1

be his duty, to sign contract; but this has reference rather to the formality of reducing to proper
XIII. CONTROL AND MANAGEMENT form the contract which are authorized by the board and is not intended to confer an
independent power to make contract binding on the corporation.

(2) NO. The subsequent action by the stockholders in not ratifying the contract must
1.) BOARD OF DIRECTORS/TRUSTEES be ignored. The functions of the stockholders are limited of nature. The theory of a corporation
is that the stockholders may have all the profits but shall return over the complete management
Ramirez vs. Orientalist Co. of the enterprise to their representatives and agents, called directors. Accordingly, there is little
for the stockholders to do beyond electing directors, making by-laws, and exercising certain
G.R. No. 11897; September 24, 1918 other special powers defined by law. In conformity with this idea, it is settled that contracts
between a corporation and a third person must be made by directors and not stockholders. It
results that where a meeting of the stockholders is called for the purpose of passing on the
propriety of making a corporate contract, its resolutions are at most advisory and not in any
FACTS: wise binding on the board.

Orientalist Co. engaged in the theatre business, desired to be the exclusive agent
of Ramirez, who is based in Paris, for two film outfitsclair Films and Milano films.
Through the active involvement and negotiations of Ramon El Presidente Fernandez, a Expert Travel & Tours vs. CA
director of Orientalist and also its treasurer, Orientalist was able to secure an offer, the terms of
which were acceptable to the Board as well as to the stockholders. It appears that this G.R. No. 152392; May 26, 2005
acceptance of the terms of the offer was decided during an informal meeting of the board, and
conveyed to Ramirez in two letters signed only by Fernandez, both in his individual and his FACTS:
capacity as treasurer of Orientalist. It turns out that the company was not financially capable to
comply with the obligations set forth in the agency contract, and about this time films had Korean Airlines (KAL) is a corporation established and registered in the Republic
already been delivered to the company. Two stockholders meetings were organized, the first of South Korea and licensed to do business in the Philippines. Its general manager in the
adopted a resolution approving the action of the board on the offer, the second raising the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo and his
contingency of the lack of funds and the proviso that the four officers involved, including law firm.
Fernandez would continue importing the films using their own funds. Ramirez sues Orientalist
and Fernandez for what is due on the contract. RTC ruled Oriental as the principal debtor while KAL, through appointed counsel, filed a complaint against Expert Travel with the
Fernandez is subsidiarily liable. RTC for the collection of sum of money. The verification and certification against forum
shopping was signed by the same appointed counsel, who indicated therein that he was the
ISSUE: resident agent and legal counsel of KAL and had caused the preparation of the complaint.
Expert Travel filed a motion to dismiss the complaint on the ground that the appointed counsel
(1) WON the treasurer has an independent authority to bind the respondent was not authorized to execute the verification and certificate of non-forum shopping as
company by signing its name to the letters in questioned. required by the Rules of Court. KAL opposed the motion, contending that he is a resident agent
and was registered as such with the SEC as required by the Corporation Code. He also claimed
(2) Can stockholders ratify the abovementioned contract? that he had been authorized to file the complaint through a resolution of the KAL Board of
Directors approved during a special meeting, wherein the board of directors conducted a
HELD: special teleconference which he attended. It was also averred that in the same teleconference,
the board of directors approved a resolution authorizing him to execute the certificate of non-
(1) NO. It is declared in section 28 of the Corporation Law that corporate power
forum shopping and to file the complaint. Suk Kyoo Kim alleged, however, that the
shall be exercised, and all corporate business conducted by the board of directors ; and this
corporation had no written copy of the aforesaid resolution. TC denied motion to dismiss. CA
principle is recognized in the by-laws of the corporation in question which contain a provision
affirms.
declaring that the power to make contracts shall be vested in the board of directors. It is true
that it is also declared in the same by-laws that the president shall have the power, and it shall
2

ISSUE: moved to declare petitioner bank as in default on the ground that the special power of attorney
was not executed by the Board of Directors of Citibank. Respondent judge denied private
Can a special teleconference be recognized as legitimate means to approved a respondents' oral motion to declare petitioner bank as in default and set the continuation of the
board resolution and authorize an agent to execute an act in favor of the corporation? pre-trial conference. The private respondents filed for reconsideration, and this time the
respondent holds the petitioner bank in default for failure to have a proper representation. CA
HELD: affirms.

YES. In this age of modern technology, the courts may take judicial notice that
business transactions may be made by individuals through teleconferencing. teleconferencing
and videoconferencing of members of board of directors of private corporations is a reality, in ISSUE:
light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC
Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be WON a resolution of the board of directors of a corporation is always necessary for
complied with related to such conferences. granting authority to an agent to represent the corporation in court cases.

