complainant must clearly and convincingly prove such unlawful acts, negligence or bad
faith.
Respondent failed to allege either in his complaint or position paper that petitioner, as Vice-President of VIPS Coffee Shop and
Restaurant, acted in bad faith. Neither did respondent clearly and convincingly prove that petitioner, as Vice-President of VIPS
Coffee Shop and Restaurant, acted in bad faith. In fact, there was no evidence whatsoever to show petitioner’s participation in
respondent’s alleged illegal dismissal. Clearly, the twin requisites of allegation and proof of bad faith, necessary to hold petitioner
personally liable for the monetary awards to respondent, are lacking.

33
 MATLING INDUSTRIAL AND COMMERCIAL CORPORATION vs.
RICARDO R. COROS
G.R. No. 157802 October 13, 2010

Doctrine: Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as
a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a
position a corporate office. Guerrea v. Lezama, 103 Phil. 553 (1958), the first ruling on the matter, held that the only officers of
a corporation were those given that character either by the Corporation Code or by the By-Laws; the rest of the corporate
officers could be considered only as employees or subordinate officials.
Facts: Ricardo R. Coros filed a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate
officers in the NLRC after he was dismissed as the latter’s Vice President for Finance and Administration.

Matling moved to dismiss the complaint, raising the ground, among others, that the complaint pertained to the jurisdiction
of the Securities and Exchange Commission (SEC) due to the controversy being intra-corporate inasmuch as the respondent
was a corporate officer, the office of Vice President for Finance and Administration being created by Matlings President pursuant
to By Law No. V. The Labor Arbiter dismissed the complaint.

On appeal, the NLRC set aside the dismissal, concluding that the respondents complaint for illegal dismissal was properly
cognizable by the LA, not by the SEC, because he was not a corporate officer by virtue of his position in Matling, albeit high
ranking and managerial, not being among the positions listed in Matlings Constitution and By-Laws.

The petitioners then elevated the issue to the CA by petition for certiorari contending that the NLRC committed grave
abuse of discretion amounting to lack of jurisdiction in reversing the correct decision of the LA. The CA dismissed the petition
for certiorari, hence, this petition.

Issue: Whether or not the respondent is a corporate officer of Matling.

Ruling: The respondent is not a corporate officer of Matling.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a corporation must
formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a
director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be
provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person,
except that no one shall act as president and secretary or as president and treasurer at the same time…

Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a
position a corporate office. Guerrea v. Lezama, the first ruling on the matter, held that the only officers of a corporation were
those given that character either by the Corporation Code or by the By-Laws; the rest of the corporate officers could be considered
only as employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v. King:

An office is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by the action
of the directors or stockholders but by the managing officer of the corporation who also determines the
compensation to be paid to such employee.

In this case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner's
general manager, not by the board of directors of petitioner. It was also Malonzo who determined the
compensation package of respondent. Thus, respondent was an employee, not a corporate officer. The CA was
therefore correct in ruling that jurisdiction over the case was properly with the NLRC, not the SEC (now the
RTC).

34
 This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the corporate
officers are the President, Secretary, Treasurer and such other officers as may be provided for in the By-Laws. Accordingly, the
corporate officers in the context of PD No. 902-A are exclusively those who are given that character either by the Corporation
Code or by the corporations By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally
guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling clause on the creation
of just any corporate officer position.

Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to the
President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate officers.
Verily, the power to elect the corporate officers was a discretionary power that the law exclusively vested in the Board of Directors,
and could not be delegated to subordinate officers or agents. The office of Vice President for Finance and Administration
created by Matlings President pursuant to By Law No. V was an ordinary, not a corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers to occupy them vested by By-Law
No. V merely allowed Matlings President to create non-corporate offices to be occupied by ordinary employees of Matling.
Such powers were incidental to the Presidents duties as the executive head of Matling to assist him in the daily operations of
the business.

35
 ABS-CBN Broadcasting Corporation vs. Honorable Court of Appeals
G.R. No. 128690. January 21, 1999
Doctrine: Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power to enter
into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific
purposes.

Recit-Ready Summary: Viva Films offered ABS-CBN the right of first refusal to some Viva films. Vicente Del Rosario offered
to Charo Santos-Concio a list of original movies and reruns for P60M (30M in cash, 30M worth of TV spots). Del Rosario
approached Eugenio Lopez III to have lunch and offer the proposal but this was also turned down. Del Rosario then offered
the same proposal to RBS through Gozon and they agreed to the proposal. The next day, Santos-Concio sent a draft to Viva
offering a counterproposal which Viva did not accept. This was, however, signed by RBS. ABS-CBN now files a complaint for
specific performance against RBS, Viva and Del Rosario. ABS-CBN said that there was an agreement between Del Rosario and
Lopez during lunch of the acceptance written on a piece of napkin. This was not presented in court. The issue is now whether
or not there was a perfected contract between Viva and ABS-CBN. The Court held that no, After Del Rosario met Lopez to
discuss the package films, ABS-CBN, sent through Santos-Concio, counter-proposal in the form of a draft contract. This
counter-proposal could be nothing less than the counter-offer of Lopez during his meeting with Del Rosario. Clearly, there was
no acceptance of the offer, for it was met by a counter-offer which is substantially varied the terms of the offer. Del Rosario did
not have the authority to accept ABS-CBN’s counter-offer was best evidenced by his submission of the draft contract to VIVA’s
Board of Directors for the latter’s approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.

