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Corp July2 (until page33) Magsumbol-Montelibano vs Bacolod FACTS: Appeal on points of law from a judgment of the Court

of First Instance of Occidental Negros, in its Civil Case No. 2603, dismissing plaintiff's complaint that sought to compel the defendant Milling Company to increase plaintiff's share in the sugar produced from their cane, from 60% to 62.33%, starting from the 1951-1952 crop year. It is undisputed that plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and Company, had been and are sugar planters adhered to the defendant-appellee's sugar central mill under identical milling contracts. Originally executed in 1919, said contracts were stipulated to be in force for 30 years starting with the 1920-21 crop, and provided that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. Sometime in 1936, it was proposed to execute amended milling contracts, increasing the planters' share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending the operation of the milling contract from the original 30 years to 45 years. To this effect, a printed Amended Milling Contract form was drawn up. On August 20, 1936, the Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. In 1953, the appellants initiated the present action, contending that three Negros sugar centrals (La Carlota, Binalbagan-Isabela and San Carlos), with a total annual production exceeding one-third of the production of all the sugar central mills in the province, had already granted increased participation (of 62.5%) to their planters, and that under paragraph 9 of the resolution of August 20, 1936, heretofore quoted, the appellee had become obligated to grant similar concessions to the plaintiffs (appellants herein). The appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained in the resolution were made without consideration; that the resolution in question was, therefore, null and void ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt. ISSUE: W/N the appellee had become obligated to grant similar concessions to the plaintiffs? HELD: The court agreed with the appellants. Much is made of the circumstance that the report submitted by the Board of Directors of the appellee company in November 19, 1936 (Exhibit 4) only made mention of 90%, the planters having agreed to the 60-40 sharing of the sugar set forth in the printed "amended milling contracts", and did not make any reference at all to the terms of the resolution of August 20, 1936. But a reading of this report shows that it was not intended to inventory all the details of the amended contract; numerous provisions of the printed terms are alao glossed over. The Directors of the appellee Milling Company had no reason at the time to call attention to the provisions of the resolution in question, since it contained mostly modifications in detail of the printed terms, and the only major change was paragraph 9 heretofore quoted; but when the report was made, that paragraph was not yet in effect, since it was conditioned on other centrals granting better concessions to their planters, and that did not happen until after 1950. There was no reason in 1936 to emphasize a concession that was not yet, and might never be, in effective operation.

There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties. The rule is that — It is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered within charter powers. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not. As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will cause losses or decrease the profits of the central, the court has no authority to review them. They hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during depression, or close down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation and not by the court. It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts. (Fletcher on Corporations, Vol. 2, p. 390). And it appearing undisputed in this appeal that sugar centrals of La Carlota, Hawaiian Philippines, San Carlos and Binalbagan (which produce over one-third of the entire annual sugar production in Occidental Negros) have granted progressively increasing participations to their adhered planter at an average rate of 62.333% for the 1951-52 crop year; 64.2% 64.3% 64.5% 63.5% for 1952-53; for 1953-54; for 1954-55; and for 1955-56,

the appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20, 1936, duty bound to grant similar increases to plaintiffs-appellants herein. Perez-PSE vs CA Tabag-Ong yong vs Tiu Bisnar-Lipat vs Pacific
Lipat v. Pacific Banking Corporation Facts:  Spouses Alfredo Lipat and Estelita Burgos Lipat (Petitioners) owned Bela’s Export Trading (BET) and Mystical Fashions.  BET was a single proprietorship with principal office at No. 814 Aurora Boulevard, Cuba, QC.

Teresita secured a loan amounting to P538. subject to the articles of incorporation. Cubao. yet. who in good faith. o Issue: Whether the mortgaged property should be liable for the subsequent loans incurred by BEC? Ruling: Yes. not a single board resolution was passed by the corporate board and it was Estelita Lipat and/or Teresita Lipat who decided business matters. books and records of the Mortgagee. or authorization from the board. The loan was restructured in the name of BEC and subsequent loans were obtained. additional or new loans. or acquiescence in the general course of business. Mystical Fashions was based in the US and sells goods imported from the Philippines through BET. as well as to execute mortgage contracts to secure the obligations extended by Pacific Bank. no business or stockholder's meetings were conducted nor were there election of officers held since its incorporation. with actual or . or indirectly. While the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in its board of directors. the apparent authority to act in general. o Estelita was named president while Teresita became the vice-president and general manager. In fact. by-laws. of whatever amount. Apparent authority. discounting lines. principal or secondary. or (2) the acquiescence in his acts of a particular nature. Estelita designated her daughter Teresita Lipat. just as a natural person may authorize another to do certain acts for and on his behalf." BET was later incorporated into a family corporation named Bela’s Export Corporation (BEC). QC. committees. custom. it could not have been possible for BEC to release a board resolution since per admissions by both petitioner Estelita Lipat and Alice Burgos. overdrafts and credit accommodations. the board of directors may validly delegate some of its functions and powers to officers. overdrafts and other credit accommodations. The authority of such individuals to bind the corporation is generally derived from law.        It was engaged in the manufacture of garments or domestic and foreign consumption. either expressly or impliedly by habit. o Said property was likewise made to secure "other additional or new loans. BEC however. was unable to pay the obligation resulting to the real estate mortgage being foreclosed and the property sold in public auction where Eugenio D. or relevant provisions of law. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or. Estelita executed a special power of attorney appointing Teresita as her attorney-in-fact to obtain loans and other credit accommodations from Pacific Banking Corporation (Respondent). whether directly. or agents. to manage BET in the Philippines while she was managing Mystical Fashions in the US. discounting lines. the principle of estoppel precludes petitioners from denying the validity of the transactions entered into by Teresita Lipat with Pacific Bank. petitioners' rebuttal witness. as appears in the accounts. with which it clothes him. a real estate mortgage was executed over the property located at 814 Aurora Boulevard. corporate by-laws. To facilitate the convenient operation of BET. relied on the authority of the former as manager to act on behalf of petitioner Estelita Lipat and both BET and BEC. including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee.  Secondly.854 to buy fabrics and as security. in other words. is derived not merely from practice. The Lipat spouses now argue that their mortgaged property should not be made liable for the subsequent loans incurred by BEC because it was secured by Teresita without any authorization or board resolution of BEC.  Firstly. Trinidad was the highest bidder. which the Mortgagor and/or Debtor may subsequently obtain from the Mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said original.