HOWEVER, in the case at bar, even given the possibility that Atty. Aguinaldo and
Suk Kyoo Kim participated in a teleconference along with the respondents Board of Directors,
the Court is not convinced that one was conducted; even if there had been one, the Court is not HELD:
inclined to believe that a board resolution was duly passed specifically authorizing Atty.
Aguinaldo to file the complaint and execute the required certification against forum shopping. In the corporate hierarchy, there are three levels of control: (1) the board of
Facts and circumstances show that there was gross failure on the part of company to prove that directors, which is responsible for corporate policies and the general management of the
there was indeed a special teleconference such as failure to produce a written copy of the board business affairs of the corporation; (2) the officers, who in theory execute the policies laid
resolution via teleconference. down by the board, but in practice often have wide latitude in determining the course of
business operations; and (3) the stockholders who have the residual power over fundamental
NOTE: Read SEC Memo Circular No. 15-2001, the guidelines for the conduct of corporate changes, like amendments of the articles of incorporation. However, just as a natural
teleconferencing and videoconferencing. person may authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents appointed by
Citibank, N.A. vs. Chua it.

G.R. No. 102300; March 17, 1993 Although as a general rule, all corporate powers are to be exercised by the board of
directors, exceptions are made where the Code provides otherwise under Sec. 25 and 47. It is
clear that corporate powers may be directly conferred upon corporate officers or agents by
statute, the articles of incorporation, by-laws or by resolution or other act of the board of
FACTS: directors. In addition, an officer who is not a director may also appoint other agents when so
authorized by the by-laws or by the board of directors. Such are referred to as express powers.
Petitioner is a foreign commercial banking corporation duly licensed to do business There are also powers incidental to express powers conferred. It is a fundamental principle in
in the Philippines. Private respondents, spouses Cresencio and Zenaida Velez, were good the law of agency that every delegation of authority, whether general or special, carries with it,
clients of petitioner bank's branch in Cebu until when they filed a complaint for specific unless the contrary be expressed, implied authority to do all of those acts, naturally and
performance and damages against the former for violation of BP 22 and several count of estafa ordinarily done in such cases, which are reasonably necessary and proper to be done in order to
cases in RTC of Cebu. carry into effect the main authority conferred.

On the date of pre-trial conference, counsel for petitioner bank appeared, presenting Since the by-laws are a source of authority for corporate officers and agents of the
a special power of attorney executed by Citibank officer in favor of petitioner bank's counsel, corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to
the J.P. Garcia & Associates, to represent and bind petitioner bank at the pre-trial conference of represent and bind it during the pre-trial conference of the case at bar is not necessary because
the case at bar. Inspite of this special power of attorney, counsel for private respondents orally its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, to execute a
3

power of attorney to a designated bank officer, clothing him with authority to direct and the acts of the board of directors, formally expressed or implied from a habit or custom of
manage corporate affairs. doing business.

Boyer-Roxas vs. CA In this case the elder Roxas who then controlled the management of the corporation,
being the majority stockholder, consented to the petitioners use and stay within the properties.
G.R. No. 100866; July 14, 1992 The Board did not object and were allowed to stay until it adopted a resolution to the effect of
authorizing to eject them. Since their stay was merely by tolerance, in deference to the wishes
FACTS: of the majority stockholder who controlled the corporation, when Roxas died his actions
cannot bind the company forever. There is no provision in the by-laws or any other resolution
The corporation, Heirs of Eugenia Roxas Inc, was established to engage in authorizing their continued stay.
agriculture to develop the properties inherited from Eugenia Roxas and Eufroncio Roxas,
which includes the land upon which the Hidden Valley Springs Resort was put up, including Valle Verde Country Club vs. Africa
various improvements thereon, using corporate funds. The AOI of Heirs Inc. was amended for
this purpose. Heirs Inc. claims that Boyer-Roxas and Guillermo Roxas had been in possession G.R. No. 151969; September 4, 2009
of the various properties and improvements in the resort and only upon the tolerance of the
corporation. It was alleged that they committed acts that impeded the corporations expansion FACTS:
and normal operation of the resort. They also did not comply with court and regulatory orders,
and thus the corporation adopted a resolution authorizing the ejectment of the defendants. TC Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal
grants. CA affirms. Boyer and Roxas contend that, being stockholders, their possession of the (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee,
properties of the corporation must be respected in view of their ownership of an aliquot portion Augusto Sunico, and Ray Gamboa were elected as BOD during the Annual Stockholders
of all properties of the corporation. Meeting of petitioner Valle Verde Country Club, Inc. (VVCC). Requisite quorum could not be
obtained so they continued in a hold-over capacity.
ISSUE:
First resignation: Dinglasan, BOD still constituting a quorum elected Eric Roxas
WON the possession of the properties in question must be respected in view of (Roxas). Second resignation: Makalintal, Jose Ramirez (Ramirez) was elected by the remaining
being a stockholder. BOD.

