SECTION 23 The transfer made by Filriters to Philfinance did not

conform to the said. *Central Bank Circular, which for all

MANAGEMENT
TRADERS ROYAL BANK VS. COURT OF APPEALS
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.
intents, is considered part of the law. As found by the
courts a quo, Alfredo O. Banaria, who had signed the deed
of assignment from Filriters to Philfinance, purportedly for
and in favor of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act
for the latter. As it is, the sale from Filriters to Philfinance
was fictitious, and therefore void and inexistent, as there
was no consideration for the same. This is fatal to the
petitioner's cause, for then, Philfinance had no title over the
subject certificate to convey the Traders Royal Bank. Nemo
potest nisi quod de jure potest — no man can do anything
except what he can do lawfully.

FACTS: An entity which deals with corporate agents within

circumstances showing that the agents are acting in excess
Filriters Guaranty Assurance Corporation (Filriters) of corporate authority, may not hold the corporation liable.
executed a Detached Assignment whereby it sold, Thus, the unauthorized use or distribution of the same by a
transferred, assigned and delivered unto Philippine corporate officer of Filriters cannot bind the said
Underwriters Finance Corporation (Philfinance) all its corporation, not without the approval of its Board of
rights and title to Central Bank Certificates of Indebtedness Directors, and the maintenance of the required reserve
(CBCI). On February 4, 1981, petitioner entered into a fund.
Repurchase Agreement with PhilFinance whereby
PhilFinance sold, transferred and delivered to petitioner
CBCI No. 891, which was among those previously
acquired by PhilFinance from Filriters. Philfinance agreed
to repurchase but failed to do so on he agreed date of
maturity. Philfinance transferred and assigned all, its rights
and title in the said CBCI to petitioner. Petitioner requested
to effect the transfer of the CBCI on its books and to issue a
new certificate in its name as absolute owner. Respondent
failed and refused to register the transfer as requested
despite repeated demands in writing. The transfer of the
CBCI were substantially complied with by the petitioner's
and the Detached Assignments presented to respondent
were sufficient authorizations in writing executed by the
registered owner, Filriters, and its transferee, PhilFinance.
Fliriters said that detached assignment is patently void and
inoperative because the assignment is without the
knowledge and consent of directors of Filriters and that the
assignment of the CBCI to Philfinance is a personal act of
Alfredo Banaria and not the corporate act of Filriters and
such null and void.

ISSUE:

Whether or not the assignment of CBCI No. 891 in favor of

PhilFinance, and the subsequent assignment of CBCI by
PhilFinance in favor of Traders Royal Bank is null and void
and of no force and effect

HELD:

RATIFICATION
AGUENZA VS. METROPOLITAN BANK AND
TRUST CO. ET AL.
Facts:
The Board of Directors of Intertrade, through a Board
Resolution, authorized and empowered petitioner and
private respondent Vitaliado Arrieta, Intertrade's President
and Executive Vice-President, respectively, to jointly apply
for and open credit lines with private respondent
Metrobank. Petitioner and private respondent Arrieta
executed several trust receipts from May to June, 1977, the
aggregate value of which amounted to P562,443.46, with
Intertrade as the entrustee and private respondent
Metrobank as the entruster.
Petitioner and private respondent Arrieta executed a
Continuing Suretyship Agreement whereby both bound
themselves jointly and severally with Intertrade to pay
private respondent Metrobank whatever obligation
Intertrade incurs, but not exceeding the amount of
P750,000.00.
On March 21, 1978, private respondents Arrieta and Lilia
P. Perez, a bookkeeper in the employ of Intertrade,
obtained a P500,000.00 loan from private respondent
Metrobank. Both executed a Promissory Note in favor of
said bank in the amount of P500,000.00. Under said note,
private respondents Arrieta and Perez promised to pay said
amount, jointly and severally, in twenty five (25) equal
instalments.
Private respondents Arrieta and Perez defaulted in the
payment of several installments, thus resulting in the entire
obligation becoming due and demandable. In 1979, private
respondent Metrobank instituted suit against Intertrade and
Vitaliado Arrieta.
More than a year after private respondent Metrobank filed
its original complaint, it filed an Amended Complaint dated
August 30, 1980 for the sole purpose of impleading
petitioner, such liability is being claimed on account of a
Continuing Suretyship Agreement executed by petitioner
and private respondent Arrieta specifically to guarantee the
credit line applied for by and granted to, Intertrade.
The trial court rendered its decision absolving petitioner
from liability and dismissing private respondent
Metrobank's complaint against him. CA set aside the
decision of the trial court.
Issue:
WON the loan was a corporate liability of Intertrade and
that petitioner is not liable thereon under the Continuing
Surety Agreement.
Held:
We must emphasize that Intertrade has a distinct
personality separate from its members. The corporation
transacts its business only through its officers or agents.
Whatever authority these officers or agents may have is
derived from the Board of Directors or other governing
body unless conferred by the charter of the corporation. An
officer's power as an agent of the corporation must be
sought from the statute, charter, the by-laws, as in a
delegation of authority to such officer, or the acts of the
Board of Directors formally expressed or implied from a
habit or custom of doing business.
The power to borrow money is one of those cases where
even a special power of attorney is required. In the
instant case, there is invariably a need of an enabling
act of the corporation to be approved by its Board of
Directors. As found by the trial court, the records of this
case is bereft of any evidence that Intertrade through its
Board of Directors, conferred upon Arrieta and Lilia Perez
the authority to contract a loan with Metrobank and execute
the promissory note as a security therefor. Neither a board
resolution nor a stockholder's resolution was presented
by Metrobank to show that Arrieta and Lilia Perez were
empowered by Intertrade to execute the promissory note.
In the case at bench, only respondent Arrieta, together with
a bookkeeper of the corporation, signed the promissory
notes, without the participation and approval of petitioner
Aguenza. Moreover, the enabling corporate act on this
particular transaction has not been obtained. Neither has it
been shown that any provision of the charter or any other
act of the Board of Directors exists to confer power on the
Executive Vice President acting alone and without the
concurrence of its President, to execute the disputed
document.
Thus, proceeding from the premise that the subject loan
was not the responsibility of Intertrade, it follows that the
undertaking of Arrieta and the bookkeeper was not an
undertaking covered by the Continuing Suretyship
Agreement. The rule is that a contract of surety is never
presumed; it must be express and cannot extend to more
than what is stipulated. It is strictly construed against the
creditor, every doubt being resolved against enlarging the
liability of the surety.
The present obligation incurred in subject contract of
loan, as secured by the Arrieta and Perez promissory
note, is not the obligation of the corporation and
petitioner Aguenza, but the individual and personal
obligation of private respondents Arrieta and Lilia
Perez.
METROPOLITAN WATERWORKS AND
SEWERAGE SYSTEM vs.  CA, HON. PERCIVAL
LOPEZ, AYALA CORPORATION and AYALA
LAND, INC.,
MWSS vs.  HON. PERCIVAL MANDAP LOPEZ,
CAPITOL HILLS GOLF AND COUNTRY CLUB
INC., SILHOUETTE  TRADING CORPORATION,
and PABLO ROMAN JR.
FACTS:
In 1965, MWSS leased around 128 hectares of its land to
respondent CHGCCI for 25 years and renewable for
another 15 years or until the year 2005, with the stipulation
allowing the latter to exercise a right of first refusal should
the subject property be made open for sale.  The terms and
conditions of respondent CHGCCI's purchase thereof shall
nonetheless be subject to presidential approval.
Pursuant to Letter of Instruction No. 440 by then President
Marcos directing MWSS to negotiate the cancellation of
the MWSS-CHGCCI lease agreement for the disposition of
the subject property, Oscar Ilustre, then General Manager
MWSS, sometime in November of 1980 informed
CHGCCI, through its president herein respondent Pablo
Roman, Jr., of its preferential right to buy the subject
property which was up for sale.  Valuadation thereof was to
be made by an appraisal company of petitioner
MWSS'choice, the Asian Appraisal Co., Inc. which, on
January 1981, pegged a fair market value of P40.00 per
square meter or a total of P53.8M for the subject property.
Upon being informed that MWSS and CHGCCI had
already agreed in principle on the purchase of the subject
property, President Marcos expressed his approval of the
sale.
The Board of Trustees of MWSS thereafter passed
Resolution 36-83, approving the sale of the subject
property in favor of respondent SILHOUETTE, as assignee
of CHGCCI, at the appraised value given by Asian
Appraisal Co., Inc. 
The MWSS-SILHOUETTE sales agreement eventually
pushed through.  Total price for the subject property
isP50,925,200, P25 Million of which was to be paid upon
President Marcos' approval of the contract and the balance
to be paid within 1 year from the transfer of the title to
respondent SILHOUETTE w/ interest.  The balance was
also secured by an irrevocable letter of credit.  A
Supplemental Agreement was forged between MWSS and
SILHOUETTE to accurately identify the subject property.
Subsequently, respondent SILHOUETTE sold to
respondent AYALA.  Of the total price of
around P74M, P25M was to be paid by respondent
AYALA directly to petitioner MWSS for respondent
SILHOUETTE's account and P2 Million directly to
respondent SILHOUETTE. Respondent AYALA
developed the land it purchased into a prime residential
area.
Almost a decade later, petitioner MWSS on filed an action
against all herein named respondents before the RTC of QC
seeking for the declaration of nullity of the MWSS-
SILHOUETTE sales agreement and all subsequent
conveyances involving the subject property.
Respondent AYALA filed its answer pleading the
affirmative defenses of (1) prescription, (2) laches, (3)
waiver/estoppel/ratification, (4) no cause of action, (5) non-
joinder of indispensable parties, and (6) non-jurisdiction of
the court for non-specification of amount of damages
sought.
Trial court dismissed the complaint of MWSS.
In the meantime, respondents CHGCCI and Roman filed
their own motions to hear their affirmative defenses which
were identical to those adduced by respondent
AYALA.  For its part, respondent SILHOUETTE filed a
similarly grounded motion to dismiss.
Ruling upon these motions, the trial court issued an order
denying all of them. 
HELD:
RE: Prescription
Petitioner MWSS claims as erroneous both the lower
courts' uniform finding that the action has prescribed,
arguing that its complaint is one to declare the MWSS-
SILHOUETTE sale, and all subsequent conveyances of the
subject property, void which is imprescriptible.
We disagree.
The very allegations in petitioner MWSS' complaint shows
that the subject property was sold through contracts which,
at most, can be considered only as voidable, and not void.  discovery.  Discovery commenced from the date of the
The three elements of a contract - consent, the object, and
the cause of obligation 1 are all present.  It cannot be
otherwise argued that the contract had for its object the sale
of the property and the cause or consideration thereof was
the price to be paid (on the part of respondents
CHGCCI/SILHOUETTE) and the land to be sold (on the
part of petitioner MWSS). Likewise, petitioner MWSS'
consent to the May 11, 1983 and August 11, 1983
Agreements is patent on the face of these documents and on
its own resolution No. 36-83.
As noted by both lower courts, petitioner MWSS admits
that it consented to the sale of the property, with the
qualification that such consent was allegedly unduly
