AF Realty & Devt., Inc. v.
Dieselman Whether or not Dieselman is bound
Freight Services, Co. (2002)
Facts:
Dieselman is a domestic corp.
owning a parcel of commercial lot. In 1988,
Manuel Cruz, a member of Diesels BOD,
issued a letter dominated as Authority to
Sell Real Estate. He authorized Polintan, a
real estate broker, to sell the same.
Polintan, on the other hand, authorized
Felicima Noble to sell the same. The lot was
sold to Zenaida Ranullo, VP of AF Realty,
who issued a 300,000 check to Dieselman.
Polintan received the same and signed an
acknowledgement receipt. When AF Realty
confirmed the same, Ranullo asked for a
board resolution authorizing the sale but the
same was not given. Thereafter, Cruz, as
president of Dieselman, acknowledged the
receipt of partial payment but required AF
Realty to finalize the sale at 4000/sq.m.
When the same was not complied, Cruz
terminated the offer and demanded the
return of the TCT. Aggrieved, AF Realty filed
a complaint for specific performance to
deliver the TCT against Dieselman and
Cruz. It was Dieselmans contention
however, that there was no perfected
contract of sale and that it did not authorize
any person to enter into such transaction.
Meanwhile, Dieselman sold said lot to
Midas Corp. which compelled the latter to
file a Motion for Intervention. The lower
court ruled in favor of AF Realty. On appeal,
the CA reversed and ruled that since there
was no authorization by Dieselman, the sale
to AF Realty is void and the sale to Midas is
valid.
Issue:
by the sale made by Cruz.
Held:
No. Section 23 of the Corporation
Code expressly provides that the corporate
powers of all corporations shall be
exercised by the board of directors. Thus,
contracts or acts of a corporation must be
made either by the board of directors or by
a corporate agent duly authorized by the
board. Absent such valid
delegation/authorization, the rule is that the
declarations of an individual director relating
to the affairs of the corporation, but not in
the course of, or connected with, the
performance of authorized duties of such
director, are held not binding on the
corporation. In the case at bar, Cruz had no
written authority from the BOD to sell the
same. There being no authority, it could not
transfer any authority as well to Polintan nor
to Noble (Nemo dat quod non habet).
Moreover, Art. 1874, NCC provides that
when a sale of piece of land or interest is
through an agent, the authority of the latter
shall be in writing otherwise, the sale is
void. Having had no written authority, the
sale to AF Realty is considered void thus,
incapable of ratification contrary to AF
Realtys contention that ratification took
place when Cruz and Dieselman accepted
the partial payment for the same. On the
other hand, the sale to Midas Co. is valid for
having been authorized by Dieselmans
Board Resolution.
Nectarina Raniel v. Paul Jochico (2007)
Facts:
 Petitioner Raniel was the Corporate
Secretary and Administrator of Nephro
Dialysis Center while Pag-ong was a
Director. Respondent Jochico on the other
hand, is the president of Nephro. A conflict
stemmed when respondent planned to enter
into a joint venture with Butuan Doctors
Hospital which was opposed by petitioner.
On account of this, petitioner claims that
respondent compelled then to waive and
assign their shares in Nephro. Thereafter,
petitioners took an indefinite leave of
absence due to stress. In 1998, Jochico
issued a Notice of Special Board Meeting
and duly notified petitioners of the same.
However, despite said notice, petitioners still
failed to attend the same. In said meeting,
the Board ratified the disapproval of
petitioners request for leave and dismissed
her as the Corporate Secretary. The
position was subsequently took over by
OtelioJochico. Thereafter, another Notice for
Special Stockholders Meeting was issued
with petitioners duly informed of the same,
who still, refused to attend. In said meeting,
petitioners were removed from the BOD
thus, petitioners filed a complaint with SEC
for the Annulment of respondents illegal
acts. The SEC however, ruled in favor of
respondents stating that the corporation,
acting through its BOD, may validly remove
petitioners from their positions. On appeal,
the CA affirmed SECs decision.
Issue:
Whether or not petitioners were
validly removed from their respective
positions.
