Doctrine of Apparent Authority

Agro Food Processing Corp. Vs. Vitarich Corporation, GR No. 217454, Jan.
11, 2021
Facts:
This case involves a corporation officer's authority to amend an original
contract without actual authority from the corporation's board of directors.
Agro's position is that the amendments are not binding on the corporation
since the officer had no actual authority from its board of directors. For
Vitarich, the amendments are binding pursuant to the doctrine of apparent
authority, among others.

On October 5, 1995, Agro and Vitarich simultaneously executed two

agreements:.first, a Memorandum of Agreement (MOA) under which Vitarich
offered to buy Agro's chicken dressing plant located in Bulacan; and second, a
Toll Agreement under which Agro agreed to dress the chickens supplied by
Vitarich for a toll fee.9

Pursuant to the MOA, Vitarich paid P20 million as deposit to Agro and was
given a period of forty-five (45) days within which to evaluate the dressing plant
facilities.10 At the end of the period, Vitarich formally made its offer to
purchase, but Agro did not accept the offer. 11 Thus, Agro needed to return the
P20 million deposit.12

More than two (2) years later, Vitarich filed a complaint for sum of money with
damages against Agro before the RTC alleging that Agro was liable for the
following amounts: first, P4,770,916.82 plus interest, representing the balance
from the P20 million deposit, and second, P4,322,032.36 plus interest,
representing the balance on the sale oflive broiler chickens to Agro.

Agro disputed the computation made by Vitarich. 17 It argued that the amount
of P4,770,916.82 was inaccurate as it was based on the alleged verbal
amendments to the toll fees, which amendments were not binding on Agro as
they were entered into by Vitarich and Agro's Finance Manager, Chito del
Castillo (del Castillo), which allegedly had no authority to amend the original
Toll Agreement from Agro's board of directors.
RTC ruled in each other’s favor by paying their respective liabilities to one
another. The CA set aside RTC’s decision and ordered Agro Food to pay
Vitarich.
Issue:
WoN the CA committed a reversible error of law when it applied doctrine of
apparent authority
Ruling:

No. "apparent authority is determined by the acts of the principal and not by
the acts of the agent." As applied to corporations, the doctrine of apparent
authority provides that "a corporation [is] estopped from denying the [officer's]
authority if it knowingly permits [such officer] to act within the scope of an
apparent authority, and it holds him out to the public as possessing the power
to do those acts."

Thus, it is the corporation's acts which determine the existence of apparent

authority, i.e., whether the corporation knowingly permits its officer to act on
its behalf and holds such officer out to the public as having the authority to do
those acts.

Here, a reading of the assailed Decision gives the impression that in applying
the doctrine of apparent authority, the appellate court only considered del
Castillo's testimony that he was authorized by Agro's President to implement
the amendments, and not the acts of Agro itself as required under the doctrine
of apparent authority:

Under the doctrine of apparent authority, if a corporation knowingly permits

one of its officers or any other agent to act within the scope of an apparent
authority, it holds the agent out to the public as possessing the power to do
those acts; thus the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agent's
authority.

It bears stressing that the existence of apparent authority may be

ascertained not only through the "general manner in which the corporation
holds out an officer or agent as having the apparent authority to act in
general", but also through the corporation's "acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers".44

Here, it is easy to see that Agro, reasonably appearing to have knowledge of the
amendments, acquiesced to the same. Indeed, Agro never contested nor
protested the amendments; on the contrary, it even accepted the benefits
arising therefrom.45 "When a corporation intentionally or negligently clothes its
officer with apparent authority to act in its behalf, it is estopped from denying
its officer's apparent authority as to innocent third parties who dealt with this
officer in good faith." Petition was DENIED.
Board Resolution is not necessary if the bylaws empowers the President
Cebu Mactan Member Center, Inc. vs. Masahiro Tsukahara
Facts:
Petitioner CMMC Incorp. obtained a loan from respondent Tsukahara.
Later, another loan was obtained from Tsukahara through CMMCI’s president
Sugimoto. When the loans matured, CMMCI failed to pay despite several
demands. This prompted Tsukahara to file a collection suit against CMMCI and
Sugimoto.

The RTC rendered both CMMCI and Sugimoto liable for the loan obligation.
The appeal therefrom was dismissed by the CA. Hence, the present petition.

Issue:
W/N CMMCI is liable for the loan contracted by its president without a board
resolution.

Held:
1. Yes CMMCI is liable for the loan contracted by its president.
2. The power to exercise corporate powers is lodged with the board of
directors/trustees. However, the board may validly delegate the same through
resolutions or provisions of the corporate by-laws.

In this case, perusal of the by-laws of CMMCI show that its president is
authorized to enter into loan agreements including to borrow money on behalf
of CMMCI. Hence, the loan obtained by Sugimoto in his capacity as president
is binding on CMMCI, who is
liable therefor.

The instant petition is denied.

Basis:
The power to exercise corporate powers may be delegated by the board through
the by-laws:
“In People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, we
held that under Section 23, the power and the responsibility to decide whether
the corporation should enter into a contract that will bind the corporation are
lodged in the board of directors, subject to the articles of incorporation, by-
laws, or relevant provisions of law. However, just as a natural person may
authorize another to do certain acts for and on his behalf, the board of
directors may validly delegate some of its functions and powers to officers,
committees or agents. The authority of such individuals to bind the corporation
is generally derived from law, corporate by-laws or authorization from the
board, either expressly or impliedly by habit, custom or acquiescence in the
general course of business.”
TERP Construction Corporation v. Banco Filipino Savings and Mortgage
Bank, G.R. No. 221771, September 18, 2019
Facts:
Sometime in 1995, Terp Construction planned to develop a housing project
called the Margarita Eastville and a condominium called Margarita Plaza. To
finance the projects, Terp Construction, Home Insurance Guaranty
Corporation, and Planters Bank agreed to raise funds through the issuance of
bonds worth P400 million called the Margarita Bonds. The three companies
entered into a Contract of Guaranty in which they agreed that Terp
Construction would sell the Margarita Bonds and convey the funds generated
into an asset pool named the Margarita Asset Pool Formation and Trust
Agreement. Planters Bank, as trustee, would be the custodian of the assets in
the asset pool with the corresponding obligation to pay the interests and
redeem the bonds at maturity. Home Insurance Guaranty Corporation, as
guarantor, would pay investors the value of the bond at maturity plus 8.5%
interest per year. Banco Filipino purchased Margarita Bonds for P100 million.
It asked for additional interest other than the guaranteed 8.5% per annum,
based on the letters written by Terp Construction Senior Vice President
Escalona.

