Board of Directors/Trustees and Officers (Management)

Doctrine of Centralized Management: Powers of the Board of Directors

Section 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there
is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors
are elected and qualified. (28a)

PSE v Litonjua
Facts:

Issue:

Held:

Rationale for “Centralized Management” Doctrine

Filipinas Port Services v. Go
Facts:

Issue:

Held:

Theories on Sources of Board Power

Doctrine of Directly-Vested Power (See Sec. 23 of the Corp Code)
Tom v. Rodriguez
Facts:

Issue:

Held:

Tom v. Rodriguez (MR)

Facts:

Issue:

Held:

Delegated Powers Coming from the Stockholders

Angeles v. Santos
Facts:

Issue:

Held:

Must the Board Act As a Body to Bind the Corporation and its Affairs

Section 25. Corporate officers, quorum. - Immediately after their election, the directors of a corporation must formally
organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a
secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the
by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same time.
Board of Liquidators v. Heirs of Maximo Kalaw
Facts:
 The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental
organization on avowedly for the protection, preservation and development of the coconut industry in
the Philippines.
 On August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the
express power to buy and sell copra.
o The charter amendment was enacted to stabilize copra prices, to serve coconut producers by
securing advantageous prices for them, to cut down to a minimum, if not altogether eliminate,
the margin of middlemen, mostly aliens
 General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro
Garcia were members of the Board; defendant Leonor Moll became director only on December 22,
1947. NACOCO, after the passage of Republic Act 5, embarked on copra trading activities.
 An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts it entered into.
Nature supervened. Four devastating typhoons visited the Philippines in 1947.
 When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for
approval. It was not until December 22, 1947 when the membership was completed. Defendant Moll
took her oath on that date. A meeting was then held.
o Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses.
No action was first taken on the contracts but not long thereafter, that is, on January 30, 1948,
the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously
approved the contracts hereinbefore enumerated.
 As was to be expected, NACOCO but partially performed the contracts. The buyers threatened damage
suits, some of which were settled
 But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of
Manila
 The cases culminated in an out-of- court amicable settlement when the Kalaw management was already
out.
 With particular reference to the Dreyfus claims, NACOCO put up the defenses that:
o The contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do
business here; and

 Failure to deliver was due to force majeure, the typhoons. All the settlements sum up to P1,343,274.52.
 In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from
general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and
Leonor Moll.
o It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176,
new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach
of trust for having approved the contracts.
 By Executive Order 372, dated November 24, 1950, NACOCO, together with other government-owned
corporations, was abolished, and the Board of Liquidators was entrusted with the function of settling
and closing its affairs.
 CFI-Manila: dismissed the complaint. Plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of
P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO.

Issues & Held:

Whether plaintiff Board of Liquidators has lost its legal personality to continue with this suit since the three
year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case
to its conclusion—No

 The provision should be read not as an isolated provision but in conjunction with the whole. So reading,
it will be readily observed that no time limit has been tacked to the existence of the Board of
Liquidators and its function of closing the affairs of the various government owned corporations,
including NACOCO.

 The President thought it best to do away with the boards of directors of the defunct corporations; at the
same time, however, the President had chosen to see to it that the Board of Liquidators step into the
vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of
 Liquidators.

 3 methods by which corporation may wind up it its affairs:

o Voluntary dissolution, "such disposition of its assets as justice requires, and may appoint a
receiver to collect such assets and pay the debts of the corporation;

o Corporate existence is terminated - "shall nevertheless be continued as a body corporate
for three years after the time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of enabling it gradually to settle and
close its affairs, to dispose of and convey its property and to divide its capital stock, but
not for the purpose of continuing the business for which it was established;"

o Corporation, within the three year period just mentioned, "is authorized and empowered to
convey all of its property to trustees for the benefit of members, stockholders, creditors, and
others interested
Corpus Juris Secundum likewise is authority for the statement that " the
dissolution of a corporation ends its existence so that there must be statutory authority
for prolongation of its life even for purposes of pending litigation

 In the case at bar…
o Board of Liquidators escapes from the operation thereof for the reason that "obviously, the
complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years
for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to
continue the management of such matters as may then be pending."

o The Board of Liquidators thus became the trustee on behalf of the government. It was an
express trust. The legal interest became vested in the trustee — the Board of Liquidators. The
beneficial interest remained with the sole stockholder — the government.
o At no time had the government withdrawn the property, or the authority to continue the
present suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of
the Board of Liquidators from prosecuting this case to its final conclusion. The provisions of
Section 78 of the Corporation Law — the third method of winding up corporate affairs — find
application.

