TAM WING TAK VS.

MAKASIAR
350 SCRA 475

FACTS:
1. Vic Ang Siong issued a check in the amount of P 83,550,000.00 in favor of Concord-World Properties
Inc., a domestic corporation.
2. The check was dishonored when presented for encashment.
3. Petitioner Tam Wing Tak in his capacity as director of Concord filed an affidavit-complaint with the
Prosecutor’ s Office charging Vic Ang Siong for violation of BP 22.
4. Vic Ang Sion sought the dismissal of the case because petitioner had no authority to file the case on
behalf of Concord, the payee of the dishonored check, since the firm’ s Board of Directors had not
empowered him to act on its behalf.
5. The City Prosecutor dismissed the criminal complaint.
6. A copy of the City Prosecutor’ s resolution was sent be registered mail to petitioner.
7. Notwithstanding that petitioner was represented by counsel, the latter was not furnished a copy of the
resolution.
8. Petitioner’ s counsel was able to secure a copy of the resolution and a motion for reconsideration was
filed.
9. The City Prosecutor denied petitioner’ s motion for reconsideration.
10. Petitioner appealed the dismissal of his complaint by the City Prosecutor to the Chief State Prosecutor
but the latter dismissed the same for having been filed out of time.
11. Respondent Chief State Prosecutor Zenon De Guia denied the motion for reconsideration.
12. Petitioner then filed a civil case for Mandamus with the RTC of Quezon City to compel the Chief State
Prosecutor to file or cause the filing of an information charging Vic Ang Siong with violation of BP 22.
13. RTC Judge Ramon Makasiar denied petition for Mandamus.
14. Motion for reconsideration filed was also denied.
15. Hence this petition.

ISSUE:
Does petitioner have the legal capacity to act for the corporation?
Is petitioner's action a derivative suit?

HELD:
It is not disputed in the instant case that Concord, a domestic corporation, was the payee of the bum check,
not petitioner. Therefore, it is Concord, as payee of the bounced check, which is the injured party. Since
petitioner was neither a payee nor a holder of the bad check, he had neither the personality to sue nor a cue
of action against Vic Ang Siong.

Under Section 36 of the Corporation Code, read in relation to Section 23, it is clear that where a corporation
is an injured party, its power to sue is lodged with its Board of Directors or Trustees.

Note that petitioner failed to show any proof that he was authorized or deputized or granted specific powers
by Concords Board of Directors to sue Vic Ang Siong for and on behalf of the firm. Clearly, petitioner as a
minority stockholder and member of the Board of Directors had no such power or authority to sue on
Concords behalf.

Neither can the Supreme Court uphold his act as a derivative suit. For a derivative suit to prosper, it is
required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint
that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders
similarly situated who may with to join him in the suit. There is no showing that petitioner had complied with
the foregoing requisites.

2. ULTRA VIRES DOCTRINE (SEC. 45); TYPES; BASIS; BUSINESS JUDGEMENT RULE; DOCTRINE OF
APPARENT AUTHORITY

MONTELIBANO ET AL vs.BACOLOD-MURCIA MILLING CO., INC.

G.R. No. L-15092

May 18, 1962

FACTS: Montelibano et al. are sugar planters adhered to the Bacolod-Murcia Milling Co., Inc’s sugar central
mill under identical milling contracts originally executed in 1919. In 1936, it was proposed to execute
amended milling contracts, increasing the planters’ share of the manufactured sugar, besides other
concessions. To this effect, a printed Amended Milling Contract form was drawn up.

The Board of Directors of Bacolod-Murcia Milling Co., Inc. adopted a resolution granting further concessions
to the planters over and above those contained in the printed Amended Milling Contract on August 10, 1936.
The printed Amended Milling Contract was signed by the Appellants on September 10, 1936, but a copy of
the resolution was not attached to the printed contract until April 17, 1937.

