ROSITA PEÑA vs. THE COURT OF APPEALS, SPOUSES RISING T.

YAP and CATALINA YAP, PAMPANGA BUS

CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and
EDGARDO A. ZABAT

FACTS:
 PAMBUSCO, original owners of the lots in question, mortgaged the same to the Development Bank of the
Philippines (DBP). This mortgage was foreclosed. In the foreclosure sale, the said properties were awarded to
Rosita Peña as highest bidder.
 The board of directors of PAMBUSCO, through 3 out of its 5 directors, resolved to assign its right of redemption
and authorized one of its members, Atty. Joaquin Briones to execute and sign a Deed of Assignment in favor of
any interested party.".
 Consequently, Atty. Briones executed a Deed of Assignment of PAMBUSCO's redemption right over the subject
lots in favor of Marcelino Enriquez. The latter then redeemed the said properties and a certificate of redemption
was issued in his favor.
 A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute sale of the subject
properties in favor of the spouses Rising T. Yap and Catalina Lugue.The subject lots were registered in the name
of the spouses Yap.
 Spouses Rising T. Yap and Catalina Lugue now sought to recover possession over the subject lands from
defendant Rosita Peña on the ground that being registered owners, they have to enforce their right to possession
against defendants who have been allegedly in unlawful possession thereof
 In their answer, defendant Rosita Peña denied the material allegations of the complaint. That Peña is now the
legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the
DBP against PAMBUSCO and no valid redemption having been effected within the period provided by law.
o It was contended that plaintiffs could not have acquired ownership under a deed of absolute sale
executed in their favor by one Marcelino B. Enriquez who likewise could not have become [the] owner of
the properties by redeeming the same under an alleged[ly] void deed of assignment
o The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was
void ab initio for being an ultra vires act of its board of directors and, for being without any valuable
consideration, it could not have had any legal effect; hence, all the acts which flowed from it and all the
rights and obligations which derived from the void deed are likewise void and without any legal effect.
 After trial, a decision was rendered by the court in favor of the defendants.
 Thus, an appeal from said judgment was interposed by private respondents to the Court of Appeals wherein in
due course a decision was rendered, the judgment of the trial court on appeal is REVERSED.

ISSUE:
 THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF RESPONDENT
PAMBUSCO, ASSIGNING ITS RIGHT OF REDEMPTION, IS NOT VOID OR AT THE VERY LEAST LEGALLY
DEFECTIVE.

HELD:
 YES, the deed of assignment is void.
 Section 4, Article III of the amended by-laws of PAMBUSCO, provides:
o Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to each Director
not less than five days before any such meeting, and notices of special meeting shall state the purpose or
purposes thereof Notices of regular meetings shall be sent by the Secretary and notices of special
meetings by the President or Directors issuing the call. No failure or irregularity of notice of meeting shall
invalidate any regular meeting or proceeding thereat; Provided a quorum of the Board is present, nor of
any special meeting; Provided at least four Directors are present.
 Apparently, only 3 out of 5 members of the board of directors of respondent PAMBUSCO convened by virtue of a
prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the
amended by-laws, at least 4 members must be present to constitute a quorum.

 Further, the 3 alleged directors who attended the special meeting were not listed as directors of respondent
PAMBUSCO. Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not
show that the said alleged directors were among the stockholders of respondent PAMBUSCO.
 Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in their
own right may qualify to be directors of a corporation.
 Further, under Section 28 1/2 of the said law, the sale or disposition of an and/or substantially all properties of the
corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at
least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose.
 o No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called
for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting
power in the corporation.
 The same requirement is found in Section 40 of the present Corporation Code.
 Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned resolution
was not approved by the required number of stockholders under the law, the said resolution, as well as the
subsequent assignment to respondent Enriquez of the said right of redemption, should be struck down as null and
void

PRIME WHITE CEMENT CORPORATION, vs. HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO
TE

FACTS:
 Plaintiff and defendant corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the
Board, entered into a dealership agreement whereby said plaintiff was obligated to act as the exclusive dealer
and/or distributor of its cement products in the entire Mindanao area for a term of five (5) years
 Relying heavily on the dealership agreement, plaintiff 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.
 After the plaintiff was assured by his supposed buyer that his allocation of 20,000 bags of white cement can be
disposed of, he informed the defendant corporation 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.
 In reply to the aforesaid letter of the plaintiff, the defendant corporation thru its corporate secretary, replied that
the board of directors of the said defendant decided to impose certain conditions.
 Several demands to comply with the dealership agreement were made by the plaintiff to the defendant, however,
defendant refused to comply with the same, and plaintiff by force of circumstances was constrained to cancel his
agreement for the supply of white cement with third parties.
 Notwithstanding that the dealership agreement between the plaintiff and defendant in force, the defendant
corporation, in violation of, and with evident intention not to be bound by the terms and conditions thereof, entered
into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in
Mindanao hence, this suit.
 After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount of P3,302,400.00 as actual
damages, P100,000.00 as moral damages, and P10,000.00 as and for attorney's fees and costs. The appellate
court affirmed the said decision.

