G.R. No. L-15092 May 18, 1962
a Que si durante la vigencia de este contrato de Molienda
ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants,
vs.
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.
Tañada, Teehankee and Carreon for plaintiffs-appellants.
Hilado and Hilado for defendant-appellee.
REYES, J.B.L., J.:
Appeal on points of law from a judgment of the Court of First Instance of Occidental
Negros, in its Civil Case No. 2603, dismissing plaintiff's complaint that sought to compel
the defendant Milling Company to increase plaintiff's share in the sugar produced from
their cane, from 60% to 62.33%, starting from the 1951-1952 crop year.1äwphï1.ñët
It is undisputed that plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano,
and the Limited co-partnership Gonzaga and Company, had been and are sugar
planters adhered to the defendant-appellee's sugar central mill under identical milling
contracts. Originally executed in 1919, said contracts were stipulated to be in force for
30 years starting with the 1920-21 crop, and provided that the resulting product should
be divided in the ratio of 45% for the mill and 55% for the planters. Sometime in 1936, it
was proposed to execute amended milling contracts, increasing the planters' share to
60% of the manufactured sugar and resulting molasses, besides other concessions, but
extending the operation of the milling contract from the original 30 years to 45 years.
To this effect, a printed Amended Milling Contract form was drawn up. On August 20,
1936, the Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a
resolution (Acts No. 11, Acuerdo No. 1) granting further concessions to the planters
over and above those contained in the printed Amended Milling Contract. The bone of
contention is paragraph 9 of this resolution, that reads as follows:
ACTA No. 11
SESSION DE LA JUNTA DIRECTIVA
AGOSTO 20, 1936
xxx xxx xxx
Acuerdo No. 1. — Previa mocion debidamente secundada, la Junta en
consideracion a una peticion de los plantadores hecha por un comite
nombrado por los mismos, acuerda enmendar el contrato de
molienda enmendado medientelas siguentes:
xxx xxx xxx
9.
Enmendado, lascentrales azucareras, de Negros Occidental, cuya
produccion anual de azucar centrifugado sea mas de una tercera
parte de la produccion total de todas lascentrales azucareras de
Negros Occidental, concedieren a sus plantadores mejores
condiciones que la estipuladas en el presente contrato, entonces
esas mejores condiciones se concederan y por el presente se
entenderan concedidas a los platadores que hayan otorgado este
Contrato de Molienda Enmendado.
Appellants signed and executed the printed Amended Milling Contract on September
10, 1936, but a copy of the resolution of August 10, 1936, signed by the Central's General
Manager, was not attached to the printed contract until April 17, 1937; with the
notation —
Las enmiendas arriba transcritas forman parte del contrato de molienda
enmendado, otorgado por — y la Bacolod-Murcia Milling Co., Inc.
In 1953, the appellants initiated the present action, contending that three Negros sugar
centrals (La Carlota, Binalbagan-Isabela and San Carlos), with a total annual production
exceeding one-third of the production of all the sugar central mills in the province, had
already granted increased participation (of 62.5%) to their planters, and that under
paragraph 9 of the resolution of August 20, 1936, heretofore quoted, the appellee had
become obligated to grant similar concessions to the plaintiffs (appellants herein). The
appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging
that the stipulations contained in the resolution were made without consideration; that
the resolution in question was, therefore, null and void ab initio, being in effect a
donation that was ultra vires and beyond the powers of the corporate directors to
adopt.
After trial, the court below rendered judgment upholding the stand of the defendant
Milling company, and dismissed the complaint. Thereupon, plaintiffs duly appealed to
this Court.
We agree with appellants that the appealed decisions can not stand. It must be
remembered that the controverted resolution was adopted by appellee corporation as
a supplement to, or further amendment of, the proposed milling contract, and that it
was approved on August 20, 1936, twenty-one days prior to the signing by appellants
on September 10, of the Amended Milling Contract itself; so that when the Milling
Contract was executed, the concessions granted by the disputed resolution had been
already incorporated into its terms. No reason appears of record why, in the face of
such concessions, the appellants should reject them or consider them as separate and
apart from the main amended milling contract, specially taking into account that
appellant Alfredo Montelibano was, at the time, the President of the Planters
Association (Exhibit 4, p. 11) that had agitated for the concessions embodied in the
resolution of August 20, 1936. That the resolution formed an integral part of the
amended milling contract, signed on September 10, and not a separate bargain, is
further shown by the fact that a copy of the resolution was simply attached to the
printed contract without special negotiations or agreement between the parties.
It follows from the foregoing that the terms embodied in the resolution of August 20,
1936 were supported by the same causa or consideration underlying the main amended
milling contract; i.e., the promises and obligations undertaken thereunder by the
planters, and, particularly, the extension of its operative period for an additional 15
years over and beyond the 30 years stipulated in the original contract. Hence, the
conclusion of the court below that the resolution constituted gratuitous concessions
not supported by any consideration is legally untenable.
All disquisition concerning donations and the lack of power of the directors of the
respondent sugar milling company to make a gift to the planters would be relevant if
the resolution in question had embodied a separate agreement after the appellants
had already bound themselves to the terms of the printed milling contract. But this was
not the case. When the resolution was adopted and the additional concessions were
made by the company, the appellants were not yet obligated by the terms of the
printed contract, since they admittedly did not sign it until twenty-one days later, on
September 10, 1936. Before that date, the printed form was no more than a proposal
that either party could modify at its pleasure, and the appellee actually modified it by
adopting the resolution in question. So that by September 10, 1936 defendant
corporation already understood that the printed terms were not controlling, save as
modified by its resolution of August 20, 1936; and we are satisfied that such was also
the understanding of appellants herein, and that the minds of the parties met upon
that basis. Otherwise there would have been no consent or "meeting of the minds",
and no binding contract at all. But the conduct of the parties indicates that they
assumed, and they do not now deny, that the signing of the contract on September 10,
1936, did give rise to a binding agreement. That agreement had to exist on the basis of
the printed terms as modified by the resolution of August 20, 1936, or not at all. Since
there is no rational explanation for the company's assenting to the further concessions
asked by the planters before the contracts were signed, except as further inducement
for the planters to agree to the extension of the contract period, to allow the company
now to retract such concessions would be to sanction a fraud upon the planters who
relied on such additional stipulations.
The same considerations apply to the "void innovation" theory of appellees. There can
be no novation unless two distinct and successive binding contracts take place, with
the later designed to replace the preceding convention. Modifications introduced
before a bargain becomes obligatory can in no sense constitute novation in law.
Stress is placed on the fact that the text of the Resolution of August 20, 1936 was not
attached to the printed contract until April 17, 1937. But, except in the case of statutory
forms or solemn agreements (and it is not claimed that this is one), it is the assent and
concurrence (the "meeting of the minds") of the parties, and not the setting down of
its terms, that constitutes a binding contract. And the fact that the addendum is only
signed by the General Manager of the milling company emphasizes that the addition
was made solely in order that the memorial of the terms of the agreement should be
full and complete.
Much is made of the circumstance that the report submitted by the Board of Directors
of the appellee company in November 19, 1936 (Exhibit 4) only made mention of 90%,
the planters having agreed to the 60-40 sharing of the sugar set forth in the printed
"amended milling contracts", and did not make any reference at all to the terms of the
resolution of August 20, 1936. But a reading of this report shows that it was not
intended to inventory all the details of the amended contract; numerous provisions of
the printed terms are alao glossed over. The Directors of the appellee Milling Company
had no reason at the time to call attention to the provisions of the resolution in
question, since it contained mostly modifications in detail of the printed terms, and the
only major change was paragraph 9 heretofore quoted; but when the report was
made, that paragraph was not yet in effect, since it was conditioned on other centrals
granting better concessions to their planters, and that did not happen until after 1950.
There was no reason in 1936 to emphasize a concession that was not yet, and might
never be, in effective operation.
There can be no doubt that the directors of the appellee company had authority to
modify the proposed terms of the Amended Milling Contract for the purpose of making
its terms more acceptable to the other contracting parties. The rule is that —
It is a question, therefore, in each case of the logical relation of the act to the
corporate purpose expressed in the charter. If that act is one which is lawful in
itself, and not otherwise prohibited, is done for the purpose of serving
corporate ends, and is reasonably tributary to the promotion of those ends, in
a substantial, and not in a remote and fanciful sense, it may fairly be
considered within charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the corporation's business,
fairly incident to the express powers and reasonably necessary to their
exercise. If so, the corporation has the power to do it; otherwise, not.
(Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)
As the resolution in question was passed in good faith by the board of directors, it is
valid and binding, and whether or not it will cause losses or decrease the profits of the
central, the court has no authority to review them.
They hold such office charged with the duty to act for the corporation
according to their best judgment, and in so doing they cannot be controlled in
the reasonable exercise and performance of such duty. Whether the business
of a corporation should be operated at a loss during depression, or close
down at a smaller loss, is a purely business and economic problem to be
determined by the directors of the corporation and not by the court. It is a
well-known rule of law that questions of policy or of management are left
solely to the honest decision of officers and directors of a corporation, and the
 court is without authority to substitute its judgment of the board of directors;
the board is the business manager of the corporation, and so long as it acts in
good faith its orders are not reviewable by the courts. (Fletcher on
Corporations, Vol. 2, p. 390).