Held:
Yes. A corporation exercises its
powers through its board of directors and/or
its duly authorized officers and agents,
except in instances where the Corporation
Code requires stockholders approval for
certain specific acts. (Sec. 23)
corporations board of directors is the body
which (1) exercises all powers provided for
under the Corporation Code; (2) conducts
all business of the corporation; and (3)
controls and holds all property of
the corporation. Its members have been
characterized as trustees or directors
clothed with a fiduciary
character. Moreover, the directors may
appoint officers and agents and as incident
to this power of appointment, they may
discharge those appointed. The Board of
Directors had sufficient ground to remove
Raniel as the Corporate Secretary due to
loss of trust and confidence, as her abrupt
and unauthorized leave of absence
exhibited her disregard of her
responsibilities as an officer and disrupted
the operations of Nephro. Thus, she is
considered to have abandoned her
positions. Petitioners were also validly
dismissed from the BOD. SEC. 28. Removal
of directors or trustees. -- Any director or
trustee of a corporation may be removed
from office by a vote of the stockholders
holding or representing at least two-
thirds (2/3) of the outstanding capital
stock. Nephro has five directors two were
occupied by complainants and the
remaining three, by respondents. Thus,
presence of all three respondents in the
Special Meeting of the Board established a
quorum. The unanimous resolutions by the
Board during such meeting are therefore
valid and binding against complainants.
Nephro had a total of 500 shares. 2/3 vote
of the same is 333.33 shares thus, the votes
casted in the Special Meeting (400) shares
was more than enough to oust petitioners
as members of the Board with or without
cause.
Cagayan Valley Drug, Co. v. CIR (2008)
Facts:
Petitioner is a duly licensed retailer
of medicine and pharmaceutical products. In
1995, it granted 20% sales discounts to
senior citizens on purchase of medicines
pursuant to RA 7432. The petitioner treated
the discount as deductions from gross sales
instead as tax credits. On Dec. 1996
however, petitioner filed with the BIR a claim
for tax credit/refund for the full amount of
20% discount which was 123,083.00. On
appeal to the CTA due to BIRs inaction,
CTA ruled that petitioner is not entitled to tax
credit because 1st: RA 7432 only grants the
20% sales discounts extended to qualified
senior citizens as tax credit and not as tax
refund and 2nd: in rejecting the tax credit, the
CTA reasoned that while petitioner may be
qualified for a tax credit, it cannot be so
extended to petitioner on account of its net
loss in 1995. Said decision was appealed by
the petitioner through its President, Jacinto
Concepcion to the CA. The CA, on the other
hand, dismissed the petition on procedural
ground that the person who signed the
verification and certification for non-forum
shopping failed to prove that he was duly
authorized by the Board to do so.
Issue:
WON petitioners president can sign
the subject verification and certification
sans the approval of its Board of Directors.
Held:
The Premium case (ruling: 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.) relied upon by CTA was not on
all fours with the case at bar. With respect to
a juridical person, Rule 7 on verification and
certification for non-forum shopping are
silent as to who the authorized signatory
should be. 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 BOD. Thus, it is clear that
an individual corporate officer cannot solely
exercise any corporate power pertaining to
the corporation without authority from the
BOD. The Court has consistently held that
the following officials or employees of the
company can sign the verification and
certification without need of a board
resolution: (1) the Chairperson of the BOD,
(2) the President, (3) the General Manager
or Acting General Manager, (4) Personnel
Officer, and (5) an Employment Specialist in
a labor case. The rationale is to justify the
authority of corporate officers or
representatives of the corporation to sign
the verification or certificate against forum
shopping, being in a position to verify the
truthfulness and correctness of the
allegations in the petition. The required
submission of the board resolution is
grounded on the precept that corporate
powers are exercised by the BOD, and not
solely by an officer of the
corporation. Hence, the power to sue and
be sued in any court or quasi-judicial
tribunal is necessarily lodged with the said
board. In the case at bar however, there
was substantial compliance with Rule 7,
ROC since: First, the requisite board
resolution has been submitted albeit
belatedly by petitioner. Second, we apply
our ruling in Lepanto with the rationale that
the President of petitioner is in a position to
verify the truthfulness and correctness of
the allegations in the petition; and third, the
President of petitioner has signed the
complaint before the CTA at the inception of
this judicial claim for refund or tax credit.
