BUSORG2 OUTLINE 5 (2016) 9.
To make reasonable donations, including those for the public welfare
Prof. M.I.P. Romero
Xl. CORPORATE POWERS
1) Express, Implied, Inherent - Sections 36 to 45
Section 36. Corporate powers and capacity. – Every corporation
incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the
provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to
amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and
to sell stocks to subscribers and to sell treasury stocks in accordance with
the provisions of this Code; and to admit members to the corporation if it
be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction of
the lawful business of the corporation may reasonably and necessarily
require, subject to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as
provided in this Code;
or for hospital, charitable, cultural, scientific, civic, or similar purposes:
Provided, That no corporation, domestic or foreign, shall give donations
in aid of any political party or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary to
carry out its purpose or purposes as stated in the articles of incorporation.
(13a)
Section 37. Power to extend or shorten corporate term. – A private
corporation may extend or shorten its term as stated in the articles of
incorporation when approved by a majority vote of the board of directors
or trustees and ratified at a meeting by the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock or by at least two-
thirds (2/3) of the members in case of non-stock corporations. Written
notice of the proposed action and of the time and place of the meeting
shall be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally:
Provided, That in case of extension of corporate term, any dissenting
stockholder may exercise his appraisal right under the conditions
provided in this code. (n)
Section 38. Power to increase or decrease capital stock; incur, create or
increase bonded indebtedness. – No corporation shall increase or
decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of directors
and, at a stockholder’s meeting duly called for the purpose, two-thirds
(2/3) of the outstanding capital stock shall favor the increase or
diminution of the capital stock, or the incurring, creating or increasing of
any bonded indebtedness. Written notice of the proposed increase or
diminution of the capital stock or of the incurring, creating, or increasing
of any bonded indebtedness and of the time and place of the
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stockholder’s meeting at which the proposed increase or diminution of
the capital stock or the incurring or increasing of any bonded
indebtedness is to be considered, must be addressed to each stockholder
at his place of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage prepaid, or
served personally.
A certificate in duplicate must be signed by a majority of the directors of
the corporation and countersigned by the chairman and the secretary of
the stockholders’ meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the names,
nationalities and residences of the persons subscribing, the amount of
capital stock or number of no-par stock subscribed by each, and the
amount paid by each on his subscription in cash or property, or the
amount of capital stock or number of shares of no-par stock allotted to
each stock-holder if such increase is for the purpose of making effective
stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock,
or the incurring, creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or
increasing of any bonded indebtedness shall require prior approval of the
Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of the
corporation and the other shall be filed with the Securities and Exchange
Commission and attached to the original articles of incorporation. From
and after approval by the Securities and Exchange Commission and the
issuance by the Commission of its certificate of filing, the capital stock
shall stand increased or decreased and the incurring, creating or
increasing of any bonded indebtedness authorized, as the certificate of
filing may declare: Provided, That the Securities and Exchange
Commission shall not accept for filing any certificate of increase of
capital stock unless accompanied by the sworn statement of the treasurer
of the corporation lawfully holding office at the time of the filing of the
certificate, showing that at least twenty-five (25%) percent of such
increased capital stock has been subscribed and that at least twenty-five
(25%) percent of the amount subscribed has been paid either in actual
cash to the corporation or that there has been transferred to the
corporation property the valuation of which is equal to twenty-five (25%)
percent of the subscription: Provided, further, That no decrease of the
capital stock shall be approved by the Commission if its effect shall
prejudice the rights of corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or
increase the same, with the approval by a majority vote of the board of
trustees and of at least two-thirds (2/3) of the members in a meeting duly
called for the purpose.
Bonds issued by a corporation shall be registered with the Securities and
Exchange Commission, which shall have the authority to determine the
sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. – All stockholders of a
stock corporation shall enjoy pre-emptive right to subscribe to all issues
or disposition of shares of any class, in proportion to their respective
shareholdings, unless such right is denied by the articles of incorporation
or an amendment thereto: Provided, That such pre-emptive right shall not
extend to shares to be issued in compliance with laws requiring stock
offerings or minimum stock ownership by the public; or to shares to be
issued in good faith with the approval of the stockholders representing
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two-thirds (2/3) of the outstanding capital stock, in exchange for property sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its
needed for corporate purposes or in payment of a previously contracted property and assets if the same is necessary in the usual and regular
debt. course of business of said corporation or if the proceeds of the sale or
other disposition of such property and assets be appropriated for the
Section 40. Sale or other disposition of assets. – Subject to the provisions conduct of its remaining business.
of existing laws on illegal combinations and monopolies, a corporation
may, by a majority vote of its board of directors or trustees, sell, lease, In non-stock corporations where there are no members with voting rights,
exchange, mortgage, pledge or otherwise dispose of all or substantially the vote of at least a majority of the trustees in office will be sufficient
all of its property and assets, including its goodwill, upon such terms and authorization for the corporation to enter into any transaction authorized
conditions and for such consideration, which may be money, stocks, by this section.
bonds or other instruments for the payment of money or other property or
consideration, as its board of directors or trustees may deem expedient, Section 41. Power to acquire own shares. – A stock corporation shall
when authorized by the vote of the stockholders representing at least two- have the power to purchase or acquire its own shares for a legitimate
thirds (2/3) of the outstanding capital stock, or in case of non-stock corporate purpose or purposes, including but not limited to the following
corporation, by the vote of at least to two-thirds (2/3) of the members, in cases: Provided, That the corporation has unrestricted retained earnings in
a stockholder’s or member’s meeting duly called for the purpose. Written its books to cover the shares to be purchased or acquired:
notice of the proposed action and of the time and place of the meeting
shall be addressed to each stockholder or member at his place of 1. To eliminate fractional shares arising out of stock dividends;
residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally: 2. To collect or compromise an indebtedness to the corporation, arising
Provided, That any dissenting stockholder may exercise his appraisal out of unpaid subscription, in a delinquency sale, and to purchase
right under the conditions provided in this Code. delinquent shares sold during said sale; and

A sale or other disposition shall be deemed to cover substantially all the 3. To pay dissenting or withdrawing stockholders entitled to payment for
corporate property and assets if thereby the corporation would be their shares under the provisions of this Code. (a)
rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated. Section 42. Power to invest corporate funds in another corporation or
business or for any other purpose. – Subject to the provisions of this
After such authorization or approval by the stockholders or members, the Code, a private corporation may invest its funds in any other corporation
board of directors or trustees may, nevertheless, in its discretion, abandon or business or for any purpose other than the primary purpose for which it
such sale, lease, exchange, mortgage, pledge or other disposition of was organized when approved by a majority of the board of directors or
property and assets, subject to the rights of third parties under any trustees and ratified by the stockholders representing at least two-thirds
contract relating thereto, without further action or approval by the (2/3) of the outstanding capital stock, or by at least two thirds (2/3) of the
stockholders or members. members in the case of non-stock corporations, at a stockholder’s or
member’s meeting duly called for the purpose. Written notice of the
Nothing in this section is intended to restrict the power of any proposed investment and the time and place of the meeting shall be
corporation, without the authorization by the stockholders or members, to addressed to each stockholder or member at his place of residence as
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shown on the books of the corporation and deposited to the addressee in
the post office with postage prepaid, or served personally: Provided, That
any dissenting stockholder shall have appraisal right as provided in this
Code: Provided, however, That where the investment by the corporation
is reasonably necessary to accomplish its primary purpose as stated in the
articles of incorporation, the approval of the stockholders or members
shall not be necessary. (17 1/2a)
Section 43. Power to declare dividends. - The board of directors of a
stock corporation may declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in property, or in stock to all
stockholders on the basis of outstanding stock held by them: Provided,
That any cash dividends due on delinquent stock shall first be applied to
the unpaid balance on the subscription plus costs and expenses, while
stock dividends shall be withheld from the delinquent stockholder until
his unpaid subscription is fully paid: Provided, further, That no stock
dividend shall be issued without the approval of stockholders
representing not less than two-thirds (2/3) of the outstanding capital stock
at a regular or special meeting duly called for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in excess
of one hundred (100%) percent of their paid-in capital stock, except: (1)
when justified by definite corporate expansion projects or programs
approved by the board of directors; or (2) when the corporation is
prohibited under any loan agreement with any financial institution or
creditor, whether local or foreign, from declaring dividends without
its/his consent, and such consent has not yet been secured; or (3) when it
can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there is need for
special reserve for probable contingencies. (n)
Section 44. Power to enter into management contract. – No corporation
shall conclude a management contract with another corporation unless
such contract shall have been approved by the board of directors and by
stockholders owning at least the majority of the outstanding capital stock,
or by at least a majority of the members in the case of a non-stock
corporation, of both the managing and the managed corporation, at a
meeting duly called for the purpose: Provided, That (1) where a
stockholder or stockholders representing the same interest of both the
managing and the managed corporations own or control more than one-
third (1/3) of the total outstanding capital stock entitled to vote of the
managing corporation; or (2) where a majority of the members of the
board of directors of the managing corporation also constitute a majority
of the members of the board of directors of the managed corporation,
then the management contract must be approved by the stockholders of
the managed corporation owning at least two-thirds (2/3) of the total
outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of
the members in the case of a non-stock corporation. No management
contract shall be entered into for a period longer than five years for any
one term.
The provisions of the next preceding paragraph shall apply to any
contract whereby a corporation undertakes to manage or operate all or
substantially all of the business of another corporation, whether such
contracts are called service contracts, operating agreements or otherwise:
Provided, however, That such service contracts or operating agreements
which relate to the exploration, development, exploitation or utilization
of natural resources may be entered into for such periods as may be
provided by the pertinent laws or regulations. (n)
Section 45. Ultra vires acts of corporations. – No corporation under this
Code shall possess or exercise any corporate powers except those
conferred by this Code or by its articles of incorporation and except such
as are necessary or incidental to the exercise of the powers so conferred.
(n)
 Y-1 Leisure v, Yu GR 207161; Sept. 8, 2015
2) Ultra Vires Doctrine --- Sec. 45; Legal Consequences
Section 45. Ultra vires acts of corporations. – No corporation under this
Code shall possess or exercise any corporate powers except those
conferred by this Code or by its articles of incorporation and except such
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as are necessary or incidental to the exercise of the powers so conferred. While as a rule an ultra vires act is one committed outside the
(n) object for which a corporation is created as defined by the law of its
organization and therefore beyond the powers conferred upon it by law,
RP v. Acoje Mining (1963) 7 SCRA 631 there are however certain corporate acts that may be performed outside of
FACTS: the scope of the powers expressly conferred if they are necessary to
Acoje Mining requested to the Director of Posts for opening of a promote the interest or welfare of the corporation.
post, telegraph and money order offices at its mining camp. The latter
signify its willingness but requested that a board resolution be passed National Power Corp. v. Vera (1989) 170 SCRA 721
upon regarding assumption of direct responsibility in case of pecuniary FACTS:
loss. The board resolution was approved and thereafter a post office Sea Lion International Port Services, private respondent, filed a
branch was opened. complaint for prohibition and mandamus against petitioner NPC alleging
A postmaster was hired to conduct the operations of post office. that it had acted in bad faith in not renewing its contract for stevedoring
The postmaster that was hired went on a leave but never returned. The services for its plant and in taking over its stevedoring services.
company immediately informed the officials of the Manila Post Office Respondent judge issued a restraining order against NPC enjoining the
and the provincial auditor of Zambales of postmaster’s disappearance latter from undertaking stevedoring services at its pier. Consequently,
with the result that the accounts of the postmaster were checked and a NPC filed an "Urgent Motion" to dissolve the restraining order, asserting
shortage was found. Several demands were made upon the company for that respondent judge had no jurisdiction to issue the order and private
the payment of the shortage, having failed; the petitioner commenced the respondent, whose contract with NPC had expired prior to the
present action. The company in its answer denied liability contending that commencement of the suit, failed to establish a cause of action for a writ
the resolution of the board of directors wherein it assumed responsibility of preliminary injunction. The respondent judge denied the NPC’s motion
for the act of the postmaster is ultra vires, and in any event its liability and issued a TRO after finding that NPC was not empowered by its
under said resolution is only that of a guarantor who answers only after Charter to engage in stevedoring and arrastre services.
the exhaustion of the properties of the principal, aside from the fact that
the loss claimed by the plaintiff is not supported by the office record. ISSUE:
WON the undertaking of stevedoring services is empowered by
ISSUE: the NPC’s charter powers.
Is the board resolution for the approval of post office branch ultra
vires? HELD:
YES. To carry out the national policy of total electrification of the
HELD: country, the NPC was created and empowered not only to construct,
Resolution adopted by the company to open a post office branch operate and maintain power plants, reservoirs, transmission lines, and
at the mining camp and to assume sole and direct responsibility for any other works, but also to exercise such powers and do such things as may
dishonest, careless or negligent act of its appointed postmaster is NOT be reasonably necessary to carry out the business and purposes for which
ULTRA VIRES because the act covers a subject which concerns the it was organized, or which, from time to time, may be declared by the
benefit, convenience, and welfare of the company’s employees and their Board to be necessary, useful, incidental or auxiliary to accomplish said
families. purpose.

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 In determining whether or not an NPC act falls within the purview 6. Corporate policy of using a depreciation rate of 10 % per annum
of the above provision, the Court must decide whether or not a logical is not excessive, because according to the SC, the by-laws expressly
and necessary relation exists between the act questioned and the authorizes the BOD to determine each year the amount to be written
corporate purpose expressed in the NPC charter. For if that act is one down upon the expenses of installation and the property of the corp.
which is lawful in itself and not otherwise prohibited, and is done for the
7. The Corp. Law does not expressly grant the power of maintaining
purpose of serving corporate ends, and reasonably contributes to the reserve funds but such power is implied. All business enterprises
promotion of those ends in a substantial and not in a remote and fanciful encounter periods of gains and losses, and its officers would
sense, it may be fairly considered within the corporation's charter powers.
usually provide for the creation of a reserve to act as a buffer for such
circumstances.
8. That loans issued to member borrowers are being used for
Govt. of the P.I.v. El Hogar Filipino 50 Phil. 399 purposes other than the bldg. of homes not invalid because there is no
NOTE: This case is an example of how the implied powers concept may statute which expressly declares that loans may be made by these
be used to justify certain acts of a corporation. associations solely for the purpose of bldg. homes.
9. Sec. 173 of the Corp. Law provides that "any person" may
A quo warranto proceeding instituted by the Government against become a stockholder on a bldg. and loan association. The word
El Hogar, a building and loan association, to deprive it of its corporate "person" is used on a broad sense including not only natural persons but
franchise. also artificial persons.