HELD: Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas
and Ramirez as members of the petitioners Board with the SEC and the RTC as contrary to
NO. Regarding properties owned by the corporation, under the doctrine of corporate Sec. 23 and 29 of the Corporation Code. He claimed that a year after Makalintals election as
entity properties registered in the name of the corporation are owned by it as an entity member of the petitioners Board in 1996, his term as well as those of the other members
separate and distinct from its members. While shares of stock constitute personal property, should be considered to have already expired. Thus, according to him, the resulting vacancy
they do not represent property of the corporation. A share of stock only typifies an aliquot part should have been filled by the stockholders in a regular or special meeting called for that
of the corporations property, or the right to share in its proceeds to that extent when distributed purpose, and not by the remaining members of the petitioners Board. RTC favored respondent.
according to law and equity, but its holder is not the owner of any part of the capital of the SEC ruled on the same ground as RTC. Petitioner appealed in SC for certiorari being partially
corporation, nor is he entitled to the possession of any definite portion of its property or assets. contrary to law and jurisprudence.
The stockholder is not a co-owner or tenant in common of the corporate property.
ISSUE:
The corporation has a personality distinct and separate from its members and
transacts business only through its officers or agents. Whatever authority these officers or Can the members of a corporations board of directors elect another director to fill
agents may have is derived from the board or other governing body, unless conferred by the in a vacancy caused by the resignation of a hold-over director?
charter of the corporation itself. An officer's power as an agent of the corporation must be
sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from
4

HELD:

NO. The holdover period is not part of the term of office of a member of the board 2.) OFFICERS
of directors. When Section 23 of the Corporation Code declares that the board of directors
shall hold office for one (1) year until their successors are elected and qualified, we construe Yu Chuck vs. Kong Li Po
the provision to mean that the term of the members of the board of directors shall be only
for one year; their term expires one year after election to the office. The holdover period that G.R. No. L-22450; December 3, 1924
time from the lapse of one year from a members election to the Board and until his successors
election and qualification is not part of the directors original term of office, nor is it a new FACTS:
term; the holdover period, however, constitutes part of his tenure. Corollary, when an
incumbent member of the board of directors continues to serve in a holdover capacity, it Kong Li Po is a corporation engaged in the publication of a Chinese newspaper. Its
implies that the office has a fixed term, which has expired, and the incumbent is holding the AOI provide for a president who shall sign all contracts and other instruments of writing, but
succeeding term. does not provide for a business or general manager. CC Chen or TC Chen was appointed
general business manager of the paper. He then entered into an agreement with Yu Chuck for
The powers of the corporations board of directors emanate from its stockholders. the printing of the newspaper for P580 per month. Yu Chuck worked for a year until they were
This theory of delegated power of the board of directors similarly explains why, under Section discharged by the new manager Tan Tian Hong because CC Chen had left for China. Yu Chuck
29 of the Corporation Code, in cases where the vacancy in the corporations board of directors sues the paper, claiming the contract was for a period of 3 years, and that discharge without just
is caused not by the expiration of a members term, the successor so elected to fill in a cause before the expiration of this term entitles them to receive full pay for the remainder of
vacancy shall be elected only for the unexpired term of the his predecessor in office. The law the term. Kong Li Po counters that CC Chen was not authorized to enter into the contract with
has authorized the remaining members of the board to fill in a vacancy only in specified Yu Chuck. TC ruled in favor of Yu Chuck, concluding that the contract had been impliedly
instances, so as not to retard or impair the corporations operations; yet, in recognition of the ratified by Kong Li Po and that although he had no express authority to enter into the contract;
stockholders right to elect the members of the board, it limited the period during which the since he was general business manager in charge of the printing of the paper he had implied
successor shall serve only to the unexpired term of his predecessor in office. authority to employ the petitioners.

It also bears noting that the vacancy referred to in Section 29 contemplates a ISSUE:
vacancy occurring within the directors term of office. When a vacancy is created by the
expiration of a term, logically, there is no more unexpired term to speak of. Hence, Section 29 WON CC Chen had the power to bind the corporation through the contract
declares that it shall be the corporations stockholders who shall possess the authority to fill in mentioned.
a vacancy caused by the expiration of a members term.
HELD:

The general rule is that the power to bind a corporation by contract lies with its
NOTE: The court distinguished term and tenure. board of directors or trustees, but this power may either expressly or impliedly be delegated to
other officers or agents of the corporation, and it is well settled that except where the authority
Term is the time during which the officer may claim to hold the office as of right, of employing servants and agent is expressly vested in the board of directors or trustees, an
and fixes the interval after which the several incumbents shall succeed one another. The term officer or agent who has general control and management of the corporation's business, or a
of office is not affected by the holdover. The term is fixed by statute and it does not change specific part thereof, may bind the corporation by the employment of such agent and
simply because the office may have become vacant, nor because the incumbent holds over in employees as are usual and necessary in the conduct of such business. But the contracts of
office beyond the end of the term due to the fact that a successor has not been elected and has employment must be reasonable.
failed to qualify.
In the case at bar, although the court affirmed the power to bind the corporation
Tenure represents the term during which the incumbent actually holds office. The may be made by an officer or agent, the contract of employment in the printing business is not
tenure may be shorter (or, in case of holdover, longer) than the term for reasons within or reasonable for it was too long and onerous to the business.
beyond the power of the incumbent.
5

petitioner on such terms and conditions which he deems most reasonable and advantageous.
The general rule is that the power of attorney must be pursued within legal strictures, and the
Woodchild Holdings vs. Roxas Electric agent can neither go beyond it; nor beside it. The act done must be legally identical with that
authorized to be done. In sum, then, the consent of the respondent to the assailed provisions in
G.R. No. 140667; August 12, 2004 the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on it.