Facts: In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement which gave ABS-CBN an exclusive right to exhibit
some Viva films. The agreement states that ABS-CBN shall have the right of first refusal to the next 24 Viva films for TV
telecast under such terms as may be agreed upon by the parties but this right shall only be exercised by ABS-CBN from the
actual offer in writing.

In 1991, Vicente Del Rosario, the executive producer of Viva offered ABS-CBN’s Vice President Charo Santos-Concio a list of
3 film packages whereby ABS-CBN may exercise its right of first refusal. Through a letter written by Santos-Concio, ABS-CBN
has ticked off only 10 titles they can purchase and one of them is “Maging Sino Ka Man”. This is the subject film of this case.
ABS-CBN did not accept the said list as per the rejection letter.

Thereafter, Del Rosario offered Santos-Concio with another list of 52 original movie titles and 104 reruns, proposing to sell to
ABS-CBN the airing rights of these movies for P60M which will be P30M in cash and another P30M worth of television spots.
Del Rosario met up with Eugenio Lopez III, the General Manager of ABS-CBN to discuss this package proposal but this was
unsuccessful.

A few days later, Del Rosario and Graciano Gozon, Senior VP of Finance of Republic Broadcasting Corporation (RBS) discussed
the terms and conditions of VIVA’s offer. A day after that, Santos-Concio sent the draft of the contract between ABS-CBN and
VIVA which contained a counter-proposal covering 53 films for P35M. Viva’s Board of Director rejected the counter-proposal
because it is very firm is only wanting to sell the package of 104 films for P60M. After the rejection of ABS-CBN and following
several negotiations and meetings Del Rosario and Viva’s President Teresita Cruz, in consideration of P60 million, signed a letter
of agreement dated granting RBS the exclusive right to air 104 Viva-produced and/or acquired films including the fourteen (14)
films subject of the present case.

ABS-CBN filed a complaint for specific performance with prayer for a writ of preliminary injunction and/or TRO against RBS,
Viva and Del Rosario. RTC then ordered the prohibition of airing the films. RBS posted a P30M counterbond to dissolve the
injunction. Later on, the trial court as well as the CA dismissed the complained saying that there was no meeting of the minds
between ABS-CBN and Viva, hence, there was no basis for the former’s demand. The right of first refusal has been exercised
properly.
ABS-CBN argued that an agreement was made during the meeting of Lopez and Del Rosario jotted down on a napkin, which
was never produced in court. Moreover, it had yet to fully exercise its right of first refusal since only 10 titles were chosen from
the first list.
Issue/s:
1) W/N a contract was perfected between ABS-CBN and Viva. – NO.
2) W/N moral damages maybe awarded to a corporation. – NO.

36
Held:
1) Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must
not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from
the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection
of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls
the offer. After Del Rosario met Lopez to discuss the package films, ABS-CBN, sent through Santos-Concio, counter-
proposal in the form of a draft contract. This counter-proposal could be nothing less than the counter-offer of Lopez
during his meeting with Del Rosario. Clearly, there was no acceptance of the offer, for it was met by a counter-offer
which is substantially varied the terms of the offer.

Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power to enter
into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to either an
executive committee or officials or contracted managers. The delegation, except for the executive committee, must be
for specific purposes. Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of
agency as to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the corporation
to exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the
authority to accept ABS-CBN’s counter-offer was best evidenced by his submission of the draft contract to VIVA’s
Board of Directors for the latter’s approval. In any event, there was between Del Rosario and Lopez III no meeting of
minds.

2) Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not
to impose a penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral
suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo
ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption on the part of the trial court.
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only by one having a nervous system. The statement in People
v. Manero and Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it “has a good reputation
that is debased, resulting in social humiliation” is an obiter dictum. On this score alone the award for damages must be
set aside, since RBS is a corporation.

37
 SAN FERNANDO REGALA TRADING v. CARGILL PHILIPPINES
GR No. 178008, October 09, 2013

Doctrine: Moral damages are not awarded to a corporation unless it enjoyed good reputation that the offender debased and
besmirched by his actuations. San Fernando failed to prove by sufficient evidence that it fell within this exception. Besides, moral
damages are, as a rule, also not recoverable in culpa contractual except when bad faith had been proved.

Recit-Ready Summary: Cargill it entered into Contract 5026 covering its sale to San Fernando of 4,000 metric tons (mt) of molasses
at the price of P3,950.00 per mt. Cargill agreed to deliver the molasses within the months of "April to May 1997"... at the wharf of
Union Ajinomoto, Inc. (Ajinomoto) along the Pasig River, Metro Manila. This was a risk-taking forward sale in that its execution was
to take place about 10 months later when the parties did not yet know what the trading price of molasses would be. Shortly after,
Cargill also entered into Contract 5047[2] covering another sale to San Fernando of 5,000 mt of molasses at P2,750.00 per mt. The
delivery period under this contract was within "October-November-December 1996," sooner than the delivery period... under
Contract 5026. Apparently, San Fernando had a deal with Ajinomoto for the supply of these molasses. he CA held that Cargill
committed no breach of Contract 5026 because it had earlier delivered 951 mt of molasses in March 1997[6] and sent a barge containing
1,174 mt of the goods on April 2, 1997 at the Ajinomoto's wharf. It was actually San Fernando that refused to accept this delivery on
April 2. But Contract 5026 required Cargill to deliver 4,000 mt of molasses during the period "April to May 1997." Thus, anything less
than that quantity constitutes breach of the agreement. And since Cargill only delivered a total of 2,125 mt of molasses during the
agreed period, Cargill should be regarded as having violated Contract 5026 with respect to the undelivered balance of 1,875 mt of
molasses. Notably, Chargill's chartered barge showed up with 1,174 mt of molasses at the Ajinomoto wharf on April 27, 1997. The
barge stayed there for around 70 days, awaiting orders to unload the cargo. David Mozo of Dolman Transport Corp. attested to this.
Dolman V was put on stand-by... at the wharf while other barges queued to unload their molasses into Ajinomoto's storage tanks.[7]
In failing to accept delivery of Cargill's 1,174 molasses, San Fernando should reimburse Cargill the P892,732.50 demurrage that it paid.
As a rule, moral damages are not awarded to a corporation unless it enjoyed good reputation that the offender debased and besmirched
by his actuations. San Fernando failed to prove by sufficient evidence that it fell within this exception. Besides, moral damages are, as
a rule, also not recoverable in culpa contractual except when bad faith had been proved. San Fernando failed to show that Cargill was
motivated by bad faith or ill will when it failed to deliver the molasses as agreed.