ISSUE:
 Wether or not the "dealership agreement" referred by the President and Chairman of the Board of petitioner
corporation is a valid and enforceable contract.

HELD:
 NO, the dealership agreement is not a valid and enforceable contract.
 Under the old Corporation Law, all corporate powers shall be exercised by the Board of Directors, except as
otherwise provided by law. Although it cannot completely abdicate its power and responsibility to act for the
juridical entity, the Board may expressly delegate specific powers to its President or any of its officers.
 In the absence of such express delegation, a contract entered into by its President, on behalf of the corporation,
may still bind the corporation if the board should ratify the same expressly or impliedly.
o Implied ratification may take various forms — like silence or acquiescence; by acts showing approval or
adoption of the contract; or by acceptance and retention of benefits flowing therefrom.
 Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a
general rule, bind the corporation by a contract in the ordinary course of business, provided the same is
reasonable under the circumstances.
 These rules are basic, but are all general and thus quite flexible. They apply where the President or other officer,
purportedly acting for the corporation, is dealing with a third person.

 The situation is quite different where a director or officer is dealing with his own corporation. In the instant case
respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor of the
corporation as well. He was what is often referred to as a "self-dealing" director.
 A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In
case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and
benefit. As corporate managers, directors are committed to seek the maximum amount of profits for the
corporation. This trust relationship "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."
 On the other hand, a director's contract with his corporation is not in all instances void or voidable. If the contract
is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of
his adverse interest is made.
 Section 32 of the Corporation Code provides,
o Sec. 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;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in the case of an officer, the contract with the officer has been previously authorized by the
Board of Directors.
o Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a
contract with a director or trustee, such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members
in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors
or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable
under the circumstances.
 At the time of the contract, petitioner corporation had not even commenced the manufacture of white cement, the
reason why delivery was not to begin until 14 months later. He must have known that within that period of six
years, there would be a considerable rise in the price of white cement. In fact, respondent Te's own Memorandum
shows that in September, 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50.
 This unfairness in the contract is also a basis which renders a contract entered into by the President, without
authority from the Board of Directors, void or voidable, although it may have been in the ordinary course of
business. We believe that the fixed price of P9.70 per bag for a period of five years was not fair and reasonable.

LOPEZ REALTY, INC. and ASUNCION LOPEZ-GONZALES, vs. SPOUSES REYNALDO TANJANGCO and MARIA
LUISA ARGUELLES-TANJANGCO

FACTS:
 Lopez Realty, Inc. (LRI) and Dr. Jose Tanjangco (Jose) were the registered co-owners of the "Trade Center
Building". Jose’s one-half share in the subject properties were later transferred and registered in the name of his
son Reynaldo Tanjangco and daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco).
 In a special meeting of the stockholders, the sale of the one-half share of LRI in the Trade Center Building was
discussed:
o Atty. Benjamin B. Bernardino informed the body that the selling price is pegged at 4 Million Pesos, and
the Tanjangcos are offering 3.6 Million Pesos plus 50% of the receivables or a total of 3.8 Million Pesos.
(Tanjancos are offering to buy the other one-half share)
 ASUNCION F. LOPEZ countered for a selling price of 5 Million Pesos.
 TERESITA L. MARQUEZ and BENJAMIN B. BERNARDINO accept (equal) the TANJANGCO’s offer.
 It was finally agreed by the body that ASUNCION F. LOPEZ be given the priority to accept the TANJANGCO offer
and the same to be exercised within 10 days. Failure on her part to act on the offer, the said offer will be deemed
accepted.
 Asuncion failed to exercise her option within the stated period. Thus, the remaining directors convened in a
special meeting, where Mr. ARTURO F. LOPEZ had been authorized to immediately negotiate with the
Tanjangcos and is given full power and authority by the Board to carry out the complete termination of the sale
terms and conditions
 Upon learning, Asuncion sent cablegrams to Rosendo and Jose (Teresita has died), requesting them not to
proceed with the sale.
 The [B]oard decided to postpone [the] final action on the sale to the Tanjangcos so that Asuncion can be
enlightened on all proceedings.
 The spouses Tanjangco paid LRI the amount of ₱1,800,000.00, which the latter accepted. The spouses
Tanjangco then registered the Deed of Sale with the Register of Deeds of Manila.

