CORPORATION

 LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    

 
• Rationale   for   the   Doctrine   of   Apparent   Authority:   “Naturally,   letter   agreement).   Later,   the   bank   reorganised   its   management   and  
the  third  person  has  little  or  no  information  as  to  what  occurs  in   Atty.   Dayday   replaced   Atty.   Soluta.   Atty.   Dayday   informed   Spouses  
corporate   meeting;   and   he   must   necessarily   rely   upon   the   Pronstroller   that   their   deposit   would   be   forfeited   because   the   second  
external   manifestations   of   corporate   consent.   The   integrity   of   letter  agreement  was  a  mistake  because  Atty.  Soluta  had  no  authority  to  
commercial  transactions  can  only  be  maintained  by  holding  the   give  an  extension.  
corporation  strictly  to  the  liability  fixed  upon  it  by  its  agents  in    
accordance   with   law.   What   transpires   in   the   corporate   board   Issue:   Whether   or   not   Associated   Bank   is   bound   by   the   Letter-­‐
room   is   entirely   an   internal   matter.   Hence,   petitioner   may   not   Agreement   signed   by   Atty.   Soluta   under   the   doctrine   of   apparent  
impute   negligence   on   the   part   of   the   respondents   in   failing   to   authority.  
find   out   the   scope   of   Atty.   Soluta’s   authority.   Indeed,  the  public    
has  the  right  to  rely  on  the  trustworthiness  of  bank  officers  and   Held:   YES.   Undoubtedly,   the   Associated   Bank   had   previously   allowed  
their   acts.”   Associated   Bank   v.   Pronstroller,   558   SCRA   113   Atty.  Soluta  to  enter  into  the  first  agreement  without  a  board  resolution  
(2008).   expressly   authorizing   him;   thus,   it   had   clothed   him   with   apparent  
  authority  to  modify  the  same  via  the  second  letter-­‐agreement.  It  is  not  
Associated  Bank  v.  Pronstroller   the   quantity   of   similar   acts   which   establishes   apparent   authority,   but  
  the   vesting   of   a   corporate   officer   with   the   power   to   bind   the  
Facts:   The   Spouses   Vaca   executed   a   Real   Estate   Mortgage   in   favor   of   corporation.  
Associated  Bank  over  their  parcel  of  residential  land  in  Green  Meadows    
Subdivision.   Eventually,   the   property   was   foreclosed   and   sold   at   public   Doctrine:   The   doctrine   of   “apparent   authority,”   with   special   reference  
auction   with   Associated   Bank   as   the   highest   bidder.   However,   the   Vacas   to   banks,   had   long   been   recognized   in   this   jurisdiction.   Apparent  
commenced   an   action   for   the   nullification   of   the   real   estate   mortgage   authority   is   derived   not   merely   from   practice.   Its   existence   may   be  
and   the   foreclosure   sale.   Pending   its   resolution   in   the   Supreme   Court,   ascertained   through   1)   the   general   manner   in   which   the   corporation  
Associated  Bank  negotiated  with  the  Spouses  Pronstroller  through  Atty.   holds   out   an   officer   or   agent   as   having   the   power   to   act,   or   in   other  
Jose   Soluta,   the   bank’s   Vice   President   and   member   of   its   Board   of   words,   the   apparent   authority   to   act   in   general,   with   which   it   clothes  
Directors.   Letter   agreements   were   executed   whereby   the   Spouses   him;  or  2)  the  acquiescence  in  his  acts  of  a  particular  nature,  with  actual  
Pronstrollers   would   give   a   downpayment   (first   letter   agreement),   and   or   constructive   knowledge   thereof,   within   or   beyond   the   scope   of   his  
then  given  an  extension  to  pay  the  balance  which  would  be  given  upon   ordinary  powers.  
delivery  of  the  property  subsequent  to  the  resolution  of  the  Vaca  case    
with  such  property  being  free  from  occupants  (embodied  in  the  second  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
• Atty.  Hofileña  à  the  by-­‐laws  do  not  always  have  all  the  details   • The  fact  that  a  director  is  only  holding  the  share  as  a  nominee  of  
of   the   officers   but   it   is   a   good   place   to   start   to   determine   another  person  does  not  disqualify  him  as  a  director.  What  the  
whether   the   officer   you   are   dealing   with   has   authority   or   not   to   law   requires   is   that   he   has   legal   title   to   the   share.   Under   the   old  
deal  with  you  regarding  the  matter.  Absent  this,  you  can  ask  the   Corporation   Law   it   was   required   that   every   director   must   own  
company   to   provide   you   with   a   Board   Resolution   authorizing   a   "in  his  own  right"  at  least  one  share  of  the  capital  stock  of  the  
particular  person  to  deal  with  you  and  under  what  limitations.   corporation.   Under   the   present   Section   23   of   the   Corporation  
  Code,   it   requires   only   that   the   share   of   a   director   "shall   stand   in  
IV.  Qualifications  of  Directors/Trustees  (Sections  23  and  27)   his  name  on  the  books  of  the  corporation."1  
  • The  1-­‐share  requirement  is  a  continuing  requirement  
Section  23.  The  board  of  directors  or  trustees.   2. Rules  on  Additional  Qualifications  and  Disqualifications  
Unless   otherwise   provided   in   this   Code,   the   corporate   powers   of   all   • The   qualifications   provided   for   in   the   law   are   only   minimum  
corporations   formed   under   this   Code   shall   be   exercised,   all   business   qualifications;  additional  qualifications  and  disqualifications  can  
conducted   and   all   property   of   such   corporations   controlled   and   held   be  provided  for  but  only  by  proper  provisions  in  the  by-­‐laws  of  
by   the   board   of   directors   or   trustees   to   be   elected   from   among   the   the  corporation.  Gokongwei,  Jr.  v.  SEC,  89  SCRA  336  (1979).  
holders   of   stocks,   or   where   there   is   no   stock,   from   among   the   o Atty.   Hofileña   à   other   qualifications   may   be   found  
members   of   the   corporation,   who   shall   hold   office   for   one   (1)   year   from   the   laws   (e.g.   Philippine   resident,   possess   legal  
until  their  successors  are  elected  and  qualified.   capacity).   As   a   general   rule,   citizenship   is   not   a  
  requirement  to  be  a  director  of  a  corporation.  However,  
Every  director  must  own  at  least  one  (1)  share  of  the  capital  stock  of   it  may  be  a  requirement  in  cases  directors  of  corporate  
the  corporation  of  which  he  is  a  director,  which  share  shall  stand  in  his   public  utilities  operating  on  a  franchise.  
name  on  the  books  of  the  corporation.  Any  director  who  ceases  to  be    
the   owner   of   at   least   one   (1)   share   of   the   capital   stock   of   the   Gokongwei,  Jr.  v.  Securities  and  Exchange  Commission  
corporation   of   which   he   is   a   director   shall   thereby   cease   to   be   a    
director.   Trustees   of   non-­‐stock   corporations   must   be   members   Facts:  John  Gokongwei,  a  stockholder  of  San  Miguel  Corporation  (and  a  
thereof.   A   majority   of   the   directors   or   trustees   of   all   corporations   president   and   stockholder   of   Robina   Corp.   and   Consolidated   Foods  
organized  under  this  Code  must  be  residents  of  the  Philippines.   Corp.,  a  competitor  of  SMC,  in  various  areas,  such  as  Instant  Coffee,  Ice  
 
