CORPORATION LAW CASES

1. Valle Verde Country Club vs. Africa (GR. No. 151969, September 4, 2009)

FACTS:
 During the Annual Stockholders' Meeting of Valle Verde Country Club Inc. (VVCC)
on February 27, 1996, nine people were elected as members of the VVCC Board of
Directors namely, Ernesto Villaluna, Jaime C. Dinglasan , Eduardo
Makalintal, Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato
Dee, Augusto Sunico, and Ray Gamboa.  In the years 1997 to 2001, however, the
requisite quorum for the holding of the stockholders' meeting could not be obtained.
Consequently, the above-named directors continued to serve in the VVCC Board in a
hold-over capacity.

 Dinglasan resigned from his position as member of the VVCC Board and the
remaining directors, still constituting a quorum of VVCC's nine-member board,
elected Eric Roxas to fill in the vacancy. A year later, Makalintal also resigned as
member of the VVCC Board and was replaced by Jose Ramirez who was elected by
the remaining members.

 Respondent Africa questioned the election of Roxas and Ramirez as members

with the SEC and the Regional Trial Court. The SEC case questioning the validity of
Roxas' appointment while the RTC case questioning the validity of Ramirez'
appointment. Africa alleged that the election of Roxas was contrary to Section 29, in
relation to Section 23, of the Corporation Code of the Philippines which requires
vacancies in the board of directors or trustees other than by removal by the
stockholders or members or by expiration of term, may be filled by the vote of
at least a majority of the remaining directors or trustees, if still constituting a
quorum; otherwise, said vacancies must be filled by the stockholders in a
regular or special meeting called for that purpose. A director or trustee so
elected to fill a vacancy shall be elected only for the unexpired term of his
predecessor in office.

 Africa claimed that a year after Makalintal's election as member of the VVCC
Board in 1996, his term — as well as those of the other members of the VVCC Board
— should be considered to have already expired. Thus, according to Africa, the
resulting vacancy should have been filled by the stockholders in a regular or special
meeting called for that purpose, and not by the remaining members of the VVCC
Board, as was done in this case. He further contends that for the members to
exercise the authority to fill in vacancies in the board of directors, Section 29 requires,
among others, that there should be an unexpired term during which the successor-
member shall serve. Since Makalintal's term had already expired with the lapse of the
one-year term provided in Section 23, there is no more "unexpired term" during which
Ramirez could serve. EcHIDT

 The RTC ruled in favor of Africa and declared the election of Ramirez, as
Makalintal's replacement, as null and void. The SEC issued a similar ruling nullifying
 the election of Roxas as member of the VVCC Board, vice hold-over director
Dinglasan.

 Although VVCC manifested its intent to appeal from the SEC's ruling, no
petition was actually filed with the Court of Appeals; thus, the appellate court
considered the case closed and terminated and the SEC's ruling final and executory. 

 However, VVCC filed the present petition for review on certiorari to the Court to
assail the RTC's partial decision for being contrary to law and jurisprudence. It
alleged that a member's term shall be for one year and until his successor is
elected and qualified; otherwise stated, a member's term expires only when his
successor to the Board is elected and qualified. Thus, "until such time as [a
successor is] elected or qualified in an annual election where a quorum is
present", VVCC contends that "the term of [a member] of the board of
directors has yet not expired". As the vacancy in this case was caused by
Makalintal's resignation, not by the expiration of his term, VVCC insists that the
board rightfully appointed Ramirez to fill in the vacancy.

 VVCC cites the Court's ruling in the 1927 El Hogar 6 case which states: THAICD

Owing to the failure of a quorum at most of the general meetings
since the respondent has been in existence, it has been the practice of
the directors to fill in vacancies in the directorate by choosing suitable
persons from among the stockholders. 

ISSUES:
(1) Whether or not the holdover period is part of the term of office of a member of the board of
directors?
(2) Whether or not the remaining directors of the corporation's Board, still constituting a quorum,
can elect another director to fill in a vacancy caused by the resignation of a hold-over
director?

RULINGS:

(1) NO. The Supreme Court held that the holdover period is not part of the term of office of a
member of the board of directors. "Term" is defined as the time during which the officer
may claim to hold the office as of right, and fixes the interval after which the several
incumbents shall succeed one another. The term of office is not affected by the holdover.
It is fixed by statute and it does not change simply because the office may have become
vacant, nor because the incumbent holds over in office beyond the end of the term due to
the fact that a successor has not been elected and has failed to qualify.

