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Expert Travel & Tours vs.

CA
G.R. No. 152392; May 26, 2005
FACTS:
Korean Airlines (KAL) is a corporation established and
registered in the Republic of South Korea and licensed to do
business in the Philippines. Its general manager in the Philippines is
Suk Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo
and his law firm.
KAL, through appointed counsel, filed a complaint against
Expert Travel with the RTC for the collection of sum of money. The
verification and certification against forum shopping was signed by
the same appointed counsel, who indicated therein that he was the
resident agent and legal counsel of KAL and had caused the
preparation of the complaint. Expert Travel filed a motion to dismiss
the complaint on the ground that the appointed counsel was not
authorized to execute the verification and certificate of non-forum
shopping as required by the Rules of Court. KAL opposed the
motion, contending that he is a resident agent and was registered as
such with the SEC as required by the Corporation Code. He also
claimed that he had been authorized to file the complaint through a
resolution of the KAL Board of Directors approved during a special
meeting, wherein the board of directors conducted a special
teleconference which he attended. It was also averred that in the
same teleconference, the board of directors approved a resolution
authorizing him to execute the certificate of non-forum shopping and
to file the complaint. Suk Kyoo Kim alleged, however, that the
corporation had no written copy of the aforesaid resolution. TC
denied motion to dismiss. CA affirms.
ISSUE:
Can a special teleconference be recognized as legitimate
means to approved a board resolution and authorize an agent to
execute an act in favor of the corporation?
HELD:
YES. In this age of modern technology, the courts may
take judicial notice that business transactions may be made by
individuals through teleconferencing. teleconferencing and
videoconferencing of members of board of directors of private
corporations is a reality, in light of Republic Act No. 8792. The
Securities and Exchange Commission issued SEC Memorandum
Circular No. 15, on November 30, 2001, providing the guidelines to
be complied with related to such conferences.
HOWEVER, in the case at bar, even given the possibility
that Atty. Aguinaldo and Suk Kyoo Kim participated in a
teleconference along with the respondents Board of Directors, the
Court is not convinced that one was conducted; even if there had
been one, the Court is not inclined to believe that a board resolution
was duly passed specifically authorizing Atty. Aguinaldo to file the
complaint and execute the required certification against forum
shopping. Facts and circumstances show that there was gross
failure
http://www.lawphil.net/judjuris/juri2005/may2005/gr_152392_2005.ht
ml - fnt24on the part of company to prove that there was indeed a
special teleconference such as failure to produce a written copy of
the board resolution via teleconference.
NOTE: Read SEC Memo Circular No. 15-2001, the guidelines for
the conduct of teleconferencing and videoconferencing.

EXPERTRAVEL & TOURS, INC., petitioner, vs.


COURT OF APPEALS and KOREAN AIRLINES, respondent.
G.R. No. 152392; May 26, 2005
Facts:
Korean Airlines (KAL) is a corporation established and registered in
the Republic of South Korea and licensed to do business in the
Philippines. Its general manager in the Philippines is Suk Kyoo Kim,
while its appointed counsel was Atty. Mario Aguinaldo and his law
firm.
KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the
Regional Trial Court (RTC) of Manila, for the collection of a sum of
money. The verification and certification against forum shopping was
signed by Atty. Aguinaldo, who indicated therein that he was the
resident agent and legal counsel of KAL and had caused the
preparation of the complaint. ETI filed a motion to dismiss the
complaint on the ground that Atty. Aguinaldo was not authorized to
execute the verification and certificate of non-forum shopping as
required by Section 5, Rule 7 of the Rules of Court. KAL later
submitted an Affidavit executed by its general manager Suk Kyoo