1. El Hogar held title to real property for a period in excess of 5

years in good faith; hence this cause will not prosper.
2. El Hogar owned a lot and bldg. at a business district in Manila
allegedly in excess of its reasonable requirements, held valid because, it
was found to be necessary and legally acquired and developed.
3. El Hogar leased some office space in its bldg.; it administered and
managed properties belonging to delinquent stockholders; and managed
properties of its stockholders even if such were not mortgaged to them.
Held: first two valid, but the third is ultra vires because the
administration of property in that manner is more befitting of the business
of a real estate agent or trust company and not of a building and loan
association.
4. Compensation to the promoter and organizer allegedly excessive
and unconscionable.
Held: Court cannot dwell on the issue since the promoter
is not a party in the proceeding and it is the corp. or its stockholders who
may bring a complaint on such.
5. Issuance of special shares did not affect El Hogar's character as a
building and loan association nor make its loans usurious.
Pirovano, et al v. De la Rama (1954) 96 Phil. 335
FACTS:
Enrico Pirovano, president of the defendant company, managed
the company until it became a multi-million corporation by the time
Pirovano was executed by the Japanese during the occupation.
BOD Resolution: Out of the proceeds, the sum of P400,000 be
set aside for equal division among the 4 minor children, convertible into
shares of stock of the De la Rama Steamship Company, at par and, for
that purpose, that the present registered stockholders of the corporation
be requested to waive their pre-emptive right to 4,000 shares of the
unissued stock of the company in order to enable each of the 4 minor
heirs to obtain 1,000 shares at par.
Plaintiffs herein are the minor children of the late Enrico Pirovano
represented by their mother and judicial guardian Estefania Pirovano.
They seek to enforce certain resolutions adopted by the Board of
Directors and stockholders of the defendant company giving to said
minor children of the proceeds of the insurance policies taken on the life
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of their deceased father Enrico Pirovano with the company as technical expertise in exchange for capital shares in Balatoc. Harden was
beneficiary. Defendant's main defense is: that said resolutions and the a stockholder of Balatoc and he contends that this contract violated the
contract executed pursuant thereto are ultra vires, and, if valid, the Corporation Law which restricts the acquisition of interest by a mining
obligation to pay the amount given is not yet due and demandable. RTC corporation in another mining corporation.
ruled that contract or donation is not ultra vires.
ISSUE:
ISSUE: WON the plaintiff can maintain an action based upon the
WON corporation donation of the proceeds of the insurance violation of the law supposedly committed by respondent company.
policies is an ultra vires act.
HELD:
HELD: NO. The provision was adopted by the lawmakers with a sole
NO. The AOI of the corporation provided two relevant items: (1) view to the public policy that should control in the granting of mining
to invest and deal with moneys of the company not immediately required, rights. Furthermore, the penalties imposed in what is now section 190 (A)
in such manner as from time to time may be determined; and (2) to aid in of the Corporation Law for the violation of the prohibition in question are
any other manner any person, association or corporation of which any of such nature that they can be enforced only by a criminal prosecution or
obligation or in which any interest is held by this corporation or in the by an action of quo warranto. but these proceedings can be maintained
affairs of prosperity of which this corporation has a lawful interest. only by the Attorney-General in representation of the Government.
From this, it is obvious that the corporation properly exercised
within its chartered powers the act of availing of insurance proceeds to Bissel v. Michigan Southern 22 NY 258; 1860
the heirs of the insured and deceased officer. FACTS:
Two railroad corporations contend that they transcended their
NOTE: Ultra vires act vs. Illegal Acts – own powers and violated their own organic laws. Hence, they should not
A distinction should be made between corporate acts or contracts be held liable for the injury of the plaintiff who was a passenger in one of
which are illegal and those which are merely ultra vires. The former their trains.
contemplates the doing of an act which is contrary to law, morals, or
public policy or public duty, and are, like similar transactions between ISSUE:
the individuals void. They cannot serve as basis of a court action, nor WON the contract made between the two railroad corporations is
require validity ultra vires acts on the other hand, or those which are not valid and as such can be use a defense to evade the liability against the
illegal and void ab initio, but are merely within are not illegal and void passenger.
ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and HELD:
enforceable when ratified by the stockholders. NO. The contract between the two corporations was an ultra vires
act. However, it is not one tainted with illegality, therefore, the
Harden, et al v. Benguet (1933) 58 Phil. 141 accompanying rights and obligations based on the contract of carriage
FACTS: between them and the plaintiff cannot be avoided by raising such a
A contract between Benguet Consolidated Mining and Balatoc defense.
Mining Co. provided that Benguet will bring in capital, equipment. and
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 director of the corporation, being a substantial stockholder thereof; that as
Gokongwei Jr. v. SEC, et al. 89 SCRA 336 (1979) a stockholder, Gokongwei had acquired rights inherent in stock
ownership, such as the rights to vote and to be voted upon in the election
Facts: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as of directors; and that in amending the by-laws, Soriano, et. al. purposely
stockholder of San Miguel Corporation, filed with the Securities and provided for Gokongwei's disqualification and deprived him of his vested
Exchange Commission (SEC) a petition for "declaration of nullity of right as afore-mentioned, hence the amended by-laws are null and void.
amended by-laws, cancellation of certificate of filing of amended by- As additional causes of action, it was alleged that corporations have no
laws, injunction and damages with prayer for a preliminary injunction" inherent power to disqualify a stockholder from being elected as a
against the majority of the members of the Board of Directors and San director and, therefore, the questioned act is ultra vires and void; that
Miguel Corporation as an unwilling petitioner. As a first cause of action, Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other
Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose corporations, entered into contracts (specifically a management contract)
M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode with the corporation, which was avowed because the questioned
B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the amendment gave the Board itself the prerogative of determining whether
corporation, basing their authority to do so on a resolution of the they or other persons are engaged in competitive or antagonistic business;
stockholders adopted on 13 March 1961, when the outstanding capital that the portion of the amended by-laws which states that in determining
stock of the corporation was only P70,139.740.00, divided into 5,513,974 whether or not a person is engaged in competitive business, the Board
common shares at P10.00 per share and 150,000 preferred shares at may consider such factors as business and family relationship, is
P100.00 per share. At the time of the amendment, the outstanding and unreasonable and oppressive and, therefore, void; and that the portion of
paid up shares totalled 30,127,043, with a total par value of the amended by-laws which requires that "all nominations for election of
P301,270,430.00. directors shall be submitted in writing to the Board of Directors at least
five (5) working days before the date of the Annual Meeting" is likewise
It was contended that according to section 22 of the Corporation Law and unreasonable and oppressive. It was, therefore, prayed that the amended
Article VIII of the by-laws of the corporation, the power to amend, by-laws be declared null and void and the certificate of filing thereof be
modify, repeal or adopt new by-laws may be delegated to the Board of cancelled, and that Soriano, et. al. be made to pay damages, in specified
Directors only by the affirmative vote of stockholders representing not amounts, to Gokongwei. On 28 October 1976, in connection with the
less than 2/3 of the subscribed and paid up capital stock of the same case, Gokongwei filed with the Securities and Exchange
corporation, which 2/3 should have been computed on the basis of the Commission an "Urgent Motion for Production and Inspection of
capitalization at the time of the amendment. Since the amendment was Documents", alleging that the Secretary of the corporation refused to
based on the 1961 authorization, Gokongwei contended that the Board allow him to inspect its records despite request made by Gokongwei for
acted without authority and in usurpation of the power of the production of certain documents enumerated in the request, and that the
stockholders. As a second cause of action, it was alleged that the corporation had been attempting to suppress information from its
authority granted in 1961 had already been exercised in 1962 and 1963, stockholders despite a negative reply by the SEC to its query regarding
after which the authority of the Board ceased to exist. As a third cause of their authority to do so.
action, Gokongwei averred that the membership of the Board of Directors
had changed since the authority was given in 1961, there being 6 new The motion was opposed by Soriano, et. al. The Corporation, Soriano, et.
directors. As a fourth cause of action, it was claimed that prior to the al. filed their answer, and their opposition to the petition, respectively.
questioned amendment, Gokogwei had all the qualifications to be a Meanwhile, on 10 December 1976, while the petition was yet to be heard,
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the corporation issued a notice of special stockholders' meeting for the
purpose of "ratification and confirmation of the amendment to the By-
laws", setting such meeting for 10 February 1977. This prompted
Gokongwei to ask the SEC for a summary judgment insofar as the first
cause of action is concerned, for the alleged reason that by calling a
special stockholders' meeting for the aforesaid purpose, Soriano, et. al.
admitted the invalidity of the amendments of 18 September 1976. The
motion for summary judgment was opposed by Soriano, et. al. Pending
action on the motion, Gokongwei filed an "Urgent Motion for the
Issuance of a Temporary Restraining Order", praying that pending the
determination of Gokongwei's application for the issuance of a
preliminary injunction and or Gokongwei's motion for summary
judgment, a temporary restraining order be issued, restraining Soriano, et.
al. from holding the special stockholders' meeting as scheduled. This
motion was duly opposed by Soriano, et. al. On 10 February 1977,
Cremation issued an order denying the motion for issuance of temporary
restraining order. After receipt of the order of denial, Soriano, et. al.
conducted the special stockholders' meeting wherein the amendments to
the by-laws were ratified. On 14 February 1977, Gokongwei filed a
consolidated motion for contempt and for nullification of the special
stockholders' meeting. A motion for reconsideration of the order denying
Gokongwei's motion for summary judgment was filed by Gokongwei
before the SEC on 10 March 1977.
[SEC Case 1423] Gokongwei alleged that, having discovered that the
corporation has been investing corporate funds in other corporations and
businesses outside of the primary purpose clause of the corporation, in
violation of section 17-1/2 of the Corporation Law, he filed with SEC, on
20 January 1977, a petition seeking to have Andres M. Soriano, Jr. and
Jose M. Soriano, as well as the corporation declared guilty of such
violation, and ordered to account for such investments and to answer for
damages. On 4 February 1977, motions to dismiss were filed by Soriano,
et. al., to which a consolidated motion to strike and to declare Soriano, et.
al. in default and an opposition ad abundantiorem cautelam were filed by
Gokongwei. Despite the fact that said motions were filed as early as 4
February 1977, the Commission acted thereon only on 25 April 1977,
when it denied Soriano, et. al.'s motions to dismiss and gave them two (2)
days within which to file their answer, and set the case for hearing on
April 29 and May 3, 1977. Soriano, et. al. issued notices of the annual
stockholders' meeting, including in the Agenda thereof, the "reaffirmation
of the authorization to the Board of Directors by the stockholders at the
meeting on 20 March 1972 to invest corporate funds in other companies
or businesses or for purposes other than the main purpose for which the
Corporation has been organized, and ratification of the investments
thereafter made pursuant thereto." By reason of the foregoing, on 28
April 1977, Gokongwei filed with the SEC an urgent motion for the
issuance of a writ of preliminary injunction to restrain Soriano, et. al.
from taking up Item 6 of the Agenda at the annual stockholders' meeting,
requesting that the same be set for hearing on 3 May 1977, the date set
for the second hearing of the case on the merits. The SEC, however,
cancelled the dates of hearing originally scheduled and reset the same to
May 16 and 17, 1977, or after the scheduled annual stockholders'
meeting. For the purpose of urging the Commission to act, Gokongwei
filed an urgent manifestation on 3 May 1977, but this notwithstanding, no
action has been taken up to the date of the filing of the instant petition.
Gokongwei filed a petition for petition for certiorari, mandamus and
injunction, with prayer for issuance of writ of preliminary injunction,
with the Supreme Court, alleging that there appears a deliberate and
concerted inability on the part of the SEC to act.
Issue:
1. Whether the corporation has the power to provide for the
(additional) qualifications of its directors.
2. Whether the disqualification of a competitor from being elected to
the Board of Directors is a reasonable exercise of corporate authority.
3. Whether the SEC gravely abused its discretion in denying
Gokongwei's request for an examination of the records of San Miguel
International, Inc., a fully owned subsidiary of San Miguel Corporation.
4. Whether the SEC gravely abused its discretion in allowing the
stockholders of San Miguel Corporation to ratify the investment of
corporate funds in a foreign corporation.
Held:
9