Term is distinguished from tenure in that an officer’s "tenure" represents the term during
which the incumbent actually holds office. The tenure may be shorter (or, in case of
holdover, longer) than the term for reasons within or beyond the power of the incumbent.
 When Section 23 of the Corporation Code declares that "the board of directors…shall
hold office for one (1) year until their successors are elected and qualified," we construe
the provision to mean that the term of the members of the board of directors shall be only
for one year; their term expires one year after election to the office. The holdover period
– that time from the lapse of one year from a member’s election to the Board and
until his successor’s election and qualification – is not part of the director’s
original term of office, nor is it a new term; the holdover period, however,
constitutes part of his tenure. Corollary, when an incumbent member of the board of
directors continues to serve in a holdover capacity, it implies that the office has a fixed
term, which has expired, and the incumbent is holding the succeeding term.

(2) NO. The Supreme Court held that the term of office of Makalintal had already expired in
1997. With the expiration of Makalintal’s term of office, a vacancy resulted which, by the
terms of Section 29 of the Corporation Code, must be filled by the stockholders of VVCC
in a regular or special meeting called for the purpose. Makalintal’s term of office began in
1996 and expired in 1997, but, by virtue of the holdover doctrine in Section 23 of the
Corporation Code, he continued to hold office until his resignation on November 10, 1998.
This holdover period, however, is not to be considered as part of his term, which, as
declared, had already expired. His resignation as a holdover director did not change the
nature of the vacancy; the vacancy due to the expiration of Makalintal’s term had been
created long before his resignation.

While the Court in El Hogar approved of the practice of the directors to fill vacancies in
the directorate, we point out that this ruling was made before the present Corporation
Code was enacted and before its Section 29 limited the instances when the remaining
directors can fill in vacancies in the board.
The vacancy referred to in Section 29 contemplates a vacancy occurring within the
director’s term of office. When a vacancy is created by the expiration of a term, logically,
there is no more unexpired term to speak of. Hence, Section 29 declares that it shall be
the corporation’s stockholders who shall possess the authority to fill in a vacancy caused
by the expiration of a member’s term.
As correctly pointed out by the RTC, when remaining members of the VVCC Board
elected Ramirez to replace Makalintal, there was no more unexpired term to speak of, as
Makalintal’s one-year term had already expired. Pursuant to law, the authority to fill in the
vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the
remaining members of its board of directors.

||| 
2. Matling Industrial & Commercial Corp. vs Coros (GR. No. 157802, October 13, 2010)

FACTS:
In this appeal via petition for review on certiorari, the petitioners challenge the decision dated
September 13, 20021 and the resolution dated April 2, 2003, 2 both promulgated in C.A.-G.R. SP
No. 65714 entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros
and National Labor Relations Commission, whereby by the Court of Appeals (CA) sustained the
ruling of the National Labor Relations Commission (NLRC) to the effect that the LA had
jurisdiction because the respondent was not a corporate officer of petitioner Matling Industrial
and Commercial Corporation (Matling).
Antecedents

 Respondent Ricardo R. Coros was dismissed by petitioner Matling Industrial &

Commercial Corp. as its Vice President for Finance and Administration. Hence, Coros
filed a complaint for illegal suspension and illegal dismissal against Matling and some of
its corporate officers in the NLRC.

 Matling moved to dismiss the complaint, raising the ground, among others, that the
complaint pertained to the jurisdiction of the Securities and Exchange Commission
(SEC) due to the controversy being intra-corporate inasmuch as the respondent was a
member of Matling’s Board of Directors aside from being its Vice-President for Finance
and Administration prior to his termination.

 Corros opposed the petitioners’ motion to dismiss, insisting that his status as a member
of Matling’s Board of Directors was doubtful, considering that he had not been formally
elected as such; that he did not own a single share of stock in Matling, considering that
he had been made to sign in blank an undated indorsement of the certificate of stock he
had been given in 1992; that Matling had taken back and retained the certificate of stock
in its custody; and that even assuming that he had been a Director of Matling, he had
been removed as the Vice President for Finance and Administration, not as a Director.