In 1953, the appellants initiated an action, contending that 3 Negros sugar centrals had already granted
increased participation to their planters, and that under paragraph 9 of the resolution of August 20, 1936, the
appellee had become obligated to grant similar concessions to the appellants herein.

The Bacolod-Murcia Milling Co., inc., resisted the claim, urging that the resolution in question was null and
void ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors
to adopt.

ISSUE: Was the act of the BOD ultra vires?

HELD: NO (The Bacolod-Murcia Milling Co., Inc. is ordered to pay appellants the increase of participation in
the milled sugar in accordance with paragraph 9 of the Resolution of August 20, 1936.)

As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and
whether or not it will cause losses or decrease the profits of the central, the court has no authority to review
them.

Xx It is a well-known rule of law that questions of policy or of management are left solely to the honest
decision of officers and directors of a corporation, and the court is without authority to substitute its judgment
of the board of directors; the board is the business manager of the corporation, and so long as it acts in
good faith its orders are not reviewable by the courts.
__

It must be remembered that the controverted resolution was adopted by appellee corporation as a
supplement to, or further amendment of, the proposed milling contract, and that it was approved on August
20, 1936, twenty-one days prior to the signing by appellants on September 10, of the Amended Milling
Contract itself; so that when the Milling Contract was executed, the concessions granted by the disputed
resolution had been already incorporated into its terms.

3. Republic of the Phils. vs Acoje Mining

G.R. No. L-18062 / February 28, 1963 / Bautista Angelo, J./CORPORATE POWERS/FVARGAS

NATURE Appeal

PETITIONERS Republic of the Philippines

RESPONDENTS Acoje Mining Company

SUMMARY. Company asked the Bureaus of Posts to open a post office in Sta. Cruz,
Zambales. Director of Posts imposed several conditions, one of which is that the
company assumes direct responsibility for whatever pecuniary loss may be suffered
by the Bureau of Posts by reason of any act of dishonesty, carelessness or
negligence on the part of the employee of the company who is assigned to take
charge of the post office. The company agreed. Subsequently, the postmaster hired
by the company stole a lot of cash. Company avers that they are not responsible
because the BOD resolution agreeing to the condition of the Director of Posts was
ultra vires.
DOCTRINE. Court explained that ultra vires acts are just voidable and not void and
the reso is not necessarily ultra vires because a corp can enter into transactions
beneficial to it. At the least the company cannot disclaim liability on the ground of
estoppel- they have already received benefits.

FACTS.

 Acoje Mining Company, Inc. requested the Director of Posts to open a post, telegraph and money order
offices at its mining camp at Sta. Cruz, Zambales, to service its employees and their families that were
living in said camp.
 Director explained that it is their policy that the company assumes direct responsibility for whatever
pecuniary loss may be suffered by the Bureau of Posts by reason of any act of dishonesty,
carelessness or negligence on the part of the employee of the company who is assigned to take charge
of the post office.
 BOD passed a resolution (agreeing to the conditions):
"That the requirement of the Bureau of Posts that the company should accept full responsibility for all
cash received by the Postmaster, be complied with, and that a copy of this resolution be forwarded to
the Bureau of Posts."
 The branch was opened with Hilario M. Sanchez, an employee of the company, as postmaster. He went
on a 3 day leave but never returned. Apparently, he absconded with P13,867.24.
 Company didn’t pay up despite several demands (remember they assumed liability) so the government
went to court.
 Company: The resolution of the BOD was ultra vires. They are also liable only as a guarantor and the
properties of the principal need to be exhausted first.
 CFI: only the sum of P9,515.25 was supported by the evidence- so this is hwat company ought to pay.
ISSUES & RATIO.

1. Was the resolution ultra vires? No.

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-
this case for example.