Kim, alleging that the board of directors conducted a special


teleconference, which he and Atty. Aguinaldo attended. It was also
averred that in that same teleconference, the board of directors
approved a resolution authorizing Atty. Aguinaldo to execute the
certificate of non-forum shopping and to file the complaint. Suk Kyoo
Kim also alleged, however, that the corporation had no written copy
of the aforesaid resolution. The trial court issued an Order denying
the motion to dismiss, giving credence to the claims of Atty.
Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors indeed
conducted a teleconference during which it approved a resolution as
quoted in the submitted affidavit. ETI filed a motion for the
reconsideration of the Order, contending that it was inappropriate for
the court to take judicial notice of the said teleconference without
any prior hearing. However, the trial court denied the motion in its
Order dated August 8, 2000. ETI then filed a petition for certiorari
and mandamus, assailing the orders of the RTC. CA afterwards
rendered judgment dismissing the petition, ruling that the verification
and certificate of non-forum shopping executed by Atty. Aguinaldo
was sufficient compliance with the Rules of Court. According to the
appellate court, Atty. Aguinaldo had been duly authorized by the
approved board resolution, and was the resident agent of KAL. As
such, the RTC could not be faulted for taking judicial notice of the
said teleconference of the KAL Board of Directors. ETI filed a motion
for reconsideration of the said decision, which the CA denied.
Issue:
Whether or not the courts can take judicial notice of said
teleconference?
Held:
Yes. In this age of modern technology, the courts may take judicial
notice that business transactions may be made by individuals
through teleconferencing. Teleconferencing is interactive group
communication (three or more people in two or more locations)
through an electronic medium. It represents a unique alternative to
face-to-face (FTF) meetings. In general terms, teleconferencing can
bring people together under one roof even though they are
separated by hundreds of miles. This type of group communication
may be used in a number of ways, and have three basic types: (1)
video conferencing television-like communication augmented with
sound; (2) computer conferencing printed communication through
keyboard
terminals,
and
(3)
audio-conferencing-verbal
communication via the telephone with optional capacity for
telewriting or telecopying.
Teleconferencing and videoconferencing of members of board of
directors of private corporations is a reality, in light of Republic Act
No. 8792. The Securities and Exchange Commission issued SEC
Memorandum Circular No. 15, on November 30, 2001, providing the
guidelines to be complied with related to such conferences. Thus,
the Court agrees with the RTC that persons in the Philippines may
have a teleconference with a group of persons in South Korea
relating to business transactions or corporate governance.

Boyer-Roxas vs. CA
G.R. No. 100866; July 14, 1992
FACTS:
The corporation, Heirs of Eugenia Roxas Inc, was
established to engage in agriculture to develop the properties
inherited from Eugenia Roxas and Eufroncio Roxas, which includes
the land upon which the Hidden Valley Springs Resort was put up,
including various improvements thereon, using corporate funds. The
AOI of Heirs Inc. was amended for this purpose. Heirs Inc. claims
that Boyer-Roxas and Guillermo Roxas had been in possession of
the various properties and improvements in the resort and only upon
the tolerance of the corporation. It was alleged that they committed
acts that impeded the corporations expansion and normal operation
of the resort. They also did not comply with court and regulatory
orders, and thus the corporation adopted a resolution authorizing the
ejectment of the defendants. TC grants. CA affirms. Boyer and
Roxas contend that, being stockholders, their possession of the
properties of the corporation must be respected in view of their
ownership of an aliquot portion of all properties of the corporation.
ISSUE:
WON the possession of the properties in question must be
respected in view of being a stockholder.
HELD:
NO. Regarding properties owned by the corporation,
under the doctrine of corporate entity properties registered in the
name of the corporation are owned by it as an entity separate and
distinct from its members. While shares of stock constitute personal
property, they do not represent property of the corporation. A share

of stock only typifies an aliquot part of the corporations property, or


the right to share in its proceeds to that extent when distributed
according to law and equity, but its holder is not the owner of any
part of the capital of the corporation, nor is he entitled to the
possession of any definite portion of its property or assets. The
stockholder is not a co-owner or tenant in common of the corporate
property.
The corporation has a personality distinct and separate
from its members and transacts business only through its officers or
agents. Whatever authority these officers or agents may have is
derived from the board or other governing body, unless conferred by
the charter of the corporation itself. An officer's power as an agent of
the corporation must be sought from the statute, charter, the by-laws
or in a delegation of authority to such officer, from the acts of the
board of directors, formally expressed or implied from a habit or
custom of doing business.
In this case the elder Roxas who then controlled the
management of the corporation, being the majority stockholder,
consented to the petitioners use and stay within the properties. The
Board did not object and were allowed to stay until it adopted a
resolution to the effect of authorizing to eject them. Since their stay
was merely by tolerance, in deference to the wishes of the majority
stockholder who controlled the corporation, when Roxas died his
actions cannot bind the company forever. There is no provision in
the by-laws or any other resolution authorizing their continued stay.

