The Role, Authority and Legal Obligations

of Corporate Directors and Officers

Under Existing Laws and Jurisprudence

Prof. S.M.Ceniza
Chan Robles Lawnet
Who are corporate directors?

A corporate director is part of a team of people

elected by a corporation's shareholders to represent the
shareholders' interests and ensure that the company's
management acts on their behalf.
ü The term director shall pertain to the role in the
corporate organization… not the title of the position

ü The rank in the organization is not determinative of

one’s status as a member of the Board.

ü What determines one’s status a member of the

board is his election by the stockholders and the
Role he plays in the organization.
Who are corporate officers?

Corporate officers are the President, Secretary,

Treasurer and such other officers as may be provided
for in the By-Laws. (Section 25 of B.P. 68 )

Accordingly, the corporate officers in the context

of PD No. 902-A are exclusively those who are given that
character either by the Corporation Code or by the
corporations by-laws.
(Matling Ind’l and Commercial Corp., et. al. vs. Ricardo Coros,
G.R. No. 157802 Oct. 13, 2010)
 “Immediately after their election, the directors of
the corporation must formally organize and elect: (a) a
president, who must be a director (b)a treasurer who
must be a resident (c) a secretary who must be a citizen
and resident of the Philippines and (d) such officers as
provided by the by-laws. If the corporation is vested
with public interest, the board shall also appoint a
compliance officer. x x x”

(Sec. 24, R.A. 11232)

ü By law and jurisprudence, employees who later on
became corporate directors or officers shall cease to
be ordinary employees.

(Leslie Okol vs. Slimmers World Int’l., G.R. No. 160146, Dec.
11, 2009)
Distinction Between Corporate Officers and Employees

Ordinary company employees are generally employed

not by action of the directors and stockholders but by that of
the managing officer of the corporation who also determines
the compensation to be paid such employees.

Corporate officers, on the other hand, are elected or

appointed by the directors or stockholders, and are those
who are given that character either by the Corporation Code
or by the corporations by-laws.

(Gloria V. Gomez vs. PNOC Dev. and Mngt. Corp. (PDMC), G.R. No.
174044, Nov. 27, 2009)
Legal Significance of the Distinction

1. To determine the law to be applied

2. To determine jurisdiction

3. To determine reliefs to be granted

 Unless otherwise provided, the Board of Directors
or trustees shall exercise the corporate powers, conduct
all business and control all properties of the
corporations.

(Sec. 22, R.A. 11232)

The Role of the Board to Decision Making

(Business Judgment Rule)

The "business judgment rule" provides that the

SEC and the courts are barred from intruding into
business judgments of corporations, when the
same are made in good faith.

(Phil. Stock Exchange, Inc. vs. The Honorable Court of

Appeals, SEC and Puerto Azul Land, Inc. G.R. No.
125469, October 27, 1997)
 The officers shall manage the corporation and
perform such duties as may be provided in the by-
laws and/or as resolved by the board of directors.

(Sec. 24, R.A. 11232)

The Rule on Acts done by directors and officers in behalf
of the corporation

ü All actions done by directors and officers in behalf of the

corporation are deemed corporate acts.

ü Thus, obligations incurred by corporate officers, acting as

corporate agents, are direct accountabilities of the
corporation they represent.

(Shrimp Specialists, Inc. vs. Fuji-Triumph Agri-Ind’l Corp., G.R. No.

168756, Dec. 7, 2009)
Ultra Vires Cases

A corporation may exercise its powers only within

the authority granted to it. Corporate acts that are
outside those express definitions under the law or
articles of incorporation or those "committed outside the
object for which a corporation is created" are ultra
vires.

(Magallanes Watercraft Asso., Inc. vs. Margarito Auguis,

G.R. No. 211485, May 30, 2016)
 The only exception to this rule is when acts
are necessary and incidental to carry out a
corporation's purposes, and to the exercise of
powers conferred by the Corporation Code and
under a corporation's articles of incorporation.