Terp Construction began constructing Margarita Eastville and Margarita Plaza.

After the economic crisis in 1997, however, it suffered unrealized income and
could not proceed with the construction. When the Margarita Bonds matured,
the funds in the asset pool were insufficient to pay the bond holders. Pursuant
to the Contract of Guaranty, Planters Bank conveyed the asset pool funds to
Home Insurance Guaranty Corporation, which then paid Banco Filipino
interest earnings of 8.5% per year. Banco Filipino, however, sent Terp
Construction a demand letter alleging that it was entitled to a 15.5% interest
on its investment and that it was entitled to a 7% remaining unpaid interest.
Terp Construction refused to pay the demanded interest.

Terp Construction filed a Complaint for declaration of nullity of interest,

damages, and attorney's fees against Banco Filipino. RTC ruled in favor of Terp
Construction. CA set aside the RTC decision.

Issue: Whether or not the Terp Construction expressly agreed to be bound to

respondent Banco Filipino Savings Mortgage Bank for additional interest in the
bonds it purchased.

Held: A corporation's repeated payment of an allegedly unauthorized obligation

contracted by one of its officers effectively ratifies that corporate officer's
allegedly unauthorized act.
A corporation exercises its corporate powers through its board of directors.
This power may be validly delegated to its officers, committees, or agencies.
"The authority of such individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the board, either expressly or
impliedly by habit, custom or acquiescence in the general course of business.”

The authority of the board of directors to delegate its corporate powers may
either be: (1) actual; or (2) apparent. Actual authority may be express or
implied. Express actual authority refers to the corporate powers expressly
delegated by the board of directors. Implied actual authority, on the other
hand, "can be measured by his or her prior acts which have been ratified by
the corporation or whose benefits have been accepted by the corporation.”

Petitioner's subsequent act of twice paying the additional interest Escalona

committed to during the term of the Margarita Bonds is considered a
ratification of Escalona's acts. Petitioner's only defense that they were
"erroneous payment[s]" since it never obligated itself from the start cannot
stand. Corporations are bound by errors of their own making.

Escalona likewise had apparent authority to transact on behalf of petitioner.

Here, respondent relied on Escalona’s apparent authority to promise interest
payments over and above the guaranteed 8.5%, considering that Escalona was
petitioner’s then senior vice president. His apparent authority was further
demonstrated by petitioner paying respondent what Escalona promised during
the Margarita Bonds’ term.

Rural Bank of Milaor (Camarines Sur) v. Francisca Ocfemia, et al., G.R. No.
137686, February 8, 2000
Facts:
Marife O. Niño knows the five (5) parcels of land which are located in Bombon,
Camarines Sur and that they are the ones possessing them which were
originally owned by her grandparents. During the lifetime of her grandparents,
respondents mortgaged the said five (5) parcels of land and two (2) others to
the Rural Bank of Milaor.
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to
redeem the mortgaged properties consisting of 7 parcels of land and so the
mortgage was foreclosed and thereafter ownership thereof was transferred to
the bank. Out of the 7 parcels that were foreclosed, 5 of them are in the
possession of the respondents because these 5 parcels of land were sold by the
bank to the parents of Marife O. Niño as evidenced by a Deed of Sale executed
in January 1988.
The aforementioned 5 parcels of land subject of the deed of sale, have not been,
however transferred in the name of the parents of Merife O. Niño after they
were sold to her parents by the bank because according to the Assessor's Office
the five (5) parcels of land, subject of the sale, cannot be transferred in the
name of the buyers as there is a need to have the document of sale registered
with the Register of Deeds of Camarines Sur.
In view of the foregoing, Marife O. Niño went to the Register of Deeds of
Camarines Sur with the Deed of Sale in order to have the same registered. The
Register of Deeds, however, informed her that the document of sale cannot be
registered without a board resolution of the Bank. Marife Niño then went to the
bank, showed to it the Deed of Sale, the tax declaration and receipt of tax
payments and requested the bank for a board resolution so that the property
can be transferred to the name of Renato Ocfemia the husband of petitioner
Francisca Ocfemia and the father of the other respondents having died already.

Despite several requests, the bank refused her request for a board resolution
and made many alibis. She was told that the bank had a new manager and it
had no record of the sale.
The trial court granted the Petition. As noted earlier, the CA affirmed the RTC
Decision.

Issue:
Whether the board of directors of a rural banking corporation be compelled to
confirm a deed of absolute sale of real property which deed of sale was
executed by the bank manager without prior authority of the board of directors
of the rural banking corporation
Ruling:
Yes, the board of directors can be compelled to confirm a deed of absolute sale
even though the bank manager executed such deed without prior authority
from the banking corporation.
The Supreme Court ruled that the bank acknowledged, by its own acts or
failure to act, the authority of the manager to enter into binding contracts.
After the execution of the Deed of Sale, respondents occupied the properties in
dispute and paid the real estate taxes due thereon. If the bank management
believed that it had title to the property, it should have taken some measures
to prevent the infringement or invasion of its title thereto and possession
thereof.