1. It is recognized by all authorities that "every corporation has the
inherent power to adopt by-laws 'for its internal government, and to
regulate the conduct and prescribe the rights and duties of its members
towards itself and among themselves in reference to the management of
its affairs.'" In this jurisdiction under section 21 of the Corporation Law,
a corporation may prescribe in its by-laws "the qualifications, duties and
compensation of directors, officers and employees." This must
necessarily refer to a qualification in addition to that specified by section
30 of the Corporation Law, which provides that "every director must own
in his right at least one share of the capital stock of the stock corporation
of which he is a director." Any person "who buys stock in a corporation
does so with the knowledge that its affairs are dominated by a majority of
the stockholders and that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of
incorporation and lawfully enacted by-laws and not forbidden by law."
To this extent, therefore, the stockholder may be considered to have
"parted with his personal right or privilege to regulate the disposition of
his property which he has invested in the capital stock of the corporation,
and surrendered it to the will of the majority of his fellow incorporators.
It can not therefore be justly said that the contract, express or implied,
between the corporation and the stockholders is infringed by any act of
the former which is authorized by a majority." Pursuant to section 18 of
the Corporation Law, any corporation may amend its articles of
incorporation by a vote or written assent of the stockholders representing
at least two-thirds of the subscribed capital stock of the corporation. If the
amendment changes, diminishes or restricts the rights of the existing
shareholders, then the dissenting minority has only one right, viz.: "to
object thereto in writing and demand payment for his share." Under
section 22 of the same law, the owners of the majority of the subscribed
capital stock may amend or repeal any by-law or adopt new by-laws. It
cannot be said, therefore, that Gokongwei has a vested right to be elected
director, in the face of the fact that the law at the time such right as
stockholder was acquired contained the prescription that the corporate
charter and the by-law shall be subject to amendment, alteration and
modification.
2. Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any doubt that
their character is that of a fiduciary insofar as the corporation and the
stockholders as a body are concerned. As agents entrusted with the
management of the corporation for the collective benefit of the
stockholders, "they occupy a fiduciary relation, and in this sense the
relation is one of trust." "The ordinary trust relationship of directors of a
corporation and stockholders is not a matter of statutory or technical law.
It springs from the fact that directors have the control and guidance of
corporate affairs and property and hence of the property interests of the
stockholders. Equity recognizes that stockholders are the proprietors of
the corporate interests and are ultimately the only beneficiaries thereof."
A director is a fiduciary. Their powers are powers in trust. He who is in
such fiduciary position cannot serve himself first and his cestuis second.
He cannot manipulate the affairs of his corporation to their detriment and
in disregard of the standards of common decency. He cannot by the
intervention of a corporate entity violate the ancient precept against
serving two masters. He cannot utilize his inside information and
strategic position for his own preferment. He cannot violate rules of fair
play by doing indirectly through the corporation what he could not do so
directly. He cannot violate rules of fair play by doing indirectly through
the corporation what he could not do so directly. He cannot use his power
for his personal advantage and to the detriment of the stockholders and
creditors no matter how absolute in terms that power may be and no
matter how meticulous he is to satisfy technical requirements. For that
power is at all times subject to the equitable limitation that it may not be
exercised for the aggrandizement, preference, or advantage of the
fiduciary to the exclusion or detriment of the cestuis. The doctrine of
"corporate opportunity" is precisely a recognition by the courts that the
fiduciary standards could not be upheld where the fiduciary was acting
for two entities with competing interests. This doctrine rests
fundamentally on the unfairness, in particular circumstances, of an officer
or director taking advantage of an opportunity for his own personal profit
when the interest of the corporation justly calls for protection. It is not
denied that a member of the Board of Directors of the San Miguel
Corporation has access to sensitive and highly confidential information,
such as: (a) marketing strategies and pricing structure; (b) budget for
10
expansion and diversification; (c) research and development; and (d)
sources of funding, availability of personnel, proposals of mergers or tie-
ups with other firms. It is obviously to prevent the creation of an
opportunity for an officer or director of San Miguel Corporation, who is
also the officer or owner of a competing corporation, from taking
advantage of the information which he acquires as director to promote his
individual or corporate interests to the prejudice of San Miguel
Corporation and its stockholders, that the questioned amendment of the
by-laws was made. Certainly, where two corporations are competitive in
a substantial sense, it would seem improbable, if not impossible, for the
director, if he were to discharge effectively his duty, to satisfy his loyalty
to both corporations and place the performance of his corporation duties
above his personal concerns. The offer and assurance of Gokongwei that
to avoid any possibility of his taking unfair advantage of his position as
director of San Miguel Corporation, he would absent himself from
meetings at which confidential matters would be discussed, would not
detract from the validity and reasonableness of the by-laws involved.
Apart from the impractical results that would ensue from such
arrangement, it would be inconsistent with Gokongwei's primary motive
in running for board membership — which is to protect his investments
in San Miguel Corporation. More important, such a proposed norm of
conduct would be against all accepted principles underlying a director's
duty of fidelity to the corporation, for the policy of the law is to
encourage and enforce responsible corporate management.
3. Pursuant to the second paragraph of section 51 of the Corporation Law,
"(t)he record of all business transactions of the corporation and minutes
of any meeting shall be open to the inspection of any director, member or
stockholder of the corporation at reasonable hours." The stockholder's
right of inspection of the corporation's books and records is based upon
their ownership of the assets and property of the corporation. It is,
therefore, an incident of ownership of the corporate property, whether
this ownership or interest be termed an equitable ownership, a beneficial
ownership, or a quasi-ownership. This right is predicated upon the
necessity of self-protection. It is generally held by majority of the courts
that where the right is granted by statute to the stockholder, it is given to
him as such and must be exercised by him with respect to his interest as a
stockholder and for some purpose germane thereto or in the interest of the
corporation. In other words, the inspection has to be germane to the
petitioner's interest as a stockholder, and has to be proper and lawful in
character and not inimical to the interest of the corporation. The "general
rule that stockholders are entitled to full information as to the
management of the corporation and the manner of expenditure of its
funds, and to inspection to obtain such information, especially where it
appears that the company is being mismanaged or that it is being
managed for the personal benefit of officers or directors or certain of the
stockholders to the exclusion of others." While the right of a stockholder
to examine the books and records of a corporation for a lawful purpose is
a matter of law, the right of such stockholder to examine the books and
records of a wholly-owned subsidiary of the corporation in which he is a
stockholder is a different thing. Stockholders are entitled to inspect the
books and records of a corporation in order to investigate the conduct of
the management, determine the financial condition of the corporation,
and generally take an account of the stewardship of the officers and
directors. herein, considering that the foreign subsidiary is wholly owned
by San Miguel Corporation and, therefore, under Its control, it would be
more in accord with equity, good faith and fair dealing to construe the
statutory right of petitioner as stockholder to inspect the books and
records of the corporation as extending to books and records of such
wholly owned subsidiary which are in the corporation's possession and
control.
4. Section 17-1/2 of the Corporation Law allows a corporation to "invest
its funds in any other corporation or business or for any purpose other
than the main purpose for which it was organized" provided that its Board
of Directors has been so authorized by the affirmative vote of
stockholders holding shares entitling them to exercise at least two-thirds
of the voting power. If the investment is made in pursuance of the
corporate purpose, it does not need the approval of the stockholders. It is
only when the purchase of shares is done solely for investment and not to
accomplish the purpose of its incorporation that the vote of approval of
the stockholders holding shares entitling them to exercise at least two-
thirds of the voting power is necessary. As stated by the corporation, the
purchase of beer manufacturing facilities by SMC was an investment in
11
the same business stated as its main purpose in its Articles of
Incorporation, which is to manufacture and market beer. It appears that
the original investment was made in 1947-1948, when SMC, then San
Miguel Brewery, Inc., purchased a beer brewery in Hongkong
(Hongkong Brewery & Distillery, Ltd.) for the manufacture and
marketing of San Miguel beer thereat. Restructuring of the investment
was made in 1970-1971 thru the organization of SMI in Bermuda as a tax
free reorganization. Assuming arguendo that the Board of Directors of
SMC had no authority to make the assailed investment, there is no
question that a corporation, like an individual, may ratify and thereby
render binding upon it the originally unauthorized acts of its officers or
other agents. This is true because the questioned investment is neither
contrary to law, morals, public order or public policy. It is a corporate
transaction or contract which is within the corporate powers, but which is
defective from a purported failure to observe in its execution the
requirement of the law that the investment must be authorized by the
affirmative vote of the stockholders holding two-thirds of the voting
power. This requirement is for the benefit of the stockholders. The
stockholders for whose benefit the requirement was enacted may,
therefore, ratify the investment and its ratification by said stockholders
obliterates any defect which it may have had at the outset. Besides, the
investment was for the purchase of beer manufacturing and marketing
facilities which is apparently relevant to the corporate purpose. The mere
fact that the corporation submitted the assailed investment to the
stockholders for ratification at the annual meeting of 10 May 1977 cannot
be construed as an admission that the corporation had committed an ultra
vires act, considering the common practice of corporations of periodically
submitting for the ratification of their stockholders the acts of their
directors, officers and managers.
XlI. CONTROL & MANAGEMENT
1) Board of Directors/Trustees
a) Sections 23, 27 (qualifications/disqualifications)
Section 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 to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors are elected
and qualified. (28a)
Every director must own at least one (1) share of the capital stock of the
corporation of which he is a director, which share shall stand in his name
on the books of the corporation. Any director who ceases to be the owner
of at least one (1) share of the capital stock of the corporation of which he
is a director shall thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of the directors or
trustees of all corporations organized under this Code must be residents
of the Philippines.
Section 27. Disqualification of directors, trustees or officers. – No
person convicted by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years, or a violation of this
Code committed within five (5) years prior to the date of his election or
appointment, shall qualify as a director, trustee or officer of any
corporation. (n)
Ramirez v. Orientalist Co. & Fernandez 38 Phil 634
ACTS:
Orientalist Co. engaged in the theatre business, desired to be the
exclusive agent of Ramirez, who is based in Paris, for two film outfits—
Éclair Films and Milano films. Through the active involvement and
negotiations of Ramon “El Presidente” Fernandez, a director
of Orientalist and also its treasurer, Orientalist was able to secure an
offer, the terms of which were acceptable to the Board as well as to the
stockholders. It appears that this acceptance of the terms of the offer was
decided during an informal meeting of the board, and conveyed to
Ramirez in two letters signed only by Fernandez, both in his individual
and his capacity as treasurer of Orientalist. It turns out that the company
12
was not financially capable to comply with the obligations set forth in the
agency contract, and about this time films had already been delivered to
the company. Two stockholders meetings were organized, the first
adopted a resolution approving the action of the board on the offer, the
second raising the contingency of the lack of funds and the proviso that
the four officers involved, including Fernandez would continue importing
the films using their own funds. Ramirez sues Orientalist and Fernandez
for what is due on the contract. RTC ruled Oriental as the principal debtor
while Fernandez is subsidiarily liable.
ISSUE:
(1) WON the treasurer has an independent authority to bind the
respondent company by signing its name to the letters in questioned.
(2) Can stockholders ratify the abovementioned contract?
HELD:
(1) NO. It is declared in section 28 of the Corporation Law that
corporate power shall be exercised, and all corporate business conducted
by the board of directors; and this principle is recognized in the by-laws
of the corporation in question which contain a provision declaring that
the power to make contracts shall be vested in the board of directors. It is
true that it is also declared in the same by-laws that the president shall
have the power, and it shall be his duty, to sign contract; but this has
reference rather to the formality of reducing to proper form the contract
which are authorized by the board and is not intended to confer an
independent power to make contract binding on the corporation.
(2) NO. The subsequent action by the stockholders in not ratifying
the contract must be ignored. The functions of the stockholders are
limited of nature. The theory of a corporation is that the stockholders may
have all the profits but shall return over the complete management of the
enterprise to their representatives and agents, called directors.
Accordingly, there is little for the stockholders to do beyond electing
directors, making by-laws, and exercising certain other special powers
defined by law. In conformity with this idea, it is settled that contracts
between a corporation and a third person must be made by directors and
not stockholders. It results that where a meeting of the stockholders is
called for the purpose of passing on the propriety of making a corporate
contract, its resolutions are at most advisory and not in any wise binding
on the board.
Expert Travel & Tours, Inc v. CA 459 SCRA 147
-- RA 8792 and SEC MEMO Circ. 15 (Nov. 30, 2001)
FACTS:
Korean Airlines (KAL) is a corporation established and registered
in the Republic of South Korea and licensed to do business in the
Philippines. Its general manager in the Philippines is Suk Kyoo Kim,
while its appointed counsel was Atty. Mario Aguinaldo and his law firm.
KAL, through appointed counsel, filed a complaint against Expert
Travel with the RTC for the collection of sum of money. The verification
and certification against forum shopping was signed by the same
appointed counsel, who indicated therein that he was the resident agent
and legal counsel of KAL and had caused the preparation of the
complaint. Expert Travel filed a motion to dismiss the complaint on the
ground that the appointed counsel was not authorized to execute the
verification and certificate of non-forum shopping as required by the
Rules of Court. KAL opposed the motion, contending that he is a resident
agent and was registered as such with the SEC as required by the
Corporation Code. He also claimed that he had been authorized to file the
complaint through a resolution of the KAL Board of Directors approved
during a special meeting, wherein the board of directors conducted a
special teleconference which he attended. It was also averred that in the
same teleconference, the board of directors approved a resolution
authorizing him to execute the certificate of non-forum shopping and to
file the complaint. Suk Kyoo Kim alleged, however, that the corporation
had no written copy of the aforesaid resolution. TC denied motion to
dismiss. CA affirms.
ISSUE:
Can a special teleconference be recognized as legitimate means
to approved a board resolution and authorize an agent to execute an act in
favor of the corporation?
HELD:
13
 YES. In this age of modern technology, the courts may take
judicial notice that business transactions may be made by individuals
through teleconferencing. teleconferencing and videoconferencing of
members of board of directors of private corporations is a reality, in light
of Republic Act No. 8792. The Securities and Exchange Commission
issued SEC Memorandum Circular No. 15, on November 30, 2001,
providing the guidelines to be complied with related to such conferences.
HOWEVER, in the case at bar, even given the possibility that
Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference
along with the 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 and
circumstances show that there was gross failure on the part of company to
prove that there was indeed a special teleconference such as failure to
produce a written copy of the board resolution via teleconference.
NOTE: Read SEC Memo Circular No. 15-2001, the guidelines for the
conduct of teleconferencing and videoconferencing.
Citibank NA v. Chua 220 SCRA 75
FACTS:
Petitioner is a foreign commercial banking corporation duly
licensed to do business in the Philippines. Private respondents, spouses
Cresencio and Zenaida Velez, were good clients of petitioner bank's
branch in Cebu until when they filed a complaint for specific
performance and damages against the former for violation of BP 22 and
several count of estafa cases in RTC of Cebu.
On the date of pre-trial conference, counsel for petitioner bank
appeared, presenting a special power of attorney executed by Citibank
officer in favor of petitioner bank's counsel, the J.P. Garcia & Associates,
to represent and bind petitioner bank at the pre-trial conference of the
case at bar. Inspite of this special power of attorney, counsel for private
respondents orally moved to declare petitioner bank as in default on the
ground that the special power of attorney was not executed by the Board
of Directors of Citibank. Respondent judge denied private respondents'
oral motion to declare petitioner bank as in default and set the
continuation of the pre-trial conference. The private respondents filed for
reconsideration, and this time the respondent holds the petitioner bank in
default for failure to have a proper representation. CA affirms.
ISSUE:
WON a resolution of the board of directors of a corporation is
always necessary for granting authority to an agent to represent the
corporation in court cases.
HELD:
In the corporate hierarchy, there are three levels of control: (1)
the board of directors, which is responsible for corporate policies and
the general management of the business affairs of the corporation; (2) the
officers, who in theory execute the policies laid down by the board, but
in practice often have wide latitude in determining the course of business
operations; and (3) the stockholders who have the residual power over
fundamental corporate changes, like amendments of the articles of
incorporation. However, just as a natural person may authorize another to
do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or
agents appointed by it.
Although as a general rule, all corporate powers are to be
exercised by the board of directors, exceptions are made where the Code
provides otherwise under Sec. 25 and 47. It is clear that corporate powers
may be directly conferred upon corporate officers or agents by statute, the
articles of incorporation, by-laws or by resolution or other act of the
board of directors. In addition, an officer who is not a director may also
appoint other agents when so authorized by the by-laws or by the board
of directors. Such are referred to as express powers. There are also
powers incidental to express powers conferred. It is a fundamental
principle in the law of agency that every delegation of authority, whether
general or special, carries with it, unless the contrary be expressed,
implied authority to do all of those acts, naturally and ordinarily done in
such cases, which are reasonably necessary and proper to be done in
order to carry into effect the main authority conferred.
14
 Since the by-laws are a source of authority for corporate officers an aliquot part of the corporation’s property, or the right to share in its
and agents of the corporation, a resolution of the Board of Directors of proceeds to that extent when distributed according to law and equity, but
Citibank appointing an attorney in fact to represent and bind it during the its holder is not the owner of any part of the capital of the corporation,
pre-trial conference of the case at bar is not necessary because its by-laws nor is he entitled to the possession of any definite portion of its property
allow its officers, the Executing Officer and the Secretary Pro-Tem, to or assets. The stockholder is not a co-owner or tenant in common of the
execute a power of attorney to a designated bank officer, clothing him corporate property.
with authority to direct and manage corporate affairs. The corporation has a personality distinct and separate from its
members and transacts business only through its officers or agents.
Boyer-Roxas v. CA 211 SCRA 470 Whatever authority these officers or agents may have is derived from the
FACTS: board or other governing body, unless conferred by the charter of the
The corporation, Heirs of Eugenia Roxas Inc, was established to corporation itself. An officer's power as an agent of the corporation must
engage in agriculture to develop the properties inherited from Eugenia be sought from the statute, charter, the by-laws or in a delegation of
Roxas and Eufroncio Roxas, which includes the land upon which the authority to such officer, from the acts of the board of directors, formally
Hidden Valley Springs Resort was put up, including various expressed or implied from a habit or custom of doing business.
improvements thereon, using corporate funds. The AOI of Heirs Inc. was In this case the elder Roxas who then controlled the management
amended for this purpose. Heirs Inc. claims that Boyer-Roxas and of the corporation, being the majority stockholder, consented to the
Guillermo Roxas had been in possession of the various properties and petitioner’s use and stay within the properties. The Board did not object
improvements in the resort and only upon the tolerance of the and were allowed to stay until it adopted a resolution to the effect of
corporation. It was alleged that they committed acts that impeded the authorizing to eject them. Since their stay was merely by tolerance, in
corporation’s expansion and normal operation of the resort. They also did deference to the wishes of the majority stockholder who controlled the
not comply with court and regulatory orders, and thus the corporation corporation, when Roxas died his actions cannot bind the company
adopted a resolution authorizing the ejectment of the defendants. TC forever. There is no provision in the by-laws or any other resolution
grants. CA affirms. Boyer and Roxas contend that, being stockholders, authorizing their continued stay.
their possession of the properties of the corporation must be respected in
view of their ownership of an aliquot portion of all properties of the Govt. of P. I. v. El Hogar Filipino 50 Phil. 399 (1927)
corporation. FACTS: Philippine Commission enacted what is known as the
Corporation Law. Section 171 to 190, inclusive, of this Act are devoted
ISSUE: to the subject of building and loan associations, defining their objects
WON the possession of the properties in question must be making various provisions governing their organization and
respected in view of being a stockholder. administration, and providing for the supervision to be exercised over
them. El Hogar Filipino, was apparently the first corporation organized in
HELD: the Philippine Islands under the provisions cited. Act No. 2092, passed
NO. Regarding properties owned by the corporation, under the December 23, 1911, the statute was so amended as to permit the
doctrine of corporate entity “properties registered in the name of the capitalization of building and loan associations to the amount of ten
corporation are owned by it as an entity separate and distinct from its millions. The association took advantage of this enactment by amending
members.” While shares of stock constitute personal property, they do its articles so as to provide that the capital should be in an amount not
not represent property of the corporation. A share of stock only typifies exceeding the then lawful limit.
15
It appears that in the year 1920 El Hogar Filipino was the holder of a
recorded mortgage upon a tract of land in Tarlac, as security for a loan to
the shareholders of El Hogar Filipino who were the owners of said
property. The borrowers having defaulted in their payments, El Hogar
Filipino foreclosed the mortgage and purchased the land at the
foreclosure sale. A deed of conveyance in favor of El Hogar was
executed and sent to the Register of Deeds of Tralac with a request that
the certificate of title be cancelled and a new one be issued in favor of El
Hogar from the Register of Deeds of Tarlac. However, no reply was
received. El Hogar filed a complaint with the Chief of the General Land
Registration Office. The certificate of title to the San Clemente land was
received by El Hogar and a board resolution authorizing Benzon to find a
buyer was issued.
Alcantara, offered to buy it, the offer was accepted but Alcantara,despite
demands, failed to pay the remainder of the price. El Hogar Filipino
treated the contract with Alacantara as rescinded, and efforts were made
at once to find another buyer. Finally the land was sold to Doña Felipa
Alberto by a public instrument executed before a notary public at Manila,
July 30, 1926. Likewise, the period from March 25, 1926 to April 20,
1926 must not be part of the five-year period because this was the period
where respondent was under the obligation to sell the property to
Alcantara prior to the contract’s rescission due to Alcantara’s non-
payment.Another circumstance causing the delay is the fact that El Hogar
purchased the property in the full amount of the loan made by the former
owner which is nearly P24K when it was subsequently found that the
property was not salable and later sold for P6K notwithstanding El
Hogar’s efforts to find a purchaser upon better terms.
The Government of the Philippine Islands filed an action against El
Hogar due to the alleged illegal holding title to real property for a period
exceeding 5 years after the same was bought in a foreclosure sale from
December 1920 until July30, 1926 when the property was finally sold to
Felipa Alberto. Sec. 13(5) of the Corporation Law states that
corporations must dispose of real estate obtained within 5 years from
receiving the title. The Philippine Government also prays that El Hogar
be excluded from all corporate rights and privileges and effecting a final
dissolution of said corporation.
ISSUE: Whether the failure of the respondent to get rid of the San
Clemente property within five years after it first acquired the deed
thereto, even supposing the five-year period to be properly counted from
that date, is such a violation of law as should work a forfeiture of its
franchise and require a judgment to be entered for its dissolution in this
action of quo warranto.
HELD: No. (1)It has been held by this court that a purchaser of land
registered under the Torrens system cannot acquire the status of an
innocent purchaser for value unless his vendor is able to place in his
hands an owner's duplicate showing the title of such land to be in the
vendor (Director of Lands vs. Addison, 49, Phil., 19; Rodriguez vs.
Llorente, G. R. No. 266151). It results that prior to May 7, 1921, El Hogar
Filipino was not really in a position to pass an indefeasible title to any
purchaser.
(2) The respondent was not at all chargeable with the collapse of these
negotiations; and hence in any equitable application of the law this period
should be deducted from the five-year period within which the
respondent ought to have made the sale.
The Court held that the corporation has not been shown to have offended
against the law in a manner that should entail a forfeiture of its charter.
Certainly no court with any discretion to use in the matter would visit
upon the respondent and its thousands of shareholders the extreme
penalty of the law as a consequence of the delinquency here shown to
have been committed.
Section 212 of the Code of Civil Procedure, as applied by this court in
Government of the Philippine Islands vs. Philippine Sugar Estates
Development Co. (38 Phil., 15). This section (212), in prescribing the
judgment to be rendered against a corporation in an action of quo
warranto, among other things says:
. . . When it is found and adjudged that a corporation has offended in any
matter or manner which does not by law work as a surrender or forfeiture,
or has misused a franchise or exercised a power not conferred by law, but
not of such a character as to work a surrender or forfeiture of its
franchise, judgment shall be rendered that it be outset from the
continuance of such offense or the exercise of such power.
16
This provision clearly shows that the court has a discretion with respect 3)That the by-laws of the association stating that, “the board of directors
to the infliction of capital punishment upon corporation and that there are by the vote of an absolute majority of its members is empowered to
certain misdemeanors and misuses of franchises which should not be cancel shares and to return the balance to the owner by reason of their
recognized as requiring their dissolution. Holding that upon the facts here conduct or any other motive or liquidation” is in direct conflict with Sec.
the penalty of dissolution would be excessively severe and fraught with 187 of the Corporation Law which provides that the board of directors
consequences altogether disproportionate to the offense committed. shall not have the power to force the surrender and withdrawal of
The evident purpose behind the law restricting the rights of corporations unmatured stock except in case of liquidation or forfeiture of stock for
with respect to the tenure of land was to prevent the revival of the entail delinquency-
(mayorazgo) or other similar institution by which land could be fettered
and its alienation hampered over long periods of time. In the case before WITHOUT MERIT. There is no provision of law making it a
us the respondent corporation has in good faith disposed of the piece of misdemeanor to incorporate an invalid provision in the by-laws of a
property which appears to have been in its hands at the expiration of the corporation; and if there were such, the hazards incident to corporate
period fixed by law, and a fair explanation is given of its failure to effort would be largely increased.
dispose of it sooner. Under these circumstances the destruction of the
corporation would bring irreparable loss upon the thousand of innocent 4)Art. 61 of El Hogar’s by-laws which states that “ attendance in person
shareholders of the corporation without any corresponding benefit to the or by proxy by shareholders owning one-half plus one of the shareholders
public. The discretion permitted to this court in the application of the shall be necessary to constitute a quorum for the election of directors” is
remedy of quo warranto forbids so radical a use of the remedy. contrary to Sec. 31 of the Corpo Law which provides that owners of the
Other issues: majority of the subscribed capital stock entitled to vote must be present
either in person or by proxy at all elections of directors-
1)That respondent is owning and holding a business lot with the structure
thereon in excess of its reasonable requirements and in contravention of WITHOUT MERIT. No fault can be imputed to the corporation on
Sec. 13(5) of Corpo. Law. account of the failure of the shareholders to attend the annual meetings
and their non-attendance in meetings is doubtless to be interpreted in part
No. Every corporation has the power to purchase, hold and lease such as expressing their satisfaction of the way in which things have been
real property as the transaction would of the lawful business may conducted. Mere failure of a corporation to elect officers does not
reasonably and necessarily require. terminate the terms of existing officers nor dissolve the corporation. The
general rule is to allow the officer to holdover until his successor is duly
2)That respondent is engaged in activities foreign to the purposes for qualified.
which the corporation was created and not reasonably necessary to its
legitimate ends. 5)That the directors of El Hogar, instead of receiving nominal pay or
serving without pay, have been receiving large compensation, varying in
Yes. The administration of property, payment of real estate taxes, causing amount from time to time, out of respondents’ profits-
necessary repairs, managing real properties of non-borrowing
shareholders is more befitting to the business of a real estate agent or a WITHOUT MERIT.With the growth of the corporation, the amount paid
trust company than a building and loan association. as compensation to the directors has increased beyond what would
probably be necessary is a matter that cannot be corrected in this action.
17
Nor can it properly be made a basis for depriving respondent of its advance but the corporation shall not allow interest on advance payment
franchise or enjoining it from compliance with the provisions of its own grater than 6% per annum nor for a period longer than one year. The
by-laws. If a mistake has been made, the remedy is to lie rather in amount is satisfied by applying a portion of the shareholder’s
publicity and competition. participation in the annual earnings.The mission of special shares does
not involve any violation of the principle that the shares must be sold at
6)That the promoter and organizer of El Hogar was Mr. Antonio Melian par.
and that in the early stages of the organization of the association, the
board of directors authorized the association to make a contract with him 9) That in making purchases at foreclosure sales constituting as security
and that the royalty given to him as founder is “unconscionable, for 54 of the loans, El Hogar bids the full amount after deducting the
excessive and out of proportion to the services rendered” withdrawal value, alleged to be pusuing a policy of depreciating at the
rate of 10 percent per annum, the value of the real properties it acquired
NOT SUSTAINED. The mere fact that compensation is in excess of what and that this rate is excessive.
may be considered appropriate is not a proper consideration for the court
to resolve. That El Hogar is in contact with its promoter did not affect the UNSUSTAINABLE. The board of directors possess discretion in this
association’s legal character. The court is of the opinion that the matter. There is no provision of law prohibiting the association from
traditional respect for the sanctity of the contract obligation should writing off a reasonable amount for depreciation on its assets for the
prevail over the radical and innovating tendencies. purpose of determining its real profits. Art. 74 of its by-laws expressly
authorizes the board of directors to determine each year the amount to be
7)That Art. 70 of El Hogar’s by-laws, requiring persons elected as board written down upon the expenses for the installation and the property of
of directors to be holders of shares of the paid up value of P5,000 which the corporation. The court cannot control the discretion of the board of
shall be held as security, is objectionable since a poor member or wage directors about an administrative matter as to which they have no
earner cannot serve as a director irrespective of other qualifications. legitimate power of action.