 The LA granted Matling’s motion to dismiss. It ruled that Coros’ removal was a corporate
act of Matling as he was a corporate officer occupying the position of Vice President for
Finance and Administration and at the same time was a Member of the Board of
Directors of Matling. Hence, the case was under the jurisdiction of the SEC.

 Coros appealed to the NLRC which set aside the dismissal of the Labor Arbiter. It
concluded that the respondent’s complaint for illegal dismissal was properly cognizable
by the LA, not by the SEC, because he was not a corporate officer by virtue of his
position in Matling, albeit high ranking and managerial, not being among the positions
listed in Matling’s Constitution and By-Laws.

 Matling sought reconsideration, which was however denied. It then elevated the issue to
the CA by petition for certiorari. Nonetheless, the petition was dismissed by the CA. The
CA held that for a position to be considered as a corporate office, the position must, if
not listed in the by-laws, have been created by the corporation's board of directors, and
the occupant thereof appointed or elected by the same board of directors or
stockholders.

 Matling likewise filed a motion for reconsideration with the CA which was also denied.
Hence, the present petition.
ISSUES:

(1) Whether or not Coros’ position as Vice President for Finance and Administration was a
corporate office?

(2) Whether or not Coros’ status as director and stockholder automatically convert his dismissal
into an intra-corporate dispute?

RULINGS:

(1) NO. The Supreme Court agreed with Coros’ contention that Matling’s By-Laws did not list his
position as Vice President for Finance and Administration as one of the corporate offices;
that Matling listed only four corporate officers, namely: President, Executive Vice President,
Secretary, and Treasurer. It held that pursuant to Section 25 of the Corporation Code, a
position must be expressly mentioned in the By-Laws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling
provision is not enough to make a position a corporate office. The only officers of a
corporation were those given that character either by the Corporation Code or by the By-
Laws; the rest of the corporate officers could be considered only as employees or
subordinate officials.

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.

In this case, respondent was appointed vice president for nationwide expansion by Malonzo,
petitioner’'s general manager, not by the board of directors of petitioner. It was also Malonzo who
determined the compensation package of respondent. Thus, respondent was an employee, not a
"corporate officer." The CA was therefore correct in ruling that jurisdiction over the case was
properly with the NLRC, not the SEC (now the RTC).

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the
Board has no power to create other Offices without amending first the corporate By-
laws. However, the Board may create appointive positions other than the positions of
corporate Officers, but the persons occupying such positions are not considered as
corporate officers within the meaning of Section 25 of the Corporation Code and are not
empowered to exercise the functions of the corporate Officers, except those functions lawfully
delegated to them. Their functions and duties are to be determined by the Board of
Directors/Trustees.
(2) NO. Even though Coros might have become a stockholder of Matling in 1992, his promotion
to the position of Vice President for Finance and Administration in 1987 was by virtue of the
length of quality service he had rendered as an employee of Matling. His subsequent
acquisition of the status of Director/stockholder had no relation to his promotion. Besides, his
status of Director/stockholder was unaffected by his dismissal from employment as Vice
President for Finance and Administration.

The fact that the parties involved in the controversy are all stockholders or that the parties
involved are the stockholders and the corporation does not necessarily place the dispute
within the ambit of the jurisdiction of SEC. The better policy to be followed in determining
jurisdiction over a case should be to consider concurrent factors such as the status or
relationship of the parties or the nature of the question that is the subject of their controversy.
In the absence of any one of these factors, the SEC will not have jurisdiction. Furthermore, it
does not necessarily follow that every conflict between the corporation and its stockholders
would involve such corporate matters as only the SEC can resolve in the exercise of its
adjudicatory or quasi-judicial powers.29

The criteria for distinguishing between corporate officers who may be ousted from office at
will, on one hand, and ordinary corporate employees who may only be terminated for just
cause, on the other hand, do not depend on the nature of the services performed, but on the
manner of creation of the office. In the respondent’s case, he was supposedly at once an
employee, a stockholder, and a Director of Matling. The circumstances surrounding
his appointment to office must be fully considered to determine whether the dismissal
constituted an intra-corporate controversy or a labor termination dispute. We must also
consider whether his status as Director and stockholder had any relation at all to his
appointment and subsequent dismissal as Vice President for Finance and Administration.

