XII. CORPORATE POWERS Republic of the Philippines vs. Acoje Mining Co. G.R. No. L-18062; February 28, 1963 FACTS: Acoje Mining requested to the Director of Posts for opening of a post, telegraph and money order offices at its mining camp. The latter signify its willingness but requested that a board resolution be passed upon regarding assumption of direct responsibility in case of pecuniary loss. The board resolution was approved and thereafter a post office branch was opened. A postmaster was hired to conduct the operations of post office. The postmaster that was hired went on a leave but never returned. The company immediately informed the officials of the Manila Post Office and the provincial auditor of Zambales of postmaster’s disappearance with the result that the accounts of the postmaster were checked and a shortage was found. Several demands were made upon the company for the payment of the shortage, having failed; the petitioner commenced the present action. The company in its answer denied liability contending that the resolution of the board of directors wherein it assumed responsibility for the act of the postmaster is ultra vires, and in any event its liability under said resolution is only that of a guarantor who answers only after the exhaustion of the properties of the principal, aside from the fact that the loss claimed by the plaintiff is not supported by the office record. ISSUE: Is the board resolution for the approval of post office branch ultra vires? HELD: Resolution adopted by the company to open a post office branch at the mining camp and to assume sole and direct responsibility for any dishonest, careless or negligent act of its appointed postmaster is NOT ULTRA VIRES because the act covers a subject which concerns the benefit, convenience, and welfare of the company’s employees and their families. While as a rule an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law, there are however certain corporate acts that may be performed outside of the scope of the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation. National Power Corp. vs. Vera .R. No. 83558; February 27, 1989 FACTS: Sea Lion International Port Services, private respondent, filed a complaint for prohibition and mandamus against petitioner NPC alleging that it had acted in bad faith in not renewing its contract for stevedoring services for its plant and in taking over its stevedoring services. Respondent judge issued a restraining order against NPC enjoining the latter from undertaking stevedoring services at its pier. Consequently, NPC filed an "Urgent Motion" to dissolve the restraining order, asserting that respondent judge had no jurisdiction to issue the order and private respondent, whose contract with NPC had expired prior to the commencement of the suit, failed to establish a cause of action for a writ of preliminary injunction. The respondent judge denied the NPC’s motion and issued a TRO after finding that NPC was not empowered by its Charter to engage in stevedoring and arrastre services. ISSUE: WON the undertaking of stevedoring services is empowered by the NPC’s charter powers. HELD: YES. To carry out the national policy of total electrification of the country, the NPC was created and empowered not only to construct, operate and maintain power plants, reservoirs, transmission lines, and other works, but also to exercise such powers and do such things as may be reasonably necessary to carry out the business and purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish said purpose. In determining whether or not an NPC act falls within the purview of the above provision, the Court must decide whether or not a logical and necessary relation exists between the act questioned and the corporate purpose expressed in the NPC charter. For if that act is one which is lawful in itself and not otherwise prohibited, and is done for the purpose of serving corporate ends, and reasonably contributes to the promotion of those ends in a substantial and not in a remote and fanciful sense, it may be fairly considered within the corporation's charter powers. Government of Phil. Islands vs. El Hogar Filipino (supra) G.R. No. L-26649; July 13, 1927 NOTE: This case is an example of how the implied powers concept may be used to justify certain acts of a corporation. A quo warranto proceeding instituted by the Government against El Hogar, a building and loan association, to deprive it of its corporate franchise.
1.