After Roxas died. WHI filed a case for specific performance and damages. Hence. for P 5M who wanted to build a warehouse in the land. Recall that Teresita Lipat acted as the manager of both BEC and BET and had been deciding business matters in the absence of Estelita Lipat. be estopped from denying the agent's authority. . Facts:       Roxas Electric and Construction Company Inc (RECCI) owned 2 parcels of land. to sell Lot B2 and to sign and execute the necessary documents4. as against anyone who has in good faith dealt with it through such agent. the export bills secured by BEC were for the benefit of "Mystical Fashion" owned by Estelita Lipat. The CA reversed claiming that Roxas was merely authorized to sell B2 and therefore the provisions in the deed of sale of B1 not binding to RECCI. Bombales-Woodchild vs Roxas Doctrines: • The apparent power of an agent is to be determined by the acts of the principal. NO. whether expressly or impliedly. In this case. In the Deed of Absolute Sale. Roxas sold B2 to Woodchild Holdings Inc (WHI) through its President. Roberto Roxas. it holds him out to the public as possessing the power to do those acts. o And that there was an implied ratification on the part of RECCI when RECCI received the P5M purchase price for B2. the corporation will. Further. The trial court ruled that RECCI was estopped from disowning the apparent authority of Roxas under the Resolution of its Board finding WHI in good faith. It is a familiar doctrine that if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority. Jonathan Dy.   Issue: 1.constructive knowledge thereof. RECCI gave him apparent authority to grant a right of way and option to buy over B1. RECCI’s Board of Directors issued a resolution authorizing the corporation through its President. Lot (B1) and Lot (B2). Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of attorney executed by Estelita Lipat. Pacific Bank cannot be faulted for relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue of a special power of attorney. Contracts entered into by corporate officers beyond the scope of their authority are unenforceable against the corporation unless ratified by the corporation. whether within or beyond the scope of his ordinary powers. o WHI’s contended that by allowing Roxas to execute the deed of absolute sale and failing to disapprove the same. thus. Roxas also granted WHI a right of way over B1 and an option to purchase certain portions thereof in case the need arose as earlier requested by WHI. WHI demanded that RECCI sell a portion of B1 but it refused claiming it never authorized Roxas to do so. W/N RECCI is bound by the provisions in the deed of absolute sale granting beneficial use and a right of way and option to buy over a portion of B1 Held/Ratio: 1.

he would just first give P30. payable within ten 10 years in monthly installments and with interest of 7% per annum compounded monthly. sent a letter to the general manager of the defendant corporation.For the principle of apparent authority to apply. Francisco. The System extrajudicially foreclosed the mortgage on the ground that up to that date the plaintiff-mortgagor was in arrears on her monthly installments in the amount of P52. (b) knowledge by RECCI which is sought to be held. The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent. in consideration of a loan. located at Baesa. or to create a burden or lien thereon. Facts: Trinidad J. Atty.000. Moreover. Further. if a writing is required to grant an authority to do a particular act. mortgaged in favor of the defendant. he . the same are unenforceable. (c) reliance thereon by WHI consistent with ordinary care and prudence. Andal.000. Since RECCI had not ratified the unauthorized acts of Roxas. Rodolfo P. there is no implied ratification on the part of RECCI when RECCI received the P5M purchase price for B2. Mr. Government Service Insurance System a parcel of land with 21 bungalows. Atty. ratification of that act must also be in writing. Quezon City. Fernandez-Francisco v GSIS Doctrine • If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it. The System itself was the buyer of the property in the foreclosure sale. Francisco. Sometime in Jan 1959. Francisco in effect wanted to pay back the arrears on the monthly installments but then instead of giving the whole P52. known as Vic-Mari Compound. and. the plaintiff’s father. There is no evidence of specific acts made by the RECCI showing or indicating that it had full knowledge of any representations made by Roxas to WHI and that it had authorized Roxas to grant WHI an option to buy B1. Vicente J. On February 1959.000 and as for the balance. Hence. as to innocent third persons dealing in good faith with such officers or agents. the WHI has burdened to prove the following: (a) the acts RECCI justifying belief in the agency by the WHI. the corporation will be estopped to deny that such apparent authority is real. Ratification cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the agent.

owes loyalty to his corporation.. In reply. Issues:
 1. Francisco’s request was approved by the GSIS board which was sent in the form of a telegram with the signature of Andal. which reads: GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED PROPERTY OF YOUR DAUGHTER. There was thus implied ratification. Francisco remitted to the System. take over the administration of the compound. Notice to an officer with regard to matters within his authority is tantamount to notice to the corporation. YES The compromise made through the telegrams is binding. Self-dealings of Directors and Officers. which reads: I am sending you . the GSIS consolidated ownership of the compound — alleging that the telegram did not express the contents of the Board Resolution (incorrect wording). through Andal. Subsequently. [P30.000] in accordance with my letter of February 20th and your reply thereto of the same date. Held/Ratio: 1. Atty. since the one-year period for redemption had expired. letters were sent asking the plaintiff for a proposal for the payment of her indebtedness. Later on. with an accompanying letter. Francisco protested against this. The defendant received the said amount however it did not. There was apparent authority — that of the GM. His . Pursuant to the agreement Atty. the Franciscos continued to administer the same. Thus.000.. Even assuming it is true that Andal didn’t sign it and that it was sent by the Secretary in his name. especially those regular on their face. On the same date.. because Vicente attached the disputed telegram in replying to that w/c was sent by GSIS. a check for P30. but remitting the proceeds to the GSIS.. Director holds a position of trust. And if a corporation knowingly permits its officers to do acts w/ apparent authority. how are the Franciscos to know? Persons transacting with corporations need not disbelieve every act of its officers. They are entitled to rely upon external manifestations of corporate consent.proposes for the GSIS to take over the administration of the mortgaged property and to collect the monthly installments until the same is fully covered. GSIS notified the Franciscos too late — and only after having received several remittances. saying that they have already accepted his offer and that he has already commenced his part on the terms of his contract. W/N the compromise made is binding upon defendant corporation. it is estopped from denying such authority. There was also notice to the GSIS. The GSIS maintain that the true intent was for the Franciscos to also bear the expenses of foreclosure. assuming there was a mistake in the telegram. Fortez-Prime white vs IAC Doctrine: Exception to Doctrine of Apparent Authority. Also. Andal. Atty.

