Commercial Law Reviewer- Midterms

Title 1. General Provisions:

Corporation as an Artificial Personality
1. Liability for Acts/ Contracts
GR: Obligations incurred by a
corporation, acting through its authorized
agents, are its sole liabilities.
May not, generally be made to answer
for acts of its stockholders/members/legal
entities to which it may be connected.
o Suit against certain SHs cannot
ipso facto be a suit against the
unpleaded corporation.
Corporate officer not personally &
solidarily liable w/ the corporation for the money
claims of discharged employees unless he acted
with evident BF and malice in terminating their
employment. ( Business Day v. NLRC, 1993)
All contracts entered into in its name by
its regular appointed officers/agents are
contracts of corporation and not the SHs or
members.
Cannot be held liable for the personal
indebtedness of a SH even if he should be its
president.
In the absence of stipulation, officers
cannot be made liable in their individual capacity
for contracts entered into in their official
capacity.
Distinct Personality:
o Manager, acting in GF and within
scope of authority in terminating
employees cannot be held liable for
damages
o In cases of illegal dismissal,
directors and officers are solidarily liable
with the corporation. Veil may be
pierced.
Property of corporation is not property
of the stockholders and may not be sold by them
w/o express authorization of BOD or trustees.
2. Liability when exceptional circumstances warrant:
o When D/T/O acted maliciously,
in BF, or with gross negligence;
o Agreed to personal liability;
o Specific provision of the law;
o Used fiction of separate
personality to defraud 3
rd
persons
3. Right to Bring Actions:
May incur obligations and bring civil and
criminal actions. ( Art. 46, NCC)
Cannot perform certain actions that can
only be done by natural persons ( practice of
law/ medicine)
No personality to bring an action for and
in behalf of its SH/ members to recover property
belonging to said SH/members in their personal
capacity
In cases of slander/libel, corporations
whose good reputation has been besmirched
may have ground for moral damages. (2217,
NCC)
4. Right to Acquire and Possess Property:
May acquire & possess all kinds of
property. (46, NCC)
Its property and not that of SH and
members and vice-versa.
SH/members are in no legal sense the
owners of corporate property or credits, which
is owned by the corporation as a distinct
person. (Traders Royal Bank v. CA, 1989)
Shares of stock represent a
proportionate interest in the property of the
corporation; does not vest the owner thereof
with any legal right/title to any of the
properties of the corporation owned by the
latter as a distinct juridical person. ( Saw v. CA,
1991)
Interest of SH in corporate property is
purely inchoate; doesnt entitle them to
intervene in a litigation involving corporate
property.
Right of refusal over shares pertains to
the SHs whereas the capacity to own the land
pertains to the corporation. ( JG Summit v. CA,
2005)
5. Acquisition by Court of Jurisdiction:
Participation by GM of corporation in an
action involving the corporation cannot equate
to participation by another corporation in the
same proceedings, merely because said GM is
also the Chairman of the second corporation. (
Padilla v. CA, 2001)
6. Changes in Individual Membership:
Corporation identity remains unchanged
and unaffected by changes in its individual
membership.
DOCTRINE OF PIERCING THE VEIL OF CORPORATE
ENTITY:
1. When legal fiction to be disregarded:
a. Where the fiction of corporate entity is being
used to cloak or cover for fraud/ illegality, or to
defeat public convenience, justify wrong, protect
fraud or defend crime (Yutivo v. CTA, 1961)
b. Requires the court to see through the protective
shroud which exempts its SH from liabilities that
ordinarily they could be subject to, or
distinguishes one corporation from a separate
one, were it not for the existing corporate
fiction. ( Lim v. CA, 2000) ( Marubeni v. Lirag,
2001)
c. For the corporate legal entity to be disregarded
the wrongdoing must be clearly and convincingly
established; it cannot be presumed. ( Del
Rosario v. NLRC, 1990)
2. Effect as to Liability:
a. Corporation will be treated merely as an
association of persons and the SH/ members will
be considered as the corporation. Liability
attaches personally or directly to them.
b. Where there are 2 corporations, they will be
merged into one. The other merely regarded as
the instrumentality, agency, or conduit of the
other. (Cease v. CA, 1979)
c. Transactions of the real parties shall be dealt
with as if no corporation had been formed.
(Republic v. Sandiganbayan, 1997)
d. But corporation continues existence for other
legitimate objectives. ( Pamplona Plantation v.
Tingkil, 2005)
3. Application of Doctrine in 3 areas:
a. Defeat of public convenience; when used as
vehicle to evade an existing obligation;
b. Fraud cases; when used to justify a wrong,
protect fraud or defend a crime;
c. Alter Ego cases:
where a corporation is merely a farce since
it is a mere alter ego or business conduit of a
person;
So organized and controlled so as to make it
merely an instrumentality, agency, conduit
or adjunct of another corporation.