As to the issue on entitlement of tax
credit, the Court held that Sec. 4 of RA 7432
provides that private establishments may
claim the cost as tax credit thus; the net loss
suffered by petitioner in 1995 does not
preclude the grant of tax credit.
Natividad Reyes v. RCPI Employees
Credit Union, Inc. (2006)
Facts:
In 1986, David Halican and
Estremera, President and Accounting
Officers, respectively of respondent Credit
Union, executed a promissory note in favor
of petitioner, another member of
respondents BOD. When the respondent
defaulted in payment, Halican issued 4
postdated checks which all bounced due to
insufficiency of funds. Thus, petitioner filed
a complaint for sum of money against RCPI
and Halican. It was RCPIs defense that it
did not authorize the signatories of the
promissory note to act for and in behalf of
the corporation hence, plaintiff has no cause
of action against it. It also alleged in its
counterclaim, the amount allegedly
misappropriated by petitioner while serving
as RCPIs treasurer. The trial court ruled in
favor of petitioner while the CA reversed the
same on appeal contending that petitioner
failed to prove that Halican was indeed,
authorized by the BOD to borrow money,
much less execute the subject promissory
note.
Issue:
WON RCPI is liable to the petitioner
on the promissory note executed by its
President and Accounting Officer.
Held:
Hornbook is the rule that a
corporation, may act only through its BOD
or, when authorized either by its by-laws or
by board resolution, through its officers or
agents in the normal course of business.
The respondent denies that it ever
authorized David Halican, to contract a loan
with the petitioner and execute a promissory
note in connection therewith. With that
denial, it behooves upon the petitioner to
establish that Halican was in fact authorized
by the respondent to represent and bind it in
the questioned transaction. Unfortunately
for the petitioner, she failed to discharge her
burden. Thus, Halican's act of executing
and signing the subject promissory note
cannot bind the respondent credit union.
Petitioner was also a member of the BOD
which allegedly resolved to allow the
corporation to borrow money from outside
sources and such being the case, she could
have just presented said board resolution to
prove that Halican was authorized to borrow
money as it can be fairly presumed that she
had access to copies of the defendant
corporation's board resolution. Failing in this
respect, petitioners action was left without
any leg to stand on. As to the contention
that RCPI is in Estoppel when it failed to
state by way of defense, the lack of
authority of Halican to sign the checks in its
criminal complaint for BP 22, considering
that it merely alleged that she could not sue
as she was also a signatory to those checks
is also ruled in negative. As a general rule,
the acts of corporate officers within the
scope of their authority are binding on the
corporation, but when these officers
exceeded their authority, their actions
cannot bind the corporation, unless it has
ratified such acts or is estopped from
disclaiming them. In the case at bar,
petitioner has not shown that the
respondent credit union ratified, expressly
or impliedly, the act of Halican in executing
and signing in its behalf the promissory note
in dispute.
Zomer Development Company, Inc. v.
International Exchange Bank (2009)
Facts:
In 1997, The BOD of Zomer Dvt.
Approved a resolution authorizing the
Treasurer and General Manager to apply
and obtain a credit line with respondent,
IEB. The Board also authorized the
mortgage of its properties to secure the loan
obtained by its sister/subsidiary corp., Prime
Aggregates. Prime Aggregates obtained a
loan iao 90,267,000.00 (obtained through
several loans) thus, Amparo (Treasurer) and
Zosa (General Mgr.) executed a real estate
mortgage for 3 parcels of land. The
mortgaged properties were foreclosed and
sold on a public auction when Prime
defaulted in its payment. This prompted
Zomer Dvt. To file a complaint for Injunction
and for the nullification of the real estate
mortageg on the grounds that Amparo and
Zosa were only authorized to execute it to
secure only one obligation of Prime and that
the real estate mortgage were null and void
for being Ultra Vires as it was not
empowered to mortgage its properties as
security for third-party obligations. The trial
court dismissed the complaint thus, the
instant petition.