In this light, the bank is estopped from questioning the authority of the bank
manager to enter into the contract of sale. If a corporation knowingly permits
one of its officers or any other agent to act within the scope of an apparent
authority, it holds the agent out to the public as possessing the power to do
those acts; thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agent's
authority.

Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale.
Accordingly, it has a clear legal duty to issue the board resolution sought by
respondents. Having authorized her to sell the property, it behooves the bank
to confirm the Deed of Sale so that the buyers may enjoy its full use.
Petitione is DENIED.

Games and Garment Developers v. Alied Banking Corproation, G.R. No.

181426, July 13, 2018

Facts:
Spouses Bienvenida and Benedicto Pantaleon, agreed to purchase a parcel of
land (subject property), in the name of petitioner Games and Garments
Developers, Inc. (GGDI), for the sums of P14,000,000.00. On August 22, 1996,
Mercado, Branch Manager of Allied Bank-Pasong Tamo, issued a letter
addressed to Atty. Lao (VP and legal counsel of GGDI) and with Bienvenida's
conforme, printed on the letterhead of Allied Bank, informing the former that
Bienvenida Pantaleon, who is purchasing the above-mentioned property has an
approved real estate loan with Allied bank in the amount of P11,000,000.00,
the portion of the proceeds of which shall be used to partially liquidate the
account with GGDI.
That succeeding releases which is secured by the subject property will be made
payable to Games and Garments Developers, Inc. That after said Transfer
Certificate of Title (TCT) covering said property is already transferred to Sps
Pantaleon, the mortgage duly annotated thereon, Allied bank guarantee to pay
directly to you the amount of PESOS: EIGHT MILLION THREE HUNDRED
SIXTY THOUSAND ONLY (P8,360,000.00) ninety days from August 23, 1996 or
on or before November 21, 1996. It is understood that this guaranty is
irrevocable. GDI executed a Deed of Sale on August 23, 1996 in favor of the
spouses Pantaleon. However, in the Deed of Sale, the amount of purchase price
for the subject property was reduced to P11,000,000.00, payable to GGDI.
The same day the Deed of Sale was executed, the Register of Deeds of Makati
issued TCT in the name of Bienvenida Pantaleon. Despite Mercado's letter
dated August 22, 1996, and unbeknownst to GDI, Allied Bank already released
the proceeds of the approved loan to the spouses Pantaleon on August 23,
1996. Mercado executed another letter dated January 27, 1997 addressed to
Atty. Lao, similarly worded as his letter dated August 22, 1996, except for the
penultimate paragraph which states that "we guarantee to pay directly to you
the amount of PESOS: SEVEN MILLION EIGHT HUNDRED TWO THOUSAND
THREE HUNDRED FORTY (P7,802,340.00) sixty days from January 27, 1997
or on or before March 28, 1997. Atty. Lao requested for the immediate payment
of the balance of the purchase price amounting to P8,360,000.00 considering
that the guaranty executed by the bank in favor of GDI was irrevocable and the
TCT for the subject property was already transferred in Bienvenida's name.
There being no action on his previous letter, Atty. Lao wrote another letter to
Allied Bank, thru Mercado, to follow-up on the request for payment. Reynaldo
A. Maclang, Senior Vice-President of Allied Bank, replied to Hemandas's letter
in this wise:
We asked Mr. Mercado about this and he said that this letter [dated January
27, 1997] was not really intended as a [guaranty] for anything but was an
accommodation to a request of Atty. Cesar Lao, the Vice President of Games
and Garments Developers, Inc. He even emphasized to Atty. Lao that he was
not authorized to issue such [guaranty] inasmuch as banks are not allowed to
do so under the General Banking Act. Further, Allied Bank argues that banks
were prohibited from entering into contracts of guaranty under the then
prevailing law, Republic Act No. 337, otherwise known as the General Banking
Act, as amended,
Issue:
WoN Allied Bank bound by the undertaking in the letters executed by Mercado
as Branch Manager of Allied Bank-Pasong Tamo pursuant to doctrine of
apparent authority.
Ruling:
Yes. Based on the doctrine of apparent authority, Allied Bank is bound by the
undertaking in the letters executed by Mercado as Branch Manager of Allied
Bank-Pasong Tamo. Mercado, as Branch Manager, is in charge of the daily
administration and supervision of Allied Bank-Pasong Tamo to carry on the
business of commercial banking.
To the public, Mercado is clothed with the authority to transact and contract
on behalf of, not just his branch, but Allied Bank itself. Mercado issued the
letters in the course of facilitating and processing Bienvenida's loan
application, which was to be secured by the real estate mortgage on the subject
property. Mercado used the letterhead of Allied Bank for the said letters, and
signed the same as Bank Manager of Allied Bank-Pasong Tamo. There was
nothing to indicate to GGDI that Mercado, in issuing the letters in question,
was already acting beyond his authority as Branch Manager. In Prudential
Bank vs. Court of Appeals, thus: A bank holding out its officers and agent as
worthy of confidence will not be permitted to profit by the frauds they may thus
be enabled to perpetrate in the apparent scope of their employment; nor will it
be permitted to shirk its responsibility for such frauds, even though no benefit
may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where
the representation is made in the course of its business by an agent acting
within the general scope of his authority even though the agent is secretly
abusing his authority and attempting to perpetrate a fraud upon his principal
or some other person for his own ultimate benefit. A bank is liable to innocent
third persons where representation is made in the course of its normal
business by an agent like Mercado as Branch Manager, even though such
agent is abusing his authority. Clearly, persons dealing with Mercado could not
be blamed for believing that he was authorized to transact business for and on
behalf of the bank.
Therefore, for its failure to comply with its undertaking under the letters dated
August 22, 1996 and January 27, 1997, Allied Bank is liable to GDI for
temperate/moderate, exemplary/corrective damages, and attorney's tees.
However, Allied Bank is not liable to GDI for the balance of the purchase price
for the subject property as stated in the Deed of Sale given that Allied Bank is
neither a party to the said Deed nor an assignee thereof. Granting that
Mercado and the other employees of Allied Bank-Pasong Tamo assisted in the
execution of the Deed of Sale of the subject property between GDI and
Bienvenida and the transfer of the certificate of title over the subject property
to Bienvenida's name, such acts did not make Allied Bank a party to the Deed
and liable thereunder. Contracts take effect only between the parties who
execute them. Where there is no privity of contract, there is likewise no
obligation or liability to speak about. Neither Allied Bank can be held solidarity
liable with the spouses Pantaleon for the balance of the purchase price for the
subject property under Mercado's letters dated August 22, 1996 and January
27, 1997 for these did not constitute contracts of guaranty as defined by Article
2047 of the Civil Code. Allied Bank shall further be liable to pay, jointly and
severally with the spouses Pantaleon, the costs of suit.
Case on Corporate Officers
Jorgenetics Swine Improvement Corporation v. Thin Agri-Products, Inc.
G. R. No. 201044 & 222691, May 5, 2021 J. Hernando