3.) Cosare vs. Broadcom Asia (GR No. 201298, February 5, 2014)

FACTS:

 Raul C. Cosare was employed as a salesman by Arevalo, who was then in the business
of selling broadcast equipment needed by television networks and production houses.
When Arevalo created Broadcom Asia, Cosare was named as incorporator, having been
assigned 100 shares of stock with par value of ₱1.00 per share. Subsequently, he was
promoted to the position of Assistant Vice President for Sales and Head of the Technical
Coordination under Alex F. Abiog, the Vice President for Sales.

 Cosare then sent a confidential memo to Arevalo to inform him of the following
anomalies which were allegedly being committed by Abiog against the company: (a) he
failed to report to work on time, and would immediately leave the office on the pretext of
client visits; (b) he advised the clients of Broadcom to purchase camera units from its
competitors, and received commissions therefor; (c) he shared in the "under the-table
dealings" or "confidential commissions" which Broadcom extended to its clients’
personnel and engineers; and (d) he expressed his complaints and disgust over
 Broadcom’s uncompetitive salaries and wages and delay in the payment of other
benefits, even in the presence of office staff.

 Apparently, Arevalo failed to act on Cosare’s accusations. Cosare claimed that he was
instead called for a meeting by Arevalo wherein he was asked to tender his resignation
in exchange for "financial assistance" which he refused to comply.

 Thereafter, Cosare received from Broadcom’s Manager for Finance and Administration,
a memo signed by Arevalo, charging him of serious misconduct and willful breach of
trust, Eventually, Cosare was totally barred from entering the company premises. He
attempted to furnish the company with a Memo by which he addressed and denied the
accusations but respondents allegedly refused to receive the memo on the ground of
late filing. Hence, Cosare filed a complaint for constructive dismissal, illegal suspension
and monetary claims with the NLRC against Broadcom Asia and Dante Arevalo.

 Broadcom Asia and Arevalo argued that Cosare was neither illegally suspended nor
dismissed from employment. They also contended that Cosare committed the following
acts inimical to the interests of Broadcom: (a) he failed to sell any broadcast equipment
since the year 2007; (b) he attempted to sell a Panasonic HMC 150 Camera which was
to be sourced from a competitor; and (c) he made an unauthorized request in
Broadcom’s name for its principal, Panasonic USA, to issue an invitation for Cosare’s
friend, one Alex Paredes, to attend the National Association of Broadcasters’
Conference in Las Vegas, USA.16 Furthermore, they contended that Cosare abandoned
his job by continually failing to report for work beginning April 1, 2009, prompting them to
issue on April 14, 2009 a memorandum18 accusing Cosare of absence without leave
beginning April 1, 2009.

 The Labor Arbiter dismissed the complaint on the ground of Cosare’s failure to establish
that he was dismissed, constructively or otherwise, from his employment. It was also
held that Cosare failed to substantiate by documentary evidence his allegations of illegal
suspension and non-payment of allowances and commissions.

 Cosare then appealed the LA decision to the NLRC which reversed the decision of the
Labor Arbiter. The NLRC explained that "due weight and credence is accorded to
[Cosare’s] contention that he was constructively dismissed by Respondent Arevalo when
he was asked to resign from his employment."23 The fact that Cosare was suspended
from using the assets of Broadcom was also inconsistent with the respondents’ claim
that Cosare opted to abandon his employment.

 The respondents then filed a motion for reconsideration which was denied. Hence, they
filed a petition for certiorari with the CA which was granted. The CA agreed with the
respondents’ contention that the case involved an intra-corporate controversy which was
within the exclusive jurisdiction of the RTC. It reasoned that Cosare was indeed a
stockholder of Broadcom, and that he was listed as one of its directors. Moreover, he
held the position of [AVP] for Sales which is listed as a corporate office. Thus, the CA
reversed the NLRC decision and resolution, and then entered a new one dismissing the
labor complaint on the ground of lack of jurisdiction.

 Cosare filed a motion for reconsideration which was denied by the CA. Hence, this
petition.
ISSUES:

(1) Whether or not the case instituted by Cosare was an intra-corporate dispute that was within
the original jurisdiction of the RTC?

(2) Whether or not Cosare was constructively and illegally dismissed from employment by the
respondents.