The doctrine of apparent authority was not applicable in this case because the
president of the company was given a specific authority by virtue of a board resolution to sell a
FACTS: particular land. Any actions of the president outside such vested authority shall not bind the
corporation with third party. The apparent power of an agent is to be determined by the acts of
The respondent was the owner of two parcels of land located along the Sumulong the principal and not by the acts of the agent.
Highway. Petitioner wanted to buy the one parcel on which it planned to construct its
warehouse building. Roxas, as the president of respondent company, accepted the offer through Board of Liquidators vs. Heirs of Kalaw
the BOD resolution issued by the latter. However, the respondent posits that Roxas was not so
authorized under the May 17, 1991 Resolution of its Board of Directors to impose a burden or G.R. No. L-18805; August 14, 1967
to grant a right of way in favor of the petitioner on Lot No.491-A-3-B-1, much less convey a
portion thereof to the petitioner. Hence, the respondent was not bound by such provisions
contained in the deed of absolute sale.
FACTS:

Maximo Kalaw is chairman of the board and general manager of the National
ISSUE: Coconut Corporation (NACOCO), a non-profit GOCC empowered by its charter to buy sell
barter export and deal in coconut, copra, and desiccated coconut. Bocar, Garcia and Moll were
WON whether the respondent is bound by the provisions in the deed of absolute directors. It entered into contracts for the trading and delivery of copra. Nature intervened4
sale granting to the petitioner beneficial use and a right of way over a portion of Lot No. 491- typhoons devastated agriculture and copra production. NACOCO was on the verge of
A-3-B-1 accessing to the Sumulong Highway. sustaining losses and could not be able to make good on the contracts. Sensing this, Kalaw
submitted the contracts to the board for approval and made a full disclosure of the situation. No
action was taken, and no vote was taken on the matter. On 20 Jan 1947 the board met again
with Kalaw, Bocar, Garcia, and Moll in attendance, and approved the contracts. NACOCO
HELD: however only partially performed the contracts. One of the contracts concerns the Louis
Drayfus & Co., which sued NACOCO. NACOCO settled out-of-court and paid Drayfus
NO. Generally, the acts of the corporate officers within the scope of their authority P567,024.52 representing 70% of total claims. The total settlements sum up to P1.3M.
are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done NACOCO sues Kalaw, and his directors Bocar, Moll and Garcia to recover this sum, alleging
by such officers beyond the scope of their authority cannot bind the corporation unless it has negligence, bad faith and breach of trust in approving the contracts, by not having them
ratified such acts expressly or tacitly, or is estopped from denying them. Thus, contracts approved by the board. TC dismisses complaint. NACOCO claims that the by-laws provide
entered into by corporate officers beyond the scope of authority are unenforceable against the that prior board approval is required before the GM can perform or execute in behalf of
corporation unless ratified by the corporation. NACOCO all contracts necessary to accomplish its purpose.

Evidently, Roxas was not specifically authorized under the said resolution to grant a
right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to
the petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. ISSUE:
491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a portion of the
adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such WON the Kalaw contracts are valid despite its lack of prior board approval as
authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the required by the NACOCO by-laws.
6