influenced by the President Marcos.  Taking such
allegation to be hypothetically true, such would have
resulted in only voidable contracts because all three
elements of a contract, still obtained nonetheless.  The
alleged vitiation of MWSS' consent did not make the sale
null and void ab initio.  Thus, "a contract where consent is
given through mistake, violence, intimidation, undue
influence or fraud, is voidable. Contracts "where consent is
vitiated by mistake, violence, intimidation, undue influence
or fraud" are voidable or annullable. These are not void as -
"Concepts of Voidable Contracts. - Voidable or annullable
contracts are existent, valid, and binding, although they can
be annulled because of want of capacity or vitiated consent
of the one of the parties, but before annulment, they are
effective and obligatory between parties.  Hence, it is valid
until it is set aside and its validity may be assailed only in
an action for that purpose.  They can be confirmed or
ratified."
As the contracts were voidable at the most, the four year
prescriptive period under Art. 1391 of the New Civil Code
will apply.  This article provides that the prescriptive period
shall begin in the cases of intimidation, violence or undue
influence, from the time the defect of the consent ceases",
and "in case of mistake or fraud, from the time of the
discovery of the same time".
Hypothetically admitting that President Marcos unduly
influenced the sale, the prescriptive period to annul the
same would have begun on February 26, 1986 which this
Court takes judicial notice of as the date President Marcos
was deposed.  Prescription would have set in by February
26, 1990 or more than three years before petitioner MWSS'
complaint was filed.
However, if petitioner MWSS' consent was vitiated by
fraud, then the prescriptive period commenced upon
execution of the sale documents as petitioner was party
thereto.  At the least, discovery is deemed to have taken
place on the date of registration of the deeds with the
register of Deeds as registration is constructive notice to the
world. Given these two principles on discovery, the
prescriptive period commenced in 1983 as petitioner
MWSS actually knew of the sale, or, in 1984 when the
agreements were registered and titles thereafter were issued
to respondent SILHOUETTE.  At the latest, the action
would have prescribed by 1988, or about five years before
the complaint was instituted.  Thus, in Aznar vs.  Bernard,
this Court held that:
"Lastly, even assuming that the petitioners had indeed
failed to raise the affirmative defense of prescription in a
motion to dismiss or in an appropriate pleading (answer, or
amended or supplemental answer) and an amendment
would no longer be feasible, still prescription, if apparent
on the face of the complaint, may be favorably
considered.  In the case at bar, the private respondents
admit in their complaint that the contract or real estate
mortgage which they alleged to be fraudulent and which
had been foreclosed, giving rise to this controversy with the
petitioners, was executed on July 17, 1978, or more than
eight long years before the commencement of the suit in the
court a quo, on September 15, 1986.  And an action declare
a contract null and void on the ground of fraud must be
instituted within four years.  Extinctive prescription is thus
apparent on the face of the complaint itself as resolved by
the Court."
Petitioner MWSS further contends that prescription does
not apply as its complaint prayed not for the nullification of
voidable contracts but for the declaration of nullity of
void ab initio contracts which are imprescriptible.  This is
incorrect, as the prayers in a complaint are not
determinative of what legal principles will operate based on
the factual allegations of the complaint.  And these factual
allegations, assuming their truth, show that MWSS
consented to the sale, only that such consent was
purportedly vitiated by undue influence or fraud. Therefore,
the rules on prescription will operate.  Even if petitioner
MWSS asked for the declaration of nullity of these
contracts, the prayers will not be controlling as only the
factual allegations in the complaint determine relief.  "(I)t
is the material allegations of fact in the complaint, not the
legal conclusion made therein or the prayer that determines
the relief to which the plaintiff is entitled.
Petitioner MWSS also theorizes that the May 11, 1983
MWSS-SILHOUETTE Agreement and the August 11,
1983 Supplemental Agreement were void ab initio because
the "initial agreement" from which these agreements
emanated was executed "without the knowledge, much less
the approval" of petitioner MWSS through its Board of
Trustees.  The "initial agreement" referred to in petitioner
MWSS' argument is the December 20, 1982 letter of
respondents Roxas and Roman, Jr. to President Marcos
where the authors mentioned that they had reached an
agreement with petitioner's then general manager, Mr.
Oscar Ilustre.  Petitioner MWSS maintains that Mr. Ilustre
was not authorized to enter into such "initial agreement",
contrary to Art. 1874 of the New Civil Code which
provides that "when a sale of a parcel of land or any
interest therein is through an agent, the authority of the
latter shall be in writing otherwise the sale shall be void." It
then concludes that since its Res.  No. 36-83 and the May
11, 1983 and August 11, 1983 Agreements are "fruits" of
the "initial agreement" (for which Mr. Ilustre was allegedly
not authorized in writing), all of these would have been
also void under Art. 1422 of NCC, which provides that a
contract which is the direct result of a pronounced illegal
contract is also void and inexistent."
The argument does not impress.  The "initial agreement"
reflected in the letter of respondent Roman to
Pres.  Marcos, is not a sale under Art. 1874
It does not document a sale, but at most, only the
conditions proposed by respondent Roman to enter into
one.  By the terms thereof, it refers only to an "agreement
in principle".  Reflecting a future consummation, the letter
mentions "negotiations with MWSS (which) with your
(Marcos') kind approval, will finally be concluded".  It
must likewise be noted that presidential approval had yet to
be obtained.  Thus, the "initial agreement" was not a sale as
it did not in any way transfer ownership over the
property.  The proposed terms had yet to be approval by the
President and the agreement in principle still had to be
formalized in a deed of sale.  Written authority as is
required under Art. 1834 of the New Civil Code, was not
needed at the point of the "initial agreement".
Verily, the principle on prescription of actions is designed
to cover situations such as the case at bar, where there have
been a series of transfers to innocent purchasers for
value.  To set aside these transactions only to accommodate
a party who has slept on his rights is anathema to good
order.
RE: Laches
Even assuming, for argument's sake, that the allegations in
the complaint establish the absolute nullity of the assailed
contracts a hence imprescriptible, the complaint can still be
dismissed on the ground of laches which is different from
prescription.  This Court, as early as 1966, has
distinguished these two concepts in this wise:
"x x x (T)he defense of laches applies independently of
prescription.  Laches is different from the statute of
limitations.  Prescription is concerned with the fact of
delay, whereas laches is concerned with the effect of
delay.  Prescription is a matter of time; laches is principally
a question of inequity of permitting a claim to be enforced,
this inequity being founded on some change in the
condition of the property or the relation of the
parties.  Prescription is statutory; laches is not.  Laches
applies in inequity, whereas prescription applies at
law.  Prescription is based on fixed-time; laches is not."
Thus, the prevailing doctrine is that the right to have a
contract declared void ab initio may be barred by laches
although not barred by prescription.
It has, for all its elements are present, viz:
(1)              conduct on the part of the defendant, or one
under whom he claims, giving rise to the situation that led
to the complaint and for which the complaint seeks a
remedy;
(2)              delay in asserting the complainant's rights,
having had knowledge or notice of the defendant's conduct
and having been afforded an opportunity to institute a suit;
(3)              lack of knowledge or notice on the part of the
defendant that the complainant would assert the right on
which he bases his suit; and
(4)              injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit is not held
barred.
There is no question on the presence of the first
element.  The main thrust of petitioner MWSS's complaint
is to bring to the fore what it claims as fraudulent and/or
illegal acts of the respondents in the acquisition of the
subject property.
The second element of delay is evident from the fact that
petitions tarried for almost ten (10) years from the
conclusion of the sale sometime in 1983 before formally
laying claim to the subject property in 1993.
petitioner MWSS' complaint is it alleged that it returned the
amounts, or any part thereof, covering the purchase price to
any of the respondents-vendees at any point in time.  This
is only indicative of petitioner MWSS' acceptance and
retention of benefits flowing from the sales transactions
which is another form of implied ratification.

