Yu Chuck v.

Kong Li Po
G.R. No. L-22450 Dec. 3, 1924

FACTS: Kong Li Po is a domestic corporation engaged in the

publication of a Chinese newspaper. It had a president but had no
business manager. T.C. Chen was thereafter appointed as manager
of the corporation. Chen agreed to enter into a contract with plaintiff
Yu Chuck for the printing of their materials. Chen was later replaced
by Tan Tia Heng who dismissed plaintiff without explanation. As a
result, plaintiff filed an action for specific performance with damages,
claiming that in its contract with the corporation is for three (3) years
and it was stated that in the event the contract with them is terminated
before its expiration, they would be obliged to pay the unexpired
portion of the contract even in the event of insolvency. Tan Tia Heng,
on the other hand, claims that Chen had no authority top enter into
that contract with plaintiff.
The lower court ruled in favor of the plaintiff ruling that Chen
had the authority to enter into the contract, taking into consideration a
notice made by the president that it shall not recognize any receipt,
letter or document if it is not signed by T.C. Chen.

ISSUE: Whether or not Chen had the authority to bind the corporation
in the contract it entered into with plaintiff

HELD: No. The judgment is REVERSED.

It was settled by the Court that as a rule, officers of the
corporation have an implied authority to enter into contracts if such
power is not expressly vested in a certain director or officer. However,
the contract must be usual and reasonable.
In the present case, the contract entered into cannot be
considered reasonable and usual because its duration of three (3)
years was unusual and unreasonable because it was so onerous for
the corporation and even stated that the corporation is liable for the
unexpired portion of the contract despite insolvency.
Plaintiff had no right to presume that any employee of the
corporation had an implied authority to enter into a contract of
employment which would bring about its ruin.
Moreover, the president of the corporation had no knowledge
of the existence of the contract although he admittedly saw some
printers working in the office. Lastly, such contract was not ratified by
the board of directors.
The defendant corporation is absolved from liability.
Valle Verde vs. Africa
FACTS: Valle Verde Country Club (VVCC) elected members of its
board of directors at its annual stockholders’ meeting in 1996. Among
the members elected to the board were Makalintal, Dinglasan and
other nine (9) members.
The members failed to reach a quorum in the succeeding
years, so the directors elected in 1996 continued to serve as directors.
Dinglasan resigned in 1998 and the 9-member board filled in the
vacancy electing Roxas as one of the members of the board. A month
later, Makalintal also resigned and was replaced by Makalintal
through election by the remaining board of directors.
Africa, a member of the VVCC, questioned the validity of
Ramirez and Roxas’ appointment with the SEC and with the RTC
through a nullification complaint alleging that it is in violation of Sec.
29 of the Corpo. Code in relation to Sec. 23.
The RTC and the SEC ruled that the appointment is null and
void. VVCC did not appeal.
ISSUE: Whether or not the remaining directors of the VVCC board,
still constituting a quorum, can elect another director to fill in the
vacancy caused by resignation of a hold-over director
HELD: NO. Petition is DENIED.
The hold-over period is the lapse of time between the
expiration of the term of office and the election of a new director.
Term is defined as the time during which an officer may claim
to hold the office as of right. It is fixed by statute.
Tenure is defined as the term during which an incumbent
actually holds office and may be shorter or longer than the term of
office, as the case may be.
1. It was settled by the court that Sec. 23 of the Corporation
Code provides that the term of the members of the board of directors
shall only be for ONE (1) YEAR and after the expiration of their term,
the vacancy must be filled by the stockholders in a regular or special
meeting called for that purpose. The members of the board of
directors only have the right to fill in the vacancy be election of
another director if the vacancy took place before the expiration of his
term and such new member shall only hold office for the unexpired
portion of his predecessor’s term.
In the present case, the term of Makalintal has long expired
before he resigned from his office, which means that the vacancy
must be filled through election by the stockholders in a meeting called
for that purpose. Once the term of office expires and the officer
continues to serve his duties, there is no more unexpired portion to
speak of.
2. VVCC’s claim that the board of directors have the power to fill
in vacancies citing the El Hogar case, weakens the stockholders’
power to participate in corporate governance by electing their
representatives to the board of directors.
The board of directors is the controlling body of the
corporation. Its creation and power is derived from the stockholders.
Therefore, the board should exercise not only care and diligence but
utmost good faith in the management of the corporate affairs.
3. It is the underlying policy of the corporation code that the business
and affairs of the corporation must be governed by a board of
directors which are:
a) actually elected
b) by stockholders
c) on an annual basis
That way, the accountability of directors to shareholders and
legitimacy of their decisions binding stockholders can be assured.
The shareholder vote is critical to the theory that legitimizes
the exercise of powers of directors or officers over properties not
owned by them.
Woodchild Holdings vs. Court of Appeals and RECCI
FACTS: In 1991, the Board of Directors of RECCI through a
resolution, authorized its president, Roberto Roxas, to sell a parcel of
land owned by the corporation, set the selling price deemed
advantageous to the corporation, deliver the property and
corresponding documents to the buyer and receive the proceeds of
the sale.
Woodchild Holdings, an interested buyer, agreed to purchase
the land on the condition that it would be granted a right of way or
beneficial use of another parcel of land owned by the corporation, that
it would be granted an option to purchase the same, and if there are
tenants in the property and are not evicted after three months from the
sale, they will be reimbursed of the amount they gave as payment.
Roxas agreed and the sale took place.
While WHI was constructing a warehouse on the lot purchased
by them, it advised Roxas that it needed a right of way since the
vehicles used by RECCI were occupying the land that WHI wanted to
have beneficial use of and that it be granted its option to purchase the
other land owned by the corporation. Roxas said he will look into it,
but he died shortly thereafter.
WHI filed an action for specific performance against RECCI
enforcing the contract. The lower court ruled in favor of WHI but this
decision was reversed by the Court of Appeals which dismissed the
complaint.
ISSUE: Whether or not the corporation is bound by the deed of sale
provision granting beneficial use and option to purchase the property
owned by the corporation
HELD: No. The decision of the Court of Appeals is AFFIRMED with
MODIFICATION.
1. In the 1991 board resolution of RECCI, Roxas was only
authorized to SELL the land, DELIVER the property and the
documents, and RECEIVE the proceeds of the sale. The
board never authorized him to grant beneficial use of any
portion of Lot No. 491-A-3-B-1 or to sell any portion thereof.
2. The deed of sale is likewise ULTRA VIRES. It was ruled in the
San Juan Structural vs. CA case that the property of the
corporation is not the property of its stockholders. Corporate
property may not be sold by its stockholders or members
without express authorization from the board of directors. The
corporation may only act through its board of directors or its
by-laws or through board resolution.
3. Acts done by officers beyond their scope of authority cannot
bind the corporation UNLESS the corporation ratified such
acts expressly or tacitly or is estopped from denying them.
4. It has been settled in the case of BA Finance Corp vs. CA that:
Persons dealing with an assumed agency are bound at
their peril if they would hold principal liable to ascertain
the fact of agency and the nature and extent of
authority. If either is controverted, the burden of proof
is on them to establish it.
In the present case, the corporation denied authorizing Roxas
to sell a portion of the other lot owned by RECCI. WHI was burdened
to prove that RECCI authorized Roxas to sell and create a lien over
the same.
5. Contracts which have for their object, the creation of real rights
over immovable property (such as grant of right of way) must
appear in a public document.
6. Powers of attorney are construed strictly. The Courts will not
infer or presume broad powers from deeds which do not
sufficiently include property under which the agent is to deal/