Whether the action is unenforceable against Kalaw—No

 Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives
 Claims that are barred if not filed in the estate settlement proceedings (Rule 87, sec. 5)

o Actions that are abated by death are:

 Claims for funeral expenses and those for the last sickness of the decedent;
 Judgments for money

 All claims for money against the decedent, arising from contract express or implied."

o It is not enough that the claim against the deceased party be for money, but it must arise from
"contract express or implied"
 Actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec.
1)

o Actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the
death of the latter.
o Actions that survive against a decedent's executors or administrators, and they are:

 Actions to recover real and personal property from the estate
 Actions to enforce a lien thereon
 Actions to recover damages for an injury to person or property

Whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the
cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts.


 The movement of the market requires that sales agreements be entered into, even though the goods are
not yet in the hands of the seller. Known in business parlance as forward sales, it is concededly the
practice of the trade.
 Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be
executed on short notice — at times within twenty-four hours. To be appreciated then is the difficulty of
calling a formal meeting of the board

 So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it voted to
grant him a special bonus "in recognition of the signal achievement rendered by him in putting the
Corporation's business on a self-sufficient basis within a few months after assuming office, despite
 numerous handicaps and difficulties."

 These previous contract it should be stressed, were signed by Kalaw without prior authority
from the board. Existence of such authority is established, by proof of the course of business, the
usage and practices of the company and by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its subordinates in and about the affairs of the
corporation

 If the by-laws were to be literally followed, the board should give its stamp of prior approval on
all corporate contracts. But that board itself, by its acts and through acquiescence, practically
laid aside the by-law requirement of prior approval.

 Under the given circumstances, the Kalaw contracts are valid corporate acts.
 Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose
or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru
some motive or interest or ill will;
o It partakes of the nature of fraud. Applying this precept to the given facts herein, we find
that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of
wrong," or "breach of a known duty," or "Some motive or interest or ill will" that
"partakes of the nature of fraud."

Effects of a Bogus Board

Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (1261)

Executive Committee

Section 35. Executive committee. - The by-laws of a corporation may create an executive committee, composed of
not less than three members
 of the board, to be appointed by the board. Said committee may act, by majority vote of
all its members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws
or on a majority vote of the board, except with respect to: (1) approval of any action for which shareholders' approval
is also required; (2) the filing of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of new
by-laws; (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or
repealable; and (5) a distribution of cash dividends to the shareholders.

Business Judgment Rule

BJR First Branch: On the Transaction Entered Into
Montelibano v. Bacolod-Murica Milling Co.
Facts:

 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
 The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution
granting further concessions to the planters over and above those contained in the printed
Amended Milling Contract.
  The appellants initiated the present action, contending that three Negros sugar centrals 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 the resolution the appellee had become obligated to grant similar concessions to the
plaintiffs.
 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
o 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.

Issue: Whether the board resolution is an ultra vires act and in effect a donation form the board of directors—
No

Held:

 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
 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
 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
 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.

BJR Second Branch: On the Personal Liability of the Members of the Board & Officers

Counter-Veiling Doctrines to Protect Corporate Contracts

Theories of Estoppel and Ratification
Wood Child Holdings, Inc. v. Roxas Electric Constructions Co., Inc.
Facts:

 Roxas Electric and Construction Company (RECCI) authorized its President, Roxas, through a resolution
to sell a parcel of land owned by the corporation, and to execute, sign and deliver for and on behalf of
the company
 Petitioner Woodchild Holdings Inc (WHI) through its President, Dy, offered to buy the land from RECCI
o The offer to purchase stated that it is made on the representation and warranty of the
OWNER/SELLER that he holds a good and registrable title to the property, which shall be
conveyed clear and free of all liens and encumbrances (including squatters) and that in any
event that the right of way is insufficient for the buyer’s purpose, the seller agrees to sell
additional land from his current adjacent property to allow the buyer full access and full use of
the property
 Roxas accepted the offer and indicated his acceptance on page 2 of the Deed
 The sale was consummated. WHI subsequently entered into a construction agreement with Wimbeco
Builders Inc. (WBI) of a warehouse, and a lease agreement with Poderosa Leather Goods Company, Inc.,
with a condition that the warehouse be ready by April 1, 1992. The building was finished and Poderosa
became the lessee
 WHI complained to Roxas that the vehicles of RECCI were parked on a portion of the property over
which WHI had been granted a right of way. Roxas promised to look into the matter
 Dy and Roxas discussed the need to buy a 500-square meter portion of the adjacent lot as provided for
in the deed of absolute sale. However, Roxas died soon thereafter
 WHI wrote the RECCI, reiterating its verbal requests to purchase a portion of the said lot as provided in
 the deed of absolute sale, and complained about the latter’s failure to eject the squatters within 3
months as agreed upon in the said deed
 RECCI rejected the demand of WHI, so WHI filed a case for specific performance and damages in the
RTC of Makati
 RTC ruled in favor of WHI. CA Reversed
 CA ruled that under the resolution of the BOD of RECCI, Roxas was merely authorized to sell the first lot,
but not to grant right of way in favor of WHI over a portion of the second lot, or to grant an option to the
petitioner to buy a portion thereof

Issue:
Whether RECCI is bound by the provisions of the deed of sale granting to WHI the beneficial use and
right of way over the adjacent lot of the lot they previously bought—NO

Whether such provision is enforceable—NO

Held:

 San Juan Structural v CA using Sec. 23 of the Corp Code held that:
o A corporation is a juridical person separate and distinct from its stockholders or members
o Accordingly the property of the corporation is not the property of the stockholders and may not
be sold by the stockholders or members without the express authorization from the
corporation’s BOD
o Indubitably, a corporation may act only through its BOD or, when authorized either by its by-
laws or by its board resolution, through its officers or agents in the normal course of
business
o The general principles of agency govern the relation between the corporation and its
officers or agents subject to the articles of incorporation, by-laws or relevant provisions
of law
o GENERALLY, the acts of the corporate officers within the scope of their authority are binding
on the corporation
 HOWEVER, under Art. 1910 of the NCC acts done by such officers beyond the scope
of their authority cannot bind the corporation unless it has ratified such acts
expressly or tacitly, or is estopped from denying them (principle of apparent
authority)
 In BA Finance Corporation v CA:
o It was held that persons dealing with an assumed agency, whether assumed agency be a general
or special one, are bound at their peril, if they would hold the principal liable, to ascertain not
only the fact of agency, but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it
 In the case at bar…
o The respondent denied authorizing its then President Roxas to sell a portion of Lot No. 491-A-3-
B-1 covered by a TCT, and to create a lien or burden thereon
o The petitioner was thus burdened to prove that the respondent so authorized Roxas to sell the
same and to create a lien thereon
o Evidently, Roxas was not specifically authorized under the said resolution to grant a right of
way in favor of the petitioner on a portion of the second lot or to agree to sell the petitioner a
portion thereof base on the aforementioned board resolution
 Under paragraph 12 of Art. 1878 of the NCC:
o A special power of attorney is required to convey real rights over immovable property
 NCC 1358 requires that contracts which have for their object the creation of real rights over
immovable property must appear in a public document
 In the case at bar…
o The petitioner cannot feign ignorance of the need for Roxas to have been specifically
authorized in writing by the BOD to be able to validly grant a right of way and agree to
sell a portion of Lot No. 491-A-3-B-1
 o The rule is that the act of the agent is one which requires authority in writing,
those dealing with him are charged with notice of the fact
o In sum then, the consent of the respondent to the assailed provisions in the deed of
absolute sale was NOT OBTAINED, hence the assailed provisions are not binding on it
 Absent estoppel or ratification, apparent authority cannot remedy the lack of the
written property required under the statute of frauds
o Apparent authority is based on estoppel and can arise from 2 instances
 The principal may knowingly permit the agent to so hold himself out as
having such authority, and in this way, the principal becomes estopped to
claim that the agent does not have authority
 The principal may clothe the agent with the indica of authority as to lead a
reasonably prudent person to believe that he actually has such authority
o There can be no apparent authority without acts or conduct on the part of the
principal and such acts or conduct of the principal must have been known and
relied upon in good faith and as a result of the exercise of reasonable prudence
by a third person as claimant and such must have produced a change in position
to its detriment
o THE APPARENT AUTHORITY OF AN AGENT IS TO BE DETERMINED BY THE ACTS
OF THE PRINCIPAL AND NOT BY THE ACTS OF THE AGENT
 For the principle of apparent authority to apply, the petitioner was burdened to prove
the following:
o The acts of the respondent justifying belief in the agency by the petitioner
o Knowledge thereof by respondent which is sought to be held
o Reliance thereon by the petitioner consistent with ordinary care and prudence
 In the case at bar, there is no evidence on record of specific acts made by the respondent
showing or indicating that it had full knowledge of any representations made by Roxas to the
petitioner that the respondent had authorized him to grant to the respondent an option to buy
a portion of the land in question, or to create a burden or lien thereon, or that the respondent
allowed him to do so