Facts:
TTAI filed a complaint for replevin with damages against Jorgenetics seeking
possession of 4,765 heads of hogs that were the subject of a chattel mortgage
between the parties, after Jorgenetics failed to pay the feeds and other supplies
necessary for the latter’s hog raising business.
The trial court issued a writ of replevin. Jorgenetics moved to dismiss the
complaint for replevin on the ground of invalid service of summons. The trial
courtissued the February 4, 2010 Order, directing the dismissal of the
complaint for replevin. TTAI moved for reconsideration but was denied.
Thereafter, Jorgenetics filed a Motion for the Issuance of a Writ of Execution
with Application for Damages against the replevin bond before the trial court
alleging that it incurred damages on account of the alleged wrongful seizure of
the hogs. Aggrieved, TTAI filed a Petition for Certiorari under Rule 65.
While the case was pending in the appellate court and the trial court, TTAI filed
a petition for extrajudicial foreclosure of the chattel mortgage covering the
hogs. TTAI win the bid at public auction and was issued a certificate of sale. In
resolving the application for damages against the replevin bond, the trial court
ruled that the order dismissing the complaint for replevin became final and
executory in view of TTAI's failure to appeal and that Jorgenetics was entitled
to damages against the replevin bond, since the parties must necessarily revert
to their status prior to litigation. A writ of execution was issued thereafter. In
the CA’s decision, the Court nullified the order of dismissal and reinstated
TTAI's complaint for replevin.
The Court noted that Jorgenetics voluntarily submitted itself to the jurisdiction
of the trial court in filing the application for damages against the bond and
motion for the issuance of a writ of execution without objecting to the trial
court's jurisdiction. Hence, this petition.
Issues:
1.Whether the remedy in assailing the February 4, 2010 Order in through an
ordinary appeal under Rule 41 of the Rules of Civil Procedure. – NO
BDO Unibank, Inc., vs. Antonio Choa, GR No. 237553, July 10, 2019
Facts:
Respondent Antonio Choa, the then president and general manager of Camden
Industries, Inc. (Camden) was charged with violating P.D. 115 or the Trust
Receipts Law. Choa allegedly executed several Trust Receipt Agreements in
favor of Equitable PCI Bank (now Banco De Oro EPCI, Inc.), with the due sum
of Php 7,875,904.96. The terms of which the accused agreed to sell the same
with express obligation to remit to the complainant bank proceeds of the sale
and/or turn over the same if not sold or disposed of in accordance with the
said Trust Receipt Agreements on demand, but the accused once in possession
of the said good, far from complying with his obligation, Choa instead
misappropriated the proceeds.
From the trial it was shown that from another civil case, BDO owed Camden 90
million Pesos as judgment award. It was also evidenced that Camden owed a
money claim of 20 million Pesos to DO. Upon filing of demurer of evidence,
respondent argued that since the P20M plus being claimed by the bank is more
than offset by the P9oM plus judgment against the bank, there is no basis for
the claim of violation of the Trust Receipts Law.
The prosecution argued that such compensation is not allowed. It points out
that that since Choa's civil liabilities stemmed from his criminal violations of
the Trust Receipts Law, they could not be the subject of compensation. The RT
granted Choa's demurrer and held that the amounts BDO and Camden owed
each other may be legally compensated and BDO failed to prove Choa's
criminal intent in not paying or turning over the goods., and affirmed by the
Court of Appeals.
Petitioner submits to the Court the arguments that that there could be no legal
compensation between the judgment debt in Camden's favor and respondent's
civil liability arising from a criminal case, in ruling that respondent's obligation
to petitioner was a mere loan, despite his liability for violating the Trust
Receipts Law; and in ignoring that respondent's violation of the Trust Receipts
Law was malum prohibitum.
Respondent argues that the prosecution failed to prove that he "was directly
and personally responsible for the alleged violation of the Trust Receipts Law,
and that the elements to consummate the violation of PD 115 were not present
in this case.
Issue:
Whether or not respondent can be convicted of violating PD 115 as the
authorized representative of Camden.
Ruling:
No. A corporation, being a juridical entity, may act only through its directors,
officers, and employees. Debts incurred by these individuals, acting as such
corporate agents, are not theirs but the direct liability of the corporation they
represent. As an exception, directors or officers are personally liable for the
corporation's debts only if they so contractually agree or stipulate.
Here, although upon findings of the Court there really existed a violation of the
Trust Receipts Law, the pieces of evidence showed that respondent signed the
Trust Receipt Agreements, but not in his personal capacity. In all agreements,
"Camden Inds." was handwritten as the name of the corporation, while
respondent's signature appeared as the authorized signature.
Clearly, respondent affixed his signature only as Camden's representative.
Moreover, there was no guaranty clause or a similar clause on the page that he
signed that would have made him personally liable in case of default of the
company.
Hence, without any evidence that respondent personally bound himself to the
debts of the company he represented, this Court cannot hold him civilly liable
under the Trust Receipt Agreements. The Petition is denied.