contracts with the corporation must always be at reasonable terms. 9 In case his interests conflict with those of the corporation.30 per bag and that the Corp can unilaterally adjust the price White Cement made several demands for Te to comply with additional conditions.70 Te published ad of his being the Exclusive Distributor in Manila Chronicle Subsequently. president of Prime White Cement Corporation. The offer states that Prime White is willing to sell . otherwise the contract is void or voidable at the option of the corporation FACTS:    Alejandro Te is one of the members of the Board of Directors of Prime White Cement 1969: Te entered into an agreement with Prime White to be the Exclusive Distributor of its cement product in Mindanao area for 5 years The dealership agreement was signed by: o White Cement President Zosimo Falcon o White Cement Chairman Justo Trazo o And Mr. entered into by the President of the corp. he cannot sacrifice the latter to his own advantage and benefit. without authority from BOD – void or voidable This case is an exception to the General Rule that: o the President of the company may bind the corporation by a contract in the ordinary course of business.NO HELD:    Terms of Dealership Agreement were unreasonable Unfairness of the contract. Te The agreed price per bag of cement is P9. provided the same is reasonable under the circumstances The above rule is applicable only when 3rd person is an outsider not like Mr. Te refused. sent an offer letter to Yao Ka Sin Trading. he owes a duty of loyalty to his corporation. White Cement cancelled the Agreement and entered into a new Dealership Agreement with Napoleon Co      WON: the "dealership agreement" signed by the President and Chairman of the Board of petitioner corporation is a valid and enforceable contract? . Te who is a member of the BOD and at the same time its auditor He is a self-dealing director A director of a corporation holds a position of trust and as such. Constancio Maglana.    Cleto-Yao vs CA Yao Ka Sin Trading vs Court of Appeals In 1973. the Board imposed more conditions to the Dealership Agreement including the price of P13.

a government owned and controlled corporation because Prime White is a subsidiary of NIDC. HELD: No. Henry Yao asserts that the letter from Maglana is a binding contract because it was made under the apparent authority of Maglana. Further. Prime White in its defense averred that although Maglana is empowered to sign contracts in behalf of Prime White. any agreement signed by the president is subject to approval by the Board. Yao accepted the letter and pursuant to the letter. such contracts are still subject to approval by Prime White’s Board. The president may only enter into contracts upon authority of the Board. The offer letter was received by Yao Ka Sin’s manager.30 per bag. that if no reply is made by Yao then they will consider it as an acceptance and that thereafter Prime White shall deposit the P243k check in its account and then deliver the cements to Yao Ka Sin. by which the corporation holds out an officer or agent as having power to act or. Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin considered as the true contract.000 bags of cement.e.000 bags at P24. with actual or constructive knowledge thereof. the Board of Directors of Prime White rejected the offer letter sent by Maglana but it considered Yao’s acceptance letter as a new contract offer hence the Board sent a letter to Yao telling him that Prime White is instead willing to sell only 10. ISSUE: Whether or not the president of a corporation is clothed with apparent authority to enter into binding contracts with third persons without the authority of the Board. Henry Yao never replied. and then it still requires further approval by the National Investment and Development Corporation (NIDC).000 bags of cement at P24.30 per bag.00 equivalent to the value of 10. if indeed the by-laws of Prime White did provide Maglana with apparent authority. The trial court ruled in favor of Yao Ka Sin. this was not proven by Yao Ka Sin.000. The Court of Appeals reversed the trial court. . the apparent authority with which it clothes him to act in general or (2) acquiescence in his acts of a particular nature.. Henry Yao. Hence. in other words. These are not present in this case. the president has no apparent authority to enter into binding contracts with third persons. he sent a check in the amount of P243. apparent authority may result from (1) the general manner. The Board may enter into contracts through the president.45. Later.000 bags to Yao Ka Sin and that he has ten days to reply. 45. However. whether within or without the scope of his ordinary powers. i. Unlike a general manager (like the case of Francisco vs GSIS). As a rule.

petitioner may not impute negligence on the part of the respondents in failing to find out the scope of Atty. the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka S in’s failure to respond constitutes an acceptance. Kung-Westmont vs inland construction Magsumbol-Associated Bank vs Ponstroller DOCTRINE: Rationale for the Doctrine of Apparent Authority—Naturally. the subject property was sold at public auction with the petitioner as the highest bidder.through Atty. TCT was issued to petitioner. The sps. Trial court ruled in favor of the respondents and applied thedo ctrine of “apparent authority”. Corporate Secretary and a member of its Board of Directors. and respondents executed a Letter-Agreement containing the terms and conditions of the sale. Hence. During their pendency however. During the pendency of this case. Hence. Jr. Soluta. Respondents commenced the suit for specific performance. Soluta. This was modified by another letter-agreement which allowed the spouses to pay the balance of the purchase price after the SC resolution of the cases. Soluta was not authorized to represent the bank. this petitionfor review on certiorari. and he must necessarily rely upon the external manifestations of corporate consent. For failure of the sps. Said offer was made through Atty. the 3rd person has little or no information as to what occurs in corporate meeting. Soluta’s authority.Also. the petitioner advertised the property for sale. The spouses Pronstroller offered to purchase the property. The parties failed to reach an agreement and the spouses informed the bank that they would be enforcing their second Letter-Agreement.75M to be deposited under escrow agreement. Vaca to pay their obligation. the spouses Vaca executed a real estate mortgage in favor of petitioner bank over their parcel of land in Quezon City. Respondents paid P750th or 10% of the purchase price. the bank’s VP. Issue: 1) WON the petitioner is bound by the letter-agreement signed by Atty. per stated in the letter itself – which was not contested by Henry Yao during trial. which eventually decided that the petitioner has a right to possess the property. CA upheld the RTC decision. the bank sold the propertyto spouses Vaca. Vaca however commenced an action for the nullification of the real estate mortgage and the foreclosure sale. The cases reached the SC. the public has the right to rely on the trustworthiness of bank officers and their acts. Petitioner. FACTS:: In 1988. Petitioner countered that it was not aware of the existence of such agreement and Atty. The bank then rescinded the sale and suggested that spouses come up with anew proposal. What transpires in the corporate board room is entirely an internal matter. One of the terms was that the Pronstrollers have to make 10% deposit and balance of P6. Indeed. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law.. By the end of 1993. Solutaunder the doctrine of apparent authority . petitioner reorganized its management and the new management discovered that the spouses failed to pay the balance of the purchase price. Petitioner filed a petition for a writ of possession.

