CORPORATION

 LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    

 
determine   policy   and   conduct   the   ordinary   business   of   o Thus,   contracts   or   acts   of   a   corporation   must   be   made  
the  corporation  within  the  scope  of  its  charter.  As  long   either   by   the   Board   of   Directors   or   by   a   corporate   agent  
as   the   board   acts   honestly   and   the   contract   does   not   duly  authorized  by  the  board.    
defraud   or   abuse   the   rights   of   the   minority,   the   courts   o Absent   such   valid   delegation/authorization,   the   rule   is  
will   not   interfere   in   their   judgments   and   transactions.   that  the  declarations  of  an  individual  director  relating  to  
The   minority   members   of   the   board   and   the   minority   the  affairs  of  the  corporation,  but  not  in  the  course  of,  
stockholders   cannot   come   to   court   upon   allegations   of   or  connected  with  the  performance  of  authorized  duties  
want  of  judgment  or  lack  of  efficiency  on  the  part  of  the   of   such   director,   are   held   not   binding   on   the  
majority   and   change   the   course   of   the   administration   of   corporation.    
corporate  affairs.   • Atty.  Hofileña  à  The  one  share  required  to  be  held  by  a  director  
• Section   23   expressly   provides   that   the   corporate   powers   of   all   is  a  qualifying  share  and  in  practice  is  ignorable.  
corporations   shall   be   exercised   by   the   Board   of   Directors.    
Manila  Metal  Container  Corp.  v.  PNB,  511  SCRA  444  (2006).1   A.  Rationale  for  “Centralized  Management”  Doctrine:  
o The   source   of   power   of   the   Board   of   Directors   is   • The   raison   d’etre   behind   the   conferment   of   corporate   powers  
primarily   and   directly   vested   by   law;   it   is   not   a   on  the  Board  of  Directors  is  not  lost  on  the  Court  –  indeed,  the  
delegated  power  from  the  stockholders  or  members  of   concentration   in   the   Board   of   the   powers   of   control   of  
the  corporation.2   corporate   business   and   appointment   of   corporate   officers   and  
• Just   as   a   natural   person   may   authorize   another   to   do   certain   managers   is   necessary   for   efficiency   in   any   large   organization.  
acts   in   his   behalf,   so   may  the   Board   of   Directors   validly   delegate   Stockholders   are   too   numerous,   scattered   and   unfamiliar   with  
some  of  its  functions  to  individual  officers  or  agents  appointed   the   business   of   a   corporation   to   conduct   its   business   directly.  
by  it.     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.  Filipinas  Port  Services  v.  Go,  518  
                                                                                                                SCRA  453  (2007).  
1
 Yu  Chuck  v.  “Kong  Li  Po,”  46  Phil.  608,  614  (1924);  Gamboa  v.  Victoriano,  90    
SCRA   40   (1979);   Reyes   v.   RCPI   Employees   Credit   Union,   Inc.,   499   SCRA   319   Filipinas  Port  Services  v.  Go  
(2006);   Yasuma   v.   Heirs   of   Cecilio   S.   De   Villa,   499   SCRA   466   (2006);   Raniel   v.  
Jochico,   517   SCRA   221   (2007);   Republic   v.   Coalbrine   International,   617   SCRA    
491  (2010).   Facts:   Filport’s   Board   of   Directors   (herein   respondents)   enacted   a  
2
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   resolution   creating   six   new   positions.   People   were   elected   into   said   6  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
offices   and   given   a   monthly   salary.   They   also   increased   the   salaries   of   management  of  the  corporation’s  regular  business  affairs,  unless  more  
the  Chairman  and  other  officers.  Eliodoro  Cruz  (previous  board  director)   extensive  power  is  expressly  conferred.  
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   as   • A   corporation   is   an   artificial   being   and   can   only   exercise   its  
required  by  Section  35  of  the  Corporation  Code.   powers   and   transact   its   business   through   the   instrumentalities  
  of   its   Board   of   Directors,   and   through   its   officers   and   agents,  
Issue:   Whether   or   not   the   Board   of   Directors   had   the   power   to   create   when  authorized  by  resolution  or  by  its  by-­‐laws.    
the  assailed  positions   Examples:  
  o Consequently,   when   legal   counsel   was   clothed   with  
Held:   YES.   While   the   by-­‐laws   do   not   expressly   provide   for   the   board’s   authority  through  formal  board  resolution,  his  acts  bind  
authority  to  create  an  executive  committee,  the  Court  cannot  deem  that   the   corporation   which   must   be   held   bound   the  
the   positions   created   automatically   formed   an   executive   committee.   actuations  of  its  counsel  of  record.  De  Liano  v.  Court  of  
The   “executive   committee”   referred   to   in   Sec.   35   means   a   committee   Appeals,  370  SCRA  349  (2001).  
that   has   equal   powers   with   the   board   and   must   be   distinguished   from   o “The  physical  acts  of  the  corporation,  like  the  signing  of  
other   committees   that   can   be   created   and   controlled   by   the   board.   In   documents,   can   be   performed   only   by   natural   persons  
this   case,   the   positions   created   are   ordinary   positions   were   created   in   duly  authorized  for  the  purpose  by  corporate  by-­‐laws  or  
accordance  with  the  regular  business  of  Filport;  thus,  it  is  entirely  within   by   a   special   act   of   the   board   of   directors.”   Firme   v.  
the   board’s   power   to   create   them   and   provide   remuneration   therefor.   Bukal  Enterprises  and  Dev.  Corp.,  414  SCRA  190  (2003);  
Plus,   Cruz   himself   moved   to   create   the   positions   of   AVPS   for   Finance,   Shipside  Inc.  v.  Court  of  Appeals,  352  SCRA  334  (2001).  