And it appearing undisputed in this appeal that sugar centrals of La Carlota, Hawaiian
Philippines, San Carlos and Binalbagan (which produce over one-third of the entire
annual sugar production in Occidental Negros) have granted progressively increasing
participations to their adhered planter at an average rate of
62.333% for the 1951-52 crop year;
64.2% for 1952-53;
64.3% for 1953-54;
64.5% for 1954-55; and
63.5% for 1955-56,
the appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of
August 20, 1936, duty bound to grant similar increases to plaintiffs-appellants herein.
WHEREFORE, the decision under appeal is reversed and set aside; and judgment is
decreed sentencing the defendant-appellee to pay plaintiffs-appellants the differential
or increase of participation in the milled sugar in accordance with paragraph 9 of the
appellee Resolution of August 20, 1936, over and in addition to the 60% expressed in
the printed Amended Milling Contract, or the value thereof when due, as follows:
0,333% to appellants Montelibano for the 1951-1952 crop year, said appellants
having received an additional 2% corresponding to said year in October, 1953;
2.333% to appellant Gonzaga & Co., for the 1951-1952 crop year; and to all
appellants thereafter —
4.2% for the 1952-1953 crop year;
4.3% for the 1953-1954 crop year;
4.5% for the 1954-1955 crop year;
3.5% for the 1955-1956 crop year;
with interest at the legal rate on the value of such differential during the time they
were withheld; and the right is reserved to plaintiffs-appellants to sue for such
additional increases as they may be entitled to for the crop years subsequent to those
herein adjudged.
Costs against appellee, Bacolod-Murcia Milling Co.
Philippine Stock Exchange Inc. vs Court of Appeals
281 SCRA 232 [GR No. 125469 October 27, 1997]
Facts: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought
to offer its shares to the public in order to raise funds allegedly to develop its
properties and pay its loans with several banking institutions. In January, 1995, PALI
was issued a permit to sell its shares to the public by the Securities and Exchange
Commission (SEC). To facilitate the trading of its shares among investors, PALI sought
to course the trading of its shares through the Philippine Stock Exchange Inc. (PSEi),
for which purpose it filed with the said stock exchange an application to list its shares,
with supporting documents attached pending the approval of the PALI’s listing
application, a letter was received by PSE from the heirs of Ferdinand Marcos to which
the latter claims to be the legal and beneficial owner of some of the properties forming
part of PALI’s assets. As a result, PSE denied PALI’s application which caused the latter
to file a complaint before the SEC. The SEC issued an order to PSE to grant listing
application of PALI on the ground that PALI have certificate of title over its assets and
properties and that PALI have complied with all the requirements to enlist with PSE.
Issue: Whether or not the denial of PALI’s application is proper.
Held: Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and
the courts are barred from intruding into business judgements of corporations, when
the same are made in good faith. The same rule precludes the reversal of the decision
of the PSE, to which PALI had previously agreed to comply, the PSE retains the
discretion to accept of reject applications for listing. Thus, even if an issuer has
complied with the PSE listing rules and requirements, PSE retains the discretion to
accept or reject the issuer’s listing application if the PSE determines that the listing
shall not serve the interests of the investing public.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although
it is clothed with the markings of a corporate entity, it functions as the primary channel
through which the vessels of capital trade ply. The PSEi’s relevance to the continued
operation and filtration of the securities transaction in the country gives it a distinct
color of importance such that government intervention in its affairs becomes justified,
if not necessarily. Indeed, as the only operational stock exchange in the country today,
the PSE enjoys monopoly of securities transactions, and as such it yields a monopoly of
securities transactions, and as such, it yields an immerse influence upon the country’s
economy.
The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied
from or be considered as necessary or incidental to the carrying out of the SEC’s
express power to insure fair dealing in securities traded upon a stock exchange or to
ensure the fair administration of such exchange. It is likewise, observed that the
principal function of the SEC is the supervision and control over corporations,
partnerships and associations with the end in view that investment in these entities
may be encouraged and protected and their activities for the promotion of economic
development.
A corporation is but an association of individuals, allowed to transact under an
assumed corporate name, and with a distinct legal personality. In organizing itself as a
collective body, it waives no constitutional immunities and requisites appropriate to
such a body as to its corporate and management decisions, therefore, the state will
generally not interfere with the same. Questions of policy and management are left to
the honest decision of the officers and directors of a corporation, and the courts are
without authority to substitute their judgements for the judgement of the board of
directors. The board is the business manager of the corporation and so long as it acts in
good faith, its orders are not reviewable by the courts.
In matters of application for listing in the market the SEC may exercise such power only
if the PSE’s judgement is attended by bad faith.
The petitioner was in the right when it refused application of PALI, for a contrary ruling
was not to the best interest of the general public.
G.R. No. L-30460 March 12, 1929
C. H. STEINBERG, as Receiver of the Sibuguey Trading Company,
Incorporated, plaintiff-appellant,
vs.
GREGORIO VELASCO, ET AL., defendants-appellees.
Frank H. Young for appellant.
Pablo Lorenzo and Delfin Joven for appellees.
STATEMENT
Plaintiff is the receiver of the Sibuguey Trading Company, a domestic corporation. The
defendants are residents of the Philippine Islands.
It is alleged that the defendants, Gregorio Velasco, as president, Felix del Castillo, as
vice-president, Andres L. Navallo, as secretary-treasurer, and Rufino Manuel, as director
of Trading Company, at a meeting of the board of directors held on July 24, 1922,
approved and authorized various lawful purchases already made of a large portion of
the capital stock of the company from its various stockholders, thereby diverting its
funds to the injury, damage and in fraud of the creditors of the corporation. That
pursuant to such resolution and on March 31, 1922, the corporation purchased from the
defendant S. R. Ganzon 100 shares of its capital stock of the par value of P10, and on
June 29, 1922, it purchased from the defendant Felix D. Mendaros 100 shares of the par
value of P10, and on July 16, 1922, it purchased from the defendant Felix D. Mendaros
100 shares of the par value of P10, each, and on April 5, 1922, it purchased from the
defendant Dionisio Saavedra 10 shares of the same par value, and on June 29, 1922, it
purchased from the defendant Valentin Matias 20 shares of like value. That the total
amount of the capital stock unlawfully purchased was P3,300. That at the time of such
purchase, the corporation had accounts payable amounting to P13,807.50, most of
which were unpaid at the time petition for the dissolution of the corporation was
financial condition, in contemplation of an insolvency and dissolution.
As a second cause of action, plaintiff alleges that on July 24, 1922, the officers and
directors of the corporation approved a resolution for the payment of P3,000 as
dividends to its stockholders, which was wrongfully done and in bad faith, and to the
injury and fraud of its creditors. That at the time the petition for the dissolution of the
corporation was presented it had accounts payable in the sum of P9,241.19, "and
practically worthless accounts receivable."
Plaintiff prays judgment for the sum of P3,300 from the defendants Gregorio Velasco,
Felix del Castillo, Andres L. Navallo and Rufino Manuel, personally as members of the
Board of Directors, or for the recovery from the defendants S. R. Ganzon, of the sum of
P1,000, from the defendant Felix D. Mendaros, P2,000, and from the defendant
Dionisio Saavedra, P100, and under his second cause of action, he prays judgment for
the sum of P3,000, with legal interest against the board of directors, and costs.
For answer the defendants Felix del Castillo, Rufino Manuel, S. R. Ganzon, Dionisio
Saavedra and Valentin Matias made a general and specific denial.
In his amended answer, the defendant Gregorio Velasco admits paragraphs, 1, 2 and 3
of each cause of action of the complaint, and that the shares mentioned in paragraph 4
of the first cause of action were purchased, but alleges that they were purchased by
virtue of a resolution of the board of directors of the corporation "when the business
of the company was going on very well." That the defendant is one of the principal
shareholders, and that about the same time, he purchase other shares for his own
account, because he thought they would bring profits. As to the second cause of
action, he admits that the dividends described in paragraph 4 of the complaint were
distributed, but alleges that such distribution was authorized by the board of directors,
"and that the amount represented by said dividends really constitutes a surplus profit
of the corporation," and as counterclaim, he asks for judgment against the receiver for
P12,512.47 for and on account of his negligence in failing to collect the accounts.
Although duly served, the defendant Mendaros did not appear or answer. The
defendant Navallo was not served, and the case against him was dismissed.
April 30, 1928, the case was tried and submitted on a stipulation of facts, based upon
which the lower court dismissed plaintiff's complaint, and rendered judgment for the
defendants, with costs against the plaintiff, and absolved him from the cross-complaint
of the defendant Velasco, and on appeal, the plaintiff assigns the following errors:
1. In holding that the Sibuguey Trading Company, Incorporated, could legally
purchase its own stock.