only for the unexpired term of the his predecessor in office. The
law has authorized the remaining members of the board to fill in a
vacancy only in specified instances, so as not to retard or impair the
corporations operations; yet, in recognition of the stockholders right
to elect the members of the board, it limited the period during which
the successor shall serve only to the unexpired term of his
predecessor in office.
It also bears noting that the vacancy referred to in Section
29 contemplates a vacancy occurring within the directors term
of office. When a vacancy is created by the expiration of a term,
logically, there is no more unexpired term to speak of. Hence,
Section 29 declares that it shall be the corporations stockholders
who shall possess the authority to fill in a vacancy caused by the
expiration of a members term.
NOTE: The court distinguished term and tenure.
Term is the time during which the officer may claim to hold
the office as of right, and fixes the interval after which the several
incumbents shall succeed one another. The term of office is not
affected by the holdover. The term is fixed by statute and it does not
change simply because the office may have become vacant, nor
because the incumbent holds over in office beyond the end of the
term due to the fact that a successor has not been elected and has
failed to qualify.
Tenure represents the term during which the incumbent
actually holds office. The tenure may be shorter (or, in case of
holdover, longer) than the term for reasons within or beyond the
power of the incumbent.

Valle Verde Country Club vs. Africa


G.R. No. 151969; September 4, 2009
FACTS:
Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan),
Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta,
Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray
Gamboa were elected as BOD during the Annual Stockholders
Meeting of petitioner Valle Verde Country Club, Inc. (VVCC).
Requisite quorum could not be obtained so they continued in a holdover capacity.
First resignation: Dinglasan, BOD still constituting a
quorum elected Eric Roxas (Roxas). Second resignation: Makalintal,
Jose Ramirez (Ramirez) was elected by the remaining BOD.
Respondent Africa (Africa), a member of VVCC,
questioned the election of Roxas and Ramirez as members of the
petitioners Board with the SEC and the RTC as contrary to Sec. 23
and 29 of the Corporation Code. He claimed that a year after
Makalintals election as member of the petitioners Board in 1996, his
term as well as those of the other members should be
considered to have already expired. Thus, according to him, the
resulting vacancy should have been filled by the stockholders in a
regular or special meeting called for that purpose, and not by the
remaining members of the petitioners Board. RTC favored
respondent. SEC ruled on the same ground as RTC. Petitioner
appealed in SC for certiorari being partially contrary to law and
jurisprudence.
ISSUE:
Can the members of a corporations board of directors
elect another director to fill in a vacancy caused by the resignation of
a hold-over director?
HELD:
NO. The holdover period is not part of the term of office of
a member of the board of directors. When Section 23 of the
Corporation Code declares that the board of directorsshall 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 members
election to the Board and until his successors election and
qualification is not part of the directors original term of office, nor
is it a new term; the holdover period, however, constitutes part of his
tenure. Corollary, when an incumbent member of the board of
directors continues to serve in a holdover capacity, it implies that the
office has a fixed term, which has expired, and the incumbent is
holding the succeeding term.
The powers of the corporations board of directors
emanate from its stockholders. This theory of delegated power of the
board of directors similarly explains why, under Section 29 of the
Corporation Code, in cases where the vacancy in the corporations
board of directors is caused not by the expiration of a members
term, the successor so elected to fill in a vacancy shall be elected

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


(2009)
G.R. No. 151969

September 4, 2009

FACTS:

February 27, 1996: Ernesto Villaluna, Jaime C. Dinglasan


(Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas
III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee,
Augusto Sunico, and Ray Gamboa were elected as BOD
during the Annual Stockholders Meeting of petitioner Valle
Verde Country Club, Inc. (VVCC)

1997 - 2001: Requisite quorum could not be obtained so


they continued in a hold-over capacity

September 1, 1998: Dinglasan resigned, BOD still


constituting a quorom elected Eric Roxas (Roxas)