Facts:
Cargill entered into Contract 5026 covering its sale to San Fernando of 4,000 metric tons (mt) of molasses at the price of P3,950.00
per mt. Cargill agreed to deliver the molasses within the months of “April to May 1997” at the wharf of Union Ajinomoto, Inc.
(Ajinomoto) along the Pasig River, Metro Manila. This was a risk-taking forward sale in that its execution was to take place about 10
months later when the parties did not yet know what the trading price of molasses would be. Shortly after, Cargill also entered into
Contract 5047 covering another sale to San Fernando of 5,000 mt of molasses at P2,750.00 per mt. The delivery period under this
contract was within “October-November-December 1996,” sooner than the delivery period under Contract 5026. Apparently, San
Fernando had a deal with Ajinomoto for the supply of these molasses.

Cargill further alleged the following:

1. It offered to deliver the 4,000 mt of molasses as required by Contract 5026 within the months of April and May 1997 but San
Fernando accepted only 951 mt. The barge carrying Cargill’s 1,174 mt of molasses, arrived at the Ajinomoto wharf but San
Fernando refused to accept the same. refusing to accept the rest causing the delay that slapped Cargill with demurrage
amounting to P920,000. Cargill also suffered P3,480,000.00 in damages by way of unrealized profits because it had to sell the
cargo to another buyer at a loss.
2. It earlier sought to deliver the molasses covered by Contract 5047 at the Ajinomoto wharf in the months of October,
November, and December 1996, but San Fernando failed or refused for unjustified reasons to accept the delivery.
Consequently, Cargill suffered damages by way of unrealized profits of P360,000.00 from this contract. Apart from asking
the RTC for awards of unrealized profits, Cargill also asked for a return of the demurrage it paid, attorney’s fees, and cost of
litigation.

San Fernando pointed out that, except for the 951 mt of molasses that Cargill delivered in March 1997, the latter made no further
deliveries for Contract 5026. Indeed, Cargill sent San Fernando a letter dated May 14, 1997 proposing a change in the delivery period
for that contract from “April to May 1997” to “May to June 1997.” But San Fernando rejected the change since it had a contract to
sell the molasses to Ajinomoto for P5,300.00 per mt.4 San Fernando expected to earn a P5,400,000.00 profit out of Contract 5026.

As for Contract 5047, San Fernando maintained that Cargill delivered no amount of molasses in connection with the same. Cargill
admitted its inability to deliver the goods when it wrote San Fernando a letter on May 14, 1997, proposing to move the delivery period
from “October-November-December 1996” to “May-June-July 1997.” But San Fernando also rejected the change since it had already

38
contracted to sell the subject molasses to Ajinomoto for P4,950.00 per mt.5 San Fernando expected a profit of P11,000,000.00 under
this contract.

RTC dismissed Cargill’s complaint for lack of merit and granted San Fernando’s counterclaims. The RTC did not give credence to
Cargill’s claim that San Fernando refused to accept the deliveries of molasses because Ajinomoto’s tanks were full. San Fernando
sufficiently proved that Ajinomoto continued receiving molasses from other suppliers during the entire time that Cargill’s chartered
barge was put on stand-by at the wharf, supposedly waiting for San Fernando’s unloading orders.

It was incomprehensible, said the RTC, for San Fernando to refuse Cargill’s deliveries, considering that Ajinomoto had already agreed
to buy the molasses from it. Cargill’s failure to make the required deliveries resulted in San Fernando’s default on its obligations to
Ajinomoto, prompting the latter to cancel its orders. As a result, San Fernando lost expected profits of P4,115,329.20 representing the
remaining undelivered molasses under Contract 5026 and P11,000,000.00 under Contract 5047. The RTC awarded San Fernando its
claims for unrealized profits, P500,000.00 in moral damages, another P500,000.00 in exemplary damages, attorney’s fees of
P1,000,000.00, and P500,000.00 as cost of litigation.

CA ruled on appeal, however, that Cargill was not entirely in breach of Contract 5026. Cargill made an advance delivery of 951 mt in
March 1997. It then actually sent a barge containing 1,174 mt of molasses on April 2, 1997 for delivery at Ajinomoto’s wharf but San
Fernando refused to have the cargo unloaded. Consequently, the trial court erred in awarding San Fernando unrealized profits of
P4,115,329.20 under Contract 5026. The CA also ruled that since San Fernando unjustifiably refused to accept the April 2, 1997
delivery, it should reimburse Cargill the P892,732.50 demurrage that it paid the owner of the barge.