The third element is present as can be deduced from the

allegations in the complaint that petitioner MWSS (a)
demanded for downpayment for no less than three times;
(b) accepted downpayment for P25 Million; and (c)
accepted a letter of credit for the balance.  The pertinent
paragraphs in the complaint thus read:

The facts supplied by petitioner MWSS itself, respondents

have every good reason to believe that petitioner was
honoring the validity of the conveyances of the subject
property, and that the sudden institution of the complaint in
1993 alleging the nullity of such conveyances was surely
an unexpected turn of events for respondents.  Hence,
petitioner MWSS cannot escape the effect of laches.

RE: Ratification

Pertinent to this issue is the claim of petitioner MWSS that

Mr. Ilustre was never given the authority by its Board of
Trustees to enter into the "initial agreement" of December
20, 1982 and therefore, the sale of the subject property is
invalid.

Petitioner MWSS misses the point.  The perceived

infirmity in the "initial agreement" can be cured by
ratification.  So settled is the precept that ratification can be
made by the corporate board either 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. Both modes of ratification have
been made in this case.

There was express ratification made by the Board of

petitioner MWSS when it passed Resolution No. 36-83
approving the sale of the subject property to respondent
SILHOUETTE and authorizing Mr. Ilustre, as General
Manager, "to sign for and in behalf of the MWSS the
contract papers and other pertinent documents relative
thereto."   Implied ratification by "silence or acquiescence"
is revealed from the acts of petitioner MWSS in (a) sending
three (3) demand letters for the payment of the purchase
price, (b) accepting P25 Million as downpayment, and (c)
accepting a letter of credit for the balance, as hereinbefore
mentioned. It may well be pointed out also that nowhere in
OFFICERS
PANDICO (MANILA), INC. VS. ALTO
ELECTRONICS CORPORATION, 52 O.G. 5908.
Plaintiff Pandico, through its president and general
manager, Ira Svensgaard, was advised by Crisostomo
Chavez, general manager of defendant Alto Electronics
Corp., that the latter had a number of unused import
licenses and that if plaintiff wished it could place orders
with the said defendant for electronic appliances and spare
parts, to be imported on consignment basis. Relying on
such advice, plaintiff deposited with defendant the sum of
P17,986 in three checks. Subsequently, defendant informed
the plaintiff that the goods it had ordered cannot be
delivered because the import licenses of the former had
already expired. Two checks were issued to plaintiff by the
defendant for the return of the sum deposited but which
were not encashed for insufficiency of funds. An action for
sum of money was brought before the CFI of Manila by the
plaintiff to recover the P17,986. The trial court rendered
judgment in favor of the plaintiff. Hence, this appeal.
ISSUE: Did the trial court erred in holding that Chavez is
with sufficient authority to act for and in behalf of the
defendant corporation?
RULING: NO, because Chavez was within authority to
enter into the transaction involved herein.
laws of which the party has no knowledge… Limitations on
the powers of a manager will not be binding on persons
who deal with him in matters within the apparent scope of
his authority and without knowledge of such limitations.
In the instant case, one section of the by-laws of
the defendant corporation states that “the manager shall be
in active and immediate charge and control of the business
of the company under the general control and supervision
of the President and the Board of Directors and shall
perform all duties that re properly incident to his office.”
But the said by-laws have not been presented at the
trial and therefore cannot be availed of as evidence in this
case. But even on the basis of the power supposedly given
to the general manager to have “active and immediate
charge and control of the business of the company,” the
acceptance of a purchase order for merchandise in which
defendant was dealing in the ordinary course of its business
was within his authority. The proviso that he will be under
the general control and supervision of the President and the
Board of Directors does not change the situation at all,
because the said proviso, reasonably interpreted, does not
mean that before the general manager may act in every
individual instance involving the usual, ordinary business
of defendant, he must first obtain the consent and approval
of these officers of the corporation.

The general rule is that in the absence of express

restrictions on his power, with actual or constructive notice
thereof to persons dealing with him, an officer or agent of a
corporation, entrusted with the general management and
control of its business, has implied authority to make any
contract or do any other act which is necessary or
appropriate to the conduct of the ordinary business of the
corporation. The very term ‘general manager’ imports
general authority to perform all reasonable things in
conducting the usual and customary business of his
principal… And a person dealing with the general manager
of a corporation relative to matters within the scope of
business of the corporation has the right to assume that he
has authority to act for the corporation and is not required
to investigate in order to ascertain whether or not he has
such authority.