1978, Asia Industries may retain the sum of P7,500,000.00 out of the stipulated purchase price
of P19,500,000.00; that from this retained amount of P7,500,000.00, Asia Industries may
HELD: deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; and that if the
amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net
The contracts in question are forward sales contractsa sales agreement entered Worth, Inter-Asia shall pay the difference within 5 days from date of receipt of the audited
into, even though the goods are not yet in the hands of the seller. Given the peculiar nature of financial statements.
copra trading, i.e. copra must be disposed of as soon as possible else it would lose weight and
would decrease its value, it necessitates a quick turnover and execution of the contract on short Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00 upon the
notice (w/in 24 hours). It would be difficult if not impractical to call a formal meeting of the signing of the Agreement, and P7,000,000.00 on 2 November 1978. From the STATEMENT
board each time a contract is to be executed. OF INCOME AND DEFICIT attached to the financial report dated 28 November 1978
submitted by SGV, it appears that FARMACOR had, for the 10 months ended 31 October
Kalaw was a corporate officer entrusted with general management and control of 1978, a deficit of P11,244,225.00. Since the stockholder's equity amounted to P10,000,000.00,
NACOCO. He had implied authority to make any contract or do any act which is necessary for FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall
the conduct of the business. He may, without authority from the board, perform acts of thus amounted to P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the
ordinary nature for as long as these redound to the interest of the corporation. Particularly, he Minimum Guaranteed Net Worth of P12,000,000.00. The adjusted contract price, therefore,
contracted forward sales with business entities. Long before some of these contracts were amounted to P6,225,775.00 which is the difference between the contract price of
disputed, he contracted by himself alone, without board approval. All of the members of the P19,500,000.00 and the shortfall in the guaranteed net worth of P13,224,225.00. Asia
board knew about this practice and have entrusted fully such decisions with Kalaw. He was Industries having already paid Inter-Asia P12,000,000.00, it was entitled to a refund of
never questioned nor reprimanded nor prevented from this practice. In fact, the board itself, P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January 1980, signed by its
through its acts and by acquiescence, have laid aside the by-law requirement of prior board president, that Asia Industries's claim for refund be reduced to P4,093,993.00, it promising to
approval. Thus, it cannot now declare that these contracts (failures) are not binding on pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the
NACOCO. amount of P759,570.00. To the proposal respondent agreed. Inter-Asia, however, welched on
its promise.
Ratification by a corporation of an unauthorized act or contract by its officers
relates back to the time of the act or contract ratified and is equivalent to original authority. The Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00)
theory of corporate ratification is predicated upon the right of a corporation to contract, and exclusive of interest. On 5 April 1983, Asia Industries filed a complaint against Inter-Asia with
any ratification or adoption is equivalent to a grant of prior authority. Ratification cleanses the the Regional Trial Court of Makati, one of two causes of action of which was for the recovery
contract from all its defects from the moment it was constituted. Thus, even in the face of an of above-said amount of P4,853,503.00 17 plus interest. Denying Asia Industries's claim, Inter-
express by-law requirement of prior approval, the law on corporations is not to be held too Asia countered that Asia Industries failed to pay the balance of the purchase price and
rigid and inflexible as to fail to recognize equitable considerations. accordingly set up a counterclaim. Finding for Asia Industries, the trial court rendered on 27
November 1991 a Decision, ordering Inter-Asia to pay Asia Industries the sum of
Inter-Asia Investments Industries vs. Court of Appeals P4,853,503.00 plus interest thereon at the legal rate from the filing of the complaint until fully
[GR 125778, 10 June 2003] paid, the sum of P30,000.00 as attorney's fees and the costs of suit; and (b) dismissing the
counterclaim. On appeal to the Court of Appeals, and by Decision of 25 January 1996, the
Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase Court of Appeals affirmed the trial court's decision. Inter-Asia's motion for reconsideration of
Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in the decision having been denied by the Court of Appeals by Resolution of 11 July 1996, Inter-
consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the Asia filed the petition for review on certiorari.
outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was signed
by Leonides P. Gonzales and Jesus J. Vergara, presidents of Inter-Asia and Asia Industries, Issue: Whether the 24 January 1980 letter signed by Inter-Asias president is valid and
respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller made warranties and binding.
representations. The Agreement was later amended with respect to the "Closing Date,"
originally set up at 10:00 a.m. of 30 September 1978, which was moved to 31 October 1978, Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As held
and to the mode of payment of the purchase price. The Agreement, as amended, provided that in the case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the general rule
pending submission by SGV of FARMACOR's audited financial statements as of 31 October is that, in the absence of authority from the board of directors, no person, not even its officers,
7

can validly bind a corporation. A corporation is a juridical person, separate and distinct from its favor of respondent. The National Labor and Relations Commission (NLRC) reversed said
stockholders and members, "having . . . powers, attributes and properties expressly authorized decision. The Court of Appeals (CA) however, upheld the ruling of the Labor Arbiter. Hence,
by law or incident to its existence." Being a juridical entity, a corporation may act through its this petition.
board of directors, which exercises almost all corporate powers, lays down all corporate
business policies and is responsible for the efficiency of management, as provided in Section ISSUE: Whether or nor the Labor Arbiter has jurisdiction over the controversy at bar
23 of the Corporation Code of the Philippines. Under this provision, the power and
responsibility to decide whether the corporation should enter into a contract that will bind the RULING: Yes. While Article 217(a) 229 of the Labor Code, as amended, provides that it is the
corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant Labor Arbiter who has the original and exclusive jurisdiction over cases involving termination
provisions of law. However, just as a natural person may authorize another to do certain acts or dismissal of workers when the person dismissed or terminated is a corporate officer, the case
for and on his behalf, the board of directors may validly delegate some of its functions and automatically falls within the province of the Regional Trial Court (RTC). The dismissal of a
powers to officers, committees or agents. The authority of such individuals to bind the corporate officer is always regarded as a corporate act and/or an intra-corporate controversy.
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 In conformity with Section 25 of the Corporation Code, whoever are the corporate officers
business, viz: "A corporate officer or agent may represent and bind the corporation in enumerated in the by-laws are the exclusive officers of the corporation and the Board has no
transactions with third persons to the extent that [the] authority to do so has been conferred power to create other officers without amending first the corporate by-laws. However, the
upon him, and this includes powers as, in the usual course of the particular business, are Board may create appointive positions other than the positions of the corporate officers, but the
incidental to, or may be implied from, the powers intentionally conferred, powers added by persons occupying such positions are not considered as corporate officers within the
custom and usage, as usually pertaining to the particular officer or agent, and such apparent meaning of Section 25 of the Corporation Code and are not empowered to exercise the
powers as the corporation has caused person dealing with the officer or agent to believe that it functions of the corporate officers, except those functions lawfully delegated to them. Their
has conferred.... [A]pparent authority is derived not merely from practice. Its existence may be functioning and duties are to be determined by the Board of Directors/Trustees.
ascertained through (1) the general manner in which the corporation holds out an officer or
agent as having the power to act or, in other words the apparent authority to act in general, with In the case at bar, the respondent was not a corporate officer of petitioner corporation because
which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or his position as General Manager was not specifically mentioned in the roster of corporate
constructive knowledge thereof, within or beyond the scope of his ordinary powers. It requires officers in its corporate by-laws. Thus respondent, can only be regarded as its employee or
presentation of evidence of similar acts executed either in its favor or in favor of other parties. subordinate official. Accordingly, respondent's dismissal as petitioner corporation's General
It is not the quantity of similar acts which establishes apparent authority, but the vesting of a Manager did not amount to an intra-corporate controversy. Jurisdiction therefore properly
corporate officer with the power to bind the corporation." Hence, an officer of a corporation belongs with the Labor Arbiter and not with the RTC.
who is authorized to purchase the stock of another corporation has the implied power to
perform all other obligations arising therefrom, such as payment of the shares of stock. By
allowing its president to sign the Agreement on its behalf, Inter-Asia clothed him with apparent 3.) BOARD COMMITTEES
capacity to perform all acts which are expressly, impliedly and inherently stated therein.
Hayes vs. Canada Atlantic & Plant Steamship Co.