El Hogar held title to real property for a period in excess of 5 years in good faith; hence this cause will not prosper. 2. El Hogar owned a lot and bldg. at a business district in Manila allegedly in excess of its reasonable requirements, held valid because, it was found to be necessary and legally acquired and developed. 3. El Hogar leased some office space in its bldg.; it administered and managed properties belonging to delinquent stockholders; and managed properties of its stockholders even if such were not mortgaged to them. Held: first two valid, but the third is ultra vires because the administration of property in that manner is more befitting of the business of a real estate agent or trust company and not of a building and loan association. 4. Compensation to the promoter and organizer allegedly excessive and unconscionable. Held: Court cannot dwell on the issue since the promoter is not a party in the proceeding and it is the corp. or its stockholders who may bring a complaint on such. 5. Issuance of special shares did not affect El Hogar's character as a building and loan association nor make its loans usurious. 6. Corporate policy of using a depreciation rate of 10 % per annum is not excessive, because according to the SC, the by-laws expressly authorizes the BOD to determine each year the amount to be written down upon the expenses of installation and the property of the corp. 7. The Corp. Law does not expressly grant the power of maintaining reserve funds but such power is implied. All business enterprises encounter periods of gains and losses, and its officers would usually provide for the creation of a reserve to act as a buffer for such circumstances. 8. That loans issued to member borrowers are being used for purposes other than the bldg. of homes not invalid because there is no statute which expressly declares that loans may be made by these associations solely for the purpose of bldg. homes. 9. Sec. 173 of the Corp. Law provides that "any person" may become a stockholder on a bldg. and loan association. The word "person" is used on a broad sense including not only natural persons but also artificial persons. Pirovano, et. al. vs. De la Rama G.R. No. L-5377; December 29, 1954 FACTS: Enrico Pirovano, president of the defendant company, managed the company until it became a multimillion corporation by the time Pirovano was executed by the Japanese during the occupation. BOD Resolution: Out of the proceeds, the sum of P400,000 be set aside for equal division among the 4 minor children, convertible into shares of stock of the De la Rama Steamship Company, at par and, for that purpose, that the present registered stockholders of the corporation be requested to waive their pre-emptive right to 4,000 shares of the unissued stock of the company in order to enable each of the 4 minor heirs to obtain 1,000 shares at par. Plaintiffs herein are the minor children of the late Enrico Pirovano represented by their mother and judicial guardian Estefania Pirovano. They seek to enforce certain resolutions adopted by the Board of Directors and stockholders of the defendant company giving to said minor children of the proceeds of the insurance policies taken on the life of their deceased father Enrico Pirovano with the company as beneficiary. Defendant's main defense is: that said resolutions and the contract executed pursuant thereto are ultra vires, and, if valid, the obligation to pay the amount given is not yet due and demandable. RTC ruled that contract or donation is not ultra vires. ISSUE: WON corporation donation of the proceeds of the insurance policies is an ultra vires act. HELD: NO. The AOI of the corporation provided two relevant items: (1) to invest and deal with moneys of the company not immediately required, in such manner as from time to time may be determined; and (2) to aid in any other manner any person, association or corporation of which any obligation or in which any interest is held by this corporation or in the affairs of prosperity of which this corporation has a lawful interest. From this, it is obvious that the corporation properly exercised within its chartered powers the act of availing of insurance proceeds to the heirs of the insured and deceased officer. NOTE: Ultra vires act vs. Illegal Acts – A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals, or public policy or public duty, and are, like similar transactions between the individuals void. They cannot serve as basis of a court action, nor require validity ultra vires acts on the other hand, or those which are not illegal and void ab initio, but are
merely within are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. Harden, et. al. vs. Benguet G.R. No. L-37331; March 18, 1933 FACTS: A contract between Benguet Consolidated Mining and Balatoc Mining Co. provided that Benguet will bring in capital, equipment. and technical expertise in exchange for capital shares in Balatoc. Harden was a stockholder of Balatoc and he contends that this contract violated the Corporation Law which restricts the acquisition of interest by a mining corporation in another mining corporation. ISSUE: WON the plaintiff can maintain an action based upon the violation of the law supposedly committed by respondent company. HELD: NO. The provision was adopted by the lawmakers with a sole view to the public policy that should control in the granting of mining rights. Furthermore, the penalties imposed in what is now section 190 (A) of the Corporation Law for the violation of the prohibition in question are of such nature that they can be enforced only by a criminal prosecution or by an action of quo warranto. but these proceedings can be maintained only by the Attorney-General in representation of the Government. Bissell vs. Michigan Southern 22 NY 258; 1860 FACTS: Two railroad corporations contend that they transcended their own powers and violated their own organic laws. Hence, they should not be held liable for the injury of the plaintiff who was a passenger in one of their trains. ISSUE: WON the contract made between the two railroad corporations is valid and as such can be use a