It was the company’s idea to open a branch there for the benefit of its employees. It wasn’t the Government
who came to the company. It is evident that the company cannot now be heard to complain that it is not
liable for the irregularity committed by its employee upon the technical plea that the resolution approved by
its board of directors is ultra vires. The least that can be said is that it cannot now go back on its plighted
word on the ground of estoppel.

The establishment of the local post office is a reasonable and proper adjunct to the conduct of the business
of company (they needed a post to service employees I the remote area).

An ultra vires act is merely voidable, compared to an illegal act which is void. The resolution here is not void
for it was approved not in contravention of law, customs, public order or public policy.

It being merely voidable, an ultra vires act can be enforced or validated if there are equitable grounds for
taking such action. Here it is fair that the resolution be upheld at least on the ground of estoppel-the
company has already received benefits.

The defense of ultra vires rests on violation of trust or duty toward stockholders, and should not be
entertained where its allowance will do greater wrong to innocent parties dealing with corporation

Lastly, the company assumed 'full responsibility for all cash received by the Postmaster.'- obviously not a
just a guarantor.

DECISION.

Lower Court Affirmed.

4. WOLFGANG AURBACH, et al.

vs.
SANITARY WARES MANUFACTURING CORPORATION, et al.
1989 Dec 15, G.R. No. 75875

FACTS:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and
marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign
partners, European or American who could help in its expansion plans.
ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares
and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of
an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling
here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the
Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation."
The conflict arose when there had dissentions from ASI for the proposed export expansion by the other
stockholders. When the next annual election of the Board came, further conflicts arose on the manner of
voting, it resulted to the uncertainty as to who were duly elected. The contending groups of Lagdameo
Group and ASI Group claim claimed to be the legitimate directors of the corporation.

ISSUE:

Whether or not Petitioners were the duly elected members of the Board.

HELD:
NO.
The Court ruled that Wolfgang Aurbach, John Griffin, David P Whittingham, Ernesto V. Lagdameo, Baldwin
Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly
elected directors of Saniwares at the March 8, 1983 annual stockholders’ meeting were the duly elected
members of the Board. Under their agreement, both parties were given the right their shares cumulatively.
ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would
be able to designate more than the three directors it is allowed to designate under the Agreement, and may
even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of
the parties. The foreign Group (ASI) was limited to designate three directors . This is the allowable
participation of the ASI Group. Hence, in future dealings, this limitation of six to three board seats should
always be maintained as long as the joint venture agreement exists considering that in limiting 3 board seats
in the 9-man board of directors there are provisions already agreed upon and embodied in the parties'
Agreement to protect the interests arising from the minority status of the foreign investors.

5.
Prime White Cement Corporation
vs.
Intermediate Appellate Court
GR 68555, 19 March 1993

FACTS:

On or about 16 July 1969, Alejandro Te and Prime White Cement Corporation (PWCC) thru its
President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership
agreement whereby Te was obligated to act as the exclusive dealer and/or distributor of PWCC of its
cement products in the entire Mindanao area for a term of 5 years.
Right after Te entered into the dealership agreement, he placed an advertisement in a national,
circulating newspaper the fact of his being the exclusive dealer of PWWC's white cement products in
Mindanao area, more particularly, in the Manila Chronicle dated 16 August 1969 and was even
congratulated by his business associates, so much so, he was asked by some of his businessmen friends
and close associates if they can be his sub-dealer in the Mindanao area.

ISSUE:

Whether the "dealership agreement" referred by the President and Chairman of the Board of
PWCC is a valid and enforceable contract.

RULING:

NO.

