corpsec notes 4

c. duty of loyalty – directors must be loyal to be keeping the interest of the

corporation above personal motives. Compliance with this duty of a director
requires that he acts in a manner characterized by transparency,
accountability and fairness.
 Gokongwei vs. SEC
d. Self-dealings of directors, trustees or officers - Self-dealing may consist
of a variety of actions seeking to inappropriately enrich oneself, such as using
company funds as a personal loan, ignoring a duty of loyalty to an employer to
assume a deal or opportunity for oneself, or using insider or non-public
information in a stock market transaction. Self-dealing may take many forms.
It does not need to always directly enrich the individual committing the act,
but can be on behalf of another party.
Only the corporation may seek to annul the contract entered into by its self-
dealing director.
e. contracts between corporations with interlocking directors - – when one
or some of the directors in one corporation is a director of another corporation
primarily with the same business interests. Such director must hold at least
20% outstanding capital stock at each corporation. The contract is voidable at
the option of the corporation is a director’s interest in one corporation is
substantial in his interest in the other corporation is nominal. Contracts are
valid for as long as there is no fraud and the contract is fair and reasonable.
(sec. 31)
nominal interest – less than 20%
substantial interest – more than 20%

12. rules on Liability of directors or trustees & Officers – directors or

trustee of a corporation are liable for damages resulting from patently unlawful
acts, gross negligence or bad faith.
* tramat mercantile vs. CA
* cebu country club vs. Elizagaque

v. powers of corporation – a corporation has no power except those expressly

conferred on it by corporation code and those that are implied or incidental to
its existence.
Sec. 35 – express power of the corporation, 11 powers
1. underlying theory on power of corporation
* Reynoso IV vs. CA
2. Express powers of corporation - Actual authority can either be express or
implied. Express actual authority refers to the power delegated to the agent by
the corporation, while an agent's implied authority can be measured by his or
her prior acts which have been ratified by the corporation or whose benefits
have been accepted by the corporation.
The doctrine of apparent authority provides that even if no actual authority has
been conferred on an agent, his or her acts, as long as they are within his or
her apparent scope of authority, bind the principal. Apparent authority, is
derived not merely from practice. Its existence may be ascertained through (1)
the general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words, the apparent authority to act in
general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers.
a. power to sue and be sued – no person not even its officers can sue in behalf
of the corporation in the absence of any resolution from the board authorizing
the filing of such suit.
b. power to sell land – rested within the power of the board and through
authorized agents by the board
c. power to obtain bank loans – issuance of SPA is needed aside from board
resolution authorizing such
d. power to hire employees and appoint agents – powers expressly conferred
by the corporation’s by-laws need not secure a resolution from the board (cebu
mactan members center inc. v. Masahiro Tsukahara, gr 159624, July 17,
2009); the authority of such individuals to bind the corporation is generally
derived from law, by-laws or authorization from the board, either expressly or
impliedly by habit, custom or acquiescence in the general course of business.
19 business decisions that needed the concurrence of the stockholders unless
subject to ratification; (3+16)
1. Acts needing stockholders approval – majority of the outstanding capital
stocks approval is required
- Fixing of issue low par value stocks (sec.61)
- Adoption and amendment or repeal of by-laws (sec.55
- Compensation of directors 29
 2. 2/3 approval of capital stocks
- 36 shortening of corporate term
- 37 decrease of capital stock
- 37 incurring creation or increase on indebtedness
- 38 approval or issuance of shares in exchange of property
- 39 sale of all or substantitally all assets of the corp
- 41 investment of funds in another corp
- 41 investment of funds for purposes different from AOI
- 42 stock dividend declaration
- 43 execution of management contracts
- 55 delegation to the board the power to amend by-laws
- 15 amendment to the AOI
- 31 ratification of board functions
- 33 Self-dealing ratification 33 business opportunity rule
- 76
- 37 Removal of directors with or without cause
- 134 & 135 voluntary dissolution

3. ultra vires doctrine – (sec. 44) acts done by it in excess / outside of its
corporate powers are ultra vires, which are generally not binding on the
corporation unless the corporation ratifies the acts or holds the officer out as a
person with authority to transact on its behalf (university of Mindanao v.
bangko sentral ng pilipinas, gr 194964 -65, January 11, 2016)
a. types of ultra vires Act
(i) first type – those which are outside the express, implied or incidental powers
of the corporation, null and void – cannot be ratified
(ii) second type – those made by corporation representatives who act without or
in excess of authority (even though the contract is within the express
/implied/incidental powers of the corporation they represent and not contrary
to law per se – may be ratified
(iii) third type – those which are contrary to law or public policy – cannot be
ratified
 Querubin et. Al. vs. Comelec et. Al
b. Courts do not favor the ultra vires doctrine – art. 1409 of the civil code
provides that a contract whose purpose is contrary to law, morals, customs,
public order or public policy is considered void and as such creates no right or
obligations or any juridical relations. Consequently, given the unlawful
purpose, they are considered as ultra vires in the in the 3 rd type, rendering
them void and in effect, non-binding. (landbank v. Eduardo cacayuran, gr
191667, April 17, 2013)
COUNTER-VEILING DOCTRINES TO THE ULTRA VIRES DOCTRINE
(1) DOCTRINE OF BOARD ratification or estoppel – a corporation may
ratify the unauthorized acts of its corporate officer; means that the
principal voluntarily adopt, confirms and gives sanction to some
unauthorized act of its agent on its behald. CONFIRMATION AFTER
CONDUCT.
 Calubad vs. ricarcen dev. Corp
 Yasuma vs. heirs of cecilio s. de villa
 Lipat vs. pacific banking corp.

Doctrine of Estoppel – precludes a corporation and its board from denying the
validity of the transaction entered into by its officer with a third party who in
good faith, relied on the officer’s authority to act on behalf of the corporation.
Doctrine of apparent authority - The doctrine of apparent authority provides
that even if no actual authority has been conferred on an agent, his or her acts,
as long as they are within his or her apparent scope of authority, bind the
principal. Apparent authority, is derived not merely from practice. Its existence
may be ascertained through (1) the general manner in which the corporation
holds out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary powers.
 BPI Family Savings Bank vs. First Metro Investment Corp.

(2) Doctrine of laches or “stale demands” – provides that the failure or

neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done earlier,
or the negligence or omission to assert a right within a reasonable time,
warrants a presumption that the party entitled to assert it either has
abandoned or declined to assert it. (gandara mill supply v. nLRC gr
126703, dec. 19, 1998)
Illustrates the legal precept that the law aids the vigilant and not to those
who slumber on their rights, because time is a means of destroying
obligations and actions, because time runs against the slothful and
contemners of their own rights. (salandanan et. Al. v. CA, gr 127783,
June 5, 1998)
4. power to extend or shorten corporate term – the power to shorten or
extending corporate life lies with (a) majority vote of the board of trustees/
directors; (b) ratification in a meeting by 2/3 of outstanding capital stock or
2/3 of the members
5. power to increase or decrease capital stock : incur, create or increase
bonded indebtedness – (a) majority vote of board of directors; (b) ratification
by 2/3 vote of outstanding capital stock in a meeting purposely called for the
said agenda; (c) certificate of corporate act shall be signed by majority of the
members of the board and the chairman and secretary of the stockholders’
meeting; (d) certificate must be accompanied by the treasures’ affidavit
certifying compliance with the 25%-25% requirements as to stock subscription;
6. power to dispose or encumber “all or substantially all corporate assets”
– (a) majority vote of the board; (b) 2/3 votes of outstanding capital stock
a. requirements
b. effect of non-compliance – without adhering to the requirements, sale shall
be null and void (Islamic directorate v CA, 1997); sale must not prejudice the
creditors of the assignor, which necessarily implies that the assigned assumes
the debts of the assignor.
* Caltex Phils. Inc vs. PNOC shipping and transport corp.
7. power to acquire own share – power to acquire its own shares are now
allowed.
a. instances when corporation may buy its own stocks – (a) to complete
fractional shares; (b) to collect indebtedness or in case of delinquency sales; (c)
the exercise of right of appraisal
b. Trust fund Doctrine – subscription to the capital of a corporation constitute
a fund to which creditors have a right to look for satisfaction of their claims.
Corporate creditors may rely upon in case of corporate debt, ahead of the
stockholders. Trust fund consists of paid or unpaid subscribed capital stock,
assets and other properties of the corporation.
Legal implication – (i) sec 42, corporation can only declare dividends out of
unrestricted retained earnings; (ii) sec. 139, specific corporate assets can not
be distributed to the stockholders except upon dissolution and only after
payment to all corporate obligations;
* ong yong vs. Tiu
* halley vs. printwell, Inc.
8. power to invest funds in another corporation or business for non-primary
purpose – investment in another corporation engaged in a different business
can be done by a corporation by majority vote of the board and duly ratified by
2/3 votes of outstanding capital stock or 2/3 members of a non-stock
corporation. Board resolution is sufficient.
9. power to enter into management contract – management contracts are now
regulated to device tax avoidance. By splitting income, for as long as the above
requirements are complied with, there should be no basis for piercing the veil
of corporate entity.
the amount of liability only limited to the amount of capital invested. But
the rule is not absolute, when there is a ground to pierce the corporate
fiction
doctrine of corporate opportunity – there is a business opportunity
discussed in the corporation and a director profits from that. He should remit
all the profit he benefitted.
Sec. 31 – valid until annulled. Because the director may influence other
directors in committing conflict of interest.

VI. RIGHTS OF STOCKHOLDERS AND MEMBERS – (a) the registration of

shares in a stockholders name; (b) the issuance of stock certificates; (c) the
right to receive dividends which pertains to the shares. The interest of the
stockholder is indirect, contingent and inchoate in so far as the structure of
the corporation is concerned. A stockholder cannot intervene in a case in
which the corporation is a party under the rule. The right to proportionate part
of the profits.
1. Nature of the rights of stockholders -
 Mobilia products inc. vs. umezawa

2. Right to attend stockholders meetings

a. Types of stockholders or members meetings
b. Place and time of meetings
c. Who may call meetings
d. Quorum in meetings
 Tan vs. sycip
3. Right to vote
a. Nature of right to vote
b. Limitations that may be placed on right to vote
c. Right to vote of secured creditors and administrators
d. Voting in case of joint ownership of stock
e. Voting right for treasury shares
f. Proxies
g. Voting trust agreement