Issue:
WON petitioner is bound by the
Resolution alleged to be Ultra Vires.
Held:
While it is true that under its By-
Laws, it is not empowered to mortgage its
properties as a security for the payment of
the obligations of third parties, this is on the
general premise that the properties of a
corporation are regarded as held in trust for
the payment of corporate creditors and not
for the creditors of third parties. However,
the Petitioner is not proscribed from
mortgaging its properties as security for the
payment of obligations of third parties. The
SEC ruled that a private corp., may give a
third party mortgage: when it will be done
for the interest of the corp. AND to secure
the debt of a subsidiary. In the case at bar,
Prime Aggregates was held to be the sister
company of petitioner, which was a family
corp., and that the two (2) corporations are
enhancing, boosting and promoting a
common interest, the interest of family
having ownership of both corporations.
Furthermore, said Third-party mortgage
were duly authorized by the BOD in its
Resolution. Pet.s act of assailing the
authority of its BOD to approve the
said Resolution and of its Treasurer and
General Manager to execute the deed and
brand the Resolution as ultra vires and not
binding on the Petitioner, is of no
moment. Before then, the Petitioner
maintained a stoic silence and adopted a
hands off stance. He who remains silent
when he ought to speak cannot be heard to
speak when he ought to be silent. More, the
transactions between the Petitioner and the
Private Respondent over its properties are
neither malum in se or malum
prohibitum. Hence, the Petitioner cannot
hide behind the cloak of ultra vires for a
defense.
The plea of ultra vires will not be
allowed to prevail, whether interposed for or
against a corporation, when it will not
advance justice but, on the contrary, will
accomplish a legal wrong to the prejudice of
another who acted in good faith.
Estelita Lipat v. Pacific Banking Corp.
(2003)
Facts:
Sps. Lipat owned Belas Export
Trading (BET), engaged in the manufacture
of garments to be exported to Mystical
Fashions in the US, its other corporation. In
1978, Estelita Lipat executed a Special
Power of Attorney authorizing her daughter,
Teresita, to manage BET in the Ph; to obtain
loans from the Pacific Bank on her behalf
and to execute mortgage contracts on
properties owned by her to secure said
loans. In 1979, Teresita obtained a loan
from Pacific Bank and mortgaged the
building owned by the Sps. To secure the
same. The mortgage was said to secure all
other subsequent loans obtained by BET as
well. Thereafter, BET was incorporated into
a family corporation named Belas Export
Corp. (BEC). Subsequent loans were
obtained in the name of BEC thru Teresita,
as well as trust receipts, promissory notes,
export bills and several other finances, all
secured by the mortgage. When BEC
defaulted in payment, the property was
disclosed and was sold at a public auction
to one, Trinidad. Thus, the Sps. Filed before
the RTC a complaint for the Annulment of
the Real Estate Mortgage, the extrajudicial
foreclosure and the auction sale on the
ground that the promissory notes, trust
receipts, export bills were all ultra vires acts
as Teresita was not authorized by a
requisite board resolution of BEC to execute
the same. Petitioners likewise invoked the
Doctrine of Corporate Entity. The court
applied the Alter-Ego Doctrine in piercing
the veil of corporate fiction and dismissed
the complaint. The CA affirmed.
Issue:
WON said acts of Teresita are Ultra
Vires.
Held:
The Doctrine of Piercing the
Corporate Fiction is properly applied in this
case. The Court relied on the alter
ego doctrine or instrumentality rule, rather
than fraud in piercing the veil of corporate
fiction. When the corporation is the
mere alter ego or business conduit of a
person, the separate personality of the
corporation may be disregarded. Where one
corporation is so organized and controlled
and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of
the instrumentality may be disregarded.