NOT SUSTAINED. Corpo. Law expressly gives the power to the 10)That respondent maintains excessive reserve funds.
corporation to provide in its by-laws for the qualification of its directors
and the requirement of security from them for the proper discharge of the UNFOUNDED. The function of this fund is to insure stockholders
duties of their pffice in the manner prescribed in Art. 70 is highly prudent against losses. When the reserves become excessive, the remedy is in the
and in conformity with good practice. hands of the Legislature. No prudent person would be inclined to take a
policy in a company which had so improvidently conducted its affairs
8)That respondent abused its franchise in issuing “special” shares alleged that it only retained a fund barely sufficient to pay its present liabilities
to be illegal and inconsistent with the plan and purposes of building and and therefore was in a condition where any change by the reduction of
loan associations. interest upon or depreciation in the value of securities or increase of
mortality would render it insolvent and subject to be placed in the hands
WITHOUT MERIT. The said special shares are generally known as of a receiver.
advance payment shares which were evidently created for the purpose of
meeting the condition caused by the prepayment of dues that is permitted. 11) That the board of directors has settled upon the unlawful policy of
Sec. 178 of Corpo Law allows payment of dues or interest to be paid in paying a straight annual dividend of 10 percent per centum regardless of
18
losses suffered and profits made by the corporation, in contravention with NO MERIT. This matter may be left to the discretion of the board of
the requirements of Sec. 188 of the Corpo law. directors or to legislative action if it should be deemed expedient to
require the gradual suppression of reserve funds as the time for
UNFOUNDED. As provided in the previous cause of action, the profits dissolution approaches. It is no matter for judicial interference and much
and losses shall be determined by the board of directors and this means less could the resumption of the franchise be justified on this ground.
that they shall exercise the usual discretion of good businessmen in
allocating a portion of the annual profits to purposes needful of the 15) That various outstanding loans have been made by the respondent to
welfare of the association. The law contemplates distribution of earnings corporations and partnerships and such entities subscribed to
and losses after legitimate obligations have been met. respondents’ shares for the sole purpose of obtaining such loans.

12) That El Hogar has made loans to the knowledge of its officers which NO MERIT. Sec. 173 of Corpo Law declares that “any person” may
were intended to be used by the borrowers for other purposes than the become a stockholder in building and loan associations. The phrase ANY
building of homes and no attempt has been made to control the borrowers PERSON does not prevent a finding that the phrase may not be taken in
with respect to the use made of the borrowed funds. its proper and broad sense of either a natural or artificial person.

UNFOUNDED. There is no statute expressly declaring that loans may be
made by these associations SOLELY for the purpose of building homes.
The building of himes in Sec. 171 of Corpo Law is only one among
several ends which building and loan associations are designed to
promote and Sec. 181 authorizes the board of directors of the association
to fix the premium to be charged.
13) That the loans made by defendant for purposes other than building or
acquiring homes have been extended in extremely large amounts and to
wealthy persons and large companies
16) That in disposing real estate purchased by it, some of the properties
were sold on credit and the persons and entities to which it was sold are
not members nor shareholders nor were they made members or
shareholders, contrary to the provision of Corpo Law requiring requiring
loans to be stockholders only.
NOT SUSTAINED. The law does not prescribe that the property must be
sold for cash or that the purchaser shall be a shareholder in the
corporation. Such sales can be made upon the terms and conditions
approved by the parties.

WITHOUT MERIT. The question of whether the making of large loans Respondent is enjoined in the future from administering real property not
constitutes a misuser of the franchise as would justify the court in owned by itself, except as may be permitted to it by contract when a
depriving the association of its corporate life is a matter confided to the borrowing shareholder defaults in his obligation. In all other respects, the
discretion of the board of directors. The law states no limit as to the size complaint is DISMISSED.
of the loans to be made by the association. Resort should be had to the
legislature because it is not a matter amenable to judicial control ROMUALDEZ, J., dissenting:I believe that the defendant corporation
should be compelled to observe the law and to confine itself to its object
14) That when the franchise expires, supposing the corporation is not and purposes as a building and loan association existing under Act. No.
reorganized, upon final liquidation of the corporation, a reserve fund may 1459, and that it should be given a reasonable period within which to do
exist which is out of all proportion to the requirements that may fall upon so.
it in the liquidation of the company.
19
Gokongwei v. SEC 89 SCRA 336 (1979)
b) Non-stock corp. – Sec. 92
Section 92. Election and term of trustees. – Unless otherwise provided in
the articles of incorporation or the by-laws, the board of trustees of non-
stock corporations, which may be more than fifteen (15) in number as
may be fixed in their articles of incorporation or by-laws, shall, as soon
as organized, so classify themselves that the term of office of one-third
(1/3) of their number shall expire every year; and subsequent elections of
trustees comprising one-third (1/3) of the board of trustees shall be held
annually and trustees so elected shall have a term of three (3) years.
Trustees thereafter elected to fill vacancies occurring before the
expiration of a particular term shall hold office only for the unexpired
period.
No person shall be elected as trustee unless he is a member of the
corporation.
Unless otherwise provided in the articles of incorporation or the by-laws,
officers of a non-stock corporation may be directly elected by the
members. (n)
c) Close corp. - Secs. 97 (par.1, no.2), 97 (par.2), Sec.104
Section 97. Articles of incorporation. – The articles of incorporation of a Securities and Exchange Commission, upon written petition by any
close corporation may provide:
1. For a classification of shares or rights and the qualifications for owning as it deems appropriate, including an order: (1) cancelling or altering any
or holding the same and restrictions on their transfers as may be stated
therein, subject to the provisions of the following section;
2. For a classification of directors into one or more classes, each of whom or officers; (3) directing or prohibiting any act of the corporation or its
may be voted for and elected solely by a particular class of stock; and
3. For a greater quorum or voting requirements in meetings of
stockholders or directors than those provided in this Code.
The articles of incorporation of a close corporation may provide that the
business of the corporation shall be managed by the stockholders of the
corporation rather than by a board of directors. So long as this provision
continues in effect:
1. No meeting of stockholders need be called to elect directors;
2. Unless the context clearly requires otherwise, the stockholders of the
corporation shall be deemed to be directors for the purpose of applying
the provisions of this Code; and
3. The stockholders of the corporation shall be subject to all liabilities of
directors.
The articles of incorporation may likewise provide that all officers or
employees or that specified officers or employees shall be elected or
appointed by the stockholders, instead of by the board of directors.
Section 104. Deadlocks. – Notwithstanding any contrary provision in the
articles of incorporation or by-laws or agreement of stockholders of a
close corporation, if the directors or stockholders are so divided
respecting the management of the corporation’s business and affairs that
the votes required for any corporate action cannot be obtained, with the
consequence that the business and affairs of the corporation can no longer
be conducted to the advantage of the stockholders generally, the
stockholder, shall have the power to arbitrate the dispute. In the exercise
of such power, the Commission shall have authority to make such order
provision contained in the articles of incorporation, by-laws, or any
stockholder’s agreement; (2) cancelling, altering or enjoining any
resolution or act of the corporation or its board of directors, stockholders,
board of directors, stockholders, officers, or other persons party to the
action; (4) requiring the purchase at their fair value of shares of any
stockholder, either by the corporation regardless of the availability of
unrestricted retained earnings in its books, or by the other stockholders;
20
(5) appointing a provisional director; (6) dissolving the corporation; or
(7) granting such other relief as the circumstances may warrant.
A provisional director shall be an impartial person who is neither a
stockholder nor a creditor of the corporation or of any subsidiary or
affiliate of the corporation, and whose further qualifications, if any, may
be determined by the Commission. A provisional director is not a
receiver of the corporation and does not have the title and powers of a
custodian or receiver. A provisional director shall have all the rights and
powers of a duly elected director of the corporation, including the right to
notice of and to vote at meetings of directors, until such time as he shall
be removed by order of the Commission or by all the stockholders. His
compensation shall be determined by agreement between him and the
corporation subject to approval of the Commission, which may fix his
compensation in the absence of agreement or in the event of
disagreement between the provisional director and the corporation.
d) Special corporations – Educational --- Sec. 108
Religious – Sec. 110-113, Sec. 116 (6)
For institutions organized as stock corporations, the number and term of
directors shall be governed by the provisions on stock corporations.
(169a)
Section 110. Corporation sole. – For the purpose of administering and
managing, as trustee, the affairs, property and temporalities of any
religious denomination, sect or church, a corporation sole may be formed
by the chief archbishop, bishop, priest, minister, rabbi or other presiding
elder of such religious denomination, sect or church. (154a)
Section 111. Articles of incorporation. – In order to become a
corporation sole, the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious denomination, sect or church must file
with the Securities and Exchange Commission articles of incorporation
setting forth the following:
1. That he is the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of his religious denomination, sect or church and that he
desires to become a corporation sole;