Doctrine of Laches or Stale Demands

Doctrine of Apparent Authority

Article 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the
agent has contracted; neither have such persons against the principal.

In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the
transaction were his own, except when the contract involves things belonging to the principal.

The provisions of this article shall be understood to be without prejudice to the actions between the principal and
agent. (1717)

Francisco v. GSIS
Facts:

 The plaintiff, in consideration of a loan, mortgaged in favor of defendant a parcel of land known as Vic-
Mari Compound, located at Baesa, Quezon City
 GSIS extrajudicially foreclosed the mortgage on the ground that up to that date, the plaintiff-mortgagor
was in arrears on her monthly installments
 The GSIS itself was the buyer of the property in the foreclosure sale
 The plaintiff’s father, Atty. Vicente Francisco, sent a letter to the general manager of the defendant
corporation, Mr. Andal
 Thereafter, GSIS approved the request of Francisco to redeem the land through a telegram
 Defendant received the payment and it did not, however, turn over the administration of the compound
  GSIS then sent a letter to Francisco informing him of his indebtedness and the 1 year period of
redemption has expired
 GSIS argued that the telegram sent to Francisco saying that GSIS has approved the request redeeming
the property is incorrect due to clerical problems

Issue: Whether the GSIS is liable for the acts of its employees regarding the telegram-- Yes

Held:

 There was nothing in the telegram that hinted at any anomaly, or gave ground to suspect its
veracity, and the plaintiff, therefore, cannot be blamed for relying upon it
 There is no denying that the telegram was within Andal’s apparent authority
o Hence, even if it were the board secretary who sent the telegram, the corporation could
not evade the binding effect produced by the telegram
 Knowledge of facts acquired or possessed by an officer or agent of a corporation in the
course of his employment, and in relation to matters within the scope of his authority, is
notice to the corporation, whether he communicates such knowledge or not
 In the case at bar…
o Notwithstanding such notice, the GSIS pocketed the amount, and kept silent about the
telegram not being in accordance with the true facts, as it now alleges
o This silence, taken together with the unconditional acceptance of the three other
subsequent remittances from plaintiff, constitutes in itself a binding ratification of the
original agreement

Associated Bank v. Pronstoller

Facts:
 April 21, 1988: Spouses Eduardo and Ma. Pilar Vaca (spouses Vaca) executed a Real Estate Mortgage (REM)
in favor of the Associated Bank (Associated) over their parcel of residential land and house
 Due to failure to pay its obligation, Associated won its bidding in the public auction and was issued the title
thereto
 Spouses Vaca commenced an action for the nullification of the REM and the foreclosure sale.
 CA: favored Associated
 During the pendency of the cases, Associated advertised the subject property for sale to interested buyers
for P9,700,000.00
 Rafael and Monaliza Pronstroller (Pronstrollers) bought it for P7.5M with 10% as downpayment
 March 18, 1993: Associated, through Atty. Soluta, and the Pronstrollers, executed a Letter-Agreement
 Prior to the expiration of the 90-day period within which to make the escrow deposit, in view of the
pendency of the cases the Pronstrollers requested that the balance be payable upon service on them of a
final decision affirming Associated's right to possess the property
 Atty. Soluta referred respondents' proposal to Associated's Asset Recovery and Remedial Management
Committee (ARRMC) who deferred action
 July 14, 1993 (a month after they made the request and after the payment deadline had lapsed): Atty.
Soluta executed another Letter-Agreement allowing the request
 Early 1994: Associated reorganized its management
 Atty. Braulio Dayday (Atty. Dayday) became Assist. VP and Head of the Documentation Section, while Atty.
Soluta was relieved of his responsibilities
 Atty. Dayday discovered that the Pronstrollers failed to deposit the balance and the request
 March 4, 1994: It was resubmitted and disapproved at its ARRMC meeting
 ARRMC referred the matter to the Legal Department for rescission or cancellation due to breach of contract
 May 5, 1994: Atty. Dayday informed the disapproval, rescinding and deposit forfeiture. They were also
asked to submit their new proposal if they were still interested
 The Pronstrollers went to talked to Atty. Dayday and showed him the Letter-Agreement showing that they
were granted extension but Atty. Dayday told them it was a mistake and Atty. Soluta was not authorized to
give such extension
 June 6, 1994: The Pronstrollers proposed to pay the balance with P3M upon the approval of their proposal
and the balance after 6 months but it was disapproved by Associated's President
 June 9, 1994: They were advised that their proposal will be accepted if they will pay 24.5% per annum
interest and if they do not agree, they are allowed to refund the 750 K
 July 14, 1994: Vaca Case: court upheld Associated's right to possess the subject property