RULINGS:

(1) NO. The Supreme Court held that it is the LA, and not the regular courts, which has the
original jurisdiction over the subject controversy. An intra-corporate controversy, which falls
within the jurisdiction of regular courts, has been regarded in its broad sense to pertain to
disputes that involve any of the following relationships: (1) between the corporation, partnership
or association and the public; (2) between the corporation, partnership or association and the
state in so far as its franchise, permit or license to operate is concerned; (3) between the
corporation, partnership or association and its stockholders, partners, members or officers; and
(4) among the stockholders, partners or associates, themselves.

 Settled jurisprudence, however, qualifies that when the dispute involves a charge of illegal
dismissal, the action may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule,
falls termination disputes and claims for damages arising from employer-employee relations as
provided in Article 217 of the Labor Code. Consistent with this jurisprudence, the mere fact that
Cosare was a stockholder and an officer of Broadcom at the time the subject controversy
developed failed to necessarily make the case an intra-corporate dispute.

The LA had the original jurisdiction over the complaint for illegal dismissal because Cosare,
although an officer of Broadcom for being its AVP for Sales, was not a "corporate officer" as the
term is defined by law. 

There are two circumstances which must concur in order for an individual to be considered a
corporate officer, as against an ordinary employee or officer, namely: (1) the creation of the
position is under the corporation’s charter or by-laws; and (2) the election of the officer is by the
directors or stockholders. It is only when the officer claiming to have been illegally dismissed is
classified as such corporate officer that the issue is deemed an intra-corporate dispute which
falls within the jurisdiction of the trial courts.

In the case, the only officers who are specifically listed, and thus with offices that are created
under Broadcom’s by-laws are the following: the President, Vice-President, Treasurer and
Secretary. Although a blanket authority provides for the Board’s appointment of such other
officers as it may deem necessary and proper, the respondents failed to sufficiently establish
that the position of AVP for Sales was created by virtue of an act of Broadcom’s board, and that
Cosare was specifically elected or appointed to such position by the directors. No board
resolutions to establish such facts form part of the case records.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the case’s filing
did not necessarily make the action an intra- corporate controversy. "Not all conflicts between
the stockholders and the corporation are classified as intra-corporate. There are other facts to
consider in determining whether the dispute involves corporate matters as to consider them as
intra-corporate controversies."42 Time and again, the Court has ruled that in determining the
existence of an intra-corporate dispute, the status or relationship of the parties and the nature of
the question that is the subject of the controversy must be taken into account. 43 Considering that
the pending dispute particularly relates to Cosare’s rights and obligations as a regular officer of
Broadcom, instead of as a stockholder of the corporation, the controversy cannot be deemed
intra-corporate.

(2) YES. The Court held that Cosare had been illegally dismissed from employment. It agreed
with Cosare’s claim of constructive and illegal dismissal. In the case, Cosare was subjected to
mental torture, having been locked out of his files and records and disallowed use of his office
computer and access to personal belongings. He was likewise prohibited from entering the
company’s premises and was asked to tender his resignation by Arevalo. It is clear from the
cited circumstances that the respondents already rejected Cosare’s continued involvement with
the company. Even their refusal to accept the explanation which Cosare tried to tender further
evidenced the resolve to deny Cosare of the opportunity to be heard prior to any decision on the
termination of his employment. 

In sum, the respondents were already resolute on a severance of their working relationship with
Cosare, notwithstanding the facts which could have been established by his explanations and
the respondents’ full investigation on the matter. In addition to this, the fact that no further
investigation and final disposition appeared to have been made by the respondents on Cosare’s
case only negated the claim that they actually intended to first look into the matter before
making a final determination as to the guilt or innocence of their employee. This also manifested
from the fact that even before Cosare was required to present his side on the charges of serious
misconduct and willful breach of trust, he was summoned to Arevalo’s office and was asked to
tender his immediate resignation in exchange for financial assistance.

4.) Gokongwei, Jr. vs SEC

FACTS:

 Petitioner John Gokongwei, Jr., as stockholder of respondent San Miguel Corporation,

filed with the Securities and Exchange Commission (SEC) a petition for “declaration of
nullity of amended by-laws, cancellation of certificate of filing of amended by-laws,
injunction and damages with prayer for a preliminary injunction” against the majority of
the members of the Board of Directors and San Miguel Corporation as an unwilling
 petitioner. He also wanted to inspect records and documents of SMC but the request
was denied because the request was said to have been made in bad faith.