Section 108. Board of trustees. – Trustees of educational institutions 2. That the rules, regulations and discipline of his religious denomination,
organized as non-stock corporations shall not be less than five (5) nor sect or church are not inconsistent with his becoming a corporation sole
more than fifteen (15): Provided, however, That the number of trustees and do not forbid it;
shall be in multiples of five (5).
3. That as such chief archbishop, bishop, priest, minister, rabbi or
Unless otherwise provided in the articles of incorporation on the by-laws, presiding elder, he is charged with the administration of the temporalities
the board of trustees of incorporated schools, colleges, or other and the management of the affairs, estate and properties of his religious
institutions of learning shall, as soon as organized, so classify themselves denomination, sect or church within his territorial jurisdiction, describing
that the term of office of one-fifth (1/5) of their number shall expire every such territorial jurisdiction;
year. Trustees thereafter elected to fill vacancies, occurring before the
expiration of a particular term, shall hold office only for the unexpired 4. The manner in which any vacancy occurring in the office of chief
period. Trustees elected thereafter to fill vacancies caused by expiration archbishop, bishop, priest, minister, rabbi of presiding elder is required to
of term shall hold office for five (5) years. A majority of the trustees shall be filled, according to the rules, regulations or discipline of the religious
constitute a quorum for the transaction of business. The powers and denomination, sect or church to which he belongs; and
authority of trustees shall be defined in the by-laws.
5. The place where the principal office of the corporation sole is to be
established and located, which place must be within the Philippines.
21
The articles of incorporation may include any other provision not church represented by the corporation sole: Provided, That in cases where
contrary to law for the regulation of the affairs of the corporation. (n) the rules, regulations and discipline of the religious denomination, sect or
church, religious society or order concerned represented by such
Section 112. Submission of the articles of incorporation. – The articles of corporation sole regulate the method of acquiring, holding, selling and
incorporation must be verified, before filing, by affidavit or affirmation mortgaging real estate and personal property, such rules, regulations and
of the chief archbishop, bishop, priest, minister, rabbi or presiding elder, discipline shall control, and the intervention of the courts shall not be
as the case may be, and accompanied by a copy of the commission, necessary. (159a)
certificate of election or letter of appointment of such chief archbishop,
bishop, priest, minister, rabbi or presiding elder, duly certified to be Section 116. Religious societies. – Any religious society or religious
correct by any notary public. order, or any diocese, synod, or district organization of any religious
denomination, sect or church, unless forbidden by the constitution, rules,
From and after the filing with the Securities and Exchange Commission regulations, or discipline of the religious denomination, sect or church of
of the said articles of incorporation, verified by affidavit or affirmation, which it is a part, or by competent authority, may, upon written consent
and accompanied by the documents mentioned in the preceding and/or by an affirmative vote at a meeting called for the purpose of at
paragraph, such chief archbishop, bishop, priest, minister, rabbi or least two-thirds (2/3) of its membership, incorporate for the
presiding elder shall become a corporation sole and all temporalities, administration of its temporalities or for the management of its affairs,
estate and properties of the religious denomination, sect or church properties and estate by filing with the Securities and Exchange
theretofore administered or managed by him as such chief archbishop, Commission, articles of incorporation verified by the affidavit of the
bishop, priest, minister, rabbi or presiding elder shall be held in trust by presiding elder, secretary, or clerk or other member of such religious
him as a corporation sole, for the use, purpose, behalf and sole benefit of society or religious order, or diocese, synod, or district organization of
his religious denomination, sect or church, including hospitals, schools, the religious denomination, sect or church, setting forth the following:
colleges, orphan asylums, parsonages and cemeteries thereof. (n)
1. That the religious society or religious order, or diocese, synod, or
Section 113. Acquisition and alienation of property. – Any corporation district organization is a religious organization of a religious
sole may purchase and hold real estate and personal property for its denomination, sect or church;
church, charitable, benevolent or educational purposes, and may receive
bequests or gifts for such purposes. Such corporation may sell or 2. That at least two-thirds (2/3) of its membership have given their
mortgage real property held by it by obtaining an order for that purpose written consent or have voted to incorporate, at a duly convened meeting
from the Court of First Instance of the province where the property is of the body;
situated upon proof made to the satisfaction of the court that notice of the
application for leave to sell or mortgage has been given by publication or 3. That the incorporation of the religious society or religious order, or
otherwise in such manner and for such time as said court may have diocese, synod, or district organization desiring to incorporate is not
directed, and that it is to the interest of the corporation that leave to sell or forbidden by competent authority or by the constitution, rules, regulations
mortgage should be granted. The application for leave to sell or mortgage or discipline of the religious denomination, sect, or church of which it
must be made by petition, duly verified, by the chief archbishop, bishop, forms a part;
priest, minister, rabbi or presiding elder acting as corporation sole, and
may be opposed by any member of the religious denomination, sect or
22
4. That the religious society or religious order, or diocese, synod, or
district organization desires to incorporate for the administration of its
affairs, properties and estate;
5. The place where the principal office of the corporation is to be
established and located, which place must be within the Philippines; and
6. The names, nationalities, and residences of the trustees elected by the
religious society or religious order, or the diocese, synod, or district
organization to serve for the first year or such other period as may be
prescribed by the laws of the religious society or religious order, or of the
diocese, synod, or district organization, the board of trustees to be not
less than five (5) nor more than fifteen (15). (160a)
e) Meetings – Sec. 25, 49, 53, 54
Close corp. – Sec. 97(3), 101
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.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation.
Unless the articles of incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum for the transaction of
corporate business, and every decision of at least a majority of the
directors or trustees present at a meeting at which there is a quorum shall
be valid as a corporate act, except for the election of officers which shall
require the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
(33a)
Section 49. Kinds of meetings. – Meetings of directors, trustees,
stockholders, or members may be regular or special. (n)
Section 53. Regular and special meetings of directors or trustees. –
Regular meetings of the board of directors or trustees of every
corporation shall be held monthly, unless the by-laws provide otherwise.
Special meetings of the board of directors or trustees may be held at any
time upon the call of the president or as provided in the by-laws.
Meetings of directors or trustees of corporations may be held anywhere in
or outside of the Philippines, unless the by-laws provide otherwise.
Notice of regular or special meetings stating the date, time and place of
the meeting must be sent to every director or trustee at least one (1) day
prior to the scheduled meeting, unless otherwise provided by the by-laws.
A director or trustee may waive this requirement, either expressly or
impliedly. (n)
Section 54. Who shall preside at meetings. – The president shall preside
at all meetings of the directors or trustee as well as of the stockholders or
members, unless the by-laws provide otherwise. (n)
Section 97. Articles of incorporation. – The articles of incorporation of a
close corporation may provide:
1. For a classification of shares or rights and the qualifications for owning
or holding the same and restrictions on their transfers as may be stated
therein, subject to the provisions of the following section;
2. For a classification of directors into one or more classes, each of whom
may be voted for and elected solely by a particular class of stock; and
3. For a greater quorum or voting requirements in meetings of
stockholders or directors than those provided in this Code.
23
The articles of incorporation of a close corporation may provide that the
business of the corporation shall be managed by the stockholders of the
corporation rather than by a board of directors. So long as this provision
continues in effect:
1. No meeting of stockholders need be called to elect directors;
2. Unless the context clearly requires otherwise, the stockholders of the
corporation shall be deemed to be directors for the purpose of applying
the provisions of this Code; and
3. The stockholders of the corporation shall be subject to all liabilities of
directors.
The articles of incorporation may likewise provide that all officers or
employees or that specified officers or employees shall be elected or
appointed by the stockholders, instead of by the board of directors.
Section 101. When board meeting is unnecessary or improperly held. -
Unless the by-laws provide otherwise, any action by the directors of a
close corporation without a meeting shall nevertheless be deemed valid
if:
1. Before or after such action is taken, written consent thereto is signed
by all the directors; or
2. All the stockholders have actual or implied knowledge of the action
and make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the express
or implied acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the action in
question and none of them makes prompt objection thereto in writing.
If a director’s meeting is held without proper call or notice, an action
taken therein within the corporate powers is deemed ratified by a director
who failed to attend, unless he promptly files his written objection with
the secretary of the corporation after having knowledge thereof.
f) Elections of DIR/TEES - Sec. 24, 26, 27
Section 24. Election of directors or trustees. – At all elections of
directors or trustees, there must be present, either in person or by
representative authorized to act by written proxy, the owners of a
majority of the outstanding capital stock, or if there be no capital stock, a
majority of the members entitled to vote. The election must be by ballot if
requested by any voting stockholder or member. In stock corporations,
every stockholder entitled to vote shall have the right to vote in person or
by proxy the number of shares of stock standing, at the time fixed in the
by-laws, in his own name on the stock books of the corporation, or where
the by-laws are silent, at the time of the election; and said stockholder
may vote such number of shares for as many persons as there are
directors to be elected or he may cumulate said shares and give one
candidate as many votes as the number of directors to be elected
multiplied by the number of his shares shall equal, or he may distribute
them on the same principle among as many candidates as he shall see fit:
Provided, That the total number of votes cast by him shall not exceed the
number of shares owned by him as shown in the books of the corporation
multiplied by the whole number of directors to be elected: Provided,
however, That no delinquent stock shall be voted. Unless otherwise
provided in the articles of incorporation or in the by-laws, members of
corporations which have no capital stock may cast as many votes as there
are trustees to be elected but may not cast more than one vote for one
candidate. Candidates receiving the highest number of votes shall be
declared elected. Any meeting of the stockholders or members called for
an election may adjourn from day to day or from time to time but not sine
die or indefinitely if, for any reason, no election is held, or if there are not
present or represented by proxy, at the meeting, the owners of a majority
of the outstanding capital stock, or if there be no capital stock, a majority
of the members entitled to vote. (31a)
Section 26. Report of election of directors, trustees and officers. – Within
thirty (30) days after the election of the directors, trustees and officers of
24
the corporation, the secretary, or any other officer of the corporation,
shall submit to the Securities and Exchange Commission, the names,
nationalities and residences of the directors, trustees, and officers elected.
Should a director, trustee or officer die, resign or in any manner cease to
hold office, his heirs in case of his death, the secretary, or any other
officer of the corporation, or the director, trustee or officer himself, shall
immediately report such fact to the Securities and Exchange Commission.
(n)
Section 27. Disqualification of directors, trustees or officers. – No
person convicted by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years, or a violation of this
Code committed within five (5) years prior to the date of his election or
appointment, shall qualify as a director, trustee or officer of any
corporation. (n)
Stock and non-stock corp – manner of voting
Removal – Sec. 28
Section 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. Should the secretary fail or
refuse to call the special meeting upon such demand or fail or refuse to
give the notice, or if there is no secretary, the call for the meeting may be
addressed directly to the stockholders or members by any stockholder or
member of the corporation signing the demand. 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 prescribed in
this Code. 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. (n)
Vacancy – Sec. 29; 111(4) and 114 on corp. sole
Section 29. Vacancies in the office of director or trustee. – Any vacancy
occurring in the board of directors or trustees other than by removal by
the stockholders or members or by expiration of term, may be filled by
the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the
stockholders in a regular or special meeting called for that purpose. A
director or trustee so elected to fill a vacancy shall be elected only or the
unexpired term of his predecessor in office.
Any directorship or trusteeship to be filled by reason of an increase in the
number of directors or trustees shall be filled only by an election at a
regular or at a special meeting of stockholders or members duly called for
the purpose, or in the same meeting authorizing the increase of directors
or trustees if so stated in the notice of the meeting. (n)
Section 111. Articles of incorporation. – In order to become a
corporation sole, the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious denomination, sect or church must file
with the Securities and Exchange Commission articles of incorporation
setting forth the following:
1. That he is the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of his religious denomination, sect or church and that he
desires to become a corporation sole;
25
2. That the rules, regulations and discipline of his religious denomination,
sect or church are not inconsistent with his becoming a corporation sole Rev. Ao-as v. CA June 20, 2006
and do not forbid it;