2. In holding that the Board of Directors of the said Corporation could legally
declared a dividend of P3,000, July 24, 1922.
JOHNS, J.:
It is stipulated that on July 24, 1922, the directors of the corporation approved the
purchase of stocks as follows:
One hundred shares from S. R. Ganzon for P1,000;
One hundred shares from Felix D. Mendaros at the same price; which purchase was
made on June 29, 1922; another
One hundred shares from Felix D. Mendaros at the same price on July 16, 1922;
Ten shares from Dionisio Saavedra at the same price on June 29, 1922.
That during such times, the defendant Gregorio Velasco purchased 13 shares for the
corporation for P130; Felix del Castillo — 42 shares for P420; Andres Navallo — 15
shares for P150; and the defendant Mendaros — 10 shares for P100. That during the
time these various purchases were made, the total amount of subscribed and paid up
capital stock of the corporation was P10,030, out of the authorized capital stock 2,000
shares of the par value of P10 each.
Paragraph 4 of the stipulation also recites:
Be it also admitted as a fact that the time of the said purchases there was a
surplus profit of the corporation above-named of P3,314.72.
Paragraph 5 is as follows:
That at the time of the repeatedly mentioned various purchases of the said
capital stock were made, the said corporation had Accounts Payable in the
total amount of P13,807.50 as shown by the statement of the corporation,
dated June 30, 1922, and the Accounts Receivable in the sum of P19,126.02
according to the books, and that the intention of the Board of Directors was
to resell the stocks purchased by the corporations at a sum above par for each
stock, this expectation being justified by the then satisfactory and sound
financial condition of the business of the corporation.
It is also stipulated that on September 11, 1923, when the petition for the dissolution of
the corporation was presented to the court, according to a statement made June 30,
1923, it has accounts payable aggregating P9,41.19, and accounts receivable for
P12,512.47.
Paragraph 7 of the stipulation recites:
That the same defendants, mentioned in paragraph 2 of this stipulation of
facts and in the same capacity, on the same date of July 24, 1922, and at the
said meeting of the said Board of Directors, approved and authorized by
resolution the payment of dividends to its stockholders, in the sum of three
thousand pesos (P3,000), Philippine currency, which payments were made at
different dates, between September 30, 1922, and May 12, 1923, both dates
inclusive, at a time when the corporation had accounts less in amount than
the accounts receivable, which resolution was based upon the balance sheet
made as June 30, 1922, said balance sheet showing that the corporation had a
surplus of P1,069.41, and a profit on the same date of P2,656.08, or a total
surplus amount of P3,725.49, and a reserve fund of P2,889.23 for bad and
doubtful accounts and depreciation of equipment, thereby leaving a balance
of P3,314.72 of net surplus profit after paying this dividend.
It is also stipulated at a meeting of the board of directors held on July 24, 1922, as
follows:
6. The president and manager submitted to the Board of Directors his
statement and balance sheet for the first semester ending June 30, 1922 and
recommended that P3,000 — out of the surplus account be set aside for
dividends payable, and that payments be made in installments so as not to
effect the financial condition of the corporation. That stockholders having
outstanding account with the corporation should settle first their accounts
before payments of their dividends could be made. Mr. Castillo moved that
the statement and balance sheet be approved as submitted, and also the
recommendations of the president. Seconded by Mr. Manuel. Approved.
Paragraph 8 of the stipulation is as follows:
That according to the balance sheet of the corporation, dated June 30, 1923, it
had accounts receivable in the sum of P12,512.47, due from various contractor
and laborers of the National Coal Company, and also employees of the herein
corporation, which the herein receiver, after his appointment on February 28,
1924, although he made due efforts by personally visiting the location of the
corporation, and of National Coal Company, at its offices, at Malangas,
Mindanao, and by writing numerous letters of demand to the debtors of the
corporation, in order to collect these accounts receivable, he was unable to do
so as most of them were without goods or property, and he could not file any
suit against them that might have any property, for the reason that he had no
 funds on hand with which to pay the filing and sheriff fees to Malangas, and
other places of their residences.
From all of which, it appears that on June 30, 1922, the board of directors of the
corporation authorized the purchase of, purchased and paid for, 330 shares of the
capital stock of the corporation at the agreed price of P3,300, and that at the time the
purchase was made, the corporation was indebted in the sum of P13,807.50, and that
according to its books, it had accounts receivable in the sum of P19,126.02. That on
September 11, 1923, when the petition was filed for its dissolution upon the ground that
it was insolvent, its accounts payable amounted to P9,241.19, and its accounts
receivable P12,512.47, or an apparent asset of P3,271.28 over and above its liabilities. But
it will be noted that there is no stipulation or finding of facts as to what was the actual
cash value of its accounts receivable. Neither is there any stipulation that those
accounts or any part of them ever have been or will be collected, and it does appear
that after his appointment on February 28, 1924, the receiver made a diligent effort to
collect them, and that he was unable to do so, and it also appears from the minutes of
the board of directors that the president and manager "recommended that P3,000 —
out of the surplus account to be set aside for dividends payable, and that payments be
made in installments so as not to effect the financial condition of the corporation."
If in truth and in fact the corporation had an actual bona fide surplus of P3,000 over and
above all of its debt and liabilities, the payment of the P3,000 in dividends would not in
the least impair the financial condition of the corporation or prejudice the interests of
its creditors.
It is very apparent that on June 24, 1922, the board of directors acted on assumption
that, because it appeared from the books of the corporation that it had accounts
receivable of the face value of P19,126.02, therefore it had a surplus over and above its
debts and liabilities. But as stated there is no stipulation as to the actual cash value of
those accounts, and it does appear from the stipulation that on February 28, 1924,
P12,512.47 of those accounts had but little, if any, value, and it must be conceded that,
in the purchase of its own stock to the amount of P3,300 and in declaring the dividends
to the amount of P3,000, the real assets of the corporation were diminished P6,300. It
also appears from paragraph 4 of the stipulation that the corporation had a "surplus
profit" of P3,314.72 only. It is further stipulated that the dividends should "be made in
installments so as not to effect financial condition of the corporation." In other words,
that the corporation did not then have an actual bona fidesurplus from which the
dividends could be paid, and that the payment of them in full at the time would "affect
the financial condition of the corporation."
It is, indeed, peculiar that the action of the board in purchasing the stock from the
corporation and in declaring the dividends on the stock was all done at the same
meeting of the board of directors, and it appears in those minutes that the both
Ganzon and Mendaros were formerly directors and resigned before the board
approved the purchase and declared the dividends, and that out of the whole 330
shares purchased, Ganzon, sold 100 and Mendaros 200, or a total of 300 shares out of
the 330, which were purchased by the corporation, and for which it paid P3,300. In
other words, that the directors were permitted to resign so that they could sell their
stock to the corporation. As stated, the authorized capital stock was P20,000 divided
into 2,000 shares of the par value of P10 each, which only P10,030 was subscribed and
paid. Deducting the P3,300 paid for the purchase of the stock, there would be left
P7,000 of paid up stock, from which deduct P3,000 paid in dividends, there would be
left P4,000 only. In this situation and upon this state of facts, it is very apparent that
the directors did not act in good faith or that they were grossly ignorant of their
duties.
Upon each of those points, the rule is well stated in Ruling Case Law, vol. 7, p. 473,
section 454 where it is said:
General Duty to Exercise Reasonable Care. — The directors of a corporation are
bound to care for its property and manage its affairs in good faith, and for a
violation of these duties resulting in waste of its assets or injury to the
property they are liable to account the same as other trustees. Are there can
be no doubt that if they do acts clearly beyond their power, whereby loss
ensues to the corporation, or dispose of its property or pay away its money
without authority, they will be required to make good the loss out of their
private estates. This is the rule where the disposition made of money or
property of the corporation is one either not within the lawful power of the
corporation, or, if within the authority of the particular officer or officers.
And section 458 which says:
Want of Knowledge, Skill, or Competency. — It has been said that directors are
not liable for losses resulting to the corporation from want of knowledge on
their part; or for mistake of judgment, provided they were honest, and
provided they are fairly within the scope of the powers and discretion
confided to the managing body. But the acceptance of the office of a director
of a corporation implies a competent knowledge of the duties assumed, and
directors cannot excuse imprudence on the ground of their ignorance or
inexperience; and if they commit an error of judgment through mere
recklessness or want of ordinary prudence or skill, they may be held liable for
the consequences. Like a mandatory, to whom he has been likened, a director
is bound not only to exercise proper care and diligence, but ordinary skill and
judgment. As he is bound to exercise ordinary skill and judgment, he cannot
set up that he did not possess them.
Creditors of a corporation have the right to assume that so long as there are
outstanding debts and liabilities, the board of directors will not use the assets of the
corporation to purchase its own stock, and that it will not declare dividends to
stockholders when the corporation is insolvent.
The amount involved in this case is not large, but the legal principles are important, and
we have given them the consideration which they deserve.