The “dealership agreement” is not valid and unenforceable. Under the Corporation Law, which was
then in force at the time the case arose, as well as under the present Corporation Code, all corporate
powers shall be exercised by the Board of Directors, except as otherwise provided by law. Although it
cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may
expressly delegate specific powers to its President or any of its officers.
In the absence of such express delegation, a contract entered into by its President, on behalf of the
corporation, may still bind the corporation if the board should ratify the same expressly or impliedly. Implied
ratification may take various forms — like silence or acquiescence; by acts showing approval or adoption of
the contract; or by acceptance and retention of benefits flowing therefrom. Furthermore, even in the absence
of express or implied authority by ratification, the President as such may, as a general rule, bind the
corporation by a contract in the ordinary course of business, provided the same is reasonable under the
circumstances. These rules are basic, but are all general and thus quite flexible. They apply where the
President or other officer, purportedly acting for the corporations, is dealing with a third person, i.e., a person
outside the corporation. The situation is quite different where a director or officer is dealing with his own
corporation. Herein, Te was not an ordinary stockholder; he was a member of the Board of Directors and
Auditor of the corporation as well. He was what is often referred to as a "self-dealing" director.

ISSUE:

Whether or not the dealership contract between Prime and Te is valid.

RULING:

NO.

The requisites for the approval of a contract with a ‘self dealing director’ was not satisfied. A
director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In
case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage
and benefit. As corporate managers, directors are committed to seek the maximum amount of profits for the
corporation. This trust relationship "is not a matter of statutory or technical law. It springs from the fact that
directors have the control and guidance of corporate affairs and property and hence of the property interests
of the stockholders."
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.
Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if
entered into with a person other than a director or officer of the corporation, the fact that the other party to
the contract was a Director and Auditor of the petitioner corporation changes the whole situation. First of all,
the contract was neither fair nor reasonable. The "dealership agreement" entered into in July, 1969, was to
sell and supply to respondent Te 20,000 bags of white cement per month, for five years starting September,
1970, at the fixed price of P9.70 per bag. Respondent Te is a businessman himself and must have known,
or at least must be presumed to know, that at that time, prices of commodities in general, and white cement
in particular, were not stable and were expected to rise. At the time of the contract, petitioner corporation
had not even commenced the manufacture of white cement, the reason why delivery was not to begin until
14 months later. He must have known that within that period of six years, there would be a considerable rise
in the price of white cement. In fact, respondent Te's own Memorandum shows that in September, 1970, the
price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no
provision was made in the "dealership agreement" to allow for an increase in price mutually acceptable to
the parties. Instead, the price was pegged at P9.70 per bag for the whole five years of the contract. Fairness
on his part as a director of the corporation from whom he was to buy the cement, would require such a
provision.

6. Woodchild Holdings v. Roxas Electric G.R. No. 140667, August 12, 2004
Woodchild Holdings v. Roxas Electric
G.R. No. 140667, August 12, 2004
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

FACTS:

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and
Construction Company, was the owner of two parcels of land. A portion of one Lot which abutted the other
Lot was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution
authorizing the corporation, through its president, Roberto B. Roxas, to sell the Lots, at a price and under
such terms and conditions which he deemed most reasonable and advantageous to the corporation; and to
execute, sign and deliver the pertinent sales documents and receive the proceeds of the sale for and on
behalf of the company.

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy the Lot on which it planned to construct its
warehouse building, and a portion of the adjoining lot, so that its 45-foot container van would be able to
readily enter or leave the property.

On September 5, 1991, a Deed of Absolute Sale in favor of WHI was issued, under which the Lot was sold
for P5,000,000, receipt of which was acknowledged by Roxas under the following terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a right
of way from Sumulong Highway to the property herein conveyed consists of 25 square meters wide to be
used as the latter's egress from and ingress to and an additional 25 square meters in the corner of Lot No.
491-A-3-B-1, as turning and/or maneuvering area for Vendee's vehicles.
The Vendor agrees that in the event that the right of way is insufficient for the Vendee's use (ex entry of a
45-foot container) the Vendor agrees to sell additional square meters from its current adjacent property to
allow the Vendee full access and full use of the property.

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:

Whether or not 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 accessing to the Sumulong Highway and
granting the option to the petitioner to buy a portion thereof, and, if so, whether such agreement is
enforceable against the respondent?

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.30
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.