or in other words. Belen. Perez-Gokongwei vs SEC Tabag-Lee vs CA Bisnar-Premium vs CA Premium Marble Resources v. namely. that is the best . or 2) the acquiescence in his acts of particular nature. Premium thru Atty. in the absence of authority from th eboard of directors. Siguion Reyna Law firm as counsel for Premium asserted that it is the general information sheet filed with the SEC. not even its officers. The doctrine of apparent authority with special reference to banks. Premium Marble. Dumagdag contended that the persons who signed the board resolution. Arnulfo Dumadag as counsel. Soluta to enter into the first agreement without a board resolution. Naturally. Montecillo and Ongsiako Law Office as counsel. the third person has to rely upon the external manifestations of corporate consent. However. Nograles and Reyes. The authority of a corporate officer or agent on dealing with third persons may be actual or apparent. Apparent authority is derived not merely from practice. among others. by habit. either expressly or impliedly. assisted by Atty. but this time represented by Siguion Reyna.  In the meantime. (Petitioner). CA Facts:  Premium Marble Resources. had long been recognized in this jurisdiction. the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances.  On the other hand. with actual or constructive knowledge thereof. can validly bind a corporation. Accordingly. The bank had previously allowed Atty.. custom.Held: Yes. no person. that Siguion Reyna Law Office is the lawyer of Belen and Nograles and not of Premium and that the Articles of Incorporation of Premium shows that Belen. filed an action for damages against International Corporate Bank (Respondent). committees and agents. corporate by-laws or authorization from the board. but the vesting of a corporate officer with the power to bind the corporation. or acquiescence.  In opposition. Jr. The general rule is that. in the general course of business. Inc. within or beyond the scope of his ordinary powers. The public has to rely on the trustworthiness of bank officers and their acts. The power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board of directors. are not directors of the corporation and were allegedly former officers and stockholders of Premium who were dismissed for various irregularities and fraudulent acts. the board may validly delegate some of its functions andpowers to officers. It is not the quantity of similar acts which establishes apparent authority. thus it had clothed him with apparent authority to modify the same via the second letter-agreement. the apparent authority to act in general. filed a motion to dismiss on the ground that the filing of the case was without authority from its duly constituted board of directors as shown by the excerpt of the minutes of Premium’s board of directors meeting. Its existence may be ascertained through 1) the general manner in which the corporation holds out an officer or agent as having the power to act. with which it clothes him. The authority of such individuals to bind the corporation is generally derived from law. wherein the power was exercised without any objection from its board or shareholders. Nograles and Reyes are not majority stockholders.

. Belen. nationalities and residences of the directors. . is a matter that is also addressed. The claim. 26. to the sound judgment of the Securities & Exchange Commission. not even the officers of the corporation. o Thus. trustees and officers elected. of petitioners as represented by Atty.evidence that would show who are the stockholders of a corporation and not the Articles of Incorporation since the latter does not keep track of the many changes that take place after new stockholders subscribe to corporate shares of stocks. o Sec. Galace – Treasurer o Jose L. Bombales-Valley vs Africa Doctrines:  The underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by a board of directors whose members have stood for election.  Evidently. o Last entry in their General Information Sheet with the SEC. under sanction of oath of responsible officers. Dumadag.1986 that as of Mar. the objective sought to be achieved by Section 26 is to give the public information. trustees and officers elected. can validly bind the corporation. as of 1986 appears to be the set of officers elected in Mar. 4. 1981. In the absence of an authority from the board of directors. shall submit to the Securities and Exchange Commission. and who have actually been elected by the stockholders. no person. the officers and members of the board of directors of Premium were: o Alberto C. the present action must necessarily fail. that Zaballa.  It appears from the general information sheet and Certification issued by the SEC on Aug.  In the absence of any board resolution from its board of directors for authority to act for and in behalf of the corporation. therefore. of the nature of business. financial condition and operational status of the company together with information on its key officers or managers so that those dealing with it and those who intend to do business with it may know or have the means of knowing facts concerning the corporation's financial resources and business responsibility. petitioner failed to show proof that this election was reported to the SEC. . Nograles – President/ Director o Fernando D. trustees and officers . Issue: Whether the filing of the case for damages against International Bank was authorized by a duly constituted Board of Directors of Premium Marble? Ruling: No. trustees and officers of the corporation. o The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. 1. 1982 states that newly elected officers for the year 1982 were Oscar Gan. on an . 19. 1981. Mario Zavalla. the secretary.. or any other officer of the corporation."  By the express mandate of the Corporation Code (Section 26). Report of election of directors. Aderito Yujuico and Rodolfo Millare. the names. – Chairman of the Board  While the Minutes of the Meeting of the Board on Apr. nationalities and residences of the directors. — Within thirty (30) days after the election of the directors. Hilario – Vice President/ Director o Augusto I. the issue of authority and the invalidity of plaintiff-appellant 's subscription which is still pending. all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names. Aguilar – Director o Saturnino G. considering the premises. Jr. are the incumbent officers of Premium has not been fully substantiated.R. Reyes – Secretary/ Director o Pido E. et al.

