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CORPORATION LAW OUTLIUNE

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3. Y-1 Leisure v, Yu GR 207161; Sept. 8, 2015

Doctrine: The exception of the Nell doctrine, which finds its legal basis under Section 40, provides that
the transferee corporation assumes the debts and liabilities of the transferor corporation because it is
merely a continuation of the latter's business. A cursory reading of the exception shows that it does not
require the existence of fraud against the creditors before it takes full force and effect. Indeed, under
the Nell Doctrine, the transferee corporation may inherit the liabilities of the transferor despite the lack
of fraud due to the continuity of the latter's business.

2. Pirovano, et al v. De la Rama 96 Phil. 335 (1954)

Where the corporation was given broad and almost unlimited powers to carry out the purposes for
which it was organized among them, to aid in any other manner any person in the affairs and prosperity
of whom it has a lawful interest, a donation made to the heirs of its late president in recognition of the
valuable services rendered by the latter which had immensely contributed to its growth, comes within
this broad grant of power and cannot be considered an ultra vires act. Granting arguendo that the
donation given to the Pirovano children is outside the scope of the powers of the defendant
corporation, or the scope of the powers that it may exercise under the law, or it is an ultra vires act, still
it may be said that the same cannot be invalidated, or declared legally ineffective for that reason alone,
it appearing that the donation represents not only the act of the Board of Directors but of the
stockholders themselves as shown by the fact that the same has been expressly ratified in a resolution
duly approved by the latter. By this ratification, the infirmity of the corporate act, if any has been
obliterated thereby making the act perfectly valid and enforceable.

3. Carlos v. Mindoro Sugar Corp. GR L-36207; Oct. 26, 1932

A corporation which has power by its charter to issue its own bonds has power to guarantee the bonds
of another corporation, which has been taken in payment of a debt due to it, and which it sells or
transfers in payment of its own debt, the guaranty being given to enable it to dispose of the bond to
better advantage. And so guaranties of payment of bonds taken by a loan and trust company in the
ordinary course of its business, made in connection with their sale, are not ultra vires, and are binding.
When a contract is not on its face necessarily beyond the scope of the power of the corporation by
which it was made, it will, in the absence of proof to the contrary, be presumed to be valid.

4. Rep. v. Acoje Mining 7 SCRA 631 (1963)


While as a rule an ultra vires act is one committed outside the object for which a corporation is created
as defined by the law of its organization and therefore beyond the powers conferred upon it by law,
there are however certain corporate acts that may be performed outside of the scope of the powers
expressly conferred if they are necessary to promote the interest or welfare of the corporation. Even
assuming arguendo that the resolution in question constitutes an ultra vires act, the Court ruled that,
where the ultra vires transaction has been executed by the other party and the corporation has received
the benefit of it, the law interposes an estoppel, and will not permit the validity of the transaction or
contract to be questioned, and this is especially true where there is nothing in the circumstances to put
the other party to the transaction on notice that the corporation has exceeded its powers in entering
into it and has in so doing overstepped the line of corporate privileges.

5. Gokongwei Jr. v. SEC, et al. 89 SCRA 336 (1979)

There is no question that a corporation, like an individual, may ratify and thereby render binding upon it
the originally unauthorized acts of its officers or other agents. "Mere ultra vires acts", "or those which
are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are
merely voidable and may become binding and enforceable when ratified by the stockholders. Thus, the
mere fact that respondent corporation submitted the assailed investment to the stockholders for
ratification at the annual meeting of May 10, 1977 cannot be construed as an admission that respondent
corporation had committed an ultra vires act, considering the common practice of corporations of
periodically submitting for the gratification of their stockholders the acts of their directors, officers and
managers.

6. Boyer-Roxas v. CA 211 SCRA 470

The corporation transacts its business only through its officers or agents. Whatever authority these
officers or agents may have is derived from the board of directors or other governing body unless
conferred by the charter of the corporation. An officer's power as an agent of the corporation must be
sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from the
acts of the board of directors, formally expressed or implied from a habit or custom of doing business.