The CA, however, found Cargill guilty of breach of Contract 5047 which called for delivery of the molasses in “October-November-
December 1996.” Since San Fernando did not accede to Cargill’s request to move the delivery period back, Cargill violated the contract
when it did not deliver the goods during the previously agreed period. Cargill was liable to San Fernando for unrealized profits of
P11,000,000.00 that it would have made if it had sold them to Ajinomoto. The CA deleted the award of moral and exemplary damages
in favor of San Fernando for its failure to sufficiently establish Cargill’s bad faith in complying with its obligations. The CA also deleted
the awards of attorney’s fees and cost of litigation.

The CA thus ordered: 1) San Fernando to reimburse Cargill the demurrage of P892,732.50 that it paid, subject to 6% interest per
annum computed from the date of the filing of the complaint until the finality of the decision; and 2) Cargill to pay San Fernando
P11,000,000.00 in unrealized profits under Contract 5047. The CA deleted the award of moral and exemplary damages, attorney’s fees,
and cost of litigation. This prompted both Cargill and San Fernando to appeal to this Court.

Issues:
1. W/N the CA erred in ruling that Cargill was not guilty of breach of obligation to deliver the 4,000 mt of molasses covered
by Contract 5026 during the period April and May 1997.
2. W/N CA erred in deleting the award of moral and exemplary damages, attorney’s fees, and cost of suit in favor of
San Fernando. – NO.
Held:
1. A stipulation designating the place and manner of delivery is controlling on the contracting parties. The thing sold can only
be understood as delivered to the buyer when it is placed in the buyer’s control and possession at the agreed place of delivery.
Cargill presented no evidence that it attempted to make other deliveries to complete the balance of Contract 5026. The CA
held that Cargill committed no breach of Contract 5026 because it had earlier delivered 951 mt of molasses in March 1997[6]
and sent a barge containing 1,174 mt of the goods on April 2, 1997 at the Ajinomoto's wharf. It was actually San Fernando
that refused to accept this delivery.
But Contract 5026 required Cargill to deliver 4,000 mt of molasses during the period "April to May 1997." Thus, anything
less than that quantity constitutes breach of the agreement. And since Cargill only delivered a total of 2,125 mt of molasses
during the agreed period,... Cargill should be regarded as having violated Contract 5026 with respect to the undelivered balance
of 1,875 mt of molasses. Notably, Chargill's chartered barge showed up with 1,174 mt of molasses at the Ajinomoto wharf
on April 27, 1997. The barge stayed there for around 70 days, awaiting orders to unload the cargo. David Mozo of Dolman
Transport Corp. attested to this. Dolman V was put on stand-by... at the wharf while other barges queued to unload their
molasses into Ajinomoto's storage tanks. In failing to accept delivery of Cargill's 1,174 molasses, San Fernando should
reimburse Cargill the P892,732.50 demurrage that it paid.
2. As a rule, moral damages are not awarded to a corporation unless it enjoyed good reputation that the offender debased and
besmirched by his actuations. San Fernando failed to prove by sufficient evidence that it fell within this exception. Besides,
moral damages are, as a rule, also not recoverable in culpa contractual except when bad faith had been proved. San Fernando
failed to show that Cargill was motivated by bad faith or ill will when it failed to deliver the molasses as agreed.

39
 Expertravel & Tours, inc., Petitioner, vs. Court of Appeals and Korean Airlines
G.R. No. 152392. May 26, 2005
Doctrine: The courts may take judicial notice that business transactions may be made by individuals through teleconferencing.
Teleconferencing is interactive group communication (three or more people in two or more locations) through an electronic
medium. In general terms, teleconferencing can bring people together under one roof even though they are separated by
hundreds of miles.

Recit-Ready Summary: Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and
licensed to do business in the Philippines. KAL, through appointed counsel, filed a complaint against Expert Travel with the
RTC for the collection of sum of money. The verification and certification against forum shopping was signed by the same
appointed counsel, who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation
of the complaint. Expert Travel filed a motion to dismiss the complaint on the ground that the appointed counsel was not
authorized to execute the verification and certificate of non-forum shopping as required by the Rules of Court. KAL opposed
the motion, contending that he is a resident agent and was registered as such with the SEC as required by the Corporation Code.
He also claimed that he had been authorized to file the complaint through a resolution of the KAL Board of Directors approved
during a special meeting, wherein the board of directors conducted a special teleconference which he attended. It was also
averred that in the same teleconference, the board of directors approved a resolution authorizing him to execute the certificate
of non-forum shopping and to file the complaint. KAL alleged, however, that the corporation had no written copy of the
aforesaid resolution. TC denied motion to dismiss. CA affirms. SC held that teleconferencing can be recognized as legitimate
means to approved a board resolution and authorize an agent to execute an act in favor of the corporation. However, in this
case, Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference along with the
respondent’s Board of Directors, the Court is not convinced that one was conducted; even if there had been one, the Court is
not inclined to believe that a board resolution was duly passed specifically authorizing Atty. Aguinaldo to file the complaint and
execute the required certification against forum shopping.

Facts:
Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do business
in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario
Aguinaldo and his law firm.

On September 1999, KAL, through Atty. Aguinaldo, filed a Complaint in RTC for the collection of the principal amount etc.
against Expertravel and Tours, Inc. (ETI). Where the latter sought for the dismissal of the case, however, private respondent
filed the verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he was
the resident agent and legal counsel of KAL and had caused the preparation of the complaint where He claimed that he had
been authorized to file the complaint through a resolution of the KAL Board of Directors approved during a special meeting
held on June 25, 1999. KAL also contended that Atty.