 In their Answer, respondents denied the substantial allegations therein and stating by
way of affirmative defenses that “the action taken by the Board of Directors resulting in
the amendments is valid and legal because the power to amend, modify, repeal or adopt
new By-Laws is delegated to said Board and long prior thereto has never been revoked,
withdrawn or otherwise nullified by the stockholders of SMC. They also averred that the
power of the Board to amend the by-laws are broad, subject only to existing laws.

 In August 1972, the Universal Robina Corporation (URC) began acquiring shares. The
Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent
corporation. Respondents alleged that petitioner Gokongwei, who is president both in
URC and CFC purchased shares of stock of respondent corporation, and thereafter, in
behalf of himself, CFC and URC, “conducted malevolent and malicious publicity
campaign against SMC” to generate support from the stockholder “in his effort to secure
for himself and in representation of URC and CFC interests, a seat in the BODs of
SMC.” Respondents averred that petitioner was rejected by the stockholders in his bid to
secure a seat in the BODs on the basic issue that petitioner was engaged in a
competitive business and his securing a seat would have subjected respondent
corporation to grave disadvantages.

 The Supreme Court then issued a TRO restraining private respondents from
disqualifying or preventing petitioner from running or from being voted as director of
respondent corporation and from submitting for ratification or confirmation or from
causing the ratification or confirmation of the amendment. The SEC held that petitioner
should be allowed to run as a director but that he should not sit as such until SEC has
decided on the validity of the by-laws in dispute.

 Respondents reasoned out that petitioner is engaged in businesses competitive and

antagonistic to that of respondent SMC and that the Board realized the clear and present
danger in competitors being directors because they would have easy and direct access
to SMCs business and trade secrets. They alleged that the disputed amended by laws
were adopted by the Board of Directors of San Miguel Corporation as a measure of self-
defense to protect the corporation from the clear and present danger that the election of
a business competitor to the Board may cause upon the corporation and the other
stockholders inseparable prejudice.

 Meanwhile, petitioner argued that that the amended by-laws are invalid and
unreasonable because they were tailored to suppress the minority and prevent them
from having representation in the Board”, at the same time depriving petitioner of his
“vested right” to be voted for and to vote for a person of his choice as director.

ISSUE: Whether or not respondent San Miguel Corporation could, as a measure of self-
protection, disqualify a competitor from nomination and election to its Board of Directors?
RULING:

YES. The Supreme Court held that an amendment to the corporation by-law which renders a
stockholder ineligible to be director, if he be also director in a corporation whose business is in
competition with that of the other corporation, has been sustained as valid.

It is a settled state law in the United States, according to Fletcher, that corporations have the
power to make by-laws declaring a person employed in the service of a rival company to be
ineligible for the corporation's Board of Directors. ... (A)n amendment which renders ineligible,
or if elected, subjects to removal, a director if he be also a director in a corporation whose
business is in competition with or is antagonistic to the other corporation is valid." 24 This is
based upon the principle that where the director is so employed in the service of a rival
company, he cannot serve both, but must betray one or the other.

Thus, it has been held that an officer of a corporation cannot engage in a business in direct
competition with that of the corporation where he is a director by utilizing information he has
received as such officer, under "the established law that a director or officer of a corporation
may not enter into a competing enterprise which cripples or injures the business of the
corporation of which he is an officer or director. 

It is also well established that corporate officers "are not permitted to use their position of trust
and confidence to further their private interests."  In a case where directors of a corporation
cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after
establishing a rival business, the directors entered into a new contract themselves with the
foreign firm for exclusive sale of its products, the court held that equity would regard the new
contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a
"faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. 

The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary
standards could not be upheld where the fiduciary was acting for two entities with competing
interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an
officer or director taking advantage of an opportunity for his own personal profit when the
interest of the corporation justly calls for protection. 

It is not denied that a member of the Board of Directors of the San Miguel Corporation has
access to sensitive and highly confidential information, such as: (a) marketing strategies and
pricing structure; (b) budget for expansion and diversification; (c) research and development;
and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other
firms.