MARC II vs. JOSON 181 F. 289; 1910

FACTS: Respondent Alfredo Joson was the General Manager, incorporator, director and FACTS:
stockholder of Marc II Marketing (petitioner corporation). Before petitioner corporation was
officially incorporated, respondent has already been engaged by petitioner Lucila Joson, in her Petitioner is one of the executive committee of respondent company. In this case,
capacity as President of Marc Marketing Inc., to work as the General Manager of petitioner the Executive Committee: (a) removed the Treasurer and appointed a new one; (b) fixed the
corporation through a management contract. annual salary of the members of the Executive Committee; (c) amended the by-laws by giving
the President the sole authority to call a stockholder's meeting and a board of directors
However, petitioner corporation decided to stop and cease its operation wherein respondent's meeting; and (d) amended the composition of the Executive Committee by limiting it to just 2
services were then terminated. Feeling aggrieved, respondent filed a Complaint for persons.
Reinstatement and Money Claim against petitioners before the Labor Arbiter which ruled in
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ISSUE: for alleged acts of mismanagement detrimental to the interest of the corporation and its
shareholders at large, namely:
Were these actions valid?
1. creation of an executive committee in 1991 composed of seven (7)
HELD: members of the board with compensation of P500.00 for each
member per meeting, an office which, to Cruz, is not
No, because the Executive Committee usurped the powers vested in the board and provided for in the by-laws of the corporation and whose
the stockholders. If their actions were valid, it would put the corporation in a situation wherein function merely duplicates those of the President and General
only two men, acting in their own pecuniary interests, would have absorbed the powers of the Manager;
entire corporation.
2. increase in the emoluments of the Chairman, Vice-President,
"Full powers" should be interpreted only in the ordinary conduct of business and Treasurer and Assistant General Manager which increases are
not total abdication of board and stockholders' powers to the Executive Committee. "FULL greatly disproportionate to the volume and character of the
POWERS" does not mean unlimited or absolute power. work of the directors holding said positions;