Aguinaldo was its resident agent and was registered as such with the Securities and Exchange Commission (SEC). It was further
alleged that Atty. Aguinaldo was also the corporate secretary of KAL, showing that he was the lawyer of KAL.

The petitioner on the other hand, maintains that the RTC cannot take judicial notice of the said teleconference without prior
hearing, nor any motion therefore. Finally, KAL submitted on March 6, 2000 an Affidavit of even date, executed by its general
manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference on June 25, 1999, which he and
Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors approved a resolution
authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim also
alleged, however, that the corporation had no written copy of the aforesaid resolution.

But, the petitioner pointed out that there are no rulings on the matter of teleconferencing as a means of conducting meetings of
board of directors for purposes of passing a resolution; until and after teleconferencing is recognized as a legitimate means of
gathering a quorum of board of directors, such cannot be taken judicial notice of by the court. The RTC and CA dismiss the
petition, hence this appeal.

Issue: W/N a special teleconference can be recognized as legitimate means to approved a board resolution and authorize an
agent to execute an act in favor of the corporation – YES.

Held:

40
In this age of modern technology, the courts may take judicial notice that business transactions may be made by individuals
through teleconferencing. Teleconferencing is interactive group communication (three or more people in two or more locations)
through an electronic medium. In general terms, teleconferencing can bring people together under one roof even though they
are separated by hundreds of miles. This type of group communication may be used in a number of ways, and have three basic
types: (1) video conferencing—television-like communication augmented with sound; (2) computer conferencing—printed
communication through keyboard terminals, and (3) audio-conferencing—verbal communication via the telephone with
optional capacity for telewriting or telecopying.

A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first introduced in the 1960’s with
American Telephone and Telegraph’s Picturephone. At that time, however, no demand existed for the new technology. Travel
costs were reasonable and consumers were unwilling to pay the monthly service charge for using the picturephone, which was
regarded as more of a novelty than as an actual means for everyday communication. In time, people found it advantageous to
hold teleconferencing in the course of business and corporate governance, because of the money saved, among other advantages.

In the Philippines, teleconferencing and videoconferencing of members of board of directors of private corporations is a reality,
in light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied with related to such conferences. Thus, the Court agrees with the
RTC that persons in the Philippines may have a teleconference with a group of persons in South Korea relating to business
transactions or corporate governance.

However, in this case, Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference along
with the respondent’s Board of Directors, the Court is not convinced that one was conducted; even if there had been one, the
Court is not inclined to believe that a board resolution was duly passed specifically authorizing Atty. Aguinaldo to file the
complaint and execute the required certification against forum shopping.

41
 Marc II Marketing vs. Alfredo M. Joson
G.R. No. 171993, December 12, 2011
Doctrine: Though the board of directors may create appointive positions other than the positions of corporate officers, the
persons occupying such positions cannot be viewed as corporate officers under Section 25 of the Corporation Code. Unless and
until petitioner corporations by-laws is amended for the inclusion of General Manager in the list of its corporate officers, such
position cannot be considered as a corporate office within the realm of Section 25 of the Corporation Code.

Recit-Ready Summary: Joson was the General Manager, incorporator, director and stockholder of Marc II Marketing. Before
petitioner corporation was officially incorporated, Joson has already been engaged by petitioner Lucila Joson, in her capacity as
President of Marc Marketing Inc., to work as the General Manager of Petitioner Corporation through a management contract.
However, Petitioner Corporation decided to stop and cease its operation wherein respondent's services were then terminated.
Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the Labor Arbiter
which ruled in favor of respondent. The National Labor and Relations Commission (NLRC) reversed said decision. The Court
of Appeals (CA) however, upheld the ruling of the Labor Arbiter. The resolution issued by petitioner corporations Board of
Directors appointing respondent as General Manager, coupled with his assumption of the said position, positively made him its
corporate officer. More so, respondent’s position, being a creation of petitioner corporations Board of Directors pursuant to its
by-laws, is a corporate office sanctioned by the Corporation Code and the doctrines previously laid down by this Court. Thus,
respondents removal as petitioner corporations General Manager involved a purely intra-corporate controversy over which the
RTC has jurisdiction. The Court ruled that Joson is just a mere employee of the corporation. The by-laws reveal that its corporate
officers are composed only of: (1) Chairman; (2) President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The
position of General Manager was not among those enumerated. The corporations by-laws also empowered its Board of Directors
to appoint such other officers as it may determine necessary or proper. It is by virtue of this enabling provision that petitioner
corporations Board of Directors allegedly approved a resolution to make the position of General Manager a corporate office,
and, thereafter, appointed respondent thereto making him one of its corporate officers. All of these acts were done without first
amending its by-laws so as to include the General Manager in its roster of corporate officers. Though the board of directors may
create appointive positions other than the positions of corporate officers, the persons occupying such positions cannot be viewed
as corporate officers under Section 25 of the Corporation Code. Unless and until petitioner corporations by-laws is amended
for the inclusion of General Manager in the list of its corporate officers, such position cannot be considered as a corporate office
within the realm of Section 25 of the Corporation Code.