Operations,   and   Administration   during   his   incumbency   as   Filport    
president.   B.  Theories  on  Source  of  Board  Power  
  1. Theory   of   Original   Power   à   The   source   of   the   power   of   the  
Doctrine:   As   per   Section   23   of   the   Corporation   Code,   the   corporate   Board   comes   directly   from   the   law,   and   the   Board   is   originally  
powers  of  all  corporations  formed  under  the  code  shall  be  exercised  by   and  directly  granted  corporate  power  as  the  embodiment  of  the  
the   board,   and   all   property   owned   and   business   conducted   by   the   corporation.  This  theory  has  no  democratic  notions  but  actually  
corporation  shall  also  be  held  and  controlled  by  the  board.  The  board  is   is  more  akin  to  the  principles  of  autocracy.  
the   sole   authority   to   determine   policies,   enter   into   contracts,   and   a. Accordingly   there   is   little   for   the   stockholders   to   do  
conduct   the   ordinary   business   of   the   corporation   within   the   scope   of   its   beyond   electing   directors,   making   by-­‐laws   and  
charter.   However,   the   authority   of   the   board   is   restricted   to   the   exercising   certain   other   special   powers   defined   by   law.  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
These   notions   are   in   accordance   with   the   mandate   of   stockholders.   By   drawing   themselves   the   powers   of   the  
Section  23  of  the  Corporation  Code.   corporation,   they   occupy   positions   of   trusteeship   in   relation   to  
b. Under  the  theory  of  original  power,  the  Board  is  vested   the  stockholders.  Angeles  v.  Santos,  64  Phil.  697  (1937).  
with   the   legal   or   naked   title   to   the   properties   and    
business  enterprise  of  the  corporation,  being  viewed  as   Angeles  v.  Santos  
a   medium   or   the   corpus,   with   the   stockholders   being    
considered  as  the  beneficiaries,  and  thereby  a  fiduciary   Facts:   A   complaint   was   instituted   by   Angeles,   de   Lara,   Bernabe,   as  
relationship   established   between   the   Board   as   the   stockholders  and  member  of  the  minority  of  the  Board  of  Directors,  for  
trustee,  and  the  stockholders  as  the  beneficiaries.   and   in   behalf   of   the   corporation,   Parañaque   Rice   Mill,   Inc.,   against  
c. Atty.   Hofileña   à   the   Board   of   Directors   vis-­‐à-­‐vis   the   Santos,  Mayuga,  Pascual,  and  Rodriguez  who  constitute  the  majority  of  
stockholders  have  a  fiduciary/trust  relationship.   the   Board   of   Directors.   Generally,   the   allegations   consists   of   denial   of  
2. Theory   of   Delegated   Power   à   the   authority   exercised   by   the   Santos   as   president   of   the   Corporation   to   give   access   to   the  
Board   is   viewed   as   delegated   to   them   by   stockholders.   Under   corporation’s  books  which  was  then  necessary  because  (1)  de  Lara  was  
such   theory,   the   source   of   primary   theory   can   override   the   conducting   an   investigation,   (2)   such   books   should   have   been   in   the  
decisions  of  its  delegates.   hands  of  the  treasurer  (Bernabe)  and  not  the  president,   and  (3)  that  the  
a. Such   theory   promotes   the   notion   of   agency   in   the   defendants   had   been   disposing   of   the   assets   of   the   corporation   without  
corporate   set-­‐up,   where   the   real   sources   of   power   are   authority   from   the   Board.   The   court   issued   an   ex   parte   order   of  
the   stockholders   or   members,   and   the   representatives   receivership  appointing  Melchor  de  Lara  as  receiver  but  the  defendants  
thereof   would   be   the   Board.   It   is   also   consistent   with   objected   claiming   that   the   Court   had   no   jurisdiction   over   the   Parañaque  
notions   in   Property   Law   that   as   a   general   rule,   the   Rice  Mill,  Inc.,  because  it  had  not  been  include  as  party  defendant  in  this  
owners   exercise   ultimate   power   and   disposition   over   case   and   that,   therefore   the   court   could   not   properly   appoint   a   receiver  
the   subject   matter   to   which   he   holds   title.   The   of  the  corporation  pendente  lite.  
stockholders   or   members   are   the   real   owners   of   the    
corporation,   and   to   them   the   corporate   powers   must   Issue:  Whether  or  not  the  trial  court  was  without  jurisdiction  to  appoint  
belong,   and   that   the   Board   of   Directors   or   Trustees   a  receiver  and  should  have  dismissed  the  case  
merely  act  as  their  agents  or  representatives.    
• Delegated   Powers   Coming   from   the   Stockholders:  The  Board  of   Held:   NO.   That   the   action   was   properly   instituted   by   the   plaintiff   as  
Directors   is   a   creation   of   the   stockholders   and   controls   and   stockholders   for   and   in   behalf   of   the   corporation   Parañaque   Rice   Mill,  
directs   the   affairs   of   the   corporation   by   delegation   of   the   Inc.  and  the  lower  court  committed  no  reveiwable  error  in  appointing  a  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)