7. Expert Travel & Tours v. CA 459 SCRA 147

In this age of modern technology, the courts may take judicial notice that business transactions may be
made by individuals through teleconferencing. Teleconferencing is interactive group communication
(three or more people in two or more locations) through an electronic medium. In the Philippines,
teleconferencing and videoconferencing of members of board of directors of private corporations is a
reality, in light of Republic Act No. 8792.

8. Rev. Ao-as v. CA June 20, 2006

The stipulation in the By-Laws providing for the election of the Board of Directors by districts is a form of
limitation on the voting rights of the members of a non-stock corporation as recognized under Section
89. This is an exception to Section 6 of the same code where it is provided that "no share may be
deprived of voting rights except those classified and issued as ‘preferred’ or ‘redeemable’ shares, unless
otherwise provided in this Code." Section 24, which requires the presence of a majority of the members
entitled to vote in the election of the board of directors, applies only when the directors are elected by
the members at large, such as is always the case in stock corporations by virtue of Section 6.

9. Tan v. Sycip G.R. 153468 (Aug.17, 2006)

For stock corporations, the "quorum" referred to in Section 52 of the Corporation Code is based on the
number of outstanding voting stocks. For nonstock corporations, only those who are actual, living
members with voting rights shall be counted in determining the existence of a quorum during members’
meetings. Dead members shall not be counted.

10. Valle Verde v. Africa Sept. 4, 2009

When Section 23 of the Corporation Code declares that "the board of directors…shall hold office
for one (1) year until their successors are elected and qualified," we construe the provision to mean that
the term of the members of the board of directors shall be only for one year; their term expires one year
after election to the office. The holdover period – that time from the lapse of one year from a member’s
election to the Board and until his successor’s election and qualification – is not part of the director’s
original term of office, nor is it a new term; the holdover period, however, constitutes part of his tenure.
It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within
the director’s term of office; thus, when a vacancy is created by the expiration of a term, 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.

11. Except where the authority of employing servants and agents is expressly vested in the board of
directors or trustees, an officer or agent who has general control and management of the corporation’s
business, or a specific part thereof, may bind the corporation by the employment of such agents and
employees as are usual and necessary in the conduct of such business. But the contracts of
employment must be reasonable. Yu Chuck v. “Kong Li Po,” 46 Phil. 608 (1924).

12. Under Article 1910 of the New Civil Code, acts done by such officers beyond the scope of their
authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped
from denying them. Thus, contracts entered into by corporate officers beyond the scope of
authority are unenforceable against the corporation unless ratified by the Corporation. Woodchild
Holdings, Inc. v. Roxas Electric Constructions Co., Inc., 436 SCRA 235 (2004).

13. It is the Board of Directors, not the President, that exercises corporate powers. It must be
emphasized that the basis for agency is representation and a person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent. It is familiar doctrine that if a
corporation knowingly permits one of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public as possessing the power to do those acts; and thus,
the corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent's authority People’s Aircargo v. Court of Appeals, 297 SCRA 170
(1998).

14. In conformity with Section 25 of the Corpo Code, whoever are the corporate officers enumerated in
the by-laws are the exclusive officers of the corporation and the Board has no power to create other
officers without amending first the corporate by-laws. However, the Board may create appointive positions
other than the positions of the corporate officers but the persons occupying such position are not
considered as corporate officers within the meaning of Section 25 and are not empowered to exercise the
functions of corporate officers except those functions lawfully delegated to them. Their functioning and
duties are to be determined by the Board. Marc ll v. Joson Dec. 12,
2011

15. Section 11, Rule 14 of the 1997 Rules of Civil Procedure uses the term “general manager” and
unlike the old provision in the Rules of Court, it does not include the term “agent”. Consequently, the
enumeration of persons to whom summons may be served is “restricted, limited and exclusive”
following the rule on statutory construction expressio unios est exclusion alterius. Therefore, the
earlier cases that uphold service of summons upon a construction project manager; a corporation’s
assistant manager; ordinary clerk of a corporation; private secretary of corporate executives;
retained counsel; officials who had charge or control of the operations of the corporation, like the
assistant general manager;48 or the corporation’s Chief Finance and Administrative Officer; no longer
apply since they were decided under the old rule that allows service of summons upon an agent of
the corporation. E.B. Villarosa & Partners Co., Ltd. v. Benito, 312 SCRA 65 (1999)