(Magallanes Watercraft Asso., Inc. vs. Margarito Auguis, G.R.

No. 211485, May 30, 2016)
The Responsibility to Observe Fiduciary Duty
ü Accenting to patently unlawful act of the corporation
(Sec. 30)

ü Corporate opportunity (Sec. 30)

ü Disloyalty to the corporation (Sec. 33)

ü Consenting to the issuance of Watered Stocks (Sec. 64)

The Responsibility to Ensure Compliance with the
Mandates of the Revised Corporation Code
If the offender is a corporation the penalty may, at
the discretion of the court, be imposed upon such
corporation and/or upon its director, trustees,
stockholders, members, officers or employees
responsible for the violation or indispensable to its
commission .

(Sec. 171, R.A. 11232)

Liability for Violation of the Corporation Code

If the offender is a corporation the penalty may, at the

discretion of the court, be imposed upon such
corporation and/or upon its director, trustees,
stockholders, members, officers or employees
responsible for the violation or indispensable to its
commission .
(Sec. 171, R.A. 11232)
Violation of Disqualification Provision

When, despite the knowledge of the existence of a

ground for disqualification, a director, trustee or officer
willfully holds office, or willfully conceals such
disqualification, such director, trustee or officer shall be
punished with fine x x x.

(SEC. 160, R.A. 11232)

Violation of Duty to Maintain Records, to Allow
their Inspection or Reproduction

The unjustified failure or refusal by the

corporation, or by those responsible for keeping and
maintaining corporate records, to comply the provisions
of the Code on inspection and reproduction of records
shall be punished with a fine x x x.

(Section 161, R.A. 11232)

Willful Certification of Incomplete, Inaccurate,
False or Misleading Statements or Reports

Any person who willfully certifies a report required

under the Code, knowing that the same contains incomplete,
inaccurate, false, or misleading information or statements,
shall be punished with a fine.

(Section 162, R. A. 11232)

Collusion with Independent Auditor

An independent auditor who, in collusion with the

corporation’s directors or representatives, certifies the
corporation’s financial statements despite its
incompleteness or inaccuracy, its failure to give a fair
and accurate presentation of the corporation’s condition,
or despite containing false or misleading statements,
shall be punished with a fine.

(Sec. 163, R.A. 11232)

Obtaining Corporate Registration Through
Fraud

Those responsible for the formation of a

corporation through fraud, or who assisted directly or
indirectly therein, shall be punished with a fine xxx

(Section 164, R. A. 11232)

Fraudulent Conduct of Business

A corporation that conducts its business through

fraud shall be punished with a fine x x x .

(Section 165, R.A. 11232)

Acting as Intermediaries for Graft and Corrupt
Practices

A corporation used for fraud, or for committing or

concealing graft and corrupt practices, shall be liable for a
fine x x x .
When there is a finding that any of its directors, officers,
employees, agents, or representatives are engaged in graft
and corrupt practices, the corporation’s failure to install: (a)
safeguards for the transparent and lawful delivery of services;
and (b) policies, code of ethics, and procedures against graft
and corruption shall be prima facie evidence of corporate
liability.
(Section 166, R.A. 11232)
Engaging Intermediaries for Graft and Corrupt
Practices

Corporation that appoints an intermediary who

engages in graft and corrupt practices for the
corporation’s benefit or interest shall be punished with a
fine.

(Section 167, R. A. 11232)

Tolerating Graft and Corrupt Practices

A director, trustee, or officer who knowingly fails to

sanction, report, or file the appropriate action with
proper agencies, allows or tolerates the graft and
corrupt practices or fraudulent acts committed by a
corporation’s directors, trustees, officers, or employees
shall be punished with a fine.

(Section 168, R.A. 11232)

Retaliation Against Whistleblowers

Any person who, knowingly and with intent to

retaliate, commits acts detrimental to a
whistleblower such as interfering with the lawful
employment or livelihood of the whistleblower,
shall, at the discretion of the court, be punished with
a fine x x x .