Total Office Products and Services (TOPROS), Inc. Vs. John Charles
Chang, Jr., GR Nos. 200070-71, December 7, 2021
Facts:
Chang is a former employee of Pantrade owned by Spouses Ty. Sps. Ty wanted
to established another corporation called TOPROS that which is the sole
distributor of Minolta plain paper copiers in the Philippines. Chang was given
the duty to manage TOPROS and a 10% shares in the corporation with the
assurance from Chang that he will render competent, exclusive, and loyal
service thereto. Chang as President and General Manager and entrusted to him
the management as well as the funds of TOPROS.

Despite its success, no substantial cash dividends were distributed to the

stockholders because, according to chang, the corporation was investing its
funds in several real properties. Ty Family sensed irregularities in Chang's
dealings when their friends and relatives began questioning the manner in
which products and services from TOPROS were issued receipts and vouchers
from TOPGOLD, Golden Exim, and Identic. The Ty Family requested Chang to
return all corporate records of TOPROS. Chang, however, offered to buy them
out of their interest at TOPROS.

This prompted the Ty Family to conduct an investigation which revealed that

while still a Corporate Director and an officer of TOPROS, Chang, together with
the individual respondents, incorporated the respondent-corporations to
siphon the assets, funds, goodwill, equipment, and resources of TOPROS.

TOPROS alleged that Chang used its properties in organizing the respondent-
corporations and obtained opportunities properly belonging to it and its
stockholders to their damage and prejudice.

Issues:
1. WoN there is a violation of the corporate opportunity doctrine.
2. The determination of the exact liability of Chang.

Ruling:
1. Yes, there is a violation of the corporate opportunity. After a long discourse
as to the factors that the courts should be considered in determining the award
of damages under Section 34 (Disloyalty of a director violating the corporate
opportunity doctrine) of the Corporation Code, the Court discussed:

The doctrine of corporate opportunity governs the legal responsibility of

directors, officers and controlling shareholders in a corporation, under the duty
of loyalty, not to take such opportunities for themselves, without first
disclosing the opportunity to the board of directors of the corporation and
giving the board the option to decline the opportunity on behalf of the
corporation. If the procedure is violated and a corporate fiduciary takes the
corporate opportunity anyway, the fiduciary violates its duty of loyalty and the
corporation will be entitled to a constructive trust of all profits obtained from
the wrongful transaction.
Thus, a claim of damages under Section 34 of the Corporation Code (now
Section 33 of the RCC arises when a corporate officer or director takes a
business opportunity for his own, provided that it is sufficiently shown by the
claimant that:

(a) The corporation is financially able to exploit the opportunity;

(b) The opportunity is within the corporation's line of business;
(c) The corporation has an interest or expectancy in the opportunity;
(d) By taking the opportunity for his own, the corporate fiduciary (i.e.,
corporate director, trustee or officer) will thereby be placed in a position
inimicable to his duties to the corporation

In determining paragraph (b), whether the opportunity is within the

corporation's line of business, the involved corporations must be shown to be
in competition with one another. They must be engaged in related areas of
businesses, producing the same products with overlapping markets.

2. Now, as to Chang's liability. Undisputed, Chang committed several acts

showing personal and pecuniary that were in conflict with his duties as
director and officer of TOPROS, hence there is violation of the corporate
opportunity doctrine. To determine his liability, this case should be remanded
to the trial court for the reception of additional evidence and the reevaluation of
evidence already submitted, guided by the parameters aforementioned.

Finally, an officer of a corporation cannot engage in a business in direct

competition with that of the corporation where he is a director by utilizing
information he has received as such officer, under the established law that a
director or officer of a corporation may not enter into a competing enterprise
which cripples or injures the business of the corporation of which he is an
officer or director. It is also established that corporate officers are not permitted
to use their position of trust and confidence to further their private interests.
Where two corporations are competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he were to discharge effectively
his duty, to satisfy his loyalty to both corporations and place the performance
of his corporation duties above his personal concerns.
Petition was GRANTED.
Baruyaga vs. Adventist University of the Philippines, GR No. 168008,
August 17, 2011
Facts:
AUP, a non-stock and non-profit domestic educational institution incorporated
under Philippine laws on March 3, 1932, was directly under the North
Philippine Union Mission (NPUM) of the Southern Asia Pacific Division of the
Seventh Day Adventists. During the 3rd Quinquennial Session of the General
Conference of Seventh Day Adventists held from November 27, 2000 to
December 1, 2000, the NPUM Executive Committee elected the members of the
Board of Trustees of AUP, including the Chairman and the Secretary.
Respondent Nestor D. Dayson was elected Chairman while the petitioner was
chosen Secretary.
On January 23, 2001, almost two months following the conclusion of the 3rd
Quinquennial Session, the Board of Trustees appointed the petitioner President
of AUP. During his tenure, or from November 11 to November 13, 2002, a
group from the NPUM conducted an external performance audit. The audit
revealed the petitioners autocratic management style, like making major
decisions without the approval or recommendation of the proper committees,
including the Finance Committee; and that he had himself done the canvassing
and purchasing of materials and made withdrawals and reimbursements for
expenses without valid supporting receipts and without the approval of the
Finance Committee. The audit concluded that he had committed serious
violations of fundamental rules and procedure in the disbursement and use of
funds.The NPUM Executive Committee and the Board of Trustees decided to
immediately request the services of the General Conference Auditing Service
(GCAS) to determine the veracity of the audit findings. Accordingly, GCAS
auditors worked in the campus from December 4 to December 20, 2002 to
review the petitioners transactions during the period from April 2002 to
October 2002.
In the January 27, 2003 special meeting, the petitioner sent a letter to the
Board of Trustees. The members, by secret ballot, voted to remove him as
President because of his serious violations of fundamental rules and
procedures in the disbursement and use of funds as revealed by the special
audit; to appoint an interim committee consisting of three members to assume
the powers and functions of the President; and to recommend him to the NPUM
for consideration as Associate Director for Secondary Education.
On January 28, 2003, the petitioner was handed inside the NPUM office a
letter, together with a copy of the minutes of the special meeting held the
previous day. In turn, he handed to Chairman Dayson a letter requesting two
weeks within which to seek a reconsideration, stating that he needed time to
obtain supporting documents because he was then attending to his dying
mother. The Board of Trustees, most of whose members had not yet left Cavite,
reconvened to consider and decide the petitioners request for reconsideration.
During the meeting, he made an emotional appeal to allow him to continue as
President, promising to immediately vacate his office should he again commit
any of the irregularities cited in the auditors report. The Board of Trustees
denied the petitioners request for reconsideration because his reasons were not
meritorious.
On February 4, 2003, the petitioner brought his suit for injunction and
damages in the RTC, with prayer for the issuance of a temporary restraining
order (TRO), impleading AUP and its Board of Trustees, represented by
Chairman Dayson, and the interim committee. His complaint alleged that the
Board of Trustees had relieved him as President without valid grounds despite
his five-year term; that the Board of Trustees had thereby acted in bad faith;
and that his being denied ample and reasonable time to present his evidence
deprived him of his right to due process.