and the legitimacy of their decisions that bind the corporation’s stockholders. Since Makalintal’s term had already expired with the lapse of the one-year term provided in Section 23. the following were elected as members of the VVCC Board of Directors: Ernesto Villaluna. so as not to retard or impair the corporation’s operations. questioned the election of Roxas and Ramirez as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court (RTC). the requisite quorum for the holding of the stockholders’ meeting could not be obtained. respectively. Only in that way can the directors’ continued accountability to the shareholders. Thus. Makalintal’s term — as well as those of the other members of the VVCC Board — should be considered to have already expired. DA TE RESIGNED REPLACEMENT Sept. in cases where the vacancy in the corporation’s board of directors is caused not only by the expiration of a member’s termm the successor “so elected to fill in a vacancy shall be elected only for the unexpired term of his predecessor’s office. 1998. Jaime C. in relation to Section 23. 1. Santiago. For the members to exercise the authority to fill in vacancies in the board of directors. 1. it limited the period during which the successor shall serve only to the “unexpired term of his predecessor in office. however. Victor Salta. AFRICA’S CONTENTIONS  The election of Roxas was contrary to Section 29. The law has authorized the remaining members of the board to fill in a vacancy only in specified instances. 10. Francisco Ortigas III. there is no more “unexpired term” during which Ramirez could serve. 1996. and Ray Gamboa. The theory of delegated power of the board of directors similarly explains why. annual basis. Eduardo Makalintal (Makalintal). be assured. of the Corporation Code. The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers over properties that they do not own. in recognition of the stockholders’ right to elect the members of the board. Inc. among others.” Facts:  On February 27.  Hence. — 9-member board (those who will resign later are in BOLD) In the years 1997. Amado M. a year after Makalintal’s election as member of the VVCC Board in 1996. Section 29 requires. 1998 Dinglasan Eric Roxas Quorum Nov. that there should be an unexpired term during which the successormember shall serve.. 1998 Makalintal Jose Ramirez Remaining members  Respondent Africa (Africa). a member of VVCC. (VVCC). . Augusto Sunico. Fortunato Dee. Dinglasan (Dinglasan). 2000. the above-named directors continued to serve in the VVCC Board in a hold-over capacity. and 2001. 1999. Consequently. yet. Jr. during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club. under Section 29 of the Corporation Code.

Fixed by statute and it does not change simply because the office may have become vacant. which. The tenure may be shorter (or. The term of office is not affected by the holdover. What constitutes a director’s term of office. Makalintal’s term of office is deemed to have already expired.according to Africa. To be precise. Thus. 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. and fixes the interval after which the several incumbents shall succeed one another. he continued to hold office until his resignation on November 10. “until such time as [a successor is] elected or qualified in an annual election where a quorum is present. not by the expiration of his term. VVCC alleges that a member’s term shall be for one year and until his successor is elected and qualified.” As the vacancy in this case was caused by Makalintal’s resignation. as was done in this case. This holdover period. Makalintal’s term of office began in 1996 and expired in 1997. had already expired. . TERM     The time during which the officer may claim to hold the office as of right. 1998. 2. longer) than the term for reasons within or beyond the power of the incumbent. is not to be considered as part of his term. and not by the remaining members of the VVCC Board. however. a member’s term expires only when his successor to the Board is elected and qualified. in case of holdover. otherwise stated. W/N the remaining directors of a corporation’s Board. VVCC insists that the board rightfully appointed Ramirez to fill in the vacancy. Issues: 1. by virtue of the holdover doctrine in Section 23 of the Corporation Code. the vacancy due to the expiration of Makalintal’s term had been created long before his resignation. can elect another director to fill in a vacancy caused by the resignation of a hold-over director Ruling: 1. His resignation as a holdover director did not change the nature of the vacancy. a vacancy occurring in the board of directors caused by the expiration of a member’s term shall be filled by the corporation’s stockholders. as declared. but. Distinguished from tenure in that an officer’s “tenure” represents the term during which the incumbent actually holds office. Correlating Section 29 with Section 23 of the same law. the resulting vacancy should have been filled by the STOCKHOLDERS in a regular or special meeting called for that purpose. That he continued to serve in the VVCC Board in a holdover capacity cannot be considered as extending his term.” VVCC contends that “the term of [a member] of the board of directors has yet not expired. VVCC’s DEFENSE   Under Section 29 of the Corporation Code. still constituting a quorum. After the lapse of one year from his election as member of the VVCC Board in 1996.

among others. sometime on June 1. 4. W/N compensation to corporate directors/trustees as such under Section 30 is violated? No . According to petitioners. not the remaining members of its board of directors. a date not covered by the corporation's fiscal year 1985-1986 (beginning May 1. Salas. Salvador T. a Special Board Meeting was held. 1993 Hence. of an educational institution. (WIT. petitioners Homero Villasis.2. Fernandez-Western vs Salas Private respondents Ricardo T. the same was actually passed on June 1. 1991. Prestod Villasis. Salas. one for falsification of a public document The charge for falsification of public document was anchored on the private respondents' submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. as a result of which two (2) separate criminal informations. there was no more unexpired term to speak of. that is. for short). the authority to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders. on March 13. Soledad Salas-Tubilleja. 1986. When a vacancy is created by the expiration of a term. as Makalintal’s one-year term had already expired. As correctly pointed out by the RTC. a stock corporation engaged in the operation. Antonio S. 1985 and ending April 30. series of 1986. Inc. Pursuant to law. making it appear that the same was passed by the board on March 30. Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo. 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. the minority stockholders of WIT. when remaining members of the VVCC Board elected Ramirez to replace Makalintal. logically. denied in an Order dated November 23. when in truth. Hence. 1986). however. Salas. Iloilo City. are the majority and controlling members of the Board of Trustees of Western Institute of Technology. Salas. A few years later. and Richard S. It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within the director’s term of office. NO. there is no more unexpired term to speak of. 1986 in the principal office of WIT at La Paz. Petitioners filed a Motion for Reconsideration 6 of the civil aspect of the RTC Decision which was. 1986. belonging to the same family. the instant petition.

except for reasonable per diems: Provided. . as such directors. however. 10 In the case at bench. s. as the case may be. 37097 and 37098. This rule is founded upon a presumption that directors/trustees render service gratuitously.70 representing retroactive compensation as of June 1. exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. board members of WIT. [Emphasis ours] There is no argument that directors or trustees. 30.79 for the subsequent collective salaries of private respondents every 15th and 30th of the month until the filing of the criminal complaints against them on March 1991. when they render services to the corporation in a capacity other than as directors/trustees.453. . Worthy of note is the clear phraseology of Section 30 which states: ". without compensation. We cannot sustain the petitioners. and that the return upon their shares adequately furnishes the motives for service. . and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them This proscription. against granting compensation to directors/trustees of a corporation is not a sweeping rule.Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases Nos. plus P1." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. private respondents are obliged to return these amounts to the corporation with interest. as such directors. are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. however. Resolution No. . more particularly as Chairman. The unambiguous implication is that members of the board may receive compensation. 48. 9 Under the foregoing section. Treasurer and Secretary of Western Institute of Technology .970. That any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. They base their claim on the alleged illegal issuance by private respondents of Resolution No. the directors shall not receive any compensation. in addition to reasonable per diems. there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation. The pertinent section of the Corporation Code provides: Sec. Thus. as such directors. Compensation of directors — In the absence of any provision in the by-laws fixing their compensation.470. 1986 granted monthly compensation to private respondents not in their capacity as members of the board. . 1985 in favor of private respondents. series of 1986 ordering the disbursement of corporate funds in the amount of P186. 48. Petitioners maintain that this grant of compensation to private respondents is proscribed under Section 30 of the Corporation Code. but rather as officers of the corporation. In no case shall the total yearly compensation of directors. . [T]he directors shall not receive any compensation. Vice-Chairman.