3. That as such chief archbishop, bishop, priest, minister, rabbi or Valle Verde CC v. Africa Sept. 4, 2009
presiding elder, he is charged with the administration of the temporalities FACTS:
and the management of the affairs, estate and properties of his religious Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo
denomination, sect or church within his territorial jurisdiction, describing Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M.
such territorial jurisdiction; Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa were
elected as BOD during the Annual Stockholders’ Meeting of petitioner
4. The manner in which any vacancy occurring in the office of chief Valle Verde Country Club, Inc. (VVCC). Requisite quorum could not be
archbishop, bishop, priest, minister, rabbi of presiding elder is required to obtained so they continued in a hold-over capacity.
be filled, according to the rules, regulations or discipline of the religious First resignation: Dinglasan, BOD still constituting a
denomination, sect or church to which he belongs; and quorum elected Eric Roxas (Roxas). Second resignation: Makalintal, Jose
Ramirez (Ramirez) was elected by the remaining BOD.
5. The place where the principal office of the corporation sole is to be Respondent Africa (Africa), a member of VVCC, questioned the
established and located, which place must be within the Philippines. election of Roxas and Ramirez as members of the petitioner’s Board with
the SEC and the RTC as contrary to Sec. 23 and 29 of the Corporation
The articles of incorporation may include any other provision not Code. He claimed that a year after Makalintal’s election as member of
contrary to law for the regulation of the affairs of the corporation. (n) the petitioner’s Board in 1996, his term – as well as those of the other
members – should be considered to have already expired. Thus,
Section 114. Filling of vacancies. – The successors in office of any chief according to him, the resulting vacancy should have been filled by the
archbishop, bishop, priest, minister, rabbi or presiding elder in a stockholders in a regular or special meeting called for that purpose, and
corporation sole shall become the corporation sole on their accession to not by the remaining members of the petitioner’s Board. RTC favored
office and shall be permitted to transact business as such on the filing respondent. SEC ruled on the same ground as RTC. Petitioner appealed
with the Securities and Exchange Commission of a copy of their in SC for certiorari being partially contrary to law and jurisprudence.
commission, certificate of election, or letters of appointment, duly
certified by any notary public. ISSUE:
Can the members of a corporation’s board of directors elect
During any vacancy in the office of chief archbishop, bishop, priest, another director to fill in a vacancy caused by the resignation of a hold-
minister, rabbi or presiding elder of any religious denomination, sect or over director?
church incorporated as a corporation sole, the person or persons
authorized and empowered by the rules, regulations or discipline of the HELD:
religious denomination, sect or church represented by the corporation NO. The holdover period is not part of the term of office of a
sole to administer the temporalities and manage the affairs, estate and member of the board of directors. When Section 23 of the Corporation
properties of the corporation sole during the vacancy shall exercise all the Code declares that “the board of directors…shall hold office for one (1)
powers and authority of the corporation sole during such vacancy. (158a) year until their successors are elected and qualified,” we construe the
26
provision to mean that the term of the members of the board of
directors shall be only for one year; their term expires one year after
election to the office. The holdover period – that time from the lapse of
one year from a member’s election to the Board and until his successor’s
election and qualification – is not part of the director’s original term of
office, nor is it a new term; the holdover period, however, constitutes part
of his tenure. Corollary, when an incumbent member of the board of
directors continues to serve in a holdover capacity, it implies that the
office has a fixed term, which has expired, and the incumbent is holding
the succeeding term.
The powers of the corporation’s board of directors emanate from
its stockholders. This theory of delegated power of the board of directors
similarly explains why, under Section 29 of the Corporation Code, in
cases where the vacancy in the corporation’s board of directors is caused
not by the expiration of a member’s term, the successor “so elected to fill
in a vacancy shall be elected only for the unexpired term of the his
predecessor in office.” The law has authorized the remaining members of
the board to fill in a vacancy only in specified instances, so as not to
retard or impair the corporation’s operations; yet, in recognition of the
stockholders’ right to elect the members of the board, it limited the period
during which the successor shall serve only to the “unexpired term of his
predecessor in office.”
It also bears noting that the vacancy referred to in Section 29
contemplates a vacancy occurring within the director’s term of office.
When a vacancy is created by the expiration of a term, logically, there is
no more unexpired term to speak of. Hence, Section 29 declares that it
shall be the corporation’s stockholders who shall possess the authority to
fill in a vacancy caused by the expiration of a member’s term.
NOTE: The court distinguished term and tenure.
Term is the time during which the officer may claim to hold the
office as of right, and fixes the interval after which the several
incumbents shall succeed one another. The term of office is not affected
by the holdover. The term is fixed by statute and it does not change
simply because the office may have become vacant, nor because the
incumbent holds over in office beyond the end of the term due to the fact
that a successor has not been elected and has failed to qualify.
Tenure represents the term during which the incumbent actually
holds office. The tenure may be shorter (or, in case of holdover, longer)
than the term for reasons within or beyond the power of the incumbent.
2) Officers – Sec. 25, 92 (par. 3), 97 (last par.), 26, 27, 31, 32
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.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation.
Unless the articles of incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum for the transaction of
corporate business, and every decision of at least a majority of the
directors or trustees present at a meeting at which there is a quorum shall
be valid as a corporate act, except for the election of officers which shall
require the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
(33a)
Section 92. Election and term of trustees. – Unless otherwise provided in
the articles of incorporation or the by-laws, the board of trustees of non-
stock corporations, which may be more than fifteen (15) in number as
may be fixed in their articles of incorporation or by-laws, shall, as soon
as organized, so classify themselves that the term of office of one-third
(1/3) of their number shall expire every year; and subsequent elections of
trustees comprising one-third (1/3) of the board of trustees shall be held
27
annually and trustees so elected shall have a term of three (3) years. 3. The stockholders of the corporation shall be subject to all liabilities of
Trustees thereafter elected to fill vacancies occurring before the directors.
expiration of a particular term shall hold office only for the unexpired
period. The articles of incorporation may likewise provide that all officers or
employees or that specified officers or employees shall be elected or
No person shall be elected as trustee unless he is a member of the appointed by the stockholders, instead of by the board of directors.
corporation.
Section 26. Report of election of directors, trustees and officers. – Within
Unless otherwise provided in the articles of incorporation or the by-laws, thirty (30) days after the election of the directors, trustees and officers of
officers of a non-stock corporation may be directly elected by the the corporation, the secretary, or any other officer of the corporation,
members. (n) shall submit to the Securities and Exchange Commission, the names,
nationalities and residences of the directors, trustees, and officers elected.
Section 97. Articles of incorporation. – The articles of incorporation of a Should a director, trustee or officer die, resign or in any manner cease to
close corporation may provide: hold office, his heirs in case of his death, the secretary, or any other
officer of the corporation, or the director, trustee or officer himself, shall
1. For a classification of shares or rights and the qualifications for owning immediately report such fact to the Securities and Exchange Commission.
or holding the same and restrictions on their transfers as may be stated (n)
therein, subject to the provisions of the following section;
Section 27. Disqualification of directors, trustees or officers. – No
2. For a classification of directors into one or more classes, each of whom person convicted by final judgment of an offense punishable by
may be voted for and elected solely by a particular class of stock; and imprisonment for a period exceeding six (6) years, or a violation of this
Code committed within five (5) years prior to the date of his election or
3. For a greater quorum or voting requirements in meetings of appointment, shall qualify as a director, trustee or officer of any
stockholders or directors than those provided in this Code. corporation. (n)

The articles of incorporation of a close corporation may provide that the
business of the corporation shall be managed by the stockholders of the
corporation rather than by a board of directors. So long as this provision
continues in effect:
1. No meeting of stockholders need be called to elect directors;
2. Unless the context clearly requires otherwise, the stockholders of the
corporation shall be deemed to be directors for the purpose of applying
the provisions of this Code; and
Section 31. Liability of directors, trustees or officers. - Directors or
trustees who willfully 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.
When a director, trustee or officer attempts to acquire or acquire, in
violation of his duty, any interest adverse to the corporation in respect of
any matter which has been reposed in him in confidence, as to which
28
equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation. (n)
Section 32. Dealings of directors, trustees or officers with the
corporation. – A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a
quorum for such meeting;
with Yu Chuck for the printing of the newspaper for P580 per month. Yu
Chuck worked for a year until they were discharged by the new manager
Tan Tian Hong because CC Chen had left for China. Yu Chuck sues the
paper, claiming the contract was for a period of 3 years, and that
discharge without just cause before the expiration of this term entitles
them to receive full pay for the remainder of the term. Kong Li Po
counters that CC Chen was not authorized to enter into the contract with
Yu Chuck. TC ruled in favor of Yu Chuck, concluding that the contract
had been impliedly ratified by Kong Li Po and that although he had no
express authority to enter into the contract; since he was general business
manager in charge of the printing of the paper he had implied authority to
employ the petitioners.

2. That the vote of such director or trustee was not necessary for the ISSUE:
approval of the contract; WON CC Chen had the power to bind the corporation through the
contract mentioned.
3. That the contract is fair and reasonable under the circumstances; and
HELD:
4. That in case of an officer, the contract has been previously authorized The general rule is that the power to bind a corporation by
by the board of directors. contract lies with its board of directors or trustees, but this power may
either expressly or impliedly be delegated to other officers or agents of
Where any of the first two conditions set forth in the preceding paragraph the corporation, and it is well settled that except where the authority of
is absent, in the case of a contract with a director or trustee, such contract employing servants and agent is expressly vested in the board of directors
may be ratified by the vote of the stockholders representing at least two- or trustees, an officer or agent who has general control and management
thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the corporation's business, or a specific part thereof, may bind the
of the members in a meeting called for the purpose: Provided, That full corporation by the employment of such agent and employees as are usual
disclosure of the adverse interest of the directors or trustees involved is and necessary in the conduct of such business. But the contracts of
made at such meeting: Provided, however, That the contract is fair and employment must be reasonable.
reasonable under the circumstances. (n) In the case at bar, although the court affirmed the power to bind
the corporation may be made by an officer or agent, the contract of
Yu Chuck v. Kong Li Po 46 Phil 608 employment in the printing business is not reasonable for it was too long
FACTS: and onerous to the business.
Kong Li Po is a corporation engaged in the publication of a
Chinese newspaper. Its AOI provide for a president who shall sign all Woodchild Holdings v. RoxasElectric 436 SCRA 235
contracts and other instruments of writing, but does not provide for a FACTS:
business or general manager. CC Chen or TC Chen was appointed The respondent was the owner of two parcels of land located
general business manager of the paper. He then entered into an agreement along the Sumulong Highway. Petitioner wanted to buy the one parcel on
29
which it planned to construct its warehouse building. Roxas, as the
president of respondent company, accepted the offer through the BOD
resolution issued by the latter. However, the respondent posits that
Roxas was not so authorized under the May 17, 1991 Resolution of its
Board of Directors to impose a burden or to grant a right of way in favor
of the petitioner on Lot No.491-A-3-B-1, much less convey a portion
thereof to the petitioner. Hence, the respondent was not bound by such
provisions contained in the deed of absolute sale.
provisions in the deed of absolute sale was not obtained; hence, the
assailed provisions are not binding on it.
The doctrine of apparent authority was not applicable in this case
because the president of the company was given a specific authority by
virtue of a board resolution to sell a particular land. Any actions of the
president outside such vested authority shall not bind the corporation with
third party. The apparent power of an agent is to be determined by the
acts of the principal and not by the acts of the agent.

ISSUE: Bd. Of Liquidators v. Heirs of Kalaw 20 SCRA 987

WON whether the respondent is bound by the provisions in the FACTS:
deed of absolute sale granting to the petitioner beneficial use and a right Maximo Kalaw is chairman of the board and general manager of
of way over a portion of Lot No. 491-A-3-B-1 accessing to the Sumulong the National Coconut Corporation (NACOCO), a non-profit GOCC
Highway. empowered by its charter to buy sell barter export and deal in coconut,
copra, and desiccated coconut. Bocar, Garcia and Moll were directors. It
HELD: entered into contracts for the trading and delivery of copra. Nature
NO. Generally, the acts of the corporate officers within the scope intervened—4 typhoons devastated agriculture and copra production.
of their authority are binding on the corporation. However, under Article NACOCO was on the verge of sustaining losses and could not be able to
1910 of the New Civil Code, acts done by such officers beyond the scope make good on the contracts. Sensing this, Kalaw submitted the contracts
of their authority cannot bind the corporation unless it has ratified such to the board for approval and made a full disclosure of the situation. No
acts expressly or tacitly, or is estopped from denying them. Thus, action was taken, and no vote was taken on the matter. On 20 Jan 1947
contracts entered into by corporate officers beyond the scope of authority the board met again with Kalaw, Bocar, Garcia, and Moll in attendance,
are unenforceable against the corporation unless ratified by the and approved the contracts. NACOCO however only partially performed
corporation. the contracts. One of the contracts concerns the Louis Drayfus & Co.,
Evidently, Roxas was not specifically authorized under the said which sued NACOCO. NACOCO settled out-of-court and paid Drayfus
resolution to grant a right of way in favor of the petitioner on a portion of P567,024.52 representing 70% of total claims. The total settlements sum
Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion thereof. up to P1.3M. NACOCO sues Kalaw, and his directors Bocar, Moll and
The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 Garcia to recover this sum, alleging negligence, bad faith and breach of
covered by TCT No. 78086 did not include the authority to sell a portion trust in approving the contracts, by not having them approved by the
of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real board. TC dismisses complaint. NACOCO claims that the by-laws
rights thereon. Neither may such authority be implied from the authority provide that prior board approval is required before the GM can perform
granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner “on such or execute in behalf of NACOCO all contracts necessary to accomplish
terms and conditions which he deems most reasonable and its purpose.
advantageous.” The general rule is that the power of attorney must be
pursued within legal strictures, and the agent can neither go beyond it; ISSUE:
nor beside it. The act done must be legally identical with that authorized WON the Kalaw contracts are valid despite its lack of prior board
to be done. In sum, then, the consent of the respondent to the assailed approval as required by the NACOCO by-laws.
30

HELD:
The contracts in question are “forward sales” contracts—a sales
agreement entered into, even though the goods are not yet in the hands of
the seller. Given the peculiar nature of copra trading, i.e. copra must be
disposed of as soon as possible else it would lose weight and would
decrease its value, it necessitates a quick turnover and execution of the
contract on short notice (w/in 24 hours). It would be difficult if not
impractical to call a formal meeting of the board each time a contract is to
be executed.
Kalaw was a corporate officer entrusted with general management
and control of NACOCO. He had implied authority to make any contract
or do any act which is necessary for the conduct of the business. He
may, without authority from the board, perform acts of ordinary nature
for as long as these redound to the interest of the corporation.
Particularly, he contracted forward sales with business entities. Long
before some of these contracts were disputed, he contracted by himself
alone, without board approval. All of the members of the board knew
about this practice and have entrusted fully such decisions with Kalaw.
He was never questioned nor reprimanded nor prevented from this
practice. In fact, the board itself, through its acts and by acquiescence,
have laid aside the by-law requirement of prior board approval. Thus, it
cannot now declare that these contracts (failures) are not binding on
NACOCO.
Ratification by a corporation of an unauthorized act or contract by
its officers relates back to the time of the act or contract ratified and is
equivalent to original authority. The theory of corporate ratification is
predicated upon the right of a corporation to contract, and any ratification
or adoption is equivalent to a grant of prior authority. Ratification
“cleanses the contract from all its defects from the moment it was
constituted. Thus, even in the face of an express by-law requirement of
prior approval, the law on corporations is not to be held too rigid and
inflexible as to fail to recognize equitable considerations.
Inter-Asia Investment v. CA June 10, 2003
Facts:
Sept. 1, 1978, Inter-Asia Industries, Inc sold to Asia Industries by
a Stock Purchase Agreement all outstanding shares of stock of
FARMACOR Inc for P19.5M. InterAsia made warranties and
representations in the Agreement which were audited financial statements
prepared by Sycip, Gorres, Velayo and Co. (SGV) which fairly present
the financial position of FARMACOR that provided the Minimum
Guaranteed Net Worth of P12M as of Sept. 30, 1978.
The Agreement was then amended and provided that pending
submission by SGV of FARMACOR’s audited financial statements as of
October 31, 1978, Asia Industries may retain the sum of P7.5M out of the
stipulated price of P19.5M, and from that P7.5M, it may deduct any
shortfall on the Minimun Guaranteed Net Worth of 12M. It was
stipulated that if the amount retained is not sufficient to make up for the
deficiency in the Minimum Guaranteed Net Worth, InterAsia shall pay
the difference within 5 days from date of receipt of the audited financial
statements.
From the Statement of Income and Deficit in November 28, 1978,
it was shown that the guaranteed net worth shortfall amounted to
P13,244,255. The adjusted contract price, therefore, amounted to
P6,225,775. Since Asia Industries already paid for P12M, it was entitled
to a refund of P5,744,225.
InterAsia proposed by a letter signed by its president that Asia
Industries’ claim for refund be reduced to P4,093,993, it promising to pay
the cost of the Northern Cotabato Industries Inc superstructures in the
amount of P759,570. Asia Industries agreed byt InterAsia reneged on its
promise.
In a complaint filed with the RTC, it was rendered in favor of
Asia Industries, ordering InterAsia to pay on its liabilities. CA affirmed
the decision.
Petitioner argues that the letterproposal for the reduction of Asia
Industries’ claim for refund upon InterAsia’s promise to pay the cost of
NOCOSII superstructures was signed by its president. Such signature has
no legal force and effect as it was not authorized by its board of directors,
citing the Corporation law.
Issue:
31
 Whether or not the letterproposal of InterAsia signed by only its
president is valid and binding to the corporation. 1. Erquiaga is one of the largest stockholder, and was the all-in-one
officer (he was the President, GM, Attorney, Auditor, etc.)
Held:
Yes. General rule is that in the absence of authority from the 2. Two other directors approved his actions and expressed satisfaction
BOD, no person, not even its officers, can validly bind a corporation with the advantages obtained by him in securing the chattel mortgage.
because it is a juridical person, separate and distinct from its stockholders
and members having powers, attributes and properties expressly 3. The corporation took advantage of the benefits of the chattel
authorized by law or incident to its existence. (Sec 23 of the Corpo mortgage. There were even partial payments made with the knowledge of
Code). the three directors.
However, just as a natural person may authorize another to do
certain acts for and on his behalf, the BOD may validly delegate some of
its functions and powers to officers, committees or agents. The authority Marc ll v. Joson Dec. 12, 2011
of such individuals to bind the corporation is generally derived from law, FACTS: Respondent Alfredo Joson was the General Manager,
corporate bylaws or authorization from the board, either expressly or incorporator, director and stockholder of Marc II Marketing (petitioner
impliedly by habit, custom or acquiescence in the general course of corporation). Before petitioner corporation was officially incorporated,
business. respondent has already been engaged by petitioner Lucila Joson, in her
Apparent authority is derived not merely from practice and may capacity as President of Marc Marketing Inc., to work as the General
be ascertained through: Manager of petitioner corporation through a management contract.
1) General manner in which a corporation holds out an officer or
agent as having power to act. However, petitioner corporation decided to stop and cease its operation
2) The acquiescence in his acts of a particular nature, with actual or wherein respondent's services were then terminated. Feeling aggrieved,
constructive knowledge thereof, within or beyond the scope of his respondent filed a Complaint for Reinstatement and Money Claim against
ordinary powers. petitioners before the Labor Arbiter which ruled in favor of respondent.
An officer of a corporation who is authorized to purchase the stock of The National Labor and Relations Commission (NLRC) reversed said
another corporation has the implied power to perform all other decision. The Court of Appeals (CA) however, upheld the ruling of the
obligations arising therefrom, such as payment of the shares of stock. By Labor Arbiter. Hence, this petition.
allowing its president to sign the Agreement on its behalf, petitioner
clothed him with apparent capacity to perform all acts which are ISSUE: Whether or nor the Labor Arbiter has jurisdiction over the
expressly, impliedly and inherently stated therein. controversy at bar