Where a manager is charge of a business is

apparently clothed with authority to act for the corporation,
third persons acting in good faith and without notice of any
limitation on his authority, have the right to rely on his
general authority and are not affected by some limitations
on his powers, though these limitation are contained in by-
 authority to make any contract or do any other act which is
necessary or appropriate to the conduct of the ordinary
business of the corporation. As such officer, he may,
without any special authority from the Board of Directors
perform all acts of an ordinary nature, which by usage or
necessity are incident to his office, and may bind the
corporation by contracts in matters arising in the usual
course of business. Settled jurisprudence has it that where
similar acts have been approved by the directors as a matter
of general practice, custom, and policy, the general
BOARD OF LIQUIDATORS VS. HEIRS OF KALAW manager may bind the company without formal
authorization of the board of directors. In varying language,
20 SCRA 987 (August 14, 1967) GR No. L-18805 existence of such authority is established, by proof of the
course of business, the usage and practices of the company
Facts: and by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its
The National Coconut Corporation (NACOCO) was
subordinates in and about the affairs of the corporation. In
chartered as a non-profit governmental organization
the case at bar, the practice of the corporation has been to
avowedly for the protection, preservation and development
allow its general manager to negotiate and execute
of the coconut industry in the Philippines. General manager
contracts in its copra trading activities for and in
and board chairman was Maximo M. Kalaw. An unhappy
NACOCO's behalf without prior board approval. If the by-
chain of events conspired to deter NACOCO from fulfilling
laws were to be literally followed, the board should give its
some contracts entered. Nature supervened as four
stamp of prior approval on all corporate contracts. But that
devastating typhoons visited the Philippines. Coconut trees
board itself, by its acts and through acquiescence,
throughout the country suffered extensive damage. Copra
practically laid aside the by-law requirement of prior
production decreased, prices spiralled, warehouses were
approval. Under the given circumstances, the Kalaw
destroyed cash requirements doubled. Deprivation of
contracts are valid corporate acts.
export facilities increased the time necessary to accumulate
shiploads of copra. Quick turnovers became impossible,
financing a problem. The buyers threatened damage suits.
All the settlements sum up to P1.3 M. NACOCO,
represented by the Board of Liquidators, seeks to recover
the above sum of P1.3M from general manager and board
chairman Maximo M. Kalaw, and the directors. It charges
Kalaw with negligence and defendant board members, with
bad faith and/or breach of trust for having approved the
contracts without prior approval of the Board. The lower
court came out with a judgment dismissing the complaint.
The lower court's holding is that Kalaw justifiedly entered
into the controverted contracts without the prior approval of
the corporation's directorate.

Issue:

WON the acts of the respondent as General Manager

without prior approval of the Board are valid corporate
acts.

Held:

YES. A rule that has gained acceptance through the years is

that a corporate officer entrusted with the general
management and control of its business, has implied

SAN MIGUEL BREWERY, INC., plaintiff and appellee
vs.
LIFETIME ENTERPRISES, INC. & THE HOUSE OF
INSURANCE, INC., defendants; LIFETIME
ENTERPRISES, INC., defendant and appellant
[No. 30725-R. January 11, 1965]
Doctrine:
PRIVATE C ORPORATIONS ; O FFICERS ; I MPLIED
A UTHORITY; TEST
FACTS:
Eliseo Arandia, Jr. (general manager of Lifetime
Enterprises, Inc.), on behalf of LE, applied for a credit line
for the purchase of beer products from San Miguel
Brewery, Inc. Such application was approved by San Mig
thru Luis Fernandez (Asst. VP of San Mig).
The credit line was secured by a surety bond was executed
by Arandia (in his capacity as gen. manager) as Principal,
and The House of Insurance, Inc. (HI), as Surety. They
bound themselves jointly and severally liable for the credit
purchases to the extent of P20,000.
Arandia authorized Manuel Upao (Upao) to sign “sales
order” or “purchase order” of San Mig. Pursuant to such
authority, Upao ordered and received beer products (valued
at P200). On the same day, Pedro Fineza (route supervisor
of San Mig) received a call from Arandia ordering the
delivery of the products to Caloocan, Rizal (no Caloocan
City). Fineza ordered the delivery be made to the said
place. Arandia himself, in the presence of Upao, received
the delivery (valued at P8,000) and covered by 3 invoices.
Further deliveries were made thru Upao.
San Mig wrote a letter to LE informing it of it’s
outstanding balance for the beer products delivered to them
(P20,000). A similar letter was sent to HI informing it of
the outstanding balance of LE and LE’s failure to pay. San
Mig has sent it’s collector but still failed to collect any
payment. Demands for payment were unanswered,
prompting San Mig to file an action for collection in the
CFI of Manila.
HI admitted the genuineness and due execution of the
surety bond but denied having knowledge of the delivery of
the beer products and LE’s failure to pay.
LE denied any liability, asserting that Arandia acted
beyond the scope of his authority as general manager in
entering into the said transaction.
CFI: ruled in favor of San Mig; ordered LE and HI to pay
jointly and severally San Mig.
Only LE appealed the ruling of the CFI. Hence, this appeal.
ISSUE:
WON LE is bound by the said contracts.
WON Arandia, as general manager, had the power or
authority to enter into the said contracts for and in behalf of
LE.
HELD:
Lifetime Enterprises, Inc. is absolved from liability.
Under the by-laws of appellant corporation, the
power to “execute on behalf of the corporation all contracts
and agreements which said corporation may enter into” is
conferred upon it’s president. Upon the other hand, it’s
general manager is vested with “direct and active
management of the business and operations of the
company, conducting the same according to the orders,
resolutions and instructions of the board of directors and
the president, and according to his own discretion
whenever and wherever the same is not expressly limited
by such order, resolution and instructions”. Clearly,
therefore, under these provisions of appellant’s by-laws,
Eliseo Arandia Jr. had no express power and authority to
enter into the contracts in question, the power to do so
being conferred upon the president. And the record does
not show either that he was authorized by the board of
directors of the president to execute said contracts in behalf
of the appellant corporation.
Be that as it may, the lack of express power or
authority in the general manager to enter into the contracts
in question is not the decisive factor that is determinative of
the binding effect of such contracts upon appellant
corporation. For under the theory of implied authority, an
officer or agent of a private corporation, entrusted with
the general management and control of its business and
affairs, has implied or apparent authority to do acts or
make any contracts in its behalf falling within the scope
of the ordinary and usual business of the company, and
limitations and restrictions placed upon his express or
implied authority, of which persons dealing with him
have neither actual nor constructive notice, will not serve
to restrict such powers to the prejudice of innocent third
persons. However, the theory of implied authority in a
general manager of a corporation will be sustained only
where the subject matter of his act is something that arises
in the conduct of the ordinary business of the corporation.

The test whether the theory of implied authority in

a general manager of a corporation will be sustained is
whether the subject matter of the act is something that
arises in the conduct of the ordinary business of the
corporation or whether the execution of the particular
contract is reasonably necessary to, and customary and
usual in, the performance of the duties to be discharged
by managers.

x x x appellant corporation cannot be held liable to

appellee corporation for the value of the beer products
purchased on credit by its general manager, Eliseo Arandia
Jr. having acted without proper authority from appellant
corporation in making the purchase, Arandia is liable
therefore in his personal capacity; but since he is not a
party to this case, no judgment can be had against him in
this instance.

Appellee corporation may, nevertheless, enforce

the lower court’s judgment against defendant The House of
Insurance, Inc., which did not appeal therefrom. x x x
SECTION 29 been filled by the stockholders in a regular or special
meeting called for that purpose
VALLE VERDE COUNTRY CLUB, INC., ERNESTO
VILLALUNA, RAY GAMBOA, AMADO RTC: Favored Africa - Ramirez as Makalintal's
M.SANTIAGO, JR., FORTUNATO DEE, AUGUSTO replacement = null and void
SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS
III, ERIC ROXAS, in their capacities as members of the SEC:  Roxas as Vice hold-over director of Dinglasan = null
Board of Directors of Valle Verde Country Club, Inc., and void
and JOSE RAMIREZ, vs. VICTOR AFRICA,
VVCC appealed in SC for certiorari being partially
FACTS: contrary to law and jurisprudence

Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), ISSUES:

Eduardo Makalintal (Makalintal), Francisco Ortigas III,
1.     W/N there is an unexpired term - NO
Victor Salta, Amado M. Santiago, Jr., Fortunato Dee,
Augusto Sunico, and Ray Gamboa were  elected as BOD 2.     W/N the remaining directors of a corporation’s Board,
during the Annual Stockholders’ Meeting of  petitioner still constituting a quorum, can elect another director to fill
Valle Verde Country Club, Inc. (VVCC). During the years in a vacancy caused by the resignation of a hold-over
of 1997 – 2001, the requisite quorum could not be obtained director. - NO
so they continued in a hold-over capacity. In September 1,
1998, Dinglasan resigned, BOD still constituting a HELD:
quorum elected Eric Roxas (Roxas). In November 10,
Petition Denied. RTC Affirmed.
1998, Makalintal resigned.
1.     NO 
On March 6, 2001, Jose Ramirez (Ramirez) was elected by
the remaining BOD. Respondent Africa (Africa), a member “Term”  time during which the officer may claim to hold
of VVCC, questioned the election of Roxas and Ramirez as the office as of right and not affected by the holdover. It is
members of the VVCC Board with the Securities and fixed by statute and it does not change simply because the
Exchange Commission (SEC) and the Regional Trial office may have become vacant, nor because the incumbent
Court (RTC) as contrary to Sec. 23.  The board of directors holds over in office beyond the end of the term due to the
or trustees.  - Unless otherwise provided in this Code,  the fact that a successor has not been elected and has failed to
corporate powers of all corporations formed under this qualify. “Tenure” term during which the
Code shall be exercised, all business conducted and all incumbent actually holds office.  
property of such corporations controlled and held
by  the  board of directors or trustees to be elected from Section 23 of the Corporation Code: term of BOD only 1
among the holders of stocks, or where there is no stock, year - fixed and has expired (1 yr after 1996)
from among the members of the corporation, who shall
hold office for 1 year until their successors are elected and
qualified.
    2.  NO
Likewise, Sec. 29.  Vacancies in the office of director or
Underlying policy of the Corporation Code is that the
trustee.  - Any vacancy occurring in  the board of directors
business and affairs of a corporation must be governed by a
or trustees other than by removal by the stockholders or
board of directors whose members have stood for election,
members or by expiration of term, may be filled by the vote
and who have actually been elected by the stockholders, on
of at least a majority of the remaining directors or trustees,
an annual basis. Only in that way can the directors'
if still constituting a quorum; otherwise,
continued accountability to shareholders, and the
said  vacancies must be filled by the stockholders in a
legitimacy of their decisions that bind the corporation's
regular or special meeting called for that purpose. A
stockholders, be assured. The shareholder vote is critical to
director or trustee so elected to fill a vacancy shall be
the theory that legitimizes the exercise of power by the
elected only for the unexpired term of his predecessor in
directors or officers over properties that they do not own. It
office. Makalintal's term should have expired after 1996
is Theory of delegated power of the board of directors.
there being no unexpired term.  The vacancy should have
Section 29 contemplates a vacancy occurring within the
director’s term of office (unexpired). The vacancy caused
by Makalintal’s leaving lies with the VVCC’s stockholders,
not the remaining members of its board of directors
JOSE A. BERNAS, et al. vs JOVENCIO F. CINCO et
al.
G.R. Nos. 163356-57; G.R. NOS. 163368-69
July 01, 2015
FACTS:
Makati Sports Club (MSC) is a domestic corporation duly
organized and existing under Philippine laws for the
primary purpose of establishing, maintaining, and
providing social, cultural, recreational and athletic activities
among its members.
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas
(Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara,
Jose T. Frondoso, Ignacio T. Macrohon and Paulino T. Lim
(BERNAS GROUP) were among the Members of the
Board of Directors and Officers of the corporation whose
terms were to expire either in 1998 or 1999.
Petitioners in G.R. Nos. 163368-69 Jovencio Cinco,
Ricardo Librea and Alex Y. Pardo (CINCO GROUP) are
the members and stockholders of the corporation who were
elected Members of the Board of Directors and Officers of
the club during the 17 December 1997 Special
Stockholders Meeting.
Alarmed with the rumored anomalies in handling the
corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club,
demanded from the Bernas Group, who were then
incumbent officers of the corporation, to resign from their
respective positions to pave the way for the election of new
set of officers. Agreeing with this were the stockholders of
the corporation representing at least 100 shares who sought
the assistance of the MSCOC to call for a special
stockholders meeting for the purpose of removing the
sitting officers and electing new ones. Pursuant to such
request, the MSCOC called a Special Stockholders’
Meeting and sent out notices to all stockholders and
members stating therein the time, place and purpose of the
meeting.  For failure of the Bernas Group to secure an
injunction before the Securities Commission (SEC), the
meeting proceeded wherein Bernas, Cheng, Africa,
Maramara, Frondoso, Macrohon, Jr. and Lim were
removed from office and, in their place and stead, Cinco,
Librea, Pardo, Aguiling, Villarosa, David, Maronilla, de
Leon-Herlihy and Altura, were elected.
Aggrieved by the turn of events, the BERNAS GROUP
sought the nullification of the 17 December 1997 Special
Stockholders Meeting on the ground that it was improperly
called before the Securities Investigation and Clearing
Department (SICD) of the SEC. Citing Section 28 of the
Corporation Code, the Bernas Group argued that the
authority to call a meeting lies with the Corporate Secretary
and not with the MSCOC which functions merely as an
oversight body and is not vested with the power to call
corporate meetings.   For being called by the persons not
authorized to do so, the Bernas Group urged the SEC to
declare the 17 December 1997 Special Stockholders’
Meeting, including the removal of the sitting officers and
the election of new ones, be nullified.
For their part, the CINCO GROUP insisted that the 17
December 1997 Special Stockholders’ Meeting is
sanctioned by the Corporation Code and the MSC by-laws. 
In justifying the call effected by the MSCOC, they
reasoned that Section 25 of the MSC by-laws merely
authorized the Corporate Secretary to issue notices of
meetings and nowhere does it state that such authority
solely belongs to him.  It was further asseverated by the
Cinco Group that it would be useless to course the request
to call a meeting thru the Corporate Secretary because he
repeatedly refused to call a special stockholders’ meeting
despite demands and even filed a suit to restrain the holding
of a special meeting.
The newly elected directors initiated an investigation on the
alleged anomalies in administering the corporate affairs and
after finding Bernas guilty of irregularities, the Board
resolved to expel him from the club by selling his shares at
public auction. Due to the filing of several petitions for and
against the removal of the Bernas Group from the Board
pending before the SEC resulting in the piling up of legal
controversies involving MSC, the SEC En Banc resolved
to supervise the holding of the 1999 Annual Stockholders’
Meeting.  During the said meeting, the stockholders once
again approved, ratified and confirmed the holding of the
17 December 1997 Special Stockholders’ Meeting.
The conduct of the 17 December 1997 Special
Stockholders’ Meeting was likewise ratified by the
stockholders during the 2000 Annual Stockholders’
Meeting which was held on 17 April 2000. SICD rendered
a decision finding, among others, that the 17 December
1997 Special Stockholders’ Meeting and the Annual
Stockholders’ Meeting conducted on 20 April 1998 and 19
April 1999 are invalid.  The SICD likewise nullified the
expulsion of Bernas from the corporation and the sale of his
share at the public auction. 
Court of Appeals declared that 17 December 1997 Special
Stockholders’ Meeting invalid for being improperly called
but affirmed the actions taken during the Annual
Stockholders’ Meeting held on 20 April 1998, 19 April
1999 and 17 April 2000.
The BERNAS GROUP agrees with the disquisition of the
appellate court that the Special Stockholders’ Meeting is
invalid for being called by the persons not authorized to do
so, they urge the Court to likewise invalidate the holding of
the subsequent Annual Stockholders’ Meetings invoking
the application of the holdover principle.  The CINCO
GROUP insists that the holding of 17 December 1997
Special Stockholders’ Meeting is valid and binding
underscoring the overwhelming ratification made by the
stockholders during the subsequent annual stockholders’
meetings and the previous refusal of the Corporate
Secretary to call a special stockholders’ meeting despite
demand.  
ISSUES:
1. Whether or not the Court of Appeals erred in ruling
that the 17 December 1997 Special Stockholders’
Meeting is invalid.
2. Whether or not the Court of Appeals erred in failing to
nullify the holding of the annual stockholders’ meeting
on 20 April 1998, 19 April 1999 and 17 April 2000.
RULING:
1. YES. It is invalid.
The 17 December 1997 Special Stockholders’ Meeting is
null and void and produces no effect; the resolution
expelling the Bernas Group from the corporation and
authorizing the sale of Bernas’ shares at the public auction
is likewise null and void.  and derives its power to control and direct the affairs of the
The Corporation Code laid down the rules on the removal
of the Directors of the corporation by providing, inter alia,
the persons authorized to call the meeting and the number
of votes required for the purpose of removal, thus:
Sec. 28. Removal of directors or trustees. - Any
director or trustee of a corporation may be removed
from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding
capital stock, or if the corporation be a non-stock
corporation, by a vote of at least two-thirds (2/3) of the
members entitled to vote: Provided, That such removal
shall take place either at a regular meeting of the
corporation or at a special meeting called for the
purpose, and in either case, after previous notice to
stockholders or members of the corporation of the
intention to propose such removal at the meeting. A
special meeting of the stockholders or members of
a corporation for the purpose of removal of
directors or trustees, or any of them, must be called
by the secretary on order of the president or on the
written demand of the stockholders representing or
holding at least a majority of the outstanding
capital stock, or, if it be a non-stock corporation, on
the written demand of a majority of the members
entitled to vote. Should the secretary fail or refuse to
call the special meeting upon such demand or fail or
refuse to give the notice, or if there is no secretary, the
call for the meeting may be addressed directly to the
stockholders or members by any stockholder or
member of the corporation signing the demand. Notice
of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by
publication or by written notice prescribed in this
Code. Removal may be with or without cause:
Provided, that removal without cause may not be used
to deprive minority stockholders or members of the
right of representation to which they may be entitled
under Section 24 of this Code.
Textually, only the President and the Board of Directors are
authorized by the by-laws to call a special meeting.  In
cases where the person authorized to call a meeting refuses,
fails or neglects to call a meeting, then the stockholders
representing at least 100 shares, upon written request, may
file a petition to call a special stockholder’s meeting.
In the instant case, there is no dispute that the 17 December
1997 Special Stockholders’ Meeting was called neither by
the President nor by the Board of Directors but by the
MSCOC.  While the MSCOC, as its name suggests, is
created for the purpose of overseeing the affairs of the
corporation, nowhere in the by-laws does it state that it is
authorized to exercise corporate powers, such as the power
to call a special meeting, solely vested by law and the MSC
by-laws on the President or the Board of Directors.
The board of directors is the directing and controlling
body of the corporation.  It is a creation of the stockholders
corporation from them.  The board of directors, in drawing
to itself the power of the corporation, occupies a position of
trusteeship in relation to the stockholders, in the sense that
the board should exercise not only care and diligence, but
utmost good faith in the management of the corporate
affairs.
The underlying policy of the Corporation Code is that the
business and affairs of a corporation must be governed by a
board of directors whose members have stood for election,
and who have actually been elected by the stockholders, on
an annual basis.  The shareholder vote is critical to the
theory that legitimizes the exercise of power by the
directors or officers over the properties that they do not
own.
SEC. 23. The Board of Directors or Trustees. –
Unless otherwise provided in this Code, the corporate
powers of all the 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 and trustees x x x.
A corporation’s board of directors is understood to be
that body which (1) exercises all powers provided for under
the Corporation Code; (2) conducts all business of the
corporation; and (3) controls and holds all the property of
the corporation.  Its members have been characterized as Whenever, for any cause, there is no person
trustees or directors clothed with fiduciary character. authorized to call a meeting, the Securities and
Exchange Commission, upon petition of a
It is ineluctably clear that the fiduciary relation is between stockholder or member, and on a showing of good
the stockholders and the board of directors and who are cause therefore, may issue an order to the petitioning
vested with the power to manage the affairs of the stockholder or member directing him to call a
corporation.  Equity recognizes that stockholders are the meeting of the corporation by giving proper notice
proprietors of the corporate interests and are ultimately the required by this Code or by the by-laws.  The
only beneficiaries thereof. Should the board fail to perform petitioning stockholder or member shall preside
thereat until at least majority of the stockholders or
its fiduciary duty to safeguard the interest of the
members present have chosen one of their member[s]
stockholders or commit acts prejudicial to their interest, the
as presiding officer.
law and the by-laws provide mechanisms to remove and
replace the erring director.
2. NO.
It is apt to recall that illegal acts of a corporation which
contemplate the doing of an act which is contrary to law,
The subsequent Annual Stockholders’ Meeting held on 20
morals or public order, or contravenes some rules of public
April 1998, 19 April 1999 and 17 April 2000 are valid and
policy or public duty, are, like similar transactions between
binding except the ratification of the removal of the Bernas
individuals, void. The same principle can apply in the
Group and the sale of Bernas’ shares at the public auction
present case. The void election of 17 December 1997
effected by the body during the said meetings.  The
cannot be ratified by the subsequent Annual Stockholders’
expulsion of the Bernas Group and the subsequent auction
Meeting.
of Bernas’ shares are void from the very beginning and
therefore the ratifications effected during the subsequent
A distinction should be made between corporate acts or
meetings cannot be sustained.  A void act cannot be the
contracts which are illegal and those which are
subject of ratification.
merely ultra vires.  The former contemplates the doing of
an act which are contrary to law, morals or public policy or
The 19 April 1999 Annual Stockholders Meeting is
public duty, and are, like similar transactions between
likewise valid because in addition to the fact that it was
individuals, void.  They cannot serve as basis of a court
conducted in accordance to Section 8 of the MSC bylaws,
action nor acquire validity by performance, ratification or
such meeting was supervised by the SEC in the exercise of
estoppel.  Mere ultra vires acts, on the other hand, or those
its regulatory and administrative powers to implement the
which are not illegal or void ab initio, but are not merely
Corporation Code.
within the scope of the articles of incorporation, are merely
voidable and may become binding and enforceable when
Needless to say, the conduct of SEC supervised Annual
ratified by the stockholders. The 17 December 1997
Stockholders Meeting gave rise to the presumption that the
Meeting belongs to the category of the latter, that is, it is
corporate officers who won the election were duly elected
void ab initio and cannot be validated.
to their positions and therefore can be rightfully considered
as de jure officers.  As de jure officials, they can lawfully
Consequently, such Special Stockholders’ Meeting called
exercise functions and legally perform such acts that are
by the Oversight Committee cannot have any legal
within the scope of the business of the corporation except
effect.  The Cinco Group cannot invoke the application
ratification of actions that are deemed void from the
of de facto officership doctrine to justify the actions taken
beginning.
after the invalid election since the operation of the principle
is limited to third persons who were originally not part of
Considering that a new set of officers were already duly
the corporation but became such by reason of voting of
elected in 1998 and 1999 Annual Stockholders Meetings,
government- sequestered shares.
the Bernas Group cannot be permitted to use the holdover
principle as a shield to perpetuate in office.  Members of
Where there is an officer authorized to call a meeting and
the group had no right to continue as directors of the
that officer refuses, fails, or neglects to call a meeting, the
corporation unless reelected by the stockholders in a
SEC can assume jurisdiction and issue an order to the
meeting called for that purpose every year. They had no
petitioning stockholder to call a meeting pursuant to its
right to hold-over brought about by the failure to perform
regulatory and administrative powers to implement the
the duty incumbent upon them.
Corporation Code. This is clearly provided for by Section
50 of the Corporation Code

Sec. 50.  Regular and special meetings of stockholders or

members. – x x x