November 10, 1998: Makalintal resigned

on March 6, 2001: Jose Ramirez (Ramirez) was elected


by the remaining BOD

Respondent Africa (Africa), a member of VVCC,


questioned the election of Roxas and Ramirez as members of
the VVCC Board with the Securities and Exchange
Commission (SEC) and the Regional Trial Court (RTC) as
contrary to:

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

Sec. 29. Vacancies in the office of director or


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

Makalintal's term should have expired after 1996


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

RTC: Favored Africa - Ramirez as Makalintal's


replacement = null and void

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


and void

VVCC appealed in SC for certiorari being partially contrary


to law and jurisprudence
ISSUES:
W/N there is an unexpired term - NO
W/N the remaining directors of a corporations Board, still
constituting a quorum, can elect another director to fill in a vacancy
caused by the resignation of a hold-over director. - NO

1.
2.

HELD: Petition Denied. RTC Affirmed.


1.

NO

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

not affected by the holdover

fixed by statute and it does not change simply


because the office may have become vacant, nor because the
incumbent holds over in office beyond the end of the term due
to the fact that a successor has not been elected and has failed
to qualify.

tenure

term during which the incumbent actually holds


office.

Section 23 of the Corporation Code: term of BOD only 1


year - fixed and has expired (1 yr after 1996)
2. NO

underlying policy of the Corporation Code is that the


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

theory of delegated power of the board of directors

Section 29 contemplates a vacancy occurring within the


directors term of office (unexpired)

vacancy caused by Makalintals leaving lies with the


VVCCs stockholders, not the remaining members of its board
of directors

officers beyond the scope of authority are unenforceable against the


corporation unless ratified by the corporation.
Evidently, Roxas was not specifically authorized under the
said resolution to grant a right of way in favor of the petitioner on a
portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a
portion thereof. The authority of Roxas, under the resolution, to sell
Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the
authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or
to create or convey real rights thereon. Neither may such authority
be implied from the authority granted to Roxas to sell Lot No. 491-A3-B-2 to the petitioner on such terms and conditions which he
deems most reasonable and advantageous. The general rule is that
the power of attorney must be pursued within legal strictures, and
the agent can neither go beyond it; nor beside it. The act done must
be legally identical with that authorized to be done. In sum, then, the
consent of the respondent to the assailed provisions in the deed of
absolute sale was not obtained; hence, the assailed provisions are
not binding on it.
The doctrine of apparent authority was not applicable in
this case because the president of the company was given a specific
authority by virtue of a board resolution to sell a particular land. Any
actions of the president outside such vested authority shall not bind
the corporation with third party. The apparent power of an agent is to
be determined by the acts of the principal and not by the acts of the
agent.

Hayes vs. Canada Atlantic & Plant Steamship Co.


181 F. 289; 1910
FACTS:
Petitioner is one of the executive committee of respondent
company. In this case, the Executive Committee: (a) removed the
Treasurer and appointed a new one; (b) fixed the annual salary of
the members of the Executive Committee; (c) amended the by-laws
by giving the President the sole authority to call a stockholder's
meeting and a board of directors meeting; and (d) amended the
composition of the Executive Committee by limiting it to just 2
persons.
ISSUE:
Were these actions valid?
HELD:
No, because the Executive Committee usurped the
powers vested in the board and the stockholders. If their actions
were valid, it would put the corporation in a situation wherein only
two men, acting in their own pecuniary interests, would have
absorbed the powers of the entire corporation.
"Full powers" should be interpreted only in the ordinary
conduct of business and not total abdication of board and
stockholders' powers to the Executive Committee. "FULL POWERS"
does not mean unlimited or absolute power.

Woodchild Holdings vs. Roxas Electric


G.R. No. 140667; August 12, 2004
FACTS:
The respondent was the owner of two parcels of land
located along the Sumulong Highway. Petitioner wanted to buy the
one parcel on which it planned to construct its warehouse building.
Roxas, as the president of respondent company, accepted the offer
through the BOD resolution issued by the latter. However, the
respondent posits that Roxas was not so authorized under the May
17, 1991 Resolution of its Board of Directors to impose a burden or
to grant a right of way in favor of the petitioner on Lot No.491-A-3-B1, much less convey a portion thereof to the petitioner. Hence, the
respondent was not bound by such provisions contained in the deed
of absolute sale.
ISSUE:
WON whether the respondent is bound by the provisions
in the deed of absolute sale granting to the petitioner beneficial use
and a right of way over a portion of Lot No. 491-A-3-B-1 accessing to
the Sumulong Highway.
HELD:
NO. Generally, the acts of the corporate officers within the
scope of their authority are binding on the corporation. However,
under Article 1910 of the New Civil Code, acts done by such officers
beyond the scope of their authority cannot bind the corporation
unless it has ratified such acts expressly or tacitly, or is estopped
from denying them. Thus, contracts entered into by corporate