The judgment of the lower court is reversed, and (a), as to the first cause of action, one corporations or associations owned or controlled by citizens of the Philippines, would
will be entered for the plaintiff and against the defendant S. R. Ganzon for the sum of have the privilege of disposition, exploitation, development, and utilization of all
P1,000, with legal interest from the 10th of February, 1926, and against the defendant Philippine natural resources. However, respondent is owned, controlled, directly and
Felix D. Medaros for P2,000, with like interests, and against the defendant Dionisio indirectly by Panamanian Corporation.
Saavedra for P100, with like interest, and against each of them for costs, each on their
primary liability as purchasers of stock, and (b) against the defendants Gregorio The Laurel-Langley Agreement also states that with respect to natural resources in the
Velasco, Felix del Castillo and Rufino Manuel, personally, as members of the board of public domain in the Philippines, only through the medium of a corporation organized
directors of the Sibuguey Trading Company, Incorporated, as secondarily liable for the under the laws of the Philippines and at least 60% of the capital stock of which is owned
whole amount of such stock sold and purchased as above stated, and on the second or controlled by citizens of the United States.
cause of action, judgment will be entered (c) for the plaintiff and jointly and severally
against the defendants Gregorio Velasco, Felix del Castillo and Rufino Manuel, Although it was claimed that the corporation has stockholders residing in United
personally, as members of the board of directors of the Sibuguey Trading Company, States, there was no indication if they are all citizens of America, how much percentage
Incorporated, for P3,000, with interest thereon from February 10, 1926, at the rate of 6 do they occupy as stockholders, and if they have the same rules that apply to the
per cent per annum, and costs. So ordered. conditions mentioned. In the circumstances, the court ruled that the respondent SAN
JOSE PETROLEUM, as presently constituted, is not a business enterprise that is
authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-
Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is,
consequently, illegal.
G.R. No. L-14441, December 17, 1966
Pedro R. Palting
vs Sanjose Petroleum Inc.
The parity rights agreement is not applicable to SJP. The parity rights are only granted
Ponente: Barrera
to American business enterprises or enterprises directly or indirectly controlled by US
citizens. SJP is a Panamanian corporate citizen. The other owners of SJO are
Facts:
Venezuelan corporations, not Americans. SJP was not able to show contrary evidence.
San Jose Petroleum a corporation organized and existing in the Republic of Panama,
Further, the Supreme Court emphasized that the stocks of these corporations are
PETROLEUM filed with the Philippine Securities and Exchange Commission a sworn
being traded in stocks exchanges abroad which renders their foreign ownership
registration statement, for the registration and licensing for sale in the Philippines
subject to change from time to time. This fact renders a practical impossibility to meet
Voting Trust Certificates.
the requirements under the parity rights. Hence, the tie up between SJP and SJO is
illegal, SJP not being a domestic corporation or an American business enterprise
It was alleged that the entire proceeds of the sale of said securities will be devoted or
contemplated under the Laurel-Langley Agreement.
used exclusively to finance the operations of San Jose Oil Company, Inc. which is a
domestic mining corporation. Pedro R. Palting and others, allegedly prospective
investors in the shares of SAN JOSE PETROLEUM, filed with the Securities and
CHARLES W. MEAD vs. E. C. McCULLOUGH, ET AL., and THE PHILIPPINE ENGINEERING
Exchange Commission an opposition to registration and licensing of the securities on
AND CONSTRUCTION COMPANY
the grounds that the tie-up between SAN JOSE PETROLEUM, and SAN JOSE OIL,
G.R. No. 6217 December 26, 1911
violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act
of 1949.
Facts:
1. On March 15, 1902, the plaintiff and the defendant organized the "Philippine
Issue:
Engineering and Construction Company," the incorporators being the only
Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, and SAN
stockholders and also the directors of said company, with general ordinary powers.
JOSE OIL COMPANY, INC., is violative of the
2. After the plaintiff left the Philippine Islands for China, the other directors, the
Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949
defendants in this case, held a meeting on December 24, 1903, for the purpose of
discussing the condition of the company at that time anddetermining what course to
Held:
pursue.
Yes. In the 1946 Ordinance Appended to the Constitution, this right was extended to
3. They did on that date enter into wrecking contract with the naval authorities with the
citizens of the United States; states that to all forms of business enterprises owned or
defendant McCullough.
controlled, directly or indirectly, by citizens of the United States in the same manner as
to, and under the same conditions imposed upon, citizens of the Philippines or
4. When the sale or transfer took place, there were present four directors, all of whom
gave their consent to that sale or transfer. The plaintiff was then about and his express
consent to make this transfer or sale was not obtained. He was, before leaving, one of
the directors in this corporation, and although he had resigned as manager, he had not
resigned as a director.
Issue:
Did a majority of the stockholders, who were at the same time a majority of
the directors of this corporation, have the power under the law and its articles of
agreement, to sell or transfer to one of its members the assets of said corporation?
Ruling:
He accepted the position of engineer of the Canton and Shanghai Railway
Company, knowing that his duties as such engineer would require his whole time and
attention and prevent his returning to the Philippine Islands for at least a year or more.
The new position which he accepted in China was incompatible with his position as
director in the Philippine Engineering and Construction Company, a corporation whose
sphere of operations was limited to the Philippine Islands. These facts are sufficient to
constitute an abandoning or vacating of his position as director in said corporation.
Consequently, the transfer orsale of the corporation's assets to one of its
members was made by the unanimous consent of all the directors in the corporation at
that time.
There were only five stockholders in this corporation at any time, four of
whom were the directors who made thesale, and the other the plaintiff, who was
absent in China when the said sale took place. The sale was, therefore, made by the
unanimous consent of four-fifths of all the stockholders. Under the articles of
incorporation, the stockholders and directors had general ordinary powers. There is
nothing in said articles which expressly prohibitsthe sale or transfer of the corporate
property to one of the stockholders of said corporation.
Articles 1700 to 1708 of the Civil Code deal with the manner of dissolving a
corporation. There is nothing in thesearticles which expressly or impliedly prohibits the
sale of corporate property to one of its members, nor a dissolutionof a corporation in
this manner. Neither is there anything in articles 151 to 174 of the Code of Commerce
which prohibits the dissolution of a corporation by such sale or transfer.
Article XIII of the corporation's statutes expressly provides that "in all the
meetings of the stockholders, a majorityvote of the stockholders present shall be
necessary to determine any question discussed."
The sale or transfer to one of its members was a matter which a majority of
the stockholders could very properlyconsider. But it i said that if the acts and
resolutions of a majority of the stockholders in a corporation are binding in every case
upon the minority, the minority would be completely wiped out and their rights would
be wholly at the mercy of the abuses of the majority.
Generally speaking, the voice of a majority of the stockholders is the law of
the corporation, but there are exceptionsto this rule. There must necessarily be a limit
upon the power of the majority. Without such a limit the will of the majority would be
absolute and irresistible and might easily degenerate into an arbitrary tyranny. The
reason for these limitations is that in every contract of partnership and a corporation
can be something fundamental and unalterable which is beyond the power of the
majority of the stockholders, and which constitutes the rule controlling their actions.
This rule which must be observed is to be found in the essential compacts of such
partnership, which gave served as a basis upon which the members have united, and
without which it is not probable that they would have entered the corporation.
Notwithstanding these limitations upon the power of the majority of the stockholders,
their (the majority's) resolutions, when passed in good faith and for a just cause,
deserve careful consideration and are generally binding upon the minority.
Itis well settled, first, that a private corporation, which owes no special duty
tothe public and which has not been given the right of eminent domain, has the
absolute right and power as against the whole world except the state, to sell and
dispose of all of its property; second, that the board of directors, has the power,
without reference to the assent or authority of the stockholders, when the corporation
is in failing circumstances or insolvent or when it can no longer continue the business
with profit, and when it is regarded as an imperative necessity; third, that a majority of
the stockholders or directors, even against the protest of the minority, have this power
where, from any cause, the business is a failure and the best interest of the corporation
and all the stockholders require it
We therefore conclude that the sale or transfer made by the quorum of the
board of directors — a majority of the stockholders — is valid and binding upon the
majority-the plaintiff. This conclusion is not in violation of the articles of incorporation
of the Philippine Engineering and Construction Company.
G.R. No. L-68555 March 19, 1993
PRIME WHITE CEMENT CORPORATION, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.
De Jesus & Associates for petitioner.
Padlan, Sutton, Mendoza & Associates for private respondent.