 July 28, 1994: The Pronstrollers commenced the instant suit by filing a Complaint for Specific
Performance before the RTC
 During the pendency of the case, Associated sold the subject property to the spouses Vaca who started
demolishing the house which, however, was not completed by virtue of the writ of preliminary injunction
issued by the court
 November 14, 1997:trial court favored the Pronstrollers (rescission of the Agreement to Sell to be null and
void for being contrary to law and public policy)
 CA affirmed RTC

Issue: Whether Associated Bank can rescind the contract—No

Held:
 GR: in the absence of authority from the board of directors, no person, not even its officers, can validly bind
a corporation
 EX: board may validly delegate some of its functions and powers to officers, committees and agents
 Doctrine of apparent authority - with special reference to banks
 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,
within or beyond the scope of his ordinary powers
 Petitioner had previously allowed Atty. Soluta to enter into the first agreement without a board resolution
expressly authorizing him; thus, it had clothed him with apparent authority to modify the same via the
second letter-agreement
 Admittedly, during the pendency of the case, respondents timely registered a notice of lis pendens to warn
the whole world that the property was the subject of a pending litigation:
1. To keep the subject matter of the litigation within the power of the court until the entry of the final
judgment to prevent the defeat of the final judgment by successive alienations; and
2. To bind a purchaser, bona fide or not, of the land subject of the litigation to the judgment or decree that
the court will promulgate subsequently.
 This registration gives the court clear authority to cancel the title of the spouses Vaca, since the sale of the
subject property was made after the notice of lis pendens

Westmont Bank v. Inland Construction and Dev’t Corp.

Facts:

 Respondent Inland Construction obtain various loans from petitioner Westmont Bank
 To secure the payment of its obligations, Inland executed REMs over 3 real properties and issued PNs in
favor of Westmont
 By a Deed of Assignment, Conveyance and Release, one Felix Aranda, assigned and conveyed all his
rights and interests at Hanli Gonzales Construction & Development Phils. Corporation (HGCDP) in favor
of Horacio Abrante
o Under the same Deed, it appears that HGCDP assumed the obligations of Inland
 Westmont’s Account Officer, Lionel Calo, Jr. signed for its conformity to the deed
 Inland was subsequently served with a Notice of Sheriff’s Sale foreclosing the real estate mortgages
over its real properties prompting it to file a complaint for injunction against Westmont
 In its answer, Westmont underscored that it had no knowledge, much less did it give its conformity to
the alleged assignment of the obligation
 The trial court found that Westmont ratified the act of Calo
 The CA affirmed insofar as it finds Westmont to have ratified the Deed of Assignment
Issue: Whether Westmont Bank ratified the Deed—Yes

Held:

 GR: in the absence of authority from the BOD, no person, not even its officers, can validly bind a
corporation
o If a corporation, however, consciously let one of its officers, or any other agent, to act
within the scope of an apparent authority, it will be ESTOPPED from denying such
officer’s authority

 In the case at bar…
o The records show that Calo was the one assigned to transact on petitioner’s behalf respecting
the loan transactions and arrangements of Inland as well as those of Hanil-Gonzales and
Abrantes
o Since it conducted business through Calo, who is an Account Officer, it is presumed that he had
authority to sign for the bank in the Deed of Assignment
 Yao Ka Sin Trading: a corporation should first prove by clear evidence that its corporate officer is
not in fact authorized to act on its behalf before the burden of evidence shifts to the other party
to prove, by previous specific acts, that an officer was clothed by the corporation with apparent
authority
 in the case at bar…
o Westmont failed to discharge its burden of proving that Calo was not authorized to bind it, as it
did not present proof that Calo was unauthorized
o It did not present, much less cite, any Resolution from its BOD or its Charter or By-Laws from
which the court could reasonably infer that he indeed had no authority to sign in its behalf or
bind it in the Deed of Assignment

Advance Paper Corp. v. Arma Traders Corp.

Facts:

 Advance Paper Corp is a domestic corporation engaged in the business of producing, printing,
manufacturing, distributing and selling of various paper products
 Arma Traders is also a domestic corporation engaged in the wholesale and distribution of school and
officer supplies and novelty products where Antonio Tan was formerly the President, while respondent
Uy Seng Kee Willy is the Treasurer
o They represented Arma when dealing with its suppliers for about 14 years
 Arma purchased, on credit, paper products amounting to 7.5million from Advance Paper
o In order to pay their obligation to suppliers, Tan and Uy issued 82 PDCs payable to cash or to
Advance Paper with an aggregate amount of 1 Million
 Advance Paper presented the checks to the drawee bank but were dishonored
 Arma failed to settle its account with Advance Paper
 The petitioners filed a complaint for collection of sum of money with application for preliminary
attachment against Arma Traders, Tan, Uy, Ting Gui and Ng
 The petitioners claimed that respondents fraudulently issued the PDCs as payment for the purchases
and loan transactions knowing that they did not have sufficient funds
o Arma led the petitioners to believe that Tan and Uy had the authority to obtain loans since the
respondents left the active and sole management of the company to Tan and Uy since 1984
 The respondents claims that the loan transactions were ultra vires because the BOD of Arma did not
issue a board resolution authorizing Tan and Uy to obtain the loans from Advance Paper
o When the acts of the corporate officers are ultra vires, the corporation is not liable for whatever
acts that these officers committed in excess of their authority
o The further alleged that Advance Paper failed to verify Tan and Uy’s authotiy to transact
business with them, hence Advance Paper should suffer the consequences
Issue: Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority—Yes

Held:

 Arma Traders is liable to pay the loans on the basis of the doctrine of apparent authority
 Doctrine of apparent authority provides that a corporation will be stopped from denying the
agent’s authority if it knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, and it holds him out to the public as possessing the power to do
those acts
o The doctrine of apparent authority DOES NOT APPLY if the principal did not commit any acts
or conduct which a third party knew and relied upon in good faith as a result of the exercise of
the reasonable prudence
o The agent’s act or conduct must have produced a change of position to the third party’s
detriment
 A corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that the authority to do so has been conferred upon him, and this includes
powers as, in the usual course of the particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by custom and usage as usually
pertaining to the particular officer or agent, and such apparent powers as the corporation has
caused the person dealing with the officer or agent to believe that it has conferre
 In the case at bar..
o Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with third
persons without the necessary written authority from its non-performing BOD
o Arma Traders failed to take precaution to prevent its own corporate officers from abusing their
powers
o Because of its own laxity in its business dealings, Arma Traders is not estopped from denying
Tan and Uy’s authority to obtain a loan from Advance Paper

Georg v. Holy Trinity College

Facts:

 Holy Trinity College Grand Chorale and Dance Company was organized in 1987 by Sister Teresita
Medalle (Sr. Medalle), the President of respondent Holy Trinity College in Puerto Princesa
 2001—the Group was slated to perform in Greece, Italy, Spain and Germany
 Edward Enriquez, who allegedly represented Sr. Medalle, contacted petitioner Benjie Georg to seek
assistance for payment of the Group’s international airplane tickets
 Petitioner is the Filipino wife of a German national, Heinz Georg
o She owns a German travel agency named DTravellers Reiseburo Georg
o Petitioner, in turn, requested her brother, Atty. Benjamin Belarmino, to represent her in the
negotiation with Enriquez
 April 4, 2001—MOA was executed between petitioner, represented by Atty. Belarmino, as first party-
assignee; the Group, represented by Sr. Medalla, O.P. and Attorney-in Fact Enriquez as second-party
assignor, and S.C. Roque Group of Companies Holding Limited Corporation and S.C. Roque Foundation
Incorporated, represented by Violeta Buenaventura as foundation- grantor
o Under the said Agreement, petitioner, through her travel agency, will advance payment of
international airplane tickets in favor of the Group on the assurance of the Group, represented
by Sr. Medalla through Enriquez that there is a confirmed financial allocation from the
foundation-grantor
o The second-party assignor then assigned said amount in favor of petitioner
o Petitioner paid for the Group’s domestic and international airplane tickets
 Petitioner claimed that the second party assignor/respondent and the foundation-grantor have not paid
and refused to pay their obligation under the MOA
o Petitioner prayed that they be ordered to solidarily pay the amount representing the principal
amount mentioned in the Agreement, moral, exemplary and actual damages, legal fees and cost
of suit
 Respondent argued that the MOA on which petitioner based its cause of action does not state that
respondent is a party
 o Neither was respondent obligated to pay the amount for the European Tour of the Group nor
did it consent to complying to anything with the terms of the MOA
o Respondent asserted that the thumb mark of Sr. Medalle was secured without her consent
o Respondent maintained that since it was not a party to the MOA, it is not bound by the
provisions stated therein

Issues & Held:

 Whether Sr. Medalle freely gave her consent to the MOA by affixing her thumb mark—Yes
o Under Art. 1330 of the Civil Code, consent may be violated by any of the following:
 Mistake
 Violence
 Intimidation
 Undue influence
 Fraud
o Under the same provision, the contract becomes voidable
o In the case at bar…
 Petitioner claims that Sr. Medalle knew fully well the import of the MOA when she affixed her
thumb mark therein while respondent alleges that fraud was employed to induce Sr. Medalle to
affix her thumb mark
 There is fraud when one party is induced by the other to enter into a contract, through and solely
because of the latter’s insidious words or machinations
 BUT NOT ALL forms can vitiate consent
 Under Art. 1330, fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous
with execution of a contract , one party secures the consent of the other by using deception ,
without which, such consent would not have been given
 Sr. Medalle claims that she affixed her thumb mark on the MOA on the basis of Enriquez’
representation that he signature/thumb mark is necessary to facilitate the release of the loan
 As intended, the affixing of her signature caused the immediate release of the loan
 Petitioner’s claim that the provisions of the MOA were read to Sr. Medalle was found credible by
the CA
 The CA discussed at length how proper care and caution was taken by Atty. Belamino to
verify what the Group’s trip was all about and the extent of the authority of Sr. Medalle
regarding the project
 It defies logic that Atty. Belarmino would employ fraud just so Sr. Medalle could affix her
thumbmark to facilitate the release of the loan coming from Atty. Belarmino himself
 Whether Sr. Medalle is authorized by respondent to enter into the MOA—Yes
o Respondent’s denial of privity of the loan contract was based on the following reasons:
 That respondent’s name does not appear on the MOA
 That Sr. Medalle was no longer the president of Holy Trinity College when she affixed her
thumbmark on the MOA
 That Sr. Medalle was not authorized by respondent through a board resolution to enter into such
an agreement
o School administration of the Holy Trinity College has control and supervision of the Grand Chorale and
Dance Company, particularly the selection and hiring of its trainers and to their termination as well
 A fortiori, Jearold Loyola and Errol Gallespen were formally severed per April 30, 2001 Letter of
Sr. Estrella Tanagan
 This clearly shows that indeed, the Holy Trinity College Grand Chorale and Dance
Company were both under the power of the school administration
 Moreover, it is also clear that the costumes were likewise financed by the school
administration
o With the foregoing, the Court is convinced that indeed the Holy Trinity College Grand Chorale and Dance
Company do not have a life of its own and merely derive its creation, existence and continued operation
or performance at the hands of the school administration
 Without the decision of the school administration., the said Choral and Dance Company is
completely operative
o Sr. Medalle, as President of Holy Trinity College, is clothed with sufficient authority to enter into a
loan agreement
 As held by the trial court, the Holy Trinity’s Board of Trustees NEVER contested the standing of
the Dance and Chorale Group and had in fact lent it support in the form of sponsoring uniforms
or freely allowed the school premises to be used by the group for their practice session
 Whether Respondent is liable under the MOA—Yes