(Section 169, R.A. 11232)

Other Violations of the Code

Violations of any of the other provisions of the Code or its

amendments not otherwise specifically penalized shall be
punished by a fine x x x.
Provided, x x x shall not preclude the institution of
appropriate action against the director, trustee, or officer of
the corporation responsible for said violation xxx.

Liability for any of the foregoing offenses shall be separate

from any other administrative, civil, or criminal liability under
the Code and other laws.
(Section 170, R.A. 11232)
Liability of Aiders and Abettors and Other
Secondary Liability

Anyone who shall aid, abet, counsel, command,

induce, or cause any violation of the Code, or any rule,
regulation, or order of the SEC x x x.

(Section 172, R.A. 11232)

Liability for Crimes

ü Section 28(f) of the Social Security Law imposes a civil

liability for any act or omission pertaining to the violation
of the Social Security Law.

ü If the act or omission penalized by the SSS Law be

committed by an association, partnership, corporation or
any other institution, its managing head, directors or
partners shall be liable to the penalties for the offense.

(Immaculada Garcia vs. Social Security Comm. Legal and Collection,

SSS, G.R. NO. 170735, Dec.17, 2007)
Liability for Crimes
“The failure of an entrustee to turn over the
proceeds of the sale of the goods covered by a trust
x x x shall constitute the crime of estafa, punishable
under x x x the Revised Penal Code.

If the violation or offense is committed by a

corporation, partnership, association or other
juridical entities, the penalty shall be imposed upon
the directors, officers, employees or other officials
x x x .”
(Sec. 13, P.D. 115)
Liability for Crimes

Being corporate officers and/or directors, through

whose act, default or omission the corporation commits a
crime, may themselves be individually held answerable
for the crime.
 Liability for Crimes

It applies to those corporate agents who

themselves commit the crime and to those, who, by
virtue of their managerial positions or other similar
relation to the corporation, could be deemed
responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to
prevent the act.

(ABS-CBN Corp. vs. Felipe Gozon, et. al. G.R. No. 195956,
March 11, 2015)
Liability for Malicious Acts

CBB’s plan was to close the corporation and organize

another for the purpose of evading its liabilities to
Livesey and its other financial liabilities. This wrongful
intent we cannot and must not condone, for it will give a
premium to an iniquitous business strategy where a
corporation is formed or used for a non–legitimate
purpose, such as to evade a just and due obligation. We,
therefore, find Elliot as liable as Binswanger for CBB’s
unfulfilled obligation to Livesey.

(Eric Godfrey Stanley Livesey vs. Binswanger Phils., Inc., et. al.,
G.R. No. 177493, Mar. 19, 2014)
Liability for Fraudulent and Negligent Acts

Lau is grossly negligent in directing the affairs

of QTCI, and pursuant to Sec. 31 of the Corporation
Code, they are therefore, jointly and severally liable
with QTCI for all the damages and awards due.

(Queensland-Tokyo Commodities, Inc., et al. vs. Thomas

George, G.R. No. 172727, Sept. 8, 2010)
Liability for Contractual Obligations

The liability of the principal/employer and the

recruitment/placement agency for any and all claims under
the Migrant Workers Act of 1995 shall be joint and several.

If the recruitment/placement agency is a juridical

being, the corporate officers and directors and partners as
the case may be, shall themselves be jointly and solidarity
liable with the corporation or partnership for the aforesaid
claims and damages.

(Powerhouse Staffbuilders Int’l., Inc. vs. Romelia Rey, et. al., G.R. No.
190203, November 07, 2016)
 One’s election as a Director or a Corporate
Officer is not only about power, authority,
prestige or the perks that goes with such
election. Such election is burdened with
fiduciary responsibilities and legal obligations.
 Each Director or Corporate Officer must
therefore clearly understand his Role and Authority
in the organization as well all the legal consequence
of his discharge of the function.

As one superhero puts it “with great powers,

come great responsibility”.

S. M. Ceniza