CAMPOS, JR., J.:
Before Us is a Petition for Review on Certiorari filed by petitioner Prime White Cement
Corporation seeking the reversal of the decision * of the then Intermediate Appellate
Court, the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, the judgment appealed from
is hereby affirmed in toto.1
The facts, as found by the trial court and as adopted by the respondent Court are
hereby quoted, to wit:
On or about the 16th day of July, 1969, plaintiff and defendant
corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo,
as Chairman of the Board, entered into a dealership agreement
(Exhibit A) whereby said plaintiff was obligated to act as the
exclusive dealer and/or distributor of the said defendant corporation
of its cement products in the entire Mindanao area for a term of five
(5) years and proving (sic) among others that:
a. The corporation shall, commencing September,
1970, sell to and supply the plaintiff, as dealer with
20,000 bags (94 lbs/bag) of white cement per
month;
b. The plaintiff shall pay the defendant corporation
P9.70, Philippine Currency, per bag of white
cement, FOB Davao and Cagayan de Oro ports;
c. The plaintiff shall, every time the defendant
corporation is ready to deliver the good, open with
any bank or banking institution a confirmed,
unconditional, and irrevocable letter of credit in
favor of the corporation and that upon certification
by the boat captain on the bill of lading that the
goods have been loaded on board the vessel
bound for Davao the said bank or banking
institution shall release the corresponding amount
as payment of the goods so shipped.
Right after the plaintiff entered into the aforesaid dealership
agreement, he placed an advertisement in a national, circulating
newspaper the fact of his being the exclusive dealer of the defendant
corporation's white cement products in Mindanao area, more
particularly, in the Manila Chronicle dated August 16, 1969 (Exhibits R
and R-1) and was even congratulated by his business associates, so
much so, he was asked by some of his businessmen friends and close
associates if they can be his
sub-dealer in the Mindanao area.
Relying heavily on the dealership agreement, plaintiff sometime in
the months of September, October, and December, 1969, entered
into a written agreement with several hardware stores dealing in
buying and selling white cement in the Cities of Davao and Cagayan
de Oro which would thus enable him to sell his allocation of 20,000
bags regular supply of the said commodity, by September, 1970
(Exhibits O, O-1, O-2, P, P-1, P-2, Q, Q-1 and Q-2). After the plaintiff was
assured by his supposed buyer that his allocation of 20,000 bags of
white cement can be disposed of, he informed the defendant
corporation in his letter dated August 18, 1970 that he is making the
necessary preparation for the opening of the requisite letter of credit
to cover the price of the due initial delivery for the month of
September, 1970 (Exhibit B), looking forward to the defendant
corporation's duty to comply with the dealership agreement. In reply
to the aforesaid letter of the plaintiff, the defendant corporation thru
its corporate secretary, replied that the board of directors of the said
defendant decided to impose the following conditions:
a. Delivery of white cement shall commence at the
end of November, 1970;
b. Only 8,000 bags of white cement per month for
only a period of three (3) months will be delivered;
c. The price of white cement was priced at P13.30
per bag;
d. The price of white cement is subject to
readjustment unilaterally on the part of the
defendant;
e. The place of delivery of white cement shall be
Austurias (sic);
f. The letter of credit may be opened only with the
Prudential Bank, Makati Branch;
g. Payment of white cement shall be made in
advance and which payment shall be used by the
defendant as guaranty in the opening of a foreign
letter of credit to cover costs and expenses in the
procurement of materials in the manufacture of
white cement. (Exhibit C).
xxx xxx xxx
Several demands to comply with the dealership agreement (Exhibits
D, E, G, I, R, L, and N) were made by the plaintiff to the defendant,
however, defendant refused to comply with the same, and plaintiff
by force of circumstances was constrained to cancel his agreement
for the supply of white cement with third parties, which were
 concluded in anticipation of, and pursuant to the said dealership
agreement.
Notwithstanding that the dealership agreement between the plaintiff
and defendant was in force and subsisting, the defendant
corporation, in violation of, and with evident intention not to be
bound by the terms and conditions thereof, entered into an exclusive
dealership agreement with a certain Napoleon Co for the marketing
of white cement in Mindanao (Exhibit T) hence, this suit. (Plaintiff's
Record on Appeal, pp. 86-90).2
After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount
of P3,302,400.00 as actual damages, P100,000.00 as moral damages, and P10,000.00 as
and for attorney's fees and costs. The appellate court affirmed the said decision mainly
on the following basis, and We quote:
There is no dispute that when Zosimo R. Falcon and Justo B. Trazo
signed the dealership agreement Exhibit "A", they were the
President and Chairman of the Board, respectively, of defendant-
appellant corporation. Neither is the genuineness of the said
agreement contested. As a matter of fact, it appears on the face of
the contract itself that both officers were duly authorized to enter
into the said agreement and signed the same for and in behalf of the
corporation. When they, therefore, entered into the said transaction
they created the impression that they were duly clothed with the
authority to do so. It cannot now be said that the disputed
agreement which possesses all the essential requisites of a valid
contract was never intended to bind the corporation as this
avoidance is barred by the principle of estoppel.3
In this petition for review, petitioner Prime White Cement Corporation made the
following assignment of errors. 4
I completely abdicate its power and responsibility to act for the juridical entity, the
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE
COURT ARE UNPRECEDENTED DEPARTURES FROM THE CODIFIED
PRINCIPLE THAT CORPORATE OFFICERS COULD ENTER INTO
CONTRACTS IN BEHALF OF THE CORPORATION ONLY WITH PRIOR
APPROVAL OF THE BOARD OF DIRECTORS.
II
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE
COURT ARE CONTRARY TO THE ESTABLISHED JURISPRUDENCE,
PRINCIPLE AND RULE ON FIDUCIARY DUTY OF DIRECTORS AND
OFFICERS OF THE CORPORATION.
III
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE
COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE,
PRINCIPLE AND RULE ON UNENFORCEABLE CONTRACTS AS
PROVIDED IN ARTICLE 1317 OF THE NEW CIVIL CODE.
IV
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE
COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE AS TO
WHEN AWARD OF ACTUAL AND MORAL DAMAGES IS PROPER.
V
IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN
ITS ANSWER WITH SPECIAL AND AFFIRMATIVE DEFENSES WITH
COUNTERCLAIM THE INTERMEDIATE APPELLATE COURT HAS
CLEARLY DEPARTED FROM THE ACCEPTED USUAL, COURSE OF
JUDICIAL PROCEEDINGS.
There is only one legal issue to be resolved by this Court: whether or not the
"dealership agreement" referred by the President and Chairman of the Board of
petitioner corporation is a valid and enforceable contract. We do not agree with the
conclusion of the respondent Court that it is.
Under the Corporation Law, which was then in force at the time this case arose, 5 as well
as under the present Corporation Code, all corporate powers shall be exercised by the
Board of Directors, except as otherwise provided by law.6 Although it cannot
Board may expressly delegate specific powers to its President or any of its officers. In
the absence of such express delegation, a contract entered into by its President, on
behalf of the corporation, may still bind the corporation if the board should ratify the
same expressly or impliedly. Implied ratification may take various forms — like silence
or acquiescence; by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing therefrom.7 Furthermore, even in the
absence of express or implied authority by ratification, the President as such may, as a
general rule, bind the corporation by a contract in the ordinary course of business,
provided the same is reasonable under the circumstances. 8 These rules are basic, but
are all general and thus quite flexible. They apply where the President or other officer,
purportedly acting for the corporation, is dealing with a third person, i. e., a
person outside the corporation.
The situation is quite different where a director or officer is dealing with his own
corporation. In the instant case respondent Te was not an ordinary stockholder; he was
a member of the Board of Directors and Auditor of the corporation as well. He was
what is often referred to as a "self-dealing" director.
A director of a corporation holds a position of trust and as such, he owes a duty of
loyalty to his corporation.9 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." 10 In the case
of Gokongwei v. Securities and Exchange Commission, this Court quoted with favor
from Pepper v. Litton,11 thus:
. . . He cannot by the intervention of a corporate entity violate the
ancient precept against serving two masters. . . . He cannot utilize his
inside information and his strategic position for his own preferment.
He cannot violate rules of fair play by doing indirectly through the
corporation what he could not do directly. He cannot use his power
for his personal advantage and to the detriment of the stockholders
and creditors no matter how absolute in terms that power may be
and no matter how meticulous he is to satisfy technical
requirements. For that power is at all times subject to the equitable
limitation that it may not be exercised for the aggrandizement,
preference, or advantage of the fiduciary to the exclusion or
detriment of the cestuis. . . . .
On the other hand, 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.
Section 32 of the Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or officers with the
corporation. — A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting
in which the contract was approved was not necessary to constitute
a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the
approval of the contract;
3. That the contract is fair and reasonable under the circumstances;
and
4. That in the case of an officer, the contract with the officer has been
previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or
trustee, such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
or of two-thirds (2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the adverse interest of the
directors or trustees involved is made at such meeting: Provided,
however, That the contract is fair and reasonable under the
circumstances.
Although the old Corporation Law which governs the instant case did not contain a
similar provision, yet the cited provision substantially incorporates well-settled
principles in corporate law. 12
Granting arguendo that the "dealership agreement" involved here would be valid and
enforceable if entered into with a person other than a director or officer of the
corporation, the fact that the other party to the contract was a Director and Auditor of
the petitioner corporation changes the whole situation. First of all, We believe that the
contract was neither fair nor reasonable. The "dealership agreement" entered into in
July, 1969, was to sell and supply to respondent Te 20,000 bags of white cement per
month, for five years starting September, 1970, at thefixed price of P9.70 per bag.