It is obviously to prevent the creation of an opportunity for an officer or director of San

Miguel Corporation, who is also the officer or owner of a competing corporation, from
taking advantage of the information which he acquires as director to promote his
individual or corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made. Certainly, where
two corporations are competitive in a substantial sense, it would seem improbable, if not
impossible, for the director, if he were to discharge effectively his duty, to satisfy his
loyalty to both corporations and place the performance of his corporation duties above
his personal concerns.
The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage
of his position as director of San Miguel Corporation, he would absent himself from meetings at
which confidential matters would be discussed, would not detract from the validity and
reasonableness of the by-laws here involved. Apart from the impractical results that would
ensue from such arrangement, it would be inconsistent with petitioner's primary motive in
running for board membership — which is to protect his investments in San Miguel Corporation.
More important, such a proposed norm of conduct would be against all accepted principles
underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage
and enforce responsible corporate management. 

Indeed, access by a competitor to confidential information regarding marketing strategies and

pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage
and unjustly enrich the competitor, for advance knowledge by the competitor of the strategies
for the development of existing or new markets of existing or new products could enable said
competitor to utilize such knowledge to his advantage.

Furthermore, the Court held that the Constitution and the law prohibit combinations in restraint
of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The
State shall regulate or prohibit private monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be snowed." The election of
petitioner to the Board of respondent Corporation can bring about an illegal situation. This is
because an express agreement is not necessary for the existence of a combination or
conspiracy in restraint of trade. 40 It is enough that a concert of action is contemplated and that
the defendants conformed to the arrangements, 41 and what is to be considered is what the
parties actually did and not the words they used. 

There is here a statutory recognition of the anti-competitive dangers which may arise when an
individual simultaneously acts as a director of two or more competing corporations. A common
director of two or more competing corporations would have access to confidential sales, pricing
and marketing information and would be in a position to coordinate policies or to aid one
corporation at the expense of another, thereby stifling competition. 

Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture,
then the election of petitioner to the Board of SMC may constitute a violation of the prohibition
contained in section 13(5) of the Corporation Law. Said section provides in part that "any
stockholder of more than one corporation organized for the purpose of engaging in agriculture
may hold his stock in such corporations solely for investment and not for the purpose of bringing
about or attempting to bring about a combination to exercise control of incorporations ... ."

5.) Advance Paper Corp vs. Arma Traders Corp. (GR. No. 176897, Dec. 11, 2013)

FACTS:

 Petitioner Advance Paper is a domestic corporation engaged in the business of

producing and selling various paper products with George Haw as President and his
wife, Connie Haw as the General Manager. Meanwhile, respondent Arma Traders is also
a domestic corporation engaged in the wholesale and distribution of school and office
 supplies, and novelty products.6 Respondent Antonio Tan (Tan) was formerly the
President while respondent Uy Seng Kee Willy (Uy) is the Treasurer of Arma Traders.
They represented Arma Traders when dealing with its supplier, Advance Paper, for
about 14 years.

 On various dates from September to December 1994, Arma Traders purchased on credit
notebooks and other paper products amounting to ₱7,533,001.49 from Advance Paper. 
It also obtained three loans from Advance Paper in November 1994 for a total of
₱7,788,796.76. Arma Traders needed the loan to settle its obligations to other suppliers
because its own collectibles did not arrive on time. Because of its good business
relations with Arma Traders, Advance Paper extended the loans.

 As payment for the purchases on credit and the loan transactions, Arma Traders issued
82 postdated checks payable to cash or to Advance Paper. Tan and Uy were Arma
Traders’ authorized bank signatories who signed and issued these checks which had the
aggregate amount of ₱15,130,636.87.

 However, when Advance Paper presented the checks to the drawee bank, these were
dishonored either for "insufficiency of funds" or "account closed." Despite repeated
demands, however, Arma Traders failed to settle its account with Advance Paper.
Hence, the petitioners filed a complaint for collection of sum of money with application
for preliminary attachment against Arma Traders and its officers.

 The petitioners claimed that the respondents fraudulently issued the postdated checks
as payment for the purchases and loan transactions knowing that they did not have
sufficient funds with the drawee banks.

 Meanwhile, the respondents argued that the purchases on credit were spurious,

simulated and fraudulent since there was no delivery of the ₱7,000,000.00 worth of
notebooks and other paper products. As to the loan transactions, the respondents
countered that these were the personal obligations of Tan and Uy to Advance Paper.
These loans were never intended to benefit the respondents. They also claimed that the
loan transactions were ultra vires because the board of directors of Arma Traders did
not issue a board resolution authorizing Tan and Uy to obtain the loans from Advance
Paper. They claimed that the borrowing of money must be done only with the prior
approval of the board of directors because without the approval, the corporate officers
are acting in excess of their authority or ultra vires. 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. Further, the respondents claimed that Advance
Paper failed to verify Tan and Uy’s authority to transact business with them. Hence,
Advance Paper should suffer the consequences.

 The RTC ruled that the purchases on credit and loans were sufficiently proven by the
petitioners. Hence, the RTC ordered Arma Traders to pay Advance Paper the sum of
₱15,321,798.25 with interest. It held that the respondents failed to present hard,
admissible and credible evidence to prove that the sale invoices were forged or fictitious,
and that the loan transactions were personal obligations of Tan and Uy.

 Arma Traders then appealed the RTC decision to the CA. The CA set aside the RTC’S
order. It held that the petitioners failed to prove by preponderance of evidence the
 existence of the purchases on credit and loans. First, Arma Traders was not liable for
the loan in the absence of a board resolution authorizing Tan and Uy to obtain the loan
from Advance Paper. Second, the CA also held that the petitioners presented
incompetent and inadmissible evidence to prove the purchases on credit since the sales
invoices were hearsay.41 

 Hence, a Petition for Review seeking to set aside the Decision of the Court of Appeals
was filed by Advance Paper Corp. Petitioner argued that Arma Traders 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. It further alleged that Haw’s testimony is not hearsay. They emphasize that Haw
has personal knowledge of the assailed purchases and loan transactions because he
dealt with the customers, and supervised and directed the preparation of the sales
invoices and the deliveries of the goods.

ISSUE: Whether or not Arma Traders is liable to pay the loans applying the doctrine of
apparent authority?

RULING:

YES. The Supreme Court held that Arma Traders is liable to pay the loans on the basis of the
doctrine of apparent authority.

The doctrine of apparent authority provides that a corporation will be estopped 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.76 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 reasonable prudence. Moreover, the agent’s acts or conduct must have produced a
change of position to the third party’s detriment.

Under this provision [referring to Sec. 23 of the Corporation Code], the power and responsibility
to decide whether the corporation should enter into a contract that will bind the corporation is
lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of
law. However, just as a natural person who may authorize another to do certain acts for
and on his behalf, the board of directors may validly delegate some of its functions and
powers to officers, committees or agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate bylaws or authorization from the
board, either expressly or impliedly by habit, custom or acquiescence in the general
course of business, viz.:
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 person dealing with the officer or agent to believe that it has conferred.
[A]pparent 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, within or beyond the scope of his ordinary powers. It
requires presentation of evidence of similar act(s) executed either in its favor or in favor
of other parties. It is not the quantity of similar acts which establishes apparent authority,
but the vesting of a corporate officer with the power to bind the corporation. [emphases
and underscores ours]

"In the absence of a charter or bylaw provision to the contrary, the president is presumed to
have the authority to act within the domain of the general objectives of its business and within
the scope of his or her usual duties."

In the present petition, the Court did not agree with the CA’s findings that Arma Traders is not
liable to pay the loans due to the lack of board resolution authorizing Tan and Uy to obtain the
loans. Arma Traders’ Articles of Incorporation provides that the corporation may borrow or
raise money to meet the financial requirements of its business by the issuance of bonds,
promissory notes and other evidence of indebtedness. Likewise, it states that Tan and Uy are
not just ordinary corporate officers and authorized bank signatories because they are also Arma
Traders’ incorporators along with respondents Ng and Ting, and Pedro Chao. Furthermore,
the respondents, through Ng who is Arma Traders’ corporate secretary, incorporator,
stockholder and director, testified that the sole management of Arma Traders was left to Tan
and Uy and that he and the other officers never dealt with the business and management
of Arma Traders for 14 years. He also confirmed that since 1984 up to the filing of the
complaint against Arma Traders, its stockholders and board of directors never had its
meeting.

Thus, 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 board of directors.
Arma Traders failed to take precautions to prevent its own corporate officers from abusing their
powers. Because of its own laxity in its business dealings, Arma Traders is now estopped from
denying Tan and Uy’s authority to obtain loan from Advance Paper.