defense to evade the liability against the passenger. HELD: NO. The contract between the two corporations was an ultra vires act. However, it is not one tainted with illegality, therefore, the accompanying rights and obligations based on the contract of carriage between them and the plaintiff cannot be avoided by raising such a defense. XIII. CONTROL AND MANAGEMENT 1.) BOARD OF DIRECTORS/TRUSTEES Ramirez vs. Orientalist Co. G.R. No. 11897; September 24, 1918 FACTS: Orientalist Co. engaged in the theatre business, desired to be the exclusive agent of Ramirez, who is based in Paris, for two film outfits—Éclair Films and Milano films. Through the active involvement and negotiations of Ramon ―El Presidente‖ Fernandez, a 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 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 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 already been delivered to the company. Two stockholders meetings were organized, the first adopted a resolution approving the action of the board on the offer, the second raising the contingency of the lack of funds and the proviso that the four officers involved, including 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 Fernandez is subsidiarily liable. ISSUE: (1) WON the treasurer has an independent authority to bind the respondent company by signing its name to the letters in questioned. (2) Can stockholders ratify the abovementioned contract? HELD: (1) NO. It is declared in section 28 of the Corporation Law that corporate power shall be exercised, and all corporate business conducted by the board of directors; and this principle is recognized in the by-laws of the corporation in question which contain a provision 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 be his duty, to sign contract; but this has reference rather to the formality of reducing to proper 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 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 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 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 wise binding on the board. Expert Travel & Tours vs. CA G.R. No. 152392; May 26, 2005 FACTS: Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo and his law firm. KAL, through appointed counsel, filed a complaint against Expert Travel with the 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 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 was not authorized to execute the verification and certificate of non-forum shopping as 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 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 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-forum shopping and to file the complaint. Suk Kyoo Kim alleged, however, that the corporation had no written copy of the aforesaid resolution. TC denied motion to dismiss. CA affirms. ISSUE: Can a special teleconference be recognized as legitimate means to approved a board resolution and authorize an agent to execute an act in favor of the corporation? HELD: 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 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 complied with related to such conferences. HOWEVER, in the case at bar, even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference along with the respondent’s Board of Directors, the Court is not convinced that one was conducted; even if there had been one, the Court is not 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. Facts and circumstances show that there was gross failure on the part of company to prove that there was indeed a special teleconference such as failure to produce a written copy of the board resolution via teleconference. NOTE: Read SEC Memo Circular No. 15-2001, the guidelines for the conduct of teleconferencing and videoconferencing. Citibank, N.A. vs. Chua G.R. No. 102300; March 17, 1993 FACTS: Petitioner is a foreign commercial banking corporation duly licensed to do business in the Philippines. Private respondents, spouses Cresencio and Zenaida Velez, were good clients of petitioner bank's branch in Cebu until when they filed a complaint for specific performance and damages against the former for violation of BP 22 and several count of estafa cases in RTC of Cebu. On the date of pre-trial conference, counsel for petitioner bank appeared, presenting a special power of attorney executed by Citibank officer in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to represent and bind petitioner bank at the pre-trial conference of the case at bar. Inspite of this special power of attorney, counsel for private respondents orally 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
respondents' oral motion to declare petitioner bank as in default and set the continuation of the 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 affirms. ISSUE: WON a resolution of the board of directors of a corporation is always necessary for granting authority to an agent to represent the corporation in court cases. HELD: In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is responsible for corporate policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the policies laid 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 corporate changes, like amendments of the articles of incorporation. However, just as a natural 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 it. 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 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. There are also powers incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation of authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to do all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper to be done in order to carry into effect the main authority conferred. Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pretrial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, to execute a power of attorney to a designated bank officer, clothing him with authority to direct and manage corporate affairs. Boyer-Roxas vs. CA G.R. No. 100866; July 14, 1992 FACTS: The corporation, Heirs of Eugenia Roxas Inc, was established to engage in 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 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 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 corporation’s expansion 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 grants. CA affirms. Boyer and Roxas contend that, being stockholders, their possession of the properties of the corporation must be respected in view of their ownership of an aliquot portion of all properties of the corporation. ISSUE: WON the possession of the properties in question must be respected in view of being a stockholder. HELD: NO. Regarding properties owned by the corporation, under the doctrine of corporate entity ―properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members.‖ While shares of stock constitute personal property, they do not represent property of the corporation. A share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any part of the capital of the corporation, nor is he entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property. 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 agents may have is derived from the board or other governing body, unless conferred by the 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 the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. In this case the elder Roxas who then controlled the management of the corporation, being the majority stockholder, consented to the petitioner’s use and stay within the properties. 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 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 authorizing their continued stay. Valle Verde Country Club vs. Africa G.R. No. 151969; September 4, 2009 FACTS: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa were elected as BOD during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc. (VVCC). Requisite quorum could not be obtained so they continued in a hold-over capacity. First resignation: Dinglasan, BOD still constituting a quorum elected Eric Roxas (Roxas). Second resignation: Makalintal, Jose Ramirez (Ramirez) was elected by the remaining BOD. Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as members of the petitioner’s Board with the SEC and the RTC as contrary to Sec. 23 and 29 of the Corporation Code. He claimed that a year after Makalintal’s election as member of the petitioner’s Board in 1996, his term – as well as those of the other members – should be considered to have already expired. Thus, according to him, the resulting vacancy should have been filled by the stockholders in a regular or special meeting called for that purpose, and not by the remaining members of the petitioner’s Board. RTC favored respondent. SEC ruled on the same ground as RTC. Petitioner appealed in SC for certiorari being partially contrary to law and jurisprudence. ISSUE: Can the members of a corporation’s board of directors elect another director to fill in a vacancy caused by the resignation of a hold-over director? HELD: NO. The holdover period is not part of the term of office of a member of the board 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 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 time from the lapse of one year from a member’s election to the Board and until his successor’s election and qualification – is not part of the director’s original term of office, nor is it a new 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 implies that the office has a fixed term, which has expired, and the incumbent is holding the succeeding term. The powers of the corporation’s board of directors emanate from its stockholders. This theory of delegated power of the board of directors similarly explains why, under Section 29 of the Corporation Code, in cases where the vacancy in the corporation’s board of directors is caused not by the expiration of a member’s term, the successor ―so elected to fill in a vacancy shall be elected only for the unexpired term of the his predecessor in office.‖ The law has authorized the remaining members of the board to fill in a vacancy only in specified instances, so as not to retard or impair the corporation’s operations; yet, in recognition of the stockholders’ right to elect the members of the board, it limited the period during which the successor shall serve only to the ―unexpired term of his predecessor in office.‖ It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within the director’s 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 declares that it shall be the corporation’s stockholders who shall possess the authority to fill in a vacancy caused by the expiration of a member’s term. NOTE: The court distinguished term and tenure. Term is the time during which the officer may claim to hold the office as of right, and fixes the interval after which the several incumbents shall succeed one another. The term of office is not affected by the holdover. The term is fixed by statute and it does not change simply because the office may have become vacant, nor because the incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and has failed to qualify. Tenure represents the term during which the incumbent actually holds office. The tenure may be shorter (or, in case of holdover, longer) than the term for reasons within or beyond the power of the incumbent. 2.) OFFICERS Yu Chuck vs. Kong Li Po G.R. No. L-22450; December 3, 1924
FACTS:
Kong Li Po is a corporation engaged in the publication of a Chinese newspaper. Its AOI provide for a president who shall sign all contracts and other instruments of writing, but 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 printing of the newspaper for P580 per month. Yu Chuck worked for a year until they were discharged by the new manager Tan Tian Hong because CC Chen had left for China. Yu Chuck sues the paper, claiming the contract was for a period of 3 years, and that discharge without just cause before the expiration of this term entitles them to receive full pay for the remainder of the term. Kong Li Po counters that CC Chen was not authorized to enter into the contract with Yu Chuck. TC ruled in favor of Yu Chuck, concluding that the contract had been impliedly ratified by Kong Li Po and that although he had no express authority to enter into the contract; since he was general business manager in charge of the printing of the paper he had implied authority to employ the petitioners. ISSUE: WON CC Chen had the power to bind the corporation through the contract mentioned. HELD: The general rule is that the power to bind a corporation by contract lies with its 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 of employing servants and agent is expressly vested in the board of directors or trustees, an officer or agent who has general control and management of the corporation's business, or a specific part thereof, may bind the corporation by the employment of such agent and employees as are usual and necessary in the conduct of such business. But the contracts of employment must be reasonable. In the case at bar, although the court affirmed the power to bind the corporation may be made by an officer or agent, the contract of employment in the printing business is not reasonable for it was too long and onerous to the business. Woodchild Holdings vs. Roxas Electric G.R. No. 140667; August 12, 2004 FACTS: The respondent was the owner of two parcels of land located along the Sumulong 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 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 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. ISSUE: WON whether the respondent is bound by the provisions in the deed of absolute sale granting to the petitioner beneficial use and a right of way over a portion of Lot No. 491-A-3-B-1 accessing to the Sumulong Highway. HELD: NO. Generally, the acts of the corporate officers within the scope of their authority are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them. Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation. 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. 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 authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the 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 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 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 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 principal and not by the acts of the agent. Board of Liquidators vs. Heirs of Kalaw G.R. No. L-18805; August 14, 1967
FACTS:
Maximo Kalaw is chairman of the board and general manager of the National 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 directors. It entered into contracts for the trading and delivery of copra. Nature intervened—4 typhoons devastated agriculture and copra production. NACOCO was on the verge of 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 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 P567,024.52 representing 70% of total claims. The total settlements sum up to P1.3M. NACOCO sues Kalaw, and his directors Bocar, Moll and Garcia to recover this sum, alleging negligence, bad faith and breach of trust in approving the contracts, by not having them approved by the board. TC dismisses complaint. NACOCO claims that the by-laws provide that prior board approval is required before the GM can perform or execute in behalf of NACOCO all contracts necessary to accomplish its purpose. ISSUE: WON the Kalaw contracts are valid despite its lack of prior board approval as required by the NACOCO by-laws. HELD: The contracts in question are ―forward sales‖ contracts—a sales agreement entered into, even though the goods are not yet in the hands of the seller. Given the peculiar nature of 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 notice (w/in 24 hours). It would be difficult if not impractical to call a formal meeting of the board each time a contract is to be executed. Kalaw was a corporate officer entrusted with general management and control of NACOCO. He had implied authority to make any contract or do any act which is necessary for the conduct of the business. He may, without authority from the board, perform acts of ordinary nature for as long as these redound to the interest of the corporation. Particularly, he contracted forward sales with business entities. Long before some of these contracts were disputed, he contracted by himself alone, without board approval. All of the members of the board knew about this practice and have entrusted fully such decisions with Kalaw. He was never questioned nor reprimanded nor prevented from this practice. In fact, the board itself, through its acts and by acquiescence, have laid aside the by-law requirement of prior board approval. Thus, it cannot now declare that these contracts (failures) are not binding on NACOCO. 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 theory of corporate ratification is predicated upon the right of a corporation to contract, and any ratification or adoption is equivalent to a grant of prior authority. Ratification ―cleanses the contract from all its defects from the moment it was constituted. Thus, even in the face of an express by-law requirement of prior approval, the law on corporations is not to be held too rigid and inflexible as to fail to recognize equitable considerations. 3.) BOARD COMMITTEES Hayes vs. Canada Atlantic & Plant Steamship Co. 181 F. 289; 1910 FACTS: Petitioner is one of the executive committee of respondent company. In this case, the Executive Committee: (a) removed the Treasurer and appointed a new one; (b) fixed the 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 meeting; and (d) amended the composition of the Executive Committee by limiting it to just 2 persons. ISSUE: Were these actions valid? HELD: No, because the Executive Committee usurped the powers vested in the board and the stockholders. If their actions were valid, it would put the corporation in a situation wherein only two men, acting in their own pecuniary interests, would have absorbed the powers of the entire corporation. "Full powers" should be interpreted only in the ordinary conduct of business and not total abdication of board and stockholders' powers to the Executive Committee. "FULL POWERS" does not mean unlimited or absolute power.