Facts:
Before petitioner corporation was officially incorporated, respondent has already been engaged by petitioner Lucila, in her
capacity as President of Marc Marketing, Inc., to work as the General Manager of petitioner corporation. It was formalized
through the execution of a Management Contract under the letterhead of Marc Marketing, Inc. as petitioner corporation is yet
to be incorporated at the time of its execution. It was explicitly provided therein that respondent shall be entitled to 30% of its
net income for his work as General Manager. Respondent will also be granted 30% of its net profit to compensate for the
possible loss of opportunity to work overseas.

Petitioner corporation was officially incorporated and registered with the SEC around August 1994. Accordingly, Marc
Marketing, Inc. was made non-operational. Respondent continued to discharge his duties as General Manager under petitioner
corporation. Pursuant to Section 1, Article IV of petitioner corporation’s by-laws, its corporate officers are as follows: Chairman,
President, one or more Vice-President(s), Treasurer and Secretary. Its Board of Directors, however, may, from time to time,
appoint such other officers as it may determine to be necessary or proper.

Per an undated Secretary’s Certificate, petitioner corporation’s Board of Directors conducted a meeting on August 1994 where
respondent was appointed as one of its corporate officers with the designation or title of General Manager to function as a
managing director with other duties and responsibilities that the Board of Directors may provide and authorized.

Nevertheless, on June 1997, petitioner corporation decided to stop and cease its operations due to poor sales collection
aggravated by the inefficient management of its affairs. On the same date, it formally informed respondent of the cessation of
its business operation. Concomitantly, respondent was apprised of the termination of his services as General Manager since his
services as such would no longer be necessary for the winding up of its affairs.

Respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the Labor Arbiter. The Labor
Arbiter rendered his Decision in favor of respondent. Petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.

42
In its Resolution, the NLRC ruled in favor of petitioners by giving credence to the Secretary’s Certificate, which evidenced
petitioner corporations Board of Directors meeting in which a resolution was approved appointing respondent as its corporate
officer with designation as General Manager. Therefrom, the NLRC reversed and set aside the Labor Arbiters Decision and
dismissed respondents Complaint for want of jurisdiction.

When respondents Motion for Reconsideration was denied in another Resolution on January 2003, he filed a Petition for
Certiorari with the Court of Appeals ascribing grave abuse of discretion on the part of the NLRC.

June 2005, the Court of Appeals rendered its Decision declaring that the Labor Arbiter has jurisdiction over the present
controversy. It upheld the finding of the Labor Arbiter that respondent was a mere employee of petitioner corporation, who
has been illegally dismissed from employment without valid cause and without due process. Nevertheless, it ordered the records
of the case remanded to the NLRC for the determination of the appropriate amount of monetary awards to be given to
respondent. Hence, this Petition.

Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that respondent was not a corporate
officer under petitioner corporations by-laws. They insist that there is no need to amend the corporate by-laws to specify who
its corporate officers are. The resolution issued by petitioner corporations Board of Directors appointing respondent as General
Manager, coupled with his assumption of the said position, positively made him its corporate officer. More so, respondent’s
position, being a creation of petitioner corporations Board of Directors pursuant to its by-laws, is a corporate office sanctioned
by the Corporation Code and the doctrines previously laid down by this Court. Thus, respondents removal as petitioner
corporations General Manager involved a purely intra-corporate controversy over which the RTC has jurisdiction.

Issue: W/N the respondent, as the General Manager of petitioner corporation, is a corporate officer or a mere employee. –
YES, respondent is a mere employee of the respondent corporation.

Held:

In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential Decree No. 902-A, corporate
officers are those officers of a corporation who are given that character either by the Corporation Code or by the corporations
by-laws. Section 25 of the Corporation Code specifically enumerated who are these corporate officers, to wit: (1) president; (2)
secretary; (3) treasurer; and (4) such other officers as may be provided for in the by-laws.

The aforesaid Section 25 of the Corporation Code, particularly the phrase such other officers as may be provided for in the by-
laws, has been clarified and elaborated in this Courts recent pronouncement in Matling Industrial and Commercial Corporation
v. Coros, where it held that a position must be expressly mentioned in the [b]y-[l]aws in order to be considered as a corporate
office. Thus, the creation of an office pursuant to or under a [b]y-[l]aw enabling provision is not enough to make a position a
corporate office. Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate
officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other
Offices without amending first the corporate [b]y-laws. However, the Board may create appointive positions other than the
positions of corporate Officers, but the persons occupying such positions are not considered as corporate officers within the
meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions of the corporate Officers,
except those functions lawfully delegated to them. Their functions and duties are to be determined by the Board of
Directors/Trustees.

A careful perusal of petitioner corporation’s by-laws would explicitly reveal that its corporate officers are composed only of: (1)
Chairman; (2) President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of General Manager was
not among those enumerated.

Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of Directors to appoint such other
officers as it may determine necessary or proper. It is by virtue of this enabling provision that petitioner corporations Board of
Directors allegedly approved a resolution to make the position of General Manager a corporate office, and, thereafter, appointed
respondent thereto making him one of its corporate officers. All of these acts were done without first amending its by-laws so
as to include the General Manager in its roster of corporate officers.

With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v. Coros, this Court rules that
respondent was not a corporate officer of petitioner corporation because his position as General Manager was not specifically
mentioned in the roster of corporate officers in its corporate by-laws. The enabling clause in petitioner corporations by-laws
43
empowering its Board of Directors to create additional officers, i.e., General Manager, and the alleged subsequent passage of a
board resolution to that effect cannot make such position a corporate office. Matling clearly enunciated that the board of
directors has no power to create other corporate offices without first amending the corporate by-laws so as to include therein
the newly created corporate office. Though the board of directors may create appointive positions other than the positions of
corporate officers, the persons occupying such positions cannot be viewed as corporate officers under Section 25 of the
Corporation Code. In view thereof, this Court holds that unless and until petitioner corporations by-laws is amended for the
inclusion of General Manager in the list of its corporate officers, such position cannot be considered as a corporate office within
the realm of Section 25 of the Corporation Code.