There can be no apparent authority of an agent without acts or conduct on the part of the principal and such
acts or conduct of the principal must have been known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as claimant and such must have produced a change of
position to its detriment.

The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the
agent.

7. J. F. RAMIREZ
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ
G.R. No. 11897, September 24, 1918

FACTS:

Orientalist Companywas engaged in the business of maintaining and conducting a theatre in the
city of Manila for the exhibition of cinematographic films. Later on it accepted an offer from Jose Ramirez,
the son of herein petitioner that the latter will supply films that will be managed by the respondent. However,
when the films arrived, Orientalist was without fund to pay the cost and expenses incident to each shipment.
In effect the company’s president B. Hernandez paid said obligations and treated the films by him as his own
property; and they in fact never came into the actual possession of the Orientalist Company as owner at all,
though it is true Hernandez rented the films to the Orientalist Company and they were exhibited by it in the
Oriental Theater under an arrangement which was made between him and the theater's manager. However,
subsequent deliveries were no longer paid by any of the concerned party.

ISSUE:

Whether or not the contract was entered into with the authorization of its Board.

RULING:
YES.

Although there were no evidence as to the authority of Ramon Fernandez to enter into said
contract, the Court had observed that when the defendant corporation failed to question the validity of the
contract, it resulted to eliminating the question of his authority from the case. This is a case where an officer
of a corporation has made a contract in its name, that the corporation should be required, if it denies his
authority, to state such defense in its answer. By this means the plaintiff is apprised of the fact that the
agent's authority is contested; and he is given an opportunity to adduce evidence showing either that the
authority existed or that the contract was ratified and approved. Failure to question such timely and
appropriately question such authority results to the admission of such fact.

8. Yao Ka Sin Trading vs Court of Appeals

209 SCRA 763 – Business Organization – Corporation Law – Liability of Officers – Apparent Authority

In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an offer letter to Yao Ka
Sin Trading. The offer states that Prime White is willing to sell 45,000 bags of cement at P24.30 per bag.
The offer letter was received by Yao Ka Sin’s manager, Henry Yao. Yao accepted the letter and pursuant to
the letter, he sent a check in the amount of P243,000.00 equivalent to the value of 10,000 bags of cement.
However, the Board of Directors of Prime White rejected the offer letter sent by Maglana but it considered
Yao’s acceptance letter as a new contract offer hence the Board sent a letter to Yao telling him that Prime
White is instead willing to sell only 10,000 bags to Yao Ka Sin and that he has ten days to reply; that if no
reply is made by Yao then they will consider it as an acceptance and that thereafter Prime White shall
deposit the P243k check in its account and then deliver the cements to Yao Ka Sin. Henry Yao never
replied. Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin considered
as the true contract, i.e., 45,000 bags at P24.30 per bag. Prime White in its defense averred that although
Maglana is empowered to sign contracts in behalf of Prime White, such contracts are still subject to approval
by Prime White’s Board, and then it still requires further approval by the National Investment and
Development Corporation (NIDC), a government owned and controlled corporation because Prime White is
a subsidiary of NIDC. Henry Yao asserts that the letter from Maglana is a binding contract because it was
made under the apparent authority of Maglana. The trial court ruled in favor of Yao Ka Sin. The Court of
Appeals reversed the trial court.
ISSUE:
Whether or not the president of a corporation is clothed with apparent authority to enter into binding
contracts with third persons without the authority of the Board.
HELD:
No. The Board may enter into contracts through the president. The president may only enter into contracts
upon authority of the Board. Hence, any agreement signed by the president is subject to approval by the
Board. Unlike a general manager (like the case of Francisco vs GSIS), the president has no apparent
authority to enter into binding contracts with third persons. Further, if indeed the by-laws of Prime White did
provide Maglana with apparent authority, this was not proven by Yao Ka Sin. As a rule, apparent authority
may result from (1) the general manner, by which the corporation holds out an officer or agent as having
power to act or, in other words, the apparent authority with which it clothes him to act in general or (2)
acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within
or without the scope of his ordinary powers. These are not present in this case. Also, the subsequent letter
by Prime White to Yao Ka Sin is binding because Yao Ka Sin’s failure to respond constitutes an acceptance,
per stated in the letter itself – which was not contested by Henry Yao during trial.