Petitioners attempt to isolate themselves
from and hide behind the corporate
personality of BEC so as to evade their
liabilities to Pacific Bank is precisely what
the doctrine of piercing the veil of corporate
entity seeks to prevent and remedy. In our
view, BEC is a mere continuation and
successor of BET, and petitioners cannot
evade their obligations in the mortgage
contract secured under the name of BEC on
the pretext that it was signed for the benefit
and under the name of BET. Thus, the
application of the doctrine in piercing the
corporate veil of BEC is proper.
As to the second issue that the
subsequent loans and credit lines were
Ultra Vires for having been secured by
Teresita w/o a board resolution, the Court
ruled that firstly, it could not have been
possible for BEC to release a board
resolution since per admissions by both
petitioner Estelita Lipat and Alice Burgos,
petitioners rebuttal witness, no business or
stockholders meetings were conducted nor
were there election of officers held since its
incorporation. In fact, not a single board
resolution was passed by the corporate
board. Secondly, the principle of estoppel
precludes petitioners from denying the
validity of the transactions entered into by
Teresita Lipat with Pacific Bank, who in
good faith, relied on the authority of the
former as manager to act on behalf of
petitioner Estelita Lipat and both BET and
BEC. In this case, Teresita Lipat had dealt
with Pacific Bank on the mortgage contract
by virtue of a special power of attorney
executed by Estelita Lipat. It is a 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;
thus, the corporation will, as against anyone
who has in good faith dealt with it through
such agent, be estopped from denying the
agents authority.
Donald Kwok v. Philippine Carpet
Manufacturing Corp. (2005)
Facts:
Petitioner Kwok was the then
Genaral Manager and Executive VP of
PCMC, the President and BOD Chairman of
the same being his father-in-law, Patricio
Lim. When Kwok retired in 1996, he
demanded the cash equivalent of his
unused vacation and sick leaves amounting
to more than 7M. He claims that Lim has
granted him unlimited sick and vacation
leaves as well as the cash conversion of the
same upon its retirement, as one of his
many privileges. When PCMC refused to
pay the same, petitioner filed a complaint
against the respondent corporation before
the NLRC for its recovery, on the basis of
Lims verbal promise on the same. The
corporation, on the other hand claimed that
although Lim has made said verbal promise,
the same is considered unenforceable since
it was not confirmed or approved via
resolution by the BOD. Furthermore,
respondent contends that pet. Could not be
considered entitled to the cash conversion
since he was granted unlimited
vacation/sick leaves thus, there could be no
unused leaves to speak of. On his counter-
argument, petitioner also claims that the
Corporation, having already represented
that Lim has the power to grant said
privileges. The LA ruled in favor of petitioner
which was reversed by the NLRC.
Issue:
WON the verbal promise made by a
corporate officer as to the conversion of
vacation/sick leave credits after retirement
is entitled to weight.
Held:
Petitioner has the burden to prove
his claim. In the case at bar, he failed to
discharge said burden. In the absence of
express provision, a contract need not be in
writing in order to be valid and binding.
Thus, corporate policies need not be in
writing and contracts entered into by a
corporate officer or obligations or
prestations assumed by such officer for and
in behalf of such corporation are binding on
the said corporation only if such officer
acted within the scope of his authority or if
such officer exceeded the limits of his
authority, the corporation has ratified such
contracts or obligations. In the case at bar,
petitioner failed to provide evidence of the
Board Resolution thus, the verbal promise
of Lim could not be held binding to the
corporation. Furthermore, as per the
Boards memorandum, only regular
employees are entitled to the conversion of
unused leave credits hence petitioner, not
being a regular employee, is not entitled to
the same mainly because he was already
granted unlimited leave credits. The general
rule is that, in the absence of authority from
the board of directors, no person, not even
its officers, can validly bind a ground that the 30k amount that she
corporation. Even assuming that Lim did
promise petitioner the cash conversion of
his leaves, we agree with respondent that
this cannot bind the company in the
absence of any Board resolution to that
effect. There is a need to stress that the
personal act of the company president
cannot bind the corporation. As to
petitioners contention that Lim was granted
power by the corporation to grant benefits,
the court ruled that the same must be
accompanied by an authorization, approval
or ratification in order to bind the
corporation. Since there was none in the
case at bar, the alleged verbal promise is
not binding on the part of the corporation.