Benguet Electric Cooperative vs. NLRC


G.R. No. 89070; May 18, 1992
FACTS:
Cosalan, GM of the Benguet Electric Cooperative, was
informed by COA that cash advances received by officers and
employees of Benguet Electric had been virtually written off the
books, that per diems and allowances showed substantial
inconsistencies with the directives of the National Electrification
Administration, and that several irregularities in the utilization of
funds released by NEA to Benguet. Cosalan then implemented the
remedial measures recommended by COA. Board members of
Benguet responded by abolishing the housing allowance of Cosalan,
reduced his salary, representation and other allowances, and
directed him to hold in abeyance all disciplinary actions, and struck
his name out as principal signatory of Benguet Electric. The Board
adopted another series of resolutions which resulted in the ouster of
Cosalan as GM. Cosalan nonetheless continued to work as GM,
contending that only the NEA can suspend and remove him. The
Board then refused to act on Cosalan request to release
compensation due him. Cosalan files a complaint with the NLRC
against the Board of Benguet Electric, and impleaded Benguet
Electric itself as well as the individual members of the board in their
official and private capacities. Labor Arbiter rules in favor of Cosalan,
holding both the company and the board solidarily liable to Cosalan.
NLRC modifies award to Cosalan by declaring Benguet alone, and
not the Board members, was liable to Cosalan. Benguet appeals.

G.R. No. L-45911; April 11, 1979


ISSUE:
WON both the corporation and board members are liable
to Cosalan.

ISSUE:
WON the amended by-laws of SMC of disqualifying a
competitor (Interlocking director) from nomination or election to the
Board of Directors of SMC are valid and reasonable.

HELD:
YES. The Board members and officers of a corporation
who purport to act for and in behalf of the corporation, keep within
the lawful scope of their authority in so acting, and act in good faith,
do not become liable, civilly or otherwise, for the consequences of
their acts. Those acts are properly attributed to the corporation alone
and no personal liability is incurred. In this case, the board members
obviously wanted to get rid of Cosalan and acted with indecent haste
in removing him from his GM position. This shows strong indications
that the members of the board had illegally suspended and
dismissed him precisely because he was trying to rectify the financial
irregularities.
The Board members are also liable for damages under
Sec. 31 of the Corporation Code, which by virtue of Sec. 4 thereof,
makes it applicable in a supplementary manner to all corporations,
including those with special or individual charters so long as these
are not inconsistent therewith.
The Board members are also guilty of gross negligence
and bad faith in directing the affairs of the corporation in enacting the
said resolutions, and in doing so, acted beyond the scope of their
authority.

Prime White Cement vs. IAC


G.R. No. L-68555; March 19, 1993
FACTS:
Prime White Cement entered into a dealership agreement
with one of its directors, Alejandro Te, for the latter to be the
exclusive distributor of 20,000 bags of Prime White cement per
month @ P9.70 per bag for the entire Mindanao area for 5 years,
and that a letter of credit be opened to secure payment. Te
advertised his dealership and was able to obtain possible clients,
and entered into agreements with several hardware stores for the
purchase of the cement. Te then informed Prime White of the orders,
but the latter imposed additional conditions, which effectively
delayed the delivery of the cement, lowered the number of bags to
be delivered, and increased the price per bag. It also made the
prices subject to change unilaterally and additional conditions on the
manner of payment. Te refused to comply and Prime White
cancelled the dealership agreement. Te sued for specific
performance and damages. TC ruled in favor of Te.
ISSUE:
WON the dealership agreement is a valid and enforceable
contract binding on the corporation.
HELD:
NO. It is not valid and enforceable. All corporate powers
are exercised by the Board. It may also delegate specific powers to
its President or other officers. In the absence of express delegation,
a contract entered into by the President in behalf of the corporation,
may still bind the latter if the board should ratify expressly or
impliedly. In the absence of express or implied ratification, the
President may as a general rule bind the corporation through a
contract in the ordinary course of business, provided the same is
reasonable under the circumstances. These rules are applicable
where the President or other officer acting for the corporation is
dealing with a third person.
The situation is different where a director or officer is
dealing with his own corporation. Te was not an ordinary
stockholder; he was a member of the Board and Auditor of the
corporation. He is what is often called a self-dealing director. As
a director, he holds a position of trust and owes a duty of loyalty to
his corporation. In case his interests conflict with those of the
corporation, he cannot sacrifice the latter to his own advantage and
benefit. The trust relationship springs from the control and guidance
of the corporate affairs and property interests of the stockholders. A
directors contract with his corporation is not in all instances void or
voidable. If the contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders provided a full
disclosure of his adverse interest is made.