Zamboanga Transpo. V. Bachrach Motors 52 Phil 244 RULING: Yes. While Article 217(a) 229 of the Labor Code, as
amended, provides that it is the Labor Arbiter who has the original and
A chattel mortgage, although not approved by the board of directors as exclusive jurisdiction over cases involving termination or dismissal of
stipulated in the by-laws, shall still be valid and binding when the workers when the person dismissed or terminated is a corporate officer,
corporation, through the board, tacitly approved and ratified it. The the case automatically falls within the province of the Regional Trial
following acts of the board constitute implied ratification:
32
Court (RTC). The dismissal of a corporate officer is always regarded as a Service stated that the summons was duly served "E.B. Villarosa &
corporate act and/or an intra-corporate controversy. Partner thruits Branch Manager at their new office Villa Gonzalo, CDO,
and evidenced by thesignature on the face of the original copy of the
In conformity with Section 25 of the Corporation Code, whoever are the summons." Villarosa prayed for the dismissal of the complaint on the
corporate officers enumerated in the by-laws are the exclusive officers of ground of improper service of summons andfor lack of jurisdiction over
the corporation and the Board has no power to create other officers the person of the defendant. Villarosa contends that theRTC did not
without amending first the corporate by-laws. However, the Board may acquire jurisdiction over its person since the summons wasimproperly
create appointive positions other than the positions of the corporate served upon its employee in its branch office at CDO who is not one of
officers, but the persons occupying such positions are not considered as those persons named in Sec. 11, Rule 14 upon whom service of summons
corporate officers within the meaning of Section 25 of the Corporation may bemade. ID filed a Motion to Declare Villarosa in Default alleging
Code and are not empowered to exercise the functions of the corporate that Villarosa hasfailed to file an Answer despite its receipt allegedly on
officers, except those functions lawfully delegated to them. Their May 5, 1998 of thesummons and the complaint, as shown in the Sheriff's
functioning and duties are to be determined by the Board of Return.
Directors/Trustees.
Issue:
In the case at bar, the respondent was not a corporate officer of petitioner Won an agent of a corporation can receive summons in behalf of their
corporation because his position as General Manager was not specifically corporation?
mentioned in the roster of corporate officers in its corporate by-laws.
Thus respondent, can only be regarded as its employee or subordinate HELD:
official. Accordingly, respondent's dismissal as petitioner corporation's The court agrees with the contention of Villarosa. Earlier cases
General Manager did not amount to an intra-corporate controversy. haveuphold service of summons upon a construction project manager; a
Jurisdiction therefore properly belongs with the Labor Arbiter and not corporation'sassistant manager; ordinary clerk of a corporation; private
with the RTC. secretary of corporateexecutives; retained counsel; officials who had
charge or control of the operationsof the corporation, like the assistant
E.B. Villarosa v. Benito 312 SRA 65 (1999) general manager; or the corporation's Chief Finance and Administrative
Office. In these cases, these persons were consideredas "agent" within the
FACTS: contemplation of the old rule.”“Notably, under the new Rules, service of
E.B. Villarosa & Partners is a limited partnership with principal summons upon an AGENT of thecorporation is NO LONGER
officeaddress at 102 Juan Luna St., Davao City and with branch offices at authorized.”“The designation of persons or officers who are authorized to
Parañaque andCagayan de Oro City (CDO). Villarosa and Imperial accept summons for a domestic corporation or partnership is now limited
Development (ID) executedan Agreement wherein Villarosa agreed to and more clearly specified inSection11, Rule 14. The rule now states
develop certain parcels of land in CDO belonging to ID into a housing "general manager" instead of only"manager";"corporate secretary"
subdivision. ID, filed a Complaint for Breach of Contract and Damages instead of "secretary"; and "treasurer" instead of "cashier." The phrase
against Villarosa before the RTC allegedly for failure of thelatter to “agent, or any of its directors" is conspicuously deleted inthe new
comply with its contractual obligation.Summons, together with the rule.”“A strict compliance with the mode of service is necessary to confer
complaint, were served upon Villarosa, through itsBranch Manager jurisdiction of the court over a corporation. The officer upon whom
Wendell Sabulbero at the address at CDO but the Sheriff’s Returnof service is made must be onewho is named in the statute; otherwise the
33
service is insufficient. . . The liberalconstruction rule cannot be invoked officer orrepresentative is necessary. In Philippine Airlines v.
and utilized as a substitute for the plain legalrequirements as to the Flight Attendants and StewardsAssociation of the Philippines , SC
manner in which summons should be served on a domesticcorporation. .” ruled that only individuals vested with authority by a validboard
resolution may sign the certificate of non-forum shopping on behalf of a
CAGAYAN VALLEY DRUG CORP. v. CIR Feb. 13, 2008 corporation. Theaction can be dismissed if the certification was
submitted unaccompanied by proof of thesignatory’s authority.
FACTS: Petitioner, a corporation duly organized and existing under SC believes that appending the board resolution to the
Philippine laws, is a dulylicensed retailer of medicine and other complaint orpetition is the better procedure to obviate any question on
pharmaceutical products. Sometime in 1995, it granted20% sales the authority of the signatory to theverification and certification. The
discounts to qualified senior citizens on purchases of medicine pursuant required submission of the board resolution is grounded on thebasic
to RA No.7432 and its implementing rules and regulations. In compliance precept that corporate powers are exercised by the board of directors, and
with Revenue Regulation No. 2-94, petitioner treated the 20% sales not solely byan officer of the corporation. Hence, the power to sue and be
discounts granted to qualified senior citizens in 1995 asdeductions from sued in any court or quasi-judicialtribunal is necessarily lodged with the
the gross sales in order to arrive at the net sales, instead of treating them said board. In the case at bar, the petitioner substantiallycomplied with
astax credit as provided by Section 4 of RA 7432. On December 27, Secs. 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure. First,
1996, however, petitionerfiled with the Bureau of Internal Revenue therequisite board resolution has been submitted albeit belatedly by
(BIR) a claim for tax refund/tax credit of the fullamount of the petitioner. Second, the rulingin Lepanto with the rationale that the
20% sales discount it granted to senior citizens for the year 1995, President of petitioner is in a position to verify thetruthfulness
allegedlytotaling to PhP 123,083 in accordance with Sec. 4 of RA 7432. and correctness of the allegations in the petition. Third, the President of
The BIR’s inaction on petitioner’sclaim for refund/tax credit compelled petitionerhas signed the complaint before the CTA at the inception of this
petitioner to file a petition for review before the CTA. OnApril 26, 2000, judicial claim for refund or taxcredit.
the CTA rendered a Decision dismissing the petition for review for lack
of merit.Aggrieved, petitioner elevated the matter before the CA. On 3) Board Committees versus Executive Committee - Sec. 35
August 31, 2000, the CA issued theassailed Resolution dismissing the
petition on procedural grounds. The CA held that theperson who Section 35. Executive committee. – The by-laws of a corporation may
signed the verification and certification of absence of forum shopping, create an executive committee, composed of not less than three members
acertain Jacinto J. Concepcion, President of petitioner, failed to adduce of the board, to be appointed by the board. Said committee may act, by
proof that he wasduly authorized by the board of directors to do so. majority vote of all its members, on such specific matters within the
Hence, this petition. competence of the board, as may be delegated to it in the by-laws or on a
majority vote of the board, except with respect to:
ISSUE: WON petitioner’s president can sign the subject verification and (1) Approval of any action for which shareholders’ approval is also
certification sans theapproval of its Board of Directors. required;
(2) The filing of vacancies in the board;
RULING: With respect to a juridical person, Sec. 4, Rule 7 on (3) The amendment or repeal of by-laws or the adoption of new by-laws;
verification and Sec. 5, Rule 7 oncertification against forum shopping are (4) The amendment or repeal of any resolution of the board which by its
silent as to who the authorized signatory should be.Said rules do not express terms is not so amendable or repealable; and
indicate if the submission of a board resolution authorizing the (5) A distribution of cash dividends to the shareholders.
34
 Treasurer and appointed a new one; (b) fixed the annual salary of the
Executive Committee – a body created by the by-laws and composed of members of the Executive Committee; (c) amended the by-laws by giving
not less than 3 appointed members of the board which, subject to the the President the sole authority to call a stockholder's meeting and a
statutory limitations, has all the authority of the board to the extent board of directors meeting; and (d) amended the composition of the
provided in the board resolution or by-laws. Executive Committee by limiting it to just 2 persons.

Authority: To the extent provided in the resolution of the board or in the ISSUE:
by-laws Were these actions valid?
Quorum: Majority
HELD:
Its decisions are not subject to appeal to the board. However, if the No, because the Executive Committee usurped the powers vested
resolution of the Executive Committee is invalid, (i.e. not one of the in the board and the stockholders. If their actions were valid, it would put
powers conferred to it) it may be ratified by the board. (SEC Opinion, the corporation in a situation wherein only two men, acting in their own
July 29, 1995) pecuniary interests, would have absorbed the powers of the entire
corporation.
 Nothing in the Corpo Code prevents the creation of an Executive "Full powers" should be interpreted only in the ordinary conduct
Committee by mere board resolution, even in the absence of an enabling of business and not total abdication of board and stockholders' powers to
clause in the by-laws. It would be in line with the board’s authority to the Executive Committee. "FULL POWERS" does not mean unlimited
appoint agents and delegates or absolute power.

Board Committee - Consisting of the members of a board of

directors and mandated to carry out specified functions, programs, US Circuit CA, First Circuit 181 F. 289
or projects assigned by the board; to assist in discharging its Filipinas Port Services, Inc. v.Go 518 SCRA 453 (2007)
duties FACTS:
The case involves a petition for review on certiorari.
examples: Audit Committee, a Compensation Committee, a
Committee on Directors and Corporate Governance, an Executive We have here Eliodoro C. Cruz suing on behalf of the
Committee, a Finance Committee, a Management Development stockholders of Filipinas Port Services alleging that there has been
Committee and a Public Issues and Diversity Review Committee, numerous cases of mismanagement by the board of directors:
Marketing Comm, Public Relations Comm; ad hoc committees for 1. creation of an executive committee not provided for in the by-laws of
short term activities like research, nominations the corporation
2. disproportionate increase in the salary of officials
3. re-creation of already existing positions
Hayes v. Canada Atlantic & Plant S.S. Co., Ltd. (1910) 4. creation of additional positions with holders not doing any work to
FACTS: deserve any monthly remuneration.
Petitioner is one of the executive committee of respondent He prayed for the return of the salary received by all the unnecessarily
company. In this case, the Executive Committee: (a) removed the appointed members.
35
The Trial Court sided with the respondent and ruled that the creation of
the executive committee and the additional position was legitimate given
that it was provided by the corporation’s by-law. However, the prayer for
the return of salaries received was granted, even if the positions and the
committee were valid, for the court ruled that Filipinas Port Services is
not a big corporation requiring multiple executive positions.
The respondents appealed the decision and they received a favourable
decision as the Court of Appeals granted the respondents’ appeal,
reversed and set aside the appealed decision of the trial court and
accordingly dismissed the so-called derivative suit filed by Cruz, et al.,
Cruz did not take the decision sitting down, hence the petition.
To counter the appeal filed by Cruz, respondents also claim that what
Cruz filed is not a derivative suit.
The petition was denied and the challenged decision of the CA was
affirmed. Only, the Supreme Court clarified the issue involving the
legitimacy of the derivative suit.
ISSUE:
a. Was the case filed by Cruz, on behalf of Filipinas Port Services Inc., a
derivative suit?
b. Whether the CA erred in holding that Filport’s Board of Directors
acted within its powers in creating the executive committee and
the positions of AVPs for Corporate Planning, Operations, Finance
and Administration, and those of the Special Assistants to the
President and the Board Chairman, each with corresponding
remuneration, and in increasing the salaries of the positions of
Board Chairman, Vice-President, Treasurer and Assistant General
Manager
HELD:
a. YES. Under the Corporation Code, where a corporation is an injured
party, its power to sue is lodged with its board of directors or
trustees. But an individual stockholder or an individual trustee may be
permitted to institute a derivative suit in behalf of the corporation in order
to protect or vindicate corporate rights whenever the officials of the
corporation refuse to sue, or when a demand upon them to file the
necessary action would be futile because they are the ones to be sued, or
because they hold control of the corporation. In such actions, the
corporation is the real party-in-interest while the suing stockholder, in
behalf of the corporation, is only a nominal part.
Here, the action below is principally for damages resulting from
alleged mismanagement of the affairs of Filport by its directors/officers,
it being alleged that the acts of mismanagement are detrimental to the
interests of Filport. Thus, the injury complained of primarily pertains to
the corporation so that the suit for relief should be by the
corporation. However, since the ones to be sued are the directors/officers
of the corporation itself, a stockholder, like petitioner Cruz, may validly
institute a “derivative suit” to vindicate the alleged corporate injury, in
which case Cruz is only a nominal party while Filport is the real party-in-
interest.
Besides, the requisites before a derivative suit can be filed by a
stockholder or individual trustee are present in this case, to wit:
a) the party bringing suit should be a shareholder as of the time of
the act or transaction complained of, the number of his shares not
being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made
a demand on the board of directors for the appropriate relief but
the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the
corporation and not to the particular stockholder bringing the suit.
Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought
without success to have its board of directors remedy what he perceived
as wrong when he wrote a letter requesting the board to do the necessary
action in his complaint; and (3) the alleged wrong was in truth a wrong
against the stockholders of the corporation generally, and not against
Cruz or Minterbro, in particular. And while it is true that the complaining
stockholder must show to the satisfaction of the court that he has
exhausted all the means within his reach to attain within the corporation
itself the redress for his grievances, or actions in conformity to his
36
wishes, nonetheless, where the corporation is under the complete control a) Sec. 23 and other provisions requiring SHs’ action
Section 23. The board of directors or trustees. – Unless otherwise
of the principal defendants or other trustees, as here, there is no necessity
of making a demand upon the directors. The reason is obvious: a demand provided in this Code, the corporate powers of all corporations formed
upon the board to institute an action and prosecute the same effectively under this Code shall be exercised, all business conducted and all
would have been useless and an exercise in futility. property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stocks, or
Bottom line, when it comes to cases involving two or more trustees, an where there is no stock, from among the members of the corporation,
individual trustee can file a derivative suit duly following the requisites who shall hold office for one (1) year until their successors are elected
without the need to exhaust internal remedies where the trusteeship is and qualified. (28a)
under the complete control of the other trustees for it will be a waste of
time. Every director must own at least one (1) share of the capital stock of the
corporation of which he is a director, which share shall stand in his name
on the books of the corporation. Any director who ceases to be the owner
b. the bylaws of the corporation are silent as to the creation by its of at least one (1) share of the capital stock of the corporation of which he
board of directors of an executive committee. Under Section is a director shall thereby cease to be a director. Trustees of non-stock
3515 of the Corporation Code, the creation of an executive corporations must be members thereof. A majority of the directors or
committee must be provided for in the bylaws of the corporation. trustees of all corporations organized under this Code must be residents
of the Philippines.
Notwithstanding the silence of Filport’s bylaws on the matter, we
cannot rule that the creation of the executive committee by the b) Meetings – Sec. 49, 50, 51, 52, 54, 55, 56, 57, 93
board of directors is illegal or unlawful. One reason is the absence
of a showing as to the true nature and functions of said executive Section 49. Kinds of meetings. – Meetings of directors, trustees,
committee considering that the "executive committee," referred to stockholders, or members may be regular or special. (n)
in Section 35 of the Corporation Code which is as powerful as the
board of directors and in effect acting for the board itself, should Section 50. Regular and special meetings of stockholders or members. -
be distinguished from other committees which are within the Regular meetings of stockholders or members shall be held annually on a
competency of the board to create at anytime and whose actions date fixed in the by-laws, or if not so fixed, on any date in April of every
16
require ratification and confirmation by the board. Another reason year as determined by the board of directors or trustees: Provided, That
is that, ratiocinated by both the two (2) courts below, the Board of written notice of regular meetings shall be sent to all stockholders or
Directors has the power to create positions not provided for in members of record at least two (2) weeks prior to the meeting, unless a
Filport’s bylaws since the board is the corporation’s governing different period is required by the by-laws.
body, clearly upholding the power of its board to exercise its
prerogatives in managing the business affairs of the corporation. Special meetings of stockholders or members shall be held at any time
deemed necessary or as provided in the by-laws: Provided, however, That
at least one (1) week written notice shall be sent to all stockholders or
4) Stockholders – members, unless otherwise provided in the by-laws.