Trinidad Francisco v. GSIS (1963)
Facts:
In 1956, Trinidad Francisco obtained
a loan iao 400,000 from GSIS and to secure
the same, she executed a real estate
mortgage on the Vic-Mari Compound. Said
compound was foreclosed when petitioner
defaulted in her payments. Thereafter,
petitioners father, Atty. Francisco, wrote a
letter of offer to Mr. Andal, the general
manager of GSIS for the setting aside of the
foreclosure in consideration of an initial
payment of 30,000 plus the payment of the
balance and the right to take over the
administration of the mortgaged property.
This offer was approved by GSIS when Atty.
Francisco received a letter from Mr. Andal
on the approval of the same. When
petitioner made the initial payment and the
subsequent ones (duly accompanied by
receipts) however, GSIS sent a letter for the
payment of her full indebtedness on the
remitted failed to settle her outstanding
obligations plus attorneys fees and other
expenses incident to the foreclosure. It was
GSIS contention that the letter sent by
Andal is erroneous as it failed to express
the true board resolution which provides a
counter-offer that it shall be subject to the
condition that petitioner should pay all the
expenses accompanying the foreclosure.
The title was consolidated to GSIS thus,
petitioner instituted a complaint for specific
performance alleging that the contract was
concluded when the GSIS had accepted the
benefits paid by the petitioner. The trial
court ruled in favor of petitioner stating that
the binding acceptance of the offer was the
Board Resolution and that GSIS had
already unqualifiedly accepted the benefits.
It was Andals defense that the telegram
was not signed by him but was only sent by
the Board Secretary.
Issue:
WON petitioners reliance on Andals
letter which failed to express the true intent
of the Board Resolution is proper.
Held:
The offer of compromise made by
plaintiff in the letter had been validly
accepted, and was binding on the
defendant. There was nothing in the
telegram that hinted at any anomaly, or
ground to suspect its veracity, and the
plaintiff, therefore, could not be blamed for
relying upon it. it is familiar doctrine that if a
corporation knowingly permits one of its
officers, or any other agent, to do acts within
the scope of an apparent authority, and thus
holds him out to the public as possessing
power to do those acts, the corporation will,
as against anyone who has in good faith
dealt with the corporation through such
agent, be estopped from denying his
authority. Therefore, if a private corporation
intentionally or negligently clothes its
officers or agents with apparent power to
perform acts for it, the corporation will be
estopped to deny that such apparent
authority is real, as to innocent third persons
dealing in good faith with such officers or
agents. In the case at bar, the telegram was
signed by Andal, as the general manager
and included the phrases, sent by this
office. The telegram was likewise quoted
verbatim in the remittance by petitioner of
the 30,000 initial payment thus, the officer
was presumed to have been already
informed of the alleged unauthorized
telegram, which is binding to the corp. won
he communicates said knowledge to the
latter. Notwithstanding the same, GSIS still
kept its silence about it and it was only in
1960, when it informed the petitioner of the
alleged mistakes on the same after reaping
the benefits derived from the compromise
agreement. This silence, taken together with
the unconditional acceptance of three other
subsequent remittances from plaintiff,
constitutes in itself a binding ratification of
the original agreement since between two
innocent parties, the one who made it
possible for the wrong to be done should be
the one to bear the resulting loss.
Peoples Aircargo and Warehousing Co.
v. CA (1998)
Facts:
Petitioner Corporations President,
Antonio Punsalan solicited a proposal from
respondent Stefani Sao of PairCargo for a
feasibility study necessary for it to obtain a
license to operate as a customs bonded
warehouse from the Bureau of Customs.