9. Tan versus Sycip

G.R. No. 153468; August 17, 2006
For stock corporations, the quorum referred to in Section 52 of the Corporation Code is based on the
number of outstanding voting stocks. For nonstock corporations, only those who are actual, living members
with voting rights shall be counted in determining the existence of a quorum during members meetings.
Dead members shall not be counted.

Facts:

Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen
(15) regular members, who also constitute the board of trustees. During the annual members meeting held
on April 6, 1998, there were only eleven (11) living member-trustees, as four (4) had already died. Out of the
eleven, seven (7) attended the meeting through their respective proxies. The meeting was convened and
chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no
quorum. In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to
replace the four deceased member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained that
the deceased member-trustees should not be counted in the computation of the quorum because, upon their
death, members automatically lost all their rights (including the right to vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum.
She held that the basis for determining the quorum in a meeting of members should be their number as
specified in the articles of incorporation, not simply the number of living members.

Issue:

Whether or not in NON-STOCK corporations, dead members should still be counted in determination of
quorum for purpose of conducting the Annual Members Meeting.

Ruling:

The Right to Vote in Nonstock Corporations

In nonstock corporations, the voting rights attach to membership. Members vote as persons, in accordance
with the law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited,
broadened, or denied in the articles of incorporation or bylaws. We hold that when the principle for
determining the quorum for stock corporations is applied by analogy to nonstock corporations, only those
who are actual members with voting rights should be counted.

Under Section 52 of the Corporation Code, the majority of the members representing the actual number of
voting rights, not the number or numerical constant that may originally be specified in the articles of
incorporation, constitutes the quorum.

Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles
of incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of
incorporation or the bylaws provide for a greater majority). If the intention of the lawmakers was to base the
quorum in the meetings of stockholders or members on their absolute number as fixed in the articles of
incorporation, it would have expressly specified so. Otherwise, the only logical conclusion is that the
legislature did not have that intention.

Effect of the Death of a Member or Shareholder

In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder,
the executor or administrator duly appointed by the Court is vested with the legal title to the stock and
entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held
by the administrator or executor.

On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-
transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. In other
words, the determination of whether or not dead members are entitled to exercise their voting rights (through
their executor or administrator), depends on those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the
death of the member. Section 91 of the Corporation Code further provides that termination extinguishes all
the rights of a member of the corporation, unless otherwise provided in the articles of incorporation or the
bylaws.

Applying Section 91 to the present case, we hold that dead members who are dropped from the
membership roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be
counted in determining the requisite vote in corporate matters or the requisite quorum for the annual
members meeting. With 11 remaining members, the quorum in the present case should be 6. Therefore,
there being a quorum, the annual members meeting, conducted with six members present, was valid.

10. 598 scra 202 case digest

Corporate Law Case Digest: Valle Verde Country Club V. Africa (2009)

G.R. No. 151969 September 4, 2009

Lessons Applicable: Election of Directors; Vacancy in the Board (Corporate Law)

FACTS:

February 27, 1996: 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)

1997 - 2001: Requisite quorum could not be obtained so they continued in a hold-over capacity

September 1, 1998: Dinglasan resigned, BOD still constituting a quorom elected Eric Roxas (Roxas)

November 10, 1998: Makalintal resigned

on March 6, 2001: 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 VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court
(RTC) as contrary to:

Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be exercised, all business conducted and all property of
such corporations controlled and held by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold
office for 1 year until their successors are elected and qualified.