Respondent Te is a businessman himself and must have known, or at least must be
presumed to know, that at that time, prices of commodities in general, and white
cement in particular, were not stable and were expected to rise. At the time of the
contract, petitioner corporation had not even commenced the manufacture of white
cement, the reason why delivery was not to begin until 14 months later. He must have
known that within that period of six years, there would be a considerable rise in the
price of white cement. In fact, respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and by the middle of 1975, it was
already P37.50 per bag. Despite this, no provision was made in the "dealership
agreement" to allow for an increase in price mutually acceptable to the parties.
Instead, the price was pegged at P9.70 per bag for the whole five years of the contract.
Fairness on his part as a director of the corporation from whom he was to buy the
cement, would require such a provision. In fact, this unfairness in the contract is also a
basis which renders a contract entered into by the President, without authority from
the Board of Directors, void or voidable, although it may have been in the ordinary
course of business. We believe that the fixed price of P9.70 per bag for a period of five
years was not fair and reasonable. Respondent Te, himself, when he subsequently
entered into contracts to resell the cement to his "new dealers" Henry Wee 13 and
Gaudencio Galang 14 stipulated as follows:
 The price of white cement shall be mutually determined by us but in
no case shall the same be less than P14.00 per bag (94 lbs).
The contract with Henry Wee was on September 15, 1969, and that with Gaudencio
Galang, on October 13, 1967. A similar contract with Prudencio Lim was made on
December 29, 1969. 15 All of these contracts were entered into soon after his
"dealership agreement" with petitioner corporation, and in each one of them he
protected himself from any increase in the market price of white cement. Yet, except
for the contract with Henry Wee, the contracts were for only two years from October,
1970. Why did he not protect the corporation in the same manner when he entered into
the "dealership agreement"? For that matter, why did the President and the Chairman
of the Board not do so either? As director, specially since he was the other party in
interest, respondent Te's bounden duty was to act in such manner as not to unduly
prejudice the corporation. In the light of the circumstances of this case, it is to Us quite
clear that he was guilty of disloyalty to the corporation; he was attempting in effect, to
enrich himself at the expense of the corporation. There is no showing that the
stockholders ratified the "dealership agreement" or that they were fully aware of its
provisions. The contract was therefore not valid and this Court cannot allow him to
reap the fruits of his disloyalty.
As a result of this action which has been proven to be without legal basis, petitioner
corporation's reputation and goodwill have been prejudiced. However, there can be no
award for moral damages under Article 2217 and succeeding articles on Section 1 of
Chapter 3 of Title XVIII of the Civil Code in favor of a corporation.
In view of the foregoing, the Decision and Resolution of the Intermediate Appellate
Court dated March 30, 1984 and August 6, 1984, respectively, are hereby SET ASIDE.
Private respondent Alejandro Te is hereby ordered to pay petitioner corporation the
sum of P20,000.00 for attorney's fees, plus the cost of suit and expenses of litigation.
SO ORDERED.
G.R. No. L-34719 December 8, 1932
ALBERTO BARRETTO, ET AL., plaintiffs-appellees,
vs.
LA PREVISORA FILIPINA, defendant-appellant.
Romualdez Brothers and Harvey and O'Brien for appellant.
Joaquin Ramirez for appellees.
OSTRAND, J.:
This is an appeal from a decision rendered by the Court of First Instance of Manila,
ordering the defendant corporation to pay to each of the three plaintiffs the amount of
P507.02 ½, including interest thereon from May 2, 1930, to date of payment, with costs.
The action which gave rise to this appeal was brought by Alberto Barretto, Jose de
Amusategui, and Jose Barretto, who had been directors of the defendant corporation
from its incorporation up to the month of March, 1929, to recover from the defendant,
La Previsora Filipina, a mutual building and loan association, 1 per cent to each of the
plaintiffs of the net profits of said corporation for the year 1929, which amount to
P50,727.53, under and in accordance with the following amendment to the by-laws of
the defendant corporation, which was made at a general meeting of the stockholders
thereof on February 23, 1929, to wit:lawphil.net
ARTICULO 68.º A. — En consideracion a los valiosos servicios que por varios
anos hasta la fecha han venido prestando gratuitamente a favor de la
Sociedad, los senores Alberto Barretto, Ariston de Guzman, Miguel
Romualdez, Pedro Mata, Vicente L. Legarda, Alexander Bachrach, Jose M. de
Amusategui y Jose A. Barreto y Moratinos, se acuerda y concede por la
presente, a todas y cada uno de dichos senores, una cantidad igual al uno por
ciento (1%) de todas las utilidades liquidas de la Sociedad, del ano y anos en
que se deje de ser director de la misma. Entendiendose, sin embargo, que esta
remuneracion especial subsistira mientras dicho director viva, y cesara
durante el tiempo en que dicho senor vuelva a ser director de la Sociedad. Se
hace constar por la presente, que este articulo de los presentes Estatutos
constituye un contrato formal entre la Sociedad y cada uno de los senores
directores arriba mencionadas, y este contrato no podra ser modificado ni
enmendado sino por motuo convenio entre las partes.
The case was set for trial on July 30, 1930, and after the presentation of the plaintiff's
evidence, counsel for the defendant informed the court that they desired, before
offering defendant's evidence, to present a motion to dismiss the complaint on the
ground that the plaintiffs had not shown a cause of action against the defendant, and
requested time to file said motion in writing and to present a written memorandum in
support thereof. This request was granted by the court below and on August 2, 1930,
counsel for the defendant presented, with the reservation of the right to offer
defendant's evidence in support of its special defenses and counterclaim in the event it
was denied, a written motion to dismiss the complaint on the above mentioned
ground.
On the 29th day of August, 1930, the court below entered an order, in which it held that
the evidence offered by the plaintiffs showed a cause of action on the part of the
plaintiffs and constituted sufficient legal reason to require the defendant corporation
to present its evidence, if it so desired, in support of the allegations contained in its
answer, and denied the defendant's motion to dismiss the complaint and set the case
for a continuation of the hearing on September 22, 1930. On September 4, 1930, the
defendant filed its exception to the order of the trial court of August 29, 1930, in so far
as it declared that the evidence offered by the plaintiffs showed a cause of action and
denied the dismissal of the complaint.
On September 2, 1930, the plaintiffs, through their attorney, presented to the court
below a petition praying the said court to issue an order declaring that the defendant
had no right to present evidence; that the case be declared submitted; and that
judgment be entered in accordance with the prayer of the complaint.
After hearing the parties, and without setting aside its former order giving the
defendant the right to present its evidence and setting the case for a continuation of
the hearing on September 22, 1930, the court, on September 11, 1930, rendered its
decision in this case holding that the defendant, by presenting its motion to dismiss the
complaint, had impliedly waived its right to present its evidence, and rendering
judgment in favor of each of the plaintiffs and against the defendant for the sum of
P505.25, with legal interest thereon from May 2, 1930, until paid, with the costs of the
action.
On October 1, 1930, defendant moved the trial court for a reconsideration of its
decision of September 11, 1930, and that said decision be set aside, and that the trial of
the case be continued for the taking of the evidence of the defendant, for the reasons
stated therein. This motion was denied on October 7, 1930, whereupon the defendant
excepted to the decision and the order of the court below denying its motion for a
reconsideration, and moved for a new trial on the ground that the decision was
contrary to law and the weight of evidence. This motion was denied by the trial court
on October 18, 1930, and on October 25, 1930, the defendant filed its exception to said
order and gave notice of its intention to appeal from said decision and orders, and the
case has been brought to this court by way of bill of exceptions.
After a careful consideration we fully agree with the appellant. Article 68-A of the
amended by-laws of the defendant corporation upon which the action is based, does
not under the law as applied to the express provisions thereof create any legal
obligation on its part to pay to the persons named therein, including the plaintiffs, such
a life gratuity or pension out of its net profits. A by-law provision of this nature must be
regarded as clearly beyond the lawful powers of a mutual building and loan association,
such as the defendant corporation.
While such associations are expressly authorized by the Corporation Law to adopt by-
laws for their government, section 20, of that Act, as construed by this court in the case
of Fleischer vs. Botica Nolasco Co. (47 Phil., 583), expressly limits such authority to the
adoption of by-laws which are not inconsistent with the provisions of the law. The
appellees contend that the article in question is merely a provision for the
compensation of directors, which is not only consistent with but expressly authorized
by section 21 of the Corporation Law. We cannot agree with this contention. The
authority conferred upon corporations in that section refers only to providing
compensation for the future services of directors, officers, and employees thereof after
the adoption of the by-law or other provisions in relation thereto, and cannot in any
sense be held to authorize the giving, as in this case, of continuous compensation to
particular directors after their employment has terminated for past services rendered
gratuitously by them to the corporation. To permit the transaction involved in this case
would be to create an obligation unknown to the law, and to countenance a
misapplication of the funds of the defendant building and loan association to the
prejudice of the substantial right of its shareholders.