3. re-creation of the positions of Assistant Vice-Presidents (AVPs) for

Corporate Planning, Operations, Finance and Administration,
FILIPINAS PORT SERVICES vs. GO and the election thereto of board members Edgar C. Trinidad,
Eliezer de Jesus, Mary Jean D. Co and Henry
The relevant facts: Chua, respectively; and
On 4 September 1992, petitioner Eliodoro C. Cruz, Filports president from 1968 until he lost
his bid for reelection as Filports president during the general stockholders meeting in 1991, 4. creation of the additional positions of Special Assistants to the
wrote a letter[2] to the corporations Board of Directors questioning the boards creation of the President and the Board Chairman, with Fortunato V. de
following positions with a monthly remuneration of P13,050.00 each, and the election thereto Castro and Arsenio Lopez Chua elected to the same, the
of certain members of the board, to wit: directors elected/appointed thereto not doing any work to
deserve the monthly remuneration of P13,050.00 each.
Asst. Vice-President for Corporate Planning - Edgar C. Trinidad (Director)
Asst. Vice-President for Operations - Eliezer B. de Jesus (Director) In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that despite demands
Asst. Vice-President for Finance - Mary Jean D. Co (Director) made upon the respondent members of the board of directors to desist from creating the
Asst. Vice-President for Administration - Henry Chua (Director) positions in question and to account for the amounts incurred in creating the same, the
Special Asst. to the Chairman - Arsenio Lopez Chua (Director) demands were unheeded. Cruz thus prayed that the respondent members of the board of
Special Asst. to the President - Fortunato V. de Castro directors be made to pay Filport, jointly and severally, the sums of money variedly representing
the damages incurred as a result of the creation of the offices/positions complained of and the
In his aforesaid letter, Cruz requested the board to take necessary action/actions to aggregate amount of the questioned increased salaries.
recover from those elected to the aforementioned positions the salaries they have received.
In their common Answer with Counterclaim,[4] the respondents denied the allegations of
On 15 September 1992, the board met and took up Cruzs letter. The records do not mismanagement and materially averred as follows:
show what specific action/actions the board had taken on the letter. Evidently, whatever
action/actions the board took did not sit well with Cruz. 1. the creation of the executive committee and the grant of per diems for
the attendance of each member are allowed under the by-laws
On 14 June 1993, Cruz, purportedly in representation of Filport and its of the corporation;
stockholders, among which is herein co-petitioner Mindanao Terminal and Brokerage Services,
Inc. (Minterbro), filed with the SEC a petition [3] which he describes as a derivative suit against 2. the increases in the salaries/emoluments of the Chairman, Vice-
the herein respondents who were then the incumbent members of Filports Board of Directors, President, Treasurer and Assistant General Manager were
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well within the financial capacity of the corporation and well- Edgar C. Trinidad under the third and fourth causes of action to restore
deserved by the officers elected thereto; and to the corporation the total amount of salaries he received as assistant
vice president for corporate planning; and likewise ordering Fortunato V.
3. the positions of AVPs for Corporate Planning, Operations, Finance de Castro and Arsenio Lopez Chua under the fourth cause of action to
and Administration were already in existence during the restore to the corporation the salaries they each received as special
tenure of Cruz as president of the corporation, and were assistants respectively to the president and board chairman. In case of
merely recreated by the Board, adding that all those insolvency of any or all of them, the members of the board who created
appointed to said positions of Assistant Vice Presidents, as their positions are subsidiarily liable.
well as the additional position of Special Assistants to the
Chairman and the President, rendered services to deserve The counter claim is dismissed.
their compensation.
From the adverse decision of the trial court, herein respondents went on appeal to the CA
In the same Answer, respondents further averred that Cruz and his co-petitioner Minterbro, in CA-G.R. CV No. 73827.
while admittedly stockholders of Filport, have no authority nor standing to bring the so-called In its decision[6] of 19 January 2004, the CA, taking exceptions to the findings of the trial court
derivative suit for and in behalf of the corporation; that respondent Mary Jean D. Co has that the creation of the positions of Assistant Vice President for Corporate Planning, Special
already ceased to be a corporate director and so with Fortunato V. de Castro, one of those Assistant to the President and Special Assistant to the Board Chairman was merely for
holding an assailed position; and that no demand to cease and desist from further committing accommodation purposes, granted the respondents appeal, reversed and set aside the appealed
the acts complained of was made upon the board. By way of affirmative defenses, respondents decision of the trial court and accordingly dismissed the so-called derivative suit filed
asserted that (1) the petition is not duly verified by petitioner Filport which is the real party-in- byCruz, et al., thus:
interest; (2) Filport, as represented by Cruz and Minterbro, failed to exhaust remedies for IN VIEW OF ALL THE FOREGOING, the instant appeal
redress within the corporation before bringing the suit; and (3) the petition does not show that is GRANTED, the challenged decision is REVERSED and SET ASIDE,
the stockholders bringing the suit are joined as nominal parties. In support of their and a new one entered DISMISSING Civil Case No. 28,552-2001 with
counterclaim, respondents averred that Cruz filed the alleged derivative suit in bad faith and no pronouncement as to costs.
purely for harassment purposes on account of his non-reelection to the board in the 1991
general stockholders meeting. SO ORDERED.