XIV. DUTIES OF DIRECTORS AND CONTROLLING STOCKHOLDERS Benguet Electric Cooperative vs. NLRC G.R. No. 89070; May 18, 1992 FACTS: Cosalan, GM of the Benguet Electric Cooperative, was informed by COA that cash advances received by officers and employees of Benguet Electric had been virtually written off the books, that per diems and allowances showed substantial inconsistencies with the directives of the National Electrification Administration, and that several irregularities in the utilization of funds released by NEA to Benguet. Cosalan then implemented the remedial measures recommended by COA. Board members of Benguet responded by abolishing the housing allowance of Cosalan, reduced his salary, representation and other allowances, and directed him to hold in abeyance all disciplinary actions, and struck his name out as principal signatory of Benguet Electric. The Board adopted another series of resolutions which resulted in the ouster of Cosalan as GM. Cosalan nonetheless continued to work as GM, contending that only the NEA can suspend and remove him. The Board then refused to act on Cosalan request to release compensation due him. Cosalan files a complaint with the NLRC against the Board of Benguet Electric, and impleaded Benguet Electric itself as well as the individual members of the board in their official and private capacities. Labor Arbiter rules in favor of Cosalan, holding both the company and the board solidarily liable to Cosalan. NLRC modifies award to Cosalan by declaring Benguet alone, and not the Board members, was liable to Cosalan. Benguet appeals. ISSUE: WON both the corporation and board members are liable to Cosalan. HELD: YES. The Board members and officers of a corporation who purport to act for and in behalf of the corporation, keep within the lawful scope of their authority in so acting, and act in good faith, do not become liable, civilly or otherwise, for the consequences of their acts. Those acts are properly attributed to the corporation alone and no personal liability is incurred. In this case, the board members obviously wanted to get rid of Cosalan and acted with indecent haste in removing him from his GM position. This shows strong indications that the members of the board had illegally suspended and dismissed him precisely because he was trying to rectify the financial irregularities. The Board members are also liable for damages under Sec. 31 of the Corporation Code, which by virtue of Sec. 4 thereof, makes it applicable in a supplementary manner to all corporations, including those with special or individual charters so long as these are not inconsistent therewith. The Board members are also guilty of gross negligence and bad faith in directing the affairs of the corporation in enacting the said resolutions, and in doing so, acted beyond the scope of their authority. Prime White Cement vs. IAC G.R. No. L-68555; March 19, 1993 FACTS: Prime White Cement entered into a dealership agreement with one of its directors, Alejandro Te, for the latter to be the exclusive distributor of 20,000 bags of Prime White cement per month @ P9.70 per bag for the entire Mindanao area for 5 years, and that a letter of credit be opened to secure payment. Te advertised his dealership and was able to obtain possible clients, and entered into agreements with several hardware stores for the purchase of the cement. Te then informed Prime White of the orders, but the latter imposed additional conditions, which effectively delayed the delivery of the cement, lowered the number of bags to be delivered, and increased the price per bag. It also made the prices subject to change unilaterally and additional conditions on the manner of payment. Te refused to comply and Prime White cancelled the dealership agreement. Te sued for specific performance and damages. TC ruled in favor of Te. ISSUE: WON the dealership agreement is a valid and enforceable contract binding on the corporation. HELD: NO. It is not valid and enforceable. All corporate powers are exercised by the Board. It may also delegate specific powers to its President or other officers. In the absence of express delegation, a contract entered into by the President in behalf of the corporation, may still bind the latter if the board should ratify expressly or impliedly. In the absence of express or implied ratification, the President may as a general rule bind the corporation through a contract in the ordinary course of business, provided the same is reasonable under the circumstances. These rules are applicable where the President or other officer acting for the corporation is dealing with a third person. The situation is different where a director or officer is dealing with his own corporation. Te was not an ordinary stockholder; he was a member of the Board and Auditor of the corporation. He is what is often called a “selfdealing” director. As a director, he holds a position of trust and owes a duty of loyalty to his corporation. In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. The