Gokongwei Jr. vs. SEC et. al. (supra)

HELD:
Under US corporate law, corporations have the power to
make by-laws declaring a person employed in the service of a rival
company to be ineligible for the corporation's Board of Directors. ...
An amendment which renders ineligible, or if elected, subjects to
removal, a director if he be also a director in a corporation whose
business is in competition with or is antagonistic to the other
corporation is valid." This is based upon the principle that where the
director is so employed in the service of a rival company, he cannot
serve both, but must betray one or the other. Such an amendment
"advances the benefit of the corporation and is good." In the
Philippines, section 21 of the Corporation Law expressly provides
that a corporation may make by-laws for the qualifications of
directors. Thus, it has been held that an officer of a corporation
cannot engage in a business in direct competition with that of the
corporation where he is a director by utilizing information he has
received as such officer, under "the established law that a director or
officer of a corporation may not enter into a competing enterprise
which cripples or injures the business of the corporation of which he
is an officer or director.
It is also well established that corporate officers "are not
permitted to use their position of trust and confidence to further their
private interests." In a case where directors of a corporation
cancelled a contract of the corporation for exclusive sale of a foreign
firm's products, and after establishing a rival business, the directors
entered into a new contract themselves with the foreign firm for
exclusive sale of its products, the court held that equity would regard
the new contract as an offshoot of the old contract and, therefore, for
the benefit of the corporation, as a "faultless fiduciary may not reap
the fruits of his misconduct to the exclusion of his principal.

Strong vs. Repide


G.R. No. L-2101; November 15, 1906
FACTS:
This action was brought to recover 800 shares of the
capital stock of the Philippine Sugar Estates Development Company,
Limited, an anonymous society formed to hold the Dominican friar
lands.
The shares were the property of one of the plaintiffs, Mrs.
Strong, as part of the estate of her first husband. They were
purchased by the defendant through a broker who dealt with her
agent, one Jones, who had the script in her possession and who had
made the sale without the knowledge of the plaintiff. The defendant
was a director, was the managing agent, and was in his own right
the majority stockholder of the society.
ISSUE:
WON a director and majority stockholder must disclose his
information to another stockholder before buying stock from him.
HELD:
YES. The director and controlling stockholder who
purchased the shares of another stockholder through an agent was
held to be guilty of concealing the impending purchase of the friar
lands they own by the government, a significant fact which would
affect the price of the shares.
Although ordinarily, the relationship between directors and
stockholders of a corporation is not of a fiduciary character as to
oblige the director to disclose to a stockholder the general
knowledge which he may possess regarding the value of the shares
of the company before he purchases any form a shareholder, there
are cases when such duty and obligation upon the director is
present. Being the chief negotiator for the sale of the lands, the
director was the only person who knew of the advantages and the
impending increase in the value of the shares such that he is
precluded from acquiring stocks from other shareholders without first
informing them of the pertinent facts affecting the value of the shares
being bought. It is fraudulent for a stockholder to buy from a
shareholder without disclosing his identity.

NOTE: Special Facts Doctrine: a doctrine holding that a corporate


officer with superior knowledge gained by virtue of being an insider
owes a limited fiduciary duty to a shareholder in transactions
involving transfer of stock.