- . parts on the legal standing of Palting and Parity Rights were omitted. cannot just do anything that will defraud the investors Facts:      Pedro Palting: prospective investor in San Jose Oil (SJ Oil) Palting filed Petition to Review order of the SEC which granted registration and licensing of the sale of SJ Petroleum SJ Petroleum applied for the registration and licensing of the sale of 2M VOTING TRUST CERTIFICATE. firm. except in case of fraud. Proceeds of Sale to go to SJ Oil SJ Oils is a domestic mining corporation In the by-laws of SJ Petroleum. the reasons of the Court among others is:  There is a traditional fiduciary relations between directors and stockholders. and (3) that no contract or transaction between the corporation and any other association or partnership will be affected. and that no such contract or transaction of the corporation with any other person or persons. association or partnership shall be affected by the fact that any director or officer of the corporation is a party to or has an interest in.Therefore. and finally. that all and any of the persons who may become director or officer of the corporation shall be relieved from all responsibility for which they may otherwise be liable by reason of any contract entered into with the corporation. or is a director or officer of. Doctrine: fiduciary duties of director. trustees. Trustees and Officers. firm. WON: The provisions in the by-laws are repugnant to Phil. association or partnership in which he may be interested. the prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated in this particular case Fortez-Palting vs San Jose Note: This case was discussed when we took up Grandfather Rule. (2) that in the meetings of the board of directors. The digest below includes only the parts important to our discussion on Directors. firm. whether it be for his benefit or for the benefit of any other person. such contract or transaction. or has in anyway connected with such other person or persons. any director may be represented and may vote through a proxy who also need not be a director or stockholder. by the fact that any of the directors or officers of the corporation is interested in. officers – must protect interests of investors. association or partnership. are the following provisions: (1) the directors of the Company need not be shareholders. such other association or partnership. Corp Law and practice? –YES! HELD: In Ruling for Palting. Hence.

with the affairs of the corporation. Te sometime in the months of September. Trazo. unconditional. (b) Te shall pay PWCC P9. commencing September. per bag of white cement. looking forward to PWCC's duty to comply with the dealership agreement. and December. sell to and supply Te. so much so. 1970. Mr. entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20. 1969. Philippine Currency." Right after Te entered into the dealership agreement. Cleto-Prime white v IAC Prime White Cement Corporation vs. as dealer with 20. 19 March 1993] Facts: On or about 16 July 1969. This and the other provisions which authorizes the election of non-stockholders as directors. October. completely disassociate the stockholders from the government and management of the business in which they have invested. and irrevocable letter of credit in favor of PWCC and that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the vessel bound for Davao the said bank or banking institution shall release the corresponding amount as payment of the goods so shipped. in the Manila Chronicle dated 16 August 1969 and was even congratulated by his business associates. he was asked by some of his businessmen friends and close associates if they can be his sub-dealer in the Mindanao area. more particularly. 1970. he informed the defendant corporation in his letter dated 18 August 1970 that he is making the necessary preparation for the opening of the requisite letter of credit to cover the price of the due initial delivery for the month of September 1970. . entered into a dealership agreement whereby Te was obligated to act as the exclusive dealer and/or distributor of PWCC of its cement products in the entire Mindanao area for a term of 5 years and providing among others that (a) the corporation shall. open with any bank or banking institution a confirmed. as Chairman of the Board. he placed an advertisement in a national. Relying heavily on the dealership agreement. short of actual fraud. 3 is an advance condonation of any activity pursued in conflict of interest between the directors and the corporation The Court felt disdain towards these by-law provisions: directors and officers of the company can do anything. by September. o even to benefit themselves directly or other persons or entities in which they are interested. and with immunity because of the advance condonation or relief from responsibility by reason of such acts. Zosimo Falcon and Justo C. FOB Davao and Cagayan de Oro ports.000 bags regular supply of the said commodity. After Te was assured by his supposed buyer that his allocation of 20. Intermediate Appellate Court [GR 68555.000 bags of white cement can be disposed of. (c) Te shall every time PWCC is ready to deliver the good. circulating newspaper the fact of his being the exclusive dealer of PWWC's white cement products in Mindanao area.70.   No. Alejandro Te and Prime White Cement Corporation (PWCC) thru its President.000 bags (94 lbs/bag) of white cement per month.