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of directors or
trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the
vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A
director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor
in office. xxx.

Makalintal's term should have expired after 1996 there being no unexpired term. The vacancy should have
been filled by the stockholders in a regular or special meeting called for that purpose

RTC: Favored Africa - Ramirez as Makalintal's replacement = null and void

SEC: Roxas as Vice hold-pver director of Dinglasan = null and void

VVCC appealed in SC for certiorari being partially contrary to law and jurisprudence

ISSUES:

1. W/N there is an unexpired term - NO

2. W/N the remaining directors of a corporation’s Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director. - NO

HELD: Petition Denied. RTC Affirmed.

1. NO

“term” time during which the officer may claim to hold the office as of right

not affected by the holdover

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”

term during which the incumbent actually holds office.

Section 23 of the Corporation Code: term of BOD only 1 year - fixed and has expired (1 yr after 1996)

2. NO

underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed
by a board of directors whose members have stood for election, and who have actually been elected by the
stockholders, on an annual basis. Only in that way can the directors' continued accountability to
shareholders, and the legitimacy of their decisions that bind the corporation's stockholders, be assured. The
shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers
over properties that they do not own.

theory of delegated power of the board of directors

Section 29 contemplates a vacancy occurring within the director’s term of office (unexpired)

vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of its
board of directors

11. FILIPINAS PORT SERVICES INC v. GO, ET AL.

FACTS:
The case involves a petition for review on certiorari.

We have here Eliodoro C. Cruz suing on behalf of the stockholders of Filipinas Port Services alleging
that there has been numerous cases of mismanagement by the board of directors:
creation of an executive committee not provided for in the by-laws of the corporation
disproportionate increase in the salary of officials
re-creation of already existing positions
creation of additional positions with holders not doing any work to deserve any monthly remuneration.
He prayed for the return of the salary received by all the unnecessarily appointed members.
The Trial Court sided with the respondent and ruled that the creation of the executive committee and the
additional position was legitimate given that it was provided by the corporation’s by-law. However, the prayer
for the return of salaries received was granted, even if the positions and the committee were valid, for the
court ruled that Filipinas Port Services is not a big corporation requiring multiple executive positions.
The respondents appealed the decision and they received a favourable decision as the Court of Appeals
granted the respondents’ appeal, reversed and set aside the appealed decision of the trial court and
accordingly dismissed the so-called derivative suit filed by Cruz, et al.,
Cruz did not take the decision sitting down, hence the petition.
To counter the appeal filed by Cruz, respondents also claim that what Cruz filed is not a derivative suit.
The petition was denied and the challenged decision of the CA was affirmed. Only, the Supreme Court
clarified the issue involving the legitimacy of the derivative suit.

ISSUE:
Was the case filed by Cruz, on behalf of Filipinas Port Services Inc., a derivative suit?

HELD:
YES.

Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its
board of directors or trustees. But an individual stockholder or an individual trustee may be permitted to
institute a derivative suit in behalf of the corporation in order to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or when a demand upon them to file the necessary
action would be futile because they are the ones to be sued, or because they hold control of the corporation.
In such actions, the corporation is the real party-in-interest while the suing stockholder, in behalf of the
corporation, is only a nominal part.
Here, the action below is principally for damages resulting from alleged mismanagement of the affairs
of Filport by its directors/officers, it being alleged that the acts of mismanagement are detrimental to the
interests of Filport. Thus, the injury complained of primarily pertains to the corporation so that the suit for
relief should be by the corporation. However, since the ones to be sued are the directors/officers of the
corporation itself, a stockholder, like petitioner Cruz, may validly institute a “derivative suit” to vindicate the
alleged corporate injury, in which case Cruz is only a nominal party while Filport is the real party-in-interest.
Besides, the requisites before a derivative suit can be filed by a stockholder or individual trustee are present
in this case, to wit:

a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of,
the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors
for the appropriate relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or
being caused to the corporation and not to the particular stockholder bringing the suit.

Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success to have its board of
directors remedy what he perceived as wrong when he wrote a letter requesting the board to do the
necessary action in his complaint; and (3) the alleged wrong was in truth a wrong against the stockholders of
the corporation generally, and not against Cruz or Minterbro, in particular. And while it is true that the
complaining stockholder must show to the satisfaction of the court that he has exhausted all the means
within his reach to attain within the corporation itself the redress for his grievances, or actions in conformity
to his wishes, nonetheless, where the corporation is under the complete control of the principal defendants
or other trustees, as here, there is no necessity of making a demand upon the directors. The reason is
obvious: a demand upon the board to institute an action and prosecute the same effectively would have
been useless and an exercise in futility.

Bottom line, when it comes to cases involving two or more trustees, an individual trustee can file a derivative
suit duly following the requisites without the need to exhaust internal remedies where the trusteeship is
under the complete control of the other trustees for it will be a waste of time.

12. PSE VS CA (281 SCRA 232)

Philippine Stock Exchange Inc. vs Court of Appeals
281 SCRA 232 [GR No. 125469 October 27, 1997]

Facts: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to
the public in order to raise funds allegedly to develop its properties and pay its loans with several banking
institutions. In January, 1995, PALI was issued a permit to sell its shares to the public by the Securities and
Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course
the trading of its shares through the Philippine Stock Exchange Inc. (PSEi), for which purpose it filed with the
said stock exchange an application to list its shares, with supporting documents attached pending the
approval of the PALI’s listing application, a letter was received by PSE from the heirs of Ferdinand Marcos to
which the latter claims to be the legal and beneficial owner of some of the properties forming part of PALI’s
assets. As a result, PSE denied PALI’s application which caused the latter to file a complaint before the
SEC. The SEC issued an order to PSE to grant listing application of PALI on the ground that PALI have
certificate of title over its assets and properties and that PALI have complied with all the requirements to
enlist with PSE.

Issue: Whether or not the denial of PALI’s application is proper.

Held: Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and the courts are barred
from intruding into business judgements of corporations, when the same are made in good faith. The same
rule precludes the reversal of the decision of the PSE, to which PALI had previously agreed to comply, the
PSE retains the discretion to accept of reject applications for listing. Thus, even if an issuer has complied
with the PSE listing rules and requirements, PSE retains the discretion to accept or reject the issuer’s listing
application if the PSE determines that the listing shall not serve the interests of the investing public.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the
markings of a corporate entity, it functions as the primary channel through which the vessels of capital trade
ply. The PSEi’s relevance to the continued operation and filtration of the securities transaction in the country
gives it a distinct color of importance such that government intervention in its affairs becomes justified, if not
necessarily. Indeed, as the only operational stock exchange in the country today, the PSE enjoys monopoly
of securities transactions, and as such it yields a monopoly of securities transactions, and as such, it yields
an immerse influence upon the country’s economy.
The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or be considered
as necessary or incidental to the carrying out of the SEC’s express power to insure fair dealing in securities
traded upon a stock exchange or to ensure the fair administration of such exchange. It is likewise, observed
that the principal function of the SEC is the supervision and control over corporations, partnerships and
associations with the end in view that investment in these entities may be encouraged and protected and
their activities for the promotion of economic development.

A corporation is but an association of individuals, allowed to transact under an assumed corporate name,
and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional
immunities and requisites appropriate to such a body as to its corporate and management decisions,
therefore, the state will generally not interfere with the same. Questions of policy and management are left to
the honest decision of the officers and directors of a corporation, and the courts are without authority to
substitute their judgements for the judgement of the board of directors. The board is the business manager
of the corporation and so long as it acts in good faith, its orders are not reviewable by the courts.

In matters of application for listing in the market the SEC may exercise such power only if the PSE’s
judgement is attended by bad faith.

The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the best
interest of the general public.