Building and loan associations are peculiar and special corporations. They are founded
upon principles of strict mutuality and equality of benefits and obligations, and the
trend of the more recent decisions is that any contract made or by-law provision
adopted by such an association in contravention of the statute is ultra vires and void. It
stands in a trust relation to the contributors in respect to the funds contributed, and
there is an implied contract with its members that it shall not divert its funds or powers
to purposes other than those for which it was created. The fundamental law of building
and loan associations organized under the different statutes throughout the American
Union is that all members must participate equally in the profits and bear the losses, if
any, in the same proportion, and any diversion of their funds to purposes not
authorized by the law of their creation is violative of the principles of mutuality
between the members. (See Bertche vs. Equitable Loan etc. Association, 147 Mo., 343;
71 A. S. R., 571.) As correctly stated in the case of McCauley vs. Building and Saving Assn.
(97 Tenn., 421; 56 A. S. R., 813, 818), "Strict mutuality and equality of benefits and
obligations must be kept the groundwork and basis of these associations, and if they
are not so founded they are not truly building and loan associations, entitled to the
protection given such associations by the statute." When we consider the fundamental
nature and purposes of building and loan associations, as above stated, in relation to
the subject matter of this by-law, it is obvious that the provisions thereto are entirely
foreign to the government of defendant corporation, inconsistent with and subversive
of the legislative scheme governing such associations, and contrary to the spirit of the
law, and cannot therefore be the basis of a cause of action against the defendant
corporation.
Irrespective of our conclusion that the provision in question is ultra vires, we are of the
opinion that said by-law cannot be held to establish a contractual relation between the
parties to this action, because the essential elements of a contract are lacking. The
article which the appellees rely upon is merely a by-law provision adopted by the
stockholders of the defendant corporation, without any action having been taken in
relation thereto by 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. Hence, the action of the stockholders in such
matters is only advisory and not in any wise binding on the corporation.
(See Ramirez vs.Orientalist Co. and Fernandez, 38 Phil., 634.) There could not be a
contract without mutual consent, and it appears that the plaintiffs did not consent to
the provisions of the by-law in question, but, on the contrary, they objected to and
voted against it in the stockholders' meeting in which it was adopted. Furthermore, the
said by-laws shown on its face that there was no valid consideration for the supposed
obligation mentioned therein. It is clearly an attempt to give in the future to certain
directors compensation for past services gratuitously rendered by them to the
corporation. Such a provision is without consideration, and imposes no obligation on
the corporation which can be enforced by action at law. (4 Fletcher on Corporations, p.
2762, and cases cited.)
The appellees in their brief refer to the cases of El Hogar Filipino vs. Rafferty (37 Phil.,
995), and Government of the Philippine Islands vs. El Hogar Filipino (50 Phil., 399), and
contend that those decisions are authority for sustaining the validity of the by-law in
this case. We have carefully examined those decisions, and find that those cases are
clearly distinguishable from the present action. It is sufficient to say that the causes of
action are not of the same nature, and the facts upon which those decisions are based
are entirely different from the facts of the present case.
The judgment of the court below is reversed, and the complaint is dismissed with the
costs of this instance against the appellees. So ordered.
G.R. No. L-27972 June 30, 1970
CENTRAL COOPERATIVE EXCHANGE, INC., petitioner,
vs.
CONCORDIO TIBE, SR. and THE HONORABLE COURT OF APPEALS, respondents.
Faustino, Peralta and Estacio for petitioner.
Generoso Casimpan for respondents.
REYES, J.B.L., J.:
Review, on certiorari, of a decision of the Court of Appeals (in its Case No. 36202-R),
affirming the decision of the Court of First Instance of Manila (in its Civil Case No.
44536) dismissing after trial a complaint filed by herein petitioner, Central Cooperative
Exchange, Inc. (CCE for short), against herein respondent, Concordio Tibe, Sr., for the
refund of certain amounts received by the latter from the corporation, while he served
as a member of the board of directors of the Exchange.
The petitioner is a national federation of farmers' cooperative marketing associations,
or FACOMAS, scattered throughout the country; its single majority stockholder is the
former Agricultural Credit and Cooperative Financing Administration (ACCFA), now
Agricultural Credit Administration (ACA). As a member of the petitioner's board of
directors from 23 May 1958 to 26 May 1960, representing FACOMAS in Eastern Visayas,
respondent Concordio Tibe, Sr. drew and collected from petitioner CCE cash advances
amounting to P5,668.00; of this sum, respondent had, admittedly, already liquidated
P3,317.25, leaving the sum of P2,350.75 still to be accounted for. By admission of the
petitioner the sum of P2,350.75 has been further reduced to P2,133.45 as of 31 January
1963 on account of partial payments made after suit was filed (Petitioner's Brief, page
17). Respondent Tibe had also drawn several sums, amounting to P14,436.95,
representing commutable per diems for attending meetings of the Board of Directors
in Manila, per diems and transportation expenses for FACOMA visitations,
representation expenses and cummutable discretionary funds. All these sums were
disbursed with the approval of general manager, treasurer and auditor of CCE.
The main issue is whether or not the board of directors of the CCE had the power and
authority to adopt various resolutions which appropriated the funds of the corporation
for the above-enumerated expenses for the members of the said board.
Section 8 of the By-Laws of petitioner federation provides:
The compensation, if any, and the per diems for attendance at
meetings of the members of the Board of Directors shall be
determined by the members at any annual meeting or special
meeting of the Exchange called for the purpose.
In the annual meeting of the stockholders, held in Manila on 31 January 1956, it was
resolved that:
The members of the Board of Directors attending the CCE board
meetings be entitled to actual transportation expenses plus the per
diems of P30.00 and actual expenses while waiting.<äre||anº•1àw>
The resolutions of the Board of Directors under which respondent
Tibe drew and collected the sums of money sought to be recovered,
and which petitioner claims are invalid resolutions, are the following:
(a) Res. No. 55, May 5, 1957, authorizing:
1. Visitation of FACOMAS, in order to be official,
must be with prior sanction or authority of the
board, except when it is urgent, in which case
Board confirmation is needed;
2. Per diem of P10.00 is authorized for visitations
outside the place of residence of the director
concerned;
3. Actual transportation expenses allowed for all
visitations sanctioned or authorized by the board.
(b) Res. No. 52, July 8, 1958, appropriating P10,000.00 as
discretionary fund of the board of directors, disbursement from
 which will be made upon authorization of the board chairman and for
which no supporting receipts need be presented,
(c) Res. No. 49, July 10, 1958, granting monthly commutable
allowance of P200.00 to each director starting from July 1, 1958, in
lieu of the regular waiting time per diems and transportation
expenses while in the City of Manila attending Board and committee
meetings.
(d) Res. No. 57, July 24, 1958, amending Res. No. 49 by adding P20.00
to the P200.00 as commutable transportation allowances while
attending meetings in Manila.
(e) Res. No. 35, June 11, 1959, increasing the monthly commutable
allowance for each director from P300.00 to P500.00 per month
effective June 1, 1959.
(f) Res. No. 87, October 9, 1959, appropriating P10,000.00 as
commutable discretionary fund of the board of directors.
We agree with the petitioner that the questioned resolutions are contrary to the By-
Laws of the federation and, therefore, are not within the power of the board of
directors to enact. The By-Laws, in the aforequoted Section 8, explicitly reserved unto
the stockholders the power to determine the compensation of members of the board
of directors, and the stockholders did restrict such compensation to "actual
transportation expenses plus the per diems of P30.00 and actual expenses while
waiting." Even without the express reservation of said power, the directors are not
entitled to compensation, for —
... The law is well-settled that directors of corporations presumptively
serve without compensation and in the absence of an express
agreement or a resolution in relation thereto, no claim can be
asserted therefor (Sec. 2110, 5 Fletcher 375-376). Thus it has been
held that there can be no recovery of compensation, unless expressly
provided for, when a director serves as president or vice president,
as secretary, as treasurer or cashier, as a member of an executive
committee, as chairman of a building committee, or similar offices
(Sec. 2112, 5, Fletcher 381-382). (Alvendia, The Law of Private
Corporations in the Philippines, pages 275-276)
Thus, the directors, in assigning themselves additional duties, such as
the visitation of FACOMAS, acted within their power, but, by voting
for themselves compensation for such additional duties, they acted
in excess of their authority, as expressed in the By-Laws.
Nor may the directors rely on Section 28 of the Corporation Law, giving the exercise of
corporate powers and the control of the corporation's business and property to the
board of directors, or on Section 1 of Article VI of the By-Laws, empowering the board
with "general supervision and control of the affairs and property of the Exchange," as
justifications for the adoption of the questioned resolutions, because these provisions
of the law and the By-Laws pertain to the board's general powers merely and do not
extend to giving the members of the said board the compensations stated in the
resolution, as the matter of providing for their compensations are specifically withheld
from the board of directors, and reserved to the stockholders.