the President as such may. Te was not an ordinary stockholder.000 00 as and for attorney's fees and costs. Furthermore. P100. (c) The price of white cement was priced at P13. all corporate powers shall be exercised by the Board of Directors. 1970. but are all general and thus quite flexible. PWCC filed the petition for review on certiorari. except as otherwise provided by law. They apply where the President or other officer. he cannot . the Board may expressly delegate specific powers to its President or any of its officers. Herein. He was what is often referred to as a "self-dealing" director.00 as moral damages.30 per bag. as a general rule. These rules are basic. (g) Payment of white cement shall be made in advance and which payment shall be used by the defendant as guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of materials in the manufacture of white cement. Implied ratification may take various forms — like silence or acquiescence. as well as under the present Corporation Code. A director of a corporation holds a position of trust and as such. entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao.00 as actual damages. is dealing with a third person. replied that the board of directors of PWCC decided to impose the following conditions: (a) Delivery of white cement shall commence at the end of November. he was a member of the Board of Directors and Auditor of the corporation as well. Notwithstanding that the dealership agreement between Te and PWCC was in force and subsisting.In reply to the aforesaid letter of Te. purportedly acting for the corporations. PWCC refused to comply with the same. which were concluded in anticipation of.302. After trial. Several demands to comply with the dealership agreement were made by Te to PWCC. In case his interests conflict with those of the corporation. by acts showing approval or adoption of the contract.400. and Te by force of circumstances was constrained to cancel his agreement for the supply of white cement with third parties. or by acceptance and retention of benefits flowing therefrom. (d) The price of white cement is subject to readjustment unilaterally on the part of the defendant. and with evident intention not to be bound by the terms and conditions thereof.. PWCC thru its corporate secretary. provided the same is reasonable under the circumstances. (b) Only 8. may still bind the corporation if the board should ratify the same expressly or impliedly. The situation is quite different where a director or officer is dealing with his own corporation. and pursuant to the said dealership agreement. Hence. on behalf of the corporation. Makati Branch. The appellate court affirmed the said decision. (e) The place of delivery of white cement shall be Austurias (sic). in violation of. PWCC. Under the Corporation Law.000. which was then in force at the time the case arose. Issue: Whether the "dealership agreement" referred by the President and Chairman of the Board of PWCC is a valid and enforceable contract. however.e. a contract entered into by its President. bind the corporation by a contract in the ordinary course of business. Te filed suit. i. and P10. In the absence of such express delegation. a person outside the corporation. he owes a duty of loyalty to his corporation.000 bags of white cement per month for only a period of three (3) months will be delivered. Held: The “dealership agreement” is not valid and unenforceable. (f) The letter of credit may be opened only with the Prudential Bank. the trial court adjudged PWCC liable to Alejandro Te in the amount of P3. Although it cannot completely abdicate its power and responsibility to act for the juridical entity. even in the absence of express or implied authority by ratification.

and white cement in particular. In fact. he was attempting in effect.sacrifice the latter to his own advantage and benefit. the reason why delivery was not to begin until 14 months later. were not stable and were expected to rise.70 per bag.50. cashing of the checks outside. specially since he was the other party in interest.70 per bag for a period of 5 years was not fair and reasonable. it is to Us quite clear that he was guilty of disloyalty to the corporation. would require such a provision.70 per bag for the whole 5 years of the contract. that at that time. for 5 years starting September 1970. to enrich himself at the expense of the corporation. Granting arguendo that the "dealership agreement" would be valid and enforceable if entered into with a person other than a director or officer of the corporation. Te is a businessman himself and must have known. was to sell and supply to Te 20. directors are committed to seek the maximum amount of profits for the corporation. At the time of the contract. void or voidable. The "dealership agreement" entered into in July 1969. it was already P37. As corporate managers. Kung-Steinberg vs Velasco Magsumbol-Bates v Dresser Syllabus: The degree of care required of director of a national bank depends upon the subject to which it is to be applied. In fact. the contract was neither fair nor reasonable. Fairness on his part as a director of the corporation from whom he was to buy the cement. and by the middle of 1975.50 per bag. Te's bounden duty was to act in such manner as not to unduly prejudice the corporation. Despite this. The contract was therefore not valid and the Court cannot allow him to reap the fruits of his disloyalty. Instead. the fact that the other party to the contract was a Director and Auditor of PWCC changes the whole situation. In the light of the circumstances of this case. He must have known that within that period of 6 years. it may be ratified by the stockholders provided a full disclosure of his adverse interest is made. The bookkeeper of a national bank during a series of years defrauded it of an amount aggregating more than its capital and more than the normal average amount of its deposit by a novel scheme involving exchanges of his personal checks on the bank for checks of an outsider on another bank. The fixed price of P9. A director's contract with his corporation is not in all instances void or voidable. the price per bag was P14. As director. although it may have been in the ordinary course of business. abstraction by the bookkeeper of his own checks when returned to his bank with clearing-house . there would be a considerable rise in the price of white cement. and each case is to be determined in view of all the circumstance. or at least must be presumed to know. this unfairness in the contract is also a basis which renders a contract entered into by the President. at the fixed price of P9. without authority from the Board of Directors. prices of commodities in general.000 bags of white cement per month. First of all. no provision was made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties. Te's own Memorandum shows that in September 1970. There is no showing that the stockholders ratified the "dealership agreement" or that they were fully aware of its provisions. the price was pegged at P9. PWCC had not even commenced the manufacture of white cement. If the contract is fair and reasonable under the circumstances.

which always were correct. The incorporators were also the only stockholders and directors of the corporation. the board voted to sell all the rights and interests of PECC to the wrecking contract in favor of McCullough. They held a meeting and elected Mead as the general manager. Several contracts entered by Mead as general manager failed. Interest upon the amount of a decree for such damages may be awarded as a matter of discretion. was habitually at the bank. so as to conceal the transaction by false charges against deposits and false additions of the total. diminishing the apparent liability to depositor.statements which were settled by the cashier. except for Mead who contributed property. (2) That the president. for profits. (PECC). Edwin McCullough (respondent). who were without knowledge of the cashier's negligence or of the possibility of such a fraud. the second. One who accepts the presidency of a national bank accepts responsibility for any losses the bank may suffer through his fault. McCullough Source: Jan’s compilation Facts: The complaint contains 3 causes of action. Mead held the position for nine months. serving gratuitously. calling for examinations by a committee semiannually. who. Because of these failures. Charles Mead (petitioner). although there was a bylaw. They each gave $2000 mexican currency cash. specifically a wrecking contract with the navy. Interest allowed in this case from the date of the decree in the district court until the date when the judgment creditor (receiver of the bank) interposed delay by appealing to this Court. Perez-Smith vs Van Gorkman Tabag-Sanchez vs Republic Bisnar-Mead vs Mccollough Mead v. in control of its affairs. and who had assurance from the president. Hartigan. Engineering & Construction Co. not of right. until he resigned to accept a position as engineer of the Canon & Shanghai Railway Co. and the third. the seeming shrinkage of deposits being attributed to innocent causes. and wrong was not suspected. which are substantially as follows: The first. and who had received certain warnings that the bookkeeper was living fast and dealing in stocks. for the value of the personal effects alleged to have been left Mead and sold by the defendants. beside being a large depositor. was guilty of negligence in failing to make an examination. Semi-annual examinations by national bank examiners revealed nothing wrong. Green and Hilbert organized the Phil. Id. kept by the bookkeeper. and were not bound to inspect the depositors' ledger or call in the pass-books and compare them with it. with immediate access to the depositors' ledger. but he negligently over-trusted the bookkeeper and made his statements to the directors accordingly. and falsification of the deposit ledger. as from the bank examiners' reports. The fraud could have been discovered by the cashier if he had himself taken and examined checks as they came from the clearing house or had carefully examined the multitudinous figures of the deposit ledger or called in and compared with it the depositors' pass books. nearly obsolete. were not negligent in accepting the cashier's statements of liabilities. for salary. McCullough then . Held: (1) That directors. like his statements of assets.