As earlier narrated, the derivative suit (SEC Case No. 06-93-4491) hibernated with Intrigued, and quite understandably, by the fact that, in its decision, the CA, before proceeding
the SEC for a long period of time. With the enactment of R.A. No. 8799, the case was first to address the merits of the appeal, prefaced its disposition with the statement reading [T]he
turned over to the RTC of Manila, Branch 14, sitting as a corporate court. Thereafter, on appeal is bereft of merit,[7] thereby contradicting the very fallo of its own decision and the
respondents motion, it was eventually transferred to the RTC of Davao City whereat it was discussions made in the body thereof, respondents filed with the appellate court a Motion
docketed as Civil Case No. 28,552-2001 and raffled to Branch 10 thereof. For Nunc Pro Tunc Order,[8] thereunder praying that the phrase [T]he appeal is bereft of
merit, be corrected to read [T]he appeal is impressed with merit. In its resolution[9] of 23 April
On 10 December 2001, RTC-Davao City rendered its decision[5] in the case. Even as 2004, the CA granted the respondents motion and accordingly effected the desired correction.
it found that (1) Filports Board of Directors has the power to create positions not provided for
in the by-laws of the corporation since the board is the governing body; and (2) the increases in Hence, petitioners present recourse.
the salaries of the board chairman, vice-president, treasurer and assistant general manager are
reasonable, the trial court nonetheless rendered judgment against the respondents by ordering Petitioners assigned four (4) errors allegedly committed by the CA. For clarity, we shall
the directors holding the positions of Assistant Vice President for Corporate Planning, Special formulate the issues as follows:
Assistant to the President and Special Assistant to the Board Chairman to refund to the
corporation the salaries they have received as such officers considering that Filipinas Port 1. Whether the CA erred in holding that Filports Board of Directors
Services is not a big corporation requiring multiple executive positions and that said acted within its powers in creating the executive committee
positions were just created for accommodation. We quote the fallo of the trial courts decision. and the positions of AVPs for Corporate Planning,
WHEREFORE, judgment is rendered ordering: Operations, Finance and Administration, and those of the
Special Assistants to the President and the Board Chairman,
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each with corresponding remuneration, and in increasing the organization is for the stockholders to choose the directors who shall control and supervise the
salaries of the positions of Board Chairman, Vice-President, conduct of corporate business.[13]
Treasurer and Assistant General Manager; and In the present case, the boards creation of the positions of Assistant Vice Presidents for
Corporate Planning, Operations, Finance and Administration, and those of the Special
2. Whether the CA erred in finding that no evidence exists to prove that Assistants to the President and the Board Chairman, was in accordance with the regular
(a) the positions of AVP for Corporate Planning, Special business operations of Filport as it is authorized to do so by the corporations by-laws, pursuant
Assistant to the President and Special Assistant to the Board to the Corporation Code.
Chairman were created merely for accommodation, and (b)
the salaries/emoluments corresponding to said positions were The election of officers of a corporation is provided for under Section 25 of the Code which
actually paid to and received by the directors appointed reads:
thereto.
Sec. 25. Corporate officers, quorum. Immediately after their election,
For their part, respondents, aside from questioning the propriety of the instant petition as the the directors of a corporation must formally organize by the election of a
same allegedly raises only questions of fact and not of law, also put in issue the purported president, who shall be a director, a treasurer who may or may not be a
derivative nature of the main suit initiated by petitioner Eliodoro C. Cruz allegedly in director, a secretary who shall be a resident and citizen of
representation of and in behalf of Filport and its stockholders. the Philippines, and such other officers as may be provided for in the
by-laws. (Emphasis supplied.)
The petition is bereft of merit.
In turn, the amended Bylaws of Filport[14] provides the following:
It is axiomatic that in petitions for review on certiorari under Rule 45 of the Rules of
Court, only questions of law may be raised and passed upon by the Court. Factual findings of Officers of the corporation, as provided for by the by-
the CA are binding and conclusive and will not be reviewed or disturbed on appeal. [10] Of laws, shall be elected by the board of directors at their first meeting
course, the rule is not cast in stone; it admits of certain exceptions, such as when the findings after the election of Directors. xxx
of fact of the appellate court are at variance with those of the trial court, [11] as here. For this
reason, and for a proper and complete resolution of the case, we shall delve into the records The officers of the corporation shall be a Chairman of the
and reexamine the same. Board, President, a Vice-President, a Secretary, a Treasurer, a General
The governing body of a corporation is its board of directors. Section 23 of the Corporation Manager and such other officers as the Board of Directors may from
Code[12] explicitly provides that unless otherwise provided therein, the corporate powers of all time to time provide, and these officers shall be elected to hold office
corporations formed under the Code shall be exercised, all business conducted and all property until their successors are elected and qualified. (Emphasis supplied.)
of the corporation shall be controlled and held by a board of directors. Thus, with the exception
only of some powers expressly granted by law to stockholders (or members, in case of non-
stock corporations), the board of directors (or trustees, in case of non-stock corporations) has Likewise, the fixing of the corresponding remuneration for the positions in question is
the sole authority to determine policies, enter into contracts, and conduct the ordinary business provided for in the same by-laws of the corporation, viz:
of the corporation within the scope of its charter, i.e., its articles of incorporation, by-laws and xxx The Board of Directors shall fix the compensation of
relevant provisions of law. Verily, the authority of the board of directors is restricted to the the officers and agents of the corporation. (Emphasis supplied.)
management of the regular business affairs of the corporation, unless more extensive power is
expressly conferred. Unfortunately, the bylaws of the corporation are silent as to the creation by its board of
directors of an executive committee. Under Section 35[15] of the Corporation Code, the
The raison detre behind the conferment of corporate powers on the board of directors is not creation of an executive committee must be provided for in the bylaws of the corporation.
lost on the Court. Indeed, the concentration in the board of the powers of control of corporate
business and of appointment of corporate officers and managers is necessary for efficiency in Notwithstanding the silence of Filports bylaws on the matter, we cannot rule that
any large organization. Stockholders are too numerous, scattered and unfamiliar with the the creation of the executive committee by the board of directors is illegal or unlawful. One
business of a corporation to conduct its business directly. And so the plan of corporate reason is the absence of a showing as to the true nature and functions of said executive
committee considering that the executive committee, referred to in Section 35 of the
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Corporation Code which is as powerful as the board of directors and in effect acting for the is the corporations governing body, clearly upholding the power of its board to exercise its
board itself, should be distinguished from other committees which are within the competency prerogatives in managing the business affairs of the corporation.
of the board to create at anytime and whose actions require ratification and confirmation by the
board.[16] Another reason is that, ratiocinated by both the two (2) courts below, the Board of
Directors has the power to create positions not provided for in Filports bylaws since the board