37
Notice of any meeting may be waived, expressly or impliedly, by any
stockholder or member.
Whenever, for any cause, there is no person authorized to call a meeting,
the Securities and Exchange Commission, upon petition of a stockholder
or member on a showing of good cause therefor, may issue an order to
the petitioning stockholder or member directing him to call a meeting of
the corporation by giving proper notice required by this Code or by the
by-laws. The petitioning stockholder or member shall preside thereat
until at least a majority of the stockholders or members present have
chosen one of their number as presiding officer. (24, 26)
Section 51. Place and time of meetings of stockholders of members. –
Stockholder’s or member’s meetings, whether regular or special, shall be
held in the city or municipality where the principal office of the
corporation is located, and if practicable in the principal office of the
corporation: Provided, That Metro Manila shall, for purposes of this
section, be considered a city or municipality.
Notice of meetings shall be in writing, and the time and place thereof
stated therein.
All proceedings had and any business transacted at any meeting of the
stockholders or members, if within the powers or authority of the
corporation, shall be valid even if the meeting be improperly held or
called, provided all the stockholders or members of the corporation are
present or duly represented at the meeting. (24 and 25)
Section 52. Quorum in meetings. – Unless otherwise provided for in this
Code or in the by-laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority of
the members in the case of non-stock corporations. (n)
Section 54. Who shall preside at meetings. – The president shall preside
at all meetings of the directors or trustee as well as of the stockholders or
members, unless the by-laws provide otherwise. (n)
Section 55. Right to vote of pledgors, mortgagors, and administrators. –
In case of pledged or mortgaged shares in stock corporations, the pledgor
or mortgagor shall have the right to attend and vote at meetings of
stockholders, unless the pledgee or mortgagee is expressly given by the
pledgor or mortgagor such right in writing which is recorded on the
appropriate corporate books. (n)
Executors, administrators, receivers, and other legal representatives duly
appointed by the court may attend and vote in behalf of the stockholders
or members without need of any written proxy. (27a)
Section 56. Voting in case of joint ownership of stock. – In case of shares
of stock owned jointly by two or more persons, in order to vote the same,
the consent of all the co-owners shall be necessary, unless there is a
written proxy, signed by all the co-owners, authorizing one or some of
them or any other person to vote such share or shares: Provided, That
when the shares are owned in an "and/or" capacity by the holders thereof,
any one of the joint owners can vote said shares or appoint a proxy
therefor. (n)
Section 57. Voting right for treasury shares. – Treasury shares shall have
no voting right as long as such shares remain in the Treasury. (n)
Section 93. Place of meetings. – The by-laws may provide that the
members of a non-stock corporation may hold their regular or special
meetings at any place even outside the place where the principal office of
the corporation is located: Provided, That proper notice is sent to all
members indicating the date, time and place of the meeting: and
Provided, further, That the place of meeting shall be within the
Philippines. (n)
Tan v. Sycip G.R. 153468 (Aug.17, 2006)
Facts:
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 meeting in 1998, there
38
were only eleven living member-trustees, as four had already died. Out of
the eleven, seven 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.
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. The best evidence of who are the
present members of the corporation is the membership book; in the case
of stock corporations, it is the stock and transfer book.

When the controversy reached the Securities and Exchange Commission
(SEC), petitioners 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.
SEC en banc affirmed the decision of the hearing officer in toto. It found
to be untenable their contention that the word members, as used in
Section 52 of the Corporation Code, referred only to the living members
of a nonstock corporation.
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.
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.

CA dismissed the appeal of petitioners, because the Verification and On the other hand, membership in and all rights arising from a nonstock
Certification of Non-Forum Shopping had been signed only by Atty. corporation are personal and non-transferable, unless the articles of
Sabino Padilla Jr. No Special Power of Attorney had been attached to incorporation or the bylaws of the corporation provide otherwise. In other
show his authority to sign for the rest of the petitioners. words, the determination of whether or not dead members are entitled to
exercise their voting rights (through their executor or administrator),
Issue: WON dead members in a non-stock corporation should still be depends on those articles of incorporation or bylaws.
counted in determination of quorum for purposed of conducting the
Annual Members Meeting. - NO Under the By-Laws of GCHS, membership in the corporation shall,
among others, be terminated by the death of the member. Section 91 of
Held: Members vote as persons, in accordance with the law and the the Corporation Code further provides that termination extinguishes all
bylaws of the corporation. Each member shall be entitled to one vote the rights of a member of the corporation, unless otherwise provided in
unless so limited, broadened, or denied in the articles of incorporation or the articles of incorporation or the bylaws.
bylaws. Only those who are actual members with voting rights should be
counted.
39
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.
Trustees may fill vacancies in the board, provided that those remaining
still constitute a quorum. Corporations may choose how vacancies in
their respective boards may be filled up – either by the remaining
directors constituting a quorum, or by the stockholders or members in a
regular or special meeting called for the purpose.
The By-Laws of GCHS prescribed the specific mode of filling up
existing vacancies in its board of directors; that is, by a majority vote of
the remaining members of the board.
c) Deadlocks in close corps – Sec. 104; provisional director
Section 104. Deadlocks. – Notwithstanding any contrary provision in the
articles of incorporation or by-laws or agreement of stockholders of a
close corporation, if the directors or stockholders are so divided
respecting the management of the corporation’s business and affairs that
the votes required for any corporate action cannot be obtained, with the
consequence that the business and affairs of the corporation can no longer
be conducted to the advantage of the stockholders generally, the
Securities and Exchange Commission, upon written petition by any
stockholder, shall have the power to arbitrate the dispute. In the exercise
of such power, the Commission shall have authority to make such order
as it deems appropriate, including an order: (1) cancelling or altering any
provision contained in the articles of incorporation, by-laws, or any
stockholder’s agreement; (2) cancelling, altering or enjoining any
resolution or act of the corporation or its board of directors, stockholders,
or officers; (3) directing or prohibiting any act of the corporation or its
board of directors, stockholders, officers, or other persons party to the
action; (4) requiring the purchase at their fair value of shares of any
stockholder, either by the corporation regardless of the availability of
unrestricted retained earnings in its books, or by the other stockholders;
(5) appointing a provisional director; (6) dissolving the corporation; or
(7) granting such other relief as the circumstances may warrant.
A provisional director shall be an impartial person who is neither a
stockholder nor a creditor of the corporation or of any subsidiary or
affiliate of the corporation, and whose further qualifications, if any, may
be determined by the Commission. A provisional director is not a
receiver of the corporation and does not have the title and powers of a
custodian or receiver. A provisional director shall have all the rights and
powers of a duly elected director of the corporation, including the right to
notice of and to vote at meetings of directors, until such time as he shall
be removed by order of the Commission or by all the stockholders. His
compensation shall be determined by agreement between him and the
corporation subject to approval of the Commission, which may fix his
compensation in the absence of agreement or in the event of
disagreement between the provisional director and the corporation.
5) Members – Sec. 89
Section 89. Right to vote. – The right of the members of any class or
classes to vote may be limited, broadened or denied to the extent
specified in the articles of incorporation or the by-laws. Unless so
limited, broadened or denied, each member, regardless of class, shall be
entitled to one vote.
Unless otherwise provided in the articles of incorporation or the by-laws,
a member may vote by proxy in accordance with the provisions of this
Code. (n)
Voting by mail or other similar means by members of non-stock
corporations may be authorized by the by-laws of non-stock corporations
with the approval of, and under such conditions which may be prescribed
by, the Securities and Exchange Commission.
40
 SEC Memo Circ. No. 4, series of 2004. Spouses Victor Ma. Gaston and Lydia Gaston, the private respondents,
Distinguish from Sec. 24 (election of trustees) filed a complaint for damages with preliminary injunction/preliminary
mandatory injunction and temporary restraining order before the
Section 24. Election of directors or trustees. – At all elections of Regional Trial Court against petitioners Sta Clara Homeowners
directors or trustees, there must be present, either in person or by Association (SCHA).
representative authorized to act by written proxy, the owners of a
majority of the outstanding capital stock, or if there be no capital stock, a The complaint alleged that the private respondents purchased their lots in
majority of the members entitled to vote. The election must be by ballot if Sta. Clara Subdivision and at the time of the purchase, there was no
requested by any voting stockholder or member. In stock corporations, mention or requirement of membership in any homeowners’ association.
every stockholder entitled to vote shall have the right to vote in person or From that time on, they have remained non-members of the SCHA.
by proxy the number of shares of stock standing, at the time fixed in the They also stated that an arrangement was made wherein homeowners
by-laws, in his own name on the stock books of the corporation, or where who were non-members of the association were issued non-member gate
the by-laws are silent, at the time of the election; and said stockholder pass stickers for their vehicles for identification by the security guards
may vote such number of shares for as many persons as there are manning the subdivision’s entrances and exits. This arrangement
directors to be elected or he may cumulate said shares and give one remained undisturbed until sometime in the middle of March 1998, when
candidate as many votes as the number of directors to be elected SCHA disseminated a board resolution which decreed that only its
multiplied by the number of his shares shall equal, or he may distribute members in good standing were to be issued stickers for use in their
them on the same principle among as many candidates as he shall see fit: vehicles.
Provided, That the total number of votes cast by him shall not exceed the
number of shares owned by him as shown in the books of the corporation Petitioners filed a motion to dismiss arguing that the trial court had no
multiplied by the whole number of directors to be elected: Provided, jurisdiction over the case as it involved an intra-corporate dispute
however, That no delinquent stock shall be voted. Unless otherwise between SCHA and its members. The proper forum must be the Home
provided in the articles of incorporation or in the by-laws, members of Insurance and Guarantee Corporation (HIGC). They stated that that the
corporations which have no capital stock may cast as many votes as there Articles of Incorporation of SCHA, which was duly approved by the
are trustees to be elected but may not cast more than one vote for one Securities and Exchange Commission , provides that the association shall
candidate. Candidates receiving the highest number of votes shall be be a non-tock corporation with all the homeowners of Sta. Clara
declared elected. Any meeting of the stockholders or members called for constituting its membership. Its by-laws also contains a provision that all
an election may adjourn from day to day or from time to time but not sine real estate owners automatically become members of the association.
die or indefinitely if, for any reason, no election is held, or if there are not Moreover, the private respondents allegedly enjoyed the privileges of
present or represented by proxy, at the meeting, the owners of a majority membership and abided by the rules of the association, and even attended
of the outstanding capital stock, or if there be no capital stock, a majority the general special meeting of the association members.
of the members entitled to vote. (31a)
Issue:
STA. CLARA HOMEOWNERS v. GASTON Jan 23, 2002 Whether or not the private respondents are members of SCHA

Facts: Ruling:

41
 The constitutionally guaranteed freedom of association includes the
freedom not to associate. The right to choose with whom one will
associate oneself is the very foundation and essence of the partnership. It
should be noted that the provision guarantees the right to form an
association. It does not compel others to form or join one.
Private respondents cannot be compelled to become members of
SCHA by the simple expedient of including them in its Articles of
Incorporation and By-Laws without their express or implied consent.
True, it may be to the mutual advantage of lot owners in a subdivision to
band themselves together to promote their common welfare. But that is
possible only if the owners voluntarily agree, directly or indirectly, to
become members of the association. True also, membership in
homeowners’ association may be acquired in various ways – often
through deeds of sale, Torrens certificates or other forms of evidence of
property ownership. However, when private respondents purchased their
property and obtained Transfer Certificates of Title, there was no
annotation showing automatic membership in the SCHA. Thus, no
privity of contract arising from the title certificate exists between
petitioners and private respondents.
PADCOM v. ORTIGAS CENTER May 9, 2002
Facts:
Petitioner Padcom Condominium Corporation (PADCOM) owns
and manages the Padilla Office Condominium Building (PADCOM
BUILDING). The land on which the building stands was originally
acquired from the Ortigas & Company, Limited Partnership, by Tierra
Development Corporation (TDC) under a Deed of Sale with a condition
that the transferee and its successor-in-interest must become members of
an association for realty owners and long-term lessees in the area later
known as the Ortigas Center. Subsequently, the said lot, together with the
improvements thereon, was conveyed by TDC in favor of PADCOM in a
Deed of Transfer.
Thereafter, respondent Ortigas Center Association, Inc.
(ASSOCIATION) was organized to advance the interests and promote
the general welfare of the real estate owners and long-term lessees of the
lots in the Ortigas Center and sought the collection of membership dues
from PADCOM. In view of PADCOM'S failure and refusal to pay its
arrears in monthly dues, the Association filed a complaint for collection
of sum of money before the trial court, but the same was dismissed. On
appeal, the Court of Appeals reversed and set aside the trial court's
dismissal. Hence, this petition.
Issue:
Whether or not PADCOM is unjustly enriched by the
improvements made by the Association, thus requiring the former to pay
dues to the latter.
Held:
Yes. The Supreme Court held that as resident and lot owner in the
Ortigas area, PADCOM was definitely benefited by the Association's acts
and activities to promote the interests and welfare of those who acquire
property therein or benefit from the acts or activities of the Association.
Generally, it may be said that a quasi-contract is based on the presumed
will or intent of the obligor dictated by equity and by the principles of
absolute justice. Examples of these principles are: (1) it is presumed that
a person agrees to that which will benefit him; (2) nobody wants to enrich
himself unjustly at the expense of another; or (3) one must do unto others
what he would want others to do unto him under the same circumstances.
Finally, PADCOM's argument that the collection of monthly dues has no
basis since there was no board resolution defining how much fees are to
be imposed deserves scant consideration. Suffice it is to say that
PADCOM never protested upon receipt of the earlier demands for
payment of membership dues. In fact, by proposing a scheme to pay its
obligation, PADCOM cannot belatedly question the Association's
authority to assess and collect the fees in accordance with the total land
area owned or occupied by the members, which finds support in a
resolution dated 6 November 1982 of the Association's incorporating
directors and Section 2 of its By-laws.
42