Issue:
WoN his term in that office was 5 years, or two years as AUP insists.
Ruling:
RTC acted in patently grave abuse of discretion in issuing the TRO and writ of
injunction It is clear to us, based on the foregoing principles guiding the
issuance of the TRO and the writ of injunction, that the issuance of the
assailed order constituted patently grave abuse of discretion on the part of the
RTC, and that the CA rightly set aside the order of the RTC.
To begin with, the petitioner rested his claim for injunction mainly upon his
representation that he was entitled to serve for five years as President of AUP
under the Constitution, By-Laws and Working Policy of the General Conference
of the Seventh Day Adventists. All that he presented in that regard, however,
were mere photocopies of the Bluebook. Yet, the document had no evidentiary
value. It had not been officially adopted for submission to and approval of the
Securities and Exchange Commission.
It was nothing but an unfilled model form. As such, it was, at best, only a
private document that could not be admitted as evidence in judicial
proceedings until it was first properly authenticated in court. For the RTC to
base its issuance of the writ of preliminary injunction on the mere photocopies
of the document, especially that such document was designed to play a crucial
part in the resolution of the decisive issue on the length of the term of office of
the petitioner, was gross error.
Secondly, even assuming that the petitioner had properly authenticated the
photocopies of the Bluebook, the provisions contained therein did not vest the
right to an office in him. An unfilled model form creates or establishes no rights
in favor of anyone.
Thirdly, the petitioners assertion of a five-year duration for his term of office
lacked legal basis. Section 108 of the Corporation Code determines the
membership and number of trustees in an educational corporation, viz:
Section 108. Board of trustees. Trustees of educational institutions
organized as educational corporations shall not be less than five (5) nor more
than fifteen (15): Provided, however, That the number of trustees shall be in
multiples of five (5). Unless otherwise provided in the articles of incorporation
or the by-laws, the board of trustees of incorporated schools, colleges, or other
institutions of learning shall, as soon as organized, so classify themselves that
the term of office of one-fifth (1/5) of their number shall expire every year.
Trustees thereafter elected to fill vacancies, occurring before the
expiration of a particular term, shall hold office only for the unexpired period.
Trustees elected thereafter to fill vacancies caused by expiration of term shall
hold office for five (5) years. A majority of the trustees shall constitute a
quorum for the transaction of business. The powers and authority of trustees
shall be defined in the by-laws. For institutions organized as stock
corporations, the number and term of directors shall be governed by the
provisions on stock corporations.
The second paragraph of the provision, although setting the term of the
members of the Board of Trustees at five years, contains a proviso expressly
subjecting the duration to what is otherwise provided in the articles of
incorporation or by-laws of the educational corporation. That contrary
provision controls on the term of office. In AUPs case, its amended By-Laws
provided the term of the members of the Board of Trustees, and the period
within which to elect the officers, thusly: Article I Board of Trustees Section 1.
At the first meeting of the members of the corporation, and thereafter every two
years, a Board of Trustees shall be elected.
It shall be composed of fifteen members in good and regular standing in the
Seventh-day Adventist denomination, each of whom shall hold his office for a
term of two years, or until his successor has been elected and qualified. If a
trustee ceases at any time to be a member in good and regular standing in the
Seventh-day Adventist denomination, he shall thereby cease to be a trustee.
xxxx Article IV Officers Section 1. Election of officers. At their organization
meeting, the members of the Board of Trustees shall elect from among
themselves a Chairman, a Vice-Chairman, a President, a Secretary, a Business
Manager, and a Treasurer. The same persons may hold and perform the duties
of more than one office, provided they are not incompatible with each other.In
light of foregoing, the members of the Board of Trustees were to serve a term of
office of only two years; and the officers, who included the President, were to be
elected from among the members of the Board of Trustees during their
organizational meeting, which was held during the election of the Board of
Trustees every two years.
Naturally, the officers, including the President, were to exercise the powers
vested by Section 2 of the amended By-Laws for a term of only two years, not
five years. Ineluctably, the petitioner, having assumed as President of AUP on
January 23, 2001, could serve for only two years, or until January 22, 2003.
By the time of his removal for cause as President on January 27, 2003, he was
already occupying the office in a hold-over capacity, and could be removed at
any time, without cause, upon the election or appointment of his successor.
His insistence on holding on to the office was untenable, therefore, and with
more reason when one considers that his removal was due to the loss of
confidence on the part of the Board of Trustees.
WHEREFORE, we DENY the petition for review on certiorari for lack of merit,
and hereby DISMISS SEC Case No. 028-03 entitled Dr. Petronilo Barayuga v.
Nelson D. Dayson, et al.

Matling Industrial and Commercial Corp., vs. Ricardo Coros, GR No.

157802, October 13, 2010
Facts:
After his dismissal by Matling as its Vice President for Finance and
Administration, the respondent filed a complaint for illegal suspension and
illegal dismissal against Matling and some of its corporate officers (petitioners)
in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.
The petitioners moved to dismiss the complaint, raising the ground, among
others, that the complaint pertained to the jurisdiction of the Securities and
Exchange Commission (SEC) due to the controversy being intra-corporate
inasmuch as the respondent was a member of Matling’s Board of Directors
aside from being its Vice President for Finance and Administration prior to his
termination.
The LA granted the petitioners’ motion to dismiss, ruling that the respondent
was a corporate officer because he was occupying the position of Vice President
for Finance and Administration and at the same time was a Member of the
Board of Directors of Matling; and that, consequently, his removal was a
corporate act of Matling and the controversy resulting from such removal was
under the jurisdiction of the SEC.
The NLRC set aside the dismissal, concluding that the respondent’s complaint
for illegal dismissal was properly cognizable by the LA, not by the SEC, because
he was not a corporate officer by virtue of his position in Matling, albeit high
ranking and managerial, not being among the positions listed in Matling’s
Constitution and By-Laws.
The petitioners elevated the issue to the CA by petition for certiorari. The CA
dismissed the petition for certiorari explaining that “for a position to be
considered as a corporate office, the position must, if not listed in the by-laws,
have been created by the corporation’s board of directors, and the occupant
thereof appointed or elected by the same board of directors or stockholders.”
Issue:
Whether or not respondent was a corporate officer

Whether the LA or the RTC has jurisdiction over his complaint for illegal
dismissal
Ruling:
As a rule, the illegal dismissal of an officer or other employee of a private
employer is properly cognizable by the LA. Where the complaint for illegal
dismissal concerns a corporate officer, however, the controversy falls under the
jurisdiction of the Securities and Exchange Commission (SEC), because the
controversy arises out of intra-corporate or partnership relations between and
among stockholders, members, or associates, or between any or all of them
and the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively; and between such
corporation, partnership, or association and the State insofar as the
controversy concerns their individual franchise or right to exist as such entity;
or because the controversy involves the election or appointment of a director,
trustee, officer, or manager of such corporation, partnership, or association.
Such controversy, among others, is known as an intra-corporate dispute.
Effective on August 8, 2000, upon the passage of Republic Act No. 8799,
otherwise known as The Securities Regulation Code, the SEC’s jurisdiction over
all intra-corporate disputes was transferred to the RTC.
 Under Sec. 25 of the Corporation Code, a position must be expressly
mentioned in the By-Laws in order to be considered as a corporate office.
Thus, the creation of an office pursuant to or under a By-Law enabling
provision is not enough to make a position a corporate office.
Here, respondent’s position of Vice President for Finance and Administration
was not expressly mentioned in the By-Laws; neither was the position of Vice
President for Finance and Administration created by Matling’s Board of
Directors. Lastly, the President, not the Board of Directors, appointed him.
In order to determine whether a dispute constitutes an intra-corporate
controversy or not, the Court considers two elements instead, namely: (a) the
status or relationship of the parties; and (b) the nature of the question that is
the subject of their controversy.
The criteria for distinguishing between corporate officers who may be ousted
from office at will, on one hand, and ordinary corporate employees who may
only be terminated for just cause, on the other hand, do not depend on the
nature of the services performed, but on the manner of creation of the office. In
the respondent’s case, he was supposedly at once an employee, a stockholder,
and a Director of Matling. The circumstances surrounding his appointment to
office must be fully considered to determine whether the dismissal constituted
an intra-corporate controversy or a labor termination dispute.
Obviously enough, the respondent was not appointed as Vice President for
Finance and Administration because of his being a stockholder or Director of
Matling. He had started working for Matling on September 8, 1966, and had
been employed continuously for 33 years until his termination on April 17,
2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice
President for Finance and Administration had been gradual but steady.
Even though he might have become a stockholder of Matling in 1992, his
promotion to the position of Vice President for Finance and Administration in
1987 was by virtue of the length of quality service he had rendered as an
employee of Matling. His subsequent acquisition of the status of
Director/stockholder had no relation to his promotion. Besides, his status of
Director/stockholder was unaffected by his dismissal from employment as Vice
President for Finance and Administration.
WHEREFORE, the Court denied the petition for review on certiorari, and
affirmed the decision of the Court of Appeals.
Marc II Marketing vs. Joson, GR No. 171993, December 12, 2011
Facts:
Before petitioner corporation was officially incorporated, respondent has
already been engaged by petitioner Lucila, in her capacity as President of Marc
Marketing, Inc., to work as the General Manager of petitioner corporation.
Petitioner corporation was officially incorporated and registered with the SEC.
Accordingly, Marc Marketing, Inc. was made non-operational.
Respondent continued to discharge his duties as General Manager but this
time under petitioner corporation.Petitioner corporations Board of Directors
conducted a meeting where respondent was appointed as one of its corporate
officers with the designation or title of General Manager to function as a
managing director with other duties and responsibilities that the Board of
Directors may provide and authorized.
Nevertheless, on 30 June 1997, petitioner corporation decided to stop and
cease its operations due to poor sales collection aggravated by the inefficient
management of its affairs. On the same date, it formally informed respondent
of the cessation of its business operation. Concomitantly,respondent was
apprised of the termination of his services as General Manager since his
services as such would no longer be necessary for the winding up of its affairs.
Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money
Claim against petitioners before the Labor Arbiter. Labor Arbiter rendered his
Decision in favor of respondent.
Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the
NLRC.NLRC ruled in favor of petitioners by giving credence to the Secretary’s
Certificate, which evidenced petitioner corporations Board of Directors meeting
in which a resolution was approved appointing respondent as its corporate
officer with designation as General Manager.
Therefrom, the NLRC reversed and set aside the Labor Arbiters Decision and
dismissed respondents Complaint for want of jurisdiction. When respondents
Motion for Reconsideration was denied, he filed a Petition for Certiorari with
the Court of Appeals ascribing grave abuse of discretion on the part of the
NLRC. Court of Appeals rendered its now assailed Decision declaring that the
Labor Arbiter has jurisdiction over the present controversy.
It upheld the finding of the Labor Arbiter that respondent was a mere employee
of petitioner corporation, who has been illegally dismissed from employment
without valid cause and without due process.
Issue:
Whether or not the respondent was a corporate officer of petitioner corporation.
Ruling:
No. Section 25 of the Corporation Code, particularly the phrase "such other
officers as may be provided for in the by-laws," has been clarified and
elaborated in this Courts recent pronouncement in Matling Industrial and
Commercial Corporation v. Coros, where it held, thus:

Conformably with Section 25, a position must be expressly mentioned in the

by-laws in order to be considered as a corporate office. Thus, the creation of an
office pursuant to or under a [b]y-[l]aw enabling provision is not enough to
make a position a corporate office. [In] Guerrea v. Lezama, the first ruling on
the matter, held that the only officers of a corporation were those given that
character either by the Corporation Code or by the [b]y-[l]aws; the rest of the
corporate officers could be considered only as employees or subordinate
officials. Thus, it was held in Easycall Communications Phils., Inc. v. King:

An "office" is created by the charter of the corporation and the officer is elected
by the directors or stockholders. On the other hand, an employee occupies no
office and generally is employed not by the action of the directors or
stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee. x x x x

This interpretation is the correct application of Section 25 of the Corporation

Code, which plainly states that the corporate officers are the President,
Secretary, Treasurer and such other officers as may be provided for in the [b]y-
[l]aws. 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 [b]y[l]aws.

A careful perusal of petitioner corporations by-laws, particularly paragraph 1,

Section 1, Article IV, would explicitly reveal that its corporate officers are
composed only of:
(1) Chairman;
(2) President;
(3) one or more Vice-President;
(4) Treasurer; and
(5) Secretary.

The position of General Manager was not among those enumerated. With the
given circumstances and in conformity with Matling Industrial and Commercial
Corporation v. Coros, this Court rules that respondent was not a corporate
officer of petitioner corporation because his position as General Manager was
not specifically mentioned in the roster of corporate officers in its corporate by-
laws. The enabling clause in petitioner corporations by-laws empowering its
Board of Directors to create additional officers, i.e., General Manager, and the
alleged subsequent passage of a board resolution to that effect cannot make
such position a corporate office. Matling clearly enunciated that the board of
directors has no power to create other corporate offices without first amending
the corporate by-laws so as to include therein the newly created corporate
office.

Though the board of directors may create appointive positions other than the
positions of corporate officers, the persons occupying such positions cannot be
viewed as corporate officers under Section 25 of the Corporation Code. In view
thereof, this Court holds that unless and until petitioner corporations by-laws
is amended for the inclusion of General Manager in the list of its corporate
officers, such position cannot be considered as a corporate office within the
realm of Section 25 of the Corporation Code.

It is also of no moment that respondent, being petitioner corporations General

Manager, was given the functions of a managing director by its Board of
Directors. As held in Matling, the only officers of a corporation are those given
that character either by the Corporation Code or by the corporate by-laws. It
follows then that the corporate officers enumerated in the by-laws are the
exclusive officers of the corporation while the rest could only be regarded as
mere employees or subordinate officials. Respondent, in this case, though
occupying a high ranking and vital position in petitioner corporation but which
position was not specifically enumerated or mentioned in the latter’s by-laws,
can only be regarded as its employee or subordinate official.

That respondent was also a director and a stockholder of petitioner corporation

will not automatically make the case fall within the ambit of intra-corporate
controversy and be subjected to RTCs jurisdiction. To reiterate, not all conflicts
between the stockholders and the corporation are classified as intra-corporate.
Other factors such as the status or relationship of the parties and the nature of
the question that is the subject of the controversy must be considered in
determining whether the dispute involves corporate matters so as to regard
them as intra-corporate controversies.

As previously discussed, respondent was not a corporate officer of petitioner

corporation but a mere employee thereof so there was no intra-corporate
relationship between them. With regard to the subject of the controversy or
issue involved herein, i.e., respondents dismissal as petitioner corporations
General Manager, the same did not present or relate to an intra-corporate
dispute.

With all the foregoing, this Court is fully convinced that, indeed, respondent,
though occupying the General Manager position, was not a corporate officer of
petitioner corporation rather he was merely its employee occupying a high-
ranking position.

Accordingly, respondents dismissal as petitioner corporations General Manager

did not amount to an intra-corporate controversy. Jurisdiction therefor
properly belongs with the Labor Arbiter and not with the RTC. In termination
cases, the burden of proving just and valid cause for dismissing an employee
from his employment rests upon the employer. The latter's failure to discharge
that burden would necessarily result in a finding that the dismissal is
unjustified. DENIED.