INTRA-CORPORATE DISPUTES: Under Section 5 of Presidential Decree No. 902-A, intra-corporate controversies are
those controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members
or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their
individual franchise or right to exist as such entity. It also includes controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships or associations.
Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the controversy, the status or relationship of
the parties and the nature of the question that is the subject of their controversy must be taken into consideration.

44
 Real v Sangu Phils. Inc.
G.R. No. 168757. January 19, 2011.

DOCTRINES:
• The fact that the parties involved are the stockholders and the corporation does not necessarily place the dispute within
the ambit of the jurisdiction of the SEC (now the Regional Trial Court); The better policy to be followed in determining
jurisdiction over a case should be to consider concurrent factors such as the status or relationship of the parties or the
nature of the question that is subject of their controversy.
• See also the concepts of intra-corporate controversy, two-tier test, and corporate officer

FACTS:
Mr. Real (“Real”) was a Manager of Sangu Phils. Inc. (“Sangu”). Sangu fired Real for the following reasons:
1. He was absent a lot
2. Loss of trust (because Real created another company that competes with Sangu. He also started giving our business
proposals to the competitors of Sangu.)
3. To cut down on operational expenses

Real filed a case with the NLRC for illegal dismissal because Sangu did not comply with procedural due process when they
terminated him.1 NLRC dismissed the petition of Real for lack of jurisdiction.

The NLRC has jurisdiction over cases involving the employer-employee relationship, aka labor disputes. Since Real was a
stock-holder and director of Sangu, the NLRC did not consider him an employee, but rather a corporate officer. The NLRC
concluded that the case was intra-corporate in character, so the proper tribunal that has jurisdiction is the SEC, now the RTC,
because it is the court that has jurisdiction over intra-corporate matters. The CA agreed with the NLRC so Real brought the
case to the SC.

ISSUE: Who among the following should the SC side with?

a. NLRC – since Real was an stockholder and director, he is not an employee, therefore the case is intra-corporate in
nature, not a labor dispute, thus, the case should be tried by another tribunal, the RTC.
b. Real – The NLRC should not have dismissed my case because it does have jurisdiction over this. Yes, I am a stock-
holder and director, but I was fired as a MANAGER, which means I was fired as an employee. This means that the
case is a labor dispute cognizable by the NLRC.

ANSWER: B. SC agrees with real. The petition has merit.

CONCEPTS:
Intra-corporate controversy
• Is one which arises between a stockholder and the corporation
• There is no distinction, qualification, nor any exemption whatsoever
• It is broad and covers all kinds of controversies between stockholders and corporations
• In determining whether there exists an intra-corporate controversy or not, the two-tier test is used.

Two-Tier Test = Relationship test + Nature of the controversy test

• The two-tier test determines if there is an intra-corporate controversy or not
• Relationship test – The existence of any of the intra-corporate relations must be present
1. Between the corporation, partnership or association and the public;
2. Between the corporation, partnership or association and its stockholders, partners, members or officers;
3. Between the corporation, partnership or association and the State as far as its franchise, permit or license to operate
is concerned; and
4. Among the stockholders, partners or associates themselves.
• Nature of the controversy test
o Under the nature of the controversy test, the incidents of that relationship must also be considered for the
purpose of ascertaining whether the controversy itself is intra-corporate.

1
The twin requirements of notice and hearing were not present in Real’s termination.
45
 o The controversy must be:
1. Rooted in the existence of an intra-corporate relationship,
2. Pertain to the enforcement of the parties’ correlative rights and obligations under the corporation
code and the internal and intra-corporate regulatory rules of the corporation.
o If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if
the relationship does not exist, then no intra-corporate controversy exists.
o The dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of
the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-
corporate controversy.

Corporate Officer
• Basis - Presidential Decree No. 902-A
• Those officers of the corporation who are given that character by the Corporation Code or by the corporation’s by-laws.
• There are three specific officers whom a corporation must have under Section 25 of the Corporation Code. These are the
president, secretary and the treasurer.
• The number of officers is not limited to these three. A corporation may have such other officers as may be provided for
by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate
officers is thus limited by law and by the corporation’s by-laws.

RULING:

1. There Is No Intra-Corporate Relationship

This case fails the relationship test. The fact alone that Real is a stockholder and director of Sangu corporation does NOT
automatically classify this case as an intra-corporate controversy. Not all conflicts between the stockholders and the
corporation are classified as intra-corporate. There are other factors to consider in determining whether the dispute involves
corporate matters as to consider them as intra-corporate controversies.

Below are examples of intra-corporate cases:

1. A member of the board of directors and at the same time a corporate officer claims he was illegally dismissed after he
was stripped of his corporate position of Executive Vice-President because of loss of trust and confidence
2. A complaint for illegal dismissal by corporate officers who were not re-elected to their respective corporate positions.
In the above cases, the Court said that the RTC had jurisdiction over them, because they were intra-corporate in nature. The
Court deemed them to be intra-corporate because they all relate to corporate officers and their removal or non-reelection to
their respective corporate positions.