 Consequently, LRI and Asuncion (herein petitioners) filed with the then Court of First Instance of Manila, a
Complaint for annulment of sale, cancellation of title, reconveyance and damages with prayer for the issuance of
 temporary restraining order (TRO) and/or writ of preliminary injunction against the spouses Tanjangco, Arturo and
the Registrar of Deeds of Manila.
o It was alleged that the sale is not binding on LRI as the Board Resolution, authorizing Arturo to sell the
corporation’s one-half interest in the subject properties, is invalid for lack of notice to Asuncion.
o It was also alleged that the said board resolution had already been revoked by the Board of Directors.
 The trial court issued a TRO, enjoining the spouses Tanjangco from paying the balance of the purchase price and
Arturo from accepting payment
 Spouses Tanjangco filed a motion for the production of a copy of the board resolution authorizing Asuncion to file
the complaint on LRI’s behalf.
o In her Comment, Asuncion claimed that the action is a derivative suit she initiated as LRI’s minority
stockholder, for which no authorization from LRI’s Board of Directors is necessary
 Arturo moved to dismiss the complaint on the grounds of lack of jurisdiction and litis pendentia.
o With regard to the first ground, Arturo alleged that the case essentially involves an intra-corporate
dispute, which falls within the exclusive jurisdiction of the SEC.
o As to the second ground, Arturo alleged that Asuncion filed a complaint with the SEC, against him and
Benjamin, seeking to annul the August 17, 1981 Board Resolution. (There was a previous case filed with
SEC)
 The stockholders of LRI had a meeting where they voted to ratify and confirm the sale to the spouses Tanjangco.
o After the ratification and confirmation of the sale, Asuncion Lopez stated that she is not preparing the
minutes of today’s meeting as well as that of prior ones, but she was reminded that if she refuses to do
what is incumbent upon her as Secretary, the same would be prepared and if she refuses to sign, that’s
up to her, for the corporation is governed by the Board of Directors coupled by the majority of the
stockholders who ratify the acts of the Board.
 The executor of Teresita’s estate, Juanito L. Santos (Juanito), moved to intervene, stating among others that the
case is "basically an intra-corporate contest among the stockholders of LRI in respect to the sale or disposition of
corporate property and the distribution of the proceeds thereof.
 The trial court issued an order, denying the spouses Tanjangco’s, Juanito’s and Arturo’s respective motions
 During the trial, the petitioners attempted to establish that the subject sale had not been validly ratified during the
stockholders’ meeting for failure to meet the required number of votes.
o Juanito was not qualified to sit as a director during the said meeting there being no evidence that he
owned at least one share.
o Leo actually voted against the ratification of the sale, contrary to what is stated in the minutes, which
Asuncion and Leo did not sign.
 Finding the sale null and void, the trial court ruled that Arturo lacked the authority to sell LRI’s interest on the
subject properties to the spouses Tanjangco on LRI’s behalf in view of the procedural infirmities
 On both parties’ appeal to the CA, the trial court’s Decision dated June 25, 1997 was reversed

ISSUE:
 Whether or not the meeting, where the Resolution authorizing Arturo to negotiate for the sale of the subject
properties was approved, is illegal for lack of notice to Asuncion as required under Section 50 of the Corporation
Code;

HELD:
 No, the Board Resolution did not give Arturo the authority to act as LRI’s representative in the subject
sale, as the meeting was conducted without giving any notice to Asuncion.
 Section 53 of the Corporation Code provides for the following:
o SEC. 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 call of the president oras
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.
 A meeting of the board of directors is legally infirm if there is failure to comply with the requirements or formalities
of the law or the corporation’s by laws and any action taken on such meeting may be challenged as a
consequence
 A corporation, through its board of directors, should act in the manner and within the formalities, if any, prescribed
by its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant to the law or
the corporation’s by-laws, otherwise, any action taken therein may be questioned by any objecting director or
shareholder.
 (The sale was made valid though)
 However, the actions taken in such a meeting by the directors or trustees may be ratified expressly or impliedly.
 Ratification means that the principal voluntarily adopts, confirms and gives sanction to some unauthorized act of
its agent on its behalf. It is this voluntary choice, knowingly made, which amounts to a ratification of what was
theretofore unauthorized and becomes the authorized act of the party so making the ratification.
 Implied ratification may take various forms — like silence or acquiescence, acts showing approval or adoption of
the act, or acceptance and retention of benefits flowing therefrom.
 In the present case, the ratification was expressed through the July 30, 1982 Board Resolution.
 Asuncion claims that the Board Resolution did not ratify the Board Resolution dated August 17, 1981 for lack of
the required number of votes because Juanito is not entitled to vote.
 On the contrary, Juanito defends his right to vote as the representative of Teresita’s estate, it can be deduced that
the meeting is a joint stockholders and directors’ meeting. The Court takes into account that majority of the board
of directors except for Asuncion, had already approved of the sale to the spouses Tanjangco prior to this meeting.
 As a consequence, the power to ratify the previous resolutions and actions of the board of directors in this case
lies in the stockholders, not in the board of directors. It would be absurd to require the board of directors to ratify
their own acts—acts which the same directors already approved of beforehand. Hence, Juanito, as the
administrator of Teresita’s estate even though not a director, is entitled to vote on behalf of Teresita’s estate as
the administrator thereof.