16. The following officials or employees of the company can sign the verification and certification against
forum shopping without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the
President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer,
and (5) an Employment Specialist in a labor case. Cagayan Valley Drug v. CIR Feb. 13, 2008

17. The raison d’etre behind the conferment of corporate powers on the Board of Directors is not lost
on the Court – indeed, the concentration in the Board of the powers of control of corporate business
and appointment of corporate officers and managers is necessary for efficiency in any large
organization. Stockholders are too numerous, scattered and unfamiliar with the business of a
corporation to conduct its business directly and so the plan of corporate organization is for the
stockholders to choose the directors who shall control and supervise the conduct of corporate
business. It is within the power of the Board of Directors to authorize any person or committee to
undertake corporate acts. The board has power to constitute even an executive committee, even when no
such committee is provided for in the articles and by-laws of the corporation Filipinas Port Services v.
Go, 518 SCRA 453 (2007).

18. For stock corporations, the “quorum” referred to in Section 52 of the Corporation Code is based on
the number of outstanding voting stocks. For nonstock corporations, only those who are actual, living
members with voting rights shall be counted in determining the existence of a quorum during
members’ meetings. Dead members shall not be counted. In stock corporations, the presence of a
quorum is ascertained and counted on the basis of the outstanding capital stock, as defined by Section
137 of the Corporation Code. When the principle for determining quorum for stock corporations is applied
by analogy to nonstock corporations, only those who are actual members with voting rights should be
counted. Tan v. Sycip, 499 SCRA 216 (2006).

Lim v. Moldex Land, Inc. Jan. 25, 2017

Section 90 of the Corporation Code states that membership in


a non-stock corporation and all rights arising therefrom are
personal and non-transferable, unless the articles of incorporation
or the by-laws otherwise provide.

Western Institute of Technology v. Salas 278 SCRA 216

The phrase as such directors is not without significance for it delimits


the scope of the prohibition to compensation given to them for
services performed purely in their capacity as directors or trustees.
The unambiguous implication is that members of the board may
receive compensation, in addition to reasonable per diems, when
they render services to the corporation in a capacity other than as
directors/trustees.

Board of Liquidators v. Kalaw 20 SCRA 987

The board of directors of a corporation holds the duty to


act for the corporation according to their best judgment, and
in so doing it cannot be controlled in the reasonable
exercise and performance of such duty. So long as it act
in good faith its orders are not reviewable by the court

Benguet Electric Coop. v. NLRC 209 SCRA 55

Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees shall
be jointly liable and severally for all damages resulting therefrom suffered by
the corporation, its stockholders or members and other persons
Prime White Cement v. IAC 220 SCRA 103

A director's contract with his corporation is not in all instances void


or voidable. If the contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders provided a full
disclosure of his adverse interest is made.

Gokongwei v. SEC et al. 89 SCRA 336

Where the two competing firms control a substantial segment of


the market this could lead to collusion and combination in restraint
of trade. Reason and experience point to the inevitable conclusion
that the inherent tendency of interlocking directorates between
companies that are related to each other as competitors is to blunt
the edge of rivalry between the corporations, to seek out ways of
compromising opposing interests, and thus eliminate competition.

Strong v. Repide 41 Phil. 947

The ordinary relations between directors and shareholders in a


business corporation are not of such a fiduciary nature as to
make it the duty of a director to disclose to a shareholder
the general knowledge which he may possess regarding the
value of the shares of the company before he
purchases any from a shareholder, yet there are cases where,
by reason of the special facts, such duty exists. The purchaser
of corporate stock cannot escape liability for his fraud in
concealing facts affecting its value which he was in good faith
bound to disclose, on the theory that, because of the insistence
of the seller that her agent was not authorized to make the
sale, there had never been any consent on her part, obtained
by fraud or otherwise, where the court finds that the agent's
authority was sufficient.
Steinberg v. Velasco 52 Phil. 953

The creditors of a corporation have the right to assume that


so long as there are debts and liabilities, the board of directors
of the corporation will not use its assets to purchase its own
stock or to declare dividends to its stockholders when the
corporation is insolvent

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