4. Test of Applicability of Doctrine:
a. Control or complete dominion not only of
finances but of policy and business in respect to
the transaction attacked so that the corporate
entity at the time had no separate mind, will or
existence of its own;
b. Such control must have been used to commit
fraud or wrong; and
c. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss
complained of.
PNB v. Andrada, 2002: The rule is that the veil of
corporate fiction may be pierced when made as a shield
to perpetrate fraud and/or confuse legitimate issues
(Jacinto vs. CA, 198 SCRA 211). The theory of corporate
entity was not meant to promote unfair objectives or
otherwise, to shield them (Villanueva vs. Adre, 172 SCRA
876). Likewise, where it appears that two business
enterprises are owned, conducted, and controlled by the
same parties, both law and equity will, when necessary
to protect the rights of third persons, disregard the legal
fiction that two corporations are distinct entities, and
treat them as identical (Phil. Veterans Investment
Development Corp. vs. CA, 181 SCRA 669).


Arcilla v. CA, 1992: By its clear and unequivocal
language, it is the petitioner who was declared liable
therefor and consequently made to pay. That he was
ordered to do so as President would not free him from
the responsibility of paying the due amount simply
because according to him, he had ceased to be corporate
president. Such conclusion stems from the fact that the
public respondent, in resolving his motion for
clarificatory judgment, pierced the veil of corporate
fictional and cast aside the contention that both he and
the corporation have separate and distinct personalities.
In short, even if We are to assume arguendo that the
obligation was incurred in the name of the corporation,
the petitioner would still be personally liable therefor
because for all legal intents and purposes, he and the
corporation are one and the same. Csar Marine
Resources, Inc. is nothing more than his business conduit
and alter ego.
Cease v. CA, 1979: Tiaong Milling and Plantation
Company, Inc. as registered owner asserted ownership
of the assets and properties involved in the litigation,
which theory must necessarily be based on the
assumption that said assets and properties of Tiaong
Milling and Plantation Company, Inc. now appearing
under the name of F. L. Cease Plantation Company as
Trustee are distinct and separate from the estate of
Forrest L. Cease to which petitioners and respondents as
legal heirs of said Forrest L. Cease are equally entitled
share and share alike, then that legal fiction of separate
corporate personality shall have been used to delay and
ultimately deprive and defraud the respondents of their
successional rights to the estate of their deceased father.
Villanueva v. Adre, 1989: Accordingly, Velayo cannot be
excused from payment of SCIPSI's liability by mere
reason of SCIPSI's separate corporate existence. The
theory of corporate entity, in the first place, was not
meant to promote unfair objectives or otherwise, to
shield them. This Court has not hesitated in penetrating
the veil of corporate fiction when it would defeat the
ends envisaged by law, not to mention the clear decree
of the Labor Code.
Incorporation and Organization
Commencement
1. Promoter: a person who, acting alone or with others,
takes initiative in founding and organizing the
business or enterprise of the issuer and receives
consideration therefor.(Sec. 3.10, Securities
Regulation Code [R.A. 8799])
a. Liability of Promoter
Fiduciary or quasi-trust relation toward the
corporation when it comes into existence and to
the subscribers prior to its organization, as long
as they are acting as promoters
b. Liability of Corporation for Promoters
Contracts
Before incorporation & organization- not
liable for any contracts attempted by
promoter unless contract is
expressly/impliedly ratified after
organization is completed
After incorporation & organization- Deemed
suspended and enforceable unless ratified
since promoter contract was not made by
corporation itself; may ratify it.
Pioneer Surety v. CA, 1989: No de facto partnership was
created among the parties which would entitle Lim to a
reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was
acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and
spare parts.
2. Number & Qualifications of Incorporators (Sec.10)
a. Not less than 5, not more than 15;
b. Natural persons ;all of legal age;
c. Residency Requirement: Majority are residents
of the Philippines;
d. Each must subscribe to at least one share of the
capital stock
General practice is for incorporators to serve as first
directors of the corporation.
Residency Requirement:
Hyatt Elevators v. Goldstar,2005: For practical purposes,
a corporation is in a metaphysical sense a resident of the
place where its principal office is located as stated in the
articles of incorporation. Even before this ruling, it has
already been established that the residence of a
corporation is the place where its principal office is
established.
3. Limitations on Use of Corporate Name:
a. A corporation may change its name by the
amendment of its articles of incorporation, but
the same is not effective until approved by the
SEC.( Philippine First Insurance Co. v. Hartigan,
34 SCRA 252 (1970))
b. A change in the corporate name does not make a
new corporation, and whether affected by
special act or under a general law, has no effect
on the identity of the corporation, or on its
property, rights, or liabilities. (Republic Planters
Bank v. CA, 216 SCRA 738, 1992).
c. Similarity in corporate names between two
corporations would cause confusion to the public
especially when the purposes stated in their
charter are also the same type of business.
(Universal Mills Corp. v. Universal Textile Mills
Inc., 78 SCRA 62, 1977).
d. A corporation has not right to intervene in a suit
using a name other than its registered name; if a
corporation legally and truly wants to intervene,
it should have used its corporate name as the
law requires and not another name which it had
not registered. (Laureano Investment and
Development Corporation v. CA, 1997).
e. There would be no denial of due process when a
corporation is sued and judgment is rendered
against it under its unregistered trade name,
holding that a corporation may be sued under
the name by which it makes itself known to its
workers. (Pison-Arceo Agricultural Development
Corp. v. NLRC, 279 SCRA 312,1997)

4. Corporate Term (Sec.11)
Shall exist for a period not exceeding 50
years, unless sooner dissolved or revoked
upon any grounds provided by law;
Amendment to extend is effected before
expiration of existence;
Amendment cannot be made earlier than 5
years prior to the expiration date unless
there are justifiable reasons as determined
by the SEC.
Alhambra Cigar v. CA, 1989: The steps necessary to
effect the extension must be taken during the life of the
corporation, and before the expiration of the term of
existence as original fixed by its charter or the general
law, since, as a rule, the corporation is ipso facto
dissolved as soon as that time expires.
NHA v. CA, 2005: The law clearly limits any usufruct
constituted in favor of a corporation or association to 50
years. A usufruct is meant only as a lifetime grant. Unlike
a natural person, a corporation or associations lifetime
may be extended indefinitely.
5. Minimum Capital Stock and Subscription
Requirements (Sec.12):
The Code does not set a minimum
authorized capital stock requirement except
as otherwise provided by special law as long
as the paid up capital as required by Sec. 13
is not less than P5,000.
Special laws may require a higher paid-up
capital, as in the case of commercial banks,
insurance companies and investment
houses.
PLDT v. NTC, 2007: The capital subscribed is the total
amount of the capital that persons (subscribers or
shareholders) have agreed to take and pay for, which
need not necessarily by, and can be more than, the par
value of the shares. In fine, it is the amount that the
corporation receives, inclusive of the premiums if any, in
consideration of the original issuance of the shares. In
the case of stock dividends, it is the amount that the
corporation transfers from its surplus profit account to
its capital account.
Lanuza v. CA, 2005: Thus, quorum is based on the
totality of the shares which have been subscribed and
issued, whether it be the founders shares or common
shares. In the instant case, two figures are being pitted
against each other those contained in the articles of
incorporation, and those listed in the stock and transfer
book.
6. Articles of Incorporation
a. Nature & Functions of Articles
One that defines the charter of the
corporation and the contractual
relationships between the:
(1) State and the corporation;
(2) Stockholders and the State;
(3) Corporation and the stockholders.
Copy of AOI returned with the certificate of
incorporation becomes its corporate charter
enabling the corporation to exist and
function as such.
A corporation created by special law has no
AOI.
b. Contents ( Sec.14)
(1) Name of the corporation
(2) Specific purpose/purposes; if more than
one purpose stated, specify primary and
secondary purpose;
(3) Place of principal office, must be in Phil.;
(4) Term of existence;
(5) Names, nationalities, and residences of
the incorporators;
(6) Number of directors/trustees ( no less
than 5, no more than 15);
(7) Names, nationalities & residences of
acting D/T until the first regular D/T are
elected
(8) If stock:
(a) Amount of authorized capital stock
(b) Number of shares divided to
(c) Par value:
(i) Par value of each,
(ii) Names, nationalities & residence
of each subscriber
(iii) Amount subscribed and paid by
each on his subscription
(d) If some/all are without par value,
such fact must be stated.
(9) If non-stock:
(a) Amount of capital
(b) Names, nationality and residences of
the contributors
(c) Amount contributed by each
(10) Such other matters not inconsistent
with the law.
SEC will not accept AOI unless accompanied
by sworn statement of Treasurer that at
least 25% of the ACS has been subscribed,
and at least 25% of the total subscription has
been fully paid to him in actual cash or
property
Such paid-up capital being not less than
P5000.
c. Amendment
Reserved Power of State to amend
corporate charter
(1) Constitutional authority: Sec.11, Art.12,
when the common good requires.
(2) Statutory authority: Impliedly reserved
in Sec.145 of Code, subject to limitation
provided with respect to vested rights
that have accrued, and prohibition
against impairment of obligation of
contracts.
Power of Stockholders/Members to Amend
(1) Expressly conferred by:
(a) Sec.16- amendments in general;
(b) Sec.37- Extension/Shortening of
corporate term;
(c) Sec. 38-Increasing/decreasing capital
stock
(d) Also expressly granted in Sec. 36

d. Non-Amendable Items
Portion stating names of incorporators and
the 1
st
set of director/trustees
Names, etc. of subscribers, the treasurer of
the corporation elected by the subscribers
and the witnesses
Except to correct mistakes
7. Registration and Issuance of Certificate of
Incorporation
8. Adoption of By-laws
a. Nature and Functions of By-laws
b. Requisite of Valid By-laws
c. Binding Effects
d. Amendment or Revision
Loyola Grand Villas v. CA, 1997: By-laws are
indispensable to corporations in this jurisdiction. These
may not be essential to corporate birth but certainly,
these are required by law for an orderly governance and
management of corporations. Nonetheless, failure to file
them within the period required by law by no means
tolls the automatic dissolution of a corporation.
CBC v. CA, 1997: The general rule really is that third
persons are not bound by the by-laws of a corporation
since they are not privy thereto (Fleischer v. Botica
Nolasco, 47 Phil. 584). The exception to this is when third
persons have actual or constructive knowledge of the
same. In the case at bar, petitioner had actual knowledge
of the by-laws of private respondent when petitioner
foreclosed the pledge made by Calapatia and when
petitioner purchased the share foreclosed on September
17, 1985. This is proven by the fact that prior thereto,
i.e., on May 14, 1985 petitioner even quoted a portion of
private respondent's by-laws which is material to the
issue herein in a letter it wrote to private respondent.
Because of this actual knowledge of such by-laws then
the same bound the petitioner as of the time when
petitioner purchased the share.
9. Corporate Powers
Capacity or right under its charter and laws
to do certain things.
Exercised by BOD/Trustees
Corporation can act only through its BOD/ or
BOT
b. General Powers, Theory of General Capacity
c. Specific Powers, Theory of Specific Capacity
Montelibano v. Bacolod Murcia, 1962: Whether the
business of a corporation should be operated at a
loss during depression, or close down at a smaller
loss, is a purely business and economic problem
to be determined by the directors of the
corporation and not by the court.
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.
Power to Extend/ Shorten Corporate Term
Power to Increase/Decrease Capital Stock
or Incur, Create, Increase Bonded
Indebtedness
Power to Deny Pre-Emptive Rights
Power to Sell/Dispose of Corporate Assets
AF Realty v. Dieselman, 2002: Contracts or acts of a
corporation must be made either by the board of
directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of
authorized duties of such director are held not binding
on the corporation.
Power to Acquire Own Shares
Power to Invest Corporate Funds in Another
Corporation/Business
Power to Declare Dividends
Power to Enter into Management Contracts
Ultra Vires Acts
(1) Applicability of Ultra Vires Doctrine
(2) Consequences of Ultra Vires Acts

d. How Corporate Power is Exercised
By Shareholders
By the Board of Directors
Tramat Mercantile v. CA, 1994: Personal liability of a
corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach,
as a rule, only when
He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith, or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting
in damages to the corporation, its stockholders or other
persons;
He consents to the issuance of watered stocks or who,
having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto;
He agrees to hold himself personally and solidarily liable
with the corporation; or
He is made, by a specific provision of law, to personally
answer for his corporate action.
Hornilla v. Salunat, 2003: Where corporate directors
have committed a breach of trust either by their frauds,
ultra vires acts, or negligence, and the corporation is
unable or unwilling to institute suit to remedy the wrong,
a stockholder may sue on behalf of himself and other
stockholders and for the benefit of the corporation, to
bring about a redress of the wrong done directly to the
corporation and indirectly to the stockholders. This is
what is known as a derivative suit, and settled is the
doctrine that in a derivative suit, the corporation is the
real party in interest while the stockholder filing suit for
the corporations behalf is only nominal party. The
corporation should be included as a party in the suit.
Valle Verde v. Africa, 2009: The holdover period is not
part of the term of office of a member of the board of
directors. The word "term" has acquired a definite
meaning in jurisprudence. In several cases, we have
defined "term" as 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.7 The term of office is not affected by the
holdover.8 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.
ABS-CBN v. CA, 1999: Corporate power to enter into a
contract is lodged in the Board of Directors. (Sec. 23,
Corporation Code). Without such board approval by the
Viva board, whatever agreement Lopez and Del Rosario
arrived at could not ripen into a valid contract binding
upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209
SCRA 763). The evidence adduced shows that the Board
of Directors of Viva rejected Exhibit "C" and insisted that
the film package for 140 films be maintained.
By the Officers
San Juan v. CA, 1998: That Nenita Gruenberg is the
treasurer of Motorich does not free petitioner from the
responsibility of ascertaining the extent of her authority
to represent the corporation. Petitioner cannot assume
that she, by virtue of her position, was authorized to sell
the property of the corporation. Selling is obviously
foreign to a corporate treasurer's function, which
generally has been described as "to receive and keep the
funds of the corporation, and to disburse them in
accordance with the authority given him by the board or
the properly authorized officers.
e. Trust Fund Doctrine: The subscribed capital
stock of the corporation is a trust fund for the
payment of debts of the corporation which the
creditors have the right to look up to satisfy their
credits, and which the corporation may not
dissipate. The creditors may sue the stockholders
directly for the latters unpaid subscription.
If solvent: TFD extends to the capital stock
represented by the corporations legal
capital
If insolvent: extends to capital stock as well
as its properties and asstes
CIR v. CA, 1999: The capital cannot be distributed in the
form of redemption of stock dividends without violating
the trust fund doctrine wherein the capital stock,
property and other assets of the corporation are
regarded as equity in trust for the payment of the
corporate creditors. Once capital, it is always capital.
That doctrine was intended for the protection of
corporate creditors.
Boman Environmental v. CA, 1988: The requirement of
unrestricted retained earnings to cover the shares is
based on the trust fund doctrine which means that the
capital stock, property and other assets of a corporation
are regarded as equity in trust for the payment of
corporate creditors. The reason is that creditors of a
corporation are preferred over the stockholders in the
distribution of corporate assets. There can be no
distribution of assets among the stockholders without
first paying corporate creditors. Hence, any disposition of
corporate funds to the prejudice of creditors is null and
void. "Creditors of a corporation have the right to
assume that so long as there are outstanding debts and
liabilities, the board of directors will not use the assets of
the corporation to purchase its own stock.
Steinberg v. Velasco, 1929: The directors of a
corporation are bound to care for its property and
manage its affairs in good faith, and for a violation of
these duties resulting in waste of its assets or injury to
the property they are liable to account the same as other
trustees. As there can be no doubt that if they do acts
clearly beyond their power, whereby loss ensues to the
corporation, or dispose of its property or pay away its
money without authority, they will be required to make
good the loss out of their private estates. This is the rule
where the disposition made of money or property of the
corporation is one either not within the lawful power of
the corporation, or, if within the authority of the
particular officer or officers.
10. Board of Directors and Trustees
a. Doctrine of Centralized Management
Islamic Directorate v. CA 1997: For the sale to be valid,
the majority vote of the legitimate Board of Trustees,
concurred in by the vote of at least 2/3 of the bona
fide members of the corporation should have been
obtained. These twin requirements were not met as the
Carpizo Group which voted to sell the Tandang Sora
property was a fake Board of Trustees, and those whose
names and signatures were affixed by the Carpizo Group
together with the sham Board Resolution authorizing the
negotiation for the sale were, from all indications, not
bona fide members of the IDP as they were made to
appear to be. Apparently, there are only fifteen (15)
official members of the petitioner corporation including
the eight (8) members of the Board of Trustees.
b. Business Judgment Rule
PASTRA v. CA 2007: The regulatory and supervisory
powers of the Commission under Section 40 of the then
Revised Securities Act, in our view, were broad enough
to include the power to regulate petitioners
fees. Indeed, Section 47 gave the Commission the power
to enjoin motu proprio any act or practice of petitioner
which could cause grave or irreparable injury or
prejudice to the investing public. The intentional
omission in the law of any qualification as to what acts or
practices are subject to the control and supervision of
the SEC under Section 47 confirms the broad extent of
the SECs regulatory powers over the operations of
securities-related organizations like petitioner.
Gurrea v. Lezama, 1958: As our law provides that only
those enumerated in the charter or in the by-laws are
considered officers, the manager who has not been so
enumerated therein, but only incidentally mentioned in
the order of management, cannot be considered an
officer of the corporation within their purview.
The mere fact that the directors are not mentioned in
the by-laws as officers does not deprive them of their
category as such for their character as officer is secured
in the charter. The same is not true with the manager.
Customs and corporate usages cannot prevail over the
express provisions of the charter and the by-laws.
c. Tenure, Qualifications, & Disqualification of
Directors or Trustees
Gokongwei v. SEC, 1979. 1980: 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."
24
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."
Valle Verde v. Africa: The 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.
d. Elections
Cumulative Voting/Straight Voting- SH may
vote such number of shares for as many
persons as there are directors to be elected.
Cumulative Voting for One Candidate- SH is
allowed to concentrate his votes and give
one candidate as many votes as the number
of directors to be elected multiplied by the
number of his shares shall equal.
SH Share x # of director candidates= total voting
share
Cumulative Voting by Distribution- SH may
also distribute the same among as many
candidates as he shall see fit.
Quorum- Unless the AOI or by-laws provide
for a greater majority, a majority of the
number of directors/trustees as fixed in the
AOI shall constitute a quorum

e. Removal
Grace Christian High v. CA: The board of directors of
corporations must be elected from among the
stockholders or members. There may be corporations in
which there are unelected members in the board but it is
clear that in the examples cited by petitioner the
unelected members sit as ex officio members, i.e., by
virtue of and for as long as they hold a particular office.
But in the case of petitioner, there is no reason at all for
its representative to be given a seat in the board. Nor
does petitioner claim a right to such seat by virtue of an
office held. In fact it was not given such seat in the
beginning. It was only in 1975 that a proposed
amendment to the by-laws sought to give it one.
Raniel v. Jochico 2007: Only stockholders or members
have the power to remove the directors or trustees
elected by them, as laid down in Section 28 of the
Corporation Code, which provides in part: Any director or
trustee of a corporation may be removed from office by
a vote of the stockholders holding or representing at
least two-thirds (2/3) of the outstanding capital stock,
Velarde v. Lopez 2004: The question of remuneration
involving a person who is not a mere employee but a
stockholder and officer of the corporation is not a simple
labor problem but a matter that comes within the area
of corporate affairs and management, and is in fact a
corporate controversy in contemplation of the
Corporation Code.
f. Filing of Vacancies
Valle Verde: SECTION 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."
Tan v. Sycip, 2006: Undoubtedly, trustees may fill
vacancies in the board, provided that those remaining
still constitute a quorum. The phrase "may be filled" in
Section 29 shows that the filling of vacancies in the
board by the remaining directors or trustees constituting
a quorum is merely permissive, not
mandatory. Corporations, therefore, may choose how
vacancies in their respective boards may be filled up --
either by the remaining directors constituting a quorum,
or by the stockholders or members in a regular or special
meeting called for the purpose. The By-Laws of GCHS
prescribed the specific mode of filling up existing
vacancies in its board of directors; that is, by a majority
vote of the remaining members of the board.
g. Compensation
Singson v. COA, 2010: The directors of a corporation
shall not receive any compensation for being members
of the board of directors, except for reasonable per
diems. The two instances where the directors are to be
entitled to compensation shall be when it is fixed by the
corporations by-laws or when the stockholders,
representing at least a majority of the outstanding
capital stock, vote to grant the same at a regular or
special stockholders meeting, subject to the
qualification that, in any of the two situations, the total
yearly compensation of directors, as such directors, shall
in no case exceed ten (10%) percent of the net income
before income tax of the corporation during the
preceding year.
WIT v Salas, 1997: There is no argument that directors or
trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more
than the usual and ordinary duties of their office. This
rule is founded upon a presumption that
directors/trustees render service gratuitously, and that
the return upon their shares adequately furnishes the
motives for service, without compensation. Under the
foregoing section, there are only two (2) ways by which
members of the board can be granted compensation
apart from reasonable per diems: (1) when there is a
provision in the by-laws fixing their compensation; and
(2) when the stockholders representing a majority of
the outstanding capital stock at a regular or special
stockholders' meeting agree to give it to them.
CCE v. Enciso, 1988: This Court held that the right of the
stockholders to determine the compensation of the
Board of Directors was explicitly reserved and even
without said reservation, the directors are not entitled to
compensation. Moreover, this Court declared that the
law is well settled that directors of corporations
presumptively serve without compensation so that while
the directors, in assigning themselves additional duties
acted within their power, they nonetheless acted in
excess of their authority by voting for themselves
compensation for such additional duties.
h. Fiduciary Duties and Liability Rules
Doctrine of Corporate Opportunity- if there
is presented to a corporate officer or
director a business opportunity which the
corporation is financially able to undertake,
is from its nature, in the line of the
corporation's business and is of practical
advantage to it, is one in which the
corporation has an interest or a reasonable
expectancy, and by embracing the
opportunity, the self-interest of the officer
or director will be brought into seize the
opportunity for himself. And, if, in such
circumstances, the interests of the
corporation are betrayed, the corporation
may elect to claim all of the benefits of the
transaction for itself and the law will impress
a trust in favor of the corporation upon the
property interests and profits so acquired.
Santos v. NLRC,1996: Personal civil liability can also be
said to lawfully attach to a corporate director, trustee or
officer; to wit: When
(1) He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting
in damages to the corporation, its stockholders or other
persons;
(2) He consents to the issuance of watered stocks or
who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection
thereto;
(3) He agrees to hold himself personally and solidarily
liable with the corporation; or
(4) He is made, by a specific provision of law, to
personally answer for his corporate action.
AC Ransom v. NLRC: The record does not clearly Identify
"the officer or officers" of RANSOM directly responsible
for failure to pay the back wages of the 22 strikers. In the
absence of definite proof in that regard, we believe it
should be presumed that the responsible officer is the
President of the corporation who can be deemed the
chief operation officer thereof. Thus, in RA 602, criminal
responsibility is with the "Manager" or in his default, the
person acting as such. In RANSOM, the President appears
to be the Manager.
Carag v. NLRC, 2007: For a wrongdoing to make a
director personally liable for debts of the corporation,
the wrongdoing approved or assented to by the director
must be a patently unlawful act. Mere failure to comply
with the notice requirement of labor laws on company
closure or dismissal of employees does not amount to a
patently unlawful act. Patently unlawful acts are those
declared unlawful by law which imposes penalties for
commission of such unlawful acts. There must be a law
declaring the act unlawful and penalizing the act.
i. Responsibility for Crimes
j. Inside Information
k. Contracts
By Self-Dealing Corporations with the
Corporation
(1) Generally, contract is voidable at option
of corporation (S32): the
directors/trustees/officers occupy a
fiduciary relation towards it, and cannot
be allowed to contract with the
corporation, directly/indirectly or to sell
or purchase property from it, where they
both act for the corp. and themselves,
unless:
(a) Contract was approved where the
contracting director was not needed
to constitute a quorum;
(b) Vote of that director was not needed
to approve the contract;
(c) Contract is fair and reasonable;
(d) In case of an officer, contract was
previously authorized by BOD1
(2) Exceptions:
(a) If all conditions in Sec. 32 are
present;
(b) Not all conditions present, but the
corp (through the board) elects not
to question the validity of contract
w/o prejudice to the liability of the
consenting D/T for the damages
under S31.
(i) In such case, dissenting SH may
file a derivative suit in behalf of
corporation
(c) In case of contract with D/T, only the
3
rd
condition is present.
Between Corporations and Interlocking
Directors: Valid as long as there is no fraud
and the contract is fair and reasonable under
the circumstances
(1) Contract fair and reasonable under the
circumstances;
(2) If interest of such director in 1 corp is
substantial, and nominal in the other, he
shall be subject to provisions of Sec.32
insofar as the latter corp is concerned.
(3) Substantial- exceeding 20% of OCS for
purposes of interlocking directors.
Management Contracts: Contract where a
corporation undertakes to manage/operate
all/substantially all of the business of
another corporation
(1) With another corporation- Under S44,
expressly allowed, w/o need of
amending its AOI, to enter into
management contracts with another
corporation;
(2) With parent corporation-Absent finding
of fraud or bad faith, may be held legal
where purpose is to make operation
more efficient and convenient for both
(3) Limitations:
(a) Must be approved by majority
quorum of BOD and SH in special
meeting for that purpose;
(b) If SHs who own 1/3 of OCS in BOTH
corp OR BOD of managing corp are
also majority of BOD of managed
corp: Must be approved by 2/3 of of
OCS/members.
(c) No mgt. contract shall be entered
into for a period longer than 5 years
for any term.
(i) If service contract for
exploration of natural resources,
may use period provided by
pertinent laws/regulations.

Yao Ka Sin v. CA, 1992: While there can be no question
that Mr. Maglana was an officer, the President and
Chairman of private respondent corporation at the time
he signed, the above provisions of said private
respondent's By-Laws do not in any way confer upon the
President the authority to enter into contracts for the
corporation independently, of the Board of Directors.
That power is exclusively lodged in the latter.
Nevertheless, to expedite or facilitate the execution of
the contract, only the President and not all the members
of the Board, or so much thereof as are required for the
act, shall sign it for the corporation. This is the import of
the words through the president in Exhibit "8-A" and the
clear intent of the power of the chairman "to execute
and sign for and in behalf of the corporation all contracts
and agreements which the corporation may enter into.
Both powers presuppose a prior act of the corporation
exercised through the Board of Directors. No greater
power can be implied from such express, but limited,
delegated authority. Neither can it be logically claimed
that any power greater than that expressly conferred is
inherent in Mr. Maglana's position as president and
chairman of the corporation.

Westmont v. Inland, 2009: The general rule remains
that, in the absence of authority from the board of
directors, no person, not even its officers, can validly
bind a corporation.