The first contract was executed between
them iao 350,000 despite the objection of
the majority stockholder of petitioner
corporation. Punsalan preferred respondent
due to its connections with the Bureau of
Customs. Accordingly, a second contract
was executed between them for the
feasibility study as well as the
seminar/workshop of petitioners employees
iao 400,000. Petitioner was duly issued a
license by the BOC and its employees were
likewise subjected to a three-day training
seminar by the respondent. Thereafter,
respondent joined the BOC and became the
technical assistant of the Commissioner.
Meanwhile, Punsalan resigned as the
President of petitioner corp. In 1988,
respondent filed a collection suit against
petitioner for its non-payment of the second
contract. It was petitioners defense
however, that the contract was fictitious and
was made by Punsalan without the Board
Resolution/authority. The trial court ruled
that the second contract was simulated and
unenforceable but on appeal, the CA ruled
that the contract was binding declaring that
the corporation had entered into the First
Contract, which was similar to the Second
Contract thus, petitioner had clothed its
president with apparent authority to enter
into the disputed agreement. As it had also
become the practice of the petitioner-
corporation to allow its president to
negotiate and execute contracts necessary
to secure its license as a customs bonded
warehouse without prior board approval, the
board itself, by its acts and through
acquiescence, practically laid aside the
normal requirement of prior express
approval.
Issue:
WON the President had the
apparent authority to bind petitioner on the
second contract.
Held:
The general rule is that, in the
absence of authority from the BOD, no
person, not even its officers, can validly bind
a corporation. In the case at bar, petitioner
had previously allowed its president to enter
into the First Contract with private
respondent without a board resolution
expressly authorizing him; thus, it had
clothed its president with apparent authority
to execute the subject contract. The
argument that it was merely an isolated
transaction and not a customary one is of
no moment since 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 is not the quantity of similar acts
which establishes apparent authority, but
the vesting of a corporate officer with the
power to bind the corporation. Furthermore,
the petitioner, through its president Antonio
Punsalan Jr., entered into the First Contract
without first securing
board approval. Despite such lack of board
approval, petitioner did not object to or
repudiate said contract, thus clothing its
president with the power to bind the
corporation; also, assuming arguendo that
the contract is unenforceable, petitioners
ratification of said contract and acceptance
of benefits have made it binding,
nonetheless.
The president of a corporation
possesses the power to enter into a
contract for the corporation, when the
conduct on the part of both the president
and the corporation [shows] that he had
been in the habit of acting in similar matters
on behalf of the company and that the
company had authorized him so to act and
had recognized, approved and ratified his
former and similar actions.
A party dealing with the president of
a corporation is entitled to assume that he
has the authority to enter, on behalf of the
corporation, into contracts that are within
the scope of the powers of said corporation
and that do not violate any statute or rule on
public policy.
Ong Yong v. David Tiu (2003)
Facts:
In 1994, the construction of
Masagana Citimall was hampered on
account of financial difficulties of its owner,
First Landlink Asia (owned by Tius), due to
its indebtedness iao 190M to PNB.
Subsequently, it entered into a Pre-
Subscription Agreement with the Ongs with
50-50 shareholdings. The Ongs subscribed
to 1M shares at 100 par value and paid
100M in cash for the same. The Tius on the
other hand, agreed to contribute several
properties, including a four-storey building,
to cover their additional stock subscription.
In 1996, the Tius rescinded the Pre-
Subscription Agreement alleging that the
Ongs refused to credit to them the shares
covering the real property contributions and
that they were prevented to assume their
positions as VP and Treasurer of the
Corporation. In their defense, the Ongs
contended however, that their failure to
credit the shares on account of the real
property contributions was by reason of
Tius failure to pay the capital gains and
documentary stamp taxes, without which,
the TCTs could not be issued in favor of the
Corporation and the shares would not be
credited to them. The Tius commenced a
case with the SEC which confimed the
rescission. On appeal, the SEC En Banc
affirmed the same. The CA, on the other
hand, concluded that both the Ongs and the
Tius were in pari delicto (which would not
have legally entitled them to rescission) but,
for practical considerations, that is, their
inability to work together, it was best to
separate the two groups by rescinding the
Pre-Subscription Agreement, returning the
original investment of the Ongs and
awarding practically everything else to the
Tius. It was Ongs contention that rescission
could not be availed of and that the
liquidation of FLADC may not legally be
ordered by the appellate court even for so
called practical considerations or even to
prevent further squabbles and numerous
litigations, since the same are not valid
grounds under the Corporation Code.