the voice of a majority of the stockholders is the law of the corporation. The plaintiff was only a stockholder. A transaction done in good faith which achieves substantial justice cannot be disturbed based on mere suspicions.blogspot. Manila Salvage Association. their (the majority’s) resolutions. A private corporation. filed a petitionwith the SEC for the declaration of nullity of the by-laws etc. The reason for these limitations is that in every contract of partnership and a corporation can be something fundamental and unalterable which is beyond the power of the majority of the stockholders. Especially since the contract was not profitable and McCullough was transferring the rights to himself despite incurring losses. has the absolute right and power as against the whole world except the state. McCullough sustained the corporation the double relation of a stockholder and president.html Facts: Petitioner. when passed in good faith and for a just cause. Petitioner contends that the amendment was based on the 1961 authorization. It would be unreasonable to question the decision based on the complaints of a minority stockholder (Mead) when the entire corporation assented to such transfer. and Hartigan were not only all creditors at the time the sale or transfer of the assets of the insolvent corporation was made. In addition to being a creditor insolvent corporation was made. deserve careful consideration and are generally binding upon the minority. This means that their decisions are made in the name of both the directors and stockholders of PECC. to sell and dispose of all of its property. and without which it is not probable that they would have not entered the corporation. Without such a limit the will of the majority would be absolute and irresistible and might easily degenerate into an arbitrary tyranny. when they also sold Mead’s personal effects along with the contract transfer. the Board acted without authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He claims that the transfer and ale of the rights and interests were done in bad faith.com/2012/01/gokongwei-vs-sec-89-scra-3361979. but here are exceptions to this rule. stockholder of San Miguel Corp. which have served as a basis upon which the members have united. This rule which must be observed is found the essential compacts of such partnership. Generally speaking. It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation. which 2/3 could have been computed on the basis of the capitalization at the time of the amendment. Notwithstanding these limitations upon the power of the majority of the stockholders. but they were also directors and stockholders. There must necessarily be a limit upon the power of the majority. and which constitutes the rule controlling their actions. the value of the properties he contributed to the company. Now Mead goes after McCullough for his salary. since he severed his relations with the company when he left for China. against the majority members of the BOD and San Miguel. but they were also directors and stockholders. Bombales-Gokongwei vs SEC http://coffeeafficionado. He also contends that the 1961 .incorporated a new company. Issue: Whether the sale or transfer to McCullough of the assets and said corporation was done within the laws and powers of the corporation? Ruling: Yes The articles of agreement made the incorporators not only as the sole stockholders but also the board of directors. which owes no special duty to the public and which has not been given the right of eminent domain. In addition to being a creditor. and transferred all his rights and interests to the contract to MSA. violating both the articles of agreement (old name of articles of incorporation and national laws. Green. Note: Hilbert. part of the profits of the contract and.

Issue: Are amendments valid? Held: The validity and reasonableness of a by-law is purely a question of law. and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. In another case filed by petitioner. Corporate officers are also not permitted to use their position of trust and confidence to further their private needs. He also contends that the amendment deprived him of hisright to vote and be voted upon as a stockholder (because it disqualified competitors from nomination and election in the BOD of SMC). the corporation called for a stockholder’s meeting for theratification of the amendment to the by-laws. . or with the charter of the corporation or is in legal sense unreasonable and therefore unlawful is a question of law. and to regulate the conduct andprescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. he alleged that the corporation had been using corporate funds in other corps and businesses outside the primary purpose clause of the corporation in violation of the Corporation Code. officers. which is characterized as a trust relationship. It cannot thus be said that petitioners has the vested right. While this was pending. A corporation. It has the inherent power to adopt by-laws for its internal government. An amendment to the corporate by-laws which renders a stockholder ineligible to be director. to be elected director. duties and compensation of directors. Fernandez-gokongwei vs SEC Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board". at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. as a stock holder. he cannot serve both. in the face of the fact that the law at the time such stockholder's right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment. This is called the doctrine of corporate opportunity. a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised authority. if he be also director in a corporation whose business is in competition with that of the other corporation. Whether the by-law is in conflict with the law of the land. This is based upon the principle that where the director is employed in the service of a rival company. but must betray one or the other. alteration and modification. The Court held that a corporation has authority prescribed by law to prescribe thequalifications of directors. 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 he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not forbidden by law. The amendment in this case serves to advance the benefit of the corporation and is good. has been sustained as valid. This was denied by the SEC. this is limited where the reasonableness of a by-law is a mere matter of judgment. thus the amended by-laws were null and void. A Director stands in a fiduciary relation to the corporation and its shareholders.authorization was already used in 1962 and 1963. However. Any corporation may amend its by-laws by the owners of the majority of the subscribed stock. under the Corporation law. and employees. may prescribe in its by-laws the qualifications. and one upon which reasonable minds must necessarily differ. This prompted petitioner to seek for summary judgment.

.. . Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive arrival. directors of a private corporation are not regarded as trustees.. that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise. where two corporations are competitive in a substantial sense. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation. Soriano. in Pepper v. access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor. He cannot utilize his inside information and strategic position for his own preferment. conclusion of a competitor from the Board is legitimate corporate purpose. to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters ... petitioner cannot devote an unselfish and undivided Loyalty to the corporation. It would seem manifest that in such situations. Soriano and San Miguel Corporation content that ex. that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation. 20 emphatically restated the standard of fiduciary obligation of the directors of corporations. Their powers are powers in trust. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He who is in such fiduciary position cannot serve himself first and his cestuis second. if he were to discharge effectively his duty. for the director. that the questioned amendment of the by-laws was made. the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director. considering that being a competitor.Upon the other hand. Justice Douglas. Jose M. respondents Andres M. Litton. who is also the officer or owner of a competing corporation... if not impossible. Certainly. thus: A director is a fiduciary. 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. Indeed. it would seem improbable. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable ? yes Although in the strict and technical sense. Jr. . 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. for advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such knowledge to his advantage .. . These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations..