Corporation Code Case Doctrine

8/20/2019 Corporation Code Case Doctrine

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Copyright 2015 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Law Encyclopedia First Release 2015 1

Batas Pambansa Blg. 68 - Corporation Code of the Philippines

Sec. 2 - Corporation Defined

Separate juridical personality

Piercing the veil of corporate fiction

Nature of the doctrine

When applicable

When not applicable

Grandfather rule

Rights and Liabilities of a corporation

Corporation may delegate powers and functions to officers, committees or agents.

S eparate juridical personality

As a general rule, a corporation will be deemed a separate legal entity until

sufficient reason to the contrary appears. But the rule is not absolute. A corporation's

separate and distinct legal personality may be disregarded and the veil of corporate

fiction pierced when the notion of legal entity is used to defeat public convenience,

justify wrong, protect fraud, or defend crime.

Siain Enterprises vs. Cupertino Realty Corp., et al., G.R. No. 170782, June 22, 2009

It is elementary that a corporation has a personality distinct and separate from its

individual stockholders or members. Being an officer or stockholder of a corporation

does not make one's property the property also of the corporation, for they are separate

entities (Adelio Cruz vs. Quiterio Dalisay, A.M. No. R-181-P, July 31, 1987)

Traders Royal Bank vs. Court of Appeals, G.R. No. 78412, September 26, 1989

While a share of stock represents a proportionate or aliquot interest in the property

of the corporation, it does not vest the owner thereof with any legal right or title to anyof the property, his interest in the corporate property being equitable or beneficial in

nature. Shareholders are in no legal sense the owners of corporate property, which is

owned by the corporation as a distinct legal person.

Concepcion Magsaysay-Labrador vs. Court of Appeals, G.R. No. 58168, December 19,

1989


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Good Earth Emporium, Inc. vs. Court of Appeals, G.R. No. 82797, February 27, 1991

It is basic that a corporation is invested by law with a personality separate and

distinct from those of the persons composing it as well as from that of any other legal

entity to which it may be related. Mere ownership by a single stockholder or byanother corporation of all or nearly all of the capital stock of a corporation is not of

itself sufficient ground for disregarding the separate corporate personality.

Alberto S. Sunio vs. National Labor Relations Commission, G.R. No. L-57767, January

31, 1984

In La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa La

Campana, 93 Phil. 160, where a somewhat similar situation existed as in this case,

We ruled: "The attempt to make the two factories appear as two separate businesses,

when in reality they are but one, is but a devise to defeat the ends of the law and

should not be permitted to prevail. Although the coffee factory is a corporation and,

by legal fiction, an entity existing separate and apart from persons composing it, T and

his family, it is settled that this fiction of law, which had been introduced as a matter

of convenience and to subserve the ends of justice cannot be invoked to further an end

subversive of that purpose."

Reynolds Philippine Corp. vs. Court of Appeals, G.R. No. 36187, January 17, 1989

Piercing the veil of corporate fiction

The doctrine of piercing the veil of corporate entity applies when the corporate

fiction is used to defeat public convenience, justify wrong, protect fraud, or defend

crime or where a corporation is the mere alter ego or business conduit of a person

(Indophil Textile Mill Workers Union-PTGWO vs. Teodorico P. Calica, G.R. No.

96490, February 3, 1992). To disregard the separate juridical personality of a

corporation, the wrong-doing must be clearly and convincingly established. It cannot

be presumed (Del Rosario vs. NLRC, G.R. No. 85416, July 24, 1990)

James Yu vs. National Labor Relations Commission, G.R. Nos. 111810-11, June 16,

1995

It is a fundamental principle of corporation law that a corporation is an entity

separate and distinct from its stockholders and from other corporations to which it

may be connected. But, this separate and distinct personality of a corporation is

merely a fiction created by law for convenience and to promote justice. So when the

notion of separate juridical personality is used to defeat public convenience, justify


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wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws,

this separate personality of the corporation may be disregarded or the veil of corporate

fiction pierced. This is true likewise when the corporation is merely an adjunct, a

business conduit or an alter ego of another corporation.

Concept Builders, Inc. vs. National Labor Relations Commission, G.R. No. 108734, May

29, 1996

The question of whether one corporation is merely an alter ego of another is purely

one of fact generally beyond the jurisdiction of this Court. . . . Also, the fact that Mar

Fishing's officers remained as such in Miramar does not by itself warrant a conclusion

that the two companies are one and the same. As this Court held in Sesbreño v. Court

of Appeals, the mere showing that the corporations had a common director sitting in

all the boards without more does not authorize disregarding their separate juridical

personalities. Neither can the veil of corporate fiction between the two companies be pierced by the rest of petitioners' submissions, namely, the alleged take-over by

Miramar of Mar Fishing's operations and the evident similarity of their businesses. At

this point, it bears emphasizing that since piercing the veil of corporate fiction is

frowned upon, those who seek to pierce the veil must clearly establish that the

separate and distinct personalities of the corporations are set up to justify a wrong,

protect a fraud, or perpetrate a deception.

Vivian T. Ramirez, et al. vs. Mar Fishing Co., Inc., et al., G.R. No. 168208, June 13,

2012 citing Kukan International Corp. vs. Reyes, G.R. No. 182729, September 29, 2010

N ature of the doctrine

Piercing the veil of corporate entity is an equitable remedy, and may be awarded

only in cases when the corporate fiction is used to defeat public convenience, justify

wrong, protect fraud of defend crime or where a corporation is a mere alter ego or

business conduit of a person. Piercing the veil of corporate entity requires

stockholders from liabilities that ordinarily, they could be subject to or distinguishes

one corporation from a seemingly separate one, were it not for the existing corporate

fiction. But to do this, the court must be sure that the corporate fiction was misused, to

such an extent that injustice, fraud, or crime was committed upon another,disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent

third persons dealing with the corporate entity which the law aims to protect by this

doctrine. Though it is true that when valid reasons exist, the legal fiction that a

corporation is an entity with a juridical personality separate from its stockholders and

f rom other corporations may be disregarded, in the absence of such grounds, the


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general rule must be upheld.

Traders Royal Bank vs. Court of Appeals, G.R. No. 93397, March 3, 1997

W hen applicable

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, G.R. No. 80043,

June 6, 1991). The theory of corporate entity was not meant to promote unfair

objectives or otherwise, to shield them (Villanueva vs. Adre, G.R. No. 80863, April

27, 1989). 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, G.R. No. 85266, January 30, 1990)

Sibagat Timber Corp. vs. Adolfo B. Garcia, G.R. No. 98185, December 11, 1992

A.C. Ransom Labor Union-CCLU vs. National Labor Relations Commission, G.R. No.L-69494, May 29, 1987

W hen not applicable

Buenaflor C. Umali vs. Court of Appeals, G.R. No. 89561, September 13, 1990

Indophil Textile Mill Workers Union-PTGWO vs. Teodorico P. Calica, G.R. No. 96490,February 3, 1992

It is apparent, therefore, that the doctrine has no application to this case where the

purpose is not to hold the individual stockholders liable for the obligations of the

corporation but, on the contrary, to hold the corporation liable for the obligations of a

stockholder or stockholders. Piercing the veil of corporate entity means looking

through the corporate form to the individual stockholders composing it.

Quintin Robledo vs. National Labor Relations Commission, G.R. No. 110358,

November 9, 1994

Adelio C. Cruz vs. Quiterio L. Dalisay, A.M. No. R-181-P, July 31, 1987

[The general manager] cannot be held personally liable for the obligation of the

corporation. . . . This Court upholds the doctrine of separate juridical personality of

corporate entities. . . . A corporation is a juridical entity with a legal personality

separate and distinct from those acting for and on its behalf and, in general, of the


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people comprising it. Hence, the obligations incurred by the corporation, acting

through its officers such as in this case, are its sole liabilities.

Mercy Vda. de Roxas vs. Our Lady's Foundation, Inc., G.R. No. 182378, March 6, 2013

citing Santos vs. NLRC, 325 Phil. 145 (1996)

[A]ny piercing of the corporate veil has to be done with caution. . . :

A court should be mindful of the milieu where it is to be applied. It

must be certain that the corporate fiction was misused to such an extent that

injustice, fraud, or crime was committed against another, in disregard of

rights. The wrongdoing must be clearly and convincingly established; it

cannot be presumed. Otherwise, an injustice that was never unintended may

result from an erroneous application. . . .

Therefore, we refuse to allow the execution of a corporate judgment debt againstthe general manager of the corporation, since in no legal sense is he the owner of the

corporate property.

Mercy Vda. de Roxas vs. Our Lady's Foundation, Inc., G.R. No. 182378, March 6, 2013citing Sarona v. NLRC, G.R. No. 185280, January 18, 2012

Grandfather rule

Pedro R. Palting vs. San Jose Petroleum Incorporated, G.R. No. L-14441, December 17, 1966

Rights and Liabilities of a corporation

A corporation is liable whenever a tortious act is committed by an officer or agent

under express direction or authority from the stockholders or members acting as a

body, or, generally, from the directors as the governing body.

Philippine National Bank vs. Court of Appeals, G.R. No. L-27155, May 18, 1978

Smith, Bell & Co. vs. Joaquin Natividad, G.R. No. 15574, September 17, 1919

A corporation — being an artificial person which has no feelings, emotions or senses, and which cannot experience physical suffering or metal anguish — is not

entitled to moral damages.

Solid Homes, Inc. vs. Court of Appeals, G.R. No. 117501, July 8, 1997


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A corporation can act only through its officers and agents, and where the business

itself involves a violation of the law, the correct rule is that all who participate in it are

liable (Grall and Ostrander's Case, 103 Va., 855, and authorities there cited)

People of the Phils. vs. Tan Boon Kong, G.R. No. 32652, March 15, 1930

A corporation is vested by law with a personality separate and distinct from the

people comprising it. Ownership by a single or small group of stockholders of nearly

all of the capital stock of the corporation is not by itself a sufficient ground to

disregard the separate corporate personality. Thus, obligations incurred by corporate

officers, acting as corporate agents, are direct accountabilities of the corporation they

represent.

Shrimp Specialists, Inc. vs. Fuji-Triumph Agri-Industrial Corp., G.R. Nos. 168756 &

171476, December 7, 2009

Water districts are distinct from corporations organized under the Corporation

Code.

The juridical entities known as water districts created by PD 198, although

considered as quasi-public corporations and authorized to exercise the powers, rights

and privileges given to private corporations under existing laws, are entirely distinct

from corporations organized under the Corporation Code. The Corporation Code has

nothing whatever to do with their formation and organization, all the terms and

conditions for their organization and operation being particularly spelled out in PD198.

Marilao Water Consumers Association, Inc. vs. IAC, G.R. No. 72807, September 9,

1991

Not every stockholder or officer can bind the corporation.

Not every stockholder or officer can bind the corporation considering the existence

of a corporate entity separate from those who compose it. The rationale for this is that

service must be made on a representative so integrated with the corporation sued as tomake it a priori supposable that he will realize his responsibilities and know what he

should do with any legal papers served on him.

Ramon C. Lee vs. Court of Appeals, G.R. No. 93695, February 4, 1992


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Chief of Finance falls under the term 'agent' authorized to receive processes.

An Administrative Chief is responsible for the management of the corporation

which places him on the level of a manager contemplated by the Rules. As Chief of

Finance, he is conferred with vital and sensitive functions and responsibilities. Under

corporate and management organizational structure, a finance officer even holds a

higher position than that of a cashier. Otherwise stated, he is not one of the lesser

officers of the corporation who would not have been able to appreciate the importance

of the papers delivered to him. On the contrary, he falls squarely under the term Agent

who is authorized by law to receive the processes of the Court for the corporation.

Far Corporation vs. Ricardo J. Francisco, G.R. No. L-57218, December 12, 1986

Service of summons upon Assistant General Manager for Corporations serves the purpose of the law.

Service of summons upon a corporation's Assistant General Manager for

Corporations who was a former President and General Manager thereof serves the

purpose of the law. Should he refuse to receive the summons, tender unto him is

sufficient to confer jurisdiction over the corporation.

Villa Rey Transit, Inc. vs. Far East Motor Corp., G.R. No. L-31339, January 31, 1978

Test to determine the applicability of the doctrine of piercing the veil of corporate fiction

The Supreme Court laid down the test in determining the applicability of the

doctrine of piercing the veil of corporate fiction, to wit:

1. Control, not mere majority or complete control, but complete domination, not

only of finances but of policy and business practice in respect to the transaction

attacked so that the corporate entity as to this transaction had at the time no separate

mind, will or existence of its own.

2. Such control must have been used by the defendant to commit fraud or

wrong, to perpetuate the violation of a statutory or other positive legal duty, or

dishonest and, unjust act in contravention of plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must proximately cause the injury or


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unjust loss complained of.

Concept Builders, Inc. v. NLRC, G.R. No. 108734, May 29, 1996

"G" Holdings, Inc. vs. NAMAWU, et al., G.R. No. 160236, October 16, 2009

Sec. 3 - Classes of Corporations

Two requisites must concur before one may be classified as a stock corporation,

namely: (1) that it has capital stock divided into shares; and (2) that it is authorized

to distribute dividends and allotments of surplus and profits to its stockholders. If

only one requisite is present, it cannot be properly classified as a stock corporation. Asfor non-stock corporations, they must have members and must not distribute any part

of their income to said members.

Republic of the Phil. vs. City of Parañaque, G.R. No. 191109, July 18, 2012

Sec. 4 - Corporations Created by Special Laws or Charters

Provisions of Corporation Code apply in supplementary manner to all

corporations including electric cooperatives.

Section 4 of the Corporation Code renders the provisions of that Code applicable in

a supplementary manner to all corporations, including those with special or individual

charters so long as those provisions are not inconsistent with such charters.

Benguet Electric Cooperative, Inc. vs. NLRC, G.R. No. 89070, May 18, 1992

Sec. 6 - Classification of Shares


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Shares of stock in corporations may be divided into voting shares and non-voting

shares, which are generally issued as "preferred" or "redeemable" shares.

Voting rights are exercised during regular or special meetings of stockholders;

regular meetings to be held annually on a fixed date, while special meetings may be

held at any time necessary or as provided in the by-laws, upon due notice. The

Corporation Code provides for a whole range of matters which can be voted upon by

stockholders, including a limited set on which even non-voting stockholders are

entitled to vote on. On any of these matters which may be voted upon by stockholders,

the proxy device is generally available.

GSIS vs. Court of Appeals, et al., G.R. Nos. 183905 & 184275, April 16, 2009

Advantages accorded to preferred shares upon conversion

The advantages accorded to the preferred shares are undeniable, namely: the

significant premium in the price being offered; the preference enjoyed in the

dividends as well as in the liquidation of assets; and the voting rights still retained by

preferred shares in major corporate actions. All things considered, conversion to

preferred shares would best serve the interests and rights of the government or the

eventual owner of the CIIF SMC shares.

COCOFED, et al. vs. Republic of the Phil., G.R. Nos. 177857-58, September 17, 2009

Preferred shares

A preferred share of stock is one which entitles the holder thereof to certain

preferences over the holders of common stock. The preferences are designed to induce

persons to subscribe for shares of a corporation. Preferred shares take a multiplicity of

forms. The most common forms may be classified into two: (1) preferred shares as to

assets; and (2) preferred shares as to dividends. The former is a share which gives the

holder thereof preference in the distribution of the assets of the corporation in case of

liquidation; the latter is a share the holder of which is entitled to receive dividends on

said share to the extent agreed upon before any dividends at all are paid to the holdersof common stock. There is no guaranty, however, that the share will receive any

dividends.

Republic Planters Bank vs. Enrique A. Agana, Sr., G.R. No. 51765, March 3, 1997


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Copy right 2015 C D T echnol ogi es Asi a, I nc. and Acc ess law, Inc. Phi lippine Law Encycl opedi a Fi rst Rel ease 2015 10

Sec. 8 - Redeemable Shares

Redeemable shares

Redeemable shares are shares usually preferred, which by their terms are

redeemable at a fixed date, or at the option of either issuing corporation, or the

stockholder, or both at a certain redemption price. A redemption by the corporation of

its stock is, in a sense, a repurchase of it for cancellation. The present Code allows

redemption of shares even if there are no unrestricted retained earnings on the books

of the corporation. This is a new provision which in effect qualifies the general rulethat the corporation cannot purchase its own shares except out of current retained

earnings. However, while redeemable shares may be redeemed regardless of the

existence of unrestricted retained earnings, this is subject to the condition that the

corporation has, after such redemption, assets in its books to cover debts and liabilities

inclusive of capital stock. Redemption, therefore, may not be made where the

corporation is insolvent or if such redemption will cause insolvency or inability of the

corporation to meet its debts as they mature.

Republic Planters Bank vs. Enrique A. Agana, Sr., G.R. No. 51765, March 3, 1997

Sec. 9 - Treasury Shares

A treasury share or stock, which may be common or preferred, may be used for a

variety of corporate purposes, such as for a stock bonus plan for management and

employees or for acquiring another company. It may be held indefinitely, resold or

retired. While held in the company's treasury, the stock earns no dividends and has no

vote in company affairs. Thus, the CIIF common shares that would become treasury

shares are not entitled to voting rights.

COCOFED, et al. vs. Republic of the Phil., G.R. Nos. 177857-58, September 17, 2009


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Definition of treasury shares

San Miguel Corporation, et al. vs. Sandiganbayan, G.R. Nos. 104637-38, September 14, 2000

Sec. 13 - Amount of Capital Stock to be Subscribed and Paid for Purposes of

Incorporation

Paid-up capital

MSCI-NACUSIP vs. NWPC, G.R. No. 125198, March 3, 1997

Sec. 14 - Contents of Articles of Incorporations

The charter of a corporation is a contract between three parties: (a) It is a contract

between the state and the corporation to which the charter is granted; (b) it is a

contract between the stockholders and the state and (c) it is also a contract betweenthe corporation and its stockholders. (Cook on Corporations, vol. 2, sec. 494 and cases

cited.)

Government of the Phil. vs. Manila Railroad Company, G.R. No. 30646, January 30,

1929

Sec. 17 - Grounds When Articles of Incorporation or Amendment May Be

Rejected or Disapproved

The amendment of the articles of incorporation requires merely that (a) the

amendment is not contrary to any provision or requirement under the Corporation

Code, and that (b) it is for a legitimate purpose.


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IEMELIF, et al. vs. Nathanael Lazaro, et al., G.R. No. 184088, July 6, 2010

Sec. 18 - Corporate Name

Corporate name

Industrial Refractories Corporation of the Philippines vs. Court of Appeals, G.R. No.

122174, October 3, 2002

Parties organizing a corporation must choose a name at their peril; and the use of a

name similar to one adopted by another corporation, whether a business or a nonprofit

organization, if misleading or likely to injure in the exercise of its corporate functions,

regardless of intent, may be prevented by the corporation having a prior right, by a suit

for injunction against the new corporation to prevent the use of the name.

Ang Mga Kaanib Sa Iglesia Ng Dios Kay Kristo Hesus vs. Iglesia Ng Dios Kay CristoJesus, G.R. No. 137592, December 12, 2001

A change in the corporate name does not make a new corporation.

The corporation, upon such change in its name, is in no sense a new corporation,

nor the successor of the original corporation. It is the same corporation with adifferent name, and its character is in no respect changed. A change in the corporate

name does not make a new corporation, and whether effected by special act or under a

general law, has no effect on the identity of the corporation, or on its property, rights,

or liabilities. The corporation continues, as before, responsible in its new name for all

debts or other liabilities which it had previously contracted or incurred.

Republic Planters Bank vs. Court of Appeals, G.R. No. 93073, December 21, 1992

Sec. 18 applies only when corporate names are identical.

Section 18 of the Corporation Code is applicable only when the corporate names in

question are identical.

Philips Export B.V. vs. Court of Appeals, G.R. No. 96161, February 21, 1992


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Right of corporation to use its corporate and trade name is a property right.

A corporation's right to use its corporate and trade name is a property right, a right

in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion. It is

regarded, to a certain extent, as a property right and one which cannot be impaired or

defeated by subsequent appropriation by another corporation in the same field.


Western Equipment and Supply Co. vs. Fidel A. Reyes, G.R. No. 27897, December 2,

1927

Name of corporation is esential to its existence.

The name of a corporation is essential to its existence. It cannot change its name

except in the manner provided by the statute. By that name alone is it authorized to

transact business. The law gives a corporation no express or implied authority to

assume another name that is unappropriated; still less that of another corporation,

which is expressly set apart for it and protected by the law. If any corporation could

assume at pleasure as an unregistered trade name the name of another corporation, this

practice would result in confusion and open the door to frauds and evasions and

difficulties of administration and supervision.

Red Line Transportation Co. vs. Rural Transit Co., Ltd., G.R. No. 41570, September 6,1934

Importance of corporate name.

A name is peculiarly important as necessary to the very existence of a corporation.

Its name is one of its attributes, an element of its existence, and essential to its

identity. The general rule as to corporations is that each corporation must have a name

by which it is to sue and be sued and do all legal acts. The name of a corporation in

this respect designates the corporation in the same manner as the name of an

individual designates the person; and the right to use its corporate name is as much a

part of the corporate franchise as any other privilege granted.



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Requisites for application of Sec. 18 of the Corporation Code.

To come within the scope of the statutory prohibition, two requisites must be

proven, namely: (1) that the complainant corporation acquired a prior right over theuse of such corporate name; and (2) the proposed name is either: (a) identical or (b)

deceptively or confusingly similar to that of any existing corporation or to any other

name already protected by law; or (c) patently deceptive, confusing or contrary to

existing law.

Philips Export B.V. Court of Appeals, G.R. No. 96161, February 21, 1992

A corporation has exclusive right to the use of its name.

A corporation has an exclusive right to the use of its name, which may be protected by injunction upon a principle similar to that upon which persons are protected in the

use of trademarks and tradenames. Such principle proceeds upon the theory that it is a

fraud on the corporation which has acquired a right to that name and perhaps carried

on its business thereunder, that another should attempt to use the same name, or the

same name with a slight variation in such a way as to induce persons to deal with it in

the belief that they are dealing with the corporation which has given a reputation to

the name.


Sec. 19 - Commencement of Corporate Existence

Substantial compliance with conditions subsequent will suffice to perfect corporate

personality.

Organization and commencement of transaction of corporate business are butconditions subsequent and not prerequisites for acquisition of corporate personality.

The adoption and filing of by-laws is also a condition subsequent. Under Section 19

of the Corporation Code, a corporation commences its corporate existence and

juridical personality and is deemed incorporated from the date the Securities and

Exchange Commission issues certificate of incorporation under its official seal. This


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may be done even before the filing of the by-laws, which under Section 46 of the

Corporation Code, must be adopted "within one month after receipt of official notice

of the issuance of its certificate of incorporation."

Chung Ka Bio vs. Intermediate Appellate Court, G.R. No. L-71837, July 26, 1988

Sec. 20 - De facto Corporations

De facto corporation

C. Arnold Hall vs. Edmundo S. Piccio, G.R. No. L-2598, June 29, 1950

Municipality of Malabang vs. Pangandapun Benito, G.R. No. L-28113, March 28, 1969

Emeterio A. Rodriguez vs. Court of Appeals, G.R. No. L-28734, March 28, 1969

Sec. 21 - Corporation by Estoppel

Corporation by estoppel

Mariano A. Albert vs. University Publishing Co., Inc., G.R. No. L-19118, January 30,1965

When a third person has entered into a contract with an association which

represented itself to be a corporation, the association will be estopped from denying

its corporate capacity in a suit against it by such third person. It cannot allege lack of

capacity to be sued to evade responsibility on a contract it had entered into and by

virtue of which it received advantages and benefits.

Christian Children's Fund vs. National Labor Relations Commission, G.R. No. 84502,

June 30, 1989

Corporation by estoppel is founded on principles of equity and is designed to

prevent injustice and unfairness. It applies when persons assume to form a corporation

and exercise corporate functions and enter into business relations with third persons.


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Where there is no third person involved and the conflict arises only among those

assuming the form of a corporation, who therefore know that it has not been registered

there is no corporation by estoppel.

Reynaldo M. Lozano vs. Eliezer R. De Los Santos, G.R. No. 125221, June 19, 1997

Lim Tong Lim vs. Phil. Fishing Gear Industries, G.R. No. 136448, November 3, 1999

Merrill Lynch Futures, Inc. vs. Court of Appeals, G.R. No. 97816, July 24, 1992

People of the Phil. vs. Patricio Botero, G.R. No. 117010, April 18, 1997

Sec. 23 - The Board of Directors or Trustees

Exercise of corporate powers

Business judgment rule

Doctrine of Apparent authority

Doctrine of apparent authority not applicable

Board of trustees to be elected from among the members

A corporation can act only through its board of directors.


Authority of officers or agents is derived from the board of directors unless conferred by

corporate charter.

Derivative Suit

"Term" of office, defined; distinguished from "tenure

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 shallsucceed one another. The term of office is not affected by the holdover. The term is

fixed by statute and it does not change simply because the office may have become

vacant, nor because the incumbent holds over in office beyond the end of the term due

to the fact that a successor has not been elected and has failed to qualify.


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Term is distinguished from tenure in that an officer's "tenure" represents the term

during which the incumbent actually holds office. The tenure may be shorter (or, in

case of holdover, longer) than the term for reasons within or beyond the power of the

incumbent.Valle Verde Country Club, Inc., et al. vs. Victor Africa, G.R. No. 151969, September 4,

2009

The holdover period constitutes part of a director's tenure, and not part of his term

of office.

The term of the members of the board of directors shall be only for one year; their

term expires one year after election to the office. The holdover period — that time

from the lapse of one year from a member's election to the Board and until his

successor's election and qualification — is not part of the director's original term of

office, nor is it a new term; the holdover period, however, constitutes part of his

tenure. Corollary, when an incumbent member of the board of directors continues to

serve in a holdover capacity, it implies that the office has a fixed term, which has

expired, and the incumbent is holding the succeeding term.

Valle Verde Country Club, Inc., et al. vs. Victor Africa, G.R. No. 151969, September 4,

2009

As a general rule, officers and directors of a corporation hold over after the

expiration of their terms until such time as their successors are elected or appointed.

The holdover doctrine has, to be sure, a purpose which is at once legal as it is

practical. It accords validity to what would otherwise be deemed as dubious corporate

acts and gives continuity to a corporate enterprise in its relation to outsiders.

Hans Christian M. Señeres vs. COMELEC, et al., G.R. No. 178678, April 16, 2009

The board of directors may validly delegate some of its functions and powers to

officers, committees or agents.

The power and the responsibility to decide whether the corporation should enter

into a contract that will bind the corporation are lodged in the board of directors,

subject to the articles of incorporation, by-laws, or relevant provisions of law.

However, just as a natural person may authorize another to do certain acts for and on

his behalf, the board of directors may validly delegate some of its functions and


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powers to officers, committees or agents. The authority of such individuals to bind the

corporation is generally derived from law, corporate by-laws or authorization from the

board, either expressly or impliedly by habit, custom or acquiescence in the general

course of business.

Cebu Mactan Members Center, Inc. vs. Masahiro Tsukahara, G.R. No. 159624, July 17,

2009

People's Aircargo and Warehousing Co., Inc. vs. Court of Appeals, G.R. No. 117847,

October 7, 1998, 357 Phil. 850


A corporation, like a natural person who may authorize another to do certain acts

for and in his behalf, through its board of directors, may legally delegate some of its

functions and powers to its officers, committees or agents appointed by it. In the

absence of an authority from the board of directors, no person, not even the officers of

the corporation, can validly bind the corporation.

Luzviminda Visayan vs. NLRC, G.R. No. 69999, April 30, 1991

Under Section 23 of the Corporation Code of the Philippines, authority over

corporate funds is exercised by the Board of Directors who, in the absence of an

appropriate delegation of authority, are the only ones who can act for and in behalf of

the corporation.

People's Broadcasting (Bombo Radyo Phils., Inc.) vs. Secretary of the DOLE, et al.,

G.R. No. 179652, May 8, 2009

The corporate powers of a corporation, including the power to sue and be sued in

its corporate name, are exercised by the board of directors. The physical acts of the

corporation, like the signing of documents such as verification and certification of

non-forum shopping, can only be performed by natural persons duly authorized for the

purpose by corporate by-laws or by a specific act of the board of directors.

Marylou B. Tolentino vs. Shenton Realty Corp., G.R. No. 162103, June 19, 2009

E xercise of corporate powers

It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation

Code, clearly enunciates that all corporate powers are exercised, all business

conducted, and all properties controlled by the board of directors. A corporation has a


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separate and distinct personality from its directors and officers and can only exercise

its corporate powers through the board of directors. Thus, it is clear that an individual

corporate officer cannot solely exercise any corporate power pertaining to the

corporation without authority from the board of directors. This has been our constant

holding in cases instituted by a corporation.

Cagayan Valley Drug Corp. vs. Commissioner of Internal Revenue, G.R. No. 151413,February 13, 2008

Indubitably, a corporation may act only through its board of directors or, when

authorized either by its bylaws or by its board resolution, through its officers or agents

in the normal course of business. The general principles of agency govern the relation

between the corporation and its officers or agents, subject to the articles of

incorporation, bylaws, or relevant provisions of law. Thus, this Court has held that "'a

corporate officer or agent may represent and bind the corporation in transactions withthird persons to the extent that the authority to do so has been conferred upon him, and

this includes powers which have been intentionally conferred, and also such powers

as, in the usual course of the particular business, are incidental to, or may be implied

from, the powers intentionally conferred, powers added by custom and usage, as

usually pertaining to the particular officer or agent, and such apparent powers as the

corporation has caused persons dealing with the officer or agent to believe that it has

conferred.' " 05plpecda

San Juan Structural and Steel Fabricators vs. Court of Appeals, G.R. No. 129459,

September 29, 1998

Since a corporation, such as the private respondent, can act only through its officers

and agents, "all acts within the powers of said corporation may be performed by

agents of its selection; and, except so far as limitations or restrictions may be imposed

by special charter, by-law, or statutory provisions, the same general principles of law

which govern the relation of agency for a natural person govern the officer or agent of

a corporation, of whatever status or rank, in respect to his power to act for the

corporation; and agents when once appointed, or members acting in their stead, are

subject to the same rules, liabilities and incapacities as are agents of individuals and

private persons." Moreover, ". . . a corporate officer or agent may represent and bind

the corporation in transactions with third persons to the extent that authority to do so

has been conferred upon him, and this includes powers which have been intentionally

conferred, and also such powers as, in the usual course of the particular business, are

incidental to, or may be implied from, the powers intentionally conferred, powers

added by custom and usage, as usually pertaining to the particular officer or agent,


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and such apparent powers as the corporation has caused persons dealing with the

officer or agent to believe that it has conferred."

Yao Ka Sin Trading vs. Court of Appeals, G.R. No. 53820, June 15, 1992

Sps. Constante & Azucena Firme vs. Bukal Enterprises and Dev't. Corp., G.R. No.

146608, October 23, 2003

Inter-Asia Investments Industries, Inc. vs. Court of Appeals, G.R. No. 125778, June 10,

2003

Rebecca Boyer-Roxas vs. Court of Appeals, G.R. No. 100866, July 14, 1992

Business judgment rule

This is in accord with the "business judgment rule" whereby the SEC and the courts

are barred from intruding into business judgments of corporations, when the same are

made in good faith. The said rule precludes the reversal of the decision of the PSE to

deny PALI's listing application, absent a showing of bad faith on the part of the PSE

Philippine Stock Exchange, Inc. vs. Court of Appeals, G.R. No. 125469, October 27,1997

Doctrine of apparent authority

The authority of a corporate officer in dealing with third persons may be actual or

apparent. The doctrine of "apparent authority," with special reference to banks, waslaid out in Prudential Bank vs. Court of Appeals, G.R. No. 108957, June 14, 1993,

where it was held that: "Conformably, we have declared in countless decisions that the

principal is liable for obligations contracted by the agent. The agent's apparent

representation yields to the principal's true representation and the contract is

considered as entered into between the principal and the third person (citing National

Food Authority vs. Intermediate Appellate Court, G.R. No. 75640, April 5, 1990)."A

bank is liable for wrongful acts of its officers done in the interests of the bank or in

the course of dealing of the officers in their representative capacity but not for acts

outside the scope of their authority (9 C.J.S., P. 417). A bank holding out its officers

and agents as worthy of confidence will not be permitted to profit by the frauds they

may thus be enabled to perpetrate in the apparent scope of their employment; nor will

it be permitted to shirk its responsibility for such frauds, even though no benefit may

accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking

corporation is liable to innocent third persons where the representation is made in the


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course of its business by an agent acting within the general scope of his authority even

though, in the particular case, the agent is secretly abusing his authority and

attempting to perpetrate a fraud upon his principal or some other person, for his own

ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR

1021). "Application of these principles is especially necessary because banks have a

fiduciary relationship with the public and their stability depends on the confidence of

the people in their honesty and efficiency. Such faith will be eroded where banks do

not exercise strict care in the selection and supervision of its employees, resulting in

prejudice to their depositors."

First Philippine International Bank vs. Court of Appeals, G.R. No. 115849, January 24,

1996

Doctrine of apparent authority not applicable

New Durawood Co. vs. Court of Appeals, G.R. No. 111732, February 20, 1996

Apparent authority is derived not merely from practice. Its existence may be

ascertained through (1) the general manner in which the corporation holds out an

officer or agent as having the power to act or, in other words, the apparent authority to

act in general, with which it clothes him; or (2) the acquiescence in his acts of a

particular nature, with actual or constructive knowledge thereof, whether within or

beyond the scope of his ordinary powers. It requires presentation of evidence of

similar act(s) executed either in its favor or in favor of other parties. It is not the

quantity of similar acts which establishes apparent authority, but the vesting of acorporate officer with the power to bind the corporation.

People's Aircargo and Warehousing Co. Inc. vs. Court of Appeals, G.R. No. 117847,

October 7, 1998

Inter-Asia Investments Industries, Inc. vs. Court of Appeals, G.R. No. 125778, June 10,

2003

Board of trustees to be elected from among the members

Grace Christian High School vs. Court of Appeals, G.R. No. 108905, October 23, 1997

A corporation can act only through its board of directors.

The law is settled that contracts between a corporation and third persons must be

made by or under the authority of its board of directors and not by its stockholders.


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Hence, the action of the stockholders in such matters is only advisory and not in any

wise binding on the corporation.

Luzviminda Visayan vs. NLRC, G.R. No. 69999, April 30, 1991

Alberto Barreto vs. La Previsora Filipina, G.R. No. 34719, December 8, 1932

Authority of officers or agents is derived from the board of directors unless

conferred by corporate charter.

Whatever authority the officers or agents of a corporation may have is derived from

the board of directors or other governing body, unless conferred by the charter of the

corporation. A corporate officer's power as an agent of the corporation must therefore

be sought from the statute, the charter, the by-laws, or in a delegation of authority to

such officer, from the acts of the board of directors, formally expressed or impliedfrom a habit or custom of doing business.

Ignacio Vicente vs Ambrosio M. Geraldez, G.R. No. L-32473, July 31, 1973

The board of directors of a corporation is a creation of the stockholders. The board

of directors, or the majority thereof, controls and directs the affairs of the corporation;

but in drawing to itself the power of the corporation, it occupies a position of

trusteeship in relation to the minority of the stock. The board shall exercise good faith,

care, and diligence in the administration of the affairs of the corporation, and protect

not only the interest of the majority but also that of the minority of the stock. Where

the majority of the board of directors wastes or dissipates the funds of the corporation

or fraudulently disposes of its properties, or performs ultra vires acts, the court, in the

exercise of its equity jurisdiction, and upon showing that intracorporate remedy is

unavailing, will entertain a suit filed by the minority members of the board of

directors, for and in behalf of the corporation, to prevent waste and dissipation and the

commission of illegal acts and otherwise redress the injuries of the minority

stockholders against the wrongdoing of the majority. The action in such a case is said

to be brought derivatively in behalf of the corporation to protect the rights of the

minority stockholders thereof.

Santiago Cua, Jr., et al. vs. Miguel Ocampo Tan, et al., G.R. Nos. 181455-56 & 182008,

December 4, 2009

Derivative Suit

It is well settled in this jurisdiction that where corporate directors are guilty of a


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breach of trust — not of mere error of judgment or abuse of discretion — and

intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf

of himself and other stockholders and for the benefit of the corporation, to bring about

a redress of the wrong inflicted directly upon the corporation and indirectly upon the

stockholders.

Santiago Cua, Jr., et al. vs. Miguel Ocampo Tan, et al., G.R. Nos. 181455-56 & 182008,December 4, 2009

A derivative suit must be differentiated from individual and representative or class

suits, thus: Suits by stockholders or members of a corporation based on wrongful or

fraudulent acts of directors or other persons may be classified into individual suits,

class suits, and derivative suits. Where a stockholder or member is denied the right of

inspection, his suit would be individual because the wrong is done to him personally

and not to the other stockholders or the corporation. Where the wrong is done to agroup of stockholders, as where preferred stockholders' rights are violated, a class or

representative suit will be proper for the protection of all stockholders belonging to

the same group. But where the acts complained of constitute a wrong to the

corporation itself, the cause of action belongs to the corporation and not to the

individual stockholder or member. Although in most every case of wrong to the

corporation, each stockholder is necessarily affected because the value of his interest

therein would be impaired, this fact of itself is not sufficient to give him an individual

cause of action since the corporation is a person distinct and separate from him, and

can and should itself sue the wrongdoer. Otherwise, not only would the theory of

separate entity be violated, but there would be multiplicity of suits as well as aviolation of the priority rights of creditors. Furthermore, there is the difficulty of

determining the amount of damages that should be paid to each individual

stockholder.

Santiago Cua, Jr., et al. vs. Miguel Ocampo Tan, et al., G.R. Nos. 181455-56 & 182008,December 4, 2009

However, in cases of mismanagement where the wrongful acts are committed by

the directors or trustees themselves, a stockholder or member may find that he has no

redress because the former are vested by law with the right to decide whether or not

the corporation should sue, and they will never be willing to sue themselves. The

corporation would thus be helpless to seek remedy. Because of the frequent

occurrence of such a situation, the common law gradually recognized the right of a

stockholder to sue on behalf of a corporation in what eventually became known as a

"derivative suit." It has been proven to be an effective remedy of the minority against


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the abuses of management. Thus, an individual stockholder is permitted to institute a

derivative suit on behalf of the corporation wherein he holds stock in order to protect

or vindicate corporate rights, whenever officials of the corporation refuse to sue or are

the ones to be sued or hold the control of the corporation. In such actions, the suing

stockholder is regarded as the nominal party, with the corporation as the party in

interest.


December 4, 2009

The power and the responsibility to decide whether the corporation should enter

into a contract that will bind the corporation are lodged in the board, subject to the

articles of incorporation, bylaws, or relevant provisions of law. In the absence of

authority from the board of directors, no person, not even its officers, can validly bind

a corporation. However, just as a natural person may authorize another to do certainacts for and on his behalf, the board of directors may validly delegate some of its

functions and powers to its officers, committees or agents. The authority of these

individuals to bind the corporation is generally derived from law, corporate bylaws or

authorization from the board, either expressly or impliedly by habit, custom or

acquiescence in the general course of business.

Violeta Tudtud Banate, et al. vs. Phil. Countryside Rural Bank (Liloan, Cebu), Inc., et al.,G.R. No. 163825, July 13, 2010

The authority of a corporate officer or agent in dealing with third persons may be

actual or apparent. Actual authority is either express or implied. The extent of anagent's express authority is to be measured by the power delegated to him by the

corporation, while the extent of his implied authority is measured by his prior acts

which have been ratified or approved, or their benefits accepted by his principal. The

doctrine of "apparent authority," on the other hand, with special reference to banks,

had long been recognized in this jurisdiction. The existence of apparent authority may

be ascertained through:

1) the general manner in which the corporation holds out an officer or agent

as having the power to act, or in other words, the apparent authority to act

in general, with which it clothes him; or

2) the acquiescence in his acts of a particular nature, with actual or

constructive knowledge thereof, within or beyond the scope of his

ordinary powers.


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Accordingly, the authority to act for and to bind a corporation may be presumed

from acts of recognition in other instances when the power was exercised without any

objection from its board or shareholders.

Violeta Tudtud Banate, et al. vs. Phil. Countryside Rural Bank (Liloan, Cebu), Inc., et al.,G.R. No. 163825, July 13, 2010

Sec. 24 - Election of Directors or Trustees

Distinction between "proxy solicitation" and "proxy validation"

. . . the distinction between "proxy solicitation" and "proxy validation" cannot be

dismissed offhand. The right of a stockholder to vote by proxy is generally established

by the Corporation Code, but it is the SRC which specifically regulates the form and

use of proxies, more particularly the procedure of proxy solicitation, primarily through

Section 20.


Participation of stockholders in the election of directors or trustees.

Under Section 5 (c) of Presidential Decree No. 902-A, in relation to the SRC, the

jurisdiction of the regular trial courts with respect to election-related controversies is

specifically confined to "controversies in the election or appointment of directors,

trustees, officers or managers of corporations, partnerships, or associations".

Evidently, the jurisdiction of the regular courts over so-called election contests or

controversies under Section 5 (c) does not extend to every potential subject that may

be voted on by shareholders, but only to the election of directors or trustees, in which

stockholders are authorized to participate under Section 24 of the Corporation Code.


To be eligible as director, legal title to stocks, not beneficial ownership thereto, is

material.

With the omission of the phrase "in his own right" the election of trustees and other


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persons who in fact are not the beneficial owners of the shares registered in their

names on the books of the corporation becomes formally legalized. Hence, this is a

clear indication that in order to be eligible as a director, what is material is the legal

title to, not beneficial ownership of, the stock as appearing on the books of the

corporation. 05plpecda

Ramon C. Lee Court of Appeals, G.R. No. 93695, February 4, 1992

Sec. 25 - Corporate Officers, Quorum

Corporate Officers

Officer distinguished from employee

Coverage of a corporate officer

Corporate Officers

Dily Dany Nacpil vs. International Broadcasting Corp., G.R. No. 144767, March 21,

2002

Before a dismissal or removal could properly fall within the jurisdiction of the

SEC, it has to be first established that the person removed or dismissed was a

corporate officer. "Corporate officers" in the context of Presidential Decree No.

902-A are those officers of the corporation who are given that character by the

Corporation Code or by the corporation's by-laws. There are three specific officers

whom a corporation must have under Section 25 of the Corporation Code. These are

the president, secretary and the treasurer. The number of officers is not limited to

these three. A corporation may have such other officers as may be provided for by its

by-laws like, but not limited to, the vice-president, cashier, auditor or general

manager. The number of corporate officers is thus limited by law and by the

corporation's by-laws.

Virgilio R. Garcia vs. Eastern Telecommunications Phil., Inc., et al., G.R. Nos. 173115 &

173163-64, April 16, 2009

O fficer distinguished from employee

Purificacion G. Tabang vs. NLRC, G.R. No. 121143, January 21, 1997


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Coverage of a corporate officer

Bienvenido Ongkingco vs. NLRC, G.R. No. 119877, March 31, 1997

A greater number than the majority may be fixed by the articles or by-laws to

constitute a quorum.

The articles of incorporation or by-laws of the corporation may fix a greater

number than the majority of the number of board members to constitute the quorum

necessary for the valid transaction of business. Any number less than the number

provided in the articles or by-laws therein cannot constitute a quorum and any act

therein would not bind the corporation; all that the attending directors could do is to

adjourn. 05plpecda

Rosita Peña vs. Court of Appeals, G.R. No. 91478, February 7, 1991

Sec. 29 - Vacancies in the Office of Director or Trustee

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.

This theory of delegated power of the board of directors similarly explains why,

under Section 29 of the Corporation Code, in cases where the vacancy in the

corporation's board of directors is caused not by the expiration of a member's term, the

successor "so elected to fill in a vacancy shall be elected only for the unexpired termof the his predecessor in office". The law has authorized the remaining members of

the board to fill in a vacancy only in specified instances, so as not to retard or impair

the corporation's operations; yet, in recognition of the stockholders' right to elect the

members of the board, it limited the period during which the successor shall serve

only to the "unexpired term of his predecessor in office".


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Valle Verde Country Club, Inc., et al. vs. Victor Africa, G.R. No. 151969, September 4,2009

It also bears noting that the vacancy referred to in Section 29 contemplates a

vacancy occurring within the director's term of office. When a vacancy is created bythe expiration of a term, logically, there is no more unexpired term to speak of. Hence,

Section 29 declares that it shall be the corporation's stockholders who shall possess

the authority to fill in a vacancy caused by the expiration of a member's term.

Valle Verde Country Club, Inc., et al. vs. Victor Africa, G.R. No. 151969, September 4,2009

Sec. 31 - Liability of Directors, Trustees or Officers

Doctrine of corporate opportunity

Section 31 lays down the "doctrine of corporate opportunity" and holds personally

liable corporate directors found guilty of gross negligence or bad faith in directing the

affairs of the corporation, which results in damage or injury to the corporation, its

stockholders or members, and other persons.

Manuel Luis S. Sanchez vs. Republic of the Phil., G.R. No. 172885, October 9, 2009

The director's wrongdoing must be a patently unlawful act, i.e. an act declared

unlawful by law.

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.

Antonio C. Carag vs. NLRC, et al., G.R. No. 147590, April 2, 2007


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Directors and officers are not liable for errors in judgment.

If the cause of the losses is merely error in business judgment, not amounting to

bad faith or negligence, directors and/or officers are not liable. For them to be heldaccountable, the mismanagement and the resulting losses on account thereof are not

the only matters to be proven; it is likewise necessary to show that the directors and/or

officers acted in bad faith and with malice in doing the assailed acts. Bad faith does

not simply connote bad judgment or negligence; it imports a dishonest purpose or

some moral obliquity and conscious doing of a wrong, a breach of a known duty

through some motive or interest or ill-will partaking of the nature of fraud.

Filipinas Port Services, Inc., et al. vs. Victoriano S. Go, et al., G.R. No. 161886, March

16, 200

When corporate officers become personally liable

The personal liability of corporate officers validly attaches only when (a) they

assent to a patently unlawful act of the corporation; or (b) they are guilty of bad faith

or gross negligence in directing its affairs; or (c) they incur conflict of interest,

resulting in damages to the corporation, its stockholders or other persons.

H.L. Carlos Construction, Inc. vs. Marina Properties Corp., et al., G.R. No. 147614,

January 29, 2004

Article 212 (e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation because Section 31 of the

Corporation Code is still the governing law on personal liability of officers for the

debts of the corporation.

Armando David vs. National Federation of Labor Unions, et al., G.R. Nos. 148263 &148271-72, April 21, 2009

PEA-PTGWO, et al. vs. NLRC, et al., G.R. Nos. 170689 & 170705, March 17, 2009

Solidary liability of directors, officers, and employees

The general rule is that obligations incurred by the corporation, acting through its

directors, officers, and employees, are its sole liabilities. However, solidary liability

may be incurred, but only under the following exceptional circumstances: (1) When

directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote


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for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with

gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest

to the prejudice of the corporation, its stockholders or members, and other persons; (2)

When a director or officer has consented to the issuance of watered stocks or who,

having knowledge thereof, did not forthwith file with the corporate secretary his

written objection thereto; (3) When a director, trustee or officer has contractually

agreed or stipulated to hold himself personally and solidarily liable with the

corporation; or (4) When a director, trustee or officer is made, by specific provision of

law, personally liable for his corporate action.

Andrea Uy, et al. vs. Arlene Villanueva, et al., G.R. No. 157851, June 29, 2007


171476, December 7, 2009

Liability of directors

Edsa Shangri-La Hotel and Resort, Inc., et al. vs. BF Corporation, G.R. Nos. 145842 &

145873, June 27, 2008

Cebu Country Club, Inc., et al. vs. Ricardo F. Elizagaque, G.R. No. 160273, January 18,

2008

National Food Authority vs. Court of Appeals, G.R. No. 96453, August 4, 1999

Elena F. Uichico vs. NLRC, G.R. No. 121434, June 2, 1997

REAHS Corp. vs. NLRC, G.R. No. 117473, April 15, 1997

Aurora Land Projects Corp. vs. NLRC, G.R. No. 114733, January 2, 1997

Benjamin A. Santos vs. National Labor Relations Commission, G.R. No. 101699, March

13, 1996

MAM Realty Development Corporation vs. National Labor Relations Commission, G.R.

No. 114787, June 2, 1995

Tramat Mercantile, Inc. vs. Court of Appeals, G.R. No. 111008, November 7, 1994

Businessday Information Systems and Services, Inc. vs. NLRC, G.R. No. 103575, April

5, 1993

Section 31 makes a director personally liable for corporate debts if he willfully and

knowingly votes for or assents to patently unlawful acts of the corporation. Section 31

also makes a director personally liable if he is guilty of gross negligence or bad faith

in directing the affairs of the corporation. The bad faith or wrongdoing of the director


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must be established clearly and convincingly. Bad faith is never presumed.

Seaoil Petroleum Corp. vs. Autocorp Group, et al., G.R. No. 164326, October 17, 2008

A corporation is vested by law with a personality separate and distinct from the

people comprising it. Ownership by a single or small group of stockholders of nearly

all of the capital stock of the corporation is not by itself a sufficient ground to

disregard the separate corporate personality. Thus, obligations incurred by corporate

officers, acting as corporate agents, are direct accountabilities of the corporation they

represent.

Shrimp Specialists, Inc. vs. Fuji-Triumph Agri-Industrial Corp., G.R. Nos. 168756 &171476, December 7, 2009

The general rule is that obligations incurred by the corporation, acting through its

directors, officers, and employees, are its sole liabilities. However, solidary liabilitymay be incurred, but only under the following exceptional circumstances:

1. When directors and trustees or, in appropriate cases, the officers of a

corporation: (a) vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its

stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or

who, having knowledge thereof, did not forthwith file with the corporate

secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to

hold himself personally and solidarily liable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law,

personally liable for his corporate action.


171476, December 7, 2009

To hold a director or officer personally liable for corporate obligations, tworequisites must concur: (1) complainant must allege in the complaint that the director

or officer assented to patently unlawful acts of the corporation, or that the officer was

guilty of gross negligence or bad faith; and (2) complainant must clearly and

convincingly prove such unlawful acts, negligence or bad faith.

Irene Martel Francisco vs. Numeriano Mallen, Jr., G.R. No. 173169, September 22,


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2010

Sec. 32 - Dealings of Directors, Trustees or Officers with the Corporation

Ana Maria A. Koruga vs. Teodoro O. Arcenas, G.R. Nos. 168332 and 169053, June 19,

2009

Self-dealing director

Prime W hite Cement Corporation vs. Intermediate Appellate Court, G.R. No. 68555,

March 19, 1993

Sec. 33 - Contracts Between Corporations with Interlocking Directors

The mere interlocking of directors and officers does not warrant piercing the

separate corporate personalities of the two corporations. Not only must there be a

showing that there was majority or complete control, but complete domination, not

only of finances but of policy and business practice in respect to the transaction

attacked, so that the corporate entity as to this transaction had at the time no separate

mind, will or existence of its own.

"G" Holdings, Inc. vs. NAMAWU, et al., G.R. No. 160236, October 16, 2009

Sec. 34 - Disloyalty of a Director

Ana Maria A. Koruga vs. Teodoro O. Arcenas, G.R. Nos. 168332 and 169053, June 19,2009

Doctrine of corporate opportunity

Corporate officers are not permitted to the use their position of trust and confidence


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to further their interests. The doctrine of "corporate opportunity" is precisely a

recognition by the courts that the fiduciary standards could not be upheld where the

f iduciary was acting for two entities with competing interests. This doctrine rests

fundamentally of the unfairness, in particular circumstances, of an officer or director

taking advantage of an opportunity for his own personal profit when the interest of the

corporation justly calls for protection.

John Gokongwei, Jr. vs. Securities and Exchange Commission, G.R. No. L-45911, April

11, 1979

Corporation Code cured the lapse under Corporation Law involving directors'

disloyalty to corporation.

True, at that time, the Corporation Law did not prohibit a director or any other

person occupying a fiduciary position in the corporate hierarchy from engaging in aventure which competed with that of the corporation. But as a lawyer, private

respondent should have known that while some acts may appear to be permitted

through sheer lack of statutory prohibition, these acts are nevertheless circumscribed

upon ethical and moral considerations. And had he turned to American jurisprudence

which then, as now, wielded a persuasive influence on our law on corporations, he

would have known that it was unfair for him or for Porter, acting as fiduciary, to take

advantage of an opportunity when the interest of the corporation justly calls for

protection. Parenthetically, this lapse in the old Corporation Law is now cured by

sections 31 and 34 of the Corporation Code.

Erlinda L. Ponce vs. Valentino L. Legaspi and Court of Appeals, G.R. No. 79184, May 6,

1992

In case of conflict of interests, a director cannot sacrifice the corporation to his

own advantage.

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."

Prime White Cement Corp. vs. Intermediate Appellate Court, G.R. No. 68555, March


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19, 1993

Sec. 35 - Executive Committee

Under 35 of the Corporation Code of the Philippines, authority over corporate

funds is exercised by the Board of Directors who, in the absence of an appropriate

delegation of authority, are the only ones who can act for and in behalf of the

corporation.

People's Broadcasting (Bombo Radyo Phils., Inc.) vs. Secretary of the DOLE, et al.,

G.R. No. 179652, May 8, 2009

Sec. 36 - Corporate Powers and Capacity

Sec. 36 (1) - Derivative suits

A derivative action is a suit by a shareholder to enforce a corporate cause of action.

Under the Corporation Code, where a corporation is an injured party, its power to sueis lodged with its board of directors or trustees. But an individual stockholder may be

permitted to institute a derivative suit on behalf of the corporation in order to protect

or vindicate corporate rights whenever the officials of the corporation refuse to sue, or

are the ones to be sued, or hold control of the corporation. In such actions, the

corporation is the real party-in-interest while the suing stockholder, on behalf of the

corporation, is only a nominal party.

Hi-Yield Realty, Inc. vs. Court of Appeals, et al., G.R. No. 168863, June 23, 2009

Requisites of a derivative suit

The following are the requisites before a derivative suit can be filed by a

stockholder:

a) the party bringing suit should be a shareholder as of the time of the


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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.

Filipinas Port Services, Inc., et al. vs. Victoriano S. Go, et al., G.R. No. 161886, March16, 2007

Derivative suit distinguished from individual and representative or class suits.

A derivative suit must be differentiated from individual and representative or classsuits, thus: suits by stockholders or members of a corporation based on wrongful or

fraudulent acts of directors or other persons may be classified into individual suits,

class suits, and derivative suits. Where a stockholder or member is denied the right of

inspection, his suit would be individual because the wrong is done to him personally

and not to the other stockholders or the corporation. Where the wrong is done to a

group of stockholders, as where preferred stockholders' rights are violated, a class or

representative suit will be proper for the protection of all stockholders belonging to

the same group. But where the acts complained of constitute a wrong to the

corporation itself, the cause of action belongs to the corporation and not to the

individual stockholder or member. Although in most every case of wrong to the

corporation, each stockholder is necessarily affected because the value of his interest

therein would be impaired, this fact of itself is not sufficient to give him an individual

cause of action since the corporation is a person distinct and separate from him, and

can and should itself sue the wrongdoer. Otherwise, not only would the theory of

separate entity be violated, but there would be multiplicity of suits as well as a

violation of the priority rights of creditors. Furthermore, there is the difficulty of

determining the amount of damages that should be paid to each individual

stockholder.


December 4, 2009

Basis of stockholder's right to institute a derivative suit.

A stockholder's right to institute a derivative suit is not based on any express


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provision of the Corporation Code, or even the Securities Regulation Code, but is

impliedly recognized when the said laws make corporate directors or officers liable

for damages suffered by the corporation and its stockholders for violation of their

fiduciary duties. In effect, the suit is an action for specific performance of an

obligation, owed by the corporation to the stockholders, to assist its rights of action

when the corporation has been put in default by the wrongful refusal of the directors

or management to adopt suitable measures for its protection. The basis of a

stockholder's suit is always one of equity. However, it cannot prosper without first

complying with the legal requisites for its institution.


December 4, 2009

Requirements for filing a derivative suit.

Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate

Controversies (IRPICC) lays down the following requirements which a stockholder

must comply with in filing a derivative suit: "A stockholder or member may bring an

action in the name of a corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the

action occurred and at the time the action was filed; (2) he exerted all reasonable

efforts, and alleges the same with particularity in the complaint, to exhaust all

remedies available under the articles of incorporation, by-laws, laws or rules

governing the corporation or partnership to obtain the relief he desires; (3) No

appraisal rights are available for the act or acts complained of; and (4) The suit is not

a nuisance or harassment suit.


December 4, 2009

Sec. 36 (7) - A corporation may sell or convey its real properties.

The property of a corporation, however, is not the property of the stockholders or

members, and as such, may not be sold without express authority from the board of

directors. Physical acts, like the offering of the properties of the corporation for sale,

or the acceptance of a counter-offer of prospective buyers of such properties and the

execution of the deed of sale covering such property, can be performed by the

corporation only by officers or agents duly authorized for the purpose by corporate

by-laws or by specific acts of the board of directors. Absent such valid

delegation/authorization, the rule is that the declarations of an individual director


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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 not binding on the

corporation.

Eduardo V. Lintonjua Jr., et al. vs. Eternit Corp., et al., G.R. No. 144805, June 8, 2006

Under these provisions, the power to purchase real property is vested in the

board of directors or trustees. While a corporation may appoint agents to negotiate

for the purchase of real property needed by the corporation, the final say will have to

be with the board, whose approval will finalize the transaction. A corporation can

only exercise its powers and transact its business through its board of directors and

through its officers and agents when authorized by a board resolution or its by-laws.

Riosa v. Tabaco La Suerte Corp., G.R. No. 203786, October 23, 2013, citing Spouses

Firme v. Bukal Enterprises and Development Corp., 460 Phil. 321 (2003)

Sec. 37 - Power to Extend or Shorten Corporate Term

Extension of Corporate term

Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs. Securities & Exchange

Commission, G.R. No. L-23606, July 29, 1968

Sec. 38 - Power to Increase or Decrease Capital Stock; Incur, Create or

Increase Bonded Indebtedness

Requirements of Sec. 38 not complied with

MSCI-NACUSIP vs. NWPC, G.R. No. 125198, March 3, 1997

To validly increase its authorized capital stock, corporation must issue at least

25% of such stock.


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