It is vain for the respondent to rely on the good intentions of the board, that the board,
for reasons of expediency and economy", cancelled the per diems and actual
transportation and waiting expenses provided by the stockholders and substituted
these by monthly commutable allowances of P200.00 (per Resolution No. 49) because
the court is not concerned with the propriety or wisdom of the measure of
compensation already fixed by stockholders, but which the directors wanted to correct
by increase thereof (Government of P.I. vs. El Hogar Filipino, 50 Phil. 399).
As stated earlier, respondent Tibe was a director of the corporation from May, 1958 to
May, 1960. During his term, he collected the sums of money appropriated in and
pursuant to the board resolutions. Suit was filed against respondent on 22 October
1960. One of the grounds of the appealed decision in finding for the respondent is that
the petitioner's claim is barred by laches. We do not agree. The board of directors,
under the By-Laws of the corporation, had the control of the affairs of the corporation
and it is not to be expected that the board would sue its members to recover the sums
of money voted by and for themselves. We think that, under the circumstances, where
the corporation was virtually immobilized from commencing suit against its directors,
laches does not begin to attach against the corporation until the directors cease to be
such (Cf. Bates Street Shirt Co. v. Waite, 156 Atl. 293, 297, and cases cited therein). From
May, 1960, when respondent ceased to be a director, to October, 1960, when action
was filed, is too short a time for the claim to be considered stale.
The Court of Appeals plainly erred in not granting petitioner's claim on the cash
advances. In the course of the trial, respondent admitted liability therefor (T.s.n., 4
March 1965, pages 7-8). Having admitted liability for the cash advances, respondent
waived all defenses thereto, including laches, and there was nothing left for the court
to have done but to order payment. The appellate court argued that it would not be
easy for the respondent to produce the disbursement receipts covering the cash
advances. This is certainly no reason for disapproving petitioner's claim; those receipts
are no longer necessary, for the liability was admitted.
FOR THE FOREGOING REASONS, the decision under review is hereby reversed, and
another one entered ordering the respondent to pay unto the petitioner the sums of
P1,730.35 and P14,436.95, with legal interests on both sums from 22 October 1960 until
fully paid. Costs against the respondent.
LANUZA JR. VS BF CORPORATION (G.R. NO. 174938 OCTOBER 1, 2014)
Lanuza Jr. vs BF Corporation
G.R. No. 174938 October 1, 2014
Facts: In 1993, BF Corporation filed a collection complaint with the Regional Trial Court
against Shangri-La and the members of its board of directors: Alfredo C. Ramos, Rufo
B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin
C. Ramos. BF Corporation alleged in its complaint that on December 11, 1989 and May
30, 1991, it entered into agreements with Shangri-La wherein it undertook to construct
for Shangri-La a mall and a multilevel parking structure along EDSA.Shangri-La had been
consistent in paying BF Corporation in accordance with its progress billing statements.
However, by October 1991, Shangri-La started defaulting in payment. BF Corporation
alleged that Shangri-La induced BF Corporation to continue with the construction of
the buildings using its own funds and credit despite Shangri-La’s default. According to
BF Corporation, Shangri-La misrepresented that it had funds to pay for its obligations
with BF Corporation, and the delay in payment was simply a matter of delayed
processing of BF Corporation’s progress billing statements. BF Corporation eventually
completed the construction of the buildings. Shangri-La allegedly took possession of
the buildings while still owing BF Corporation an outstanding balance. BF Corporation
alleged that despite repeated demands, Shangri-La refused to pay the balance owed
to it.It also alleged that the Shangri-La’s directors were in bad faith in directing Shangri-
La’s affairs. Therefore, they should be held jointly and severally liable with Shangri-La
for its obligations as well as for the damages that BF Corporation incurred as a result of
Shangri-La’s default. On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,
Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to suspend the
proceedings in view of BF Corporation’s failure to submit its dispute to arbitration, in
accordance with the arbitration clause provided in its contract. Petitioners filed their
comment on Shangri-La’s and BF Corporation’s motions, praying that they be excluded
from the arbitration proceedings for being non-parties to Shangri-La’s and BF
Corporation’s agreement.
Issue: Whether or not petitioners as directors of Shangri-La is personally liable for the
contractual obligations entered into by the corporation.
Held: No. Because a corporation’s existence is only by fiction of law, it can only exercise
its rights and powers through its directors, officers, or agents, who are all natural
persons. A corporation cannot sue or enter into contracts without them.
A consequence of a corporation’s separate personality is that consent by a corporation
through its representatives is not consent of the representative, personally. Its
obligations, incurred through official acts of its representatives, are its own. A
stockholder, director, or representative does not become a party to a contract just
because a corporation executed a contract through that stockholder, director or
representative.
Hence, a corporation’s representatives are generally not bound by the terms of the
contract executed by the corporation. They are not personally liable for obligations and
liabilities incurred on or in behalf of the corporation.
A submission to arbitration is a contract. As such, the Agreement, containing the
stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs.
When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these
persons and the corporation should be treated as one. Without a trial, courts and
tribunals have no basis for determining whether the veil of corporate fiction should be
pierced. Courts or tribunals do not have such prior knowledge. Thus, the courts or
tribunals must first determine whether circumstances exist towarrant the courts or
tribunals to disregard the distinction between the corporation and the persons
representing it. The determination of these circumstances must be made by one
tribunal or court in a proceeding participated in by all parties involved, including current
representatives of the corporation, and those persons whose personalities are
impliedly the sameas the corporation. This is because when the court or tribunal finds
that circumstances exist warranting the piercing of the corporate veil, the corporate
representatives are treated as the corporation itself and should be held liable for
corporate acts. The corporation’s distinct personality is disregarded, and the
corporation is seen as a mere aggregation of persons undertaking a business under the
collective name of the corporation.
A corporation is an artificial entity created by fiction of law. This means that while it is
not a person, naturally, the law gives it a distinct personality and treats it as such. A
corporation, in the legal sense, is an individual with a personality that is distinct and
separate from other persons including its stockholders, officers, directors,
representatives, and other juridical entities. The law vests in corporations
rights,powers, and attributes as if they were natural persons with physical existence
and capabilities to act on their own. For instance, they have the power to sue and enter
into transactions or contracts. Section 36 of the Corporation Code enumerates some of
a corporation’s powers, thus:
Section 36. Corporate powers and capacity.– Every corporation incorporated under this
Code has the power and capacity: 1. To sue and be sued in its corporate name; 2. Of
succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation; 3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
repeal the same in accordance with this Code; 6. In case of stock corporations, to issue
or sell stocks to subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the corporation if it be a non-stock
corporation; 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property, including securities
and bonds of other corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution; 8. To enter into merger or consolidation with The Supreme Court ruled that BENECO and the BENECO Board Members are liable for
other corporations as provided in this Code; 9. To make reasonable donations, the damages caused against Cosalan. However BENECO can seek reimbursement from
including those for the public welfare or for hospital, charitable, cultural, scientific, the Board Members so as not to unduly penalize the innocent members of BENECO.
civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give
donations in aid of any political party or candidate or for purposes of partisan political
activity; 10. To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees; and 11. To exercise such other powers as
may be essential or necessary to carry out its purpose or purposes as stated in its
articles of incorporation.

209 SCRA 55 – Business Organization – Corporation Law – Cooperatives are Treated as

Corporations – Ultra Vires Acts of the Board Members
In 1982, Peter Cosalan, then general manager of the Benguet Electric Cooperative
(BENECO), received an audit report from the National Electrification Administration
(NEA). The said audit advised Cosalan of certain irregularities in the management of the
funds of BENECO. Cosalan then sought to address the issue by introducing reforms
recommended by the NEA as well as by the auditing body, Commission on Audit.
However, the Board Members of BENECO reacted to these reforms by issuing a series
of resolutions which first reduced Cosalan’s salary and allowances, then he was
excluded from his work, and eventually, he was suspended indefinitely.
Cosalan then filed a complaint for illegal dismissal against the BENECO Board Members,
he later impleaded BENECO itself. The Labor Arbiter (LA) ruled in favor of Cosalan. The
National Labor Relations Commission (NLRC) affirmed the decision of the LA but
modified it so as to absolve the Board Members from liability as it held that the Board
Members merely acted in their official capacity. BENECO, being the only party adjudged
to be liable, then appealed said decision.
ISSUE: Whether or not the National Labor Relations Commission is correct.
HELD: No. The act of the Board Members is ultra vires. There was no legal basis for
them to suspend Cosalan indefinitely for under the Implementing Rules of the Labor
Code the maximum period form preventive suspension should not go beyond 30 days.
Further, it was found that Cosalan was never informed of the charges against him nor
was he afforded the opportunity to present his case. He was deprived of due process.
Nor was Cosalan’s suspension approved by the NEA, which is also required for due
process purposes.
These acts by the Board Members are tainted with bad faith. A very strong
presumption arises that the Board Members are acting in reprisal against the reforms
sought to be introduced by Cosalan in order to address the irregularities within
BENECO. The Board Members are therefore liable for damages under Section 31 of the
Corporation Code. And even though BENECO is a cooperative, it is still covered by the
Corporation Code because under PD 269, cooperatives are considered as corporations.