The above cases are NOT the same as this case because here, Real is NOT a corporate officer. There was nothing to prove
that Real’s appointment was made pursuant to the corporation’s By-Laws. Sangu said that they appointed him pursuant to the
corporation’s By-Laws but they did not give any evidence to support that claim. Thus, the relationship test is not satisfied.

2. Present controversy does not relate to intra-corporate dispute

The reasons (absence, loss of trust, cut down operational expenses) given by Sangu for dismissing Real have something to do
with his being a manager and nothing with his being a director or stockholder. Thus, when Real sought for reinstatement, he
wanted to recover his position as manager, a position which is not a corporate position. He is not trying to recover a seat in
the board of directors or to any appointive or elective corporate position which has been declared vacant by the board. Thus,
this is a case of termination of employment which is a labor controversy and not an intra-corporate dispute. Real’s complaint
does not satisfy the nature of controversy test.

3. The NLRC has jurisdiction over the case, not the RTC
Since the two-tier test was not satisfied, the complaint for illegal dismissal against Sangu is NOT intra-corporate. Rather, it is a
termination dispute and, consequently, falls under the jurisdiction of the Labor Arbiter/NLRC pursuant to Section 217 of the
Labor Code.

46
 AF Realty & Development, Inc. vs. Dieselman Freight Services, Co.
G.R. No. 111448. January 16, 2002.

DOCTRINE:

Contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by
the board. Absent such valid delegation/authorization the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director,
are held NOT binding on the corporation.

FACTS:
Dieselman, a corporation, was selling land. Cruz was a board member of Dieselman. Cruz didn’t have any written authority
(like a board resolution) from Dieselman to designate anyone as an agent of Dieselman in the sale of the subject property.
Despite this, Cruz wrote a letter titled “Authority to Sell Real Estate” to Polintan, authorizing her to find a buyer and negotiate
the sale of the lot. After, Polintan authorized Noble, through a letter, to sell the same property of Dieselman. Noble found a
buyer, AF Realty. AF Realty gave earnest money, but eventually, Cruz ended the sale because they could not agree on the
terms of payment.

AF Realty instituted a case against Dieselman saying that there was already a perfected contract of sale. While the case was
ongoing, Midas, another corporation, bought the land. AF Realty believes it is the true owner of the land, and that Midas is a
buyer in bad faith. Midas alleged that it validly bought the property and took possession of it, thus AF Realty cannot compel
Midas to convey the property to AF Realty.

ISSUE: Is the agency of Cruz, Polintan, and Noble valid, such that their actions led to a valid contract of sale?

ANSWER: No. They are not valid agents, thus their actions cannot lead to a valid sale, even if the seller, Dielselman, may
have ratified the acts of the “agents”.

RATIO:
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the
board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of
directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts
or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of
the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are held
not binding on the corporation.

The board of directors of Dieselman never authorized, verbally and in writing, Cruz, to sell the property in question or to look
for buyers and negotiate the sale of the subject property, which means he had no power to authorize anyone to sell the property.
While Cristeta Polintan was actually authorized by Cruz, to look for buyers and negotiate the sale of the property, Cruz could
not confer on Polintan any authority which he himself did not have. Similarly, Noble could not have possessed authority either,
being a mere extension of Polintan’s purported authority, for it is a legal truism that a spring cannot rise higher than its source.
Thus, the alleged sale of the subject property was effected through persons who were absolutely without any authority from
Dieselman.

The argument that Dieselman ratified the contract by accepting the earnest money is untenable. The laws on agency provide
that the sale of land through an agent without any written authority is void. 2 Considering that Cruz, Polintan and Noble were
not authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is NOT
susceptible of ratification. 3

2
“ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the
sale shall be void.”
3
ART. 1409. The following contracts are inexistent and void from the very beginning:
…
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
47
 Heirs of Fausto C. Ignacio vs. Home Bankers Savings and Trust Company
G.R. No. 177783. January 23, 2013.

DOCTRINE:
A corporation can only execute its powers and transact its business through its Board of Directors and through its officers and
agents when authorized by a board resolution or its by-laws.

FACTS:

Petitioner’s property was foreclosed. The bank was the highest bidder. The period of redemption passed and the petitioner
was not able to redeem the property. Sometime after the period of redemption expired, petitioner went to the bank and asked
if he could still redeem the property. Petitioner alleges that he and a certain Mr. Fajardo and Mr. Lazaro, entered into a
“compromise agreement” wherein it was agreed that petitioner could redeem the property even after the redemption period.

Petitioner showed as evidence, a perfected contract of purchase, from Rita B. Manuel, then President of UPI, a corporation
formed by respondent bank to dispose of its acquired assets, with notations handwritten by petitioner himself.

ISSUE: Is the bank bound to honor the “compromise agreement”?

ANSWER: NO, because the bank didn’t authorize anyone to enter into a compromise agreement on its behalf

RATIO:
The court reiterated what was said in AF Realty (case 25) saying:

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall
be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in
his behalf, so may the board of directors of a corporation validly delegate some of its functions to
individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either
by the board of directors or by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of
the corporation, but not in the course of, or connected with, the performance of authorized duties of
such director, are held not binding on the corporation.

Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its
officers and agents when authorized by a board resolution or its by-laws.

In the absence of conformity or acceptance by properly authorized bank officers of petitioner’s counter-proposal, no
perfected repurchase contract was born out of the talks or negotiations between petitioner and Mr. Lazaro and Mr. Fajardo.
Petitioner therefore had no legal right to compel respondent bank to accept the P600,000 being tendered by him as payment
for the supposed balance of repurchase price.

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