1. Qualifications                                                                                                                  
1
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
  director,   what   is   material   is   the   legal   title   to,   not   beneficial   ownership  
Issue:   Whether   or   not   the   execution   of   the   voting   trust   agreement   by   of,  the  stock  as  appearing  on  the  books  of  the  corporation.  
Lee   and   Lacdao   whereby   all   their   shares   to   the   corporation   have   been    
transferred  to  the  trustee  deprives  the  stockholder  of  their  positions  as   3. Rule  on  Corporate  Stockholders1  
directors  of  the  corporation.   • In   cases   of   corporate   stockholders   or   corporate   members   of   a  
  corporation,   such   entities   cannot   be   qualified   to   be   elected   as  
Held:   YES.   Lee   and   Lacdao,   by   virtue   of   the   voting   trust   agreement   such  to  the  board  of  the  corporation.  A  corporation  cannot  act  
executed   in   1981   disposed   of   all   their   shares   through   assignment   and   by  itself  but  only  through  its  officers  and  agents,  and  as  such  a  
delivery   in   favor   of   DBP,   as   trustee.   Consequently,   Lee   and   Lacdao   corporation   cannot   attend   personally   board   meetings   of   the  
ceased   to   own   at   least   one   outstanding   share   in   their   names   on   the   corporation  wherein  it  is  elected  as  a  director,  but  only  through  
books  of  Alfa  as  required  under  Section  23  of  the  new  Corporation  code.   representative   or   a   proxy,   which   would   contravene   the  
They   also   ceased   to   have   anything   to   do   with   the   management   of   the   established   rule   that   a   director   may   not   be   represented   by   a  
enterprise,   they   ceased   to   be   directors.   Hence,   the   transfer   of   their   proxy  at  a  meeting  of  the  board.2  
shares   to   the   DBP   created   vacancies   in   their   respective   positions   as   • In   the   case   of   corporate   stockholders   or   corporate   members,  
directors  of  Alfa.  In  the  absence  of  a  showing  that  DBP  had  caused  to  be   their   representation   in   the   board   can   be   achieved   by   making  
transferred   in   their   names   one   share   of   stock   for   the   purpose   of   their   individual   representatives   trustees   of   the   shares   or  
qualifying  as  directors  of  Alfa,  Lee  and  Lacdao  could  no  longer  deemed   membership,   which   would   then   make   them   stockholders   or  
to  retain  their  status  as  officers  of  Alfa.  Hence,  the  service  of  summons   members   of   record,   and   thereby   qualified   to   be   elected   to   the  
to  Alfa  through  Lee  and  Lacbao  was  invalid.   board,   but   at   the   same   time   maintaining   legal   responsibility   of  
  trustees  to  the  corporate  stockholder  or  members.  
Doctrine:   A   voting   trust   agreement   results   in   the   separation   of   the   4. Disqualifications  
voting   rights   of   a   stockholder   from   his   other   rights.   This   may   create   a    
dichotomy   between   the   equitable   or   beneficial   ownership   of   the   Section  27.  Disqualification  of  directors,  trustees  or  officers.  
corporate  shares  of  a  stockholder,  on  the  one  hand,   and  the  legal  title   No   person   convicted   by   final   judgment   of   an   offense   punishable   by  
thereto  on  the  other.  With  the  omission  of  the  phrase  "in  his  own  right"   imprisonment  for  a  period  exceeding  six  (6)  years,  or  a  violation  of  this  
[in  the  new  corporation  code]  the  election  of  trustees  and  other  persons   Code  committed  within  five  (5)  years  prior  to  the  date  of  his  election  
who   in   fact   are   not   the   beneficial   owners   of   the   shares   registered   in                                                                                                                  
their   names   on   the   books   of   the   corporation   becomes   formally   1
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
legalized.  Hence,  this  is  a  clear  indication  that  in  order  to  be  eligible  as  a   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
2
 Section  26,  Corporation  Code.    
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)