Issue:
WON the Tius could legally rescind
the Pre-Subscription Agreement.
Held:
FLADC was originally incorporated
with an authorized capital stock of 500,000.
In order to attain the 50-50 shareholdings,
there was a need to increase the ACP thus,
the same was increased to 2,000,000
shares with the Ongs having 1,000,000 of
the same and Tius, the other 500k.
Therefore, the subject matter of the contract
was the 1M unissued shares of FLADC
stock allocated to the Ongs. Since these
were unissued shares, the parties Pre-
Subscription Agreement was in fact a
subscription contract. A subscription
contract necessarily involves the
corporation as one of the contracting parties
since the subject matter of the transaction is
property owned by the corporation its
shares of stock. Thus, the subscription
contract (Pre-Subscription Agreement)
whereby the Ongs invested P100 million for
1,000,000 shares of stock was, from the
viewpoint of the law, was one between the
Ongs and FLADC, not between the Ongs
and the Tius. Otherwise stated, the Tius did
not contract in their personal capacities with
the Ongs since they were not selling any of
their own shares to them. It was FLADC that
did. Considering that the real contracting
parties to the subscription agreement were
FLADC and the Ongs alone, a civil case for
rescission on the ground of breach of
contract filed by the Tius in their personal
capacities will not prosper. Assuming it had
valid reasons to do so, only FLADC the
legal personality to file suit rescinding the
subscription agreement with the Ongs
inasmuch as it was the real party in interest
therein. Also, rescission could not be had in
this case since there are other remedies
available under this code.
Furthermore, said rescission could not
be permitted as it will violate the Trust Fund
Doctrine. The Trust Fund Doctrine, first
enunciated by this Court in the 1923 case
of Philippine Trust Co. vs. Rivera, provides
that subscriptions to the capital stock of a
corporation constitute a fund to which the
creditors have a right to look for the
satisfaction of their claims. This doctrine is
the underlying principle in the procedure for
the distribution of capital assets, embodied
in the Corporation Code, which allows the
distribution of corporate capital only in three
instances: (1) amendment of the Articles of
Incorporation to reduce the authorized
capital stock, (2) purchase of redeemable
shares by the corporation, regardless of the
existence of unrestricted retained earnings,
and (3) dissolution and eventual liquidation
of the corporation. In the instant case, the
rescission of the Pre-Subscription
Agreement will effectively result in the
unauthorized distribution of the capital
assets and property of the corporation,
thereby violating the Trust Fund Doctrine
and the Corporation Code, since rescission
of a subscription agreement is not one of
the instances when distribution of capital
assets and property of the corporation is
allowed. Tius claim that the complaint
would not result to an unauthorized
liquidation but only to the decrease in the
capital stock is of no moment since the
procedures for the same were not complied
with. Furthermore, it is an improper judicial
intrusion into the internal affairs of the
corporation to compel FLADC to file at the
SEC a petition for the issuance of a
certificate of decrease of stock. Decreasing
a corporations authorized capital stock is
an amendment of the Articles of
Incorporation. It is a decision that only the
stockholders and the directors can make,
considering that they are the contracting
parties thereto otherwise, it would result to
the violation of the business judgment rule.
Moreover, grave injustice would be caused
to the Ongs when said rescission is decreed
since they will receive nothing but the
money they had in 1994 while the Tius will
not only enjoy a windfall estimated to be
anywhere from P450 million to P900 million,
but will also take over an extremely
profitable business without much effort at
all. Without the Ongs, the Tius would have
lost everything they originally invested in
said mall. If only for this and the fact that
this Resolution can truly pave the way for
both groups to enjoy the fruits of their
investments assuming good faith and
honest intentions we cannot allow the
rescission of the subject subscription
agreement.