If a corporation, however,
consciously lets one of its officers, or any other agent, to
act within the scope of an apparent authority, it will be
estopped from denying such officers authority.

DBP v. CA,2001: Neither do we discern any bad faith on
the part of DBP by its creation of Nonoc Mining,
Maricalum and Island Cement. As Remington itself
concedes, DBP is not authorized by its charter to engage
in the mining business.
13
The creation of the three
corporations was necessary to manage and operate the
assets acquired in the foreclosure sale lest they
deteriorate from non-use and lose their value. In the
absence of any entity willing to purchase these assets
from the bank, what else would it do with these
properties in the meantime? Sound business practice
required that they be utilized for the purposes for which
they were intended.

l. Executive Committee:
Safic Alcan v. Imperial, 2001: It can be clearly seen from
the foregoing provision of IVO's By-laws that
Monteverde had no blanket authority to bind IVO to any
contract. He must act according to the instructions of the
Board of Directors. Even in instances when he was
authorized to act according to his discretion, it must not
conflict with prior Board orders, resolutions and
instructions. The evidence shows that the IVO Board
knew nothing of the 1986 contracts
6
and that it did not
authorize Monteverde to enter into speculative
contracts.

CSC v. Javier, 2008: The responsibilities of the corporate
secretary are not merely clerical or routinary in nature.
The work involves constant exposure to sensitive policy
matters and confidential deliberations that are not
always open to the public, as unscrupulous persons may
use them to harm the corporation. Board members must
have the highest confidence in the secretary to ensure
that their honest sentiments are always and fully
expressed, in the interest of the corporation. In this
respect, the nature of the corporate secretary's work is
akin to that of a personal secretary of a public official, a
position long recognized to be primarily confidential in
nature.
Rural Bank of Milaor v. Ocfemia, 2000: Where similar
acts have been approved by the directors as a matter of
general practice, custom, and policy, the general
manager may bind the company without formal
authorization of the board of directors. In varying
language, existence of such authority is established, by
proof of the course of business, the usages and practices
of the company and by the knowledge which the board
of directors has, or must be presumed to have, of acts
and doings of its subordinates in and about the affairs of
the corporation. So also,. . . authority to act for and bind
a corporation may be presumed from acts of recognition
in other instances where the power was in fact
exercised.
m. Meetings
Regular or Special
(1) When
(a) Regular meetings shall be held
annually on date fixed by by-laws, if
no date fixed, on any date in April of
every year as determined by BOD/T;
(2) Where
(a) Whether regular or special, shall be
held in city or municipality where
principal office is located. If
practicable, in principal office
(b) Members of NS Corporations may
provide in their by-laws that meeting
may be held anyplace, even outside
of principal office, provided proper
notice is given and that it is within
the Phil.
(3) Notice
(a) Written notice of regular meetings,
at least 2 weeks prior, unless a
different period stated in by-laws;
(b) Written notice of special meetings
be given 1 week prior, unless
otherwise provided in by-laws;
(c) Failure to give notice would render
meeting voidable at instance of
absent SH who was not notified;
(d) Even if meeting improperly
held/called, all proceedings had and
business transacted shall be valid if
all SH/Members are present or duly
represented.
(4) Quorum
(a) Unless otherwise provided for in
Code or by-laws, consists of
stockholders representing majority
of OCS or majority of members of
the corporation;
(b) By-laws may provide greater or
lesser quorum;
(5) Who Presides
(a) President shall preside at all
meetings of SH, unless by-laws
provide otherwise;
(b) When no person authorized, SEC,
upon petition by SH on showing of
good cause, may issue order
authorizing petitioning SH to call for
a meeting;
(c) Shall preside until at least a majority
of SH present have chosen presiding
officer.
(6) Rule on Abstention: In case of
abstention in board meeting on vote
taken on any issue, the general rule is
that the abstention is counted in favour
of the issue that won a majority vote;
since their act of abstention, the
abstaining directors are deemed to abide
the rule of majority.
People v. Dumlao, 2009: A resolution is distinct and
different from the minutes of the meeting. A
board resolution is a formal action by a corporate board
of directors or other corporate body authorizing a
particular act, transaction, or appointment. It is
ordinarily special and limited in its operation, applying
usually to some single specific act or affair of the
corporation; or to some specific person, situation or
occasion.On the other hand, minutes are a brief
statement not only of what transpired at a meeting,
usually of stockholders/members or directors/trustees,
but also at a meeting of an executive committee. The
minutes are usually kept in a book specially designed for
that purpose, but they may also be kept in the form of
memoranda or in any other manner in which they can be
identified as minutes of a meeting.
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