trust relationship springs from the control and guidance of the corporate affairs and property interests of the stockholders. A director’s contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made. Gokongwei Jr. vs. SEC et. al. (supra) G.R. No. L-45911; April 11, 1979 ISSUE: WON the amended by-laws of SMC of disqualifying a competitor (Interlocking director) from nomination or election to the Board of Directors of SMC are valid and reasonable. HELD: Under US corporate law, corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. ... An amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid." This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the corporation and is good." In the Philippines, section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that 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 well established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests." In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. Strong vs. Repide G.R. No. L-2101; November 15, 1906 FACTS: This action was brought to recover 800 shares of the capital stock of the Philippine Sugar Estates Development Company, Limited, an anonymous society formed to hold the Dominican friar lands. The shares were the property of one of the plaintiffs, Mrs. Strong, as part of the estate of her first husband. They were purchased by the defendant through a broker who dealt with her agent, one Jones, who had the script in her possession and who had made the sale without the knowledge of the plaintiff. The defendant was a director, was the managing agent, and was in his own right the majority stockholder of the society. ISSUE: WON a director and majority stockholder must disclose his information to another stockholder before buying stock from him. HELD: YES. The director and controlling stockholder who purchased the shares of another stockholder through an agent was held to be guilty of concealing the impending purchase of the friar lands they own by the government, a significant fact which would affect the price of the shares. Although ordinarily, the relationship between directors and stockholders of a corporation is not of a fiduciary character as to oblige the director to disclose to a stockholder the general knowledge which he may possess regarding the value of the shares of the company before he purchases any form a shareholder, there are cases when such duty and obligation upon the director is present. Being the chief negotiator for the sale of the lands, the director was the only person who knew of the advantages and the impending increase in the value of the shares such that he is precluded from acquiring stocks from other shareholders without first informing them of the pertinent facts affecting the value of the shares being bought. It is fraudulent for a stockholder to buy from a shareholder without disclosing his identity. NOTE: Special Facts Doctrine: a doctrine holding that a corporate officer with superior knowledge gained by virtue of being an insider owes a limited fiduciary duty to a shareholder in transactions involving transfer of stock. Steinberg vs. Velasco G.R. No. L-30460; March 12, 1929 FACTS: The board of the corporation authorized the purchase of 330shares of capital stock of the corporation and the declaration of dividends at a time when the corporation was indebted and in such a bad financial condition. The
directors relied on the face value on the books of its A/R, which had little or no value. Furthermore it appears that two of the directors were permitted to resign so that they could sell their stock to the corporation. The corporation became insolvent, and the receiver Steinberg sues the directors. ISSUE: Duty to creditors. HELD: Creditors of a corporation have the right to assume that so long as there are outstanding debts and liabilities, the BOD will not use the assets of the corporation to buy its own stock, and will not declare dividends to stockholders when the corporation is insolvent. In this case, it was found that the corporation did not have an actual bona fide surplus from which dividends could be paid. Moreover, the Court noted that the Board of Directors purchased the stock from the corporation and declared the dividends on the stock at the same Board meeting, and that the directors were permitted to resign so that they could sell their stock to the corporation. Given all of this, it was apparent that the directors did not act in good faith or were grossly ignorant of their duties. Either way, they are liable for their actions which affected the financial condition of the corporation and prejudiced creditors.
